Secured Transactions Flashcards
1
Q
Debtor:
A
A person who owes payment or performance of the obligation secured
2
Q
Secured party
A
A lender, seller, or other person in whose favor there is a security interest.
3
Q
Security agreement:
A
Agreement b/t debtor and secured party that creates the security interest.
4
Q
Security interest:
A
An interest in collateral which secures payment or performance of an obligation.
5
Q
Collateral:
A
The property subject to a security interest
6
Q
Two kinds of purchase money security interests (PMSI)
A
- Secured party sells debtor collateral on credit and retains a security interest.
- An enabling loan; a loan to a debtor that enables the debtor to buy collateral.
(Loan proceeds MUST ACTUALLY BE USED to acquire the collateral.)
7
Q
After acquired property clause:
A
Where a secured party obtains security interest not only in debtor’s present property, buy also in property the debtor obtains in the future.
8
Q
Future advance clause:
A
Secured party often contemplates making future loans to the debtor and wants to secure the future advances in the present security agreement. In these cases a new security agreement is not needed when a future advance is made.
9
Q
Attachment:
A
Gives the secured party a security interest in the collateral that is effective as against the DEBTOR.
10
Q
Financing statement:
A
Document generally used to provide PUBLIC NOTICE of the security interest, and so to perfect the interest.
11
Q
Types of collateral: Goods:
A
All things which are movable at the time the security interest attaches.
Includes the unborn young of animals, growing crops, and fixtures.
12
Q
Classification of goods: (Four types)
A
- Consumer goods
- Equipment
- Farm products
- Inventory
13
Q
Consumer goods:
A
Used or bought for use primarily for personal, family, or household purposes.
14
Q
Equipment:
A
Used or bought for the use primarily in business.
15
Q
Farm Products: (2 categories)
A
- Crops or livestock or supplies used or produced in farming operations or
- Products of crops or livestock in their unmanufactured states –
IF they are in possession of the debtor engaged in farming operations.
16
Q
Inventory are goods held by: (3 types/ways)
A
a person who holds them for sale or lease,
or to be furnished under service contracts
OR materials used or consumed in business. (Like paper, paper clips, pens, etc.)
17
Q
Eight types of semi-intangible and intangible property that can be used as collateral:
Acidic Dg
A
Accounts Commercial tort claims Instruments Documents Investment property Chattel paper
Deposit accounts
General intangibles
18
Q
Instruments:
A
Negotiable instruments and any other writing which evidences a right to the payment of a monetary obligation, and which are in the ordinary course of business transferred by delivery with any necessary indorsement or assignment. (Not to include investment property)
19
Q
Documents:
A
(e.g. bill of lading, warehouse receipt.)
A document that in the regular course of business is treated as evidencing that the person in possession of it is entitled to receive, hold, and dispose of the document and the goods it covers.
20
Q
Chattel Paper a record which evidences:
A
both a monetary obligation and a security interest in or a lease of specific goods. (Such as a promissory note and written security agreement)
21
Q
Investment property:
A
Items such as stocks, bonds, mutual funds, and brokerage accounts containing such items.
22
Q
Accounts:
A
rights to payment for goods, services, etc.
e.g. accounts receivable
23
Q
Ten Types of accounts: Right to payment for:
GC Shrivels
A
Goods
Credit card use
Services Health care receivables Real property Insurance policy issued Vessel, use or hire of Energy provided or to be provided Lottery winnings Secondary obligation incurred or to be incurred.
24
Q
Deposit accounts:
A
A savings, passbook, or similar account maintained with a bank.
Art. 9 GENERALLY applies to deposit accounts as general collateral and deposit accounts claimed as proceeds of other collateral. ?????
25
Important exception to using deposit accounts as collateral:
Must be a business transaction.
Art. 9 does NOT apply to an assignment of a deposit account in a consumer transaction.
26
Commercial tort claims:
Tort claims filed by orgs and individuals that arose out of the orgs or person's business.
