Secured Transactions Flashcards
1
Q
A seller-financed PMSI arises when
A
a secured party sells a debtor an item on credit and retains a security interest in the item sold
2
Q
A financer-financed PMSI arises when
A
(1) a financer makes a loan to a debtor that enables the debtor to buy specific collateral; (2) financertakes a security interest in the specific collateral; and (3) the credit or loan proceeds must actually be used to acquire the collateral
3
Q
The two main Article 9 categories of collateral are
A
“Goods” or “Semi-Tangible or Intangible Property”
4
Q
Article 9 “goods” are
A
tangible, movable personal property.
5
Q
The four types of Article 9 “goods” are
A
(1) Consumer goods
(2) equipment (default, catch all)
(3) farm products
(4) inventory
6
Q
In classifying the collateral, look to
A
how the debtor is using the collateral.
Does the debtor use it as consumer goods, equipment, farm products, inventory, etc.
7
Q
Consumer goods are
A
goods used or bought for use primarily for personal, family, household purposes
8
Q
Equipment is
A
goods used or bought for use primarily in business. The default Article 9 category.
9
Q
Farm products are
A
crops, livestock, or supplies produced in farming or products of crops, livestock, etc
10
Q
Inventory is
A
goods (1) held by person holding them for sale or lease or to be furnished under service contracts;
(2) supplies used or consumed in a business in a short period of time (can even include office supplies)
11
Q
The 8 types of semi-intangible/intangible property are
A
(1) Instruments; (2) Documents; (3) Chattel Paper; (4) Investment Property; (5) Accounts; (6) Deposit Accounts; (7) Commercial Tort Claims; (8) General Intangibles
12
Q
Instruments are
A
Writings that show a right to payment, like checks, notes, prommissory notes
13
Q
Documents are
A
A document that shows the person in possession is entitled to the goods it covers (bill of lading, warehouse receipt)
14
Q
Chattel paper is
A
A record that contains a promise to pay plus a security interest
15
Q
Investment property is
A
Stocks, bonds, mutual funds, brokerage accounts, etc.
16
Q
Accounts are
A
A right to a payment for (1) goods, (2) services, (3) real property, (4) insurance, a few other things that don’t matter
17
Q
Deposit accounts are
A
non-consumer bank accounts
18
Q
Commercial tort claims are
A
(1) P is an organization (e.g. partnership or organization; or (2) P is an individual and the claim arose in P’s business or profession and does not include PI damages or death of an individual
19
Q
General intangibles are
A
the semi-intangible/intangible catch all category, like IP rights or a payment obligation not falling within one of the other categories (a payment intangible)
20
Q
An Article 9 security interest is created/attaches when there is a
A
(1) A security agreement
(2) the secured party gives value
(3) the debtor has rights in the collateral (no contingent property interests)
*in any order, attachment occuring at the moment the final requirement is met
21
Q
A written security agreement requires
A
(1) a record showing an intent to create a security interest
(2) the agreement is “authenticated” (e.g. signed, even with a symbol) by the debtor
(3) the agreement describes (reasonably identifies) the collateral
22
Q
A reasonable identification of collateral can
A
use normal vocabulary or the Article 9 types. It CANNOT be “all of debtor’s assets”, but CAN be “all of debtor’s chattel paper, all of debtor’s inventory”
23
Q
A secured party gives value if it gives
A
consideration sufficient to support a contract, even past consideration. The debtor’s promise to pay always counts as value.
24
Q
An oral security agreement can be valid if
A
the collateral is in the possession of the secured party. This is called a “pledge.”
25
After-acquired property clauses
are valid and allow the property secured to include after-acquired property w/o a new security agreement.
26
If there is not an explicit after-acquired property clause, generally the secured party's interest only reaches collateral that the debtor
had rights in at the time the debtor SIGNED the agreement
27
An explicit after-acquired property clause does not apply where the after acquired property is
(1) consumer goods acquired by the debtor more than 10 days after the secured party GIVES VALUE; or (2) a commercial tort claim
28
An after-acquired property clause will be implied where
the collateral is a rapidly depleted and replenished resource (inventory or accounts).
