Secured Transactions Flashcards
1
Q
Attachment
A
Gives creditor rights as to debtor
- Sign security agreement / take possession
a) Security agreement
i) Reasonable detail – collateral
ii) Debtor authorizes
iii) language
b) Possession - Creditor gives value
- Debtor has rights in the collateral
2
Q
Perfection
A
Gives creditor rights as other claimants
- Attachment
- 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
3
Q
PMSI
A
Creditor advances credit/ provides funds need to to make purchase & takes security interest in the goods
4
Q
A good
Types of Goods
A
Tangible, movable, personal property
Consumer, equipment, farm product Invetory (in the hands of the debtor)
5
Q
Consumer goods
A
Goods used or bought for use for use primarily for: personal, family household
6
Q
Equipment
A
Good for use in business
Also default category
7
Q
Farm Product
A
Crops, livestock or supplies held by farmer
8
Q
Inventory
A
Good held for sale or lease; materials used in course of business in short period
9
Q
Instruments
A
Promissory notes, checks, drafts
10
Q
Document
A
Right to receive good
Bill of lading, warehouse receipt
11
Q
Chattel Paper
A
Monetary obligation + security interest in specific good
12
Q
Record
A
Information stored in tangible medium or intangible medium
13
Q
Investment property
A
Stocks, mutual fund, brokerage account
14
Q
Account
A
Right to payment for property sold or services rendered
Account receivable
15
Q
Deposit account
A
Account maintained by a bank
Can only take interest in business bank account not individual
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
17
Q
General intangible
A
Intellectual property, goodwill – any personal property not coming within the scope of the other definitions
Also Default category
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
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
20
Q
Attachment
A
Automatically creates a security interest between debtor and secured party when 3 requirements then secured interest created
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
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
23
Q
Description of collateral requirements
A
Reasonably identify
Timber – land concerned
Vocabulary or Article 9
NOT super generic
24
Q
Pledge
A
Collateral in possession/Control of secured party + oral security agreement
25
Special collateral where control = security agreement
Non-consumer deposit account, electronic chattel paper, investment property
26
Value Given
Any consideration is sufficient, even past consideration
27
Buyer who retains title to goods has a…
Unperfected security interest.
28
After-acquired property clause
Allows creditor to reach property owned by debtor after the execution of the security agreement
29
After acquired property clause- Exception
Court implies if property is type that is rapidly depleted and replenished
30
Proceeds
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
31
Identifiable proceeds
Creditor can prove the proceeds can be traced back to original collateral
Cannot identify if comingled
32
Comingled Cash test
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)
33
Supporting obligation
Guarantee or surety (promise to pay debt of another)
| Attachment of security interest in collateral is attachment of security interest in supporting obligation
34
Perfection
Process of giving public notice to security to public
35
How does perfection impact debtor?
Does not impact whether creditor is secured or not. Attachment only matters.
36
How to perfect
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
37
Automatic
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
38
Possession
Perfection continues as long as in possession
NOT: General intangible, account, other intangibles
YES: Goods
money CAN ONLY BE PERFECTED BY POSSESSION
39
Control
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)
40
Notation on certificate
Exception
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
41
Filing a financing statement
Notice indicates creditor may have interest
42
Requirements on a financing statement
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)
43
Ipso Facto Authorization
Automatically authorizes financing statement if debtor authenticates/signs security agreement covering same collateral
44
Name rules
indexed by name
| individual: driver’s license, individual name (known in community), personal name, surname) – not just trade name
45
Error in financing statements – standard
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
Change of name rule
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
After acquired property
no need to explicitly state after acquired if description is broad enough to cover the after acquired proeprty
48
Real property financing statement requirements
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
Where to file
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
Choice of law – Multi State Transaction
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
Debtor moves
Becomes unperfected after move if you fail to file for 4 months
52
Collateral moves to new owner
Unperfected 1 year after sale if fails to refile
53
How long is financing statement effective?
5 years
54
How to extend?
Continuation statement – within last 6 months of the 5 year life of financing statement
55
How to end claim of security interest
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
When it can be filed
Even before seucirty agreement entered into
57
Perfection of Proceeds
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
Duty to amend financing statement?
