MEE - Secured Transactions Flashcards
Application of UCC 9
Governs the law of secured transactions in property and fixtures. Secured transactions involve the granting of security interest in property - tangible or intangible - for value.
Art UCC 9 vs Leases
Parties may try and circumvent the operation of art 9 of the UCC by agreeing to a lease but the court will look to the substance over the form - i.e. is the debtor entitled to the property after repaying the lease terms?
Art 9 UCC - No application
Art 9 of the UCC has no application to: 1/ transactions governed by federal law 2/ assignment of torts / wages 3/ real property transactions like mortgages and liens
Creation of security interests
To create a valid security interest as against the debtor, you need the security interest to “attach” to the collateral via a security agreement. To create a valid security interest as agains the world and other conflicting security interests, you need the security interest to be “perfected” either by control or a filing go a UCC 1 financial statement.
Creation of security interests - attachment
Creation of security interests - attachment
To attach, there needs to be a valid security agreement which is:
In writing
Signed by the debtor
Describes the collateral in non super generic terms
Grants security in collateral over which the debtor has an interest to grant
Is provided in exchange for some consideration from the creditor.
Security agreement - after acquired property clause - cf perishing goods
Acceptable in security agreements, protects future advances. Not required for fast perishing goods (the fact that the agreement covers turnover goods is implied).
Security agreement - specification clauses
Specification clauses dictate what is to occur on default. I.e. acceleration etc, cannot include waiver of redemption until after default occurs.
Perfection - UCC 1 / financing statement
A valid financing statement must:
1/ Identify the creditor & debtor and their addresses
2/ Identify the collateral - supergeneric is fine
3/ Include authority from the debtor to file (usually in the security agreement)
Perfection - name of individual debtor
The name of the debtor has to be per their drivers licence or if no drivers licence then as they are called (i.e. not birth certificate).
Perfection - Name of corporate debtor
The name of the corporate debtor must be per their incorporated name (i.e. not trading name)
Perfection - Misleading UCC 1 filings
Any error which is misleading, using the relevant search logic, may invalidate the UCC 1 filing. Errors which originate with the body itself will not be the fault of the parties
Perfection - name change
Old filings will be good with the old name; however, post name change filings using the old name will only be good for 4 months.
Perfection - Termination of UCC 1
Terminates after 5 years unless renewed. Has to be renewed with 6 months of expiry - no earlier. Should be taken off at request of debtor, after 20 days of request, if the debt has been paid off.
Perfection via possession / control
Generally, all tangible goods can be perfected via possession (farming goods, consumer goods, equipment, inventory) and intangible goods can be perfected via control, save for deposit accounts which have special rules (instruments, documents, chattel paper, accounts and general intangibles).
Automatic perfection for consumer goods PMSI
A PMSI in a consumer good will automatically perfect; unless: it’s a fixture filing (has to be filed where land filing is located) or it’s a car (has to be noted on certificate of title).
Temporary 20-day perfection in PMSI proceeds
Proceeds flowing from a PMSI will be temporarily perfected for 20 days after which they should be perfected afresh. You don’t understand this so just generally say will have the same priority as underlying collateral, cite the commingled funds rule and the intermediate balance rule (lowest balance from deposit to date of default).
Attached vs Non Attached
Security interests which have attached will receive priority over those that have not attached. Note: attachment will not occur where the lender has not given any value
Perfected vs unperfected
Security interests which have perfected will prevail over unperfected security interests. Note: you can achieve perfection before attachment and the finalised security will backdate to the date of perfection
Perfected v perfected
Generally, the party that has perfected will prevail over a party that has not perfected. Noting, per previous, you can achieve perfection before attachment occurs.