29
Future advance clauses
are valid and allow the debt secured to include future advances by the same secured party without needing a new security agreement
30
Proceeds are
whatever is received upon the sale, exchange, collection, or other disposition of collateral or proceeds. Unless otherwise agreed, a security interest automatically gives the secured party a right to IDENTIFIABLE proceeds
31
To determine which part of comingled cash is identifiable
apply the "lowest intermediate balance" test. Look at the balance of the account starting at the time the proceeds are deposited and ending at the time you are applying the test. The lowest balance during that time period is the secured party's indentifiable proceeds, max of the value of the cash proceeds originally deposited.
32
The five ways to perfect are
(1) Automatic perfection (PMSI in CONSUMER goods is perfected upon attachment)
(2) Possession of collateral by secured party
(3) Control
(4) Notation of lien on certificate of title (e.g, a personal automobile)
(5) Filing a financing statement
33
A purchase money interest in consumer goods is perfected upon
attachment.
EXCEPTION: Personal automobiles. Must note lien on certificate of title. For cars held as inventory, creditor must file financing statement.
34
Perfection by possession of the collateral by the secured party is effective when
the secured party takes possession (NOT at attachment) and continues only so long as possession is retained (e.g., tangible goods).
35
Perfection by control applies to the Article 9 categories of
(1) investment property
(2) electronic chattel paper
(3) nonconsumer deposit account (required to be control)
36
A security interest in a nonconsumer deposit account can only be perfected by
control.
37
Perfection by control as to nonconsumer deposit accounts is effective when (three options)
(1) the bank that maintains the account automatically has control over the deposit account; or
(2) putting the deposit account in the secured party's name; or
(3) agreeing in an authenticated record with the debtor AND the bank that maintains the account that the bank will follow the secured party's orders w/o further consent of the debtor
38
Perfection by control as to investment property is effective when
the secured party has taken the necessary steps to be able to sell the investment property w/o consent of the owner
39
A financing statement is commonly called a
Form UCC 1
40
A financing statement must include
(1) debtor's name (individual, corporation, or partnership)
(2) description of collateral
(3) Secured party's name (defect not fatal, but raises estoppel issues)
(4) Real property financing statements
(5) No signature required, though debtor must "authorize" the filing (see automatic authorization)
(6) Authenticated security agreement itself may be filed if it meets the above requirements
41
For individual names on a financing statement, the majority rule states that
(1) if the debtor has an unexpired driver's license issued by the state where the financing statement will be filed, use the name on the license
(2) if debtor does NOT have such a license, financing statement may include the debtor's "individual name" (NO trade names)
42
A mistaken name in a financing statement is not fatal if
the mistake is not "seriously misleading," i.e. a search under the debtor's correct name, using the filing office's search method, would retrieve the erroneous financing statement
43
If the debtor's changes his/her name and the financing statement is now "seriously misleading," a financing statement is still effective if filed
before or within 4 months of the name change.Be careful about after-acquired collateral here. An interest in collateral acquired after the 4 month window is unperfected absent an amended or new financing statement.
44
The requirements for the financing statement's description of collateral are the same as the security agreement's EXCEPT
the financing statement can include a "super generic" description of the collateral, i.e. "all assets" or "all personal property"
45
A debtor automatically authorizes a financing statement if
she authenticates a security agreement covering the same collateral. Ipso facto authorization.
46
Financing statements are ordinarily filed with
the Secretary of State.
47
If the collateral is real-estate related collateral, financing statements should be filed
in the county where the real estate is located. (timber, oil, minerals, fixtures or goods intended to become fixtures)
48
Financing statements should generally be filed in the state where
the debtor is located.
49
A debtor is "located" where
(1) individuals have their PRIMARY RESIDENCE
(2) registered corporations are located where the registered corporation is ORGANIZED
(3) unregistered corporations (e.g., general partnership, LLC) located at place of business, if more than one POB, at office of chief executive
50
If a DEBTOR moves across state lines, the secured party must
file a financing statement in the new state within 4 months or it will become unperfected.
