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MEE Topics > Secured Transactions > Flashcards

Secured Transactions Flashcards

1
Q

What are goods?

A

Movable tangible property

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2
Q

What are rights to payment?

A

Instruments, chattel paper, accounts, payment intangibles

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3
Q

What is attachment?

A

A security interest is not enforceable until it has attached (the debt has been linked to the collateral). Requires a security agreement or possession/control, value given by the secured party, and the debtor must have rights in the collateral.

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4
Q

What is required in a security agreement?

A

Written record showing intent to create security interest, signed by the debtor, and describes and reasonably identifies collateral.

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5
Q

Accessions are?

A

Goods that are united with another good but are identifiable. The security interest continuous in the accession.

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6
Q

Commingled goods are?

A

A good that is united but the identity of the good is lost. The security interest transfers to the larger good.

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7
Q

Proceeds are?

A

Whatever is received upon the sale or exchange for the collateral. The security interest in the collateral attaches to identifiable proceeds of collateral automatically.

In the case of commingled cash proceeds, identifiable proceeds can be traced using the lowest intermediate balance rule (lowest balance between depositing proceeds and applying rule is the secured party’s identifiable proceeds, up to the value of the cash proceeds deposited).

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8
Q

What security interests can be perfected by control?

A

Investment property, nonconsumer deposit accounts, electronic chattel paper

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9
Q

Perfection can occur by?

A

Attachment PLUS either filing, possession, control, automatic perfection, or temporary perfection.

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10
Q

Filing a financing statement can perfect all interests except those in?

A

Deposit accounts, cars, money, and letters of credit

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11
Q

Where must a financing statement be filed to perfect an interest?

A

For everything except interests in real property, filing is in the central filing office where the DEBTOR is located. This is the state of incorporation for a corporation or the principal residence of individuals. For real property interests, it is filed in the county where the property is located.

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12
Q

Financing statements require what information to perfect an interest?

A

The names and addresses of the parties (NOT seriously misleading), a description that reasonably identifies the collateral (but okay if supergeneric), and if it is for real property, name of the record owner and describe the property.

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13
Q

A mistake in a financing statement will only affect perfection if it is?

A

Seriously misleading.

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14
Q

Financing statements lapse after ___ years but may be continued within ___ months before lapsing.

A

Five, Six.

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15
Q

A security interest in money can only be perfected by?

A

Possession

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16
Q

Interests in deposit accounts and letter of credit rights can only be perfected by?

A

Control

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17
Q

A PMSI in ____ will automatically perfect.

A

Consumer goods.

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18
Q

Priority between Perfected int v. perfected int? (Non-PMSI)

A

First in time to file OR perfect

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19
Q

Priority between perfected v unperfected? (Non-PMSI)

A

Perfected wins

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20
Q

Priority between two unperfected? (Non-PMSI)

A

first to attach

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21
Q

Perfected v Lien creditor?

A

Prior perfected security interest wins

22
Q

Unperfected v lien creditor?

A

Lien creditor wins unless the secured party has already filed a financing statement, the debtor has authenticated the security agreement, and the secured party hasnt given value yet.

23
Q

Sec int v statutory lien

A

Statutory lien wins if the lien 1) is effective based on possession of the goods, and 2) the lien is for payment or performance of an obligation furnished in the ordinary course of business.

24
Q

A buyer takes subject to a perfected security interest unless?

A

The secured party authorizes the sale is free and clear, the buyer is in the ordinary course of business, or it is a consumer to consumer buyer.

25
Q

What is a buyer in the ordinary course of business?

A

A buyer who buys goods in good faith, without knowledge that the sale violates the rights of another person in the goods, in the ordinary courts of business from a seller in the business of selling goods of the kind purchased. A BIOC takes free of the nonpossessory security interest in the goods created by the buyer’s seller.

26
Q

What is a consumer to consumer buyer?

A

Buyer buys consumer goods for value, for their own consumer use, from a consumer seller, without knowledge of the security interest. (This does not apply if there is a financing statement covering the goods).

27
Q

A buyer takes subject to an unperfected interest unless?

A

The buyer gives value, receives the collateral, and doesnt know of the interest.

28
Q

PMSI v lien creditors

A

If 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.

29
Q

PMSI v sec interests

A

PMSI in goods other than inventory (eg equipment) take priority over all other interests no matter when perfected if perfected within 20 days (otherwise its first in time to file or perfect).

30
Q

PMSI in inventory has priority over all other interests in that inventory when?

A

If the PMSI is perfected before delivery and the holder sends an authenticated notification to the other secured parties.

31
Q

PMSI v PMSI

A

Seller beats lender, otherwise apply the first to file or perfect rule.

32
Q

How are proceeds distributed after disposition?

A

1) reasonable expenses for collection/enforcement, 2) pay the debt to the foreclosing party, 3) pay subordinate interest, 4) return the surplus to the debtor. Senior security interests survive in the collateral!

If sale isn’t enough to cover debt, secured party may recover deficiency from debtor.

33
Q

What is a security interest?

A

Interest in personal property or fixtures that secures payment or performance of an obligation.

34
Q

What is a PMSI?

A

Seller-financed PMSI: Secured party sells the goods to the debtor on credit and retains a security interest in the goods sold.

Financer-financed PMSI: Creditor loans the funds to the debtor to enable the debtor to buy specific collateral, those funds are used by the debtor to acquire the specific collateral, and the creditor takes a security interest in that collateral.

