Secured Transactions

Question 1

Secured Transaction

Answer 1

Business deal plus a security interest in personalty (collateral).

UCC Article 9

Question 2

Types of Property - Tangible Movable Things

Answer 2

Inventory: goods held by a business for sale/lease, and any raw or consumable materials

Equipment: catch-all

Farm Products: livestock and unmanufactured farm goods

Question 3

Types of Property - Consumer Goods

Answer 3

Tangible things that are: 1) used or 2) bought for use primarily for personal, family, or household use

Question 4

Types of Property - Real Property

Answer 4

Land and buildings are not governed by Article 9

Fixtures: any movable thing that has been incorporated into land/buildings

As-extracted collateral (e.g., gas or oil): security interest attaches once they’re extracted

Question 5

Types of Property - Intangible Rights

Answer 5

• An account
• Deposit account
• Instrument
• Chattel paper
• Investment property
• General intangibles

Question 6

An Account (intangible right)

Answer 6

Right to collect on a promise to pay the debtor later on a monetary obligation after sale or lease (non-land)

Question 7

Deposit Account (intangible right)

Answer 7

Bank account. Governed by Article 9 if commercial

Question 8

Instrument (intangible right)

Answer 8

Promise to pay memorialized in a note or CD

Question 9

Chattel Paper (intangible right)

Answer 9

Paper representing both a promise to pay and a property right

For example:

1) lease of a moveable (right to collect future rent + reversionary right)
2) retail installment sale agreement (promissory note + security agreement)

Question 10

Attachment

Answer 10

Creates rights valid against the debtor

Requirements

1) Value must be given
2) Debtor must have rights in the collateral
3) Debtor must have authenticated a security agreement that provides an adequate description of the collateral

Question 11

Inadvertent Attachment

Answer 11

Lease of a movable thing, to debtor, structured so lessor has no expectation of reversion of value –> treated as installment sale + security interest

Consignment of non-consumer goods worth more than $1000, where consignee acts under own separate name, not an auctioneer, not generally known to sell other people’s goods –> consignor becomes creditor with security interest in goods

Question 12

Perfection

Answer 12

Makes rights enforceable against third parties. Attachment must occur first. One of various steps must be taken:

1) Filing a financial statement
2) Certificates of Ttitle
3) Possession
4) Automatic Perfection Upon Attachment
5) Control
6) Perfection as a Matter of Law in Proceeds

Question 13

Perfection - Filing a Financial Statement

Answer 13

File with the Secretary of State on form UCC-1.

Must include:

1) Debtor’s Name (full, accurate legal name, for indexing)
2) Secured Creditor’s Name
3) Description of Collateral (to be “authorized,” can’t be broader than the description in the security agreement)

Effective for all transactions btw. creditor and debtor for five years (though one can continue)

Question 14

Perfection - Fixture Filing

Answer 14

The equivalent of a filing a financial statement, but for collateral related to land (fixtures or as-extracted)

Must be filed in the mortgage records of the county, and include:

1) All requirements for a financial statement
2) Description of the real property
3) Statement that it covers fixtures
4) Identifies the owner of the realty

Question 15

Perfection - Financial Statements (conflicts of law)

Answer 15

For non-land related collateral: law of the jurisdiction where the debtor is

• Individuals: principal place of residence
• Registered Organizations: state of registry
• Unregistered Organizations: state of chief executive office
• If debtor moves to new state, creditor has 4 months to discover and refile UCC-1

For land-related collateral: law of the jurisdiction where the land is

Question 16

Perfection - Certificates of Title

Answer 16

For public roadway vehicles covered by a certificate of title.

Perfected only by applying to DMV to get a lien noted on certificate of title.

Question 17

Perfection - Possession

Answer 17

Satisfies both the writing requirement for attachment as well as perfection.

Superior perfection to filing for: instrument or chattel paper

Question 18

Perfection - Automatic Perfection Upon Attachment

Answer 18

Purchase-money security interest in consumer goods.

Question 19

Perfection - Control

Answer 19

Deposit Accounts

• Exclusive method
• Three ways:
  1) If the secured creditor is the bank where the account is held.
  2) Control agreement, where bank agrees to follow the secured creditor’s instructions
  3) If creditor gets name added to the account

Investment Property

• Best method for perfecting
• Control depends on which type of investment property
  1) Certificated Securities –> transfer of possession of the certificate and proper indorsement OR re-registration in creditor’s name
  2) Uncertificated Securities –> delivery, transfer on issuer’s books into creditor’s name
  3) Indirect Holdings (securities held through broker) –> same 3 ways as a deposit account

Question 20

Perfection - As a Matter of Law in Proceeds

Answer 20

If interest in original collateral is perfected –> automatic interest in proceeds is also perfected automatically for a 20-day grace period

After that, perfection continues in 3 ways (without filing a new UCC-1)

1) Original financing statement describes the proceeds
2) Proceeds are identifiable cash proceeds
3) Perfection as a matter of law if: a) original interest perfected by filing; b) proceeds are collateral in which security interest can be perfected by filing in the same office as the original filing; c) proceeds were not acquired with cash proceeds

Question 21

Priority Battles - Who Wins?

Answer 21

First to file, or perfect otherwise, generally wins.

1) Secured Creditors: first creditor to file a financing statement wins (except control of investment property; possession of notes/chattel paper)
2) Lien Creditors: creditors who acquire right through judicial process. If secured creditor’s interest is perfected before the lien arises, secured creditor wins
3) Fixtures: Perfection by any method (filing, or fixture filing) is effective w/r/t lien creditors
4) Buyers in Ordinary Course: Perfected security interest follows collateral into hands of a buyer (except for inventory)

Question 22

Priority Battles - PMSI

Answer 22

Non-Inventory Collateral (Equipment): Perfected within 20 days of debtor’s receiving delivery of collateral beats all other secured or lien creditors

Inventory Collateral: To get super-priority, must do 2 things before collateral is delivered to the debtor. 1) perfect the PMSI; 2) notify any secured creditor with a filed-perfected competing interest in after-acquired inventory in writing that PMSI creditor has/expects to have a PMSI

Question 23

Repossession

Answer 23

Secured creditor can repossess the collateral without notice, and by any means, so long as it does not breach the peace.

Can collect debtor’s accounts (from the debtor’s debtors)

Redemption: Debtor can redeem by paying off the debt plus the creditor’s repossession expenses and fees

Question 24

Foreclosure by Sale or Other Disposition

Answer 24

1) Every aspect of the sale must be commercially reasonable
2) Creditor must send notice to: debtor, secondary obligors (guarantors), and (if not consumer goods) to other parties known to have an interest
3) Disposition of Sale Proceeds: 1) Creditor’s costs of sale; 2) secured debt to disposing creditor; 3) debt to subordinate secured creditor; 4) any excess returns to the debtor

Question 25

Strict Foreclosure

Answer 25

Creditor Negotiates to buy collateral from debtor:
1) Proposal: Creditor sends debtor a proposal to retain collateral in exchange for forgiveness of some/all of debt

2) Notice: Creditor must notify other creditors known to have an interest
3) Assent: Accepted if debtor (or other notice parties) fails to make written objection within 20 days

Consumer Case exceptions:

1) only full satisfaction of the debt
2) collateral can’t be in debtor’s possession
3) not available for consumer goods if debtor has paid 60% of principal amount of secured loan