27
What kind of commercial tort claims cannot be used as collateral?
Damages for personal injury or the death of an individual.
28
General intangibles:
Catch all.
Any personal property not coming w/i the scope of the other definitions. (e.g. software, patent, and TM rights, copyrights, goodwill).
29
A general intangible under which the account debtor's principal obligation is a monetary obligation is:
a PAYMENT INTANGIBLE
30
How would you classify collateral: A promissory note:
Instrument
31
How would you classify collateral: Stock in GM
Investment property
32
How would you classify collateral: A receipt given to a farmer by a silo operator when the farmer stored her grain there
Document
33
How would you classify collateral: A written K in which a car buyer purchases on credit promises to pay the car dealership for the car and grants the dealership a security interest in the car
Chattel paper
34
How would you classify collateral: Big T sells tires on credit, what are its customers obligations?
Accounts
35
How would you classify collateral: A hospital has patients who come in for treatment sign paperwork authorizing the hospital to seek payment from their health insurance coverage provider:
Accounts (Health care receivable.)
36
How would you classify collateral: The checking account you have at your bank
Deposit account - but not for consumer transactions.
37
How would you classify collateral: Patent and TM rights, copyrights, goodwill, a tax refund claim, a liquor license, a commercial clamming license, a right to return of a security deposit held by a landlord
General intangibles.
38
How would you classify collateral: A right to sue a corp for wooing away trusted employees
Commercial tort claim
39
How would you classify collateral: A claim arising in tort that has BEEN SETTLED and reduced to a CONTRACTUAL OBLIGATION TO PAY
General intangible.
| But why?
40
How would you classify collateral: A computer program when imbedded in goods:
A part of the goods
41
Article 9 applies to what kinds of transactions? 4.5
| At ASCS
1. Any transaction, regardless of its form, that creates a security interest in personal property or fixtures by K (no magic words are needed)
2. Agricultural liens
3. Sale of accounts, chattel paper, payment intangibles, or promissory notes.
4. Most consignments
5. Secured sales disguised as a leases
42
Art. 9 applies to commercial consignments of goods worth a total of $1,000 or more to persons who:
(4 factors) Cg D A Ngk
1. Didn't use the goods as consumer goods.
2. Deals in goods of the kind under a name other than under the consignor's name
3. is not an auctioneer, and
4. is not generally known by her creditors to be substantially engaged in selling the goods of others.
43
Under Art 9 a consignor's interest in the consigned goods is considered to be:
a PMSI in inventory.
44
Three requirements for attachment: AVR
1. An AGREEMENT to create a security interest.
2. VALUE given by the secured party; AND
3. DEBTOR HAS RIGHTS IN THE COLLATERAL
45
Perfection:
Maximizes the secured party's rights in the collateral as AGAINST THIRD PARTIES.
46
Two requirements for perfection:
(The second element has 5 options)
F PCAT
1. Attachment
2. One of the following:
- -FILING (in the proper place) a FINANCING STATEMENT describing the collateral
- -POSSESSION
- -CONTROL
- -AUTOMATIC perfection (e.g. of a PMSI of consumer goods)
- -TEMPORARY perfection (e.g. of a security interest in the proceeds received from the sale of collateral.)
47
Form of a security agreement: (3 requirements) It must:
| IAD
1. Written record must show the intent to create a security interest.
2. Authenticated by the debtor (signed or marked electronically w/ the present intent to identify the authenticating person)
3. Describe the collateral
48
Description of the collateral: Sec. Agreement must:
'reasonably identify' collateral
49
Collateral may generally be described by type (e.g. all of debtor's inventory) EXCEPT: 3
Commercial tort claims, consumer goods, and consumer securities accounts must be described more specifically.
50
Determining whether a debtor has rights in the collateral:
An ownership interest or the right to obtain possession qualifies. The debtor ALSO has rights in collateral where the property belongs to someone else who has authorized the debtor to put it up as collateral.
