secured transactions

Question 1

What is the key principle regarding Article 9?

Answer 1

Article 9 applies to all security interests in personal property, fixtures by contract, and lease agreements that are not true leases.

Even if the parties do not call the transaction a ‘security interest.’

Question 2

What are the four classifications of goods under Article 9?

Answer 2

1. Consumer goods: bought for personal, family, or household purposes.
2. Inventory: goods held for sale or lease, or used in business operations.
3. Equipment: goods used in business, not classified as inventory, farm products, or consumer goods.
4. Farm products: supplies produced in unmanufactured state in farming operations.

Question 3

What are the requirements for attachment of a security interest?

Answer 3

1. Value must be given by the secured party to the debtor.
2. The debtor must have rights in the collateral.
3. There must be a binding security agreement (AID: authentication, intent to create, description of collateral).

Question 4

What is after-acquired property?

Answer 4

Property obtained after taking on a debt; a security agreement can cover it without specific reference.

Question 5

How can perfection of a security interest occur?

Answer 5

Perfection can occur by filing a financing statement, automatically in some cases, or by possession or control, PMSI in consumer goods

Question 6

What is the priority rule when two secured parties have an interest in the same collateral?

Answer 6

The first to file or perfect has priority; if no party perfects, the first to attach has priority.

Question 7

What happens when a debtor sells collateral subject to a security interest?

Answer 7

A buyer in the ordinary course generally takes free of any security interest, while a buyer not in the ordinary course takes subject to a perfected interest.

Question 8

What is the exception for consumer to consumer goods?

Answer 8

A buyer not in the ordinary course takes free of a security interest if they buy without knowledge of it, for value, and for personal use, unless a financing statement was filed.

Question 9

What is the priority rule when a lien creditor is involved?

Answer 9

Priority belongs to the secured party if perfected before the lien arises; otherwise, the lien creditor has priority.

Question 10

What are the steps a secured creditor takes to foreclose on collateral?

Answer 10

1. Default: lender can demand payment or reclaim goods without breaching peace.
2. Resale: secured party may sell collateral commercially reasonably, discharging the security interest.

Question 11

What are the debtor’s means of protection during a sale?

Answer 11

1. Sale must be commercially reasonable.
2. Debtor must receive written notification of the sale.

Question 12

What are the remedies if a secured party fails to comply with requirements?

Answer 12

1. Damages (including statutory damages for consumer goods).set amount of monetary compensation a consumer can recover from a company if they violate consumer protection laws
2. Court may order a sale.
3. Rebuttable presumption of collateral value in nonconsumer transactions.

Question 13

What is the debtor’s right to redeem?

Answer 13

The debtor can redeem prior to the disposition of the collateral by paying everything due to the creditor.

Question 14

A secured party may obtain perfection by filing a financing
statement and must contain

Answer 14

(1) name and address of Debtor;
(2) name and address of Secured Party;
(3) description of collateral, and
(4) Debtor authorization (authorize in an authenticated record – AKA the financing statement or the SA – before or after it’s filed);
(5)if it covers real property-related collateral,
A. a description of the land,
B. name of the record owner and
C. indication that it is to be filed in the
real property records.