No duty even if seriously misleading
59
Perfected secured creditors
First to file (financing statement) or perfect
| Perfect: (PMSI in consumer goods automatic)
60
Unperfected secured creditors
First to attach
61
Perfected vs. Unperfected
Perfected
62
PMSI in goods other than inventory or livestock
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
PMSI in inventory or livestock
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
Consignor’s interest in goods
Considered PMSI in inventory
65
Seller financed PMSI vs. Financer Finance
Seller financed wins
66
Investment property
Control beats other method (then timing based on control)
| Debtor’s intermediary beats creditor
67
Deposit Accounts
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
Transfer of money/deposit account funds
Transferee takes free of security interest unless acted in collusion
69
Purchaser of Chattel paper
Purchase of chattel paper + gives new value + takes possession = priority over security interest arising as proceeds of inventory
70
Purchaser of instruments
Purchaser + takes possession + no knowledge of violation of rights of secured party = takes prikority
71
If buyer has priority do they have security interest?
Security interest does not attach
72
General rule
| Exceptions
```
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
Exception to authorized sale
There is implied authorization for inventory sold to ordinary consumer when sale is not expressly prohibited
74
Sale by Merchant
| - BIOC Rule
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
Sale by Merchant
| - Buyer not in the ordinary course
Knows of violation of secured party’s rights
Takes subject to perfected security interests
Takes free of unperfected security interests
76
Consumer to consumer sale rule
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
Judgement lienholder
Creditor who won a judgment in court; judicial lien (rather than Article 9)
78
Perfected vs. Judgment lienholder
First between:
Secured party perfecting/ field financing statement
Lienholder’s lien arise
79
Special PMSI vs. Lienholder
PMSI has priority if PMSI files w/in 20 days of debtor receiving possession of collateral that lien holder has interest in
80
Future advance clause vs. lineholder
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
Secured Party vs. Statutory lien claimant
Statutory lienholder wins if they maintain possession of collateral (even perfected)
82
Statutory lien claimant
Mechanic lien
83
“Default”
Defined in contract, not defined in article 9
84
Default
| - Methods to acquire Collateral
Self help repossession
| Replevin lawsuit
85
“Self-help”
Creditor may takes collateral without going to court
| Cannot breach the peace – loose statutory privilege
86
“Replevin lawsuit”
Court proceeding to repossess collateral
87
Who has priority as between party stollen from and BFP who purchases?
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
What is the Relevant Theft Warranty is…
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
Breach of peace
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
How to self-help
| - Repossession without removal
May make equipment unusuable (cannot breach peace)
91
How to self-help
| - accounts // chattel paper
Upon notification, account debtor must pay secured creditor rather than debtor
Payment to debtor will not discharge obligation
92
Strict foreclosure
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
What does sale discharge
Interest for which sale is being made & all subordinate interests
NOT superior secured interests
94
Notice of sale
- to whom?
- Timing
- Contents
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
Standard for sale
Every aspect of sale must be “commercially reasonable”
96
When can secured party purchase
Public sale: OK
| Private sale: only if type that would be sold in recognized market/ standard pricing
97
Where does money from sale go?
Cost of repossession
Repay repossessing creditor
Creditors with lower priority
Debtor gets rest
98
Insufficient value from sale
Right to deficiency judgement
99
Additional step for selling creditor after sale of consumer’s goods
Explanation of calculation of any debt still owed
100
Penalty for failure to conduct commercially reasonable sale
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
Minimum recovery for consumer goods
Consumer goods
Secured creditor violates code’s rules
Debtor: min. 10% of cash price of goods + interest charges over life of loan
102
Right to redeem
Following repossession, Debtor can recover collateral by paying everything owed to creditor (due to acceleration clause)
Can only be waived after default
103
Who is responsible for failure to follow article 9?
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
“Fixture”
Good permanently attached to real property (ie elevator)
105
Fixture
| - How/ where to Perfect
“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
Fixture
| - Right on default
priority over real property = may remove.
| - repay damages from removing but no other diminution in value
107
Fixture
| - Priority + Exception
Whoever files first
| Exception: PMSI in fixture takes priority if perfected within 20 days of being installed
108
Fixture
| - Priority between Construction mortgage
Construction mortgage always has priority over fixture filing
109
“Accession”
Goods physically united with other goods (ie tires on a car)
110
Accession
| - Priority – special rule
SI in Title statute product (car) has priority to accession
111
Accession
| - Remove accession
May remove but also fail to agree to removal until party agrees to repay if damaged property
