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Secured Transactions Flashcards

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1
Q

Attachment

A

Gives creditor rights as to debtor

  1. Sign security agreement / take possession
    a) Security agreement
    i) Reasonable detail – collateral
    ii) Debtor authorizes
    iii) language
    b) Possession
  2. Creditor gives value
  3. Debtor has rights in the collateral
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2
Q

Perfection

A

Gives creditor rights as other claimants

  1. Attachment
  2. Additional Step
    a. File Financing Statement in proper public office
    b. Possession
    c. Automatic if PMSI in consumer goods
    d. Control
    e. Notation of lien on certificate of title
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3
Q

PMSI

A

Creditor advances credit/ provides funds need to to make purchase & takes security interest in the goods

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4
Q

A good

Types of Goods

A

Tangible, movable, personal property

Consumer, equipment, farm product Invetory (in the hands of the debtor)

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5
Q

Consumer goods

A

Goods used or bought for use for use primarily for: personal, family household

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6
Q

Equipment

A

Good for use in business

Also default category

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7
Q

Farm Product

A

Crops, livestock or supplies held by farmer

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8
Q

Inventory

A

Good held for sale or lease; materials used in course of business in short period

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9
Q

Instruments

A

Promissory notes, checks, drafts

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10
Q

Document

A

Right to receive good

Bill of lading, warehouse receipt

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11
Q

Chattel Paper

A

Monetary obligation + security interest in specific good

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12
Q

Record

A

Information stored in tangible medium or intangible medium

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13
Q

Investment property

A

Stocks, mutual fund, brokerage account

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14
Q

Account

A

Right to payment for property sold or services rendered

Account receivable

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15
Q

Deposit account

A

Account maintained by a bank

Can only take interest in business bank account not individual

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16
Q

Commercial tort claim

A

Claim arising in tort whether either: claimant is organization OR claim arose in claimant’s business or profession and does not include damages for personal injury or death

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17
Q

General intangible

A

Intellectual property, goodwill – any personal property not coming within the scope of the other definitions
Also Default category

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18
Q

Scope of Article 9

A

Applies to transaction that creates security interest in:
Personal property or fixtures by contract: a contractual lien that creates a contingent property interest in debtor’s property is under A9
Agricultural lien
Sale of accounts, chattel paper, payment intangibles or promissory notes
Certain consignments: consignor must comply with A9 to give notice to consignee’s creditors (unless consignor is known by creditor to be substantially engaged in selling goods of others)
Secured sale w/ security interest disguised as a lease: at the time that they entered into lease was it anticipated: lease = meaningful economic value; sale = drain value

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19
Q

Secuirty interest disguised as a lease

A

Unperfected security interest

  • Intended as security interest rather than “true” lease – look at economic realitites
  • Ie not terminable by lessee, option to purchase for no or nominal consideration
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20
Q

Attachment

A

Automatically creates a security interest between debtor and secured party when 3 requirements then secured interest created

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21
Q

Requirements for creating attachment/ creating security interest

A

Security agreement (can be oral if collateral is in hands of secured party)// Control
Value given
Debtor has rights in the collateral

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22
Q

Security Agreement language

A

Language that creates or provides for security interest (contingent property interest)
Authenticated by debtor (signed by debtor) (any symbol)
Reasonably identify collateral

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23
Q

Description of collateral requirements

A

Reasonably identify
Timber – land concerned
Vocabulary or Article 9
NOT super generic

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24
Q

Pledge

A

Collateral in possession/Control of secured party + oral security agreement

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25
Q

Special collateral where control = security agreement

A

Non-consumer deposit account, electronic chattel paper, investment property

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26
Q

Value Given

A

Any consideration is sufficient, even past consideration

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27
Q

Buyer who retains title to goods has a…

A

Unperfected security interest.

