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Secured Transactions Flashcards

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1
Q

Secured transaction

A

Credit transaction and agreement that creates lien in favor of the creditor

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2
Q

Security Agreement

A

agreement that creates the security interest *Must have language creating the security agreement

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3
Q

Security Interest

A

interest in personal property that secures payment or performance

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4
Q

Purchase Money Interest: PMSI

A

1) Seller-Financed PMSI: 1) the secured party sells the goods to the debtor on credit and 2) retains a security interest in the goods sold OR
2) Financer-Financed PMSI: 1) the creditor loans the funds to the debtor 2) to enable the debtor to buy specific collateral and 3) secures whatever portion of the purchase price still has to be paid *Must use creditors actual money

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5
Q

After Acquired Property Clause

A

Secured party will want to obtain a security interest not only in the present property, but also property that the debtor will obtain in the future

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6
Q

Attachment

A
  • Steps legally required to give the party a security interest in the collateral that is effective against the debtor
  • A creditor is not a secured creditor until attachment
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7
Q

Perfection

A
  • Steps legally required to give the secured party an interest in the collateral that is effective against the world
  • Public notice of security interest
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8
Q

Financing Statement

A

Document used to provide public notice of interest, perfecting the security interest

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9
Q

Types of Collateral

A
  • Goods: Tangible, movable, personal [not real] collateral and have perfection issues that hinge on the use by debtor and the same product can be a different type based on use
  • Intangible or Semi-Intangible Collateral: based on nature of collateral rather than use
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10
Q

Collateral Goods: Types

A

 Consumer Goods: used for personal, family or household purposes
 Equipment: goods that are used for business *Default or catchall- if it does not fit into any other type and is tangible
 Farm Products: Crops or livestock
 Inventory: held for sale or lease OR materials used or consumed in a business in a short period of time
Example: pencils used by Sears- may be equipment or may be inventory

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11
Q

Collateral Intangible: Types

A

 Instruments: promissory notes, checks, and certificates of deposit
 Documents: represents the rights to receive goods – warehouse receipt
 Chattel Paper: a record which evidence both 1) monetary obligations, and 2) security interest or lease of specific goods
 Investment Property: stocks, bonds, mutual funds, and brokerage accounts
 Accounts: right to payment for property sold or services rendered- atty bill not bank acct
 Deposit accounts: bank account
 Commercial Tort Claims: claim where 1) the claimant is an organization or 2) individual, and the claim arose out of the claimant’s business of profession and does not include damages for PI or death- lawsuit
 General Intangibles: any personal property not within the scope of the other definitions- intellectual property [patents, trademark] or goodwill *Default category

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12
Q

Assessing type of good for exam

A

I think it is ___ because ____ are _____. If unsure state both

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13
Q

Scope of Article 9: Applies to

A

1) Transaction creating a security interest by contract- storage garage with contractual lien- this is missing language for Article 9 but will be subject to article 9 rules
2) Seller’s retention of title
3) Agricultural liens
4) Sales of accounts
5) Commercial consignment of goods *Consignor retains title to consignee-store- and will be returned if not bought the store is an agent for the sale but does not own them
6) Secured sale disguised as a lease or leases intended- may try to disguise sale with a security interest as a lease- lease is not covered by article 9, sales are. When you return if there is meaningful value, it is a lease, if used up it is a sale if you become the owner for little or no consideration

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14
Q

Attachment Requirements

A
  1. Security agreement
  2. Value has been given
  3. Debtor has rights in collateral
    *Does not matter what happens first, the instant they all happen attachment happens
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15
Q

Attachment: Security Agreement

A
  • Intentional Record: must show an intent to create a security interest that is written or ESI, can be oral if collateral is in possession of creditor- I’m going to keep your watch until you pay me back- pledge
  • Authenticated: signed by debtor- electronic signature fine
  • Description: reasonably identify the collateral by category or specifically.
     Exception: consumer goods, consumer securities accounts, and commercial tort claims cannot be described by type
     No supergeneric descriptions: all of assets or personal property- not sufficient
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16
Q

Attachment: Value

A
  • Any consideration sufficient to support a contract- promise or mere peppercorn
  • Past consideration will suffice if intended as security
  • On Exam: both must give value so state: Every debtor gives value by promising to repay and the creditor gives value by ____
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17
Q

Attachment: Rights in Collateral

A
  • Secured party in possession must use reasonable care in storing and preserving the collateral
  • Must have rights in collateral-ownership
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18
Q

