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secured transactions Flashcards

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1
Q

Uniform Commercial Code Article 9 governs

A

security interests in personal property, fixtures, and agricultural liens.

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2
Q

Among the items of personal property governed by Article 9 are

A

deposit accounts, equipment, and crops.

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3
Q

Attachment is required for a security interest to be

A

enforceable against the debtor with respect to the collateral.

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4
Q

Three conditions must coexist for the security interest to attach to the collateral:

A

(i) the secured party must have given value (e.g., giving a loan);
(ii) the debtor must have rights in the collateral; and
(iii) the debtor must have authenticated a security agreement that describes the collateral, or the secured party must have possession or control of the collateral pursuant to a security agreement.

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5
Q

Perfection of a security interest is generally necessary for the secured party to have rights in the collateral that are

A

superior to the rights claimed by third parties in the same collateral.

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6
Q

Perfection has no relevance to the secured party’s rights against

A

the debtor.

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7
Q

A security interest is perfected upon

A

attachment of the interest and compliance with one of the methods of perfection.

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8
Q

There are four ways a secured party can perfect a security interest:

A

(i) filing a financing statement;
(ii) possessing the collateral;
iii) controlling the collateral; and
(iv) automatic perfection (either temporary or permanent).

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9
Q

A deposit account includes

A

a savings, passbook, time, or demand account maintained with a bank and excludes accounts evidenced by instruments, such as certificates of deposit.

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10
Q

A security interest in a deposit account can be perfected only by

A

control.

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11
Q

A secured party has control of a deposit account if:

A

1) the secured party is the bank with which the deposit account is maintained;
(2) the bank, secured party, and debtor agreed in writing to follow the instructions of the secured party; or
(3) the secured party becomes the bank’s customer with respect to the deposit account.

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12
Q

Goods encompasses anything that is

A

moveable at the time that a security interest attaches and includes fixtures.

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13
Q

Equipment usually refers to goods that are

A

used or bought for use primarily in a business, such as employees’ desks or machinery used in manufacturing.

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14
Q

where equipment is permanently integrated as part of a structure, it is also a

A

fixture

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15
Q

Fixtures are perfected by

A

filing a financing statement.

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16
Q

A financing statement must contain:

A

(1) the debtor’s name;
(2) the name of the secured party; and
(3) the collateral covered by the financing statement.

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17
Q

When the collateral is related to real property, the financing statement must also include:

A

(1) an indication that it covers this type of collateral;
(2) an indication that it is to be filed in the real-property records;
(3) a description of the real property to which the collateral relates; and
(4) the name of a record owner, if the debtor does not have an interest of record in the real property.

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18
Q

A security interest is generally an interest in

A

personal property or fixtures that secures payment of an obligation.

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19
Q

Although Article 9 is usually limited to personal property transactions, it does apply to a security interest in

A

a secured obligation, such as a promissory note secured by a real estate mortgage.

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20
Q

Unlike other statutory and common-law liens, an agricultural lien is subject to

A

Article 9.

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21
Q

Included within the definition of an agricultural lien is an interest in farm products (e.g., crops, livestock) that secures payment or performance of an obligation for either:

A

(i) goods or services furnished with respect to the debtor’s farming operation (e.g., livestock feed sold to a cattle rancher); or
(ii) rent on real property leased by a debtor in connection with a farming operation.

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22
Q

Article 9’s definition of goods also encompasses

A

growing or unharvested grown crops.

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23
Q

For collateral related to real property, the financing statement is generally filed in

A

the office for recording a mortgage on the related real property (“local filing”).

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24
Q

In Virginia, a financing statement generally must be filed only with

A

the Virginia State Corporation Commission (SCC).

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25
Q

Perfecting a lien in goods related to real property also requires filing with

A

the Virginia SCC.

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26
Q

Included within Article 9’s definition of goods as tangible collateral are

A

growing or unharvested grown crops.

