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1
Q

Ways to create Purchase Money Security Interest

A

1) creditor sells the goods to the debtor on credit, retaining a security interest in the goods for the purchase price OR
2) creditor advances the debtor the funds used to buy the goods and the creditor takes a security interest in the goods

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2
Q

Type of collateral: consumer goods

A

Tangible collateral.

Goods bought or used for personal, family, or household purposes

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3
Q

Type of collateral: inventory

A

Tangible collateral.

Goods held for sale or lease and goods consumed by the business

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4
Q

Type of collateral: farm products

A

Tangible collateral.

Goods used or produced in farming that are in the possession of or used by a farmer.

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5
Q

Type of collateral: equipment

A

Tangible collateral.

Goods that are not consumer goods, inventory, or farm products

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6
Q

Type of collateral: instruments

A

Intangible collateral.

Notes, drafts, and certificates of deposits

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7
Q

Type of collateral: documents

A

Intangible collateral.

Bills of lading and warehouse receipts.

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8
Q

Type of collateral: chattel paper

A

Intangible collateral.

records evidencing both a monetary obligation and a security interest in or lease of goods, such as a promissory note and written security agreement

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9
Q

Type of collateral: accounts

A

Intangible collateral.

Rights to payment for goods, services, etc. such as accounts receivable

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10
Q

Type of collateral: deposit accounts

A

Intangible collateral.

Savings accounts, passbook accounts
Nonconsumer only

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11
Q

Type of collateral: investment property

A

Intangible collateral.

Stocks, bonds, mutual funds, brokerage accounts

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12
Q

Type of collateral: commercial tort claims

A

Intangible collateral.

Fort claims filed by organizations and individuals that arose out of the individuql’s business and don’t involve personal injury

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13
Q

Type of collateral: General intangibles

A

Intangible collateral.

Not fitting the definitions of the other types.
Copyrights, goodwill

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14
Q

Secured Sale Disguised as a Lease

A

True lease not covered by article 9.
Test: at the time the parties entered into the transaction, was it reasonably likely that the lessor would get the item back when it still had meaningful economic value

If yes, true lease
If no, sale with security interest

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15
Q

How to Attach

A

1) written security agreement
2) value must be given by the secured party and
3) the debtor must have rights in the collateral

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16
Q

Requirements for security agreements (element one of attachment)

A

1) agreement must show intent to create security interest
2) agreement must be authenticated by the debtor (usually signed but any symbol with present intent to authenticate will do) or possession or control
3) agreement must contain a description of the collateral (article 9 categories or normal vocab)

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17
Q

After Acquired Property

A

General Rule: without explicit after-acquired property clause in the security agreement, the secured party’s security interest only reaches collateral the debtor had rights in at the time of the signing of the security agreement

Exceptions: if collateral is of the type rapidly depleted (inventory)

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18
Q

Proceeds Rule

A

Property secured generally includes proceeds.

Rule: unless otherwise agreed, security interest automatically gives the secured party a right to identifiable proceeds.

Test: are the proceeds identifiable?

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19
Q

Proceeds and commingled cash

A

Test: look at balance starting at the time the proceeds are deposited and ending at the time you are applying this test. Lowest balance during that time period is the identifiable proceeds
BUT cannot is exceed value of proceeds originally deposited

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20
Q

When does attachment occur?

A

When all three elements are met IN ANY ORDER

21
Q

Control in lieu of a written security agreement

A

Control can be in lieu of a written security agreement.
Only the following types of collateral: nonconsumer deposit accounts, electronic chattel paper, investment property

Deposit account: bank where deposited automatically has control
- different bank can put account in their name or agree on an authenticated record with the debtor that deposit account is maintained that the bank will comply with the secured party’s orders

22
Q

Five methods for perfection

A

1) filing
2) taking possession of collateral
3) control
4) automatic perfection
5) temporary perfection

23
Q

What happens if there is perfection before attachment?

A

The security interest perfects upon attachment

24
Q

Perfection: filing method

A

Filing a financing statement
Includes:
1) debtor’s name and mailing address
2) secured party’s name and mailing address
3) description of the collateral covered
4) if real property: description, name of the record owner, indication that it is filed in real property records

25
Q

Filing financing statement: debtor’s name error

A

General rule: individual names, look at unexpired driver’s license

Test for spelling errors: is the error seriously misleading? Check whether a search under the debtor’s correct name using filing office’s search logic would retrieve the erroneous financing statement

26
Q

Financing statement: debtor’s name change

A

Ineffective and considered misleading if after four months of change

27
Q

Financing statement authorization

A

Debtor must authorize in an authenticated record before or after filed unless she authenticated the financing statement or security agreement covering the same collateral as the financing statement

28
Q

Where to file financing statement

A

General rule: file centrally with the Secretary of State

  • where debtor is located
  • if registered org: where organized
  • if unregistered .org (LLP or GP): business or executive office

Exception: timber, fixtures, mineral should be filed locally

If debtor moves: becomes Unperfected within 4 months

If collateral moves: becomes unperfected in one year

29
Q

How long is a financing statement valid?

