ST rule statements

Question 1

What is an “attached” security interest

Answer 1

A security interest that is enforceable against the debtor is said to have attached to that collateral

Question 2

Requirements for attachment

Answer 2

Attachment requires that value has been given by the secured party, the debtor has rights in the collateral, and the debtor has authenticated a security agreement that describes the collateral (or the secured party has possession or control of the collateral pursuant to the security agreement)

Question 3

What is inventory

Answer 3

Inventory includes goods, other than farm products, that are held for sale or lease

Question 4

Effect of perfection

Answer 4

Perfection of a security interest is generally necessary for the secured party to have rights in the collateral that are superior to any rights claimed by third parties

Question 5

How can a security interest in goods be perfected

Answer 5

A security interest in goods can be perfected by filing a financing statement

Question 6

A buyer of collateral and the earlier security interest

Answer 6

A buyer of collateral subject to a perfected security interest generally takes the collateral subject to that interest

Question 7

buyer in the ordinary course of business

Answer 7

A buyer in the ordinary course of business takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence

Question 8

BOCB requirements

Answer 8

A buyer in the ordinary course of business is a person who buys goods in the ordinary course of business, from a merchant who is in the business of selling goods of that kind, in good faith, and without knowledge that the sale violates the rights of another in the same goods.

Question 9

Who qualifies as a buyer

Answer 9

In order to qualify as a buyer, the purchaser must give new value, which in addition to paying cash for the goods includes purchasing the goods on credit

Question 10

what if a BOCB sells to another buyer

Answer 10

If a buyer obtains goods under the BOCB exception free of the security interest in the goods created by the buyer’s seller, the buyer may, in turn, sell the goods to a second buyer who also takes free from that security interest. That second buyer need not qualify as a BOCB

Question 11

PMSI in goods

Answer 11

A PMSI in goods exists when a secured party sold goods to the debtor, and the debtor incurs an obligation to pay the secured party all or part of the purchase price.

Question 12

When is a PMSI in consumer goods perfected

Answer 12

A PMSI in consumer goods is automatically perfected upon attachment

Question 13

What are consumer goods

Answer 13

Consumer goods are those goods acquired primarily for personal, family, or house hold purposes

Question 14

Consumer buyer of consumer goods and prior security interests

Answer 14

A consumer buyer of consumer goods takes free of a security interest, even if perfected, unless prior to the purchase the secured party filed a financing statement covering the goods.

Question 15

Who is a consumer buyer

Answer 15

A consumer buyer is a person who buys consumer goods for value, for his own personal, family, or household use, from a consumer seller without knowledge of the security interest

Question 16

When does a security interest in collateral attach

Answer 16

A security interest in collateral automatically attaches to identifiable proceeds.

Question 17

What is equipment?

Answer 17

Equipment is anything that is not consumer goods, farm products, or inventory

Question 18

Can a security interest attach to collateral the debtor acquires in the future?

Answer 18

A security interest can attach to colateral that a debtor acquires in the future

Question 19

Priority when there are two more more perfected secured parties with rights to the same collateral

Answer 19

When there are two or more perfected secured parties with rights to the same colalteral, the first to file or perfect its security interest has priority. If both are perfected, priority dates from the time of filing or perfection, whichever occurs first

Question 20

Priority when one of the security interests is a PMSI

Answer 20

A PMSI in goods other than inventory or livestock prevails over all other security interests in collateral, even if they were previously perfected, if the security interest is perfected when the debtor receives possession of the collateral or within 20 days.

Question 21

When may a transaction be categorized as a secured transaction, even though it appears to be a lease

Answer 21

The transaction may be categorized as a secured transaction if the lessee must pay consideration to the lessor for the right to possess and use the goods for the term of the lease, the payment obligation cannot be terminated by the lessee, and one of four conditions has been met, including when the lessee has the option to become the owner of the goods for no consideration or nominal consideration upon completion of the agreement

Question 22

Methods of perfection

Answer 22

A secured party can perfect a security interest by filing a financing statement, possessing the collateral, controlling the collateral, or perfecting automatically

Question 23

Requirements for a financing statement

Answer 23

A financing statement must contain the debtor’s name, the name of the secured party, and the collateral covered by the financing statement

Question 24

What if steps for perfection are taken prior to attachment?

