Secured Transactions

Question 1

Law and Scope

Answer 1

Article 9 of UCC governs any transaction regardless of its form that creates a security interest.

scope: substance over form controls as to whether a security interest is created.

Question 2

Types of Collateral

Answer 2

1. Account
2. Inventory
3. Equipment
4. Consumer Goods
5. Proceeds
6. Chattel Paper

Question 3

Types of Collateral: Account

Answer 3

right to payment of a monetary obligation (property sold and leased, services rendered, insurance policy, secondary obligation, lottery winning, cc debt)

Question 4

Types of Collateral: Inventory

Answer 4

goods that are leased, held for sale under contract, given under a k of service, or consisting of raw materials.

Question 5

Types of Collateral: Equipment

Answer 5

goods other than inventory farm products or consumer goods. (goods all things movable when the security interest attaches)

Question 6

Types of Collateral: Consumer Goods

Answer 6

good purchased primarily personal, family or household purposes.

Question 7

Types of Collateral: Proceeds

Answer 7

types of property:

acquired upon the sale, lease or other disposition of collateral;

collected/ distributed on account of collateral, rights arising out of collateral;

claims arising out of the loss, nonconformity, defect,or interrference with the use of collaterall; or

insurance payable by loss of collateral.

** a check given in exchange for collateral is cash proceeds.

Question 8

Types of collateral: chattel paper

Answer 8

a record that evidences:

a monetary obligation and

either a security interest in specific goods, a lease of specific goods with software.

Question 9

Attachment

Answer 9

secures the creditor’s rights in the collateral, making it enforceable.

Question 10

attachment requirements

Answer 10

• value has been given by the secured party
• debtor has rights in the collateral
• debtor has authenticated a security agrmt that describes the collateral; or the secured party has possion or control of the collateral pursuant to security agmt

Question 11

Perfection

Answer 11

give notice of the creeditor’s rights in the collateral.

** a security interest cannot be perfected, unless it’s a first attached.

Question 12

How is perfection obtained by:

Answer 12

• filing a financing statement with Secretary of State (id the collateral and security interest) OR
• taking possesion or control of the collateral.

Question 13

Financing statement must:

Answer 13

• name th debtor and secured party
• reasonably id the collateral; AND
• filed by a person authorized.

** minor errors are ok unless it makes stmt misleading. insufficient debtor name is seriously misleading.

Question 14

PMSI- Purchase Money Security Interest

Answer 14

created when a creditor extends value to debtor for the purpose of enabling the debtor to acquire rights in the collateral.

• a pmsi for consumer goods = automatic perfection
• pmsi for non-consumer goods= priority if creditor files a financing stmt before/within 20 days after debtor receives delivery of the collateral.

Question 15

Will a security interest transfer if the collateral is sold, leased or any other disposition?

Answer 15

• security interest will continue with the collateral unless the secured party authorizes a transfer free of the security interest.

Question 16

Security Interest in Identifiable Proceeds

Answer 16

a perfected security interest will attach to any identifiable proceeds from the disposition of collateral however the interest will become unperfectedon 21st day after attachment unless:

• proceeds are identifiable cash proceeds
• security interest is perfected when it attaches to the proceeds or within 20 days or
• if all of the following are satisfied:
  
  • original collateral was perfected
  • proceeds are collatral that may be perfected by filing
  • and proceeds are not acwuired with cash proceeds

Question 17

Buyer in the ordinary coursse of business. BOCB

Answer 17

takes free of security interest.

a person that

• buys goods in good faith
• w/o knowledge the sale violates the rights of another AND
• from a merchant who is in business of selling goods of that kind. in OCB.

Question 18

Priorities

Answer 18

PMSI v. Perfct/UnPerfect Interes= a pmsi

perfected v. unperfected= perfected has priority.

perfected v. perfected= first to perfect (1in time, 1 in right)

unperfect v unperfect: first creditor to attach wins.

judgment liens: have priority over conflicting security interest only if the person became a judgment lien creditor before the security was perfected.

Question 19

Secured Pary Rights: Right to Possession of Collateral

Answer 19

After default, a secured party may:

• take possession of the collateral And/ or w/o removal, render equipment unusable and ispose of collateral on a debtor’s promise.

Question 20

Secured PArty Rights: right to dispose of collateral

Answer 20

after default, a secured party may sell, lease or otherwise dispose of the collateral in any reasonably commercial manner.

must send an authenticated notice of disposition to the dentor and any secondary obligor.

• it’s not needed if
  
  • the collateral is perishable, threatens to decline speedily, customarily sold on a recognized market.

Question 21

dispositon at foreclosure sale

Answer 21

the sale:

• transfers all of the debtor’s rights in the collateral to a transferee for value;
• discharges security interest AND
• discharges any subordinate security interests.

** a transferee that acts in good faith takes free of the rights of the debtor, even if the secured party failed to comply with governing rules.

Question 22

commercially reasonable sale

Answer 22

every aspect of disposition ust be commercially reasonable.

commercially reasonable by law if:

• usual manner on any recognized market
• at the current price in any recognized market OR
• in conformity with reasonable commercial practices among dealers in similar property

Question 23

Secured party purchase of collateral

Answer 23

secured party may purchase the collateral at public sale or [privale sale but only if (the collateral is customarialy sold in recognized marker, or the subjet of widely distributed standard price)]

Question 24

right to collect directly from account debtor

Answer 24

a secured party has right to collect a debt directly from account debtor

once acct debtor receives proper notice of an assignment, it can no longer discharge the dent by payments to the original creditor. it can only discharge its obligation by payments.

Question 25

Damages for a secured party failure to comply

Answer 25

• actual dmgs:
  
  • for failure to comply. includes expectation dmg.
• $500 in statutory damages
• civil penalty
  
  • applies to consumer goods
  • debtor may recover
    
    • damaged for loss and
    • either amount not less than the credit service change + 10% of the principal or the time-price differential, plus 10% of cash price.
• restrain collectoion
  
  • court can order if a secured party not. proceeding in accordance with the law.

Question 26

Deficiency Judgment

Answer 26

A deficiency Judgment - a deficiency judgment may be limited when a secured party fails to comply with UCC.

Consumer good transaction its left up to the courts.

• some stateS: absolute bar rule - bars collecting defiency
• other state: rebuttable presumption- presumed that the proceeds equal the total debt owed.

Question 27

Defiency Judgment: Non consumer goods

Answer 27

if a dentor places a secured party’s compliance at issue and the secured party fails to proce disposition was proper THEN defiency amount recoverable is limtied to an amount by which the total debt exceeds the greater of the

• proceeds of the dispo or
• amount that would have been realized if secured party complied.