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Secured Transactions Flashcards

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1
Q

What is a security interest?

A

Arises when a Debtor uses certain property as collateral to secure repayment of funds to the Secured Party.

If debtor defaults on repayment, the creditor can take possession and apply collateral to balance of payments.

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2
Q

When does UCC Art 9 apply?

A

To any transaction, regardless of form, that creates a security interest in personal property or fixtures by contract.

Look to substance of transaction, not label.

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3
Q

When does UCC art 9 apply to leases?

A

When the lease is in effect a financed purchase, rather than a true lease.

  • lease term is not subject to termination early by the lessee
  • the lease term is for the economic life of the goods, or the lessee has a purchase option at the end of the lease for nominal or zero consideration
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4
Q

When does UCC art 9 apply to sales?

A

Sales of accounts receivable (rights to payment), chattel paper, negotiable instruments, and payment intangibles.

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5
Q

When does UCC Art 9 not apply?

A

Landlord liens, and an interest in or lien on real property, including a lease or rents thereunder.

These are mortgages.

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6
Q

What are the types of collateral?

A
  • goods
  • tangible intangibles
  • intangible intangibles
  • investment property
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7
Q

What types of goods are collateral?

A
  • all things that are movable at the time the security interest attaches
  1. Consumer goods
  2. Inventory - goods other than farm products that are held for sale or lease or to be furnished under a contract of service, including materials used up in business or unfinished products.
  3. Farm products - farming operation, not standing timber (trees)
  4. Equipment - catch-all category
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8
Q

What are tangible intangibles?

A

Certain intangibles, like contractual obligations and ownership in goods or business entities, are commonly reduced to tangible or written form.

Intangibles are transferred by transferring the writing.

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9
Q

What are the types of tangible intangibles?

A
  1. Instruments
  2. Documents of title
  3. Chattel paper
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10
Q

What is an instrument under UUC 9?

A

negotiable instruments, evidences a right to the payment of a monetary obligation, but is not in itself a security agreement or lease

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11
Q

What is a document of title under UCC 9?

A

Documents/documents of title, treated as adequately evidencing that the person in possession of the documents is entitled to receive, hold, and dispose for the document and the goods it covers.

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12
Q

What is a chattel paper under UCC 9?

A

A record or records evidencing both a monetary obligation and a security interest in or a lease of specific goods. Can be electronic.

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13
Q

What are intangible intangibles?

A

While possibly evidenced by writings, they are treated as intangibles because the writings take no commercial significance on their own. Writings are not indispensable.

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14
Q

What are the types of intangible intangibles?

A

General intangibles - intangible collateral that doesn’t fall into any other category, like payment intangibles and software.

Accounts - rights to payment of a monetary obligation, generally for property sold or to be sold or services rendered or to be rendered.

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15
Q

What is investment property for UCC 9?

A

Includes certificated and uncertificated securities, securities accounts, and entitlements

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16
Q

What are the types of proceeds?

A
  • Cash - includes checks, deposit accounts, etc.
  • Noncash
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17
Q

What is required to create a security interest?

A
  1. Written security agreement or possession of the collateral by the secured party with the intent to secure a debt.
  2. Attachment of the security interest to the collateral.
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18
Q

What is a security agreement?

A

An agreement that creates or provides for a security interest in certain collateral.

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19
Q

What is required for a security agreement ?

A
  1. Must be in writing and authenticated by the debtor.
  2. Must contain a granting clause - state that it is creating a security interest.
  3. Contain a description of the collateral.
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20
Q

What is required to create a security agreement when the secured party is in possession?

A

an agreement, which can be oral, that the secured party is to have a security interest.

  • often called pledges.
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21
Q

What is required to create a security agreement when the secured party is in possession?

A

an agreement, which can be oral, that the secured party is to have a security interest.

  • often called pledges.
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22
Q

What are proceeds for UCC 9?

A

Proceeds obtained from the sale or disposition of collateral.

A security interest in collateral automatically extends to the identifiable proceeds of the collateral.

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23
Q

Against whom is a security interest binding?

A

Between the parties, against purchasers of the collateral, and against creditors.

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24
Q

What is a purchase money security interest?

A

The security interest must be in goods that are given as collateral for an obligation the debtor incurred for the purchase of those goods, and actually used to purchase the goods.

Essentially, getting a loan to buy a good, and then using that good as collateral for that loan.

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25
Q

What is attachment for UCC 9?

A

The process by which the security interest is created.

Once attached, the secured party has enforcement rights, including right to repossess.

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26
Q

When does the security interest attach?

A
  1. When the secured party gives value
  2. The debtor has rights in the collateral or power to transfer rights in the collateral to a secured party
    AND
  3. The debtor has authenticated a security agreement that sufficiently describes the collateral.
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27
Q

What is after-acquired collateral?

A

Property obtained after the security agreement is created

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28
Q

When does a security interest attach to after-acquired collateral?

