Secured Transactions Flashcards

Question 1

Q

Secured Transaction

Answer

A

transacttion intended to create a security interes in personal proeprty or fixtures.

Look for 1. a credit transaction (sal on credir or a loan) and 2. agreement that creates a lien i nfacor of the creditor in the debror’s personal property to secure the debt

Question 2

Q

Debtor

Answer

A

person who owes payment oy performance of the oblidation

Question 3

Q

secured part

Answer

A

lender,seller ot other person in hwose faor there is a security interest

Question 4

Q

security agreement

Answer

A

agreement beween debtor and secured party

Question 5

Q

security interest

Answer

A

interest in personal property ot fixtures which secures payment or performance of an obligation. it is a ocntingent property itnerest in the debtor’s collateral that the debtor grants to the creditoy. When the contingence, whiche is defautl ,ofccurs, the property interest springs to lige and hte creditor has rights in the detbor’s collateral

Question 6

Q

collateral

Answer

A

propert subject to a security interest. collateral is property that the secured party can repossess upon default to insure that the debt is paif

Question 7

Q

purchase mont secruty itnerest PMSI

Answer

A

secured party sells debtor collateral o ncredit and retaisn a security interest in the item sold
an enabling loan: a loan to a debtor that enables the debtor to buy specific collateral and the credirty rakes a security in therest in the sepcific colalteral

NoteL the crediro r loan proceeds must actually be used to acwure collateral.

Question 8

Q

After-acquired property clause

Answer

A

secured party often wil lwant to obtain a security interest not only in debtor’s present property, bnut also in property that the debtor will obtain in the future. This is permissible

Question 9

Q

Future advance claise

Answer

A

secured party often contemplates making furure loans to the debtor and wants tosecute these future advances in the present security agreement. this is permissible. A new security agreement isn ot needed when a future afcance is made

Question 10

Q

Attachment

Answer

A

Deals with htose steps legally required to give the seuted part a security interest in the collateral that is effective as gainst the debtor. Once attacehes, it is effective agaisnt the debtor and the creditor has all the rughts of a secured creditor under Article 9. a credioy is not secured creditor unti lafter attachment

Question 11

Q

Perfection

Answer

A

Stepds lefally required to give the sercured party an interest in the colalteral that is effective as against the world. Perfection is the process of giving pibliv notice of the security interest to the workd

Question 12

Q

Financing statement

Answer

A

Documen genreally used ot proude public notice of the secutiyy interest and so to perfect the security interest

Question 13

Q

Goods

Answer

A

tandible, movable personal property (including uborn young of animals and growing crops

Question 14

Q

Classificaiton of goods (4)

Answer

A

Consumer goods: bought do use primarily for hte personal, familty, or household puporses

Equipment: used or bought for use primarily in business (catch all deault category)

Farm productS: crops or livestock or supplies used in farming operaitons or product of crops in their unmanufactured states if they are in the possessio nof a debtor engaged in famring operations

Inventory: Held by a person who holds them for sale or lease to be furnished under service conrtactsl materials used or consumed in business (short period of time)

Question 15

Q

Semir-intangible and intangible property (8)

Answer

A

Instruments, documents, chattel paper, investment property, accounts, deposit accounts, commercial tort claims, general intangibled

Question 16

Q

Instruments

Answer

A

instruments - Negotiabel isntruments and any other writing which evidences a right to hte payment og a monetaryy obligaiton, and which are in the ordinarty course of buiness transgerred by delivery with anu necessary indorsement or assignement ie. checks btu does not include invetment property

notes, drafts, and certificates of deposit

Question 17

Q

Documents

Answer

A

Documents: treasted as evidencing that hte eperson in prossesson of it is enttirled to receibe, hold, and dispose of the ocument and the goods it cover (ie. bill of landing. warehouse receipt)