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28
Q

After-acquired property clause

A

Allows creditor to reach property owned by debtor after the execution of the security agreement

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29
Q

After acquired property clause- Exception

A

Court implies if property is type that is rapidly depleted and replenished

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30
Q

Proceeds

A

Whatever received upon sale, exchange etc. of collateral or proceeds
Unless otherwise agreed, security interest automatically gives the secured party a right to identifiable proceeds

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31
Q

Identifiable proceeds

A

Creditor can prove the proceeds can be traced back to original collateral
Cannot identify if comingled

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32
Q

Comingled Cash test

A

Lowest intermediate balance test – Shows what portion of comingled account is identifiable
When proceeds are deposited vs. time you apply test – lowest amount during that time is the identifiable proceeds (can’t exceeds cash deposited)

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33
Q

Supporting obligation

A

Guarantee or surety (promise to pay debt of another)

Attachment of security interest in collateral is attachment of security interest in supporting obligation

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34
Q

Perfection

A

Process of giving public notice to security to public

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35
Q

How does perfection impact debtor?

A

Does not impact whether creditor is secured or not. Attachment only matters.

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36
Q

How to perfect

A

Attachment + additional step

  • Automatic
    a) PMSI in consumer goods
    b) Acct/Pmnt intangible that does not transfer sig. part of assignor’s account/pmnt intagible
  • Possession
    a) Only way for Money
  • Control
    a) Investment property, electronic chattle paper, non-consumer deposit account
  • Notation of lien on certificate of title
    a) Certificate of title statute
  • Filing a financing statement
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37
Q

Automatic

A

Automatic upon attachmnet

  • PMSI in consumer goods not otherwise covered by title statute
  • Assignment of acct/pmnt intangible that alone//in conjunction with other assignments to same assignee does not transfer sig. part of assignor’s outstanding accounts/pmnt intangibles to creditor
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38
Q

Possession

A

Perfection continues as long as in possession
NOT: General intangible, account, other intangibles
YES: Goods
money CAN ONLY BE PERFECTED BY POSSESSION

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39
Q

Control

A

Security interest in:
- Investment property: steps taken to sell without further action from owner
- Electronic chattel paper
- Non-consumer deposit accounts – CAN ONLY BE PERFECTED BY CONTROL
n Bank where maintained automatically has control
n Put deposit account in secured party’s name
n Agree in authenticated record that bank will follow creditor’s instruction without input from debtor (control agreement)

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40
Q

Notation on certificate

Exception

A

Only way to perfect on an item covered by certificate of title statutes (cars & trucks)
Government authority must note creditor’s name
Exception: if item held by debtor as inventory, secured party must file financing statement against inventory

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41
Q

Filing a financing statement

A

Notice indicates creditor may have interest

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42
Q

Requirements on a financing statement

A
  1. Debtor’s name
  2. Secured party’s name
  3. Describe collateral – reasonably identify collateral (vocabulary, Article 9, super generic ok)
    Optional:
    - Real property collateral rules
    - Debtor must authorize creditor to file in any signed writing (NO SIGNATURE REQUIRED ON FINANCING)
    - Ipso Facto authorization (by authorizing filing of security agreement up so facto authorizes the filing of the financing statement. Financing statement can be filed before security agreement just need to get authorization before hand)
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43
Q

Ipso Facto Authorization

A

Automatically authorizes financing statement if debtor authenticates/signs security agreement covering same collateral

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44
Q

Name rules

A

indexed by name

individual: driver’s license, individual name (known in community), personal name, surname) – not just trade name

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45
Q

Error in financing statements – standard

A

Not seriously misleading
Error in name is seriously misleading if: search with correct name using standard search logic and does not return statement
Not responsible for filing errors by authority

46
Q

Change of name rule

A

If changed name results in statement becoming seriously misleading, financing statement perfects interest:
In collateral acquired by debtor
b/f or within 4 months of change

47
Q

After acquired property

A

no need to explicitly state after acquired if description is broad enough to cover the after acquired proeprty

48
Q

Real property financing statement requirements

A

indicate to be filed in real property records
provide description of real property related to collateral
name record owner if property belongs to someone other than debtor

49
Q

Where to file

A

Unless otherwise state by state, file at secretary of state based on where choice of law provision provides
Real estate: county filing where real estate located
Personal property collateral: secretary of state

50
Q

Choice of law – Multi State Transaction

A

File in state where debtor located
Located:
Individual: principal residence
Registered organization (corp, LLC): where organized
Unregistered (partnership, LLP): place of business (if 1) or chief office

51
Q

Debtor moves

A

Becomes unperfected after move if you fail to file for 4 months

52
Q

Collateral moves to new owner

A

Unperfected 1 year after sale if fails to refile

53
Q

How long is financing statement effective?

