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MEE (UBE Bar Prep) > Secured Transactions > Flashcards

Secured Transactions Flashcards

Secured Transactions for the MEE

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1
Q

When does a security interest arise?

A

A security interest arises when a debtor uses property as collateral to secure repayment of funds to a secured party.

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2
Q

What does Article 9 of the UCC apply to

A

UCC 9 applies to:

  • any transaction that creates a security interest in personal property or fixtures by contract
  • leases that are for the entire economic life of an item, and
  • sales of accounts receivable, chattel paper and negotiable instruments.
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3
Q

What are the five types of collateral

A
  • Goods
  • tangible intangibles
  • intangible intangibles
  • investment property
  • proceeds
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4
Q

What are the four types of Goods

A

Goods are anything movable at the time the security interest attaches.

  • Consumer goods = goods used or bought primarily for personal, family, or household purposes.
  • Inventory = goods (except farm products) held for sale or lease, or furnished under a contract for service (eg raw materials, work in progress, business materials).
  • Farm Products = goods, other than standing timber, used in a farming operation.
  • Equipment = Goods other than consumer goods, inventory, or farm products (catch-all category).
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5
Q

What are the three types of tangible intangibles

A

Tangible intangibles are certain intangibles reduced to writing that can be transferred by the writing (eg no contractual obligations).

  • Instruments = negotiable instruments (drafts or notes) that evidence a right to payment of money. The writing must be of the type used in the ordinary course of business with teh necessary endorsement or assignment.
  • Documents of Title = any document used in the regular course of business or financing that evidences the person in possession is entitled to teh goods covered by the document (eg delivery orders)
  • Chattel paper = a record evidencing both a monetary obligation and a security interest in, or a lease of, specific goods.
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6
Q

Whare are the two types of intangible intangibles

A
  • General intangibles = intangible collateral that doesn’t fit any other catgory
  • Accounts = righty of payment of a monetary obligation
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7
Q

Investment property

A

Certified and uncertified securities, securities accounts and entitlements, as defined in UCC Art 8

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8
Q

Proceeds

A
  • Collateral in the form of proceeds obtained from the disposition of other collateral
  • Proceeds are either cash or non-cash (eg accounts recievable)
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9
Q

How is a security interest created?

A

A security interest is created by

  • a security agreement or possession of the collateral by the secured party; and
  • attachment
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10
Q

what goes into a security agreement?

A

A security agreement must be:

  • in writing
  • be authenticated (ie signed) by the Debtor
  • contain a granting clause; and
  • contain a description of the collateral.
    • A description is sufficient if it “reasonably identifies what is described.”
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11
Q

What constitutes possession to create a security interest?

A

A secured party must possess the collateral with the intent to secure the debt.

If the secured party has possession, the security agreement can be oral.

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12
Q

Purchase-Money Security Interest (PMSI)

A

The Secured Party has a PMSi if the obligation is incured:

  • as all or part of the price of the collateral (eg a direct-financing seller); or
  • for value given to to enable the debtor to acquire the collateral, if the value is in fact so used (eg a bank loans Debtor money to purchase the collateral).
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13
Q

Attachment (generaly)

A
  • Once the security interest has attached, the secured party has enforcement rights under Article 9.
  • Generally, the security interest continues unless the secured party authorized disposition of the collateral free from the security interest.
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14
Q

When does the security interest attach

A

The security interest attaches when:

  • The secured party gives value
  • The debtor has rights in the collateral; and
  • The debtor has authenticated a security agreement that sufficiently describes the collateral.
    • The description of the collateral must reasonably identify what is described, including by UCC type (except for a transaction with a consumer for consumer goods).
      • A super generic description (ie “all debtor’s property”) is insufficient
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15
Q

When does the security interest attach to after-acquired collateral?

A

The security interest attaches to after-acquired collateral if the agreement contains an express after-acquired-collateral clause.

Exceptions:

  • An interest in inventory or accounts receivable automatically creates a security interst in after-acquired collateral.
  • A security agreement can’t cover acter-acquired consumer goods unless the Debtor acquires rightsin the goods within 10 days of the secured party giving value
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16
Q

Future Advances

A

The security agreement can provide that the collateral secured future avances (eg a revolving-credit agreement)

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17
Q

Does the Security Interest extend to proceeds of the collateral?

A

Yes, the Securty interest automatically extends to identifiable proceeds of the collateral

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18
Q

What are the two elements you need to perfect a security interest

A

Attachment and perfection

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19
Q

Ways to perfect: filing a financing statement, and where to file

A

This is the most common way to perfect a security interest.

