Secured Transactions

Question 1

UCC Article 9

Answer 1

Applies to any transaction that creates a security interest in personal property or fixtures by contract or the sale of accounts receivable, chattel paper, negotiable instruments and payment intangibles.

Doesn’t apply to landlord liens or an interest in or lien on real property

Question 2

Security Interest

Answer 2

Created by a written security agreement or the secured party’s taking possession of the collateral with intent to secure debt, plus attachment.

Question 3

Writing Must Include

Answer 3

1. a granting clause
2. description of collateral
3. be authenticated by debtor

Question 4

Attachment

Answer 4

Once a security interest has attached, the secured party has all of the enforcement rights provided by article 9, including right to repossess. The security interest attaches when the secured party gives value.

Question 5

Purchase Money Interest

Answer 5

Security interest must be in goods that are given as collateral for an obligation the debtor incurred for the purchase of the goods and actually used to purchase the goods

Question 6

Perfection

Answer 6

The process by which the secured party give notice to the entire world of its security interest. A secured party usually perfects by filing or taking possession or control of the collateral

Question 7

Filing

Answer 7

Can be done:

1. in the clerk of the superior court’s office of any county in GA
2. when the collateral consists of fixtures or growing crops, in the office of the county clerk in the county where the land is located OR
3. when perfecting by filing a financial statement, the security interest is perfected only if the financing statement is filed in the correct office in the correct state (i.e. debtors state or incorporation or place of business or chief executive office’s location or debtor’s principal residence)

Question 8

Possession

Answer 8

Only possible when collateral is tangible. If the collateral is in the hands of a person other than the debtor, secured party, or lessee, then the person take possession of the collateral when he authenticated a record acknowledging that it holds possession or authenticating a record acknowledging that it will hold possession of collateral for the secured party’s benefit.

Question 9

Control of Investment Securities

Answer 9

A person has control of a certificated security in bearer form if they have possession of the security.

A person has control of a certificated security in registered for if they possess the security and the certificate is endorsed to the purchaser or registered in its name.

A person has control of an uncertificated security if he has possession of the security or the issuer agrees that it will comply with instructions from that person.

Question 10

Control of Letter of Credit Rights

Answer 10

The issuer has consented to an assignment of proceeds of the letter of credit

Question 11

Control of Deposit Accounts

Answer 11

1. the secure party is the bank with which the deposit account is maintained and
2. the debtor and the bank ave agreed in an authenticated that the bank follows the secured party’s instructions directing the disposition of the funds in the deposit account without further consent by the debtor.

Question 12

Control of Electronic Chattel Paper

Answer 12

The record comprising the chattel paper are created, stored, and assigned so that a single authoritative copy that is unique, identifiable, and unalterable is communicated to and maintained by the secured party

Question 13

Automatic Perfection

Answer 13

1. a purchase money security interest in consumer goods
2. the sale of a promissory note or payment intangible
3. a security interest created by assigning a health care insurance receivable to the provider of the health care goods and services

Question 14

Automatic Permanent Perfection

Answer 14

1. security interest in purchase money security interest in consumer goods
2. the sale of a payment intangible or promissory note
3. assignment of accounts or payment intangibles that does not by itself or in conjunction with other assignments to the same assignee transfer a significant part of the assignor’s outstanding accounts or payment intangibles
4. a security interest in investment property created by a broker or securities intermediary or in a commodity contract or commodity account created by a commodity intermediary.

Question 15

Automatic Temporary Perfection

Answer 15

Applies to proceeds, certified securities, negotiable docs, or instruments. Lasts for 20 days after attachment.

Question 16

Financing Statement Must Include

Answer 16

1. name of debtor
2. name of the secured party
3. a description of the collateral covered by the statement (must provide a description of the collateral that reasonably identifies what is described or an indication that the financing statement covers all assets or personal property)
4. In GA, if the collateral is consumer goods and the amount of the obligation is over $5,000 or less the financing statement must (a) state the maturity date of the obligation OR (b) specify that such obligation is not subject to a maturity date

Question 17

Authorization

Answer 17

A financing statement must be authorized by the debtor. A security agreement is authorized for the financing statement whether it says so or not.

