Secured Transactions

Question 1

Secured Transactions: Applicable Law

Answer 1

Article 9 of the UCC

Question 2

Scope of Article 9

Answer 2

Security agreements in Personalty, involving CONSENSUAL COLLATERALIZATIONS (i.e., not mechanics liens). The character of the personalty is important and defined by the use in the hands of the debtor

Question 3

Consumer goods

Answer 3

Items for personal or familial purposes, such as home dining room, blender, etc.

Question 4

Equipment

Answer 4

Items used in business, such as cash registers

Question 5

Inventory

Answer 5

Goods for sale or lease

Question 6

Farm Products

Answer 6

Crops, livestock, supplies used in farming

Question 7

Fixtures

Answer 7

Items annexed to realty, such as lighting fixtures

Question 8

Intangible Personalty

Answer 8

Patents, trademarks, or copyrights; stocks, bonds, mutual funds; proceeds from sale of collateral; accounts receivable, promissory notes and drafts.

Question 9

Proceeds

Answer 9

Whatever is received upon sale/exchange/collection/other disposition unless payable to someone other than debtor or secured party.

Question 10

Attachment

Answer 10

Creation of an enforceable security interest in personalty/fixture.
“VCR”
(1) Value (actual lending)
(2) Contract (evidencing the transaction, called security agreement, if debtor is in possession of collateral)
(3) Rights in the collateral (cannot give security interest in something he has no legal right to, but doesn’t need to be full title)

Question 11

After-acquired collateral clauses

Answer 11

Enforceable “whether now held or hereafter acquired” permissible, known as floating lien.

Question 12

Perfecting a security interest in personalty

Answer 12

(1) Possession of collateral;
(2) Purchase money security interest has automatic perfection upon attachment in consumer goods;
(3) filing of notice

Question 13

Perfection by Notice

Answer 13

(1) Financing statement, with sufficient information to allow parties to make follow-up inquiries, including: debtor’s name and address, creditor’s name and address; description of collateral (generic okay).
(2) Filed centrally with Secretary of State in the state where the debtor is located (person - principal residence; entity - under whose laws entity is organized).
EXCEPTION – for timber, minerals, or fixtures, file locally in the county where the associated real property is located.

Question 14

Buyer in the Ordinary Course

Answer 14

someone who purchases the collateral from a merchant’s inventory (regular sale of such goods).

Question 15

Perfected Attached Creditor

Answer 15

Article 9 creditor who attains perfection.

Question 16

Lien Creditor

Answer 16

The general unsecured creditor who goes to court to get a judicial lien on the collateral.

Question 17

Non-Ordinary-Course Buyer

Answer 17

Someone who purchases collateral outside the ordinary stream of commerce (e.g., Steve Tyler buys a guitar from his auto mechanic).

Question 18

Attached Unperfected Creditor

Answer 18

Article 9 creditor who creates an enforceable security interest (attachment) but never bothers to perfect, or perfects incorrectly.

Question 19

General Unsecured Creditor

Answer 19

A lender who did not take security in collateral to back up extension of value.

Question 20

Order of Priority (General)

Answer 20

Buyer in ordinary course > Perfected attached creditor > lien creditor > non-ordinary-course buyer > attached unperfected creditor > general unsecured creditor

Question 21

Attached unperfected creditor against the world

Answer 21

rights against debtor, subsequent AUCs, and GUCs but will lose to any PAC, LC, or buyer without knowledge of security interest (BIOC, NOCB)

Question 22

Perfected attached creditor versus the world

Answer 22

Will defeat all other creditors except:

(a) A PAC who filed first (early filing OK, enforceable)
(b) Certain PSMI holders
(c) Any buyer in the ordinary course of business

Question 23

After-acquired collateral financier (PAC) against PSMI-holder

Answer 23

Where the contest is between a PAC whose interest is in any after-acquired collateral of the debtor, and the holder of a purchase-money security interest:

(1) if the collateral is equipment, an AACF PAC is construed later in time than PSMI as long as the PSMI properly files within 20 days of debtor’s taking possession of property.
(2) IF collateral is inventory, an AACF PAC is construed as later in time ONLY IF OSMI files properly before debtor takes possession of the inventory AND PSMI notifies the other creditor before debtor takes possession.

Question 24

Default

Answer 24

Not defined in Art. 9 so determined by terms of contract b/w debtor and creditor

Question 25

Secured Creditor’s Remedies Under Art 9

Answer 25

(1) Self-help repossession
(2) Repossession by judicial action
(3) Strict foreclosure
(4) Sale
(5) Action for deficiency judgment

Question 26

Self-Help Repossession

Answer 26

Permissible as long as creditor does not breach the peace (actions likely to cause violence – potential). Breach of the peace = any objection by debtor. Misusing color of law = constructive force. Civil and criminal penalties attach.

Creditor may not enter a debtor’s home without voluntary and contemporaneous consent. Outside of home, more latitude – can take collateral w/o debtor objection.

Question 27

Repossession by Judicial Action

Answer 27

If the secured party chooses not to resort to self-help repossession she may get a judicial writ ordering the sheriff to obtain possession of the collateral and deliver it to the secured party. This is called a Writ of Replevin in New York.

Question 28

Strict Foreclosure

Answer 28

Occurs when the secured party retains the collateral in full satisfaction of the debt still owed.
Consumer goods: notice sent to debtor and secondary obligor (guarantor).
Non-consumer goods: notice sent to debtor and any secured parties with security interest in the collateral.
IF ANY OF THE NOTIFIED PARTIES OBJECTS WITHIN 20 DAYS, NO STRICT FORECLOSURE ALLOWED.

Question 29

Strict foreclosure and consumer goods

Answer 29

Not allowed if debtor has paid 60% or more of the loan, or for a PSMI loan, 60% or more of the cash price.

Question 30

Sale of Collateral: Standard Governing Sale

Answer 30

Commercially reasonable

Question 31

Sale of Collateral: Notice

Answer 31

Standard notice forms under Art. 9 which, if used, are presumptively reasonable. No bright line rule as to timing (commercial reasonableness) but for non-consumer transaction, 10 days is deemed reasonable notice.

Question 32

Sale of Collateral: Notice for Consumer Goods

Answer 32

Debtor + secondary obligor, plus method of calculating deficiency and how debtor can redeem collateral.

Question 33

Sale of Collateral: Notice for Other Collateral

Answer 33

Sent to debtor + secured parties who have advised foreclosing creditor of their security interest.

Question 34

Sale of Collateral: Notice About Sale

Answer 34

Public - time and place of sale

Private - time after which sale will be made

Question 35

Sale of Collateral: Secured Party’s Right to Purchase

Answer 35

Only at public sale; not at private sale unless external market checks.

Question 36

Action for Deficiency Judgment

Answer 36

If the collateral is insufficient to satisfy debt, the creditor may proceed against debtor for deficiency judgment. If a secured party sells collateral at too low a price to an insider buyer, the price that an independent third party would have paid rather than actual amount paid is the price used in calculating deficiency.

Question 37

Debtor’s limited right of redemption

Answer 37

Debtor’s right to redeem collateral is cut off once secured party has resold the collateral or completed strict foreclosure.

ii. To redeem, the debtor must pay the missed payments plus any accrued interest and creditor’s reasonable expenses and attorney’s fees.
iii. If the security agreement contains an acceleration clause (which permits the creditor to declare the full balance due in the event of default), the debtor must pay the entire debt plus interest and expenses.