Secured Transactions

Question 1

SI in an Account Receivable

Definition

Answer 1

right to payment for goods or services (namely, $$)

usually perfected by filing

BUT if SI is in a small-scale assignment of an account or payment intangible, MIGHT be automatically perfected (must take into account other assignments by same assignee)

Question 2

Perfection of a SI in an account receivable

Answer 2

usually by filing

unless exception for small-scale assignment of a right or payment intangible applies (rare, but automatically perfected)

Question 3

Define

PMSI

Answer 3

can be financer-financed or seller-financed

lender sells item on credit, retaining a security interest in the good sold

OR

lender lends $ to debtor for the purpose of the debtor buying collateral

→

debtor then uses these advanced funds to purchase the goods

Question 4

When does special priority rule apply

PMSI in equipment

Answer 4

Day 1: Debtor receives possession in equipment

By day 20, must have filed financing statement

Question 5

Distribution of proceeds after repossession and sale

Answer 5

1. Sale costs, att’y fees
2. foreclosing mortgagee
3. junior mortgagees

Question 6

Effect of repossession + sale on subordinate SIs

Answer 6

wipes out all subordinate SIs

unless there is bad faith on part of the purchaser

Question 7

Remedies available to a secured creditor party after default

Answer 7

may repossess and sell any collateral that secures the debt

Question 8

Define Security Interest

Answer 8

KIS

• a K
• interest in personal property or fixtures (by a K)
• securing payment of an obligation

Question 9

When will a transaction create a SI rather than a lease

Answer 9

1. lease cannot be terminated
2. one of the following is true:

• low buy-back price
• advanced funds are significantly less than the property value
• will have little to no value at the end of the lease term
• court otherwise finds a lease based on the totality of circumstances

Question 10

What is “breach of the peace”

Answer 10

Breach of the peace occurs when the secured party’s actions are likely to cause violence—a debtor protective standard.

Thus, the relevant question is not whether or not an actual fight broke out, but whether the secured party did something provocative or likely to cause violence.

A repossession made over any protest by the debtor, however mild the protest, constitutes a breach of the peace.

If the repossessor misuses the color of law, by for example impersonating a law enforcement officer, he or she has used constructive force and therefore has breached the peace.

Question 11

UCC Art. 9 Damages

Answer 11

• actual damages
  
  • ex: debtor loses his restaurant business
• if consumer - statutory damages
• presumption - not entitled to a deficiency judgment (can be rebutted)

Creditor will try to argue that debtor had a duty to mitigate damages

Question 12

Priority

PMSI in a fixture vs. Prior real estate interest (ex: mge) vs. Construction mortgage

Answer 12

Construction mortgage

>

PMSI in fixture that fixture filing within 20 days of becoming a fixture

>

prior real estate interest

Question 13

How to perfect

SI in a fixture

Answer 13

fixture filing

• everything in UCC Art. 9
• • description of real property
• • name of D
• in county

Question 14

Priority

Secured party with a SI in a fixture

vs.

Any RE interest

Answer 14

SI in fixture perfected via fixture filing

>

any RE interest that is recorded

Question 15

Requirements - valid foreclosure sale

Answer 15

COMMERCIALLY REASONABLE

if not, then actual damages; statutory penalty (consumer goods’ collateral); presumption of ~deficiency judgment

Question 16

Priority

statutory lien claimant vs. secured creditor

Answer 16

statutory lien

ex: mechanics lien (if they maintain possession of collateral)

>

even perfected security interests

Question 17

Priority

Secured creditor with future advance vs. Judicial Lien Claimaint

Answer 17

secured creditor with future advance > JLC if:

Future advance made without knowledge of lien

within 45 days of JLC (lien) arising

OR

Pursuant to a commitment entered into w/o knowledge of loan

Question 18

Priority

secured creditor with PMSI vs. JLC

Answer 18

if the secured creditor files with respect to a PMSI within 20 days after debtor gets possession…

then secured creditor with PMSI > JLC

if not, then default rule: date of perfection** vs. **time of levy

date of perfection OR have filed financing statement + security agreement

time of levy = date the judgment lien arises

Question 19

Priority

Secured Creditor vs. Creditor who won judgment in ct (JLC)

Answer 19

if levy came before perfection → levy wins

perfection OR [SA + file fin.] before levy → perfected secured creditor wins

levy: when the property is seized by sheriff

Question 20

Priority fight

Secured creditor vs. Buyer of Collateral

Answer 20

Generally: buy something, ya bring it home w/ a SI on it

ABCDs!

• Authorized sale exception
• buyer in the ordinary course exception
• consumer-to-consumer rule
• secured SI is unperfected & you don’t know about the security interest & ~BIOC

Question 21

Exceptions to the general rule that when a buyer buys something with a SI on it, he takes it home with the SI on it

Answer 21

ABCDs

• authorized sale exception
• buyer in the ordinary course
• consumer-to-consumer
• don’t know about the SI, you are not a BIOC, and the SI is secured but unperfected

Question 22

Authorized sale exception

Answer 22

Creditor gives:

• express authorization
• implied authorization
  
  • sale of inventory to ordinary consumer
  • acquiescence

Question 23

Implied authorized sale exception

Answer 23

acquiescence

OR

sale of inventory to an ordinary consumer

**inventory in the ordinary debtor’s hands

Question 24

Buyer in the ordinary course exception

Answer 24

1. You are a buyer in the ordinary course
2. SI was created by the seller
3. business usually sells this good
4. you buy it in good faith & without knowledge of violation (you CAN know it has a SI)

exception not met if SI =/= created by the seller (SELLER MUST BE THE DEBTOR)

Question 25

Consumer-to-consumer exception

“garage sale rule”

Answer 25

Buyer takes free of the SI if

1. no knowledge of the SI
2. paid value
3. buying it for personal use
4. no financing statement