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Secured Transactions Flashcards

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1
Q

Purchase money security interest (PMSI)

A

1) seller-financed = SC sells the goods to D on credit and retains SI in goods sold
2) financier-financed = SC loans funds to D to enable D to buy specific collateral, in which SC takes SI

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2
Q

After-acquired property clause

A

Grant of SI in property obtained in future

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3
Q

Future advances clause

A

Grant of SA securing future loans with same collateral

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4
Q

Tangible collateral (goods)

A

Classification depends on how D is using the collateral

1) consumer goods = personal purposes
2) equipment = goods used or bought for use in business (default category)
3) farm products = crops or livestock in possession of D engage in farming operations
4) inventory = goods held for sale or lease and materials used or consumed in a business in a short period of time

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5
Q

Structure of an essay answer on goods

A

1) this is a [type of good]
2) definition of [type of good]
3) the [item] is [type of good] because [fact about why good was bought/how D is using it]

  • If in between two choices, give and explain both!
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6
Q

Instruments

A

pieces of paper representing the right to be paid money

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7
Q

Documents

A

represents right to receive goods (bills of lading)

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8
Q

Chattel paper

A

record which evidences:
1) monetary obligation AND
2) SI in or lease of specific goods

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9
Q

Investment property

A

stocks, bonds, mutual funds

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10
Q

Accounts

A

right to payment for property sold or services rendered

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11
Q

Deposit accounts

A

Account maintained in a bank

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12
Q

General intangibles

A

any personal property not coming within scope of other definitions, like IP stuff

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13
Q

Payment intangible

A

Account D’s principal obligation is a monetary obligation

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14
Q

Attachment requirements

A

1) security agreement
2) value given by both parties
3) D has rights in collateral

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15
Q

Authenticated security agreement

A

1) record showing intent to create SI
2) authenticated by D (usually signed)
3) describes collateral (reasonably identifies)

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16
Q

Value given

A
  • Any consideration for K law
  • includes past consideration
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17
Q

Exceptions to after-acquired property clause in SA

A

SI will attach automatically to collateral of a type that’s rapidly depleted and replenished, like accounts and inventory
- also automatic attachment to identifiable proceeds of collateral

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18
Q

After-acquired property clauses don’t apply to

A

consumer goods and commercial tort claims

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19
Q

Proceeds

A

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

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20
Q

Identifiable proceeds and AAP

A

Unless otherwise agreed, SA automatically gives SC a SI to identifiable proceeds

Identifiable = proceeds can be traced back to original collateral

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21
Q

Lowest intermediate balance rule

A

When cash proceeds are commingled, identifiable proceeds are determined by looking at bank account at time proceeds are deposited and ending at time applying the rule –> lowest balance during that time = identifiable proceeds

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22
Q

Perfection

A

Deals with rights between SC and third parties
- NOT necessary for valid SA between C and D (that’s attachment)
- allows SC to acquire maximum priority in collateral

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23
Q

5 methods of perfection

A

1) filing
2) taking possession of collateral
3) control
4) automatic perfection
5) temporary perfection

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24
Q

Relationship between attachment and perfection

A
  • Attachment creates the SI, NOT perfection
  • perfection creates priority for SC
  • perfection cannot happen without attachment
  • can be simultaneous
  • if perfection method occurs first, perfection is complete when attachment occurs
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25
Q

Automatic perfection

A

PMSI in consumer goods is automatically perfected when it attaches

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26
Q

Limitations to automatic perfection

A

1) Motor vehicles can only be perfected by notation on certificate of title
2) fixtures must be perfected with fixture filing

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27
Q

Possession of collateral

A
  • Perfected at moment of possession
  • continues as long as possession is retained
  • only possible with tangible goods
  • only way to perfect a SI in money
  • not usually practical
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28
Q

Obtaining control

A

Available for SI’s in investment property, nonconsumer deposit accounts and electronic chattel paper

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29
Q

Nonconsumer deposit accounts

A
  • can only be perfected by control
  • Bank in which account is maintained automatically has control
  • SC who is not a bank can obtain control by:
    1) putting deposit account in SC’s name OR
    2) control agreement = K between D, SC and bank that D gives permission to give SC the account
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30
Q

Perfection for car dealers

A

SIs created by car dealers for cars held in inventory are perfected by filing FS

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31
Q

Filing a financing statement

A

Form UCC-1 must contain:
1) D’s name and mailing address
2) SC’s name and mailing address
3) description of collateral covered by FS

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32
Q

FS are indexed under

A

debtor’s name

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33
Q

D’s name on FS

A

1) must match unexpired driver’s license, if D has one
2) if no license, must be their name (undefined)

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34
Q

Effect or error in D’s name

A

FS is still effective if the error is not seriously misleading

Not seriously misleading = FS could still be discovered in a filing office search under D’s correct name
- does NOT include spelling errors!