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27
Q

For a security interest to attach to collateral, there must be

A

a security agreement authenticated by the debtor to satisfy the Article 9 Statute of Frauds.

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28
Q

A security interest in any collateral, except a deposit account, money, or letter-of-credit rights that are not a supporting obligation, may be perfected by

A

filing a financing statement.

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29
Q

when the debtor is located in Virginia, a financing statement generally need only be filed with

A

the Virginia SCC.

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30
Q

A purchase-money security interest (PMSI) is

A

a special type of security interest that may be accorded special rules with respect to perfection and priority.

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31
Q

A PMSI may exist only with respect to two types of collateral

A

goods (including fixtures) and software.

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32
Q

A PMSI in goods exists when:

A

(i) a secured party gave value (e.g., made a loan) to the debtor to enable the debtor to acquire rights in or use of the goods, and the value given was so used; or
(ii) a secured party sold goods to the debtor, and the debtor incurs an obligation to pay the security party all or part of the purchase price (i.e., a sale of goods on credit).

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33
Q

a note executed by the debtor meets the requirements of a security agreement when it:

A

(1) is a record;
(2) contains a description of the collateral; and
(3) is authenticated by the debtor.

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34
Q

equipment is

A

goods that are not consumer goods, farm products, or inventory but that are used or bought for use primarily in a business.

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35
Q

For a security interest to attach to the goods offered as collateral, the security agreement must

A

satisfy the Article 9 Statute of Frauds

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36
Q

for a security agreement to satisfy the statute of frauds

A

1) the debtor must authenticate the security agreement or
2) the secured party must possess or control the collateral.

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37
Q

a security interest in any collateral, except a deposit account, money, or letter-of-credit rights that are not a supporting obligation, may be perfected by

A

filing a financing statement.

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38
Q

A secured party’s possession of tangible (e.g., goods) or quasi-intangible (e.g., chattel paper) collateral satisfies the Article 9 Statute of Frauds for attachment and perfection of the secured party’s security interest if

A

the secured party’s possession is pursuant to the security agreement.

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39
Q

where a secured parties attachment and perfection is by possession of tangible or quasi tangible collateral, the security interest remains perfect only while

A

the secured party retains possession.

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40
Q

Unlike in bankruptcy, which provides a pro rata share to all creditors, Article 9

A

prioritizes the claims and pays them in order.

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41
Q

When there are two or more perfected secured parties with rights in the same collateral,

A

the first to file or perfect has priority.

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42
Q

A PMSI in goods other than inventory or livestock prevails over all other security interests in the collateral, even if they were previously perfected, if

A

the secured party perfects before or within 20 days after the debtor receives possession of the collateral.

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43
Q

Knowledge by the purchase money secured party of the conflicting prior security interest does not

A

prevent the priority of the PMSI over the earlier perfected security interest.

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44
Q

A general creditor is one who

A

has a claim, including a judgment, but who has no lien or security interest with respect to the property in question (i.e., the collateral).

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45
Q

A general creditor has no interest to assert under

A

Article 9

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46
Q

A general creditor

A

does not have a claim to particular property owned by the debtor.

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47
Q

A secured party will always prevail over

A

general creditor with respect to the debtor’s collateral.

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48
Q

classified as “equipment” because it is

A

used primarily for business, but not used up, sold, or leased like inventory.

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49
Q

Article 9 sets out rules governing

A

the priorities of conflicting interests in collateral.

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50
Q

The general rule as to a perfected security interest in collateral is that it is good against

A

all subsequent buyers

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51
Q

when a buyer in the ordinary course of business buys goods from a seller who is engaged in the business of selling goods of the kind purchased, in Virginia, the buyer

A

takes free of any security interest created by the seller, unless the buyer knows of the security interest, and the buyer knows that the sale is a violation of the terms of the security agreement.

