Secured Transactions Flashcards
UCCC Article 9 applies to _______.
Consensual security interests in personal property/fixtures
Consensual security interests are also known as _______.
Voluntary
Personal property and fixtures includes _____ but not ______.
Goods
Real property
For security interests in real property, the law of ________ applies.
Mortgages
A secured transaction occurs when a _____ through a ______ creates a ______ in favor of _______.
Debtor
Security agreement
Security interest
Secured party
What is collateral in a secured transaction?
The property subject to the security interest
What is a debtor in a secured transaction?
Person/entity with property rights in the collateral
What is a security agreement in a secured transaction?
Agreement that creates/provides for a security interest regardless of:
1. What parties call it
2. Its form
What is a security interest in a secured transaction?
Interest in personal property/fixtures which secure payment/performance of an obligation
What is a security party in a secured transaction?
The person/entity who lends the money to the debtor in exchange for consensual security interest in personal property/fixtures
A secured party is also known as a secured _____.
Creditor
What is collateral in a secured transaction?
Property subject to a security interest that the creditor can look to for satisfaction for the debt
Who is an obligor in a secured transaction?
Person or entity obligated on the debt.
Usually (but not always), the debtor and _______ are one and the same.
Obligor
What is a PMSI?
Purchase money Security Interest
A PMSI arises when __________.
The secured party advances money or credit to enable the debtor to purchase the collateral
What is an account in a secured transaction?
A right to payment of a monetary obligation for property that has been/is to be sold or for services rendered
What are the five categories of tangible collateral?
- Consumer goods
- Inventory
- Farm products
- Equipment
- Fixtures
How tangible collateral is classified turns on ________ or ________.
Debtor’s principal
Primary use for it
In terms of tangible goods, consumer goods are _______
Used/bought primarily for personal, family, or household purposes
In terms of tangible goods, inventory goods are:
- Goods held for sale/lease to others in the ordinary course of business
- Raw materials
In terms of tangible goods, farm goods are _______
Goods (other than timber) which the debtor is engaged with in a farming operation
In terms of tangible goods, categories of farm goods include:
- Crops
- Livestock
- Products of crops/livestocks in remanufactured states
- Supplies used/produced in farming operations
In terms of tangible goods, equipment is _______
Items used in business that are not:
1. Inventory
2. Farm products OR
3. Consumer goods
In terms of tangible goods, fixtures are _______
Good that are so related to particular real property that interest arises under real property
Classification of intangible/quasi-intangible collateral depends on __________.
The nature of the collateral
In terms of intangible & quasi-intangible collateral, instruments are:
- Notes
- Drafts
- CODs
etc.
In terms of intangible & quasi-intangible collateral, documents are:
- Bill of landing
- Receipts
etc.
In terms of intangible & quasi-intangible collateral, chattel paper is ________.
Record evidencing both:
1. A monetary obligation AND
2. A security interest in/lease of specific goods
In terms of intangible & quasi-intangible collateral, accounts are ______
Right to payment of monetary obligation for property that has been/is to be sold/for services rendered
In terms of intangible & quasi-intangible collateral, deposit accounts are _________ deposit accounts only
Non-consumer
In terms of intangible & quasi-intangible collateral, certificated securities are:
- Stocks
- Bonds
- Mutual fund
etc.
In terms of intangible & quasi-intangible collateral, certificated securities are also known as ____________.
Investment property
In terms of intangible & quasi-intangible collateral, commercial tort claims are:
Tort claims that:
1. Arose out of the individual’s business AND
2. Don’t involve personal injury
In terms of intangible & quasi-intangible collateral, general intangibles are ________.
Intangibles that don’t fall into any of the other categories above
The creation of a security interest requires a valid ____________.
Security agreement
Against/between whom is a security agreement effective?
- Between the parties
- Against purchasers of the collateral AND
- Against creditors
An effective security agreement must be authenticated by ________.
The debtor
How can an effective security agreement be authenticated by a debtor?
- Signed by debtor OR
- Electronically marked
A security agreement must contain a description of _______.
The collateral
A description of collateral is sufficient for a security agreement if ________________.
It reasonably identifies what collateral the parties intended the security interest to cover
Article 9 whether title to the collateral is held by ______ or ______.
The debtor
The secured party
Attachment answers what question?
Is the security interest enforceable?
What is attachment?
