MEE Essentials: Secured Transactions

Question 1

Secured Transaction Rule Statement

Answer 1

UCC Article 9 governs any sale by contract of personal property or fixtures that generates a security interest

Question 2

Does Article 9 govern leases?

Answer 2

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

Question 3

Consumer goods rule statement

Answer 3

Consumer goods are goods purchased for family, household, or personal purposes

Question 4

Inventory rule statement

Answer 4

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

Question 5

Equipment rule statement

Answer 5

Equipment consists of any goods, other than inventory, farm products, or consumer goods

Question 6

Farm products rule statement

Answer 6

Farm products include crops, livestock, farming supplies

Question 7

Attachment rule statement

Answer 7

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

Question 8

Security agreement requirements

Answer 8

AID
1) authentication
2) intent to create security agreement
3) description of collateral (sufficiently specific)

Question 9

After-acquired property rule statement

Answer 9

Generally, after-acquired property can be covered by a security agreement, even if not explicitly mentioned in agreement.

But DEFINITELY if included in statement

Question 10

Two perfected parties: who has priority

Answer 10

First to file OR!!! perfect has priority

Question 10

Perfection rule statement

Answer 10

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

Question 11

BOCB rule statement

Answer 11

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

Question 11

Two unperfected parties: who has priority?

Answer 11

First to ATTACH

Question 12

Perfected v. unperfected: which has priority?

Answer 12

PERFECTED has priority, EVEN over UNPERFECTED PMSI

Question 13

BOCB free and clear exception

Answer 13

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

Question 14

Buyer NOT in ordinary course of business rule statement

Answer 14

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

Question 15

Garage sale exception

Answer 15

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

Question 16

What goods fall under garage sale exception

Answer 16

ONLY consumer goods (both at time seller has them and time buyer buys them)

Question 17

Secured party v. lien: who has priority,

Answer 17

Generally, PRIORITY to SECURED PARTY if it PERFECTS BEFORE LIEN ARISES

Question 18

Unsecured party v. lien: who has priority

Answer 18

LIEN has priority

Question 19

Party that secures after lien arises v. lien: who has priority

Answer 19

LIEN has priority

Question 20

Default creditor options rule statement

Answer 20

If default occurs, lender can DEMAND PAYMENT or use SELF-HELF to reclaim goods so long as it does not BREACH THE PEACE

Question 21

Breach of peace factors

Answer 21

1) if repossession at debtor’s PREMISES
2) if debtor OBJECTED (some courts say even slight/only verbal breaches peace)
3) if TRICKERY used

Question 22

Creditor resale

Answer 22

The secured party may DISPOSE OF or SELL collateral in COMMERCIALLY REASONABLE way

Security interest is DISCHARGED but debtor liable for DEFICIENCY

Question 23

What does creditor resale accomplish

Answer 23

Obligation owed to party disposing of collateral DISAPPEARS and junior liens PAID OFF

Question 24

Two types of debtor protection for collateral sale

Answer 24

1) COMMERCIALLY REASONABLE
2) WRITTEN NOTICE OF SALE to debtor

Question 25

When must debtor receive notification of sale?

Answer 25

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

Question 26

Content of sale notification: nonconsumer v. consumer transactions

Answer 26

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

Question 27

3 remedies if secured party doesn’t comply w timing and notification requirements for resale

Answer 27

1) Damages
2) Sale ordered by court
3) rebuttable presumption of amount of debt

Question 28

Damages as remedy

Answer 28

including CONSEQUENTIAL damages, but debtor has duty to mitigate

If collateral = CONSUMER GOODS, STATUTORY DAMAGES are awarded

Question 29

Rebuttable presumption: nonconsumer v consumer transaction

Answer 29

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)

Question 30

Debtor’s right to redeem

Answer 30

Debtor can redeem PRIOR to disposition of collateral by paying everything due and owing to creditor

Question 31

Perfected regular vs. perfected PMSI

Answer 31

PMSI has priority over ALL OTHER INTERESTS when it is 1) PERFECTED when debtor RECEIVES collateral OR 2) WITHIN 20 DAYS AFTER

Question 32

For non-buyer creditors, does it matter if creditor knows of other creditors?

Answer 32

NO, red herring, only for buyers