Secured Transactions

Question 1

secured transaction

Answer 1

transaction intended to create security interest in personal prop or fixtures

Involves sale on credit or a loan in which seller or lender obtains a lien on some or all of the debtor’s prop

Question 2

sale on credit

Answer 2

get something w/o paying full price

Question 3

debtor

Answer 3

person who owes payment or performance of obligation secured

Question 4

secured party

Answer 4

lender in whose favor here is a security interest (person who $ owed to)

Question 5

secured creditor

Answer 5

creditor with special collection rights

Question 6

security interest

Answer 6

interest in personal property or fixtures that secures payment or performance of an obligation
Contingent property interest

Question 7

default

Answer 7

event causing security interest to spring to life

Question 8

collateral

Answer 8

prop subject to security interest

Question 9

purchase money security interest (PMSI) : types

Answer 9

Seller financed PMSI
Secured party sells collateral on credit
Retains security interest in collateral

Financier-financed PMSI
Loan to purchase collateral
Loan used to acquire that collateral
Creditor takes security interest in that collateral

Question 10

after acquired property clause

Answer 10

grant of security interest in prop obtained in future

GR: Security interest only reaches collateral debtor had rights in at time of signing security agreement , unless explicit after- acquired property clause in the security agreement

EXCEPTION
Collateral is of a type rapidly depleted and replenished ( inventory, accounts)

Question 11

future advance clause

Answer 11

grant of security agreement securing future loans with same collateral

Question 12

attachment

Answer 12

steps necessary to create security interest effective against debtor

Question 13

perfection

Answer 13

steps necessary to create security interest effective against the world
Giving public notice of security interest to world

Question 14

financing statement

Answer 14

doc used to convey notice of security interest

Question 15

Types of collateral

Answer 15

goods
intangible and semi-intangible prop
scope of Article 9

Question 16

Goods

Answer 16

Tangible, movable personal property

Consumer goods
Goods used or bought for use for personal family household purposes

Equipment
Used or bought for use in a business
Catch all provision

Farm products
Crops or livestock or supplies used or produced in farming operations or products of crops or livestock if in possession of a debtor engaged in farming operations

Inventory
Goods held for sale or lease, goods that are to be furnished under service contracts, and materials used or consumed in a business in a short period of time

Classify based on how collateral is used by debtor

Question 17

intangible and semi-intangible prop (8)

Answer 17

Instruments = piece of paper representing the right to be paid money ( checks, promissory notes, drafts, etc)

documents= document that reps right to receive goods ( bills of lading, warehouse receipts)

Chattel paper= record or records which evidence
Monetary obligation
Security interest in or lease of specific goods
Record = info stored in either tangible or intangible medium
Electronic medium = electronic chattel paper

Investment prop ( stocks bonds)

Accounts ( right to payment for prop sold or services rendered)

Deposit accounts =account maintained with a bank
Business bank account not personal bank account can be used

Commercial tort claim

General intangibles ( intellectual property, goodwill)
Payment intangible = settling a law suit

Question 18

scope of article 9

Answer 18

regardless of form creates a security interest in personal prop or fixtures

Tricky language of Contractual lien ( trying not to apply Article 9 because didn’t say security interest language or article 9) = security interest regardless of the language form if has that effect of security interest Aricle 9 applies

Consignment = like agent, nonowner selling goods for the principal

Secured sale disguised as a lease
True lease not covered by article 9

Question 19

attachment requirements

Answer 19

Security agreement
Creditor taking possession of the collateral = pledge
If security agreement oral

Authenticated security agreement
In writting
Record showing intent to create security interest
Signed by debtor (any symbol made with intent to authenticate)
Describe collateral = reasonably identify
Super generic descriptions is not sufficient ( ex:all of debtors assets )
Creditor taking control of nonconsumer deposit

Value given
Any consideration
Debtor gave consideration implicitly by promising to repay the debt
Past consideration is enough

Debtor’s rights in collateral
Ownership

Question 20

Proceeds

Answer 20

Anything received from sale, exchange, collection, or other disposition of collateral or proceeds

If attach in collateral automatically get security interest in identifiable proceeds
Identifiable means that the proceeds can be traced back to the original collateral

Question 21

commingled cash proceeds

Answer 21

lowest intermediate balance rule applies

In the case of commingled cash proceeds, the identifiable proceeds can be traced using the lowest intermediate balance rule