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35
Q

Rule for debtor name change

A

FS is effective only against collateral acquired by D before name became insufficient and within 4 months after
- collateral acquired after 4-month period = must refile with correct name

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36
Q

description of collateral in a FS

A
  • must reasonably identify collateral
  • may contain a supergeneric description like “all assets”
37
Q

Authorization of FS

A

FS does not have to be signed, but must be authorized by D, in any signed writing (usually SA)

38
Q

Where FS is filed

A

With secretary of state, unless collateral is related to real estate –> then file in county where land is located

39
Q

State law governing perfection

A

Law of the state where D is located –> SC must file in that state

40
Q

Movement of D to a new state

A

SC becomes unperfected 4 months after D’s move to a new state unless it files a FS in the new state first

41
Q

Collateral transferred to a new D in a different state

A

SC has one year to file in new state before becoming unperfected

42
Q

Continuation statements

A

FS is valid for 5 years –> must file continuation statement to continue perfection

  • Can ONLY be filed within 6 months before lapse of filed FS
  • D’s authorization not required
43
Q

Termination statements

A

SC not obligated to file termination statement but once D no longer owes obligation and there is no commitment by SC to make further advances, SC must terminate:
1) on demand of D
2) within 20 days

44
Q

Perfection for proceeds

A

Automatically perfected SI in proceeds of secured collateral for 20 days after receipt of proceeds

Perfection continues if:
1) proceeds are identifiable cash proceeds OR
2) same office rule OR
3) SI in proceeds perfected within 20 days

45
Q

Change in use of collateral

A

SC has no duty to monitor the collateral or amend FS if description changes
- FS remains effective to perfect SI

46
Q

Priority

A

A creditor’s place in line visa vi other creditors
- determines which creditor is first in line to get paid

47
Q

Perfected SC vs perfected SC

A

first to file OR perfect
- whichever occurs first wins

48
Q

Unperfected SC vs unperfected SC

A

first to attach wins

49
Q

Perfected SC vs unperfected SC

A

perfected party wins

  • strategy if you are perfected SC is to challenge other SC’s perfection (argue they are not perfected so you win!)
50
Q

PMSI superpriority

A

PMSIs are superior to prior perfected SIs in the same collateral if certain conditions are met

51
Q

PMSI in goods other than inventory and livestock

A

Priority over conflicting SIs in same goods or their proceeds if interest is perfected before or within 20 days after D receives possession of goods

52
Q

PMSI in inventory and livestock

A

Priority of conflicting SIs in same inventory or proceeds if:
1) perfected at time D gets possession
2) SC sends authenticated notice to other SCs before D possesses and
3) notice is effective for deliveries of same type of collateral for 5 years

53
Q

Conflicting PMSI superpriorities

A

Seller-financed PMSI = priority over financer-financed PMSI

Otherwise, first SC to file or perfect prevails

54
Q

PMSI in consumer goods is…

A

automatically perfected

55
Q

Priority rules for investment property

A

1) control beats other perfection methods
2) earlier control beats later control
3) D’s intermediary beats other creditors

56
Q

Priority rules for deposit accounts

A

Only way to perfect SI in deposit account = control

Rank according to time of control, except:
1) SC’s name on account prevails
2) maintains account is next in line

57
Q

SC vs buyer

A

SC wins unless an exception applies

58
Q

Authorized sale exception

A

Authorization by SC to sell collateral free of SI
- can be express or implied, from type of sale or seller’s conduct

59
Q

Buyer in the ordinary course of business (BIOC)

A

1) buyer in good faith
2) without knowledge of violations
3) in ordinary course
4) from seller of goods of that kind

60
Q

BIOC general rule

A

1) takes free of a nonposessory SI in the goods
2) created by his seller

61
Q

Buyers not in the ordinary course of business

A

1) take subject to perfected SIs
2) take free from unperfected SIs unless they know of it when they give value or take delivery

62
Q

Consumer to consumer sales

A

“Garage sale” rule

Buyer takes free of SI if he buys:
1) without knowledge of SI
2) for value
3) for personal use
4) before a FS covering goods has been filed