Question 18

Fixture Filing or Filing Related to Growing Crops

Answer 18

Must:

1. be filed in the county real estate records office where deed and mortgage info is
2. contain all of the info required in a financing statement
3. indicate that it covers fixtures or growing crops
4. indicate that it is to be filed in the real property records
5. provide a description of the real property to which the fixture/crops are related
6. if the debtor doesn’t have an interest of record in the real property, provide the real home of the record owner

Question 19

Errors in Filing

Answer 19

Errors render the financing statement ineffective and it doesn’t perfect a security interest.

Minor errors will not make the financing statement ineffective, unless the errors make it seriously misleading (i.e. failing to sufficiently provide debtor’s name, but misspelling ok)

Question 20

Timing

Answer 20

A financing statement may be field before a security agreement is made or a security interest attaches

Question 21

Changes to a Financing Statement

Answer 21

Financing statement is effective even if the collateral is sold, exchanged, leased, or otherwise disposed of.

If debtor moves to another state, the secured party must file a new financing statement in the new state within four months of the move.

Question 22

Misleading Info

Answer 22

If info becomes seriously misleading after it is filed, the statement will remain effective unless debtor changes names or the original collateral is exchanged for proceeds

You have 4 months after name change to file an amendment correcting the financing statement

When debtor sells or disposes of collateral, the secured party’s interest in the proceeds remains perfected for 20 days unless refiled

Question 23

Exceptions to Changed Info

Answer 23

1. A filed financing statement covers the original collateral, the proceeds are collateral in which a security interest may be perfected by filing in the same office, and the proceeds are not acquired with case proceeds
2. the proceeds are cash proceeds
3. the secured party perfects its interest in the proceeds within 20 days

Question 24

Lapse

Answer 24

If the financing statement expires without a continuation statement being filed (it is effective for five years after date of filing), it will lapse and become ineffective and any security interest becomes unperfected.

Question 25

Continuation Statement

Answer 25

Must be filed within within 6 months before the expiration period. Extends effectiveness for another 5 years.

Question 26

First in Time First in Right

Answer 26

Among unperfected security interests, the first security interest to attach will prevail

Question 27

Unperfected vs. Perfected

Answer 27

A perfected security interest will prevail over an unperfected security interest

Question 28

Perfected Security Interests

Answer 28

The security interest with the earliest time of filing or of perfection, which has continued without interruption will prevail (i.e first to file or perfect)

Question 29

Priority by Possession

Answer 29

When the collateral is an instrument or chattel paper, the secured party who perfect by taking possession will have priority over the secured party who perfects by filing

Question 30

Perfected Purchase Money Security Interest

Answer 30

A perfected PMSI will prevail over a conflicting security interest if the PMSI is perfect when the debtor receives possession of the collateral or within 20 days thereafter. But when the collateral is inventory the PMSI party has to take additional steps to acquire priority over the first in time secured party. 1. purchase money secured party must notify the first secured party in an authenticated record that it expect to obtain PMSI in debtor's collateral 2. the PMSI must be perfect at the time debtor receives possession of inventory

Question 31

Perfected Crops

Answer 31

A perfected security interest in growing crops for new value given to enable the debtor to produce the crops during the production season and given not more than 3 months before the crops became growing crops by planting, takes priority over an earlier perfected security interest to the extent that such earlier securityinterest secures obligations incurred more than 6 months before the crops became growing crops by planting.

Question 32

Lien Creditor

Answer 32

A creditor that has acquired an interest in the property by attachment, levy, or the like the trustee in bankruptcy has the status of a lien creditor. The first in time first and right rule applies to lien creditors and secured parties.