Question 18

Q

Chattel Paper

Answer

A

chattel apper -record or records which evednet both a monetarty obligation and a securty interes inir a kease if soeficicgoods. A “record” is informaiton that is stored in either a tanfible medium or an inteandible medium. chattel paper is stored in an elevetonic medium is also called electornic chattle paper ie. promissort noes and security interest

Question 19

Q

Investment Property

Answer

A

investment property: Includes items such as stocks, bonds, mutual funds, and brokerage accoutns contianing such items

Question 20

Q

Accounts

Answer

A

Accounts: a right to payment [ not evidenced by an instrument or chattel paper] 1. for goods 2. for services etc. AKA accoutns receivable

Question 21

Q

Deposit Accounts

Answer

A

account maintained iwht a bank

NoteL Article 9 only applies to noncnsumer deposit accoutns and depost accoutns that ate claimes aproceeds of other collateral

Question 22

Q

Comemrcial tort claims

Answer

A

claim arising in rtort with respect to which the claimant is an organication OR where claimany is an inficudual and the claim arose in the climant’s bueinss and profession AND does not include damages for personal injury or the deat of an individual

Question 23

Q

General intangibles

Answer

A

accoutn debtor’s prinsipal oblication is a monetary on;ifaction is a payable intangible ie. IP

default intangible category

Question 24

Q

Classification of computer program colaleteral

Answer

A

if sold separatelt, general intangible. if embeddedi n computer, follows computer classification

Question 25

Q

True lease v. dissale

Answer

A

relevant wuestion: at time te parties entered int ot he transaciton, was it reaosabnably likelt yhat the “lessor” would get the item back when it still ahd meaningdul economic value?

if yes, it is a true lease. If not, it is a sale with a security interest in substance and therefore governed by Article 9

Question 26

Q

Security agreement

Answer

A

Unless collateral is in the possession or control of the secured party pursuant to an agreement, a written (or electornically stored) sectuity agreement is required. Msot often, debtor wany possession of the collateral so a writingis necessary

Question 27

Q

Latch

Answer

A

if colalterla is in posession of the secured pary pursuant to an oral securoty agreement, this meets the “securtiy agreement” rewuirement and is called a latch.

Question 28

Q

Elements for atachment (3)

Answer

A

Security agreement
value has been given
debtore has rights in the colalteral

attachment as soon as all three elements are met
once attached, all supporting oblifations for that colalteral also attach

Question 29

Q

Form of security agreement (when writtne)

Answer

A

agreement mustb e evifrnvrd by a record and must show an intent to create a securtiy interest
agreement must be authenticated by the debtor; any symbol coutns as signature
Description of colalteral; reaosnably identify
- normal voacabulary or article 9 goods/categories work but “all of assets” os supergeneric and wont work

Question 30

Q

Elements of attachment - value

Answer

A

definition is liberal
- any consideraiton suggicient ot support a simple contract is enough. even past consideratio nis enough. The debtor always gives value because the debtor promisses to pay. SO, the wuestion is whether the secured party gave value

Question 31

Q

Scope of Securty Interest- after acquired proeprty clause

Answer

A

without an explciit after-acquired property claise in the securty agreement, the securted party’s security interst only rached collaeteal that the debtor had rights in at the time the debtor signed the security agreement

Exception: even when there is not a nexplicit after-acquired property clause, courts will often imply an after acwuired property clause when the collaterla is of the tpye that is reapudly depleted and replenished (inveentory or acocunts)

Another exception: securit interest does not attach under an after- acquired property clause to CONSUMER GOOD unless the debtor acquires rights in them within 10 fays after the securted party gives value

last exception: after acquired clause ineffective as to commercial tort claism

Question 32

Q

Proceeds

Answer

A

whatever received upon sale, exchange, colelction or other dispoiosnt of colaletal or proceeds. An yclaims arisinh out og loss of, degefts o damage to colalterla are proceeds. Unless otherwise agreed, a securoty interst automtically gives the secured party a right to identifiable proceeds

Question 33

Q

Identifiable proceeds

Answer

A

crediort can prove proceeds came from original proceeds

Problem: co-minging. To determine which part of comingled mass of cash is identifiable (such that the secured party has a security itnerest in ti) apply the lowest intermidiate balance test