  • Where to file: if collateral is a fixture –> couty clerk’s office in the county where the land to which the fixture is attached is located.
  • All other collateral –> Secretary of State’s office in the jx where the debtor is located.
    • If debtor is an individual, they are loacted at the person’s principal residnce.
    • If debtor is a non-registered organization, it is located at its place of business (if more than one place of business, at it’s chief executive office).
    • If debtor is a registered organization (eg a corporation), located in its state of organization.
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20
Q

What is the purpose of a financing statement

A

The purpose of a financing statement is to provide notice that there’s a security interst in the collateral described.

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21
Q

What must a financing statement contain

A

Must contain:

  • The names of the debtor and the secured party and
  • A sufficient description of the collateral covered by the financing statement.
    • A description of the collateral is sufficient if:
      • it reasonably identifies what is described, including by UCC type, or
      • it has a super-generic description
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22
Q

Special financing statement rules for fixtures

A

A fixture filing must also:

  • indicate that it covers a fixture
  • indicate that it will be filed in the real property records
  • describe the real property to which the fixture is related; and
  • provide the name of the owner of the real property, if different from the debtor.
23
Q

When is a financing statement ineffective

A

Financing statement is ineffective if

  • it is filed in the wrong place
  • does not include the required information, or
  • is not authorized by the debtor.
24
Q

Will minor errors make a financing statement ineffective?

A

A financing statement with minor errors is effective unless the errors make it seriously misleading.

25
Q

What happens if the debtor’s name is wrong on the filing statement?

A

Failure to sufficiently provide the debtor’s name is seriously misleading unless: a search of the records using the financing office’s standard search logic would disclose the financing statement.

26
Q

What changes can affect the effectiveness of the financing statement?

A
  • Proceeds from the original collateral
  • debtor’s name change, or
  • debtor moves to another state.
27
Q

changes that can affect the effectiveness of the financing statement: proceeds from the original collateral

A
  • Unless the security agreement states otherwise, a security interest in proceeds from the original collateral is perfected automatically for 20 days.
  • Automatic perfection continues after 20 days only if:
    • a filed financing statement covers the original collateral, the proceeds are collateral in which a security interest may be perfected by filing in the office in which the financing statement has been filed, and the proceeds are not acquired with cash proceeds;
    • the proceeds are identifiable cash proceeds; or
    • the security interest in proceeds is otherwise perfected when the security interest attaches to the proceeds or within 20 days thereafter
28
Q

changes that can affect the effectiveness of the financing statement: debtor’s name change

A

Financing statement will perfect a security interest acquired within four months of the debtor’s name change, unless the secured party files an amendment to the financing statement within that four-month period

29
Q

changes that can affect the effectiveness of the financing statement: debtor moves to another state

A

Secured party must file a new financing statement in the debtor’s new state within four months of debtor’s move

30
Q

How long is a financing statement effective?

A

A filed financing statement is effective for five years from date of filing.

  • A continuation statement must be filed within six months from the date the financing statement would have become ineffective.
  • A financing statement will lapse if it expires without a continuation statement being filed.
    • Upon lapse, the financing statement becomes ineffective and the security interest perfected by the financing statement becomes unperfected.
31
Q

Possession as a means of perfecting a security interest

A

Security interest is perfected if the secured party, or a third-party authorized by the secured party, takes possession of the collateral.

Applies only if the collateral is (1) tangible negotiable documents (2) goods (3) instruments (4) money (5) tangible chattel paper

32
Q

Control as a means of perfection

A

Security interest is perfected if the secured party takes control of the collateral.

Applies only if the collateral is (1) an investment secureity (2) rights to a letter of credit (3) a deposit account or (4) an electronic chattel papare.

33
Q

Automatic Perfection

A

A PMSI in consumer goods perfects upon attachment and remains effective permanently.

Exception: motor vehicles and fixtures–must file to perfect.

34
Q

Priority: basic rule

A

First in time, first in right

35
Q

Priority when the collateral is an instrument or chattel paper

A

Secured party that perfects by possession has priority over a secured party that perfects by filing

36
Q

Priority rules when secured interest is a PMSI

A
  • A PMSI prevails over an earlier perfected security interest (second in time, first in right) if the PMSI perfected:
    • when the debtor gets possession of the collateral; or
    • within 20 days of the debtor receiving possession.
  • Exception: When collateral is inventory, the party with the PMSI must also:
    • notify the secured party, in an authenticated record, that it has obtained a pMSi in debtor’s collateral and
    • be perfected when debtor receives possession of the inventory (no 20 day grace period).
37
Q

What is a lien creditor

A

Lien creditor acquries interest in the property by attachment, levy, or similar judicial collection procedures, or is a bankruptcy trustee

38
Q

Priority: Lien creditor v. secured party

A

Secured party has priority over lien creditor if secured party:

  • Perfects before the lien creditor’s interst arises, or
  • Files a financing statement and evidences a security agreement (by authentication, possession, or control) before the Lien Creditor’s interest arises.
39
Q

Priority for PMSIs (lien creditor v. secured party)

A

PMSI takes priority over an intervening lien creditor if the PMSI is perfected within 20 days of when the debtor receives the collateral

40
Q

What are accessions

A

Accessions are goods physically united with other goods but the identiy of the original goods is not lost.