A

5 years

54
Q

How to extend?

A

Continuation statement – within last 6 months of the 5 year life of financing statement

55
Q

How to end claim of security interest

A

Termination statement
Upon authenticated demand by debtor must file within 20 days; consumer goods: 1 mo after no outstanding obligation or within 20 days

56
Q

When it can be filed

A

Even before seucirty agreement entered into

57
Q

Perfection of Proceeds

A

Automatic perfection for 20 days
Perfection continues if: identifiable cash OR Same Office Rule (applies in selling inventory for accounts)
1. original collateral perfected by financing statement
2. proceeds would be perfected by filing in same place as original collateral
3. proceeds not purchased with cash proceeds

58
Q

Duty to amend financing statement?

A

No duty even if seriously misleading

59
Q

Perfected secured creditors

A

First to file (financing statement) or perfect

Perfect: (PMSI in consumer goods automatic)

60
Q

Unperfected secured creditors

A

First to attach

61
Q

Perfected vs. Unperfected

A

Perfected

62
Q

PMSI in goods other than inventory or livestock

A

Priority over conflicting security interest in same goods or identifiable proceeds if PMSI perfected when debtor receives possession of collateral or within 20 days thereafter

63
Q

PMSI in inventory or livestock

A

Priority over conflicting seucirty interest in same good if:

  1. secured party perfects
  2. sends authenticated notice to other holders
  3. noticed received within 5 years of debtor getting possession
64
Q

Consignor’s interest in goods

A

Considered PMSI in inventory

65
Q

Seller financed PMSI vs. Financer Finance

A

Seller financed wins

66
Q

Investment property

A

Control beats other method (then timing based on control)

Debtor’s intermediary beats creditor

67
Q

Deposit Accounts

A

Control based on name has priority
Bank with control has priority other than if put in name
Control agreement

Control beats other methods
Timing of obtaining control if all controlled

68
Q

Transfer of money/deposit account funds

A

Transferee takes free of security interest unless acted in collusion

69
Q

Purchaser of Chattel paper

A

Purchase of chattel paper + gives new value + takes possession = priority over security interest arising as proceeds of inventory

70
Q

Purchaser of instruments

A

Purchaser + takes possession + no knowledge of violation of rights of secured party = takes prikority

71
Q

If buyer has priority do they have security interest?

A

Security interest does not attach

72
Q

General rule

Exceptions

A 
Purchase of item with security interest = security interest remains
Authorized sales (SP gave permission)
Buyer in ordinary course
After default by debtor, security interest & subordinate security interests are discharged (superior SI still attach)
73
Q

Exception to authorized sale

A

There is implied authorization for inventory sold to ordinary consumer when sale is not expressly prohibited

74
Q

Sale by Merchant

- BIOC Rule

A

Takes free of security interest created by the seller (not earlier sellers):

  • BFP: Buyer in good faith + No knowledge of violations of secured party’s rights (can know there is security interest)
  • Seller of goods of that kind/ in ordinary course
75
Q

Sale by Merchant

- Buyer not in the ordinary course

A

Knows of violation of secured party’s rights
Takes subject to perfected security interests
Takes free of unperfected security interests

76
Q

Consumer to consumer sale rule

A

Buyer takes free of security interest (even if perfected) if:

  • BFP: Value + No knowledge // no financing statement filed (even if PMSI)
  • Personal use
  • Consumer goods in hands of buyer and seller
77
Q

Judgement lienholder

A

Creditor who won a judgment in court; judicial lien (rather than Article 9)

78
Q

Perfected vs. Judgment lienholder

A

First between:
Secured party perfecting/ field financing statement
Lienholder’s lien arise

79
Q

Special PMSI vs. Lienholder

A

PMSI has priority if PMSI files w/in 20 days of debtor receiving possession of collateral that lien holder has interest in

80
Q

Future advance clause vs. lineholder

A

Future advance made without knowledge of lien OR
Within 45 days of lien arising OR
Pursuant to commitment entered into without knowledge of lien

81
Q

Secured Party vs. Statutory lien claimant

A

Statutory lienholder wins if they maintain possession of collateral (even perfected)

82
Q

Statutory lien claimant

A

Mechanic lien

83
Q

“Default”

A

Defined in contract, not defined in article 9

84
Q

Default

- Methods to acquire Collateral

A

Self help repossession

Replevin lawsuit

85
Q

“Self-help”

A

Creditor may takes collateral without going to court

Cannot breach the peace – loose statutory privilege

86
Q

“Replevin lawsuit”

A

Court proceeding to repossess collateral

87
Q

Who has priority as between party stollen from and BFP who purchases?