A

If the agreement specifically says it includes after-acquired collateral.

Unless:
- an interest in inventory or accounts receivable includes after-acquired collateral, even if not specifically stated.
- security agreement cannot cover after-acquired consumer goods, unless within 10 days of secured party giving value.

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29
Q

What is a future advance?

A

A security agreement can secure all advances under a revolving credit agreement.

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30
Q

What is perfection for secured transactions?

A

The process by which the secured party gives notice to 3rd parties, to establish those rights and determine priority.

31
Q

When is a security interest perfected?

A

If it has attached and all the requirements for perfection have been met.

Most commonly done by:
- filing
- possession
- control
- automatic perfection

32
Q

How do you perfect a security interest by filing?

A

Must file a financing statement in a public office - usually Secretary of State - in the location where the debtor is located.

33
Q

Where is a debtor located?

A

Individual - residence
Non-registered organization - place of business; if more than one, chief executive office.
Registered organization - state of organization

34
Q

When is an organization registered for secured transactions?

A

When a state must maintain a public record showing the organization to have organized.

Like corporations, in contrast to business partnerships.

35
Q

What must a financing statement include in order to perfect a security interest by filing?

A
  1. Name of the debtor
  2. Name of the secured party or representative
  3. A description of the collateral covered by the financing statement
    • can be more general than securities agreement
  4. Must be authorized by debtor
    • security agreement is authorization for the financing statement
36
Q

What is the special rule for fixtures in secured transactions?

A

Fixture filing must also:
1. Indicate that it covers fixtures
2. Indicate that it is to be filed in the real property records
3. Provide a description of the real property to which the fixture is related
4. Provide the real property owner’s name, if different that debtor

37
Q

When is a filing statement ineffective?

A

When filed in the wrong place or doesn’t include the correct information.

Minor errors are alright, so long as it’s not seriously misleading.

If ineffective, it doesn’t perfect the security interest.

38
Q

What is the standard search logic exception for financing statements?

A

If a search of the records of the financing office using the office’s standard search logic would disclose the financing statement because the name of the debtor is incorrect, the financing the statement is not misleading.

Don’t assume this applies to- only use if question indicates.

39
Q

What changes can make a financing statement ineffective?

A
  1. Proceeds (beyond 20 days after receipt of proceeds by debtor)
  2. Name changes
  3. Debtor moves
40
Q

When is a perfected security interest in proceeds provided?

A

Automatically, when the security interest in the original collateral is perfected, unless the security agreement specifically provides that proceeds are not covered.

Automatic perfection for proceeds continues for only 20 days after attachment (receipt by debtor)

41
Q

When does automatic perfection for proceeds extend beyond 20 days after attachment?

A
  • a filed financing statement covers the original collateral, the security interests in the proceeds can be perfected by filing in the same office in which the financing statement was filed (almost always SoS, unless fixtures or automobiles), and the proceeds are not acquired with cash proceeds (intervening proceeds)
  • the proceeds are identifiable cash proceeds
    or
  • the security interests in proceeds is otherwise perfected when the security interest attaches to the proceeds or within 20 days after
42
Q

When is a financial statement effective after a name change?

A

the financial statement is still effective to perfect security interests in collateral acquired only within 4 months, unless an amendment to the filing statement is made within 4 months of the name change.

43
Q

When is a filing statement ineffective after a debtor moves?

A

After 4 months, unless the secured party files a new financing statement in the new state.

44
Q

When does a filed financing statement expire?

A

After 5 years, unless a continuation statement is filed 6 months before expiration.

45
Q

What types of collateral can be perfected by possession?

A
  • tangible negotiable documents
  • goods
  • money
  • tangible chattel paper
46
Q

When can a 3rd party take possession on behalf of the secured party?

A

As long as the 3rd party authenticates a record acknowledging that it is holding the collateral for the secured party.

47
Q

What care does a secured party owe to possessed collateral?

A

Must use reasonable care in its custody and preservation.

Can charge reasonable expenses of custody and preservation to the debtor.

48
Q

A secured party can perfect a security interest by taking control of what type of collateral?

A
  • investment securities
  • letter-of-credit rights
  • deposit accounts
  • electronic chattel paper
49
Q

When is a purchase money security interest perfected?

A

Automatically upon attachment, for consumer goods

50
Q

What’s the general rule for priority of security interests?

A

First in time, first in right

51
Q

What is the special rule for instruments or chattel paper?

A

When the collateral is an instrument or chattel paper, the secured party who perfects by taking possession will have priority over the secured party who perfects by filing.

52
Q

Who prevails between unperfected security interests?

A

The first security to attach.

53
Q

Who prevails between a perfected and an unperfected security interest?

A

The perfected security interest.

54
Q

Who prevails among perfected security interests?

A

The first to file or perfect.

55
Q

When does a purchase money security interest prevail?