Ordinary rules of priority apply except a security interest in the accession is subordinate to a security interest in the “whole” of the good if perfected pursuant to a certificate-of-title statute.

41
Q

What are commingled goods

A

Commingled goods are goods so physically united with other goods tha the indentity of the original goods is lost.

Ordinary rules of priority apply except for multiple security interests in commingled goods. Each security interst ranks equally in proportion to the value of the collateral at the time it became commingled goods.

42
Q

Priority: buyer of collateral v. secured party

A

The secured interest survives the sale of the collateral unless:

  • The secured party authorized the sale free of the secured interest,
  • the buyer is a buyer in the ordinary course of business (BIOCOB), or
  • there is a consumer to consumer transaction
43
Q

What is a buyer in the ordinary course of business

A

A BIOCOB is a person who:

  • buys in good faith
  • without knowledge that the sale violates the secured party’s rights in the goods
  • in the ordinary course of business, and
  • from a person in the business of selling those goods.
44
Q

what is a consumer to consumer transaction

A

Applies to goods bought for personal, family, or household use by someone who uses the goods for that purpose.

A buyer takes free of a security interest created by the seller if:

  • they buy for value
  • without knowledge of the security interst, and
  • before a financing statement is filed.
45
Q

Priority: buyer of chattel paper v. secured party

A

Buyer of chattel paper has priority over a secured party in proceeds of inventory if:

  • they bought in good faith and in the ordinary course of business,
  • gave value and took possession or control of the chattel paper, and
  • the chattel paper does not indicate that it’s been assigned to another party.
46
Q

Priorty: buyer of fixtures v. secured party

A
  • When collateral consists of a fixture, the creditor with a security interest in the fixture wants priority over the mortgagee; to do so, the creditor needs to file a fixture filing.
  • “First in time, first in right” applies if the secured party with a security interest in the fixture files a fixture filing. –> The mortgage has priority if recorderd before secured party files a fixture filing.
    • Exception: a PMSI in the fixture has super-priority (second in time, first in right) if the security interest is perfected by a fixture filing before becoming fixtures or wthin 20 days of the goods becoming fixtures.
47
Q

What happens on default

A

Upon default, the secured party may repossess tangible collateral if it can do so without breach of the peace (ie likely to cause violence).

If not, secured party must file an action for replevin and the sheriff will seize the proeprty.

48
Q

Debtor’s right to redeem

A

The debtor has the right to redeem the collateral by paying the amoun to the obligation, interest, and resaonable expenses and attorney’s fees caused by the default.

Debtor can waive the right to redeem in writing after default only.

49
Q

Disposition after Default

A

All aspects of disposition of the collateral must be commercially reasonable.

50
Q

Notice before disposition: timing

A
  • Secured party must send notice to the debtor, any filed secured parties, and any other person for whom the secured party has received notification of an interest in the collateral.
  • Notice must be sent within a reasonable time before the sale (10 days is always sufficient in commercial transactions).
51
Q

Notice before disposition: Contents of notice

A
  • Non-consumer transaction (must contain):
    • description of debtor and secured party,
    • description of collateral,
    • method of intended disposition,
    • a statement that debtor is entitled to an accounting of all unpaid indebtedness, and
    • the time and place of a public sale, or when the collateral will be sold in a private sale.
  • Consumer transactions must additionally include:
    • description of any liability for a deficiency,
    • phone number to call to obtain the amount requried to redeem teh collateral; and
    • phone number or mailing address to find out additional information that is available.
52
Q

Order of distributing proceeds

A
  1. First, all reasonable expenses, including atty’s fees, incurred by the secured party in the process of disposing of the collateral;
  2. Second, pay the outstanding amount due to the secured party that foreclsoed on and sold the collateral; 3.
  3. Third, pay subordinate security interests or liens on the collateral if they sent an authenticated demand before disposal,
  4. Finally any surplus goes to the debtor; if all debts are not covered by the sales, the secured parties can obtain a deficiency judgment.
53
Q

Deficiency

A

Deficiency is the difference between the foreclosure price and the amount due on the security interest.

If the sale is commercially unreasonable, the deficiency can be reduced.

In non-consumer transactions, we reduce the deficiency by the amount between the outstanding amount of the loan and the amount the collateral would have sold for in a commercially reasonable sale.

  • Rebuttable presumption: presume the difference equals $0, so teh debtor does not owe a deficiency.
  • Rebutting the presumption: Secured party can rebut the presumption by showign the collateral is worht less than the outstanding amount of the debt.

MEE (UBE Bar Prep) (8 decks)

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