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52
Q

In the case of consumer goods, a PMSI is perfected

A

automatically, and no filing is required

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53
Q

While a perfected security interest is good against all subsequent buyers, the exception to this is

A

the garage sale rule

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54
Q

garage sale rule

A

1) whereby a consumer purchaser buys consumer goods from another consumer, and
2) he does so without knowledge of a security interest in the goods, and
3) the purchase takes place before a financing statement related to the goods has been filed.

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55
Q

A financing statement covering equipment must be filed in the state where

A

the debtor is located

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56
Q

When there are two security interests, both of which are perfected, the general rule is that the security interest that was filed or perfected first

A

has priority

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57
Q

A financing statement may be effective to cover after-acquired property if

A

such property falls within the collateral described, whether after-acquired property is mentioned as such in the financing statement or even contemplated by the parties at the time that the financing statement was authorized.

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58
Q

priority with regard to one type of collateral is not dependent on priority with respect to

A

another type of collateral.

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59
Q

unlike the security agreement, the financing statement need not make reference to

A

future advances in order to cover such advances.

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60
Q

The financing statement is simply required to describe

A

the collateral, and a description of the type of collateral (inventory) is sufficient.

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61
Q

A financing statement is required to contain

A

1) the debtor’s name,
2) the name of the secured party or a representative of the secured party,
3) and the collateral covered by the financing statement.

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62
Q
A
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63
Q

while the debtor must authorize the filing of a financing statement

A

the debtor need not sign this statement.

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64
Q

although a financing statement must identify the collateral, the description of goods in the financing statement need not

A

specify a classification; The units could be specifically identified, such as by model and serial number.

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65
Q

In a consumer transaction, the creditor may retain the collateral in full satisfaction of the debtor’s obligation if

A

the debtor has not paid at least 60 percent of the cash price in the case of a purchase money security interest.

66
Q

in order for a consumer creditor to retain collateral in full satisfaction (where debtor hasn’t paid 60% of value) the creditor must

A

send the consumer a notice of the creditor’s proposal to take such action.

67
Q

if the consumer doesnt respond to creditors notice to retain collateral in full satisfaction proposal within

A

20 days after the proposal is sent, the creditor may retain the collateral in full satisfaction of the consumer’s obligation.

68
Q

absent a post-default waiver by the consumer-debtor, in order for a creditor to be prevented from retaining the collateral and forced to sell it instead, the consumer must have paid at least

A

60 percent of the cash price in the case of a purchase money security interest.

69
Q

full strict foreclosure is permitted in the case of a purchase money security interest if

A

1) the debtor has not paid at least 60 percent of the cash price
2) and the debtor receives a proper notice of the proposed foreclosure
3) but fails to timely respond.

70
Q

there is no dollar limit on the creditor’s ability to use

A

strict foreclosure.

71
Q

an agricultural lien, which is a lien subject to

A

Article 9.

72
Q

An agricultural lien is an interest in

A

farm products such as crops or livestock

73
Q

An agricultural lien secures payment for

A

1) either goods or services with respect to the debtor’s farming operation,
2) or rent on real property leased in connection with a farming operation.

74
Q

A creditor who has an agricultural lien who hasn’t recorded as a public record any document relating to the lease obligation; has not

A

perfected the lien by filing a financing statement;

therefore for the security interest to be perfected the creditor must have taken possession or control, or have an interest that qualifies for automatic perfection.

75
Q

When only one security interest is perfected and the other is not

A

then the perfected interest takes priority over the unperfected one.

76
Q

A debtor, secondary obligor, or any other secured party has the right to

A

redeem collateral.

77
Q

To redeem, the redeemer must

A

fulfill all obligations secured by the collateral and reasonable expenses, including attorney’s fees, incurred by the secured party in retaking the collateral or preparing for its disposition.

78
Q

where the obligation secured by the collateral is the balance due, a tender in the amount in arrears is

A

not sufficient to redeem collateral

79
Q

In general, the test for the timeliness of a notification of a disposition is

A

reasonableness.

80
Q

The notification of a disposition should be sent sufficiently far in advance of the disposition to

A

allow the notified party to act on the notification.

