MEE Essentials: Secured Transactions Flashcards
Secured Transaction Rule Statement
UCC Article 9 governs any sale by contract of personal property or fixtures that generates a security interest
Does Article 9 govern leases?
They can if it is not a TRUE lease but rather a secured transaction disguised as a lease where lessee possesses property for FULL ECONOMIC LIFE or can buy for NOMINAL FEE at end of lease
Consumer goods rule statement
Consumer goods are goods purchased for family, household, or personal purposes
Inventory rule statement
Inventory is all items, other than farm products, held by a seller for sale or lease, including raw materials, works in progress, or materials used for business
Equipment rule statement
Equipment consists of any goods, other than inventory, farm products, or consumer goods
Farm products rule statement
Farm products include crops, livestock, farming supplies
Attachment rule statement
Attachment provides a creditor with enforceable rights in a secured transaction. Attachment requires
1) a debtor has rights in collateral
2) the debtor gives value in collateral to creditor and
3) the creditor formalizes the agreement by either filing a security agreement or exercising possession or control over the collateral
Security agreement requirements
AID
1) authentication
2) intent to create security agreement
3) description of collateral (sufficiently specific)
After-acquired property rule statement
Generally, after-acquired property can be covered by a security agreement, even if not explicitly mentioned in agreement.
But DEFINITELY if included in statement
Two perfected parties: who has priority
First to file OR!!! perfect has priority
Perfection rule statement
Perfection exists to provide notice to third party creditors of a creditor’s security interest in collateral. Perfection occurs by filing a FINANCING STATEMENT, or automatically as with purchase money security interests (PMSI) in CONSUMER GOODS, or can be perfected by POSSESSION or CONTROL
BOCB rule statement
A buyer in the ordinary course of business is a buyer who 1) buys a good (non-farm product) 2) in ordinary course 3) in good faith 4) from a seller in business of making those sales 5) WITHOUT knowledge that sale violates rights of another
In this instance, BOCB takes FREE OF ANY SECURITY INTEREST EVEN IF that interest is PERFECTED
Buyer cannot KNOW sale violates other creditor’s rights, but can have minimal knowledge about the existence of another secured party
Two unperfected parties: who has priority?
First to ATTACH
Perfected v. unperfected: which has priority?
PERFECTED has priority, EVEN over UNPERFECTED PMSI
BOCB free and clear exception
If buyer KNOWS that the sale violates a term in security agreement, he is NOT BOCB (different kind of buyer) and protection from security interest does not apply
Buyer NOT in ordinary course of business rule statement
Buyer NOT in ordinary course of business takes collateral SUBJECT TO a PERFECTED interest. Generally, he does NOT take subject to UNPERFECTED interest if he 1) gives value and 2) does not know about interest
Garage sale exception
Buyer NOT in ordinary course of business takes FREE of security interest that is perfected IF
1) he buys WITHOUT KNOWLEDGE of the interest
2) FOR VALUE
3) For personal/family/household purposes
UNLESS THE SECURED PARTY FILED FINANCING STATEMENT PRIOR TO GARAGE SALE PURCHASE
What goods fall under garage sale exception
ONLY consumer goods (both at time seller has them and time buyer buys them)
Secured party v. lien: who has priority,
Generally, PRIORITY to SECURED PARTY if it PERFECTS BEFORE LIEN ARISES
Unsecured party v. lien: who has priority
LIEN has priority
Party that secures after lien arises v. lien: who has priority
LIEN has priority
Default creditor options rule statement
If default occurs, lender can DEMAND PAYMENT or use SELF-HELF to reclaim goods so long as it does not BREACH THE PEACE
Breach of peace factors
1) if repossession at debtor’s PREMISES
2) if debtor OBJECTED (some courts say even slight/only verbal breaches peace)
3) if TRICKERY used
Creditor resale
The secured party may DISPOSE OF or SELL collateral in COMMERCIALLY REASONABLE way
Security interest is DISCHARGED but debtor liable for DEFICIENCY
What does creditor resale accomplish
Obligation owed to party disposing of collateral DISAPPEARS and junior liens PAID OFF
Two types of debtor protection for collateral sale
1) COMMERCIALLY REASONABLE
2) WRITTEN NOTICE OF SALE to debtor
When must debtor receive notification of sale?
Usually TEN DAYS or more before sale, but can be question of fact
EXCEPTION: perishable goods or likely to decline rapidly in value, notice not required
Content of sale notification: nonconsumer v. consumer transactions
NONCONSUMER: notification of disposition should describe 1) debtor 2) secured party 3) collateral 4) method of disposition 5) state where debtor is liability and charge for accounting
CONSUMER: all of the above PLUS description of liability for DEFICIENCY + phone number to learn amount owed + contact info for additional info
3 remedies if secured party doesn’t comply w timing and notification requirements for resale
1) Damages
2) Sale ordered by court
3) rebuttable presumption of amount of debt
Damages as remedy
including CONSEQUENTIAL damages, but debtor has duty to mitigate
If collateral = CONSUMER GOODS, STATUTORY DAMAGES are awarded
Rebuttable presumption: nonconsumer v consumer transaction
Nonconsumer: failure to comply + secured party fails to show commercial reasonableness = rebuttable presumption that COLLATERAL IS WORTH VALUE OF DEBT AND DEBTOR HAS NO DEFICIENCY
Consumer: two approaches – REBUTTABLE PRESUMPTION RULE (same as previous) OR ABSOLUTE BAR RULE (creditor’s noncompliance bars any recovery of deficiency)
Debtor’s right to redeem
Debtor can redeem PRIOR to disposition of collateral by paying everything due and owing to creditor
Perfected regular vs. perfected PMSI
PMSI has priority over ALL OTHER INTERESTS when it is 1) PERFECTED when debtor RECEIVES collateral OR 2) WITHIN 20 DAYS AFTER
For non-buyer creditors, does it matter if creditor knows of other creditors?
NO, red herring, only for buyers
