Secured Transactions

Question 1

When does a security interest attach; or become legally enforceable?

Answer 1

P.I.G
All 3 s/b satisfied
Possession: Debtor must own the rights.
Interest security created: Signed security agreement OR take possession
Give Value: Secured interest must be supported by consideration given

Question 2

What are the characteristics of perfection of interest in a secured transaction?

Answer 2

Gets higher priority over others claiming rights to collateral after the perfection takes place

Attachment must take place BEFORE perfection

Question 3

How does perfection occur in a secured transaction?

Answer 3

F.A.T.
File financing agreement at UCC dept
Automatic perfection: a PMSI in consumer goods. To close loophole, attach by filing financing statement w/in 20 days.
Take possession of collateral

Question 4

When does automatic perfection occur in a secured transaction?

Answer 4

PMSI: if seller gives purchase money security interest, they automatic perfection and more rights.

Store sells a consumer good on credit - Store retains security interest

A bank finances the purchase of a consumer good - Bank retains security interest

Question 5

What are the priority rules for payment in a secured transaction?

Answer 5

If two parties are perfected; then the first one to file wins

If neither party is perfected; then the first one to attach wins

Question 6

What are the advantages of a creditor holding a lien in a secured transaction?

Answer 6

Creditor holds priority over claims to collateral vs. unperfected security interests

Beats perfected security interests filed after lien attachment

Exceptions: Purchase money security interest; which has a 10 day grace period to be filed

Buyers purchasing in the ordinary course of business are immune from security interests held by merchants