Secured transactions Flashcards
A financing statement is required to contain
I) debtor’s name
2) name of secured party
3) representative of the secured party
4) collateral of the covered by the financing statement
Who has priority when l there are two security interests, both of which are perfected
Whoever perfects first
A financing statement may be effective to cover after-acquired property if
Such property falls within the collateral described…
irrespective of 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.
In a consumer transaction, the creditor may retain the collateral in full satisfaction of the debtor’s obligation if
Debtor has not paid at least 60% of the cash price in the case of a purchase money security interest
What must a creditor do to retain the collateral in full satisfaction of the debtor’s obligation?
send the consumer a notice of the creditor’s proposal to take such action.
What happens if the consumer does not respond to creditor’s proposal within 20 days after the proposal
creditor may retain the collateral in full satisfaction of the consumer’s obligation.
When there is a conflict between a secured creditor, such as the store, and an unsecured creditor, such as the orchestra, the secured creditor has priority over the unsecured creditor with respect
The collateral on secured loan
A security interest that has attached to specific collateral generally may be enforced against the debtor upon
Debtor’s default
A security interest attaches to collateral when
1) Secured party has given value
2) debtor has rights in collateral
3) debtor has authenticated a security agreement that describes the collateral
A buyer of goods in the ordinary course of business generally takes free of
Any security interests, including perfected ones held by creditor in seller’s inventory
In order to qualify as a buyer in ordinary course, the buyer must
purchase goods from a merchant who is in the business of selling goods of that kind, in good faith, and without knowledge that the sale violates a creditor’s security interest in the goods.
Generally, cash proceeds from the sale of the collateral go first to
the payment of the collection and enforcement expenses and then to the secured party to satisfy the outstanding amount of the obligation.
What happens If there is a surplus from cash proceeds from the sale of the collateral? What happens if there is a deficiency?
Surplus: the debtor is entitled to it
Deficiency: debtor remains liable for deficiency
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
Taking control of the account
When a creditor has a security interest in stocks, a creditor may perfect its security interest by either
Filing financing statement with the Virginia State Corporation Commission or by taking control of the stock
When a creditor has a security interest in stocks, a creditor may perfect its security interest by either
Filing financing statement with the Virginia State Corporation Commission or by taking control of the stock
Generally, a JUDICIAL LIEN CREDITOR has priority over the JUDGMENT DEBTOR’S ASSETS against a HOLDER who has a security interest in
any unperfected assets when the judicial lien is filed
What happens when when the holder of a purchase money security interest (PMSI) perfects that interest either before or within 20 days after the debtor receives possession of the collateral?
the holder of the PMSI takes priority over a judgment creditor whose rights in the collateral arose between the time the security interest attached and the time of the filing.
Who has priority when 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
PMSI taken by the seller has priority over the PMSI taken by the lender.
What is perfection of a security interest?
How is it done?
Definition
–Protecting the secured party from competing creditors
Process
- Possession of collateral
- Automatic perfection of PMSI in consumer goods
- Filing UCC-1 financing statement
What law do you apply when collateral is:
1) real estate
2) personality or fixtures
1) law of mortgages
2) Article 9 of UCC
Does article 9 apply to statutory or mechanic’s liens?
No bc article 9 on applies to consensual security interests in personal p or fixtures and a mechanic’s liens is not consensual
1) What are the categories of collateral?What kind of collateral are under each?
How do you determine which category a collateral falls under?
1) tangible
- equipment
-consumer goods
-inventory
-farm products
- fixtures
2) intangible or semi intangible
- patents
-stocks
-proceeds from sale of collateral
-accounts
-promissory notes
-drafts
Determination: look at primary use in hands of debtor
What satisfies the K requirement for Attachment?
1) Debtor in possession: a security agreement
2) Creditor in possession: noting more
What needs to be included in the security agreement?
1) authentication (debtor’s signature)
2) reasonable identification of the collateral
What needs to be included in a UCC 1 financing statement?
1) debtor’s name and address
2) creditor’s name and address
3) generic description of collateral sufficient to allow for follow up inquiries
In what form does a UCC 1 financing statement need to be filed
no specifc medium but encourages electronic filing
Where must a UCC-1 financing statement be filed?
collateral in timber, minerals or FIXTURE: secretary of state where realty is located
Otherwise: secretary of state where DEBTOR is located
In VA, file with the state corporation commission in RVA
For purposes of filing a UCC-1 financing statement, where is debtor located if:
1) an organization
2) an individual
1) state of organization
2) state of principal residence
What are different types of creditors in order of their priority?
1) buyer in ordinary course
- someone who purchases the collateral from merchant’s inventory
2) Perfected attached creditor
3) Lien Creditor
- general unsecured creditor who goes to ct to get a judicial lien on the collateral
4) Non-ordinary course buyer
-someone who purchases the collateral outside the ordinary stream of commerce
5) Attached unperfected creditor
-someone who attaches but doesnt perfect or perfects by filing in wrong place
6) General unsecured creditor
- lender who never bothered to take collateral
Who does an attached unperfected creditor have priority over?
Who are they subordinate to?
1) Debtor, subsequent attached unperfected credtor, general creditor
2) Attached unperfected creditor who attached before them
Buyer outside of ordinary course of business
Lien Creditor
Perfected attached creditor
Buyer in ordinary course
WHo does perfected attached creditor have priority over?
Priority over all except Perfected attached creditor who perfected before them and buyer in ordinary course…
What is default and where is it defined?
Default occurs where debtor breaches the K… defined in the security agreement, not in article 9
Once debtor has defaulted, what are the different actions creditor can take?
1) Self help repossession
2) repossession by judicial action
3) Strict foreclosure
4) sale
5) action for deficiency judgment
Self help repossession
recovery of collateral based on terms of a contract rather than a court order.
