Secured Transactions Short Answers

Goods used or bought for use primarily in a business, such as employees’ desks or machinery used in manufacturing.

The principal use to which the debtor puts the property determines the class of the goods.

Yes, the same property may fall into different classes with respect to different debtors.

Generally, goods are classified when the security interest attaches.

Software embedded in goods is treated as part of the goods in which it is embedded.

Software not embedded in goods is treated as a 'general intangible'.

There are nine other classes of personal property.

The principal use to which each debtor puts the property determines the class of the goods.

A security interest can attach to collateral when: (1) value has been given by the secured party, (2) the debtor has rights in the collateral, and (3) the debtor has authenticated a security agreement that describes the collateral or the secured party has possession or control of the collateral.

Value refers to consideration sufficient to support a simple contract, extending credit, accepting delivery under a preexisting contract, or satisfying a preexisting claim.

An authenticated security agreement is one where the debtor has signed or otherwise authenticated a written agreement that describes the collateral.

Yes, a security interest can attach to collateral even if the debtor does not possess the collateral, as long as the secured party has possession or control of the collateral.

The UCC (Uniform Commercial Code) provides the rules and guidelines for the attachment of security interests, including the requirements for value, debtor's rights, and authenticated security agreements.

Yes, a security interest can attach to collateral at a future date, such as when a future advance is made or when a contingent obligation becomes fixed.

Possession or control of collateral by the secured party is an alternative to an authenticated security agreement, allowing the security interest to attach without the debtor's signature.

No, a security interest cannot be enforceable against a debtor unless the three conditions for attachment (value, debtor's rights, and authenticated security agreement or possession/control) are met.

To obtain perfected status in the event a court determines the transaction is not a lease, but rather a sale with a retained security interest.

Purchase-money security interest (PMSI) in inventory.

The value of the goods delivered must be at least $1,000 at the time of the delivery.

The rule regarding the priority of such a lien.

The consignor.

The merchant must deal in goods of that kind.

Because the filing is only a precautionary measure, and the lessor can still argue that the transaction is a true lease.

UCC § 9-102(19)–(21).

20 days from the time it attaches

Perfection pursuant to financing statement and cash proceeds

The original financing statement must be broad enough to encompass the proceeds or the secured party must amend the financing statement to cover the proceeds within the 20-day period

Identifiable cash proceeds

Cash proceeds include more than just money, also including checks and deposit accounts

Common law

It is the temporary perfection period for a security interest in proceeds

Either perfection pursuant to financing statement or identifiable cash proceeds

It is subordinate to the rights of the lien creditor.

A statutory or common-law lien creditor is a creditor who obtains a possessory lien on the property of another by operation of a statute or common-law rule, and they obtain the lien by providing services or materials with respect to goods in the ordinary course of their business.

The lien must secure payment or performance of an obligation for services or materials furnished with respect to goods by the lien holder in the ordinary course of that person's business, and the lien holder must have possession of the goods.

The statute's priority rule governs.

The security interest has priority over the lien creditor, even if the holder of the security interest has knowledge of the lien.

A statutory or common-law lien is a nonconsensual lien, whereas an Article 9 security interest is a consensual lien.

A statutory or common-law lien.

Possession of the goods is required for the lien to have priority over a security interest.

The seller has a PMSI in the item, not only with respect to the current obligation to pay for the item, but also with respect to any existing or future obligations that arise from a PMSI in additional inventory items sold to the buyer by the seller.

A PMSI does not lose its status as a PMSI if the collateral also secures an obligation that is not a purchase-money obligation, if the collateral that is not purchase-money collateral also secures the purchase-money obligation, or if the obligation has been renewed, refinanced, consolidated, or restructured.

The security interest in each item of inventory secures the aggregate of the PMSI obligations.

The 'dual status' rule allows a PMSI to maintain its status as a PMSI even if the collateral also secures other obligations or if the obligation has been modified in some way.

The purpose of cross-collateralization is to create a PMSI in each item of inventory that secures the aggregate of the PMSI obligations.

A PMSI that secures only the price of the item is limited to the specific item, whereas a PMSI that secures the aggregate of the PMSI obligations is a broader security interest that secures multiple items.

UCC § 9-103(b)(2) states that the security interest in the inventory is a PMSI not only to the extent that the inventory secures its own price but also the price of the other inventory.

The result is that the security interest in each item of inventory is a PMSI that secures the aggregate of the PMSI obligations, rather than just the price of that item.

Mortgage

The name on the debtor's current driver's license or state-issued identification card

No

It is effective as of the date of its recording.

The debtor's individual name, the name on the debtor's driver's license, or the debtor's surname and first personal name

A financing statement

The security agreement must contain the necessary information

The date of its recording

Purchase-money security interest (PMSI)

The primary rights enjoyed by a creditor as a secured party in the collateral are the right to seize and sell the property to satisfy the outstanding debt. These rights are essential to ensure the repayment of the obligation.

Expenses such as sales taxes, duties, finance charges, interest, freight charges, administrative charges, expenses of collection and enforcement, and attorney's fees.

The creditor must adhere to specific requirements such as attachment and perfection, and is subject to special restrictions in the timing and exercise of those rights.

The UCC governs the attachment of security interests by providing specific requirements and rules for the attachment of security interests, which in turn impacts the relationship between the debtor and creditor by providing a framework for their rights and obligations.

Purchase-money security interest (PMSI)

For 20 days after the debtor receives the proceeds

A security interest is an interest in personal property that secures payment or performance of an obligation, whereas a statutory or common-law lien is a lien created by statute or common law that arises in favor of a creditor. The priority of a security interest and a statutory or common-law lien is determined by the specific rules and requirements set forth in the UCC and applicable law.

The cashier's check or other form of payment

Failing to meet the attachment requirements for a security interest may render the security interest unenforceable against the debtor. However, a security interest may still be enforceable against a debtor if it is perfected and the debtor has authenticated the security agreement.

It is subordinate to the lien creditor's lien unless the advance is made without knowledge of the lien or made pursuant to a commitment entered into without knowledge of the lien.

To continue perfection of a security interest in proceeds beyond the 20-day period, the creditor must file a financing statement that covers the original collateral and the proceeds. This ensures that the creditor's rights in the proceeds are protected and continue to be perfected.

The lien must be perfected and the lien creditor must have priority under the statute or common law.

A statutory or common-law lien is a lien created by statute or common law, whereas an Article 9 security interest is a security interest created by agreement between the parties.

To give interested parties notice of the existence of the security interest.

The debtor's name, the name of the secured party or representative, and the collateral covered by the financing statement.

Only by possession.

Notice filing.

To provide public notice of the security interest and give interested parties enough information to make further inquiries.

It perfects the security interest.

Control is necessary to perfect the security interest.

To provide enough information to make further inquiries about the security interest.