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MEE Secured Transactions > In General > Flashcards

In General Flashcards

1
Q

What is a security interest?

A

An interest in personal property or fixtures that secures payment or performance of an obligation

UCC § 1-201(35)

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2
Q

What are the purposes of a security interest?

A
  1. Make debt more easily collectible if the debtor cannot or refuses to pay.
  2. Provide the secured party with a position superior to other creditors.
  3. Provide the secured party with rights to obtain the collateral if it’s sold or transferred.
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3
Q

What is a security agreement?

A

A consensual agreement that provides for a security interest

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4
Q

What is a security agreement?

A

A consensual agreement that provides for a security interest

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5
Q

What’s the difference between an agreement and a contract?

A

An agreement is a bargain-in-fact between parties.

A contract is the legal obligation that results from an agreement.

UCC § 1-201(3), (12)

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6
Q

What are the three types of parties in a secured transaction?

A
  • Secured party
  • Obligor
  • Debtor
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7
Q

What is a secured party?

A

A creditor who obtains a security interest in the debtor’s property

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8
Q

What is an obligor?

A

A person who must pay or perform the obligation that the collateral secures

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9
Q

What is a debtor?

A

A person who has an interest in the collateral, other than a security interest or other lien (e.g. the owner of the collateral)

The debtor is usually the obligor, but doesn’t need to be.

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10
Q

What is collateral?

A

Property subject to a security interest

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11
Q

To classify collateral, what do you look to?

A

The debtor’s principal use at the time the security interest is created

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12
Q

Can the same property be classified differently for different debtors?

A

Yes

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13
Q

What are the classes of collateral?

A
  • Goods
  • Rights to payment
  • Documents
  • Investment property
  • Deposit accounts
  • Commercial tort claims
  • Letter of credit rights
  • General intangibles
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14
Q

What are goods?

A

Anything moveable at the time a security interest attaches

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15
Q

What are some goods that are not technically “moveable”?

A
  • Fixtures
  • Standing timber
  • Unborn animals
  • Growing or unharvested crops
  • Manufactured homes
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16
Q

What are the four mutually exclusive subcategories of goods?

A
  • Consumer goods
  • Farm products
  • Inventory
  • Equipment

Mnemonic: Champion Gecko Facing Poodles; Iguanas Escaped

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17
Q

When are goods classified?

A

When the security interest attaches

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18
Q

Can the classification of a good change during the life of the good?

A

Yes

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19
Q

What are consumer goods?

A

Goods acquired primarily for personal, family, or household purposes

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20
Q

What are farm products?

A

Crops, livestock, supplies used or produced in farming operations

NOT farming equipment

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21
Q

For goods to be considered farm products, the debtor must be…

A

…engaged in a farming operation.

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22
Q

What is inventory?

A

Goods that are not farm products that:

  • are held for sale or lease;
  • are furnished under a service contract; or
  • consist of raw materials, works in progress, or materials used or consumed in business.
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23
Q

What is equipment?

A

Catchall class for goods that are not consumer goods, farm products, or inventory

24
Q

When does a good become a fixture?

A

When attached to real property such that an interest arises under real property law (e.g. when the good is attached to a house)

25
Q

When can software be a good?

A

When embedded in goods (e.g. computer program contained in a car)

26
Q

What is a right to payment?

A

The right to be repaid money by a third party that the debtor then uses as collateral for a loan

27
Q

What are the four types of rights to payment?

A
  • Instrument
  • Chattel paper
  • Accounts
  • Payment intangible

Mnemonic: Impatient Cow Pushes Adorable Pony Inside

28
Q

What are instruments?

A
  • Negotiable instruments
    • Promissory notes
    • Checks
  • Nonnegotiable instruments that evidence a right to the payment of a monetary obligation and are transferred in the ordinary course of business by delivery
    • Certificate of deposit from a bank
29
Q

What is chattel paper?

A

A record (paper or electronic) with:

  • a monetary obligation, and
  • a security interest or lease
30
Q

What are accounts?

A

A right to payment of a monetary obligation for property that is sold, leased, or licensed, or for services rendered

Includes:
* A company’s accounts receivable
* Right to be paid under insurance policies
* Amounts owed on credit cards
* Winning a lottery

31
Q

What are payments intangible?

A

Catchall for rights to payment

⚠️ “Accounts” is very broad!!

32
Q

How do you spot a right to payment?