Scope: Future Advances

A
  • Security agreement may provide the collateral will serve as security not only for present obligation but future advances
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19
Q

Scope: After Acquired Property

A
  • Without explicit clause, the interest only reaches rights to collateral at time debtor signed agreement
  • Must say: debtor owns security right in all equipment, now and in the future
  • Will attach automatically to collateral of a type that’s rapidly depleted and replenished- inventory in grocery store
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20
Q

Scope: Proceeds

A
  • Anything received from the sale, exchange, or collection of collateral or proceeds- Whatever is bought or proceeds
  • Must be identifiable: can be traced back to the original collateral
  • Lowest Intermediate Balance Rule: Commingled cash proceeds will look to the back account starting at the time you are applying the rule
  • Any claims or loss give you rights to identifiable proceeds of collateral- tells us what portion of the commingled bank account is identifiable- pick the lowest number in the bank account since the addition of collateral proceeds
  • **ON exam: do you think the creditor has a security interest? Yes if identifiable, and they are likely identifiable here because…
  • Supporting Obligations: attachment of security interest in accounts, chattel paper, documents, general intangibles, instruments, and investment property automatically extends to a supporting obligation [e.g. surety] for that collateral- guarantee or surety
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21
Q

Perfection

A

Rights between the creditor and the third parties- giving public notice of the security interest
- Imperfected creditor can still have secured interest, just not right to take first against other creditors
*Do attachment analysis first

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22
Q

Perfection: Methods

A
  1. Filing
  2. Taking possession of the collateral
  3. Control
  4. Automatic perfection and
  5. Temporary perfection
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23
Q

Time of Perfection

A
  • Not enforceable against anyone until it attaches to the collateral
  • Perfection occurs upon attachment
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24
Q

Perfection Methods: Automatic

A
  • 1) PMSI in 2) consumer goods
  • Automatically attaches
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25
Q

Perfection Method: Possession

A
  • Where the secured party takes actual possession of the collateral
  • Used for goods bc you cannot have possession of intangibles
  • Only way to have a security possession is money is actual possession
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26
Q

Perfection Method: Control

A
  • Interests in investment property, **nonconsumer deposit accounts, and electronic chattel may be perfected only by control-means they can sell the property or take the money without any further action with the owner
  • Methods of obtaining control:
    1) The bank maintaining account has automatic control- I have my business bank account in your bank
    2) Putting account in secured party’s name
    3) Control agreement- contract between debtor, creditor and bank with account
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27
Q

Perfection Method: Temporary

A

Notation on Certificate of Title
- Only way to perfect security interest in title of vehicle
- Creditor’s name will be added on title by governmental authority
- Exception: car dealer inventory, secured party must perfect by filing a financing statement with the car as inventory not name on title

28
Q

Perfection Method: Filing

A

Financial Statement- UCC 1
- Must file financing statement and must contain:
1) Debtors name and mailing address
2) Secured party’s name and mailing address, and
3) Description of the collateral

29
Q

Financial Statement: Name

A
  • Most important field bc indexed by debtor’s name
  • Give either individual or corp name
  • Majority:
     Individual: Unexpired driver’s license, if no license individual name or debtor’s personal name and surname
     Organization: name on most recent public record
     Trade name is insufficient
  • Common law; name in which community knows you-mess
  • Error in Name: minor errors will not invalidate but seriously misleading errors will invalidate- not seriously misleading if you could discover in a filing office search under the correct name [driver’s license] using the standard search logic- will not fix spelling errors but may fix mike to Michael
  • Errors by office: will not impact effectiveness
  • Name Change: only effective against collateral acquired by the debtor before or within 4 months after change unless you amend financing statement- worry about after acquired security interests
30
Q

Financial Statement: Description of Collateral

A
  • Reasonably identifies collateral
  • **May have supergeneric description- all assets
31
Q

Financial Statement: After Acquired Property

A
  • does not need to have it in financing statement if description is broad enough to cover after acquired– all of now owned or later acquired
32
Q

Financial Statement: Secured Party’s Name

A
  • errors will not make seriously misleading because not filed under debtor’s name
33
Q

Financial Statement: Real Property Related

A
  • financing statements that cover real property-related collateral, must also contain
    1) description of the related real property
    2) name of the record owner
    3) indication it is to be filed in the real property records
34
Q

Financial Statement: Debtor Authorization

A
  • Must authorize the filing in a signed writing either before or after filing- not sign just authorize by any signed writing, security agreement with provision,
  • Ipso Facto: Automatic authorization if the debtor authenticates—signs—the security agreement with the same collateral
  • Do not have to use the standard form can write it out yourself
35
Q

