Secured Transactions Flashcards
SI in an Account Receivable
Definition
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)
Perfection of a SI in an account receivable
usually by filing
unless exception for small-scale assignment of a right or payment intangible applies (rare, but automatically perfected)
Define
PMSI
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
When does special priority rule apply
PMSI in equipment
Day 1: Debtor receives possession in equipment
By day 20, must have filed financing statement
Distribution of proceeds after repossession and sale
- Sale costs, att’y fees
- foreclosing mortgagee
- junior mortgagees
Effect of repossession + sale on subordinate SIs
wipes out all subordinate SIs
unless there is bad faith on part of the purchaser
Remedies available to a secured creditor party after default
may repossess and sell any collateral that secures the debt
Define Security Interest
KIS
- a K
- interest in personal property or fixtures (by a K)
- securing payment of an obligation
When will a transaction create a SI rather than a lease
- lease cannot be terminated
- 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
What is “breach of the peace”
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.
UCC Art. 9 Damages
- 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
Priority
PMSI in a fixture vs. Prior real estate interest (ex: mge) vs. Construction mortgage
Construction mortgage
>
PMSI in fixture that fixture filing within 20 days of becoming a fixture
>
prior real estate interest
How to perfect
SI in a fixture
fixture filing
- everything in UCC Art. 9
- description of real property
- name of D
- in county
Priority
Secured party with a SI in a fixture
vs.
Any RE interest
SI in fixture perfected via fixture filing
>
any RE interest that is recorded
Requirements - valid foreclosure sale
COMMERCIALLY REASONABLE
if not, then actual damages; statutory penalty (consumer goods’ collateral); presumption of ~deficiency judgment
Priority
statutory lien claimant vs. secured creditor
statutory lien
ex: mechanics lien (if they maintain possession of collateral)
>
even perfected security interests
Priority
Secured creditor with future advance vs. Judicial Lien Claimaint
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
Priority
secured creditor with PMSI vs. JLC
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
Priority
Secured Creditor vs. Creditor who won judgment in ct (JLC)
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
Priority fight
Secured creditor vs. Buyer of Collateral
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
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
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
Authorized sale exception
Creditor gives:
- express authorization
- implied authorization
- sale of inventory to ordinary consumer
- acquiescence
Implied authorized sale exception
acquiescence
OR
sale of inventory to an ordinary consumer
**inventory in the ordinary debtor’s hands
Buyer in the ordinary course exception
- You are a buyer in the ordinary course
- SI was created by the seller
- business usually sells this good
- 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)