A

Five years but can file a continuation within six months of the end of that period for five more years (repeat ad infinitum)

30
Q

Perfection method: taking possession or control

A

Deposit accounts, general intangibles, nonnegotiable documents, elec. chattel paper cannot be perfected by possession.

  • perfected at the moment of possession
31
Q

Perfection methods: automatic perfection

A

Purchase money security interest in consumer goods is automatically perfected upon attachment

  • only PMSI in consumer goods is automatically perfected upon attachment
32
Q

Perfection method: notation of lien on certificate of title

A

If covered by certificate of title statute (car or trucks) only way to perfect.
- get government authority to note the secured party’s lien on the certificate of title
Exception: if cars are held in inventory then perfected by filing financing statement

33
Q

Method of perfection: temporary perfection

A

Security interest in proceeds from original collateral is perfected for 20 days from debtor’s receipt of the proceeds.
Last beyond 20 days if:
Identifiable cash proceeds OR

1) original collateral was perfected by filing financing statement for proceeds in same place as financing statement for original collateral and the proceeds were not purchased with cash proceeds of the collateral (same office rule)
3) security interest in proceeds is perfected within the 20 day period

34
Q

Priority: two unperfected parties

A

First to attach has priority

35
Q

Priority: unperfected v perfected

A

Perfected generally prevails

36
Q

Priority: two perfected secured parties

A

Whoever filed or perfected first wins.

Exception: perfected by control had priority over a security interest perfected by any other method

Exception: PMSIs have superpriority

  • PMSI in Inventory: Pmsi has priority over conflicting interests in the same inventory or proceeds if:
    1) perfected at the time debtor gets possession of inventory and
    2) any secured party who had perfected his security interest in the same inventory receives written notification of the pmsi before the debtor receives possession of the inventory
  • PMSI in Goods: has priority over conflicting security interests in the same goods or their proceeds of the interest is perfected before or within 20 days of debtor receiving possession of the goods
37
Q

Priority: two PMSIs

A

Seller has priority over lender

38
Q

When do PMSIs become perfected?

A

For goods: automatically perfected

For equipment: perfected anytime within 20 days after debtor gets possession of the collateral (usually by filing)

For inventory: must be perfected (usually by filing) by the time the debtor gets possession of the collateral and others must be given notice

39
Q

Priority chattel paper special rule

A

Purchaser of chattel paper in good faith gives new value and takes possession or control of chattel paper on ordinary course of bus will have priority over:

1) interest arising in proceeds of inventory
2) any other security interest as long as chattel paper purchaser acquired its interest without knowledge that its purchase violated the rights of the secured party

40
Q

Priority: instrument purchasers

A

Purchaser of instrument has priority over perfected interest if purchaser gives value and takes possession of the instrument in good faith and without knowledge that the purchase violates rights of third party

41
Q

Priority: fixture v real property

A

First to file a fixture filing or record it’s real property interest wins
Exception: PMSI party who makes a fixture filing within 20 days after affixation will prevail over real property interest in the same fixtures that was recoded prior to affixation

42
Q

Priority: unperfected party v buyer lessee

A

General rule: if you buy something with security interest on it, it stays on it

Exception:
1) authorized sales: if sale is explicitly or implicitly authorized, buyer takes it free of security interest

2) buyer in ordinary course of business: takes free from interest created by HIS SELLER even though interest is perfected and buyer knows about it
- buyer can’t know that sale violates rights of another person in the goods

3) buyer not in the ordinary course of business: take subject to perfected but free from unperfected unless they know of the security interest
4) consumer to consumer sale: takes free if buys without knowledge of interest, bought for value, and is for personal/household use UNLESS prior to purchase secured party filed a financing statement

43
Q

Priority: secured party v judgment lien holder

A

Unperfected interest is subordinate to rights of lien creditor if before security interest is perfected. If perfected before person becomes a lien creditor, secured interest has priority

Test: is perfection before levy or is levy before perfection

Exception: PMSI filed for within 20 days of debtor possession has priority over lien holder

44
Q

Priority: statutory lien v secured party

A

Statutory lien holder (cars/trucks) has priorities even over a perfected security interest

45
Q

Right to take possession

A

Can take possession of collateral without judicial process if can be done without a breach of peace

Peace beeches if: conduct has the potential to lead to violence

46
Q

Resale of collateral

A

Every aspect of the sale must be commercially reasonable
Timing, manner, place, terms

  • must give notice to debtor and other secured parties

Failure to comply: debtor May receive 10% of cash price and interest charged.

47
Q

Retention of collateral to satisfy debt

A

Must send proposal to all secured parties. If notified party objects, collateral must be sold. Debtor must also consent.

48
Q

Debtor’s right to redeem

A

Before sale, debtor must render entire balance to redeem

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