51
Exception to after acquired property clause in regards to consumer goods. SI does not attach to consumer goods unless debtor acquires rights to them within:
10 days AFTER the secured party gives value.
| Any consumer good acquired later than that, is not attached.
52
Proceeds include:
whatever is received upon the sale, exchange, collection, or other disposition of collateral.
UNLESS OTHERWISE AGREED, A SECURITY AGREEMENT GIVES SECURED PARTY A RIGHT TO PROCEEDS
53
Effective methods of perfection: Filing is effective for all classes of collateral except: 2
deposit accounts and money.
54
Effective methods of perfection: Possession
IF YOU CAN HOLD IT IN YOUR HANDS, THEN YOU CAN PERFECT BY POSSESSION.
Effective for ALL CLASSES of collateral EXCEPT:
gen. intangibles, accounts, non-consumer deposit accounts, non-neogtiable documents, and electronic chattel paper.
55
5 methods of perfecting: APT CF
1. Automatic
2. Possession
3. Control
4. Filing
5. Temporary
56
Automatic perfection happens in seven situations:
Only important one is the first one.
P AS A SiSoT
1. PMSI in consumer goods.***
2. Assignment of certain accts or payment intangibles.
3. Sale of a payment intangible or promissory note.
4. SI created by assignment of health care insurance
5. Certain security interests in investment property.
6. Supporting obligations
7. Temporary automatic perfection.
57
Temporary automatic perfection: A SI in certificated securities, negotiable docs, or instruments is automatically perfected w/o filing or the taking of possession for a period of:
20 days. If at the end of 20 days the interest is not perfected through filing or possession, then it becomes unperfected.
58
When is SI perfected by possession?
From the moment of possession w/o relation back to the time of attachment. GENERALLY PERFECTION CONTINUES ONLY SO LONG AS THE POSSESSION IS RETAINED.
59
Perfection by control effective only for: 3 - NEI
non-consumer deposit accounts,
electronic chattel paper, and
investment property.
60
How to have control in investment property: SP has taken whatever steps necessary to be able to:
have the investment property sold without further action from owner.
61
How to have control in certificated securities:
SP must take possession of the certificate and if the certificate is not in bearer form, it must also be indorsed TO the SP
62
How to have control in uncertificated securities: SP must have the debtor notify the issuer to either:
1. re-register the stock in the name of the secured party, or
2. agree to follow the SP instructions w/o further consent by the owner (debtor).
63
How to have control in securities accounts: Debtor must contact:
the broker or mutual fund co. and instruct the co. that the SP has the owner's rights in the acct or that the co. should comply w/ the SP's orders w/o further consent from the owner (debtor)
64
Control always beats:
filing
65
How to have control in non-consumer deposit accounts 2
1. The bank which the acct is maintained automatically has control.
2. If the SP is someone other than the bank then control can be obtained in two different ways.
66
How to have control in electronic chattel paper: 3
1. A single authoritative copy exists, and
2. it identifies the secured party as the assignee of the record or records, and
3. it is communicated and maintained by the SP or its designated custodian.
67
The ONLY way to perfect a SI in a motor vehicle required to be titled under state law is:
by noting the lien on the certificate of title -- UNLESS the debtor is holding the motor vehicle as inventory for sale or lease.
68
Contents of a financing statement: 4
| Dn C SPn A
1. Debtor's name.
2. Description of collateral
3. Secured Party's name
4. Debtor's authorization of the filing (no signature req'd though
69
Financing statements: description of collateral:
Generic descriptions are okay - as long as the collateral is reasonably identifiable.
Also, unlike a security agreement the description CAN be super-generic (i.e. "all assets" or "all personal property")
70
Financing statements: What if the debtor changes his name? If the name change causes the financing statement to become SERIOUSLY MISLEADING the FS is effective in perfecting:
only collateral acquired by debtor BEFORE name change and collateral acquired by the debtor before or w/i 4 months after the change.
Collateral acquired more than 4 mo. after name change must be filed with new name.
