Secured Transactions Flashcards
What are the 4 types of “goods” under Art 9?
(1) consumer goods
(2) farm products
(3) inventory
(4) equipment
What are “consumer goods”?
Goods used or bought for onsumer purposes.
What are “farm products”?
Crops, livestock, or products of livestock. Only farm products if the debtor is a farmer.
What is “inventory”?
Goods held by a debtor for (1) sale, (2) lease, or (3) rapidly consumed in operation of a business.
What is “equipment”?
Residual category of goods.
What are the 8 types of “intangible personal property” under Art 9.
(1) accounts
(2) instruments
(3) chattel paper
(4) deposit accounts
(5) documents
(6) investment property
(7) commercial tort claims
(8) general intangibles
What is an “account”?
A right to payment arising out of one of the transaction specified in Art 9. Includes (1) sale of goods, and (2) rendition of a service.
What is an “instrument”?
Any negotiable instrument, including notes or checks.
What is “chattel paper”?
(1) a written lease of personal property OR
(2) documentation generated by a secured transaction
What is a “deposit account”?
A savings or checking account. BUT cannot be a consumer account when the transaction is for a consumer purpose.
What are “documents”?
Document of title, bills of lading, warehouse receipts
What are “investment property”?
Stocks, bonds, and mutual funds
What are “commercial tort claims”?
(1) any tort claim held by a business
(2) an individual tort claim that arises out of the operation of a business, and does NOT involve personal injury
What are “general intangibles”?
Residual category of non-goods. Includes copyrights, patents, and goodwill. Also includes rights to payment not covered by the Art 9 definition of an “account.”
What are the three requirements for attachment?
(1) secured party gave value (timing doesn’t matter)
(2) debtor has rights in the collateral
(3) Statute of Frauds satisfied by (a) an “authenticated” security agreement, (b) possession by the securied party
What must an authenticated security agreement contain?
(1) debtor’s signature (to authenticate)
(2) evidences grant of security agreement
(3) describes the specific collateral property (not super-generic)
What is the most generic way a security agreement can describe collateral?
Can use the Art 9 types of property. E.g., “all inventory”
Exception: (1) commercial tort claims and (2) consumer goods must be specifically described.
When is the Art 9 Statute of Frauds satisfied without an authenticated security agreement?
Possession by the secured party pursuant to the debtor’s agreement.
In what order must the three attachment events take place?
Order doesn’t matter. Attachment happens when all three are present.
What is an “after-acquired property clause”?
Allows for a security interest in property acquired after the establishment of a security agreement. Usually states “[property type] now existing and after-acquired.”
What type or property cannot be subject to an after-acquired property clause? Are there any time restrictions?
Commercial tort claims. And clauses are only good for consumer goods acquired by the consumer within 10 days of the debtor giving value.
What is a “future advance clause”?
Allows future loans to also be secured according to the security agreement.
What are proceeds?
Anything the debtor acquires as a consequence of the debtor’s rights in the collateral.
What is needed to have a security interest in proceeds?
Security agreement automatically attaches to identifiable proceeds.
Can you have a security interest in proceeds of proceeds?
Yes. So long as they are identifiable.
What types of property cannot be perfected by filing a financing statement?
(1) deposit accounts
(2) money
(3) letter-of-credit rights
Where in a state is the financing statement filed?
Secretary of State
In which state should a financing statement be filed?
In the state where the debtor is located.
individual = principal residence
corporation = state where corporation is registered
unregistered organization = where the organization does business
What must be included on a financing statement?
(1) debtor’s name (mistake is seriously misleading)
(2) name of secured party
(3) type of collateral (super-generic is OK)
(4) evidence of authorization by debtor (signature)
How do you determine a debtor’s name for inclusion on a financing statement?
Individual = only the name on debtor's diver's license Corporation = name as it appears on registration with the state
What does a party need to do to remain perfected after a debtor changes his/her name?
Normally = nothing
If agreement includes after-acquired property = file a new financing statement within 4 months
How long is a financing statement effective?
5 years
When can a secured party re-file a financing statement to remain perfected beyond its expiry date?
In six-month window between 4.5 years and 5 years.
If a debtor changes location to a new state, does the secured party need to refile a financing statement in the new state?
Yes. Must refile within 4 months.
What is a “lien notation” on a certificate of title?
Some property, including automobiles, require certificates of title. If a security interest is created in that property, must make a notation on the certificate. Filed financing statements or possession are ineffective to perfect.
What is the exception to the lien notation on certificate of title rule?
If the goods are owned by a debtor in the business of selling those items (e.g., automobiles are inventory)
What four kinds of personal property cannot be perfected by possession?
(1) accounts
(2) commercial tort claims
(3) general intangibles
(4) deposit accounts
What are the effects of a secured party’s possession of collateral?
Possession by the secured party can both (1) substitute for authenticated security agreement AND (2) perfect the agreement.
Can a third party’s possession of collateral allow a secured party to perfect?
Only when
(1) the third party is unrelated to the debtor AND
(2) third party authenticates a record stating it holds the collateral for the secured party
What personal property can be perfected through control?
