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Bar Exam (Austin) > Secured Transactions > Flashcards

Secured Transactions Flashcards

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1
Q

Purchase Money Security Interest (PMSI)

A

Creating PMSIs

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

Financer-Financed PMSI
o Loan to purchase collateral
o Loan used to acquire that collateral
o Creditor takes security interest in that collateral

A PMSI arises when (i) creditor sells the goods to the debtor on credit, retaining a security interest in the goods for all or part of the purchase price; or (ii) a creditor advances funds that are used by the debtor to purchase the goods

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2
Q

Types of Collateral - Consumer Goods (MEMORIZE THESE)

A

Goods used or bought for personal, family or household purposes

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3
Q

Types of Collateral - Equipment (MEMORIZE THESE)

A

Goods that are used or bought for use in a business

**If the collateral is a good, and it does not fit the definition of consumer goods, inventory, or farm products, it is equipment!

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4
Q

Types of Collateral - Farm Products (MEMORIZE THESE)

A

Crops or livestock or supplies used or produced in farming production or products of crops or livestock in their unmanufactured states (such as ginned cotton, wool-clip, maple syrup, milk, and eggs) if they are in possession of a debtor engaged in farming operations

**Question will most likely talk about farmers!!

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5
Q

Types of Collateral - Inventory (MEMORIZE THESE)

A

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

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6
Q

Semi-Intangible and Intangible Property

A

Instruments (checks, promissory notes)
o Pieces of paper representing the right to be paid money

Documents (bills of lading, warehouse receipts)
o Represents the right to receive goods

Chattel paper
o A monetary obligation AND
o A security interest in or a lease of specific goods

Investment property (stocks, bonds)

Accounts (rights to payment)
o Includes a right to payment for property sold or services rendered

Non-consumer deposit accounts
o Account maintained with a bank

Commercial tort claims

General intangible (IP or goodwill)
o Catch-all category!

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7
Q

Attachment

A

Creating the security interest and gives the creditor rights against the debtor in the collateral

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8
Q

Attachment Requirements - 3 (MEMORIZE THESE)

A
  1. Security agreement
  2. Value given (Any consideration, even past consideration)
  3. Debtor’s rights in collateral (Must have rights in the collateral)
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9
Q

Security Agreement Requirements - 3 (MEMORIZE THESE)

A
  1. Record showing intent to create security interest
    o Words saying I’m taking your property so I can sell if you do not pay
  2. Authenticated by debtor
    o Signature or any symbol
  3. Describe collateral
    o “Reasonably identify”
     Normal vocabulary
     Article 9 categories
    **“All of debtors assets” -> NOPE NOT GOOD = SUPERGENERIC

If there is no authenticated security agreement, the creditor must take possession or control of the collateral

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10
Q

After-Acquired Property

A

Without an explicit after-acquired property clause, the security interest only reaches collateral that debtor had rights in at time of signing security agreement
- Going to want a provision that says this in the agreement or else you do not get it ^

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

After-acquired property does not apply to consumer goods unless the debtor acquires rights in goods within 10 days after the creditor gives value

A security agreement that includes an after-acquired property clause attaches when the debtor obtains an interest in the property

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11
Q

Proceeds

A

A security interest in collateral automatically attaches to identifiable proceeds of the collateral

Identifiable -> proceeds can be traced back to the original collateral
Proceeds -> Anything received from sale, exchange, collection, or other disposition of collateral or proceeds

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12
Q

Commingled Cash Proceeds - Lowest Intermediate Balance Rule

A

Look at the bank account starting at the time the proceeds are deposited and ending at the time you are applying the rule

The lowest balance during that time period is the secured party’s identifiable proceeds
 If account has more money than security interest -> take the price of the security interest
 If account has less money than security interest -> take the lowest amount the account had dropped too

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13
Q

Perfection

A

Giving public notice of a security interest

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14
Q

Requirements for Perfection

A

ATTACHMENT AND ONE OF THE FOLLOWING 5

  1. Automatic perfection
  2. Taking possession (Pledge)
  3. Control
  4. Notation on certificate of title
  5. Filing a financing statement (UCC-1)
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15
Q

Automatic Perfection

A

PMSI in consumer goods = automatically perfected upon attachment

Perfection may occur without filing for security interests in a small-scale assignment of an account or payment intangible that does not alone transfer a significant part of the assignor’s outstanding accounts or payment intangibles to the creditor.