Question 34

Q

Lowest interemediate balance test

Answer

A

identifiable proceeds, look at the balancei ncommingled account startinf at time the proceeds are deposited and ending at time you are applying test. The law deems that the loest lbalande during that tiem period is the secured party’s identigiable proceeds( btut it cannot exceed the claue of the cas proceeds originally deposited)

Question 35

Q

Perfection Requirements

Answer

A

attachemnt
one of 5 methods

-perfection deals with rights between secured party and 3Pl tit is not necesaary to create a valid enforceable secirty interest

Question 36

Q

Methods of perfection

Answer

A

automatic
posession of colalteral by secured party
perfection by control
notation of lien on certificate of title
file financing statement

Question 37

Q

automatic perfeciton

Answer

A

PMSI in CONSUMER GOODS.

Question 38

Q

Psoession of collateral by secured party

Answer

A

perfected fro mmoment of possession without relation back to time of attachment. Continues only so long as posession retained

Impossible whne: when you cnat take phsyical control of posession - deneral intangibles, accounts, deposit accoutns

Question 39

Q

Perfection by control

Answer

A

Security interests in INVESTMENT PROPEORT and ELECTRONIC CHATTEL may be perfected by control. security interests in nonconsumer deposit accoutns can ONLY be perfected by control

Question 40

Q

Perfection by control: investment property

Answer

A

has control when secured party has taken whatever steps are necessart to be able to have the invesntment property sold without further action from the owner

Question 41

Q

Perfection by control: nonconsumer deposit accounts

Answer

A

bsnk in ehivh s nonvonsumer deposit account is maintained automaticaly has control over the deposit account
if secured party is not suc ha bank, it can obtain control over the deposit accoudn by either 1. putting the deposit accoutn in the secured part’s name or 2. afreeing in an authenticated recored with the debtor and the bank in which the deposit account is maintained that hte bank will follow the secured party’s orders without further consent byu the debtor

Question 42

Q

Perfection by control: e;lectronic chattel paper

Answer

A

party has control over electronic chattel paper when a system showing the transfer of interests in chattel paper reliably establishes the secured parrt as the asignee.

Question 43

Q

Notation of lien on certificate of title

Answer

A

ONLY way to perfect securti interst in an automobile is for the secured parrt to note its len on the certificate title

Exception: if debtor is holdint the automobile as inventory ie. the debtor is a dealer. Then secured party must perfect by filinf a financing statement agaisnt inventory. Noting its lien on the certificate of title wil not work

Question 44

Q

Financing statement form

Answer

A

form UCC 1

effective gor 5 years from date of filing. Can be extended by filinf a continuation statement which must be filed at least 5 monthsbefore end of first term

Question 45

Q

Notice filinf

Answer

A

notice must indicate that a person MAY have a secirty in terest in the collateral indicated.

Question 46

Q

Contents of financing statemetn

Answer

A

Debtor’s name
Description of collateral
Secured party’s name
Real property related financing statements
Debtormust authorize filing but signature not needed
authenticated security agreement itself may be filed. if files, must contain elements above

Question 47

Q

Financing statement: debtor’s name

Answer

A

individual’s name: unexpired driver’s livense in state where financing statement is to be filed, then include name as indicated on the license. Igf no license, then may include the debtor’s indicidual name or debtor’s personal name or surname

trade name will NOT suffice

Statement will still be effecitve if there is an error in anme unless it is seriously misleading.