Rule
Look at bank account starting at time proceeds are deposited and ending at time applying rule
Lowest balance during that time period is the secured party’s identifiable proceeds
Amount cannot exceed the value of the cash proceeds originally deposited

Question 22

supporting obligation

Answer 22

the attachment of a securinty interest in accounts, chattel paper, documents, general intangibles, instruments , and investment property automatically extends to a supporting oblicgation for that collaterall = surety

Question 23

Perfection Timing

Answer 23

security interest attached and do one of the methods

Question 24

automatic perfecting method

Answer 24

security interest that is not covered by a title statute is automatically perfected upon attachment
PMSI in consumer goods

Question 25

possession (pledge) perfecting method

Answer 25

Take actual possession of collateral , tangible things
Perfected moment from the moment of possession and continues as long as possession is retained
Only way to perfect money

Question 26

control method of perfection

Answer 26

Security interests in investment property, nonconsumer deposit accounts, and electronic chattel paper may be perfected by control

Only way to perfect deposit account
Non consumer deposit account
Automatic control by bank maintaining account
Putting account in secured party’s name
Control agreement: K between debtor, creditor, and bank account

Question 27

notation on certificate of title method of perfection

Answer 27

Security interest in motor vehicle required to be titled can only be perfected by notation on the certificate of title issued by state.

EXCEPTION
Security interest created by dealers in vehicles held in inventory for sale or lease are perfected by filing a financing statement

Question 28

filing method of perfection

Answer 28

Debtor’ s name and mailing address

secured party’s name and mailing address

desciption of collateral

No debtor signature, but must authorize

file financing statement at secretary state

Question 29

debtors name and mailing address

Answer 29

individual = unexpired driver’s license
No divers license = file under name , name known in community
Minor error of name won’t invalidate financing statement
Seriously misleading error will invalidate

Not misleading when
Search with correct name
Using standard search logic
Would find finacing statement

Failure of the filling office to correctly index a financing statement doesn’t impact its effectiveness

Financing statement under old name still good on collateral received 4 months or less after change
No trade name

Question 30

secured party’s name and mailing address

Answer 30

Error in secured party’s name will not make financing statement seriously misleading

Question 31

decription of the collateral

Answer 31

Reasonably identifies collateral
May contain a supergeneric description of the collateral

Real property
Description of the related real prop
Name of the record owner
Indication that it is to be filed in the real prop records

no need to mention after acquired prop to perfect if description in statement is broad enough to cover

Question 32

no debtor signature, but must authorize

Answer 32

Before or after filed
Automatically authorizes= if debtor authenticates the financing statement or authenticates a security covering the same collateral as the financing statement

Question 33

file financing statement at secretary state

Answer 33

State to file in = state where state law applies
Exception: timber minerals, fictures= file locally

Where debtor is located
individual= principal residence
Registered organization = where organzied
unregistered= place of business if only one or at chief executive office if has more one place of business

If debtor move 4 months from time move to refile in new state

If collateral moves to new owner is unperfected after one year unless refiled

Length of financing statement effectiveness= 5 years
To extend file continuation statement
File between 6 months before expiration

Termination statement
Secured party must on demand of the debtor, within 20 days, file a termination statement or provide one to the debtor

Question 34

perfection for proceeds

Answer 34

Perfected security interest in collateral extends to proceeds for 20 days

Perfection continues if: proceeds are identifiable cash proceeds, OR
Original collateral perfected by financing statement
Security interest in proceeds type would be perfected by filing in same place, AND
Proceeds not purchased with cash proceeds

Question 35

Perfected Secured Party v Perfected secured party fight

Answer 35

First to file OR perfect ( whichever is earlier) wins
Knowledge about others interest is irrelevant

Question 36

unperfected secured party v. unperfected secured party fight

Answer 36

first to attach wins

Question 37

Perfected secured party v. unperfected secured party

Answer 37

perfected party wins

Question 38

PMSI Superiority (goods/equipment ,inventory/livestock)

Answer 38

Superior to prior perfected security interests in the same collateral if
PMSI in goods/equipment jumps to front of priority line if perfected immediately or within 20 days

In inventory/ livestock k
Takes priority over conflicting security interests if
Before debtor receives possession
Secured party perfects and
Sends authenticated notice to other holders and
Notice received within 5 years of debtor getting possession