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16
Q

Taking Possession

A
  • Perfection occurs by taking possession of collateral like goods!
  • Cannot take possession of a general intangible like an account!
  • Can only perfect security interest in money by possession!*
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17
Q

Control and three requirements for control of Deposit Account

A

Investment property, non-consumer deposit accounts, and electronic chattel paper may be perfected by “control”

Control of Non-consumer Deposit Accounts (MEMORIZE THESE)
o Automatic control by bank maintaining account OR
o Putting account in secured party’s name OR
o Control agreement

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18
Q

Notation on certificate of title

A

Security interests in motor vehicles required to be titled can ONLY be perfected by notation on the certificate of title -> YOU SEE MOTOR VEHCILE, YOU COME HERE!**

Exception – Dealers
o Security interest created by dealers in vehicles held in inventory for sale or lease are perfected by filing a financing statement

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19
Q

Filing a Financial Statement (UCC-1) -> MEMORIZE THIS CAUSE ITS HEAVILY TESTED

A
  1. Debtor’s name
  2. Description of Collateral
  3. Secured Party’s name

Debtor’s Name
 Debtor’s name must match license (Even if unexpired)
 If debtor does not have license, file under their name
 Do not file under a debtor’s trade name
 Minor errors in the debtor’s name will not invalidate, unless SERIOUSLY MISLEADING
 Filing office fucks up, does not impact effectiveness
 Old name still good on collateral received 4 months or less after change

Description of Collateral
 “Reasonably identify”
* Vocab!
* Article 9 categories!
* In financing statements, SUPERGENERIC description = VALID
 Does not have to mention after-acquired property but must be broad enough

Secured Party’s name
 Error does not matter!

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20
Q

Financing Statement not seriously misleading when…

A
  • Search with correct name
  • Using standard search logic
  • Would find financing statement
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21
Q

Authorization on financing statement

A
  • Debtor need not sign, but must authorize

How to authorize?
o May sign a writing
o The debtor automatically authorizes the financing statement if the debtor authenticates the financing statement or authenticates a security agreement covering the same collateral as the financing statement

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22
Q

Where to File financing statement

A

File financing statement centrally in the office of secretary of state
State to file in = state where state law applies

Exception
o Timber to be Cut, Minerals, and Fixtures -> file locally
o If it is real estate related collateral -> File with local country clerk!

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23
Q

Which State’s Laws Governs Perfection

A

Law of the state where the debtor is located generally
o Principal residence

Registered organization? (Corporation)
o Whatever state organization is organized in (Where incorporation is filed)

Unregistered organization? (Partnership)
o Place of business or at its chief executive office

24
Q

Movement of Debtor or Collateral form one state to another

A

Debtor Moves Across States
o Got 4 months to refile or else un-perfection!

Collateral Moves Across States (Debtor transfers to new person)
o Got 1 year to refile or else un-perfection!

25
Q

Length of financing statement effectiveness

A

5 years!

The continuation statement can only be filed within 6 months before the lapse of the filed statement

After 4.5 years, FILE THE CONTINUATION STATEMENT IN THOSE 6 MONTHS OR ELSE IT FINANCING STATEMENT DIES

26
Q

Perfection for Proceeds

A

Perfected security interest in collateral extends to proceeds for 20 days

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

27
Q

Perfected Secured Party v. Perfected Secured Party

A

First to file OR perfect (whichever is earlier) wins

28
Q

Unperfected Secured Party v. Unperfected Secured Party

A

First to attach wins

29
Q

Unperfected Secured Party v. Perfected Secured Party

A

Perfected Secured Party wins

30
Q

PMSI Super-priority

A

Only applies when the bottom rule applies!