The process by which the debtor/creditor creates a security interest in the debtor’s property that is effective between these two parties
Security interest attaches to the collateral when ____________ unless _______.
It becomes enforceable against the debtor with respect to that collateral
The agreement explicitly states otherwise
What are the three requirements for attachment?
- Parties agree that the security interest will attach to the collateral
- Creditor must give value
- Debtor must have rights in the collateral
One the attachment requirements are met, a security interest attaches immediately unless _________.
The parties have expressly agreed to postpone the time for attachment
Parties must have an agreement that the security interest will attach to collateral unless _________.
Secured party is in possession of collateral
A secured party must give value before attachment is allowed. Value is defined as _________.
Any consideration sufficient for a basic contract
_______ alone does not mean debtor has rights in the collateral
Possession
A debtor has rights in collateral when:
- Debtor has outright ownership of the collateral
- Debtor has possession via contract
- Good are identified when marked, packaged, or otherwise designated as goods satisfying a particular contract
A security interest can be created in the property the debtor doesn’t currently own but ______________.
The debtor may/will acquire that property in the future
Under the doctrine of after-acquired property clauses, when a debtor acquires new property in the future, the secured creditor’s security interest will automatically __________.
Attach to that property
If parties intend after-acquired property to be included as part of collateral, they must _________.
Specify this in their transaction documents
After-acquired property clauses are enforceable except in regards to:
- Inventory or accounts are receivable
- Consumer goods
- Commercial tort claims
An after-acquired property clause is not required when the collateral is inventory or accounts receivable, but a careful attorney will __________.
Include the after-acquired language in the transaction documents anyway
An after-acquired property clause won’t attach to after-acquired goods unless the debtor acquired the rights within ___________ after _________.
10 days
Secured creditor extended value
Non-possessory security interests in _____ goods are prohibited.
Household
An after-acquired property clause will not attach to commercial tort claims that ______________.
were not in existence when the security agreement was authenticated
A secured creditor can give value by making a commitment to give ____ to the debtor.
Future value
A commitment for future advances must be _____.
Definite
Perfection of the security process does what?
Ensures that the creditor’s security interest in the debtor’s collateral is good against the rest of the world.
Proper perfection by a secured party will protect her from _________.
Subsequent creditors who claim an interest in that same collateral
When the debtor or collateral locates in a jurisdiction, what law governs?
Local law of that jurisdiction
Perfection requires _____ plus ______.
Attachment
A perfection step
Perfection cannot occur until all requirements for ___________ have been satisfied.
Attachment
The UCC provides four methods for perfecting a security interest:
- Filing
- Possession
- Automatic
- Control
What is the most common method of perfection?
Filing a financing statement
A financing statement must indicate _______ and generally describe __________.
- The security interest
- Describe the collateral covered
The purpose of a financing statement is to ____________.
Provide interested parties with enough information to be able to make follow-up inquiries
A secured creditor may perfect by filing _______ instead of ________.
Filing a security agreement
Filing a financing statement
A financial statement must include the following:
- Debtor’s name/address
- Secured creditor’s name/address
- Description of collateral
______ descriptions of collateral are acceptable for financing statements.
Very generic
Where must a financing statement be filed?
In one central public office specified under the state’s adoption of the UCC code
Generally, a financing statement is filed where?
Secretary of State in the state where the debtor is located
If a debtor is an individual, she is located in __________.
The state of her principal residence
If a debtor is a registered organization, it is located _______.
In the state under whose laws it is organized
If collateral covers timbers, minerals, or fixtures, then the filing is done where?
The county where the collateral is located
Filing is the exclusive method of perfection for:
- Accounts
- General intangibles
At common law, possession means ________________.
Absolute physical control over the property that is sufficient to put 3rd parties on notice of the secured creditor/possessor’s interest in the collateral
Perfection of a security interest that was perfected by possession becomes effective upon ___________ and is effective as long as ______________.
Possession
Possession continues
What types of collateral are covered?
- Goods
- Money
- Negotiatble documents
- Certificated securities
- Instruments
- Tangible chattel paper
There is automatic perfection upon attachment if the security interest is __________.
A purchase money security interest in consumer goods
A PMSI in consumer goods arises when _________.
The secured party advances money/credit to enable the debtor to purchase consumer goods
__________ controls a deposit account
The account’s owner
The best way for a creditor wanting tp perfect a security interest in a deposit account would be to _________.