71
Financing statements: What if names are misspelled?
FS is still effective so long as the mistake is not 'seriously misleading'.
Note: If the FS would be discovered in a filing office search under the debtor's correct name, the incorrect name is not seriously misleading -- this depends on the search logic used by the office software.
72
When realty interests are involved (timber, fixtures, minerals to be extracted...) then the financing statement must also:
'reasonably identify' the real estate - metes and bounds are not necessary AND it must indicate that it is to be filed in the real property records.
73
If an authenticated security agreement is filed instead of a financing statement - what happens?
It's valid as long as it contains all the requisite elements:
1. Debtor's name.
2. Description of collateral
3. Secured Party's name
4. Debtor's authorization of the filing (no signature req'd though
(5. Description of real estate if realty interests are involved.)
74
Where to file a financing statement in order to perfect?
With the clerk of the superior court of any county in the state.
EXCEPTION: If the collateral is growing crops, minerals, or timber or where the FS is related to fixtures then filing must be made in the real estate records in the county in which the subject land is located.
75
Where the collateral is growing crops, minerals, or timber or where the FS is related to fixtures then filing must be made:
in the real estate records in the county in which the subject land is located.
76
Where to file FS with multiple state transactions: If debtor is a corporation: File where:
the debtor is organized.
77
Where to file FS with multiple state transactions: If debtor is an individual: File where:
debtor is located.
78
Where to file FS with multiple state transactions: If debtor is an unregistered business (PS, etc.): File where:
business is located and if there is more than one place of business file at the chief executive office.
79
Financing statements: What if the debtor moves?
| CHECK IT.
SP remains perfected for 4 months following the move both w/ respect to the collateral owned by the debtor at the time of the move and collateral acquired post move.
80
Financing statements: If the debtor moves to GA and the SP fails to file in GA w/i 4 months after the move then:
SP becomes unperfected and is deemed never to have been perfected as against a purchaser of the collateral for value.
81
How long is a financing statement is effective for?
five years from the time of filing and can be extended by filing a continuation statement.
82
If a SP has a perfected SI in collateral, a secured party automatically has a perfected SI in whatever proceeds the debtor receives in exchange for that collateral for:
20 days.
83
To remain perfected in proceeds beyond 20 days the SP must take new action to perfect its interest UNLESS: ????????
1. The proceeds are identifiable cash proceeds, or
| 2. "same office rule" (I have no idea. Go look it up. p. 18 GAH)
84
Priority between unperfected SP:
First to attach has priority.
85
Priority between unperfected and perfected SP:
Perfected SI generally prevails.
86
Priority between perfected SP:
Rank in priority according to time of filing or perfection.
| First in time wins.
87
PMSI in goods other than inventory or livestock has priority over conflicting SI in the same goods or its proceeds if:
the PMSI is perfected at the time the debtor received possession of the collateral or w/i 20 days thereafter.
88
PMSIs in inventory has priority over conflicting SI in the same inventory (and proceeds) IF BEFORE the debtor receives possession of the inventory the SP: 2
1. Perfects, and
| 2. Sends written notification to holders of previously filed conflicting SI in inventory.
89
With regards to inventory the holder of the conflicting SI must receive authenticated notice w/i: (see hypo GAH p.21)
??????
five years before the debtor actually receives possession of the inventory. (i.e. the notification is effective for deliveries of the same type of collateral for five years.)
90
PMSI Seller v. PMSI lender. Who has priority?
A seller who has the PMSI has priority over a SP who has a PMSI in the same collateral as the lender. (Seller wins)
91
Special priority rules for deposit accounts: A SP who has obtained control by putting the deposit acct in his own name has priority over:
ALL OTHER SP w/ CONTROL (including bank) BEST WINNER.
92
Special priority rules for deposit accounts: A bank that has control b/c it maintains the deposit acct has priority over:
all other SP w/ control EXCEPT a SP who obtained control by putting the deposit acct in his name.