PMSI in goods jumps to front of priority line if perfected immediately or within 20 days

31
Q

Super-priority for PMSI in Inventory/Livestock

A

Takes priority over conflicting security interests if ->
Before debtor receives possession
o Secured party perfects, and
o Sends authenticated notice to other holders, and
o Notice received within 5 years of debtor getting possession

32
Q

Conflicting Security Interests in Investment Property

A
  • Control beats other perfection methods
  • Earlier control beats later control
  • Debtor’s intermediary beats other creditors
33
Q

Conflicting Security Interests in Deposit Accounts

A

Perfected by control beats perfected by other methods

Both perfected by control, they rank according to the time of obtaining control,
o Best: Co-owner (Deposit account in party’s name)
o Next best: Maintain account (Bank maintains account)
o Worst: Control agreement

34
Q

Secured Party vs. Buyer

A

Secured party wins, unless
o Authorized sale
o Implied authorization
 Sale of inventory in original debtor’s hands to ordinary consumer

35
Q

BIOC - Buyer in Ordinary Course

A

A buyer in the ordinary course
o Takes free of a security interest
o Created by their seller

BIOC means
o Buyer in good faith
o Without knowledge of violations
o In ordinary course
o From seller of goods of that kind

36
Q

Buyers NOT in the Ordinary Course

A
  • Take subject to perfected security interests
  • Take free of unperfected security interest
37
Q

Consumer to Consumer Sales (Ordinary person to ordinary person)

A

Generally, perfected security interests generally are good against subsequent buyers of the collateral, subject to certain exceptions

Buyer takes free of security interest if
o No knowledge
o Value
o Personal use
o No financing statement

38
Q

Secured Party v. Judgment Lienholder

A

Judgment lienholder wins if lien arose before security interest was perfected
o A prior perfected security interest in collateral trumps a judicial lien

If the secured party files a financing statement with respect to a PMSI within 20 days after the debtor receives the collateral, the secured party will have priority over a judicial lien arising between the time the security interest attaches and the time of filing

39
Q

Secured Party vs. Possessory Statutory Lien Holder

A

Statutory lienholder wins if they maintain possession of collateral

40
Q

Default

A

Event causing a security interest to spring to life

41
Q

Self-Help Repossession

A

Creditor takes collateral without going to court first

42
Q

Breach of Peace

A

Conduct that can lead to violence
Example -> Physical presence + verbal objection
Unauthorized entry into a home, even through an open window = breach of peace
Taking car from driveway is ok! ≠ breach of peace
Taking car from closed garage = breach of peace
Picking lock = breach of peace
Commercial premises less likely to be breach of peace

43
Q

Replevin

A

Court proceeding to repossess collateral

44
Q

Rendering Equipment Unusable

A

Without removal, the secured party may also make equipment unusable and dispose of it on the debtor’s property if the secured party can do so without a breach of peace

45
Q

Strict Foreclosure

A

Creditor keep collateral itself to satisfy debt (instead of selling it)

If another creditor objects, and if the debtor objects, you cannot keep it, must sell it!

46
Q

Foreclosure Sale

A

Needs reasonable notice

Exam Tip** -> SAY THIS ON EXAM!! -> Remember that EVERY aspect of sale must be “commercially reasonable” AND if it is not, creditor is penalized
o No commercially reasonable sale = no deficiency judgment

47
Q

Right to Redeem

A

Debtor’s ability to recover collateral by paying everything owed to creditor

Must tender all obligations secured by the collateral, plus reasonable expenses

Because most security agreements contain an acceleration clause, the debtor typically must tender the entire balance in order to redeem

48
Q

Fixtures

A

Goods permanently attached to real property

49
Q

Perfection of Fixtures

A

Fixture filing (not just a financing statement) normally needed for fixtures

Requires info from financing statement + description of real property + name of owner

50
Q

Secured Party v. Subsequent Real Estate Interest

A

A security interest in fixtures has priority over any real estate interest that is recorded subsequent to the perfection of the security interest by fixture filing

51
Q

Secured Party v. Real Estate Interest

A

First in time wins, unless security interest is PMSI, then PMSI wins

52
Q

Accessions

A

Goods physically united with other goods
o Example -> Tire on a car

53
Q

Perfection of Accessions

A

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

54
Q
A
55
Q

Garage Sale Exception to consumer to consumer sales

A

When one consumer sells another consumers goods (perhaps at a garage sale) the other consumer takes free of any security interests if he purchases the goods for value!

56
Q

Secured party consents to sale?

A

If the secured party consents to a sale, lease, or other transfer of the collateral free of the security interest, the transferee will take free of the secured party’s perfected security interest

Bar Exam (Austin) (17 decks)

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