81
Q

Whether five days notification of a disposition is reasonably timely would likely be a question of

A

fact

82
Q

when the property in question is held as a tenancy by the entirety, a creditor of one spouse cannot

A

reach the debtor spouse’s share in the property.

83
Q

a creditor must do what to reach the property held as tenancy by entirety

A

Only if the creditor can obtain a joint judgment against both spouses can the entire property be reached.

84
Q

where property is held as tenancy by entirety by a debtor spouse with wife, creditors cant

A

force its sale to satisfy any judgment solely against debtor spouse

85
Q

an enforceable security interest with respect to goods occurs when

A

the security interest is attached to the goods/collateral

86
Q

To obtain a security interest in personal property, which includes “goods” (i.e., a moveable object) in general, and specifically equipment (e.g., a machine used in a business to manufacture other goods), a creditor must

A

comply with Article 9 of the Uniform Commercial Code

87
Q

Article 9 mandates that, for a security interest to be enforceable against the debtor with respect to the goods

A

the security interest must “attach” to the collateral.

88
Q

For attachment to occur, three conditions must coexist:

A

(i) value has been given by the secured party;
(ii) the debtor has rights in the collateral; and
(iii) the debtor has (a) authenticated a security agreement that describes the collateral, or (b) the secured party has possession or control of the collateral pursuant to a security agreement.

89
Q

For a creditor to have rights in the collateral that are superior to the rights of other persons in the collateral, the creditor must

A

perfect its security interest

90
Q

One method for perfecting a security interest is by

A

filing a financing statement.

91
Q

The filing of the financing statement must include

A

the debtor’s name, but need not be signed by the debtor

92
Q

the financing statement doesnt need to be signed by the debtor b/c

A

the purpose of the filed financing statement is to place other persons on inquiry notice as to the existence of the security interest.

93
Q

for the financing statement to be effective, the debtor must

A

authorize the filing of the financing statement

94
Q

If the debtor has authenticated the security agreement

A

then this authentication constitutes an authorization to file the financing statement with respect to the collateral covered by the agreement (i.e., an “ipso facto authorization”).

95
Q

for a debtor located in Virginia, the financing statement generally must be filed with

A

the Virginia State Corporation Commission

96
Q

For a debtor that is a registered organization, the debtor is deemed to be located

A

in the state in which it is organized (e.g., a corporation is deemed to be located in the state of incorporation).

97
Q

The failure of the president of entity to sign the financing statement

A

does not prevent its filing from perfecting creditors security interest.

98
Q

A statutory or common-law lien creditor is

A

a creditor who obtains a possessory lien on the property of another by operation of a statute or common-law rule.

99
Q

Unlike an Article 9 security interest, statutory or common-law liens are

A

nonconsensual liens.

100
Q

In Virginia, a mechanic is entitled to

A

a mechanic’s possessory lien

101
Q

a mechanic’s possessory lien is for up to and including

A

$1,000 that is superior to prior security interests, including perfected security interests.

102
Q

The remainder of the mechanic’s lien apart from the $1000 is

A

inferior to all prior security interests and liens.

103
Q

where a mechanic retained possession of the subject collateral at issue, he has

A

superior rights in the collateral to a creditor’s prior perfect security interest in the collateral for $1000

104
Q

where a perfected creditor pays the $1000 to the mechanic lien holder, who is in possession of the collateral at issue, mechanic must

A

surrender the collateral to the perfected creditor upon demand and payment of $1000

105
Q

for most items of personal property that serve as collateral for a security interest, the filing of financing statement with the Virginia State Corporation Commission is the typical method for

A

perfecting the security interest

106
Q

a security interest in a motor vehicle is perfected by

A

a notation of the security interest on the certificate of title.

107
Q

notation of the security interest on the certificate of title

A

is the only method permitted for perfecting a security interest on a motor vehicle, even if the motor vehicle is consumer goods that, under UCC Art. 9, is automatically perfected.