Question 33

Control and Priority

Answer 33

A security interest in a deposit account, investment property, or letter of credit right held by a secured party having control of the account or investment property has priority over a security interest held by a secured party that doesn't have control.

Question 34

Priority and PMSI

Answer 34

If the PMSI is perfected within 20 days after the debtor receives the collateral, the PMSI will take priority over an intervening lien creditor

Question 35

Accessions

Answer 35

Good that are physically united with other goods in such a manner that the identity of the original good is not lost. The priority of a security interest in an accession is determined in the same manner as any other collateral, except that a security interest in an accession is subordinate to a security interest in the whole, which is perfected by compliance with the requirement of a certificate of title statute.

Question 36

Commingled Goods

Answer 36

Ordinary priority rules apply, except that multiple commingled goods are tied in priority.

Question 37

Exceptions to a Security Interest Surviving Sale of Collateral

Answer 37

1. the secured party authorizes the sale free of the security interest 2. the buyer is a buyer in the ordinary course of business 3. the sale qualifies as a consumer to consumer or garage sale 4. a buyer of chattel paper has priority over a security interest in proceeds of inventory subject to a security interest if the buyer buys in good faith in the ordinary course of business

Question 38

Buyer in the Ordinary Course of Business

Answer 38

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

Question 39

Garage Sale Exception

Answer 39

Applies only when a person buys goods for personal, family, or household use from someone who used the goods for that purpose. Such buyer takes free of a security interest created by the seller if he buys for value without knowledge of the security interest and before a financing statement is filed.

Question 40

Special Rules for Fixtures

Answer 40

Creditor only obtains priority over the mortgagee by filing a fixture filing. A secured party with priority over a mortgagee has the right to remove the fixture from the real property upon default.

Question 41

PMSI in Fixture

Answer 41

Second in time, first in right applies so long as the security interest is perfected by a fixture filing before goods become fixtures or within 20 days after.

Question 42

Construction Mortgage Rule

Answer 42

It secures an obligation incurred for the construction of an improvement on land. A fixture PMSI is subordinate to a construction mortgage if a record of the mortgage is recorded before the goods become fixtures and the goods become fixtures before the completion of the construction

Question 43

Rights at default

Answer 43

1. reduce a claim to judgment 2. foreclose 3. enforce a claim

Question 44

Repossession

Answer 44

A secured party has the right to repossess tangible collateral if it can do so without a breach of the peace., meaning violence, noisy protests, entry into a home.

Question 45

Replevin

Answer 45

If the secured party cannot obtain the collateral without a breach of the peace, they can bring an action for replevin i.e. judicial assisted repossession

Question 46

Right to Redeem

Answer 46

Can be done by tendering the amount of the obligation, including interest with reasonable expenses and attorneys' fees caused by default. Must be done before the secured party has accepted the collateral in full or partial satisfaction of the obligation or the collateral has been collected or foreclosed on.

Question 47

Waiver

Answer 47

There is no right to waive a debtor's right to redeem, unless all parties to the security agreement agree to the waiver in writing and do so immediately following the default.

Question 48

Notice

Answer 48

Before disposing of collateral, secured party must send all parties to the security agreement reasonable authenticated notice of disposition. Doesn't apply to collateral that is perishable. Must include: 1. a description of the debtor and secured party 2. a description of the collateral 3. the method of intended disposition 4. the time and place of a public disposition 5. in a consumer-goods transaction, the notice must additionally include a description of any liability for a deficiency

Question 49

Division of Proceeds

Answer 49

1. reasonable expenses of retaking and deposition of collateral 2. satisfaction of obligations secured the security interest under which the deposition is made 3. satisfaction of obligations secured by any subordinate interests in the collateral, if authenticated demanded was sent before sale 4. debtor gets surplus

Question 50

Deficiency

Answer 50

Difference between the amount owed on the debt and the proceeds received at sale

Question 51

Debtor's Damages

Answer 51

May seek actual damages or deficiency elimination/lost surplus, but not both.