Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Secured Transactions > Secured Transactions > Flashcards

Secured Transactions Flashcards

1
Q

Secured Transaction

A

Transaction intended to create a security interest in personal property or fixtures.

Look for (1) credit transaction (sale on credit or loan); and (2) agreement creating a lien in favor of creditor in debtor’s personal property to secure debt

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

UCC Article 9

A

Applies to:

  • any transaction creating security interest in personal property or fixtures by K
  • Agricultural lien
  • Sale of accounts, chattel paper, payment intangibles, promissory notes
  • certain consignments
  • secured sale disguised as lease
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Debtor

A

Person who owes payment or perfromance of obligation secured

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Secured Party

A

Lendor, seller, or other person in whose favor there is security interest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Security Agreement

A

Agreement between debtor and secured party creating securrity interest

Written (or electronically stored) agreement is required unless collateral ins in the possession or control of secured party

Can have oral agreement if collateral is in possession of secured party (“pledge”)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Security Interest

A

Contingent property interest in debtor’s collateral that debtor grants to creditor. When contingency (default) occurs, property interest springs to life and creditor has right in collateral

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Collateral

A

Property subject to security interest -property that unsecured party can repossess on default to make sure debt paid

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Purchase Money Secured Agreements (PMSI)

A

(a) secured party sells debtor collateral on credit adn retains security interest in item sold
(b) AN enabling loan (loan to debtor letting him buy specific collateral) -creditor takes interest in collateral

Credit/loan proceeds must ACTUALLY BE USED to buy collateral

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

After-Acquired Property Clause

A

Secured party can obtain security interest in both debtor’s present property and future property

Without it, only reaches collateral debtor has rights to at time signed security agreement.

Exception:

(1) if collateral is type that is rapidly depleted and replenished, court will assume clause
(2) Does not attach to consumer goods unless debtor acquires rights in them within 10 years
(3) Doesn’t apply to commercial tort claims

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Future Advance Clause

A

Permissible -new security agreement not needed for future advances

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Attachment

A

Security interest attaches so that it is effective against debtor

1) Security agreement
2) Value has been given
3) Debtor has rights in collateral

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Perfection

A

Process of giving public notice of the security interest to the world. Secured party’s interest in collateral is effective against the world.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Financing Statement

A

Document generally used to provide public notice of security interest so as to perfect security interest

Good 5 years from filing date

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Types of collatearl

A

1) Goods (tangible, moveable, personal property)

2) Semi-Intangible and Intangible Property

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Goods Classifications

A

1) Consumer goods: used or bought for use primarily for personal, family, household purposes
2) Equipment: used or bought for use primarily in business
3) Farm Products: crop or livestock or supplies used or produced in farming operations or products of crops or livestock in unmanufactured states if in possession of farmer debtor
4) Inventory: Held by person who holds them for sale or lease or to be furnished under service K; materials used or consumed in a business in short period of time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Semi-Intangible and Intangible Property

A

1) Instruments; 2) Documents; 3) Chattel Paper; 4) Investment property, 5) accounts, 6) deposit accounts, 7) commercial tort claims, 8) general intangibles

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Instruments

A

Semi-intangible property

Negotiable instruments and any other writing evidencing right to payment of monetary obligation, in ordinary course of business transferred by delivery with any necessary endorsement or assignment.

E.g. checks, notes, promissory notes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Documents

A

Semi-intangible property

Document which in regular course of business is treated as evidencing that the person in possession of it is entitled to receive, hold, and dispose of the document and the goods it covers.

E.g. warehouse receipt

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Chattel Paper

A

Semi-intangible property

Record which evidences both monetary interest and security interest in or a lease of specific goods. Can be stored intangibly or tangibly.