When can secured creditor use self help repossession?
Whenever the secured creditor can do so w/o breaching the peace
What is a breach of peace?
action likely to cause violence even if violence doesnt ultimately take place
What happens if secured creditor tries to use self help repossession and debtor protests?
this is a breach of peace, so creditor cannot repossess
What happens if secured creditor tries to use self help repo under color of the law?
It would be a constructive use of force and a breach of peace, so creditor cant repossess
Consequences if the secured creditor repossesses after breaching the peace?
Civil and criminal penalties attach
For purposes of self help repossession, what if the collateral is in debtor’s home?
Creditor cant enter the home w/o voluntary and contemporaneous consent from debtor
How does a secured creditor repossess by judicial action
By getting a judicial writ ordering sheriff to obtain possession of the collateral and deliver it to the secured creditor
What is strict foreclosure
when the secured creditor lawfully retains the collateral in full satisfaction of the debt owed
How does secured creditor strictly foreclose?
- 60% rule
-if collateral is consumer goods and debtor has paid 60% foreclosure is prohibited
- collateral must be sold within 90 days of foreclosure or creditor is liable for conversion - Written proposal
A) if collateral is consumer goods creditor must send written proposal to retain collateral in full satisfaction to the Debtor, secondary obligor(guarantors)
B) otherwise send written proposal to retain collateral in full satisfaction to debtor, other secured creditors if aware, perfected creditors, secondary obligors (gurantors)
- Objection
If any notified party objects within 20 days after notice is sent, strict foreclosure is prohibited
-collateral must be sold instead
Requirements for secured party to sell the collateral?
- may use public or private sale
-every aspect of sale must be commercially reasonable
-prior to sale, reasonable notice must be sent to:
1) if collateral is consumer goods: Debtor, secondary obligors
2) Otherwise:
Debtor
Other secured creditors if aware
Perfected creditors
Secondary obligors
Notice must Include:
A) If public sale:
Time of sale
Place of sale
B) If private sale:
Time after which sale will be made
If collateral is consumer goods:
How to calculate deficiency
How to redeem
When must notice have to be given before sale of collateral
commercially reasonable time (at least 10 days before sale)
Can secured party buy the collateral at its sale of the collateral?
If public sale, yes
If private sale, only if market checks
How do you calculate the deficiency if the secured creditor sold the collateral to an insider at a low price?
Use the price that an independent 3rd party would have paid instead of the actual amount paid
When is debtor’s right to redeem collateral cut off?
Once secured creditor has either:
1) resold collateral
2) strictly foreclosed
What does a debtor have to pay to redeem the collateral?
- Missed payments (entire debt if acceleration clause)
- Accrued interest
-Creditor’s reasonable expenses (eg attorney’s fees)
What is the garage sale rule?
If buyer of consumer goods in turn resells them to another consumer (buyer who buys for his own personal, household or family use, the second buyer takes the consumer goods free of the security interest if he buys w/o knowledge of it, for value, and b4 a financing statement covering the goods has been filed
An article 9 instrument represents a right to
be paid money (promissorty notes, drafts, certificates of deposit)
What type of collateral can be described in a security agreement by TYPE ALONE?
INVENTORY
May a security agreement contain a clause giving the secured party rights in the property the debtor will acquire in the future?
Yes for all types of collateral other than commercial tort claims
What is a purchase money security interest?
an extension of value by a lender who takes as collateral a security interest in the very item that its loan enables the debtor to acquire
What is an after-acquired collateral financier?
A secured creditor who takes as collateral a security interest in all of Debtor’s business EQUIPMENT
Ex. inventory whether now held or thereafter acquired
What security interests can be perfected by control rather than possession?
1) investment property,
2) nonconsumer deposit accounts, and
3) electronic chattel paper
If a secured party has a perfected security interest in collateral and the debtor sells the collateral, what rights does the secured party have in the proceeds?
The secured party has a temporarily (20 day) perfected security interest in whatever proceeds the debtor receives in exchange for the collateral. The security interest in proceeds will continue to be perfected beyond the 20 days if:
The security interest in the original collateral was perfected by filing a financing statement, a security interest in the type of collateral constituting the proceeds would be filed in the same place as the financing statement for the original collateral, and the proceeds were not purchased with cash proceeds of the collateral (this is sometimes called the “same office” rule)
The proceeds are identifiable cash proceeds; or
The security interest in the proceeds is perfected within the 20 day period.
Can a BIOC know about a security interest in property?
Yes so long as she doesnt know that sale is in violation of the terms of the agreement.
IF cosignor retain title to cosigned goods, does cosignor have rights in such goods?
no
Can control of collateral by secured party satisfy SOF for authentication?
Yes
An after acquired clause in a security instrument is not effective for consumer goods unless the debtor either
1) acquires the consumer goods within 10 days after the secured party gives value or
2) a commercial tort claim
PMSI exists in goods when
1) secured party gave value to debtor that enabled the debtor to acquire the goods and the value was so used; or
2) secured party sold goods to the debtor and the debtor incurred an obligation to pay the secured party all or part of the purchase price
When is UCC 1 financing statement deemed filed?
upon delivery to filing office and tender of filing fee
How long is financing statement effective for?
5 years
Perfection through possession: perfection only exists durin
period of possession
Perfection by control: perfection only exists while
secured party maintains control
Mechanic’s lien up to $1,000 is superior to
prior security interest, but is inferior to an interest over $1,000
What happens if debtor objects to strict foreclosure within 20 days of creditor’s proposal?
Creditor must sell the property instead
How long does creditor have to sell foreclosed collateral? What happens if they don’t sell within this window
90 days, if they don’t they will be liable for conversion