To determine seriouslt misleafin: search debtor’s correct name and see if it would retriebe erroneous financing statement. If it does, name error is not seriously misleading. If it does not return erraneous financing statement then the error is seriously misleading

If debtor changes name so that financint statement becomes seriouslt misleading, effective to perfect before or within 4 months after the change. not effective to perfect security interest in collateral acquired by debtor more than 4 months after change (unless amended financing statement is filed withing 4 months and renders financing statement not seriously misleading)

Question 48

Q

Fiancnsing statement- description of collateral

Answer

A

Same test as security agreement- reasonable ID but broafer in that “all assets” or “all personal peroperty” is valid

Question 49

Q

Financing Statement- Secured party’s name

Answer

A

because not indexed under securedp arty’s name but under debtor’s name, error will not be seriouslt miseleadinf.; no signature needed but msut authroize

Question 50

Q

Financing statements- real proeprrt

Answer

A

when realt intersts are involved, must ID realty and must indicate that it is to be filed in th real properrty tecords

Question 51

Q

Fianncign Statements - signature

Answer

A

debtor must authroize but dont need signature. automaticallt authroises financing statement if she authenticates a securtiy agreement coverign the same colalteral

Question 52

Q

Where to file a financign statemetn

Answer

A

General rule: Secretary of state

if real estate, file where real proeprty is located

Multiple state trannsactions: file where debtor is located. if debtor is individual then she is loacted in principlebusienss. if registered organization, incorporation. if unregistered, located at place of business (if only one) or at chief executive ofice

If debtor moved, secured parrty will become unperfected 4 months after debtor’s move unless it files a financing statement before 4 months is up.

if collateral moves, secured party will be come unperfected one year after the colalteralt moves unless it files a financing statement in the new jurisdiction before that one year period is up

When farm products, shoudl be perfected in that state

Question 53

Q

Termination statement

Answer

A

when no outsstanding oblifation and no commitment on part of secured party to make further advances, the secured party upon receivign an authenticated emdaen by debtor, msut within 20 days ptoveide the debtor wit ha termination statement to the effec that the secured party no lonfer claism a security itnerest under the dinancinst statement. If CONSUMER GOODS, then within one month after there is no outstanding oblifation or within 20 dats of receigin an authenticated demand form debtor

Note: financing statement can be filed even before a security agreement is etere into

Question 54

Q

Perfection as to proceeds

Answer

A

if perfected security interest in colalteral, automatically has ap erfected security interst in proceeds debtor reveives in exvhange for that colalteral for 20 days, to remai perfected in those proceeds beyonf 20 fays, the secured party must take new action to perfect irs interests unless:

proceeds are cash proceeds OR
secrurtiy in the orifinal collaterla was perfectedb y filinf a financing statement, a security interes in the rpte of colalteral consituting proceeds woufl be diled in the same palce as the financing statemtn for the orifinal colalteral and thep roceeds were not putchased with cas proceeds of hte colalteral

Question 55

Q

Perfection - change in use of colalteral

Answer

A

if change use (ie from eqipmaent to ivnentort) the filed financing statement (even with description of “equipment” stays effective to perfect the security interest. The secured credutor has no durt to monitor the colalteral or to amend fianncing statemnet even if it knows that the description is seriously misleafing

Question 56

Q

Priority - Secured v. Secured

Answer

A

General rule: as between two perfected secured crediorts, the first to fiel or perfect, whichever occurs first, has priority.

Question 57

Q

Priority: unperfected secured c. unperfected secured

Answer

A

first to attach has priority

Question 58

Q

Priority: Special Rules:PMSI

Answer

A

PMSI in goods OTHER THAN INVENTORY OR LIVESTOCK: has priority over conflucting security interest in the same goods ot irs priceeds if perfected at the time the febtor receibed possession of the collateral or within 20 days

PMSI in Inventory or Licestock: has priority if, before debtor receieves possessio nfpof hte inventort or livestock, the secured party 1. perfects anf 2 sends an authenticated notification to holders of perciously filed conflicting securiy intersts in the colalteral

Question 59

Q

Priority: PMSI v PMSI -

Answer

A

seller PMSI has priority over financing PMSI

Question 60

Q

PriroityL Investment property

Answer

A

secured interst perfected by control has priority over a secured interst perfected by any other method
if confluctinf securty interest each were perfected by control, they rank acciudring to the time og obtainign control
a securti interst granted to a febtor’s intermidiary has pruoruty over a security interest franted by the debtor tp anotjer secured party
except for 1,2,3 the first to file or perfect rule governes priority