E.g. promissory note + security agreement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Investment Property

A

Semi-intangible property

Stocks, bonds, mutual funds, brokerage accounts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Accounts

A

Right to payment for (1) goods, (2) services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Deposit accounts

A

Semi-intangible property

Account maintained with bank. Article 9 only applies to nonconsumer bank accounts (not personal)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Commercial Tort Claims

A

Semi-intangible property

Claim arising in tort with respect to which claimant is organization or where claimant is an individual and the claim arose in the claimant’s business or profession and does not include damages for PI or wrongful death

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

General Intangibles

A

Any personal property not within scope of other definitions (e.g. patent, trademark, copyright, software).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Payment Intangible

A

General intangible under which the account debtor’s principal obligation is a monetary obligation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Pledge

A

Permissible oral security agreement due to collateral being in hands of secured party

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Form of a written security agreement

A

(1) Record that shows intent to create security interest
(2) Authenticated by debtor (signed)
(3) Reasonably identify collateral (if covers timber to be cut, need description of land) (e.g. NOT “all of debtor’s property interests/assets”)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Value secured party must grant

A

Any consideration sufficient to support a simple contract -even past consideration enough.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Property secured generally includes proceeds

A

Proceeds includes whatever is received upon the sale, exchange, collection, or disposition of collateral or proceeds.

Any claims arising out of the loss of, defects in, or damage to collateral are proceeds of collateral (up to collateral’s value)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Lowest Intermediate Test

A

Test to determine which part of comingled cash is identifiable so secured party has interest

Look at balance in comingled bank account starting at time proceeds deposited and ending at time applying test. Lowest balance during time is secured party’s identifiable proceeds (but cannot exceed value of cash proceeds originally deposited)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Automatic Perfection

A

PMSI in consumer goods (perfected on attachment)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Collateral Classification: Promissory Note

A

Instrument

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Collateral Classification: Stock certificate

A

Investment property / funds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Collateral Classification: Receipt given to farmer by silo operator when farmer stored grain there

A

Documents (warehouse receipt)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Collateral Classification: Written contract in which a car buyer purchasing on credit promises to pay car dealership for the car and grants the dealership a security interest in car

A

chattel paper

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Collateral Classification: Big T sells tires on credit. What are customers’ obligations?

A

Accounts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Collateral Classification: A hospital has patients who come in for treatment sign paperwork authorizing the hospital to seek payment from their health insurance coverage provider. Can hospital use the monies due from the various health plans as collateral?

A

Yes (accounts)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

Collateral Classification: Credit Card company issues millions of credit cards to cardholders, who use them in transactions with merchants. Merchants send the resulting paperwork to Credit Card company for reimbursement (minus certain fees). Can Credit Card company use credit card transactions as colalteral?

A

Yes (accounts)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

Collateral Classification: checking account you have at bank

A

Deposit Account (no art. 9 security interest)

40
Q

Collateral Classification: Patent and trademark rights, copyrights, goodwill, tax refund, liquor license, clamming commercial license, right to return of security deposit held by landlord

A

General Intangibles

41
Q

Collateral Classification: claim arising in tort that has been settled and reduced to a contractural obligation to pay

A

Payment intangible or general intangible

42
Q

Collateral Classification: computer program

A
  • if sold separately, general intangible

- if program embedded in computer, falls under computer’s classification

43
Q

Methods of perfection

A
  • Automatic perfection (PMSI consumer goods)
  • Possession of collateral by secured party (only so long as possession retained)
  • Control (i.e. invesment property,eletronic chattel paper, & nonconsumer deposit accounts (can only be perfected by control))
  • Notation of lien on certificate of title
  • Filing financing statement
44
Q

Perfection of nonconsumer deposit accounts

A
  • Can only be perfected by control
    1) bank in which account maintained auto control
    2) non-bank secured party can put deposit account in secured party’s name or put in control agreement- agree in authenticated record with debtor and bank that bank will follow secured party’s orders w/out debtor consent
45
Q

Perfection of electronic chattel paper

A
  • Can be perfected with control
  • System showing transfer of interests in chattel paper reliably establishes secured party as assignee (e.g. secured party has authenticated copy of records, that copy ID secured party as assignee of recrord)
46
Q

Perfecting security interest in automobile

A

Only way to perfect is notation of lien on certificate of title

Exception: if debtor holding automobile as inventory then secured party must file financing statement to perfect

47
Q

Filing a financing statement (Form UCC 1)

A

1) Notice Filing indicating person may have security interest in collateral indicated
2) Debtor’s name
3) Description of collateral
4) Debtor must authorize
5) Filed in proper place

48
Q

Debtor’s name for financing statement

A

Name of individual if individual, business if business, etc.