93
Buyer in the ordinary course of business:
takes free of the security interest unless the buyer knows the sale is in violation of the SI
94
Unauthorized sales:
| ?????
A buyer in the ordinary course of business takes free of a SI created by seller even though the SI is perfected and even though the buyer knows of its existence. (see hypo GAH p 25)
95
Buyers not in the ordinary course of business take subject to:
perfected SI. They take free from unperfected SI (unless they know of SI)
96
Consumer to consumer sales: Buyer takes free of a SI even though it is perfected if he buys: 3
1. w/o knowledge of SI,
2. for value, and
3. for own personal, family, or household purposes
UNLESS prior to purchase the SP has filed a financing statement covering such goods.
97
SP that files or perfects b/f the judgement lien is properly recorded:
has priority over the judgment lien.
98
If a SP files with respect to a PMSI w/i 20 days after the debtor receives possession of the collateral he takes priority over the rights of:
a lien creditor which arises b/t the time the SI attaches and the time of filing.
99
Default is typically specified in the security agreement and in the absence of specification default is:
the failure to perform or pay the obligation when due.
100
When considering default look for two things:
1. Missed payments
| 2. Possible waiver by the SP of late or missed payments.
101
Self help repossession:
After breach the SP is entitled to take possession of the collateral w/o judicial process IF this can be done without BREACH OF THE PEACE.
102
What constitutes breach of the peace?
Acts that are LIKELY to lead to violence ( you don't need actual violence)
It is likely considered breach of the peace whenever collateral is taken over debtor's objection.
103
If self-help is unavailable what may secured party use to get goods?
Judicial process (e.g. replevin)
104
If a secured party wishes to retain the collateral in full or partial satisfaction of the debt they must send a proposal to: 3
1. Other SP from whom the foreclosing party has received notice of a claim to the collateral, and
2. Other SP who has perfected a SI in the collateral by filing a financing statement or noting its security interest on a certificate of title.
3. Debtor.
105
What happens if notified party objects to a SP retaining the collateral?
The collateral must be disposed of by sale.
106
How can a debtor consent to a SP wishing to keep the collateral as full or partial payment of the debt? 2
1. Agreeing in writing after default, or
2. in the case of a FULL strict foreclosure, failing to make an authenticated objection w/i 20 days after the SP sent notice.
107
In CONSUMER transactions the SP may keep the collateral:
ONLY in full satisfaction of the debt.
108
Resale of collateral: Reasonable notification requires:
Written notice by the SP (CANNOT be oral)
109
Resale of collateral: Timeliness:
Notice must be sent w/i a reasonable time before the sale (this is a question of fact)
110
Resale of collateral: Timeliness in a NONCONSUMER transaction:
Reasonable time is if it is sent 10 days or more before the time of the sale.
111
Resale of collateral: Content of notice in a non-consumer transaction should contain: (5 things)
3D MET
Descriptions of debtor, SP, and collateral.
- Method of sale (public or pvt)
- Entitled to an accounting for the unpaid indebtedness and the charge for performing the accounting, statement that debtor is .
- Time/place of any public sale OR the time after which a private sale will be made.
112
Resale of collateral: Content of notice in CONSUMER transaction must contain: (8 things) (3D)PT Ramp
- Descriptions of debtor, SP, and collateral.
- Phone number for which the recipient can discover the cost of redeeming the collateral
- Time/place of any public sale OR the time after which a private sale will be made.
- Recipient's liability for a deficiency, description
- Accounting, a statement that the debtor is entitled to one.
- Method of sale (public or pvt)
- Phone number or address from which the recipient can get additional information concerning the sale.
113
What makes a sale commercially reasonable?
Method, manner, time, place, and terms.
114
Failure to comply with resale requirements creates:
a rebuttable presumption that the value of the collateral = the amt of the debt. (no deficiency)
115
Debtor has the right to redeem collateral at any time before SP has resold it by:
tendering fulfillment of all obligations secured by the collateral. (B/c most security agreements contain an acceleration clause it's generally the entire amount due.)