Question 61

Q

Priority: Depisit accoutns

Answer

A

secured interst perfected by control has priority over a secured interst perfected via proceeds
if confluctinf securty interest each were perfected by control, they rank acciudring to the time og obtainign control
a securedp arty who has obtained control by putting the dpeosit account in tis own name has priritiyy over all other secured partued aiwht control
a banc that has control becausei tm aintains the deposit accoutn has priority over all other sercured parties with control excpet a secured party who has ontained control by putting the deposit accounf in his name

Question 62

Q

Priority: Special bank rule

Answer

A

General rule: bank with which a deposit accounf is maintained mat exercuse ay right of recoupment or set off agaisnt a secyredp arty that holds a securty interest in the deposit account. If, however, the secured party has control of the deposit account bey putting the accoutn it its own name, then any ser off exercused by the bank nased on a claim agaisnt hte debtor is ineffectice

Question 63

Q

Priority: secured buyer v. buyer of collateral

Answer

A

uf you buy soemwthign with a security interesti n it, the securty interst stays on it.

Exceptions:
1. auhtorized sales: sale authorized by secured party free of security itnerest, buyer takes free of the security interest.

Question 64

Q

Priority: unauthorized Sales

Answer

A

a buyer in the ordinary course of business (other than a person buying farm products from a person enfaed in farming operations) takes free of a security interst creaed by his seller ebem though the security interest is perfected ane ven though the buyer knows of its existence

Answer 65

A

buyer who buys good in goof daith, without knowledge that the sale cioaltes the rights of another person i nthe goods and in the ordunart ciyrse frin a oersib un the busieness of sellign goods of that kind

Answer 66

A

take subject to perfected security itnersts. take gree from uneprfected security interests unless they know of the security itnerest

Answer 67

A

takes free of security interst even though it is perfected if he buys without knowledge of the sercurity interstm for value, anf got his own persona fanly or household purposeses, unless prior to the purchase the secured party has filed a financing statement converign such goofs

note: the goofs must be consumer goods in the hands of both the buyer and seller

Answer 68

A

unperfected security itnerst is subordinate to rights of aperson who becomes a lien creitor before the security itnerest is perfected. If secutiry interest is perfected before the person becomes a lien creditoy, the security interst has priority.

secured part has priority 1. if perfected before hudgment holder got tis lien OR 2. if SP obtained a security agreement and giled a financing statemnet before the judgement lien hodler got its lien

Answer 69

A

usnecured credutiy who has obtained a judgment and has levied on that judgmenet is al ien credirot

Key: look at the time of perfecito nof the securty interset and the time of the levy bu the sherigg. If security interest is perfected before the sheriff levies, the securtiy interest hasp riority. If levy precedes perfection og the sercurity itnerst, the judicial lien has priority

Answer 70

A

if SP files with respect to PMSI interst within 20 days agter debtore receives possessio nof collatera, he takes prirority over rights of a lien vrediroty which arises between the tiem the security itnerst attaches and time of filinf

Answer 71

A

priority over lien crediroty if future advance is made 1. iwhtout knowledfe of hte lien OR 2. eithin 45 dasy f the lien arisint OR 3. pursuant to a commitment entered into without knowledge of the lien

Answer 72

A

failure to perform or pay ob;igation when it is due

look for late or missed payments
look for possible waiver by secured party of late or missed patments

Answer 73

A

done without “breach of peach”

if SP breaches peace ,loses authorixaiton to repoessess and may be sued for covnersion and liable for actual famages

Answer 74

A

any conduct by the secured party that has potential to leaf to violence is a breach of the peace. generally physical presence by debtore plus verbal objectio nis enough to create breach of peace

unauthorized entry to home = breach of peace
open garage, if attached tha nmore likelt to seen as frweelig nand liekly ot be breach of peace
busienss premises -less liabel to be breach of peace