  • Individual: if have unexpired driver’s license in state where filed, use that name (trade name not sufficient)
  • If error, financing statement effective as long as not seriously misleading (incorrect statement still comes up even if search correct name in filing office’s search)
  • Secured party not responsible for filing office errors
  • If debtor changes name so seriously misleading, interest retained for 4 months
49
Q

Description of collateral in financing statement

A
  • Can be specific or say “all assets/property”
  • for realty interests (timber, fixtures, materials to be extracted) must reasonably identify & indicate will be filed in real estate records
  • Metes and bounds not required for real estate
50
Q

Where to file financial statement

A
  • Generally filed with Secretary of State
  • If realty, usually filed in real estate records of county where real property located
  • If agricultural lien, perfected in state where farm products are
51
Q

Where to file financial statement in multiple state transactions

A
  • General rule is file in state where debtor is located (principal residence if individual, state where registered org is organized , place of business or chief executive office for unregistered org)
  • If debtor moves secured party unperfected 4 mo. later
  • If collateral transfered to new debtor in another state, have 1 year before unperfected
52
Q

Continuation Statement (Form UCC 3)

A

Can extend filing statement’s effectiveness an additional 5 years if filed in last 6 months before 5 months are up

53
Q

If no debt, and secured party receives authentication demand from debtor

A

Must provide within 20 days a termination statement saying no longer claims security interest under filing statement

If consumer goods, then 1 months after no outstanding obligations or within 20 days of authentication demand from debtor, termination statement must be filed (liable for $500 & any loss for failure to comply)

54
Q

Perfection as to proceeds

A

If perfected security interest in collateral, automatically have same for proceeds receives in exchange for collateral for 20 days

After 20 days, must take new action to perfect unless (1) proceeds are identifiable cash proceeds or (2) security interest in proceeds filed where interest in original collateral perfected by filing financing statement

55
Q

Change in use of collateral

A

financing statement still effective to perfect security interest (secured creditor has no duty to monitor the collateral or amend statement)

56
Q

Priority

A

-Perfected vs. Perfected: first to file or perfect wins
-Perfected vs. Unperfected: perfected wins
Unperfected vs. Unperfected: first to attach wins

57
Q

Special PMSI Priority (Consumer goods)

A

If PMSI perfected at time debtor possession or within 20 days after

58
Q

Special PMSI Priority (Inventory or Livestock -and proceeds that are chattel paper, instruments, identifiable money proceeds)

A

Perfects and sends authenticated notification to holders or previously filed SI interests (must receive notice within 5 years before debtor receives possession of inventory)

59
Q

Special PMSI Priority (vs. other PMSI)

A

Seller PMSI has priority over financer PMSI

60
Q

Special investment property priority rules

A
  • SI perfected by control has priority over all other methods
  • If each SI perfected by control, rank according to time of obtaining control
  • Si granted to debor’s intermediary (broker) has priority over other SI (unless intermediary agrees otherwise)
61
Q

Special deposit account priority rules

A
  • SI perfected by control has priority over SI perfected via proceeds
  • If each SI perfected by control, rank according to time of obtaining control
  • Secured party who obtained control by putting deposit account in its own name has priority over all other secured parties with control
  • bank that has control because maintains account has priority over all with control except secured party who put deposit account in name as control
62
Q

If debtor transfers money or deposit account funds, transferee….

A

takes free of security interest unless acted in collusion with debtor in violating secured party’s rights

63
Q

Purchaser of chattel paper

A

If in good faith gives new value and takes possession in ordinary course of business, havve priority over:

1) SI that arises merely as proceeds of inventory
2) any Si interest in chattel apper as long as purchaser acquired interest without knowledge that violated rights of secured party

64
Q

Purchaser of instruments

A

Priority over perfected SI in instrument if purchase gives value and takes possession of the instrument in good faith and without knowledge that purchaser violate the rights of the secured party

65
Q

Priority: secured party v. buyer of collateral

A

General Rule: if you buy something with security interest on it, security interest stays on it.