A

A perfected PMSI prevails over a conflicting interest if the PMSI is perfected when the debtor receives possession of the collateral or writhing 20 day thereafter. Can get second in time, first in right priority.

56
Q

What is required for a purchase money security interest in inventory to acquire priority over the first in time secured party?

A
  • the purchase-money secured party must notify the first secured party in an authenticated record that it expects to obtain a PMSI in the debtor’s collateral; and
  • the PMSI must be perfected at the time the debtor receives possession of the inventory.
57
Q

Does a purchase money security interest in a motor vehicle perfect automatically?

A

No - the secured party must get the interest on the title of the property to perfect.

58
Q

What is the rule for priority disputes between lien creditors and security interests?

A

First in time, first in right

59
Q

When does a secured party have priority over a lien creditor?

A

When the secured party either:
- perfects before the lien creditor’s interest arises
- or, files a financing statement and evidence a security agreement (but authentication, possession, or control) before the lien creditor’s interest arises.

60
Q

What is the rule for priority between purchase money security interests and lein creditors?

A

If the PMSI is perfected within 20 days after the debtor receives the collateral, the PMSI will take priority over the intervening lien creditor.

61
Q

What is an accession?

A

Goods that are physically united with other goods in such a manner that the identity of the original goods is not lost.

Security interests in the accession is subordinate to security interests in the whole.

62
Q

What is a commingled good?

A

Goods that are physically united with other goods in such a manner that their identity is lost.

No security interest per se in commingled goods, but attaches to the product that results from the commingling.

Multiple security interests in commingled goods rank equally in proportion to the value of the collateral at the time it becomes commingled goods.

63
Q

Does a security interest survive the sale of the collateral?

A

Yes, unless:

  • the secured party authorizes the sale of the security interest
  • the buyer is a buyer in the ordinary course of business
    or
  • the sale qualifies as a consumer to consumer or garage sale exception
64
Q

When does a buyer of chattel paper have priority over a secured interest in proceeds of inventory subject to a security interest?

A
  • the buyer buys in good faith and in the ordinary course of business
  • the buyer gives value and takes possession or control of the chattel paper
  • the chattel paper does not indicate that it has been assigned to another party
65
Q

How can a creditor with interest in a fixture get priority over a mortgagee?

A

By filing a fixture filing first in time.

If purchase money security interest, then by filing a fixture filing before the goods become fixtures or within 20 days after.

66
Q

What are a secured party’s rights upon default?

A
  • reduce a claim to judgement, foreclose, or otherwise enforce the claim
  • repossess tangible collateral, if it can do so without a breach to the peace
  • bring an action for replevin
67
Q

When may the secured party notify the person obligated on the collateral to make payment to the secured party?

A

Upon debtors default, if the collateral consists of:
-accounts receivable
- instruments
- chattel paper

Notification must include:
- authentication by secured party or debtor
- reasonably identify the rights assigned

This assigns rights to payment, so the account debtor can discharge obligations by paying the assignee.

68
Q

What is the debtor’s right to redeem?

A

The debtor has the right to redeem the collateral by tendering the secured party the amount of the obligation, including interest, with reasonable expenses and attorney’s fees.

Must be effected before:
- collateral has been collected
- secured party has disposed of collateral or contracted to do so
- secured party has accepted collateral in full or partial satisfaction

69
Q

What notice must secured parties give before disposing of collateral?

A

To anyone with interest, reasonably authenticated notice, 10 days is always enough.

70
Q

What must notice include for a non-consumer disposition?

A
  1. Description of debtor and secured party
  2. Description of the collateral
  3. Method of intended disposition
  4. Statement that debtor is entitled to an accounting of all unpaid debt,
  5. Time and place of disposition
71
Q

What must be included for notice for a consumer-goods disposition?

A

All elements of non-consumer notice, and:
- description of liability for a deficiency
- a telephone number to call to get information about redemption
- a telephone number or mailing address for additional information

72
Q

How are the cash proceeds of collection, enforcement, or disposition applied?

A
  1. The reasonably expenses of dealing with collateral and reasonable legal fees and expenses incurred by the secured party
  2. The satisfaction of obligations secured by the security interest under which the disposition is made
  3. The satisfaction of obligations secured by any subordinary interest or lien on the collateral, if you’ve gotten an authenticated demand
  4. Any surplus or deficiency goes to the debtor
    • unless the transaction is a sale of accounts, chattel paper, payment intangibles, or promissory notes
73
Q

How must disposition be carried out by the secured party after repossession of the collateral?

A

Commercially reasonable

74
Q

What is the “rebuttable presumption rule” for the deficiency after disposition of collateral in a non-consumer secured transaction?

A

If the debtor proves that the sale was commercially unreasonable, then the deficiency will be presumed to be 0.

Secured party can rebut with evidence that the collateral is worth less than the debt.

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