MEE - Secured Transactions

Question 1

Application of UCC 9

Answer 1

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.

Question 2

Art UCC 9 vs Leases

Answer 2

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?

Question 3

Art 9 UCC - No application

Answer 3

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

Question 4

Creation of security interests

Answer 4

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.

Question 5

Creation of security interests - attachment

Question 6

Creation of security interests - attachment

Answer 6

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.

Question 7

Security agreement - after acquired property clause - cf perishing goods

Answer 7

Acceptable in security agreements, protects future advances. Not required for fast perishing goods (the fact that the agreement covers turnover goods is implied).

Question 8

Security agreement - specification clauses

Answer 8

Specification clauses dictate what is to occur on default. I.e. acceleration etc, cannot include waiver of redemption until after default occurs.

Question 9

Perfection - UCC 1 / financing statement

Answer 9

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)

Question 10

Perfection - name of individual debtor

Answer 10

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).

Question 11

Perfection - Name of corporate debtor

Answer 11

The name of the corporate debtor must be per their incorporated name (i.e. not trading name)

Question 12

Perfection - Misleading UCC 1 filings

Answer 12

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

Question 13

Perfection - name change

Answer 13

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.

Question 14

Perfection - Termination of UCC 1

Answer 14

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.

Question 15

Perfection via possession / control

Answer 15

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).

Question 16

Automatic perfection for consumer goods PMSI

Answer 16

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).

Question 17

Temporary 20-day perfection in PMSI proceeds

Answer 17

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).

Question 18

Attached vs Non Attached

Answer 18

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

Question 19

Perfected vs unperfected

Answer 19

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

Question 20

Perfected v perfected

Answer 20

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.

Question 21

PMSI in inventory

Answer 21

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

Question 22

PMSI in equipment and farming (no inventory and livestock)

Answer 22

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

Question 23

PMSI v PMSI

Answer 23

Generally speaking, the PMSI that first perfects wins. However, a seller PMSI holder will prevail over a lender PMSI holder

Question 24

Priority in deposit accounts

Answer 24

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

Question 25

Priority in fixtures

Answer 25

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

Question 26

Priority in accessions

Answer 26

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

Question 27

Priority in crops

Answer 27

Crops prevail over the land they grow on

Question 28

Priority - Buyer vs unperfected security interest

Answer 28

A buyer without notice and for value will prevail over an unperfected security interest

Question 29

Priority - Buyer vs perfected security

Answer 29

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

Question 30

Priority - Buyer vs PMSI consumer goods holder

Answer 30

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

Question 31

Judgment lien vs perfected security interest

Answer 31

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

Question 32

Judgment lien vs unperfected security interest

Answer 32

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

Question 33

Default events

Answer 33

Parties at liberty to define what is default in their agreement; cannot include clauses which waive redemption

Question 34

Reclaiming possession - tangible goods

Answer 34

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

Question 35

Reclaiming possession - intangible goods

Answer 35

A creditor can reclaim possession for any intangible goods via exercising rights of control

Question 36

Disposition of collateral by secured party

Answer 36

A secured party may dispose of collateral via a commercially reasonable sale designed to garner a fair commercial value.

Question 37

Effect of a sale

Answer 37

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]

Question 38

Right to redeem

Answer 38

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

Question 39

Strict foreclosure

Answer 39

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.

Question 40

Liability for UCC violations

Answer 40

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.

Question 41

Presumed value of seized collateral

Answer 41

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.

Question 42

Governing law

Answer 42

Where debtor incorporated
Where CEO resides (where co not incorporated)

Question 43

Where debtor relocates to a new state

Answer 43

The collateral remains perfected for 4 months after which creditor must file in the new state

Question 44

Where there is a new debtor in a new state

Answer 44

The collateral remains perfected for 1 year or until expiry (whichever is first)

Question 45

Tangible goods - farming goods

Answer 45

Milk, crops, tractors - Goods used or produced in farming

Question 46

Tangible goods - Consumer goods

Answer 46

Milk, TV, toaster - Goods purchased for everyday household use

Question 47

Tangible goods - Inventory

Answer 47

Milk crates, eggs, paper - Goods that are kept for sale or lease

Question 48

Tangible goods - Equipment

Answer 48

Guitar in the hands of a rock band - Catch all category of items that do not belong in the aforementioned categories

Question 49

Intangible goods - Instruments

Answer 49

Writings evidencing the right to be PAID (cheques, promissory notes)

Question 50

Intangible goods - Documents

Answer 50

Writings evidencing the right to RECEIVE goods (bills of lading, receipts)

Question 51

Intangible goods - Chattel paper

Answer 51

Writings evidencing promissory notes and security agreement - evidencing the right to receive payment and a security agreement

Question 52

Intangible goods - Accounts

Answer 52

Writings evidencing the right to be paid for goods and services rendered not falling into the aforementioned category

Question 53

Intangible goods - Deposit account

Answer 53

Commercial bank accounts, can only be perfected by control, not filing

Question 54

Intangible goods - General intangibles

Answer 54

IP rights, rights to receive payment following tort action

Question 55

Original use test

Answer 55

The original use test dictates that the original purpose for which the good was purchased for is the category to which the good belongs