Exceptions: authorized sale, buyer in ordinary course of business, consumer to consumer sales, buyers not in ordinary course of business as to unperfected SI’s unless know about it

66
Q

Authorized sale

A

If sale authorized by secured party free of security interest, buyer takes free of interest (may be expressed or implied by type of sale or buyer’s conduct)

-E.g. implied authority to inventory collateral sold to ordinary consumer, implied authority by acquiesence

67
Q

Unauthorized sales

A

Gen rule: buyer in ordinary course of business (other than buying farm products from person engaged in farming operations) takes free of security interest created by seller even tho perfected & buyer knows about it

68
Q

Buyer in ordinary course of business

A

Person who buys goods in good faith without knowledge that sale violates rights of other person in good and in ordinary course from person in the business of selling goods of that kind

69
Q

Buyers not in ordinary course of business

A

Take subject to perfected security interest. Take free from unperfected security interests unless know of security interest

70
Q

Consumer to consumer sales

A

Special rule -in case of consumer goods, buyer takes free of security interest even though perfected if takes withotu knowledge of security interest, for value, and for own personal/family/household purposes UNLESS prior to purchase secured party filed financing statement covering goods

71
Q

Secured party v. judgement lien holders

A

Unperfected security interest is subordinate to rights of a person who becomes a lien creditor before security interest is perfected. If security interest is perfected before the person becomes a lien creditor, security interest has priority

If sheriff levies before perfection, judicial lien has priority / if perfect before lien, then security interest wins / if obtain security agreement and filed financing statement before lien, then security interest wins

72
Q

Lien creditor

A

Art. 9: creditor who has acquired a lien on the property involved by attachment, levy, etc. Lien obtained by judicial proceedings must attach tot he collateral. Unsecured creditor who obtained judgment and levied on judgment = lien creditor.

73
Q

Special rule: PMSI v. Lien Creditor

A

If secured party files with respect to purchase money security agreement within 20 days after debtor receives possession of collateral, takes priority over rights of lien creditor which arises between time security interest attaches and time of filing

74
Q

Priority for Future Advances

A

Further advance by secured creditor has priority over a lien creditor if future advance can be made (1) without knowledge of lien OR (2) within 45 days of the lien arising, OR (3) pursuant to a commitment entered into without knowledge of the lien

75
Q

Secured party v. statutory lien claimants

A

Statutory lien beats even a perfected security creditor

76
Q

Default

A

Grounds of default are typically specified in the security agreement. If no such terms, restricted to failure to perform or pay obligation when due (altho possible waiver by secured party of late or missed payments)

77
Q

Self-help repossession

A

After default, secured party entitled to take possession of collateral without judicial process if can be done without breach of the peace. If breach peace, lose authorization to repossess, may be sued for conversion/trespass/etc and liable for actual/punitive damages.

78
Q

Breach of the peace

A

Any conduct by secured party with potential to lead to violence

Generally, physical presence by debtor plus verbal objection enough, unauthorized entry into home, if attached open garage door even tho unlocked, if don’t re-lock after picking lock to gain entry to business premises (biz premises less likely breach than home)

79
Q

Replevin

A

If self-help unavailable after default, secured party can use judicial process to recover goods

80
Q

Retention of collateral (strict foreclosure)

A

After default and repossession, secured party may propose retaining collateral in full or partial satisfaction of the debt (if other creditors or debtors object w/in 20 days after notice, must sell can’t keep it)

  • Must send proposal to any other secured party from whom foreclosing party received notice of claim and any who perfected.
  • Must also retain debtor consent by agreeing in authenticated record after default or in case of full strict foreclosure failing to make authenticated objection within 20 days of notice
81
Q

Resale of collateral

A

Sale discharges security interest under which sale being made and all subordinate interests. Purchaser is still subject to superior security interests.

