Secured Credit Flashcards
What does article 9 apply to?
Article 9 applies to all security interests in personal property or fixtures by contract.
Does something need to specifically state that it is a security agreement to be one?
The words “security agreement” do not have to be specifically stated for one to exist.
What is the lease disguise?
Article 9 also applies to lease agreements that are not true leases (but instead, security interests).
What are the four classifications of goods?
- consumer goods
- inventory
- equipment
- farm products
What are consumer goods?
goods that are bought for use primarily for personal, family, or household purposes (e.g., a computer in the hands of a consumer).
What is inventory?
goods, other than farm products, that are held by a person for sale or lease to be furnished under a contract of service; or raw materials, work in process, or materials used or consumed in a business (e.g., computers sold by a computer store).
What is equipment?
goods, other than inventory, farm products, or consumer goods (e.g., a computer used in a business).
What are farm products?
crops, livestock, supplies produced in a farming operation or products of crops or livestock in their unmanufactured state in possession of debtor who is engaged in a farming operation.
What are the requirements of attachment?
(1) value must be given by the secured party to the debtor (e.g., a loan);
(2) the debtor must have rights in the collateral; AND
(3) there must be a binding security agreement which requires (mnemonic=AID): authentication, intent to create a security agreement, and a description of the collateral.
What is after-acquired property rule?
The general rule is that a security agreement can cover after-acquired property and does not need to specifically reference it to be effective.
What are the methods of perfection
- Perfection can occur by filing a financing statement.
- It can be automatic in some cases (e.g., a PMSI in consumer goods).
- interest can be perfected by possession
- or control.
When two secured parties have a security interest in the same collateral, who has priority?
The first to file or perfect has priority.
If no party perfects, then the first to attach has priority.
Know that a perfected security interest beats an unperfected one—even if one has an unperfected PMSI.
What does the buyer in the ordinary course of business take?
A buyer in the ordinary course of business generally takes free of any security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence.
What if a buyer knows a sale is in violation of a term in the security agreement?
a buyer is not in the ordinary course of business
What does a buyer NOT in the ordinary course of business take?
A buyer not in the ordinary course of business takes collateral subject to a perfected interest.
Generally, he does not take subject to an unperfected interest if he gives value and does not know about the interest
What is the consumer to consumer goods (garage sale) exception?
A buyer ** not** in the ordinary course of business takes free of a security interest even though perfected, if:
1. he buys without knowledge of the security interest;
2. for value; and
3. for his own personal, family, or household purposes UNLESS
- prior to the purchase, the secured party has filed a financing statement covering the goods.
The goods must be consumer goods both when the seller has them and when the buyer buys them for this to apply.
As between a secured party and a lien creditor, who takes priority?
Priority belongs to the secured party, provided it perfects before the lien arises.
If the interest was unsecured or only perfected after the lien creditor served the writ, then the lien creditor has priority.
If a default occurs, what steps does a secured creditor takes to foreclose on its collateral?
If a default occurs, the lender can demand payment or use self-help to reclaim the goods
so long as it does not breach the peace
What is breach of peace?
There are several factors to examine to determine if the lender has breached the peace, including whether the repossession took place at the debtor’s premises and whether the debtor objected.
Some courts also look at whether trickery was used.
Some courts say that any
objection (even if slight and even if only verbal) amounts to a breach of the peace.
What is resale?
The secured party may sell or dispose of the collateral in a commercially reasonable way.
The security interest is discharged when this occurs, but the debtor is liable for any deficiency.
The obligation owed to the disposing secured party and any junior liens are paid off. (Senior liens remain on the collateral.)
The debtor’s two means of protecting itself if the secured party fails to comply?
- the sale must be commercially reasonable
- The debtor must receive written notification of the sale.
What constitutes written notification of the sale?
The debtor and perfected secured parties (or secured parties who have notified the secured party of their interest) must know when the chance to redeem the collateral is going to pass. (This is not necessary if the collateral threatens to decline rapidly.)
What is the timing for written notification of a sale?
Timeliness: this is generally a question of fact, but in a nonconsumer transaction, a notification sent 10 days or more before the disposition (sale) is considered reasonable.
What is the content of the notifcation of sale in nonconsumer transactions?
In nonconsumer transactions: the notification of disposition should describe the debtor and the secured party and the collateral, state the method of disposition, and state that the debtor is liable for unpaid indebtedness as well as a charge for accounting.