35
Q

Can a secured party obtain a security interest in after-acquired property?

A

Yes, if explicitly stated. Exception: security interest automatically attaches to identifiable proceeds of collateral even without after-acquired property clause; an after-acquired property clause does not apply to consumer goods unless the debtor acquires rights in the goods within 10 days after the creditor gives value; does not apply to commercial tort claims.

36
Q

What are the four categories of goods?

A

Consumer goods: goods used or bought primarily for personal, family, or household purposes

Equipment: goods that are used or bought for use in a business (also default category if a good doesn’t fit any other category)

Farm products: crops or livestock or supplies used or produced in farming operations or products of crops or livestock in their unmanufactured states if they are in the possession of a debtor engaged in farming operations.

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

37
Q

What are the types of intangible collateral?

A

Instruments, documents, chattel paper, investment property, accounts, deposit accounts, commercial tort claims, and general intangibles

38
Q

How can a secured party obtain control over a nonconsumer bank account?

A
  • Putting deposit account in secured party’s name
  • Bank in which the account is maintained has automatic control
  • Authenticated record with debtor and bank that bank will comply with secured party’s orders regarding the account
39
Q

How can a secured party obtain control over a nonconsumer bank account?

A
  • Putting deposit account in secured party’s name
  • Bank in which the account is maintained has automatic control
  • Authenticated record with debtor and bank that bank will comply with secured party’s orders regarding the account
40
Q

What law governs perfection?

A

The law of the state where the debtor is located. For possessory interests and interests in fixtures and timber, the state in which the collateral is located. For certificate of title, the state which issued the most recent certificate of title.

41
Q

What happens if a debtor or collateral are moved out of the state?

A

Debtor: Security interest becomes unperfected 4 months after the debtor’s move unless the secured party files a financing statement in the new jurisdiction before those 4 months are up.

Collateral: Security interest becomes unperfected one year after the collateral moves unless the secured party files a financing statement in the new jurisdiction.

42
Q

How can proceeds be perfected?

A

If the security interest is perfected, the secured party automatically has a perfected security interest in any proceeds of the collateral for 20 days after the receipt of the proceeds. It will continue to be perfected after 20 days if: (i) the proceeds are identifiable cash proceeds, (ii) the security interest was originally perfected by filing, perfecting the proceeds would require filing in the same office as the original collateral, and the proceeds were not purchased with cash proceeds of the collateral, (iii) the security interest is perfected within the 20-day period.

43
Q

Default

A

Security agreement defines what a default is. Normally a failure to pay or perform.

44
Q

Remedies after default

A
  1. Self-help repossession: Allowed if it can be done without a breach of the peace (defined differently in each state, but generally any conduct by the secured party that has the potential to lead to violence; physical presence of debtor + objection is sufficient).
  2. Judicial process (replevin action)
  3. Rendering equipment unusable (without breach of the peace)
45
Q

Strict foreclosure

A

After default and repossession, the secured party can retain the collateral in full or partial satisfaction of the debt if: (1) secured party sends proposal to retain collateral to any other secured party with an interest in the collateral, either that they have notice of or was perfected by filing or on the certificate of title, and (2) the debtor consents in an authenticated record or, in the case of full foreclosure, failing to make an authenticated objection within 20 days after secured party sends notice. If either other creditors or the debtor objects, the collateral must be disposed of by sale.

No partial strict foreclosure in consumer transactions–only full foreclosure.

46
Q

Resale of collateral

A

Secured party can sell, lease, license, or otherwise dispose of the collateral. Can be sold by public or private sale. Sale discharges security interest and all subordinate security interests. Purchaser still subject to superior security interests.

Reasonable notice in writing within a reasonable time before the sale (10 days or more in nonconsumer transactions) must be given to debtor, other secured parties who have notified secured party of their interests, or any secured parties who have perfected by filing or certificate of title. Public sale: notice must include time and place of sale.

Sale must be commercially reasonable in every aspect (method, manner, time, place, terms).

Failure to follow these requirements means secured party is liable for actual damages caused by failure to follow the rules and there is a rebuttable presumption that creditor loses right to deficiency judgment.

Debtor has right to redeem collateral by fulfilling all obligations secured by the collateral.

47
Q

Resale of collateral

A

Secured party can sell, lease, license, or otherwise dispose of the collateral. Can be sold by public or private sale. Sale discharges security interest and all subordinate security interests. Purchaser still subject to superior security interests.

Reasonable notice in writing within a reasonable time before the sale (10 days or more in nonconsumer transactions) must be given to debtor, other secured parties who have notified secured party of their interests, or any secured parties who have perfected by filing or certificate of title. Public sale: notice must include time and place of sale.

Sale must be commercially reasonable in every aspect (method, manner, time, place, terms).

48
Q

Secured party vs. subsequent real estate interest

A

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

49
Q

Secured party vs. prior real estate interest

A

Prior real estate interest has priority. Except, PMSI takes priority if it’s perfected by fixture filing before goods become fixtures or within 20 days thereafter.

50
Q

Rights on default of party with security interest in fixture

A

When the security interest in the fixture has priority over other interests in the real property, the secured party can remove the fixture from the real property. If the debtor does not own the real property, the secured party must reimburse owner of the property for the cost to repair damage to the property caused by the removal.

51
Q

Priority of security interests in accessions

A

First to file or perfect, or PMSI. Except security interest in an accession is subordinate to a security interest in a whole which is perfected by compliance with the requirements of a certificate of title statute.

MEE Topics (8 decks)

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