Must be consumer goods in hands of both buyer and seller

63
Q

SC vs judicial lien creditor

A

Levy before perfection = judicial LC wins

Perfection before levy or before lien arose = SC wins

SC obtains SA and files FS before lien arose = SC wins, as long as they eventually attach and perfect

64
Q

PMSI vs lienholder

A

FS for PMSI filed within 20 days after D receives collateral = SC has priority over lien arising between attachment and filing

65
Q

Statutory lienholder

A

Lien is statutorily imposed for supplication of certain goods or services not paid for
- e.g., mechanics lien

66
Q

SC vs statutory lienholder

A

statutory lienholder wins if they maintain possession of collateral

67
Q

Default

A

Event causing SI to spring to life
- gateway to remedies
- no definition in Article 9
- usually defined in SA

68
Q

Self-help repossession

A

Taking possession of collateral after default without judicial process
- can ONLY be done WITHOUT breach of peace

69
Q

Breach of the peace

A

Any conduct by SC that has potential to lead to violence
- causes SC to lose authorization to repossess

Includes:
- physical presence + verbal objection by D
- breaking and entering
- unauthorized entry into a home, even through open window

70
Q

Repossession with judicial process

A

SC asks court for writ of replevin = court order directing sheriff to repossess collateral

71
Q

Right to render equipment unusable

A

Self-help repossession –> can be done, if without breach of peace
- directed toward problem of taking possession of heavy, bulky equipment that is not easily movable
- taking keys
- pulling out engine wires
- rendering nonfunctional

72
Q

Self-help in accounts

A

SC can notify person owing money to D to make payment to SC instead of D
- upon notice, account D must pay to SC –> payment to D will not discharge obligation

73
Q

Strict foreclosure

A

SC keeps collateral itself (instead of selling it) to satisfy the debt (partial or full)

SC must:
1) notify any other SC with lien in same collateral
2) obtain D’s consent
3) if any other SC objects within 20 days of notice, must sell

74
Q

Partial strict foreclosure in consumer transactions

A

SC may not keep collateral in consumer transaction in partial satisfaction –> can ONLY keep in FULL satisfaction of debt

75
Q

Requirements for foreclosures sales

A

1) reasonable notice to to D and sureties and other SCs
2) sale must be commercially reasonable

76
Q

Timeliness and contents of foreclosure sale notice

A
  • must be sent within a reasonable time
  • contents for public sale = time and place of sale
  • contents for private sale = time of sale
77
Q

Commercially reasonable sale

A

Every aspect must be commercially reasonable = SC must make an effort to obtain best price for collateral:
- sufficiency of advertising
- limited market contacted
- whether collateral needed cleaning and repair
- convenience of time and place for public auction

78
Q

Distribution from proceeds of foreclosure sale

A

1) repaying cost of repossession and sale
2) debt of foreclosing SC satisfied
3) debt of lower priority SC satisfied
4) any surplus goes to D

79
Q

Right to redeem

A

D has ability to recover collateral by paying everything owed to SC (plus additional reasonable expenses)
- must be done before foreclosure sale
- if acceleration clause = SC has right to demand entire loan balance due

80
Q

Fixtures

A

Goods permanently attached to real property
- NOT ordinary building materials
- started off as personal property, but now so attached to real property that it cannot be disconnected
- e.g., elevator

81
Q

Perfection of fixtures

A

Fixture filing (not just a FS) must be made in office where mortgage on real estate would be filed
- requires information in a FS PLUS:
1) description of real property and
2) name of landowner

82
Q

Rights on default

A

If SC in fixture has priority over all interest in real property, SC can remove fixture upon default

If D does not own property fro which collateral is removed, SC must reimburse owner for any damage caused by removal

83
Q

SC in fixture vs subsequent real estate SI

A

SI in fixture has priority over any real estate interest recorded subsequent to perfection of SI by filing

84
Q

SC in fixture vs prior real estate interest

A

Prior real estate interest that is properly recorded prevails
- exception = PMSI takes priority over a prior realty interest if it’s perfected within 20 days after goods become fixtures

85
Q

Construction mortgage

A

Takes priority over a subsequent PMSI in fixtures

86
Q

Fixture filing unnecessary when:

A

1) readily movable collateral
- any method of perfection
2) consent, disclaimer or right to remove
- perfection not required

87
Q

Accessions

A

Goods physically united with other goods in such a manner that identity of goods not lost
- e.g., tires on a car

88
Q

Priority for accessions

A

General priority rules apply, except:
- SI in an accession is subordinate to SI in a whole which is perfected by compliance with title statute (car)

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