Secured Transactions Flashcards
What does UCC Article 9 apply to?
UCC Article 9 applies to:
* consensual security interests in personalty & fixtures
* agricultural liens
* sale of accounts, chattel paper, payment intangibles, or promissory notes
* certain consignments
* secured sales disguised as a lease
Only applies to voluntary collateralizations – not statutory or mechanics liens.
How is a security interest perfected when possession is involved?
A security interest is perfected as soon as the secured party takes possession of physical collateral.
What is meant by ‘control’ in the context of security interests?
‘Control’ refers to the secured party having control when collateral is investment property and electronic chattel paper.
What does notation of lien on a certificate of title refer to?
Notation of lien on a certificate of title applies where collateral is an automobile.
What is the most common method for a secured party to file notice?
The most common method is for the secured party to file notice in public records, providing simple and sparse information.
What information must be included in the notice filed by the secured party?
The notice must include:
* debtor’s name and address
* creditor’s name and address
* description of collateral
Filed with the secretary of state where the debtor is located.
How is automatic perfection achieved in purchase money security interests (PMSI) for consumer goods?
Automatic perfection occurs for purchase money security interests (PMSI) in consumer goods.
What happens to a secured party’s interest in proceeds if they have perfected security interest in collateral?
They automatically have perfected security interest for 20 days in proceeds received in exchange for collateral.
What must a secured party do after 20 days regarding proceeds?
After 20 days, the secured party must take steps to perfect a new interest unless it involves identifiable cash proceeds.
Does a change in the use of collateral affect the effectiveness of a filed financing statement?
No, a change in the use of collateral does not change the effectiveness of the filed financing statement.
What is the general rule regarding priority among multiple secured parties?
The first to file OR perfect has priority.
Who has the highest priority according to the hierarchy of priorities?
Buyer in Ordinary Course (BIOC) has the highest priority.
What is a Perfected Attached Creditor (PAC)?
A Perfected Attached Creditor (PAC) is an Article 9 creditor who attains perfection.
What defines a Lien Creditor (LC)?
A Lien Creditor (LC) is a general creditor who obtains a judicial lien on the collateral.
What is the status of a Non-Ordinary Course Buyer (NOCB) regarding security interests?
A Non-Ordinary Course Buyer (NOCB) takes collateral subject to perfected security interests but free from un-perfected security interests if they have no knowledge.
What is an Attached Un-perfected Creditor (AUPC)?
An Attached Un-perfected Creditor (AUPC) is an Article 9 creditor who attaches a security interest but either never perfects or fails in the perfection process.
Define General Unsecured Creditor (GUC).
A General Unsecured Creditor (GUC) is a lender that fails to take collateral.
Who is considered the debtor (D) in a secured transaction?
The debtor (D) is the entity that owes payment or performance.
What is a secured party or secured creditor?
A secured party or secured creditor is the entity that has a security interest.
What is a security interest?
A security interest is an interest in personal property or fixtures that secures payment or performance of an obligation.
What is collateral in the context of a security interest?
Collateral refers to fixtures or personalty subject to a security interest.
What are the two kinds of purchase money security interests (PMSI)?
The two kinds of PMSI are:
* Seller financed PMSI
* Enabling loan
Seller financed PMSI involves the secured party selling the debtor collateral on credit, while enabling loan involves a loan to the debtor enabling them to buy specific collateral.
What is an after-acquired property clause?
An after-acquired property clause allows the secured party to obtain a security interest in the debtor’s future property.
What is a future advance clause?
A future advance clause allows the secured party to contract to make future advances secured by the present security agreement.
What are the three requirements for attachment of a security interest?
The three requirements for attachment are:
* Value must be given by creditor
* Contract must evidence secured transaction
* Debtor must have rights to encumber collateral
This is summarized as VCR (Value, Contract, Rights).
What is perfection in the context of a security interest?
Perfection involves steps legally required to give the secured party an interest in collateral effective against the world.
What is a financing statement?
A financing statement is a document used to provide public notice of a security interest.
What is the outcome of AUPC v. the World?
Enforceable against D and defeats subsequent AUPC and any GUC.
AUPC loses to PAC, to LC, and any buyer without knowledge of security interest.
What defeats all except for certain exceptions in secured transactions?
PAC defeats all except:
* another PAC who filed first
* certain PMSI-holders
* BIOC.
PMSI-holders include after-acquired collateral financiers and holders enabling D to purchase goods.
What occurs when D breaches a security agreement?
Secured party has the right to proceed against D.
What are the required contents of notice for Non-Consumer Goods?
Must include:
* description of D & secured party
* description of collateral
* method of sale
* statement about accounting for unpaid debt
* time and place of sale.
What additional information is required in notice for Consumer Goods?
How D can calculate D’s deficiency and redeem collateral.
What is self-help repossession?
Allowed to repossess collateral without judicial process as long as creditor doesn’t breach the peace.
What constitutes a breach of peace during repossession?
Physical presence of D + verbal objection is generally enough.
What must happen if collateral is in D’s home during repossession?
Creditor may not enter without voluntary and contemporaneous consent.
What is required for repossession by judicial action?
Secured party can obtain a judicial writ ordering sheriff to obtain possession.
What is strict foreclosure?
Upon default or repossession, secured party retains collateral in full satisfaction of debt.
Who must be notified if collateral is consumer goods during strict foreclosure?
Notice must be given to:
* debtor
* any secondary obligors.
What happens if any party objects within 20 days after notice of strict foreclosure?
No strict foreclosure; collateral must be disposed of by sale.
What is the 60% rule in relation to consumer goods?
No strict foreclosure if D paid at least 60% of cash price in the case of a PMSI.
What rights does a secured party have upon default?
May sell, lease, or license collateral and apply profit to the debt.
What are the requirements for the sale of collateral?
Sale must be commercially reasonable and reasonable authenticated notice must be sent.
What is the debtor’s right to redeem?
Right to redeem before collateral is resold or strict foreclosure by tendering amount owed.
What are fixtures?
Goods that have become so attached to real property that an interest arises under real property law.
What is required to perfect a security interest in fixtures?
Make a fixture filing in the office where mortgage on real estate would be filed.
What is the priority of a secured party versus subsequent real estate interest in fixtures?
Security interest in fixtures > real estate interest arising after perfection.
When is no fixture filing required?
If fixtures are readily removable, such as factory equipment or replacements of domestic appliances.
What are accessions?
Goods physically united with other goods in a manner that the identity of original goods is not lost.
What happens to a security interest in an accession?
If perfected when collateral becomes accession, it remains perfected.
What is the priority rule for security interests in accessions?
Subordinate to security interest in the whole which is perfected by compliance with certificate of title requirements.
What rights does a secured party have regarding the removal of an accession?
May remove accession if security interest has priority over claims of every person with interest in the whole.
