Secure Transactions Basics Flashcards
Define secure transaction
Agreement b/t debtor and creditor
Debtor’s personal personal property will serve as collateral
What happens if a debtor defaults on the loan?
Creditor has rights to repossess the collateral and use it to satisfy the debt
What is attachment?
How security interests are created
(steps necessary for the security interest to be enforceable against debtor)
What is perfection?
Providing notice of a security interest to establish a claim superior to other parties who may wish to claim an interest in the same collateral
What is priority?
Rules to resolve priority disputes between multiple claimants to the same collateral
Define enforcement
Rights and duties of a secured party who enforces its interest in the collateral
What is the best approach to secure transactions MEE problems?
- Identify and classify the property at issue (call of the question)
- Determine which parties have or claim an interest in the collateral
- At least one will be a secured party with a security interest
+ attachment? to which collateral? when?
+ perfection? has the secured party perfected? When? - Find the appropriate priority rule
- Apply the rule to the facts
Define security interest
Interest in personal property/fixtures that secures payment or performance of an obligation
Define security agreement
Contract that creates security interest
Who is a secured party?
Creditor who obtains security interest in debtor’s property
Who is an obligor?
Party that must pay or perform the obligation that the collateral secures
Who is a debtor?
Party with interest, other than security interest, in the collateral (owner)
Can the debtor and obligor be the same person?
Yes, but not always the same person
Ex: if you get a loan and pledge your car as collateral for the loan, you are both the debtor and obligor
Ex: your friend co-signs to help you start your law practices and offers her car as collateral.
Article 9 governs transactions, regardless of the form that creates a security interest in….?
Personal property or fixtures by contract
Note: real estate is not governed by Article 9 of the UCC
True or false: “regardless of form” means the courts look to the words of the contract and not the substance
False.
Courts will look at the substance of the transaction versus the labels parties use
True or false: Agricultural liens fall under Article 9
True. Agricultural liens: interest in farm products that secures payment or performance of an obligation
Sales of which types of collateral are treated like secure transactions?
- Chattel paper
- Promissory notes
- Accounts
- Payment intangibles
Note: This means that the buyer must perfect its interest in the purchased collateral in order to have a superior claim on it
Define collateral
Property subject to a security interest
To properly classify collateral, look to…?
The debtor’s principal use
at the time the security interest is created
What are the subclassifications of Goods?
Goods = things that are movable
- Consumer goods
- Farm products (not equipment)
- Inventory
- Equipment (catch-all)
True or false: a good can transition to a fixture
True.
Ex: a chandelier bought at a store and installed in a home, not taking it with you
What are the different subcategories to rights to payment?
- Instrument: promissory notes, checks, drafts
- Chattel paper: monetary obligation + security interest/lease
- Accounts: payment of a monetary obligation
- Payment Intangible: catch-all/loan of money
Landlord leases property to lessee. Landlord gives lender a security interest in landlord’s right under the lease.
What kind of collateral is this?
Chattel paper: monetary obligation + security interest
Lease serves as a security interest in specific goods, not real property
A landscaper got a loan from a bank and grants the bank a security interest in her right to receive payment from clients for landscaping work.
The right to receive payment for landscaping work is what kind of collateral?
An account: payment of a money obligation
It is a right to be repaid for services rendered
A paper company gets a loan from a bank and pledges as collateral its rights to be paid for the paper it has sold on credit.
What kind of collateral is this?
Account: payment of a money obligation
This is a right to be repaid for goods sold
A paper company forms an agreement (used when paper is sold on credit) providing that the store retains a security interest in the paper sold until the buyer repays the purchase price.
What kind of collateral is this?
Chattel paper: right to payment + security interest
A business loans money to many parties and holds numerous promissory notes that represents borrowers’ obligations to repay.
What sort of collateral is this if the business uses the notes for a loan?
Instrument
Beyond rights of payment, what are the other types of collateral?
- Documents: ownership rights (bill)
- Investment property
- Bank accounts: different from right of payment account
- Commercial tort claims
- Letter of credit rights
- General intangibles: blueprints, copyrights, trademark, software