Change the name on the account to that of the creditor
____________ is the only way to perfect an interest in a deposit account
Control
A creditor has control via electronic chattel paper if:
- There is a single copy
- It is marked/designates the creditor as the assignee of record
- The copy can only be changed with agreement by the creditor
Security interests in electronic chattel paper can be perfected by ______ or _______.
Chattel
Filing
What is investment property?
- Stocks
- Bonds
- Rights in securities held by a broker
Stocks and bonds are represented by physical __________.
Certificates
A creditor gains control of stocks or bond by __________.
Taking delivery of the certificates with any necessary endorsements
The best way for a creditor to gain control over a securities account is by _________.
Becoming the holder of the account
Creditors become holders of security accounts by ___________.
Changing the name of the account to that of the creditor
A security interest in investment property can be perfected by either:
- Filing OR
- Control
A creditor gains control by getting the issue of the letter of credit to consent to ___________.
An assignment to the creditor of proceeds of the letter of credit
What are proceeds?
Anything acquired upon the sale, lease, licenses, exchange, or other disposition of collateral
A security interest in proceeds from the original collateral is continuously perfected for ______ from the date that ___________.
20 days
The debtor receives the proceeds
A security interest will continue to be effective beyond 20 days from the date the debtor receives the proceeds if:
- Same office rule
- Proceeds are identifiable cash proceeds OR
- Security interest in proceeds is perfected within 20-day period
What is the same office rule?
- Original security interest in collateral is perfected by filing a financing statement
- Security interest in the collateral constituting the proceeds would be filed in the same office as the original financing statement AND
- Proceeds not purchased with cash proceeds of the collateral
A secured party who gives new value under _____________ gets a 20-day perfection period from the moment of attachment.
An authenticated security agreement
What are the two ways that instruments, negotiable documents, and certificated securities can be temporarily perfected?
- Secured party gives new value under an authenticated security agreement
- Secured party delivers goods/negotiable documents to debtor for disposition
A secured party who delivers goods or negotiable documents to debtor for ________ gets a 20-day perfection period
Disposition
If a debtor moves states, and the debtor’s location governs perfection, how long does temporary perfection last?
4 months
A secured party shall use reasonable care in ___________
The custody and preservation of collateral in the secured party’s possession
In the case of chattel paper or an instrument, reasonable care includes __________________.
Taking necessary steps to preserve rights against prior parties unless otherwise agreed
In many cases a secured party in possession of collateral satisfies her duty of reasonable care by:
- Notifying the debtor of action that should be taken AND
- Allowing the debtor to take action itself
A secured party may charge the debtor for any reasonable expenses incurred in:
- Custody
- Preservation
- Use
- Operation
Of the collateral
A secured party may retain rents, issues and profits as additional security, but _________.
Any money recieved from the collateral must either be returned to the debtor or applied against the secured obligation
The risk of accidental loss or damage is on ______ to the extent that __________.
The debtor
The secured party’s insurance is insufficient
What is the right to re-pledge?
The secured party may re-pledge collateral to a 3rd party so long as this doesn’t impair the debtor’s ability to redeem the collaeteral
How may a secured party use/operate the collateral?
- For purpose of preserving the collateral or its value
- Pursuant to court order OR
- As agreed to by the debtor
What is accession?
Goods that are physically united with other goods so that their identity is not lost
May a security interest be created in an accession?
Yes
If a security interest in the accession is perfected when __________, the security interest remains perfected in the accession.
the accession is installed in other goods
Accession is subordinate to a securited interest perfected by ____________.
Compliance with certificate-of-title statute
A security interest in an accession is subordinate to a security interest in another good if the other good is ___________.
A vehicle requiring perfection to be obtained by noting the security interest on the certificate of title
What are commingled goods?
Goods that are physically united with other goods in such a matter that their identity is lost in a product/mass
Does a security interest exist in commingled goods?
Not really.
A security interest may attach to a product or mass that results when goods become ________ goods.
Commingled
If collateral becomes commingled goods, a security interest attached to ________
The product or mass
If more than one security interest attaches to a mass of commingled goods, the following rules determine priority:
- Perfected prevails over unperfected
- Equal if more than one perfected
Proper perfection gives the secured party priority over _______.
Competing unperfected creditors
Who is a buyer in the ordinary course?
Someone who purchases the collateral from a merchant’s inventory
Who is a perfected attached creditor?