PMSI in inventory
A PMSI in inventory will prevail over other perfected security interests in the same inventory if the PMSI holder FILES before the debtor takes possession, notifies the other perfected security holders of its PMSI and describes the collateral
PMSI in equipment and farming (no inventory and livestock)
A PMSI is equipment and farming will prevail over other PMSIs in the same property where, within 20days of the debtor taking possession, the PMSI holder files its interest
PMSI v PMSI
Generally speaking, the PMSI that first perfects wins. However, a seller PMSI holder will prevail over a lender PMSI holder
Priority in deposit accounts
Cannot be perfected via control. Order of priority is:
1/ Creditor in whose name the acct is in
2/ Bank creditor who also holds the acct
3/ Bank and debtor agree that creditor can direct bank in the event of a default
Priority in fixtures
Fixtures attach to land. The first filing will prevail (land or fixture). For consumer goods, there is a 20 day grace period after the fixture gets attached within which a party can file. Fixture filings are filed where the land is located
Priority in accessions
A good that attaches to property but which does not lose its identity. If Ana accession becomes part of a whole, and the whole is perfected according to statute, the security in the whole prevails over the accession
Priority in crops
Crops prevail over the land they grow on
Priority - Buyer vs unperfected security interest
A buyer without notice and for value will prevail over an unperfected security interest
Priority - Buyer vs perfected security
A buyer will prevail if they are a bona fide purchaser for value without notice, the security interest is a non possessory one and the buyer buys in the ordinary course of business
Priority - Buyer vs PMSI consumer goods holder
A buyer will defeat a holder of a PMSI in consumer goods where the buyer is bona fide purchaser for value without notice and takes the goods before they are filed
Judgment lien vs perfected security interest
A perfected security interest will prevail over a judgment creditor including future advances from a judgment creditor either 1/ for 45 days after or 2/ if the future advances are made without notice
Judgment lien vs unperfected security interest
An unperfected security interest will not prevail over a judicial lien. Note: there is a grace period of 20 days from which a debtor receives goods by which the security interest holder can record
Default events
Parties at liberty to define what is default in their agreement; cannot include clauses which waive redemption
Reclaiming possession - tangible goods
Creditors are entitled to reclaim possession provided it does not constitute a “breach of the peace.” “Breach of the peace” is not defined under the UCC but courts have interpreted it as events which include threats of violence, violence etc
Reclaiming possession - intangible goods
A creditor can reclaim possession for any intangible goods via exercising rights of control
Disposition of collateral by secured party
A secured party may dispose of collateral via a commercially reasonable sale designed to garner a fair commercial value.
Effect of a sale
A sale discharges the debt security. Any surplus goes to the debtor and any deficiency is the personal liability of the debtor. [Neither party is liable for the surplus or deficiency if the underlying collateral is: accounts, chattel paper, payment intangibles or promissory notes]
Right to redeem
A clause in the security agreement which waives the right to redeem will be void. A right to redeem can only be waived upon the occurrence of a default event
Strict foreclosure
Strict foreclosure is where the creditor keeps the collateral to satisfy the outstanding debt. A strict foreclosure can only be exercised if the debtor is notified and does not object within 20 days from notification. Further, the other perfected interests must also be notified within 20 days and must not object - if they object, the collateral has to be sold.
Liability for UCC violations
A creditor will be liable for UCC violations such as (i) failing to notify before strict foreclosure (ii) committing a breach of the peace in reclaiming property (iii) relying on a waiver of redemption clause etc. The creditor will be liable for all losses/damages flowing from the breach or deny the creditor the whole or part of the deficiency judgment.
Presumed value of seized collateral
The presumed value of the seized collateral is the value of the debt - unless the creditor proves otherwise. For PMSIs that are consumer goods, the value is discretionary and can be decided by the court incl to do away with the aforementioned presumption.
Governing law
Where debtor incorporated
Where CEO resides (where co not incorporated)
Where debtor relocates to a new state
The collateral remains perfected for 4 months after which creditor must file in the new state
Where there is a new debtor in a new state
The collateral remains perfected for 1 year or until expiry (whichever is first)
Tangible goods - farming goods
Milk, crops, tractors - Goods used or produced in farming
Tangible goods - Consumer goods
Milk, TV, toaster - Goods purchased for everyday household use
Tangible goods - Inventory
Milk crates, eggs, paper - Goods that are kept for sale or lease
Tangible goods - Equipment
Guitar in the hands of a rock band - Catch all category of items that do not belong in the aforementioned categories
Intangible goods - Instruments
Writings evidencing the right to be PAID (cheques, promissory notes)
Intangible goods - Documents
Writings evidencing the right to RECEIVE goods (bills of lading, receipts)
Intangible goods - Chattel paper
Writings evidencing promissory notes and security agreement - evidencing the right to receive payment and a security agreement
Intangible goods - Accounts
Writings evidencing the right to be paid for goods and services rendered not falling into the aforementioned category
Intangible goods - Deposit account
Commercial bank accounts, can only be perfected by control, not filing
Intangible goods - General intangibles
IP rights, rights to receive payment following tort action
Original use test
The original use test dictates that the original purpose for which the good was purchased for is the category to which the good belongs