A
  • A transaction in which a third party (account debtor)
  • Owes money to your debtor
  • Your debtor uses that money (that right to payment or expectation of repayment) as collateral for the loan
33
Q

What are the steps for classifying rights to payment?

A
  1. Is it chattel payment or instruments?
  2. If not, it’s probably an account. But, does it encompass the right to be repaid a loan of money?
  3. If yes, then maybe it’s a payment intangible (rare).
34
Q

What is a document?

A

A document of title that gives the holder ownership rights in goods held by a bailee

35
Q

What is investment property?

A

Certificated and uncertificated securities (e.g. stocks, bonds)

36
Q

What are deposit accounts?

A

Bank accounts

Excludes investment property and accounts evidenced by instruments

37
Q

What are commercial tort claims?

A

Claims possessed by an organization or an individual that arose in the course of the organization or individual’s business

Excludes claims for personal injury or death

38
Q

What is a letter of credit right?

A

A right to payment or performance under a letter of credit

39
Q

What are general intangibles?

A

Catchall category

(e.g. blueprints, copyrights, trademarks, software)

40
Q

What does Article 9 cover?

A
  • Secured transactions
  • Agricultural liens
  • Sales of certain rights to payment
  • Certain consignments
41
Q

If the substance of a transaction is the creation of a security interest, then Article 9 applies…

A

…regardless of the form or name of the transaction.

42
Q

When is a lease a secured transaction?

A
  • 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
  • One of the following four conditions:
    • The original term of the lease is equal to or greater than the remaining economic life of the goods
    • The lessee is bound to renew the lease for the remaining economic life of the goods or bound to become the owner of the goods
    • The lessee has an option to renew the lease for the remaining economic life of the goods for no or nominal additional consideration
    • The lessee has an option to become the owner of the goods for no or nominal additional consideration
43
Q

What does a protective filing do?

A

Allows the lessor to be accorded perfected status even if a court later determines that the transaction does not constitute a lease

44
Q

What is a consignment?

A
  • A party (the consignor) has ownership of goods
  • But gives possession of the goods to another party (the consignee)
  • For the purpose of allowing the consignee to sell the goods
45
Q

What are the requirements for a consignment to fall under Article 9?

A
  • A person (the consignor) must deliver goods to a merchant for the merchant to sell;
  • The merchant (the consignee) must:
    • Deal in goods of that kind,
    • Not operate under the name of the consignor,
    • Not be generally known by its creditors to be substantially engaged in selling the goods of others, and
    • Not be an auctioneer;
  • For each delivery, the value of the goods are at least $1,000; and
  • The goods are not consumer goods immediately before delivery
46
Q

Are statutory or common-law liens for services or materials subject to Article 9?

A

No, except for determining priority of such liens

47
Q

What is an agricultural lien?

A

An interest in farm products that secures payment or performance of an obligation for:

  • Goods or services furnished with respect to farming operations, or
  • Rent on real property in connection with a farming operation
48
Q

Sales of which types of collateral are treated like secured transactions?

A
  • Chattel paper
  • Promissory notes
  • Accounts
  • Payment intangibles

Mnemonic: Cruel Poodles Poking Needles At Peaceful Iguanas

49
Q

When are sales of rights to payment NOT subject to Article 9?

A

When the sale is part of a sale of the business out of which they arose

50
Q

When is the assignment of accounts, chattel paper, payment intangibles, or promissory notes NOT subject to Article 9?

A

When only for the purpose of collection

51
Q

When is the assignment of a single account, payment intangibles, or promissory notes NOT subject to Article 9?

A

When in full or partial satisfaction of a preexisting indebtedness

52
Q

When is the assignment of a right to payment under a contract to an assignee NOT subject to Article 9?

A

When the assignee is also obligated to perform under the contract

53
Q

How may value be given?

A
  • By providing consideration sufficient to support a simple contract;
  • By extending credit, either immediately or under a binding commitment;
  • By, as a buyer, accepting delivery under a preexisting contract (converting a contingent obligation to a fixed obligation); or
  • In satisfaction of, or as security for, part or all of a preexisting claim
54
Q

What are the steps for approaching a priority question?

A
  1. Determine that you have a secured transaction
55
Q

What are the steps for approaching a priority question?

A
  1. Determine that you have a secured transaction problem
  2. Identify and classify the property at issue
  3. Determine which parties have or claim an interest in the collateral
  4. For each security interest, assess:
    1. attachment
    2. perfection
  5. Find the appropriate priority rule
  6. Apply the priority rule to resolve the dispute

MEE Secured Transactions (5 decks)

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