Financial Statement: Place of Filing

A
  • File centrally or the Secretary of state [based on choice of law state where state law applies]
  • Exception: Timber to be cut, minerals or fixtures- filed locally in the real estate records
36
Q

Financial Statement: State Jurisdiction

A
  • Multiple state jurisdictions: file in state where debtor is located
  • Individual: residence
  • Registered Organization: incorporated only not PPB
  • Unregistered Organization: LLP, partnerships- place of business, if more than one- chief executive office
  • Debtor Moves: you have 4 months to change refile in the new secretary of state office
  • Other Collateral: if collateral is moving across state lines to new owner: have 1 year to re-file
37
Q

Financial Statement: Continuation & Termination Statements

A
  • Continuation Statement: financing statement is valid for 5 years, may be extended by filing a continuation statement, must be filed in the last 6 months of the life of the financing statement, can keep renewing- must be perfect- can only be in 4.5-5 years otherwise it dies
  • Termination Statement: secured party is not obligated to terminate a financing statement, must demand the debtor to terminate
  • Consumer goods: secured party must file within 1 month after there is no obligation or commitment
  • Can file before security interest is secured
38
Q

Financial Statement: Proceeds

A
  • If you have a secured interest in collateral the party automatically has perfected security interest in any proceed of the collateral for 20 days, will continue to be perfected without action if:
    1) Proceeds are identifiable cash proceeds
    2) Perfected by a financing statement, same office rule: security interest in proceeds would be perfected by filing in the same place as original filing, and proceeds not purchased with cash proceeds- swap of equipment- cannot be get cash and then use cash to get something else
  • Can perfect new inventory within the 20 days if it does not fall within exception
  • Change in use: remains effective and no duty to correct
39
Q

Priorities

A
  • Priority among conflicting interests in the same collateral
    Battle of Priorities
    1. Identify combatants
    2. Apply rule & exceptions
40
Q

Secured Perfected v. Secured Perfected

A

First to file or perfect, whichever is earlier (can be before loan is given)

41
Q

Unperfected Secured v. Unperfected Secured

A

First to attach

42
Q

Unperfected v. Perfected Parties

A

Perfected generally prevails

43
Q

PMSI (automatically perfected on attachment)

A

Superpriority, superior to prior perfected security interest in same collateral if:
 PMSI in goods other than inventory or livestock: ex: equipment has priority over conflicting interests- jump to front of line- if PMSI was perfected before or within 20 days after the debtor receives possession of the goods
Example: On May 1, D buys equipment from A on credit, and A retains a security interest in the equipment. A delivers the equipment to D on May 5 but does not file a financing statement until May 12. In the interim, D borrows money from B, who obtains a security interest
in the same equipment and files a financing statement on May 10. D defaults You get Superpriority bc w/in 20 days- if late apply perfected secured against another perfected secured
 PMSI in Inventory and Livestock: priority if perfected at the time the debtor gets possession of the inventory and any secured party who has filed their security interest in the same inventory receives authenticated notification from PMSI creditor- harder to test on
 Consignor has PMSI in inventory if they comply with above requirements
Conflicting PMSIs: seller financed PSMI has priority over secured party who has PMSI in collateral

44
Q

Special Priority: Investment Property

A

Security interest perfected by control has priority over security interest perfected by any other method

45
Q

Special Priority: Deposit Accounts

A

Security interest perfected by control has priority over interest perfected by another method—proceeds—if there are conflicting security interests perfected by control:
- Secured party with depositor’s account in the party’s name has priority has first claim and
- Bank that has control because it maintains he deposit account has second place
By writing a check or making electronic funds transfer to a person takes free of any security interest unless fraud

46
Q

Secured Creditor v. Buyer

A

General: the security interest stays on the item
Exceptions:
- Authorized Sale: if secured creditor authorizes sale 1) expressly without the security interest, or 2) implied because the sale is silent
- 3) Buyer in the ordinary Course of Business (BIOC) good faith without knowledge of violations in ordinary course from seller of goods of that kind (BFP) cannot know that your sale violates the secured creditors rights, can know there is a secured interest- they take free from security interests in their supplier
- 4) Buyers Not in the Course of Ordinary Business: buyers not in the ordinary course of business, take subject to perfected security interests and take free from unperfected security interest unless they know of the security interest when they give value or take delivery
- Consumer to Consumer- Garage sale rule: buyer takes free of security interest even if perfected if the buyer buys 1) without knowledge, 2) for value, 3) for the buyer’s own personal purpose and 4) before financing statement has been filed