108
Q

Chattel paper consists of a record that evidences both

A

a monetary obligation and a security interest in specific goods.

109
Q

Upon default, a secured party may notify an account debtor (a person obligated on an account or chattel paper) to

A

make payment to the secured party.

110
Q

the secured party may collect from the account debtor, and, if the account debtor does not pay, the secured party may enforce the obligation of the account debtor, in a

A

commercially reasonable manner

111
Q

Tortious conversion generally cannot

A

deny a true owner title to his property

112
Q

someone who does not have good title

A

cannot transfer it to another

113
Q

a bona fide purchaser of the property who lacks notice of the conversion can acquire good title if:

A

(i) the property is money or a negotiable instrument,
(ii) the converter acquired title by fraud in the inducement, or
(iii) the true owner entrusted goods to a seller of goods of that kind and the purchaser is a buyer in the ordinary course of the seller’s business.

114
Q

When there is a conflict between a secured creditor and an unsecured creditor with respect to collateral of a secured loan who has priority

A

the secured creditor

115
Q

a stores security interest will automatically perfect where

A

its a purchase money security interest in consumer goods

116
Q

a secured creditor has priority over an unsecured creditor in collateral, even though

A

debtors obligation to the unsecured creditor arose before the debtors obligation to the secured creditor

117
Q

first in time, first in right rule applies in a contest between

A

two unsecured creditors; doesnt apply between a secured and unsecured creditor

118
Q

filing of a financing statement is a method to

A

perfect a creditors security interest

119
Q

A security interest that has attached to specific collateral generally may be

A

enforced against the debtor upon the default of the debtor.

120
Q

A security interest attaches to collateral when

A

the secured party has given value, the debtor has rights in the collateral, and the debtor has authenticated a security agreement that describes the collateral.

121
Q

A security agreement must be

A

authenticated by the party against whom it may be enforced (i.e., the debtor).

122
Q

The most common method of authentication is

A

for the debtor to sign or execute the record that evidences the security agreement

123
Q

a security agreement is enforceable against the debtor even though

A

the secured party does not sign the agreement.

124
Q

a secured party’s failure to perfect its security interest may affect

A

its rights to collateral when other parties have a security interest in the same collateral

125
Q

Under UCC Article 9, the failure to perfect the interest does not affect the ability of the secured party to

A

enforce the security agreement against the debtor

126
Q

When a creditor has a security interest in a deposit account, which includes a savings account at a bank, a creditor may perfect its security interest only by

A

taking control of the account

127
Q

When a creditor has a security interest in stocks, a creditor may perfect its security interest by either

A

filing a financing statement with the Virginia State Corporation Commission or by taking control of the stock; applies whether those stocks are in the form of a certificate or in electronic form.

128
Q

If there are two competing PMSIs and one PMSI secures the price of the collateral for the seller of the collateral while the other PMSI secures loans enabling the purchase of the collateral, then the PMSI taken by the seller has

A

priority over the PMSI taken by the lender

129
Q

the general rule where there are conflicting PMSIs is that the first-to-file-or-perfect has priority, when one of the perfected PMSIs is held by the seller of the collateral

A

the seller’s security interest has priority.

130
Q

Article 9, Secured transactions are

A

consensual credit transactions

131
Q

in a secured transaction, to ensure payment of a debt, the creditor takes a security interest in

A

the debtor’s specific personal property – the collateral.

132
Q

in a secured transaction if the debtor defaults, the creditor may

A

seize and sell the collateral to pay the debt.

133
Q

Attachment establishes

A

the creditor’s rights against the debtor.

134
Q

Perfection establishes

A

the creditor’s rights in the collateral against third parties.

135
Q

When more than one creditor has an interest in the same collateral, rules of priority determine

A

which party is paid first from the collateral’s proceeds.

136
Q

A security interest is not enforceable unless

A

it has attached to the collateral.

