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MEE > Secured > Flashcards

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

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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

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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

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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

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5
Q

Goods

A

all things movable at the time the SI attached

Classifications:

  1. consumer goods
  2. equipment
  3. farm products
  4. inventory
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6
Q

Consumer Goods

A

used or bought primarily for personal, family, or household purposes

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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

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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

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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

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10
Q

Semi-Intangible and Intangible Property

A
  1. instruments
  2. documents
  3. chattel paper
  4. investment property
  5. accounts (i.e., accounts receivable)
  6. nonconsumer deposit accounts
  7. commercial tort claims
  8. general intangibles
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11
Q

Instruments

A

papers representing the right to be paid money

  • checks
  • promissory notes
  • certificates of deposit
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12
Q

Documents

A

document representing the right to receive goods

  • bill of lading
  • warehouse receipt
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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)

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14
Q

Investment Property

A
  • stocks
  • bonds
  • mutual funds
  • brokerage accounts
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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
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16
Q

Deposit Accounts

A

nonconsumer deposit accounts

  • only ones covered by Article 9
  • bank account held for a business
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17
Q

Commercial Tort Claims

A

claim arising in tort where:

  1. claimant is a business organization or
  2. 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
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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
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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
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20
Q

Attachment

A

creates the interest between D and SP:

  1. D gives value
  2. signs a written security agreement
  3. granting SP a SI in the collateral
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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:

  1. intent to create SI
  2. authenticated/signed by D
  3. description that reasonably identifies the collateral
    * cannot be a supergeneric description
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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
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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
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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
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25
Q

Perfection

A

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
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26
Q

Methods of Perfection

A
  1. automatic perfection
  2. possession
  3. control
  4. notation of lien on certificate of title
  5. financing statement** (most common)
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27
Q

Automatic Perfection

A

PMSI in consumer goods = automatically perfects on attachment

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28
Q

Perfection by Possession

A

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

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29
Q

Perfection by Control

A

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

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30
Q

Perfection by Notation of Lien on Certificate of Title

A

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

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31
Q

Perfection by Financing Statement

A

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
  1. description of collateral
  • must reasonably identify
  • can be supergeneric (unlike security agreement)
  1. secured party’s name
  2. 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

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32
Q

Real-Property-Related Financing Statements

A

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
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33
Q

Location for Filing Financing Statement

A

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
Q

Debtor Moves Out-of-State

A

if D moves out of state, SP has to file within 4 months in the new state to stay perfected

35
Q

Collateral Moves Out-of-State

A

if collateral is moved out of state, SP must file within one year to stay perfected

36
Q

Expiration of Financing Statement

A

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
Q

Termination

A

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
Q

Perfection of Proceeds

A

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
Q

Change in Use of Collateral

A

if D changes its use of collateral, filed financing statement remains effective to perfect the SI

40
Q

Priority

Secured Party v. Secured Party

A

general rule: first to file or perfect has priority

41
Q

Priority

Unperfected SC vs. Unperfected SC

A

general rule: first to attach has priority

42
Q

Priority

Perfected SC vs. Unperfected SC

A

general rule: perfected has priority

43
Q

Special Priority Rules

PMSI in Goods Other Than Inventory or Livestock

A

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
Q

Special Priority Rules

PMSI in Inventory or Livestock

A

has priority over:

  • conflicting SI in the same inventory/livestock
  • if before D receives possession, SP:
      1. perfects and
      1. 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
Q

Seller-Financed PMSI vs. Enabling Loan PMSI

A

seller-financed has priority

46
Q

Special Priority Rules

Investment Property

A
  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
Q

Special Priority Rules

Deposit Accounts

A
  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
Q

Secured Party vs. Buyer of Collateral

A
  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
  1. unauthorized sale = it depends
49
Q

Unauthorized Sale

Buyer in the Ordinary Course

A

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
Q

Unauthorized Sale

Buyer n__ot in the Ordinary Course

A

buyers not in the ordinary course < perfected security interests

buyers not in the ordinary course > unperfected unless they know of SI

51
Q

Secured Party vs. Buyer

Consumer-to-Consumer Sales

A

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
Q

Secured Party v. Judgment Lien Holder

A

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
Q

Future Advance Clauses vs. Judgment Lienholder

A

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
Q

General Hierarchy Order

A
  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
Q

Secured Party vs. Statutory Lien Claimant

A

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
Q

Default

A

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
Q

Self-Help Repossession

A

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
Q

Breach of the Peace

A

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
Q

Judicial Process

A

if self-help is unavailable, SP can use replevin to get the goods

60
Q

Self-Help in Accounts

A

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
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