Secured Transactions

Question 1

How does a creditor establish rights against the debtor?

Answer 1

By attachment

July 2020, July 2010

Question 2

What is needed for attachment?

Answer 2

(1) Parties must agree that the security interest attach–evidenced by:
* Authenticated security agreement describing collateral or the creditor’s possession/control of collateral (look for a security agreement that is EXECUTED)
* Creditor takes possession of collateral
* Creditor takes control of nonconsumer deposit accounts, electronic chattel paper, or investment property

(2) Value must be given by secured party
(3) Debtor must have rights (e.g., ownership) in the collateral

July 2020, July 2010

Question 3

What is needed to establish the secured party’s rights to the callateral as against third parties?

Answer 3

That the interest be perfected

July 2020, July 2010

Question 4

What are the methods of perfection?

Answer 4

(1) FILING
(2) Taking possession of collateral
(3) Control
(4) Auomatic Perfection
(5) Temporary Perfection

Question 5

Where is automatic perfection applicable?

Answer 5

ONLY a PMSI in consumer goods

Question 6

What is the only way to perfect for motor vehicles?

Answer 6

Notation on the certificate of title issued by the state (unless dealer where held in inventory)
* Specifically exempted from filing a financing statement

Feb 2018

Question 7

What may a secured party file to obtain perfection and what must it contain?

Answer 7

A financing statement with VA SCC containing:
1. The debtor’s name and mailing address
2. The secured party’s name and mailing address
3. A description of the collateral covered by the financing statement

July 2020, July 2010

Question 8

Where is the place of filing appropriate?

Answer 8

With the VA State Corporation Commission
* Exception for timber to be cut, minerals and fixtures, where filing is in the county where a mortgage on real estate is filed or recorded

July 2020, July 2010

Question 9

In general, where two parties have perfected security interests in the same property, who gets priority?

Answer 9

Either first to file OR first to perfect

Feb 2022

Question 10

What is the effect of after acquired collateral clauses in Virginia?

Answer 10

They are generally valid and effective

Feb 2022

Question 11

How is a PMSI in equipment perfected?

Answer 11

By filing at any time within 20 days after the debtor gets possession

Feb 2022

Question 12

How is a PMSI in inventory perfected?

Answer 12

Must: (1) have perfected interest at the time the debtor gets possession of the inventory (i.e., by filing) AND
(2) Send written notice to other security holders

Feb 2022

Question 13

What is the effect of an after-acquired property clause with respect to consumer goods?

Answer 13

Does not attach unless the debtor acquires rights in them within ten days after the secured party gives value

Feb 2022

Question 14

What is the rule for authorized sales of collateral?

Answer 14

If sale or lease is authorized by the secured party free of the security interest, transferee takes free of security interest (UNLIKELY)

Question 15

What is the rule for unauthorized sales of collateral?

Answer 15

(1) A buyer in the ordinary course of business takes free of nonpossessory security interest in the goods created by the buyer’s seller even though the security interest is perfected and even though the buyer knows of security interest

(2) A buyer not in ordinary course of business: (a) takes subject to perfected security interests AND (b) takes free from unperfected security interests unless they know of the security interest when they give value or take delivery
* Become “debtors” and the secured party has right to repossess under Article 9

Feb 2022

Question 16

What is a buyer in the ordinary course of business?

Answer 16

One who buys goods: (1) in good faith (2) without knowledge that the sale violates the rights of another person in the goods, and (3) in the ordinary course of business from a seller in the business of selling goods of the kind purchased

Feb 2022

Question 17

What is the “garage sale rule?”

Answer 17

Provides that a consumer purchaser who buys consumer goods from another consumer takes free of perfected security interest if he buys the goods without knowledge of the security interest and before a financing statement covering the goods has been filed

Question 18

What is an “agricultural lien” and how is it perfected?

Answer 18

A nonpossessory lien on farm products in favor of persons providing goods, services, or rental land to farmers
* Must file a financing statement as required by UCC

Feb 2015

Question 19

When collateral is repossessed, how may a party redeem the collateral?

Answer 19

Only by tendering the entire balance due on the loan plus expenses of repossession (not just arrearages)
* Timing of notice of sale by repossessing creditor must be reasonable (at least 10 days)

Feb 2015

Question 20

Where a repossessing creditor fails to give notice, what are the debtor’s remedies under Article 9?

Answer 20

They may recover actual damages

July 2016

Question 21

What is the standard of a foreclosure sale of collateral?

Answer 21

It must be commercially reasonable
* This includes reasonable notice (at least 10 days)

July 2016

Question 22

When a creditor repossesses property from a debtor, what must they not do?

Answer 22

They may engage in “self-help” if it can be done without a breach of the peace (i.e., any conduct that has the potential to lead to violence–physical presence + objection sufficient to create breach of peace)
* If there is a breach of the peace, secured party loses authorization to repossess, may be sued for conversion, and is liable for actual damages

July 2016

Question 23

What is a mechanic’s lien in personal property?

Answer 23

A lien for “just and reasonable” charges for alterations or repairs to a piece of personal property

July 2020

Question 24

When does a mechanic obtain a possessory lien?

Answer 24

When he is not paid for making requested repairs to personal property

July 2020

Question 25

For how much can the lien be asserted and when does the lien take priority over perfected security interests?

Answer 25

$1,000 and takes priority if repair was made in the ordinary course of business and property remains in their possession

July 2020