Conflicting PMSI, seller PMSI wins

Question 39

conflicting security interest in investment property

Answer 39

Control beats other perfection methods
Deposit account control
Best: put it own name
Next best: maintain account
Worst: control agreement

Earlier control beats later control
Debtor’s intermediary beats other creditors

Question 40

secured party v. buyer

Answer 40

Secured party wins, unless
Secured party authorized sale
Express or implied ( inventory sell to ordinary consumer)

Buyer in the ordinary course
Takes free of a security interest
Created by his/her seller
Buyer in ordinary course means
Buyer in good faith
Without knowledge of violation of secured creditor rights
In ordinary course
From seller of goods of that kind
Only taken free from liens created by their seller

Buyers not in the ordinary coiruse
Take subject to perfected security interests
Take free of unperfected security interest

Consumer to consumer sales
Buyer takes free of security interestif
No knowledge
Value
Personal use
No financing statement

Question 41

Secured party vs. Judicial Lien creditor

Answer 41

Judgement lienholder: a creditor who won a judgment in court

Judgement lienholder wins if lien arose before security interest was perfected

PMSI special priority rule
Secured party files a financing statement with respect to a PMSI within 20 days after debtor receives collateral, security party will have priority over a judicial lien

Future advance
Perfected future advances to gain priority over a subsequent judicial lien, the future advance must be made
Without knowledge of lien
Within 45 days of lien arising , or
Pursuant to a commitment entered into without knowledge of the lien

Question 42

Secured part v. statutory lienholder

Answer 42

Statutory lienholder wins if they maintain possession of collateral

Question 43

default

Answer 43

event causing security interest to spring to life

Question 44

self- help repossession

Answer 44

Creditor takes collateral without judicial process if this can be done without a breach of the peace

Breach of peace
Conduct that can lead to violence
Example: physical presence + verbal objection
Unauthorized entry into home = breach of peace
Need consent at time of entry
Taking car from driveway = no breach of peace
Business premises less likely to be a breach of peace
Picking lock and not relocking on the way out = breach of peace

Replevin
Ct proceeding to repossess collateral
Render equipment unusable

Self help in accounts
Payment to the debtor will not discharge the obligation , must pay secured party

Question 45

strict foreclosure

Answer 45

Creditor keeps collateral itself to satisfy debt ( instead of selling it)
Need to notify any other creditor that has lien on collateral
If objects can’t keep
Need consent of debtor
If objects, can’t keep

Question 46

resale of collateral

Answer 46

Forclosing lien and any junior liens get wiped off
Senior liens stay on

Need reasonable notic
Sent in reasonable time before sale
public= notice of time and place of sale
Private salee= notice of the time after which the sale will occur must be given

Every aspect of sale must be commercially reasonable
If not creditor penalized

Proceeds of Sale
Repay costs of repossession and sale
Pay off debt of the foreclosing creditor
Pay off junior creditors
Any money left over debtor gets surplus

Deficiency judgment
Amount creditor can collect from debtor beyond value of collateral

Creditor penalization
Statutory penalty for consumer goods
No commercially reasonable sale = no deficiency judgment

Right to redeem
Debtor’s ability to recover collateral by paying everything owed to creditor
Do before foreclosure sale

Question 47

fixture

Answer 47

goods permanently attached to real property

Question 48

perfecting fixtures

Answer 48

Fixture fling
Not just a financing statement , normally needed for fixtures
Require info from financing statement + description of real prop + name of owner
Fille with county filing

Question 49

fixture rights on default

Answer 49

Creditor reimburse owner of prop for cost to repair damage to prop caused by removal but not for any other diminution in value

Question 50

fixture priority

Answer 50

Secured party v. subsequent real estate interest
Security interest in fixture has priority over any real estate interest that is recorded subsequent to the perfection of the security interest by fixture filing

Secured party v. real estate interest
First in time wins, unless security interest is PMSI, then PMSI wins

Construction mortgage takes priority over a subsequent PMSI in fixtures, even if security interest is perfected by a fixture filin w/i 20 days of affixation

Question 51

accessions

Answer 51

goods physically united with other goods ( tires on a car)

Question 52

accessions perfection

Answer 52

if a security interest is perfected when the colateral becomes an accession, the security interest remains perfected in the collateral

Question 53

accessions priority

Answer 53

General priority rules apply to accessions

Special rule
Except security interest in accession is
Subordinate to security interest in whole
Perfected by compliance with title statute