Secured Transactions

Question 1

Secured transaction

Answer 1

Transaction intended to create security interest in personal property or fixtures

Generally, involves sale on credit or loan in which seller obtains lien on some or all of debtor’s property as security for payment

Question 2

What law governs

Answer 2

Art 9 of Uniform Code

Question 3

Scope of Art 9

Answer 3

Even without express words, seller’s retention of title, agricultural liens, sales of accounts, chattel paper, payment intangibles, and notes, commercial consignment of goods, and secured sale disguised as lease

Question 4

Debtor

Answer 4

Person who owes payment or performance of obligation secured

Question 5

Creditor

Answer 5

Secured party: lender, seller, or other person in whose favor there is SI

Unsecured creditor: person who money is owed to where no SI

Question 6

Security agreement

Answer 6

K b/w debtor and secured party that creates SI

Question 7

SI

Answer 7

Interest in personal property or fixtures that secures payment or performance

Question 8

Default

Answer 8

Event causing SI to spring to life

Question 9

Collateral

Answer 9

Property subject to SI

Question 10

PMSI and types

Answer 10

Special subtype of SI in goods
1. Seller-financed: (a) secured party sells collateral on credit, and (b) retains SI in collateral
2. Financer-financed: (a) loan to purchase specific collateral, (b) loan used to acquire, and (c) creditor takes SI in collateral

Question 11

After-acquired

Answer 11

Grant of SI in property obtained in future

Question 12

Future advance

Answer 12

Grant of security agreement securing future loans with same collateral

Question 13

Attachment (define)

Answer 13

Steps necessary to create SI effective against debtor

Question 14

Perfection (define)

Answer 14

Steps necessary and legally required to create SI effective against world (generally, means notice)

Question 15

Financing statement

Answer 15

Document used to convey notice of SI

Question 16

Types of collateral

Answer 16

Classification is important b/c many Art. 9 provisions make legal distinctions based on type

Either goods, or intangible OR semi-intangible

Question 17

Goods categories

Answer 17

Tangible, movable personal property based on how collateral used by debtor

Consumer goods, equipment, farm products, or inventory

Question 18

Consumer goods

Answer 18

Used or bought for use for primarily personal, family, or household purposes

Question 19

Equipment

Answer 19

Good used or bought for use in business

Catch-all category if nothing else works

Question 20

Farm products

Answer 20

Crops, livestocks, or supplies used or produced in farming operations, OR products of crops or livestock in unmanufactured states if in possession of debtor engaged in farming operations

Question 21

Inventory

Answer 21

Goods held for sale or lease, goods to be furnished under service contracts, and materials used or consumed in business in short time

Question 22

Intangible or semi-intangible category

Answer 22

Category depends on nature of collateral rather than its use

Types include instruments, documents, chattel paper, investment property, accounts, deposit accounts, commercial tort claims, general intangibles

Question 23

Instrument

Answer 23

Checks, promissory notes, or drafts

Question 24

Documents

Answer 24

Represent rights to receive goods

Question 25

Chattel paper

Answer 25

Record(s) which evidence both monetary obligation, and security interest in lease of specific goods

Question 26

Investment property

Answer 26

Stocks or bonds

Question 27

Accounts

Answer 27

Rights to payment for property sold or services rendered

Question 28

Deposit accounts

Answer 28

Non-consumer bank deposit accounts and accounts that are claimed as proceeds of other collateral

Question 29

Commercial tort claims

Answer 29

Type of tort lawsuit

Question 30

General intangibles

Answer 30

Any personal property not coming w/i scope of other definitions such as patent and trademark rights, copyrights, and goodwill Default category, best example is intellectual rights

Question 31

Attachment reqs

Answer 31

To create SI 1. Security agreement 2. Value given, and 3. Debtor has rights in collateral

Question 32

Security agreement

Answer 32

1. Record showing intent to create SI, 2. Agreement authenticated by debtor, usually meaning signed with any intent to sign, and 3. Description of collateral that reasonably identifies it

Question 33

Agreement evidenced by

Answer 33

1. Creditor taking possession of collateral 2. Authenticated document, or 3. Creditor taking control of non-consumer deposit accounts, chattel paper, and investment property

Question 34

Value

Answer 34

Must be given and any consideration sufficient to support simple K = value Every debtor gives through promise to pay, so real Q is whether creditor gives

Question 35

Rights in collateral

Answer 35

Debtor must have rights in collateral which requires ownership or possessory rights

Question 36

Scope of SI

Answer 36

Includes future advances and after-acquired property W/O express intent for after-acquired, SI only reaches collateral that debtor had rights to at time of signing unless interest in inventory and/or accounts

