Secured Transactions: Class Questions - Review 1

In this video, 20.04 - Secured Transactions - Review 1, test your knowledge of secured transactions with Roger Philipp, CPA, CGMA. The first question Roger covers concerns attachment of a security interest. Upon applying the mnemonic PIG - Property owned by debtor, Interest created, value Given by creditor - the correct answer choice becomes obvious.
The second question deals with filing a financing statement for a secured transaction - is a financing statement required for attachment of a security interest to occur? Is a filed financing statement effective for an indefinite time period provided continuation statements are timely filed? Find out as Roger discusses each answer choice in detail.
The next two questions reinforce the secured transactions rule whereby a PMSI - Purchase Money Security Interest - in consumer goods attaches and automatically perfects the security interest, subject to the financing statement loophole if the buyer sells the collateral to a third party. Throughout the review, Roger emphasizes the importance of understanding, for the purposes of applying the secured transaction rules, how the property in the secured transaction was being used in the hands of the seller and how it will be used in the hands of the buyer, such as whether is it used as inventory, consumer goods, or equipment.
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Video Transcript Sneak Peek:
Welcome back! Let's do some questions on secured transactions. Number one, "Under the revised UCC secured transactions article, which of the following events will always prevent a security interest from attaching?"
How do you attach? PIG, property owned, interest rated, get value. "Failure to have a written security agreement," do you have to have an agreement or take in possession? "Failure of the creditor to have possession, or agreement. Failure of the debtor to have rights." Now, remember we said, property owned by the debtor. They have rights to it, yeah, they have to own it, or so they have to own it, and take possession or agreement, and they have to give value. “D, Failure of the creditor to give present consideration, present, past, all of that is valid.” Best answer, C.
Number two, "Under the secured transactions article of the UCC, which of the following statements is correct regarding the filing of a financing statement? One, a financing statement must be filed before attachment of the security interest can occur." Hmm, a financing statement must... Well, a financing statement has to be... In order before attachment? No, because a financing statement has nothing to do with attachment.
You attach, then... "Once filed, a financing statement is effective for an indefinite period of time provided continuation statements are filed, are timely filed", yeah. What is it? Every five years, you can continue. So, you can renew it every five years. So, two only, B.
Number three, "Grey sells computers to the public. Grey sold and delivered a computer to West on credit. West executed and delivered to Grey a promissory note for the purchase price and a security agreement covering the computer. West purchased the computer for personal use." What does that make it? Consumer goods. "Grey did not file a financing statement. Is Grey's security interest perfected?"
All right, so we have, Grey sells computers to the public. Grey sold one to West. All right, so let's see what's going on here. Grey sold it to West. All right, so Grey sold it to West. Grey is in the business of selling computers, its inventory. West, it's a consumer good. He gave him the purchase money to buy it. He's taking the computer as collateral. What is that called? PMSI, PMSI in what? In consumer goods in the hands of the consumer.