47
Q

Secured Creditor v. Judicial Lien or Possessory Lien Holder

A

Judicial lien prevails over the holder of a security interest if the lien holder becomes such before ethe security interest is perfected before levy (sheriff collected), if the security interest was perfected prior, the lien holder has priority over the judicial lien
- PMSI Special: if the secured party files a financings statement for a PMSI within 20 days after the debtor receives the collateral, PMSI will have priority over judicial lien arising between time of attachment and filing
- Future Advances: perfected future advance to gain priority over a subsequent judicial lien if made without knowledge, within 45 days or pursuant to commitment entered into

48
Q

Secured Party v. Possessory (Statutory) Lien Holder

A

Statutory lien beats perfected security interest if he maintains possession of car

49
Q

If you lose perfection battle

A

Change the fight, challenge their perfection

50
Q

Default

A

Triggers remedy
- Default is specified in security agreement or late or missed payments
- Not defined in article 9 look to security agreement

51
Q

Self-Help

A
  • How to repossess:
    1) Judicial Process: replevin- takes a while and costs money
    2) Entitled to Repossess by yourself without a breach of the peace
    3) May make equipment unusable- take keys, engine wires
    4) Accounts: if debtor defaults can make notice to all who owes to pay them instead
52
Q

Breach of Peace

A
  • Potential to lead to violence
  • Physical presence + objection
    Examples
  • Burley men, tells them to go away- breach of peace
  • While at work, enters an open window to repossess a stereo, no damage to property: unauthorized entry is probably a breach of peace in residential neighborhood- stranger danger need consent at time of entry
  • Hotwires car from driveway: no- just simple trespass nighttime is the right time
  • Hotwires care from closed garage- breach of peace- more than simple trespass
  • Business premises- less likely to be breach of peace, even if pick the lock just relock
53
Q

Strict Foreclosure

A
  • May retain in full or partial satisfaction if
    1) Send notice to any other creditor and get consent
    2) Retain debtor’s consent
54
Q

Resale of Collateral

A
  • May sell following reasonable notice (10 days)
  • Foreclosure lien and lessor get removed but principal remains- just like property
  • Every aspect of sale must be commercially reasonable—method, advertising, terms, time, place
  • Money from sale:
    1. cost of repossession and sale
    2. lessor creditors
    3. greater creditors
55
Q

Deficiency Judgment

A
  • If sale does not cover can get deficiency judgment
  • If surplus- the debtor gets
  • Must send calculation
56
Q

Creditor Penalties for Not Conducting Reasonable Sale

A
  • Statutory penalty for consumer goods
  • No deficiency judgment
57
Q

Debtor’s Right to Redeem

A
  • If you default, the collateral is repossessed, you can redeem before foreclosure sale
  • Must be full purchase price bc most are acceleration clauses
58
Q

Fixtures

A

Goods that have become so related to real property that an interest in them arises under real property law, must be part of structure- elevator
- To perfect, financing statement for fixture filing must be made in real estate office
- Requires reasonable identifying the fixture
- Rights on Default: creditor must reimburse if damage to property to repair if you do not own

59
Q

Fixtures Priority: Secured Party v. Subsequent RE Interest

A

security interest in fixtures has priority over any RE interest

60
Q

Fixtures Priority: Secured Party v. Prior RE Interest

A

prior RE interest that is properly recorded has priority over security interest that subsequently arises

61
Q

Fixtures Priority: PMSI Exception

A

PMSI take Priority over earlier in time realty interest if its perfected by a fixture filing before the foods become fixtures or within 20 days thereafter

62
Q

Fixtures Priority: Construction Mortgages

A

takes priority over a subsequent PMSI in fixtures regardless of filing

63
Q

Removable Fixtures

A

if readily removable, any method of perfection entitles the secured party to priority

64
Q

Consent & Disclaimer

A

secured party need not perfect to have priority if the owner of RE has authenticated in record consent or disclaimer

65
Q

Accessions

A

Goods that are physically united with other goods in such a manner that the identity of the good is not lost- tires on a car
- Perfection: if security interest is perfected when the collateral becomes an accession, the security interest remain perfected in the collateral
- Priority: rules for priority apply
- Special Rule Vehicles: security interest in accession is subordinate to security interest in a whole—car—which is perfected by compliance with the requirements of a certificate of title statute
- Removal: may remove accession if priority but may have compensate for damage of removal

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