Secured Transactions Flashcards
What is the scope of UCC Art. 9?
Applies to VOLUNTARY, CONSENSUAL security interests in PERSONALTY (goods; things) or FIXTURES
Does NOT apply to statutory liens or mechanics liens (NOT voluntary)
NOTE: when the collateral is REAL ESTATE, apply the law of mortgages
Under UCC Art. 9: what is a Debtor? Secured creditor? Security agreement? Security interest? Collateral?
1) Debtor = entity who OWES the money
2) Secured party/creditor = entity who LENDS the money 3) Security agreement = the contract or RECORD
4) Security interest = the RIGHT that the creditor has in the debtor’s personalty or fixtures
5) Collateral = the PERSONALTY or FIXTURES that a creditor can look to for satisfaction
What are the types of collateral goods under Art. 9?
TANGIBLE COLLATERAL
Classification of tangible propertyDEPENDS on the PRIMARY USE by the debtor…
1) Consumer goods - those used for personal or familial purposes (car, fridge, stove, etc)
2) Equipment - items used in business (cash registers, dentist chair, sewing machine, etc)
3) Inventory - goods held for sale or lease (i.e. merchandise)
4) Farm products - crops, livestock, supplies used in farming, etc
5) Fixtures - items annexed to REALTY (lighting, sprinklers, furnaces, etc) INTANGIBLE/SEMI-TANGIBLE COLLATERAL
6) Intangibles/semi-intangibles - IP; stocks/bonds; proceeds from collateral sales; accounts receivables; promissory notes
What is attachment?
When a security interest has attached, that means that it is ENFORCEABLE
What are the requirements for attachment?
V-C-R
1) VALUE must be given by creditor ($$)
2) a CONTRACT (aka record aka security agreement) must evidence the secured transaction, UNLESS the secured party has taken possession of the collateral
The Record MUST (1) be authenticated (signed or e-signed) by the debtor; AND (2) reasonably identify the collateral
3) the debtor must have RIGHTS in the collateral
What is an after acquired collateral clause?
A floating lien that covers NOT ONLY presently owned property BUT ALSO anticipated property
Floating liens ARE ENFORCEABLE
Example = taking a lien in “Staples’ inventory, whether now held or hereafter acquired”
What is perfection?
Perfection = publicity!
Secured party perfects to put the world on record (constructive) notice of the secured party’s existence
Helps protect the secured party from competing creditors
NOTE: Art. 9 allows for early filing and LATER attachement, which relates back to filing date for priority purposes
Under UCC Art. 9, what does a proper lien require?
1) Voluntary/consensual transaction in personalty or fixtures AND
2) Attachment→Value from creditor; Contract/agreement; Rights in collateral (VCR) AND
3) Perfection→ Possession; Filing; Purchase Money Security Interest (PMSI)
How can acreditor attain perfection?
3 ways…
1) By taking POSSESSION of the collateral (from the debtor)
2) Purchase Money Security Interests (PMSIs) get AUTOMATIC perfection for consumer goods ONLY
** PMSI = security interest that enables a debtor to purchase the goods in question
** UCC wants to ENCOURAGE these transactions
3) Filing notice: the secured party files notice of the security interest in the public records
** Puts the world on RECORD (constructive) notice of the filer’s claim
** A financing statement is filed (stripped down version of security agreement)→ purpose is to prove JUST ENOUGH INFO to allow other creditors to follow-up (debtor and creditor names/addresses; BASIC description of the collateral)
** Financial statement is filed with the Secretary of State where DEBTOR is located. EXCEPTION: if collateral concerns land (timber, minerals, fixtures, etc)→ filed where BLACKACRE is
For priority purposes, what is the ranking order of players?
In ORDER or priority…
1) Buyer in Ordinary Course: BFP who purchases the collateral from a MERCHANT
2) Purchase Money Security Interests (PMSIs)these creditors get SUPER priority for purchase money loans in CONSUMER goods
** PMSIs in INVENTORY or EQUIPMENT can get superpriority, if certain requirements met
3a) Perfected Attached Creditor: creditor who SUCCEEDS in attaining perfection. Between them, first in time, first in priority
3b) Lien Creditor: general UNSECURED creditor who goes to COURT to get a judicial lien on the collateral
4) Non-ordinary Course Buyer: BFP who purchases the collateral from a NON-MERCHANT
5) Attached Unperfected Creditor: creditor who creates an enforceable security interest (it attaches), BUT doesn’t properly PERFECT (for whatever reason)
6) General Unsecured Creditor: creditor who DID NOT take collateral
7) Debtor
Who wins in this priority fight: floating lienvs. a purchase money security interest who came later?
1) When the collateral is EQUIPMENT, later PMSI wins over priorfloating lien IF PMSI creditor FILES properly within 20 DAYS of debtor taking possession of goods
2) When the collateral is INVENTORY, later PMSI wins over prior floating lien IF PMSI creditor FILES properly BEFORE debtor takes possession of inventory; AND PMSI creditor NOTIFIES prior secured creditors BEFORE debtor takes possession
How is default defined under UCC Art. 9?
It’s NOT!
Default is defined in the INDIVIDUAL party’s contract (security agreement)
Once default has occured, how can a creditor reposses collateral under UCC Art. 9?
2 ways…
1) Self-help repossession is allowed under Art. 9 so long as there is no BREACH OF THE PEACE
Breach of peace = action LIKELY to cause violence (whether or not there actually IS violence); OR cause ANY type of protest from a debtor; ORimpersonate a law enforcement officer
Civil AND criminal penalties attach to a creditor’s misconduct
Creditor may NOT enter a debtor’s HOME without voluntary and contemporaneous consent
2) Judicial action: creditor obtains a judicial writ (replevin) and a SHERIFF obtains possession of the collateral
What are a creditor’s options for remedy once they have reposessed collateral?
2 options…
1) Strict foreclosure: the secured party retains collateral in FULL satisfaction of the debt still owed (no deficiency judgments)
Consumer goods: Secured party must send a WRITTEN proposal to retain collateral in satisfaction of debt to: (1) the debtor; AND (2) secondary obligors (co-signers)
The 60% Rule: if a consumer has paid 60% of the cash price (PMSI); OR loan (non-PMSI), then strict foreclosure is NOT allowed→must instead sell within 90 DAYS (or be liable for conversion)
Non-consumer goods: the WRITTEN proposal is sent to: (1) the debtor; (2) OTHER secured creditors; (3) secondary obligors; AND (4) perfected creditors
NOTE: if ANY of the notified parties OBJECTS within 20 DAYS after notice is sent, strict foreclosure is NOT allowed (must be disposed by sale)
2) Sale: secured party may sell the collateral and apply proceeds to the debt
Every asepct of the sale must be commercially reasonable
Notice in a consumer goods sale: must be sent to (1) debtor; AND (2) secondary obligors within commercially reasonable time
Notice in a non-consumer good sale: must be sent to (1) debtor; (2) perfected creditors; AND secondary obligors within 10 DAYS
Content of the notice depends on TYPE of sale (public v. private)
Public: time/place of sale
Private: state the time after which the sale will be made
Secured party MAY buy at public sale (market check), but NOT private sale
If a collateral sale is not suffiicent to cover balance, what can a creditor do?
Deficiency judgment: going after debtor personally
NOTE: if a secured creditor sells collateral at a low price to an insider…deficiency is based on fair market appraisal