Answer 24

If the necessary steps for perfection are taken prior to attachment, then the security interest is perfected upon attachment.

Question 25

General rule for a buyer of collateral subject to a perfected security interest

Answer 25

A buyer of collateral subject to a perfected security interest generally takes the collateral subject to that interest, unless the secured party has authorized the sale free of the security interest.

Question 26

Scope of article 9

Answer 26

Article 9 of the UCC applies to any transaction intended to create a security interest in personal property or fixtures.

Question 27

What is a security interest

Answer 27

A security interest gives a creditor the right to sell a debtor's property to satisfy a debt

Question 28

Enforcability of after acquired property clauses

Answer 28

After acquired property clauses may be included in security agreements and are generally enforceable, allowing the after acquired property to be secured in favor of the secured party.

Question 29

After acquired property clauses and consumer goods

Answer 29

After acquired property clauses do not apply to consumer goods unless the debtor acquires rights in them within 10 days after the secured party gives value.

Question 30

What constitutes a default

Answer 30

The parties may specifically define what constitutes a default. If left undefined, nonpayment generally constitutes a default

Question 31

Accounts

Answer 31

Accounts include the right to payment for goods sold, property licensed, or services rendered.

Question 32

Inventory

Answer 32

Inventory includes goods, other than farm products, that are held for sale or lease.

Question 33

Do goods held for repair count as inventory?

Answer 33

Inventory does not include goods that are being held by the debtor for repair.

Question 34

Inventory and raw materials

Answer 34

Inventory not only includes goods, other than farm materials, held for sale or lease, but also raw materials, works in process, or materials used or consumed in a business.

Question 35

Equipment

Answer 35

Equipment, a catchall class, consists of goods that are not consumer goods, farm products, or inventory

Question 36

What is a judicial lien creditor

Answer 36

A judicial lien creditor is a creditor who acquires a lien on the collateral by a judicial process, rather than by operation of law.

Question 37

Priority of judicial lien creditors

Answer 37

A judicial lien creditor takes the property subject to a perfected security interset, but generally has priority over an unperfected security interest

Question 38

Methods of perfecting a security interest

Answer 38

A security interest is perfected upon attachment and compliance with one of the methods of perfection: (i) filing a financing statement; (ii) taking possession of the collateral; (iii) exerting control over the collateral; or (iv) automatic perfection

Question 39

When is a security interest enforceable against a debtor

Answer 39

Under Article 9, for a security itnerest to be enforceable against a debtor, the interest must attach to the collateral.

Question 40

How does a security interest attach to proceeds

Answer 40

A security interest in collateral automatically attaches to identifiable proceeds

Question 41

What are proceeds

Answer 41

Proceeds include that which is acquired upon the sale, exchange, or other disposition of collateral.

Question 42

How is a security interest in proceeds perfected

Answer 42

If the security interest in the original collateral is perfected, a security interest in proceeds is temporarily perfected for 20 days from the time it attaches

Question 43

Same office rule

Answer 43

Under the same office rule, a perfected security interest in proceeds may continue indefinitely when (i) the filed financing statement covers the original collateral; (ii) the proceeds are collateral in which a security interest may be perfected by filing in the same office as the financing statement; and (iii) the proceeds are nto acquired with cash proceeds

Question 44

PMSI

Answer 44

A purchase money security interest (PMSI) arises when a creditor sells goods to a debtor on credit and retains a security interest in those goods, or the creditor advances funds, which are then used to purchase the goods and the creditor reserves a security interest in those goods

Question 45

When does a PMSI in inventory have priorty over other security interests

Answer 45

A PMSI in inventory has priority only if (i) the PMSI is perfected by the time the debtor receives possession of the collateral; and (ii) the purchase-money secured party sends an authenticated notification of the PMSI to the holder of any conflicting security interest before the debtor receives possession of the collateral.

Question 46

PMSI priority

Answer 46

A PMSI has priority over other security interests in the same goods, even if those security interests were previously perfected