Only a deposit account.
How can control be obtained?
(1) bank, secured, party and debtor agree in an authenticated record to follow the secured party’s instructions
(2) change the name on the account from the debtor’s name to the secured party’s name
(3) If bank where deposit account is located is the secured party, control is automatic.
When is perfection automatic?
(1) purchase-money security interest
2) proceeds (if identifiable and traceable to collateral
When does a purchase-money security agreement arise?
(1) seller sells goods on credit
(2) lender provides an enabling loan so debtor can acquire a good
Does a secured party remain perfected when the proceeds are cash?
Cash proceeds remain perfected.
What is the “same-office” rule?
Proceeds remain perfected beyond 20 days if one would file to protect the proceeds in the same office as actual filed in for the original goods.
Exception: If collateral is acquired with cash proceeds, no same office rule. (inventory-> cash -> equipment) That collateral will only be perfected for 20 days unless a new financing statement is filed.
In general, who wins in a priority fight between two perfected parties?
First to perfect OR file (note: if you filed before you completed attachment, you still benefit from the filing date for priority purposes)
What special rules apply to priority in a PMSI in equipment?
PMSI seller gains priority over other earlier creditors if it perfects within 20 days of the equipment being transferred to the debtor.
What special rules apply to priority in a PMSI in inventory?
PMSI holder must (1) take the perfection step BEFORE delivering products to the debtor AND (2) must notify the prior secured party of the SI.
Generally, who wins in a conflict between the secured party and a buyer of collateral?
Secured party has priority unless the competing claimant (the buyer) can find an exception within Article 9.
What is a buyer in the ordinary course of business (BOCB)?
BOCB takes collateral free of a security interest (even a perfected one).
What is required to be a buyer in the ordinary course of business that takes free from security interests?
(1) must buy goods
(2) from a merchant (someone in the business of selling that type of good)
(3) cannot have knowledge that the sale violates a secured party’s rights
(4) security interest was created by the seller (cannot be a third party)
What is the “Yard Sale / Garage Sale” exception?
Consumer goods in the possession of a seller sold to a consumer goods buyer will be taken free from security interest, UNLESS the buyer knows of the security interest. Only applies when secured party relies on automatic perfection.
I.e., A buys thing as consumer goods. Then A sells to B, who also buys the thing as a consumer good. B takes free from security interest.
When does the “Yard Sale / Garage Sale” exception apply?
Only applies when secured party relies on automatic perfection.
Does a buyer of collateral for an unperfected security interest take free of that interest?
Yes, IF the buyer buys without knowledge of the unperfected security interest.
Generally, who wins in a contest between a judicial lien creditor and a secured party.
General rule: Secured party wins if he perfected before the judicial lien came into existence.
Exception: If the filing came before the judicial lien but the party was not perfected because VALUE had not been given, secured party will still have priority over a judicial lien creditor.
What is an “insecurity clause” in a security agreement?
Gives the secured party the right to declare default, as long as it does so in good faith. Debtor has burden of showing bad faith.
When can a secured party use self-help in repossession?
As long as repossession does not breach the peace. Also, creditor cannot enter into enclosures like a house or garage.
When is consent to repossession invalid?
If consent is gained by a show of force.
When does repossession preach the peace?
If a debtor objects to repossession.
Can a creditor delegate the duty of repossession?
No. Nondelegable duty. Creditor is responsible for whatever the repo person does.
What must secured party get if repossession would breach the peace?
A writ to allow the sheriff to take th collateral
What can a secured party do after repossession collateral? How is any action evaluated?
Standard: Must be “commercially reasonable”
(1) public sale with public attendance and active bidding
(2) private sale
What must a secured party do before selling collateral (for either public or private sale)?
(1) Notify the debtor of the sale
(2) notify other secured parties, UNLESS it is consumer goods (if consumer goods = only notify the debtor)
Notice must be given within a reasonable time.
Can a secured party purchase collateral at a private sale?
No. But it can at a public sale.
What is a “full strict foreclosure”?
Secured party keeps collateral in full satisfaction of debtor’s obligation.
Must notify the debtor and all secured party of this action. If anyone objects, collateral must be sold instead.
What is a “partial strict foreclosure”?
Secured party keeps collateral but debtor’s obligation is not fully satisfied. Not permitted for consumer goods. For all other goods, debtor must authenticate a record permitting partial strict foreclosure.
When is the value of collateral presumed to be equal to the amount of the debtor’s obligation?
Rebuttable presumption that collateral equals debtor’s obligation for all non-consumer goods. Burden on secured party to prove deficiency if it behaves in a commercially reasonable manner.
What are the three approaches to deficiency involving sale of consumer goods?
(1) debtor can recover damages for failure to sell collateral in a commercially reasonable manner
(2) rebuttable presumption method
(3) absolute bar to deficiency if secured party violates duties during the sale.
When can a person file a financing statement?
When the debtor authorizes such filing in an authenticated record. There must be some written evidence of the debtor’s intent to grant the security interest