A

Party stolen from - purchaser can only buy title that transferor has – thief does not have title so purchaser from thief does not have title.

88
Q

What is the Relevant Theft Warranty is…

A

Implied warranty of good title (unless disclaimed)

Purchaser not obligated to pay seller who sold stollen goods & debtor cannot get money from person sold stollen goods

89
Q

Breach of peace

A

Jurisdictionally dependent
Any conduct by party that has potential to lead to violence
Physical presence + verbal objection = breach of pace
Cannot enter into home without consent at that time (even if you permit entrance in agreement), but simple trespass is permitted
Must lock up after; compare residential vs. commercial

90
Q

How to self-help

- Repossession without removal

A

May make equipment unusuable (cannot breach peace)

91
Q

How to self-help

- accounts // chattel paper

A

Upon notification, account debtor must pay secured creditor rather than debtor
Payment to debtor will not discharge obligation

92
Q

Strict foreclosure

A

Creditor keeps collateral rather than selling:
- Other Secured Parties: Send proposal to parties they have notice of/ perfected by filing/noting security interest on certificate of title
- Debtor: debtor must consent in authenticated record OR if full strict foreclosure (fully discharges) failing to make authenticated objection within 20 days)
If parties object within 20 days then must sell

93
Q

What does sale discharge

A

Interest for which sale is being made & all subordinate interests
NOT superior secured interests

94
Q

Notice of sale

  • to whom?
  • Timing
  • Contents
A

Reasonable notice to debtor and perfected on the collateral
Parties may waive
- Reasonable time (usually 10 days)

Contents:
public: time of sale & place
private: notice of time after which sale will occur
extra info for consumer goods

95
Q

Standard for sale

A

Every aspect of sale must be “commercially reasonable”

96
Q

When can secured party purchase

A

Public sale: OK

Private sale: only if type that would be sold in recognized market/ standard pricing

97
Q

Where does money from sale go?

A

Cost of repossession
Repay repossessing creditor
Creditors with lower priority
Debtor gets rest

98
Q

Insufficient value from sale

A

Right to deficiency judgement

99
Q

Additional step for selling creditor after sale of consumer’s goods

A

Explanation of calculation of any debt still owed

100
Q

Penalty for failure to conduct commercially reasonable sale

A

Actual damages from failure to follow code + consequential
Minimum recovery for consumer goods
No deficiency judgment
Presumption that value of sale = value of debt so no collateral (if individual noncompliance bars recovery of deficiency)

101
Q

Minimum recovery for consumer goods

A

Consumer goods
Secured creditor violates code’s rules
Debtor: min. 10% of cash price of goods + interest charges over life of loan

102
Q

Right to redeem

A

Following repossession, Debtor can recover collateral by paying everything owed to creditor (due to acceleration clause)
Can only be waived after default

103
Q

Who is responsible for failure to follow article 9?

A

Secured party is liable to debtor for damages caused by a failure to follow article 9
Secured party cannot collect deficiency if default rules are broken unless shows breach did not cause deficiency

104
Q

“Fixture”

A

Good permanently attached to real property (ie elevator)

105
Q

Fixture

- How/ where to Perfect

A

“Fixture filing” – financing statement + identity of real estate attached to + name of owner of real estate
- Office where mortgage on land would be filed

106
Q

Fixture

- Right on default

A

priority over real property = may remove.

- repay damages from removing but no other diminution in value

107
Q

Fixture

- Priority + Exception

A

Whoever files first

Exception: PMSI in fixture takes priority if perfected within 20 days of being installed

108
Q

Fixture

- Priority between Construction mortgage

A

Construction mortgage always has priority over fixture filing

109
Q

“Accession”

A

Goods physically united with other goods (ie tires on a car)

110
Q

Accession

- Priority – special rule

A

SI in Title statute product (car) has priority to accession

111
Q

Accession

- Remove accession

A

May remove but also fail to agree to removal until party agrees to repay if damaged property

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