51
If the COLLATERAL that secures the debt moves across state lines to a new debtor, the secured party must
file a financing statement in the new state within 1 year or it will become unperfected.
52
Financing statements are effective for (length of time)
five years from the date of filing.
53
Financing statements can be extended by filing a
continuation statement within the last six months of the five-year life of the financing statement.
54
When there is no outstanding obligation of the debtor and secured party will not make further advances, the secured party
must file a termination statement within 20 days of receiving an authenticated demand from the debtor. If consumer goods, then w/in 1 month of no outstanding obligation or 20 days of demand. Secured party can be liable for $500 and any loss of debtor's for noncompliance.
55
A properly perfected secured party automatically has a perfected security interest in proceeds the debtor receives
(1) the proceeds are identifiable as cash proceeds; or
| (2) the "same office" rule applies
56
Under the "same office" rule, a secured party's interest in proceeds is perfected if
(1) security in the original collateral was perfected through a financing statement
(2) a financing statement for a security interest in the new type of collateral (proceeds) would be filed in the same place
(3) the new collateral/proceeds were not purchased with cash proceeds (i.e. cash middleman)
57
If the "same office" rule does not apply, a secured party can perfect its interest in the proceeds by
(1) amending the old financing statement to cover the new type of collateral/proceeds
(2) filing a wholly new financing statement covering the proceeds
58
Priority: secured party vs. secured party
As between two perfected secured creditors, the first to file or perfect, whichever occurs first, has priority.
59
A financing statement can be filed even before
a security agreement is entered into. Hugely important for priority fights.
60
Priority: two unperfected secured creditors
the first to attach has priority
61
The special rule for PMSIs in goods other than inventory or livestock states that
the PMSI in such goods has priority over a conflicing interest the same goods if the PMSI is perfected at the time the debtor received possession of the collateral or w/in 20 days thereafter
62
The rule for PMSIs in inventory or livestock (I/L) states that
the PSMI in the I/L has priority over a conflicting interest in the same I/L if (1) before the debtor receives possession of the I/L, the secured party (2) perfects and (3) notifies all holders of previously filed conflicting interest in the I/L. Notification is good for 5 years.
63
Priority: Seller PMSI vs. financer PMSI
Seller PMSI has priority over a financer PMSI
64
Investment property (IP) priority: control vs proceeds
Security interest in IP perfected by control has a priority over a security interest perfected via proceeds
65
Investment property (IP) priority: control vs. control
Rank in priority according to time obtaining control
66
Investment property (IP) priority: general rule
First to file or perfect wins
67
Deposit account (DA) priority: control vs. everything else
Security interest in IP perfected by control has a priority over a security interest perfected by any other method
68
Deposit account (DA) priority: control vs. control
Rank in priority according to time obtaining control
69
Deposit account (DA) priority: control through putting DA in own name
Secured party with control of DA by putting it in own name has priority over all other parties with control
70
Deposit account (DA) priority: bank that maintains the DA
Has priority over all other parties with control, except the party who has control by putting the DA in the party's name
71
Priority: secured party vs. buyer of the collateral
If you buy something with a security interest on it, the general rule is that the security interest stays on it
72
The exceptions to purchasing collateral with a security interest on it are
(1) Express authorization to sell the collateral free of the security interest
(2) implied authorization for inventory sold to an ordinary consumer
(3) implied authorization by acquiescence (likely to prior similar sales)
(4) "buyer in ordinary course" rule
73
The "buyer in the ordinary course" exception allows a buyer to take free of any security interest if
(1) The security interest was created by the seller (seller was the debtor)
(2) The buyer bought in good faith and provides new value
(3) The buyer did not know that the sale violated the rights of the secured party (buyer CAN know of the security interest itself)
(4) Seller is in the business of selling goods of that kind
74
A buyer NOT in the ordinary course takes free of any
unperfected security interests unless they know of the interest, but NOT free of perfected interests
75
A consumer who purchases consumer goods from another consumer takes free of any perfected security interest if
(1) both parties are consumers
(2) the consumer is a purchaser for value
(3) the consumer buys w/o knowledge of the security interest
(4) the secured party has NOT filed a financing statement
76
Priority: Secured party vs. lien creditor
Time of levy vs time of perfection controls
77
Priority: PMSI vs lien creditor
A secured party with a PMSI that file w/in 20 days has priority over any lien creditor whose interest arises between the PMSI's attachment and filing (i.e. w/in the 20 days)
78
Priority: Future advances vs. lien creditor
A future advance by a secured creditor has priority over a lien creditor if it is made (1) w/o knowledge of the lien; OR
(2) w/in 45 days of the lien arising; OR
(3) pursuant to a commitment entered into w/o knowledge of the lien
79
Priority: Secured party vs. statutory lien claimants
Statutory lien beats even a perfected secured creditor
80
Default occurs when
specified in the security agreement, or failure to perform or pay the obligation when due
81
Self-help repossession allows a secured party to
take possession of the collateral without judicial process if it can be done w/o a breach of the peace
82
A breach of the peace is
any conduct by the secured party that has the potential to lead to violence.