Article 9 creditor who succeeds in perfecting the security interest
Someone can become a lien creditor by either ______ or ______.
Judicial liens
Possessory liens
A lien creditor is created via judicial liens if:
General creditor
1. Wins in court AND
2. Gets a judicial lien on D’s collateral
What is a possessory lien?
Lien imposed by state law in favor of people who, in ordinary course of business, have performed services for or furnished materials to the debtor in advance of payment
Who is a buyer in non-ordinary course?
A buyer who purchases the collateral outside the stream of ordinary commerce
Who is an attached unperfected creditor?
Article 9 creditor who creates an enforceable security interest but either:
1. Never bothers to perfect the security interest OR
2. Tries to perfect but does so incorrectly
Who are general unsecured creditor?
Lender who never bothered to take collateral from the debtor in exchange for the loan
Each claimant is entitled to payment in full before ___________ is entitled to take.
Subordinated claimant
List the order of priority among conflicting security interests.
- Buyer in ordinary course
- Perfected attached creditor
- Lien creditor
- Non-ordinary course buyer
- Attached unperfected creditor
- General unsecured creditor
Who always has first priority among conflicting security interests?
Buyer in the oridnary course
A buyer in the ordinary course always has priority and takes the property free of any ___________.
Perfected security interest in the merchant’s inventory
If a perfected attached creditor files before attachment, _________ relates back to filing date for purposes of priority.
Subsequently attached security interest
Under the UCC, special effect is given to _______ when determining priority.
Filing
When there are two perfected attached creditors, which is first in right?
First in time to either:
1. File OR
2. Perfect
A PMSI in non-inventory collateral has priority over conflicting security interests in the collateral and its proceeds if PMSI is _________________
Perfected within 20 days of the debtor taking possession of the collateral
A PMSI inventory collateral has priority over conflicting security interests in the collateral and its identifiable proceeds if PMSI creditor _______________.
Perfects and sends notice of the transaction to the other perfected creditors before the debtors receives possession of the collateral
A creditor with _______ has priority over a creditor who perfected by filing.
Control
If more than one creditor has control, _______ has priority.
The first to have gained control
Attached unperfected creditors will prevail over:
- Debtor
- Subsequent attached unperfected creditors AND
- General unsecured creditors
An attached unperfected creditor loses to _________.
- Perfected attached creditor
- Lien creditor
- Subsequent BFP w/o knowledge of the unperfected security interest
Judicial lien holder prevails over an unperfected security interest in collateral if ____________
The lien creditor becomes a lien creditor before the security interest is perfected
A perfected secured party will prevail over the judicial lien holder unless _________.
Future advances
A juidicial lien holder will have priority over future advances under a _________ security agreement that was perfected before __________ but was made more than ____________ after the lien.
pre-existing
the judicial alien arose
45 days
The future advances privilege for judicial lien holders does not exist if the future advance was:
- Made w/o knowledge of lien OR
- Pursuant to a commitment made w/o knowledge of the lien
A possessory lien means an interest other than a security interest or an agriculture lien and:
- Secures payment or performance
- Created by statute of rule of law AND
- Effectiveness depends on possession
A possessory lien on goods has priority over a security interest in the goods unless the lien is created by ____________.
A statute that expressly provides otherwise
A debtor’s rights may be transferred to _______.
A third party
An agreement between a debtor and secured party which prohibits _________ or makes a transfer _______ does not prevent the transfer from taking place.
A transfer of the debtor’s rights in collateral
A default
A buyer who purchases the goods in the ordinary course of business from a merchant’s inventory will take free of ___________.
Perfected security interests held by the merchant’s secured creditors in the inventory
What is the good faith requirement of a buyer in the ordinary course’s third-party rights?
Buyer must not know that the sale was in violation of the terms of the security agreement
A buyer who purchases in the ordinary course only takes free of security interests in the inventory created by _______.
The buyer’s seller
A buyer of farm products from a farmer will not take free of _________________.
Existing perfected security interests in the farm products
The holder/purchase of a negotia ble instrument has priority over any security interests in the negotiable instrument if ________.
They qualify as a holder in due course
If a debtor has defaulted on the security agreement, the secured creditor has statutory remedies under _____ and _____.
Article 9
Judicial remedies
After default by the debtor, the secured party may notify _____ or ______.