  • Need reasonable notification
  • Every aspect of sale (time, manner, method, place, terms) must be commercially reasonable
  • Secured party may buy at any public sale but may buy at private sale only if collateral is a type customarily sold in a recognized market or is a type which subject is widely distributed standard price quotations
  • compliance with resale requirements (e.g. secured party’s right to deficiency
  • If failed to comply with resale requirements, deficiency judgment may be entered
82
Q

Reasonable notice in resale of collateral

A
  • authenticated by secured party (cannot be oral)
  • given to debtor adn any securities on debt AND to any other secured parties who notified secured party of interests, AND any perfected interests
  • notice not necessary if collateral perishable or threatens to decline rapidly in value or is of a kind ordinarily sold n a recognized market (e.g. stock). Debtor or surety may after default in authenticated agreement waive right to notice
  • notice must be sent within reasonable time before sale (question of fact)
  • in nonconsumer transactions, notice is deemed to be sent within reasonable time if sent 10 days or more before sale
83
Q

Content of reasonable notice in resale of collateral

A

(1) Statute provides “safe harbor” notice forms
(2) For public sale, notice of time and place of sale is required
(3) For private sale, notice of time after which sale will occur must be given
(4) extra info required for consumer goods

84
Q

Failure to comply with resale requirements (right to deficiency judgment)

A

Gen rule: if secured party fails to conduct commercially reasonable sale, there is a rebuttable presumption that sale proceeds equal the amount of the debt (presume so no deficiency -take away deficiency)

85
Q

Debtor’s right to redeem

A

any time before secured party has resold collateral or entered into contract for disposition, or obligation has been discharged by secured party’s retention of collateral, debtor may redeem collateral

  • must tender fulfillment of all obligations secured by collateral
  • b/c most security agreements have acceleration clause, debtor typically must tender entire balance to redeem
86
Q

Fixtures

A

Goods that have become so related to particular real property that an interest in them arises under real property law

  • Interest in fixtures may arise under both Art. 9 and under real estate law
  • No security interest can exist in ordinary building materials (e.g. bricks, lumbar, shingles) incorporated into an improvement on land
87
Q

Perfecting security interest in fixtures

A

Need fixture filing (normal UCC 1 form filed in county office where real estate located) which must reasonably identify real estate, show name of owner (if debtor does not have an interest of record in real estate)

88
Q

Rights on default in fixtures

A

If install fixture in home that sells on credit (retaining security interest), seller can repossess fixture on default even if repossession will render property uninhabitable

89
Q

Priority in fixtures

A
  • Secured party v. subsequent real estate interest: secured interest wins if perfect before real estate interest arises
  • Secured party v. prior real estate interest: real estate interest wins if prior to SI and properly recorded
  • Prior construction mortgage always wins
90
Q

When fixture filing is uncessary

A

Need not fixture file as to readily removable (1) factory or office machines; (2) equipment that is not primarily used or leased for use in the operation of real estate, or (3) replacements of domestic appliances that are consumer goods

Any method of perfection before such goods becomes fixtures entitles secured party to priority . Don’t need perfection for priority if encumbrancer or owner of real estate has in authenticated record consented to security interest has disclaimed an interest in the goods as fixtures or if debtor has right to remove goods as against real estate claimant

91
Q

Accessions

A

Goods that are physically united with other goods in such a manner that the identity of the original goods is not lost (e.g. tires on car)

92
Q

Perfection of accessions

A

If security interest perfected when collateral becomes an accession, security interest remains perfected in the collateral

93
Q

Priority in accessions

A

Rules for priority previously disclosed (first to file or perfect, special PSMI rules) apply to same

Special rule: security interest in accession is subordinate to a security interest in the whole which is perfected by compliance with the requirements of a certificate of title statute

94
Q

Removal and reimbursement for physical injury to the whole in accessions

A

secured party may remove an accession from other goods is security interest in accession has priority over claims of every person having an interest in the whole. Secured party removing accession is responsible for costs of repair of any physical injury in whole or to goods. Person entitled to reimbursement may refuse permission to remove accession until secured party gives adequate assurance for performance of obligation to reimburse

95
Q

Automatic perfection for security interest in small-scale assignment of account or payment intangible

A

Applies to assignment of accounts or payments intangibles that does nto alone, or in conjunction with other assignments to the same assignee, transfer a significant part of assignor’s outstanding accounts or payment intangibles to creditor

Secured Transactions (1 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions