Secured Flashcards
1
Q
Secured Transaction
A
transaction intended to create a security interest in personal property or fixtures
governed by Article 9 of UCC
2
Q
Purchase Money Security Interest
A
seller-financed = SP sells D collateral on credit and retains an SI in the item sold
enabling loan = SP loans to D for the purpose of enabling D to buy specific collateral, which is used by D to acquire the specific collateral, and the SP takes an SI in that collateral
3
Q
After-Acquired Property Clause
A
clause in the security agreement granting SP an SI in D’s present property and in property obtained by D in the future
4
Q
Future Advance Clause
A
clause in the security agreement granting SP an SI for future loans it grants to D
new security agreements are not needed when a future advance is made
5
Q
Goods
A
all things movable at the time the SI attached
Classifications:
- consumer goods
- equipment
- farm products
- inventory
6
Q
Consumer Goods
A
used or bought primarily for personal, family, or household purposes
7
Q
Equipment
A
goods used or bought for use in business
default category for goods, if it doesn’t fit into the other categories
8
Q
Farm Products
A
crops, livestock, or supplies used in farming or producing crops/livestock if in the possession of a D engaged in farming operations
9
Q
Inventory
A
held by a person who holds them for sale/lease or to be furnished under service contracts
materials used/consumed in a business in a short period of time
10
Q
Semi-Intangible and Intangible Property
A
- instruments
- documents
- chattel paper
- investment property
- accounts (i.e., accounts receivable)
- nonconsumer deposit accounts
- commercial tort claims
- general intangibles
11
Q
Instruments
A
papers representing the right to be paid money
- checks
- promissory notes
- certificates of deposit
12
Q
Documents
A
document representing the right to receive goods
- bill of lading
- warehouse receipt
13
Q
Chattel Paper
A
records that evidence both a monetary obligation and an SI in or a lease of specific goods
can be either tangible (written)
can be intangible (electronic chattel paper)
14
Q
Investment Property
A
- stocks
- bonds
- mutual funds
- brokerage accounts
15
Q
Accounts
A
a right to payment for property sold or services rendered that is not evidenced by instrument or chattel paper
- accounts receivable
16
Q
Deposit Accounts
A
nonconsumer deposit accounts
- only ones covered by Article 9
- bank account held for a business
17
Q
Commercial Tort Claims
A
claim arising in tort where:
- claimant is a business organization or
- claimant is an individual and the claim arose in the claimant’s business or profession and does not include damages for personal injury or death
18
Q
General Intangibles
A
catchall category
any personal property not in the scope of the other definitions
- computer software if sold separately
- if it’s embedded, it follows the computer’s classification
- patent and trademark
- copyrights
- goodwill
- liquor license
when D’s principal obligation is monetary, it’s a payment intangible
- claim in tort that has been settled and reduced to a contractual obligation to pay
19
Q
Secured Sale Disguised as a Lease
A
relevant question: at the time the parties entered into the transaction, was it reasonably likely the “lessor” would get the item back when it still had meaningful economic value
Article 9 will apply if:
- at end of lease, lessee becomes owner for little or no consideration
- lessee is bound to purchase the goods at the end of lease
- lessee is bound to renew the lease for the remaining economic life
- lease is for the entire economic life, with or without renewal
20
Q
Attachment
A
creates the interest between D and SP:
- D gives value
- signs a written security agreement
- granting SP a SI in the collateral
21
Q
Security Agreement
A
required for attachment unless collateral is in the possession or control of the SP
- possession meets security agreement requirement = pledge
-
control may evidence a security agreement if for:
- nonconsumer deposit account
- electronic chattel paper OR
- investment property
requirements:
- intent to create SI
- authenticated/signed by D
- description that reasonably identifies the collateral
* cannot be a supergeneric description
22
Q
Proceeds
A
whatever is received upon the sale, exchange, or disposition of collateral
unless otherwise agreed, a security interest automatically gives the SP a right to identifiable proceeds
- identifiable = SP can prove the proceeds can be traced back to the original collateral
23
Q
Commingled Proceeds
A
lowest intermediate balance test:
look at the balance in the commingled account starting at the time the proceeds are deposited and ending at the time applying the test
- lowest balance during that time = identifiable proceeds
- not to exceed the value of the cash proceeds originally deposited
24
Q
Attachment to Supporting Obligations in Collateral
A
if the property has a surety, SI automatically attaches to the supporting obligation
- ex: SP has SI in D’s accounts
- one of the accounts has a surety – (I will pay if your customer doesn’t)
- SP’s SI attaches to the supporting obligation
25
Perfection
deals with the rights as between the SP and third parties
puts everyone else on notice of the SP's SI
cannot perfect _until_ it has attached
* if you perfect before, the perfection date is the date of attachment
26
Methods of Perfection
1. automatic perfection
2. possession
3. control
4. notation of lien on certificate of title
5. financing statement\*\* (most common)
27
Automatic Perfection
**PMSI in consumer goods** = automatically perfects on _attachment_
28
Perfection by Possession
SP can perfect an SI by taking possession
SI is perfected from the moment of possession without relation back to the time of attachment
perfection continues _only so long_ as perfection is retained
_impossible for_: accounts, deposit accounts, general intangibles, electronic chattel paper
29
Perfection by Control
nonconsumer deposit accounts **must** be perfected by control
* bank where account is maintained **automatically** has control
* if SP is not a bank, it can have control if:
* put deposit account in SP's name _or_
* control agreement = agree in authenticated record with the bank and D that the bank will follow SP's orders
investment property and electronic chattel paper **may** be perfected by control
30
Perfection by Notation of Lien on Certificate of Title
the **only** way to perfect SI in cars and trucks
_exception_: if D is holding the car or truck as **inventory**, it must perfect by filing a financing statement
31
Perfection by Financing Statement
notice filing to give _everyone else_ notice that SP has an SI
_contents_:
1. name of D
* individual name, corporate name, or partnership name
* _must_ match the unexpired ID for individuals
* must not be **seriously misleading**
* standard search logic would pull up the proper name
* if name changed and is now seriously misleading, you have _4 months_ to amend and stay perfected
2. description of collateral
* must **reasonably identify**
* can be supergeneric (unlike security agreement)
3. secured party's name
4. must be authorized by D
* automatically authorizes if authenticates a security agreement in the same collateral
* _also_: security agreement itself can be filed if it meets the above requirements
_note_: additional rules for real-property-realted financing statements
32
Real-Property-Related Financing Statements
_requirements_:
1. must indicate that it is to be filed in the real property records
2. provide a description that reasonably identifies the real property
3. name the record owner (if D doesn't own)
* minerals
* timber to be cut
* fixtures
33
Location for Filing Financing Statement
general rule = filed with the Secretary of State
real-estate records are usually filed in the _real estate records_ of the county where the real property is located
_multi-state transactions_: file in state where D is located
* individual = principal residence
* organization = state of organization
* unregistered organization = place of business (if 1); chief executive office (if 2+)
34
Debtor Moves Out-of-State
if D moves out of state, SP has to file within 4 months in the new state to stay perfected
35
Collateral Moves Out-of-State
if collateral is moved out of state, SP must file within _one year_ to stay perfected
36
Expiration of Financing Statement
financing statements are good for 5 years
can be continued if SP files a **continuation statement**
must be filed in the _last 6 months_ before the 5 year period is up
37
Termination
when no outstanding obligation of D and no commitment for further advances, SP must provide D with a termination statement within 20 days of receiving an _authenticated demand_ by D
* if consumer goods, within 20 days of demand _or_ within one month of no outstanding obligation (automatically)
38
Perfection of Proceeds
if SP has perfected SI in collateral, SP _automatically_ has perfected SI in whatever proceeds D receives in that collateral for _20 days_
to remain perfected on proceeds beyond 20 days, need further action
_unless_:
* identifiable cash proceeds _or_
* _same office rule_: SI in the original collateral would be perfected by filing in the same place
39
Change in Use of Collateral
if D changes its use of collateral, filed financing statement _remains effective_ to perfect the SI
40
Priority
Secured Party v. Secured Party
_general rule_: first to file or perfect has priority
41
Priority
Unperfected SC vs. Unperfected SC
_general rule_: first to **attach** has priority
42
Priority
Perfected SC vs. Unperfected SC
_general rule_: **perfected** has priority
43
Special Priority Rules
PMSI in Goods _Other Than_ Inventory or Livestock
has **priority** over:
* conflicting SI in the same goods
* **_or_** its identifiable proceeds
* **_if_** the PMSI is perfected at the time D received possession of the collateral **_or_** within 20 days thereafter
if fails special rule, return to general rule
44
Special Priority Rules
PMSI in _Inventory_ or _Livestock_
has **priority** over:
* conflicting SI in the same inventory/livestock
* if **_before_** D receives possession, SP:
* 1. perfects _and_
* 2. send authenticated notice to holders of previously filed conflicting SIs in the collateral
* must notice w/in 5 years before D receives possession
if fails special rule, return to general rule
45
Seller-Financed PMSI vs. Enabling Loan PMSI
seller-financed has **priority**
46
Special Priority Rules
Investment Property
1. perfected by control \> any other method
2. if both by control, _first_ to obtain control
3. SI to D's intermediary \> SI by D to another SP
4. unless 1-3, first to file or perfect
47
Special Priority Rules
Deposit Accounts
1. SI perfected by control \> SI perfected via proceeds
2. if each perfected by control, whoever obtained control first
3. SP who has control by putting account in its name has priority over all other SPs with control
4. bank that has control because it maintains the account has priority over all other SP with control _except_ SP who obtained control by putting the account in his name
48
Secured Party vs. Buyer of Collateral
1. **general rule** = if you buy something with a SI, it stays on the collateral
2. **authorized sale** = if authorized by SP free of the SI, buyer takes free
* can be express or implied
* inventory to an ordinary consumer is almost always implied
* sale of inventory to a liquidation company is _not_ implied
* acquiescence is also implied, even with consent requirement written in the contract
3. **unauthorized sale** = it depends
49
Unauthorized Sale
Buyer in the Ordinary Course
buyer in the ordinary course takes free of SI created **_by his seller_** even if SI was perfected and the buyer knew of SI
* has to buy in **good faith** (didn't know unauthorized)
* and from a person in the business of **selling goods of the kind**
50
Unauthorized Sale
Buyer _n__ot_ in the Ordinary Course
buyers not in the ordinary course \< perfected security interests
buyers not in the ordinary course \> unperfected **_unless_** they know of SI
51
Secured Party vs. Buyer
Consumer-to-Consumer Sales
buyer takes free of SI _even if perfected_ if he buys:
1. from **consumer debtor**
2. **without knowledge** of the SI
3. for **value**
4. and for his own **personal, family, household purpose**
5. _unless_ SP filed a **financing statement** over the collateral
52
Secured Party v. Judgment Lien Holder
unsecured creditor that has obtained a judgment and levied that judgment is a _lien creditor_
* look at time of perfection vs. time of levy
_priority_:
* SI perfected before levy, **SI has priority**
* levy occurs before SI is perfected, **lien has priority**
_special rule_: SP that files for a PMSI within 20 days of D receiving possession of collateral takes priority over lien creditor which arises between the time the SI attaches and the time of filing
53
Future Advance Clauses vs. Judgment Lienholder
future advance has priority over lien creditor if:
1. made without knowledge of the lien OR
2. within 45 days of lien arising OR
3. pursuant to commitment entered into w/o knowledge of lien
54
General Hierarchy Order
1. buyer in the ordinary course
2. perfected attached creditor
3. lien creditor
4. non-ordinary course buyer
5. attached unperfected creditor
6. general unsecured creditor
55
Secured Party vs. Statutory Lien Claimant
statutory lien claimant = i.e., mechanic fixing your car
**general rule** = statutory lien beats out perfected SI
* statutory lien claimant has priority so long as he maintains possession
* if he gives up possession, he has a lien but no priority
56
Default
typically in the security agreement
in the absence of agreement, usually, it's just the **failure to perform/pay the obligation when it is due**
57
Self-Help Repossession
SP can take possession without judicial process if it can be done without **breach of the peace**
* if SP breaches the peace, he loses authorization to repossess
* may be sued for conversion or other intentional torts
* liable for actual and (sometimes) punitive damages
58
Breach of the Peace
any conduct by SP that has the _potential_ to lead to _violence_
physical presence by D + verbal objection is usually enough
taking cars from the driveway is not a breach of the peace
* entering a dwelling (including a garage) without consent or with premature consent is a breach of the peace
* entering a business is usually ok, even if you pick the lock, _so long as_ you lock the door when you leave (otherwise BOP)
* can make equipment unusable on property w/o BOP
59
Judicial Process
if self-help is unavailable, SP can use **replevin** to get the goods
60
Self-Help in Accounts
if D defaults and the collateral = accounts:
* SP can notify account debtors (owe $ to D) in signed writing
* account debtor must pay SP rather than D
* otherwise, payment to D will not discharge the obligation
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