- An account debtor OR
- Other person obligated on collateral to make payment/otherwise render performance to/for the benefit of the secured party
Self-help for repossessing collateral is permitted if ________.
it can be accomplished w/o a breach of the peace
Repossession made over any protest, no matter how mild, constitutes ________.
A breach of the peace
If a repossessing creditor breaches the peace then:
- The creditor loses statutory authorization for self-help repossession AND
- Debtor may sue the creditor for conversion and recover actual/punitive damages
If collateral is located in the debtor’s home, the secured creditor needs ________.
Voluntary and contemporaneous consent to enter the debtor’s home to engage in self-help repossession
A secured creditor may trick a debtor for repossession but may not ____________.
Impersonate a police officer
Repossession by judicial action is also known as __________.
writ of replevin
What is repossession by judicial action?
A secured creditor may obtain a judicial writ ordering the sheriff to obtain possession of the collateral and deliver it to the secured party
A secured creditor who has repossessed the collateral may elect to keep the collateral in full satisfaction of ________.
The outstanding debt
To accomplish strict foreclosure, a secured party must _____________.
Send a written proposal to retain the collateral in full satisfaction of the outstanding debt
Regarding strict foreclosure, if the collateral is consumer goods, the secured creditor must send notice to _____ or _____.
The debtor
Any secondary obligors
Who are secondary obligors?
Those who have guaranteed the debtor’s underlying obligation
If the collateral is non-consumer goods, the secured creditor must send notice to:
- The debtor
- Other secured creditors that have informed the foreclosing secured creditor of their security interest in the collateral
- Perfected secured creditors
- Any secondary obligors
Any notified party must object to strict foreclosure within _______ after notice is sent.
20 days
If any notified party objects to strict foreclosure, what happens?
- Strict foreclosure is prohibited
- The collateral must be disposed of by sale
If the collateral is consumer goods, there is no strict foreclosure if the debtor has paid _____________ of the ______ or _______.
60%
Cash price
Loan against the consumer good
Upon default, what is the sale requirement?
A secured party must:
1. Sell the collateral AND
2. Apply the proceeds to the debt
A secured party chooses whether a sale resulting from default will be _____ or _____.
Public
Private
Every aspect of a disposition of collateral must be ________ reasonable.
Commercially
When is disposition commercially reasonable>
A secured party may dispose of collateral by public/private proceedings according to any time, place, or terms
Can a secured party purchase collateral at a public or private disposition?
Only a public one
A secured party that disposes of collateral shall send ________ to specified persons.
A reasonable authenticated notification of disposition
Regarding sale of consumer goods after default, if the collateral is consumer goods, the secured creditor must send notice to _____ and ______.
The debtor
Any secondary obligors
Who are secondary obligors?
Those who have guaranteed the debtor’s underlying obligation
Regarding sale of consumer goods after default, if the collateral is non-consumer goods, the secured creditor must send notice to:
- The debtor
- Other secured creditors that have informed the foreclosing secured creditor of their security interest in the collateral
- Perfected secured creditors
- Any secondary obligors
Whether notification of sale after default is sent within a reasonable time is a question of ______ and under a standard of _______.
Fact
Commercial reasonableness
In a non-consumer transaction, a notification of disposition is sent within a reasonable time if sent:
- After default AND
- 10 days or more before the earliest time of disposition set forth in the notification
What content must be included in notice of disposition via public sale after default?
Time and place of sale
What content must be included in notice of disposition via private sale after default?
Specific time after which sale will be made
Under a disposition from default, what are the additional requirements for consumer goods?
- How any deficiency will be calculated
- How debtor may redeem the collateral
After default, a secured party can proceed against the debtor for a deficiency judgment if ________.
The sale proceeds from the collateral are insufficient to satisfy the debtor’s obligations
Deficiency following a disposition to a person related to the secured party is calculated based on ________.
The amount of proceeds that would have been realized in a disposition to an independent third party
A debtor or any secondary obligor may redeem collateral by _____.
Tendering fulfillment of
1. All obligations secured by the collateral AND
2. The reasonable expenses incurred by the secured party, including attorney’s fees
After default, a debtor or secondary obligor may redeem collateral at any time before ________.
A secured party has:
1. Sold the collateral OR
2. Completed a strict foreclosure
After default, a debtor or secondary obligor may redeem collateral, but if the security agreement has an acceleration clause, then _______.
The debtor must pay the entire accelerated amount to redeem the collateral