116
Fixture:
personal property attached to real estate with the intent that it become a permanent part of the real estate.
117
Perfection of fixtures. Perfection may be made with respect to a fixture in the same manner as if the collateral were not a fixture, but what else is necessary to REALLY take priority?
a fixture filing is necessary to obtain priority over certain real estate interests.
118
A fixture filing must be made:
in the office where a mortgage on the real estate would be filed.
119
A fixture filing must include all the usual requirements of a financing statement PLUS it must:
1. Reasonably identify the real estate and
| 2. Show the name of the owner - if the debtor does not have an interest of record in the real estate.
120
Priority: Secured party v. subsequent real estate interest:
SI in fixtures has priority over any real estate interest that arises subsequent to the perfection of the SI by fixture filing.
121
Priority: SP v. prior real estate interest:
A prior RE interest that is properly recorded has priority over a SI that subsequently arises.
122
Priority: SP v. prior real estate interest: Exception: A PMSI takes priority over an earlier in time reality interest if it is:
perfected by a fixture filing before the goods become fixtures OR w/i 20 days thereafter.
123
Fixture filing is unnecessary as to READILY REMOVABLE: 3
1. factory or office machines
2. equipment that is not primarily used or leased for use in the operation of real estate
3. replacements of domestic appliances which are consumer goods.
124
Accessions:
Goods that are physically united with other goods in such a manner that the ID of the original goods is not lost.
125
Perfecting accessions:
If a SI is perfected when the collateral becomes an accession, the security interest remains perfected in the collateral.
126
Three ways to show an agreement to create a security interest: PDaC
Creditor's possession,
Debtor's authentication of the security agreement, OR
Creditor's control over certain types of collateral
127
How would you classify collateral: A computer program when sold separately:
Gen intangible.
128
A PMSI lender provides an:
enabling loan; a loan to a debtor that enables the debtor to buy collateral.
(Loan proceeds MUST ACTUALLY BE USED to acquire the collateral.)
129
For the purposes of collateral, the unborn young of animals, growing crops, and fixtures are classified as:
goods.
130
Art. 9 applies to secured sales disguised as leases on a case by case basis. A lease is disguised if at the end of a lease period the lessee becomes the owner of the machine for:
little or no consideration
131
Art. 9 applies to secured sales disguised as leases on a case by case basis. A lease is disguised if at the end of a lease period the lessee is bound to purchase the goods or to:
renew the lease for the remaining economic life of the goods
132
Art. 9 applies to secured sales disguised as leases on a case by case basis. A lease is disguised if it is for:
the entire economic life of the leased goods, with or without renewal.
133
The category of collateral in which tangible goods are placed depends on:
the primary use to which the DEBTOR puts the property.
134
The category of collateral in which intangible or semi-intangible collateral is placed depends on:
the nature of the collateral
135
Resale of collateral: SP must notify three 'people'.
1. Debtor
2. Any sureties on the debt AND (except in the case of consumer goods) to
3. Any other SP who have perfected by filing a financing statement or making a notation on a certificate of title
136
Financing statements: What name for the debtor? Individual?
must match name on the debtor's driver's license
137
Financing statements: What name for the debtor? Corporation or other registered org?
should be what is on the articles of incorporation or other document filed with the state
138
Financing statements: What name for the debtor? Partnership?
the PS name should be given --- or the names of the partners if there is no PS name
139
How to have control in non-consumer deposit accounts if the SP is someone other than the bank then control can be obtained by either:
a. putting the deposit acct in the SP name, or
b. agreeing in an authenticated record w/ owner of the account (debtor) and the bank where the deposit acct is maintained that bank will follow SP orders w/o further consent by the owner of the acct (debtor)
140
Priority dates between SP are dated either from the:
time a filing is first made covering the collateral, or
the time the SI is first perfected - whichever is earlier.
PROVIDED there is no period thereafter when there is neither filing nor perfection.