Question 37

Methods of perfection

Answer 37

Secured party must perfect; this is done by attachment PLUS 1. Filing 2. Taking possession 3. Automatic perfection for PMSI 4. Control 5. Temporary perfection

Question 38

Automatic perfection

Answer 38

PMSI in consumer goods, not otherwise covered by title statute, like car/trucks, is perfected once it attaches Note, fixtures require fixture filing to obtain priority over interest in real property to which affixed

Question 39

Possession

Answer 39

SI in most types of collateral can be perfected simply by taking possession but this only applies to items that can be possessed (tangibles) Perfection only occurs during time of possession

Question 40

Control

Answer 40

SIs in investment property, non-consumer deposit accounts, and chattel paper Can only be perfected via control includes non-consumer deposit accounts, electronic chattel paper, and money To control: (a) maintaining account by bank, (b) account in secured’s name, (c) account from bank to creditor if fails

Question 41

Notation on car’s certificate of title

Answer 41

Only way to perfect car is notation on certificate of title issued by state Exception: SIs created by car dealers held in inventory are perfected by filing

Question 42

Filing

Answer 42

Secured party may obtain by filing financial statement, which must contain debtor’s name and address, secured’s name and address, and description of collateral

Question 43

Contents of financing statement

Answer 43

Debtor’s name, description of collateral, after-acquired property, real property-related statements, authorization of filing statement, and authenticated security agreement Debtor’s name is driver’s license name and how indexed; effect of error is fine if not seriously misleading

Question 44

Place of security agreement filing

Answer 44

With Secretary of State unless real estate, timber, minerals, and fixtures then county where mortgage is

Question 45

Temporary perfection

Answer 45

SIs in proceeds from original collateral is perfected automatically for 20 days If past 20 days, imperfect unless filing statement covers original, identifiable cash proceeds, SIs that would be perfected in same place; proceeds not purchased with cash

Question 46

Priorities

Answer 46

Determines which creditor is first in line to get paid of multiple for same collateral This depends on type of collateral involved and types of parties involved

Question 47

Perfected vs perfected

Answer 47

First to file or perfect; knowledge of prior unperfected does not matter

Question 48

Perfected vs unperfected

Answer 48

Perfected SI prevails

Question 49

Unperfected vs unperfected

Answer 49

First to attach has priority

Question 50

Secured creditor vs unsecured

Answer 50

Secured wins Be on look out for agreement that has given no value or rights in collateral

Question 51

Priority in PMSIs

Answer 51

Give superpriority subject to conditions 1. PMSI in inventory 2. PMSI in goods other than livestock or inventory 3. Conflicting PMSIs

Question 52

PMSI in inventory and livestock

Answer 52

If 1. Instruments, chattel paper, IDed cash, inventory or cash proceeds 2. Perfected at time debtor gets possession 3. Authenticated notice to other holders, and 4. Notice received within 5 years of debtor getting possession

Question 53

PMSI in goods other than inventory and livestock

Answer 53

If perfected w/i 20 days after debtor receives possession of collateral

Question 54

B/W conflicting PMSIs

Answer 54

Secured party who has PMSI as seller of collateral, OR first secured party to file or perfect

Question 55

Investment property

Answer 55

Control beats other methods of perfection and earlier beats later

Question 56

Deposit accounts

Answer 56

If control, takes super priority Best: co-owner Second: maintain account Worst: control agreement

Question 57

Secured party against buyer or other transferee

Answer 57

When buyer/lessee buys or leases something with SI on it, security stays UNLESS 1. Authorized sale 2. Buyer in ordinary course (good faith, no notice) from seller of those goods 3. Buyers not in ordinary course if unperfected 4. Consumer-to-consumer (no knowledge, without financing statement)

Question 58

Secured party vs judicial lien creditor or holder of possessory lien

Answer 58

Judgment lien holder wins IF arose before perfected

Question 59

PMSI exception

Answer 59

For PMSI, if secured party files w/i 20 days after debtor receives collateral, secured party has priority over judicial lien arising b/w attachment and filing

Question 60

Fixtures and its perfection

Answer 60

Goods permanently attached to real property Requires separate filing When SI has priority over all interests in real property, holder can remove upon default but if debtor not owner, must reimburse for cost to repair

Question 61

Priority of fixtures

Answer 61

1. Secured party vs subsequent real estate interest: SI in fixtures over real estate interest 2. Secured party vs prior real estate: first in time unless SI is in PMSI 3. Construction mortgage vs everyone else: construction wins

Question 62

Accessions

Answer 62

Collateral that does not lose identity when physically united with other goods E.g., hard drive, GPS, tires

Question 63

Accession priorities

Answer 63

General priority rules apply UNLESS SI in accession is subordinate to SI interest in whole and perfected by compliance with title statute