137
Q

The three requirements for attachment are:

A

i) the debtor has authenticated a security agreement that describes the collateral, or the secured party has possession or control of the collateral pursuant to a security agreement;
(ii) value has been given by the secured party; and
(iii) the debtor has rights in the collateral.

138
Q

Perfection of a security interest is generally necessary for

A

the secured party to have rights in the collateral that are superior to any rights claimed by third parties.

139
Q

A security interest is perfected upon

A

attachment of that interest and compliance with one of the methods of perfection.

140
Q

Under Article 9, there are four ways by which a secured party can perfect a security interest:

A

(1) filing a financing statement;
(2) possession of the collateral;
(3) control over the collateral; and
(4) automatic perfection.

141
Q

A security interest in any collateral, except a deposit account, money, or letter-of-credit rights, may be perfected by

A

filing a financing statement

142
Q

The financing statement must include:

A

(i) the debtor’s name;
(ii) the name of the secured party or a representative of the secured party; and
(iii) collateral covered by the financing statement.

financing statement should also contain the addresses of both the debtor and the secured party, and identify whether the debtor is an individual or organization

143
Q

The debtor’s signature is

A

not required on the financing statement, though the debtor must authorize the filing of a financial statement.

144
Q

If the debtor has authenticated the security agreement, this authentication constitutes

A

an authorization to file the financing statement with respect to the collateral covered by the agreement (i.e., an “ipso facto authorization”)

145
Q

In Virginia, a financing statement generally must be filed only with

A

the Virginia State Corporation Commission.

146
Q

A security interest may apply to collateral the debtor owns at the time the security interest is granted as well as

A

collateral that the debtor acquires in the future if the security agreement provides that it applies to after-acquired collateral.

147
Q

Inventory includes goods that are

A

held for sale in a business.

148
Q

Perfection of a security interest is generally necessary for a secured party to have superior rights in

A

the same collateral

149
Q

A security interest in inventory may be perfected by

A

filing a financing statement with the Virginia State Corporation Commission.

150
Q

Generally, when there are two or more perfected secured parties with rights in the same collateral, the

A

first to file or perfect its security interest has priority.

151
Q

If the security agreement includes after-acquired property, then the interest in that property is perfected upon

A

attachment

152
Q

A purchase money security interest (PMSI) is a special type of security interest that exists in goods that:

A

(i) a secured party gave value to the debtor to enable the debtor to acquire rights in or use of the goods, and the value given was so used; or
(ii) a secured party sold goods to the debtor, and the debtor incurs an obligation to pay the security party all or part of the purchase price.

153
Q

A PMSI in inventory prevails over all other security interests in the collateral (“super-priority”), even if the security interest was previously perfected, if

A

(i) the PMSI is perfected by the time the debtor receives possession of the collateral; and
(ii) the purchase-money secured party sends an authenticated notification of the PMSI to the holder of any conflicting security interest before the debtor receives possession of the collateral.

154
Q

A PMSI in consumer goods is automatically perfected upon

A

attachment and prevails over all other security interest in the collateral without the secured party having to take action to perfect its security interest

155
Q

A consumer good is a good that is

A

acquired primarily for personal, family, or household purposes.

156
Q

A buyer in the ordinary course of business (BOCB) takes

A

free of a security interest created by the buyer’s seller.

157
Q

A BOCB is a person who

A

(1) buys goods (other than farm products);
(2) in the ordinary course;
(3) from a seller who is in the business of selling goods of that kind
(4) in good faith; and
(5) without knowledge that the sale violates the rights of another in the same goods.

158
Q

Knowing that there is a security interest in the inventory does not mean that the sale violates the secured party’s rights because

A

the secured party’s interest will automatically attach to identifiable proceeds from the sale.

159
Q

If collateral is transferred, and the transferee of the collateral is not a buyer, the security interest

A

generally continues in the collateral unless the secured party authorized the transfer free of the security interest.

160
Q
A

Chris's bar essays law (22 decks)

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