Answer 75

A

can retain for full pr partial satisfaction of debt

must send proposal to any other SP that he hadnotice of and an others who have perfected. if notifiied party obects within 20 days after the secured part sen notice, colalteral must be disposed by sale
also debtor’s consent by 1. agreeing i nan authentircated record after default 2. full strcict foreclosere, fialign to make authenritcated objection whtin 20 fays after secured party sent notice

Answer 76

A

sale discharges security interst udner which sale isb eing made and all subrdignate securty itnerests. Prurchaser, however, is stil lsubject to superioir security itnersts

Answer 77

A

authenricatedb yt secured party (canot be oral) given to debtor and any other surertied on debt and (except in consumer foods) to any other SP who have notigited SP of interestes ot those who have prefected. Notice unnecessary when colalreral ispp erishable or threatens to declien rapidle. Debtor may, after default, waive right to notice in authteicated agreemtn

timeliness: within reasonable time before sale. nonconsumer transation: notice is deemed to be sent within a reasonabel time ig it is sent 10 days or more before time of sale

content: depends on type of sale and type of cp;a;tareal
statute provides for “safe harbor” notice forms
puclic sale, time and place
privat sale, noticeo f time after which sale will ovcur
extra info for consumer goods

Answer 78

A

every aspect: incliding method, manne,t time place and terms) must be commercially reasoable

Answer 79

A

may buy at any public sale but pricate sale only if the oclalteral is of a type custimarily sold in a recognicec markey og is a type which tis subject of widely distributed stdd price quotation

Answer 80

A

secured party has right to deficiency and debtor to surplus

Answer 81

A

faisl to conduct comemrically reasonable sale, rebuttable peresumption that the sale proceeds equal the aount of debt

Answer 82

A

anytiem before resale, before K for its dispotion, or obligation has been discharded, debtor may redeemdebtor must tender fullfillment of ALL obligations secured by colalteral.

Answer 83

A

goods that have become so related to particular real property that ani nterest in them aruses under property law.
-attached to real estate with intent that it becomes part of peromanent real estate is a fixture.

no securty interest can exxist in ordeinarty building materials incorporated into an imporivement on land (ie. bricks)

Answer 84

A

“fixture filing” where mortgage on treal estate would be filed. fixture filinign financisng statement must reaosnably identify the real estate andm sut show name of owner

Answer 85

A

right to immeiately repossess

Answer 86

A

Secured party v. subseqyent real sestate interest
- security interest in fixture has priority over real estate itnerest that arises subsequent to perfection of securty interest by fixture filing

secured party v. prior real estate itnerest

prior real estate itnerest that is propertly recorded has priority over a securty interes that subsequently arises
excpeiton: PMSI takes priority over an earlier in time realy interest if it iseperfected by a fixture filing before the goods become fixtures wor withing 20 days thereafter

note: a construction mortgage takes priority over a subsequent OMST in fixture even if secutty inrerest is perfected by a fixture filinf within 20 days og afication

Answer 87

A

physically united with other goods tin a manner that identity og original goofs not loss ( tires on car)

Answer 88

A

when collaterla becomes an accession, securit interest remains perfectedi n colalteral

Answer 89

A

precious rules - first to file,, special PMSI rule

Special priroty rule: a security interest in an accession is suybordinate to a security interest in the whoel which is perfected by compliance with the rewuirements of a certificate of title staute

Answer 90

A

uf securty interst in accession has priority over claims of evert person having itnerest in whole

Answer 91

A

secured interst perfected by control has priority over a secured interst perfected via proceeds
if confluctinf securty interest each were perfected by control, they rank acciudring to the time og obtainign control
a securedp arty who has obtained control by putting the dpeosit account in tis own name has priritiyy over all other secured partued aiwht control
a banc that has control becausei tm aintains the deposit accoutn has priority over all other sercured parties with control excpet a secured party who has ontained control by putting the deposit accounf in his name

Answer 92

A