83
The most common general example of a breach of the peace is
physical presence by the debtor plus verbal objection
84
A secured party can take possession through judicial process by getting a
writ of replevin
85
A secured party may retain, and not sell, the collateral if
the debtor does not object and other creditors do not object
86
Every aspect of a resale of collateral must be
commercially reasonable
87
If a resale of collateral does not satisfy the debt,
the seller gets a deficiency judgment for the difference
88
If a resale of collateral MORE than satifies the debt,
the debtor gets the surplus
89
If the secured party fails to conduct a commercially reasonable sale,
there is a rebuttable presumption that the sale proceeds equal the amount of the debt
90
A debtor may redeem
at any point prior to sale, contract for sale, or retention by secured party, and if there is an acceleration clause then debtor must tender entire balance.
91
To perfect a fixture filling, a secured party must make a
fixture filing in the county where the real estate is located
92
Fixture priority: secured party vs. subsequent real estate interest
Secured party of fixture has priority
93
Fixture priority: secured party vs. prior real estate interest
General rule: prior real estate interest wins, UNLESS secured party has a PMSI and files a fixture filing w/in 20 days
94
Fixture priority: secured party vs. prior construction mortgage
Construction mortgage takes priority
95
Accessions are
goods that are physically united with other goods but maintain their individual identities (like car tires)
96
For accessions, the same general priority rules
apply.
97
A security interest in an accession is subordinate to a security interest in the whole if
the security interest in the whole is perfected by compliance with the requirements of a certificate-of-title statute
98
If a secured party in a nonconsumer transaction fails to comply with default rules of the Uniform Commercial Code, then
the value of the collateral is presumed to equal the amount of the debt.
99
A purchase money security interest (“PMSI”) in goods other than inventory or livestock has priority over conflicting security interests in the same goods only if the PMSI is perfected before or within 20 days after
The debtor receives possession of the goods.
100
A notice of sale of collateral after a valid repossession must
(1) be authenticated by the secured party
(2) contain a statement that the debtor is entitled to an accounting
(3)
101
Termination statement rules
(1) Generally, a secured party is not obligated to terminate a financing statement.
(2) If the collateral is equipment, the creditor need not supply the debtor with a termination statement until the debtor makes a demand.
(3) If the debtor did not authorize the filing of the initial financing statement, the secured party must, on demand of the debtor, within 20 days, file a termination statement or provide one to the debtor.
102
If a secured party has a perfected security interest in collateral, and the debtor sells the collateral, the secured party's rights in the proceeds are
(1) The secured party has a temporarily perfected security interest in whatever proceeds the debtor receives in exchange for the collateral.
(2) The security interest in the proceeds will continue to be perfected if they are identifiable cash proceeds.
(3) The security interest in the proceeds will continue to be perfected if a financing statement is filed within 20 days of the sale of the original collateral.
(4) "Same office" rule
