Secured Transactions Flashcards
How do you create a security interest?
Agreement evidenced by security agreement, or signed by parties.
Debtor needs rights in the collateral.
Creditor must give value.
As defined by Article 9, INSTRUMENTS are pieces of paper that represent the right to be paid money (e.g., promissory notes, drafts, certificates of deposit).
Under Article 9, pieces of paper that represent the right to receive goods are called DOCUMENTS (e.g., bills of lading, warehouse receipts).
Records evidencing both a monetary obligation and a security interest in, or a lease of, specific goods are referred to as CHATTEL PAPER.
What is a purchase money security interest?
Doesn’t need to be filed in order to be protected.
Ex. Retailer sells bikes to a man, puts up the purchase price, bikes are collateral.
A PMSI arises where the creditor
(i) sells goods to the debtor on credit and reserves a security interest in those goods, or
(ii) advances the funds used to purchase goods and reserves a security interest in those goods.
Consumer goods are goods used or bought for personal, family, or household purposes. Automatic perfection does not apply to PMSIs in other types of goods, and security interests in noninventory motor vehicles generally can be perfected only by notation on the vehicle’s certificate of title, even if that motor vehicle would be categorized as a consumer good.
What is the scope of UCC Article 9?
Applies to consensual security interests in personalty and fixtures
In general, Article 9 applies to contractual security interests in personal property and fixtures, but not other forms of real property. Thus, it does not apply to a sale or mortgage of a single family home or a mechanic’s lien on a commercial building. But it does apply to a security interest in a car.
How does a creditor create an enforceable security interest in a debtor’s collateral?
Attachment! Attachment means that the security interest is enforceable.
Value - given by creditor
Contract - security agreement (record), evidencing the secured transaction unless secured party took possession
Rights - debtor must have rights in the collateral
Once attached, how does the creditor attain perfection?
By placing the world on record notice of the security interest’s existence.
What law applies when the collateral in a security interest is real estate?
Apply the law of land mortgages.
What is personalty, generally?
Chattel.
Note: must be voluntary or consensual collateralizations. It doesn’t apply to mechanic liens or chattel.
Who are the two parties to an article 9 security transaction?
Debtor: entity who owes money
Secured party/secured creditor: lends the money
What is proper collateral?
Tangible collateral or goods, meaning:
- consumer goods (family purposes, personal purposes)
- equipment (Equipment means goods that are not consumer goods, farm products, or inventory (e.g., durable goods used in a business, paintings on an office wall).
- inventory (held for sale or lease, like stock in a store)
- farm products (livestock, crops)
- fixtures (annexed to realty)
What is the key for classifying tangible collateral?
Primary use in the hands of debtor - subjective test, no absolutes.
Does Article 9 apply to intangibles/semi-intangibles? If so, which ones?
- Patents, copyrights, trademarks;
- Stocks, bonds, mutual funds;
- Proceeds from the sale of collateral (amounts received);
- Accounts (right to payment for goods or services, i.e. my account with Neiman Marcus)
What elements are required for a valid record, such that the security interest is enforceable/has attached?
Record must be:
- Authenticated by debtor (signed or electronically marked)
- Reasonable identifies the collateral
What is an after-acquired collateral clause aka floating lien? Is it enforceable?
They are enforceable.
This is a creation of a security interest in all of X’s inventory, “whether now held or hereafter acquired”
Helpful when a deal is under-collateralized on the front end, but more inventory will be coming in
What are the three general ways to attain perfection of a security interest?
- By the secured party taking possession of the collateral, OR
- Automatic perfection for purchase money security interests in consumer goods ONLY, OR
- Secured party files notice of the security interest in the public record
What is a purchase money security interest (PMSI)?
Security interest enabling the debtor to purchase the goods.
These are UCC favorites, because they fuel consumerism.
What is the proper method for filing notice of a security interest in the public record?
The security agreement could be filed, but it rarely is - too much detail and information.
Typical: financing statement (UCC-1). Requirements:
- Debtor’s name and address (mistake is fatal)
- Creditor’s name and address (can make a little mistake)
- Description of collateral (super generic, “all assets” are OK).
The point is to allow interested searchers to make follow-up inquiries to learn more
Use of a debtor’s trade name may be seriously misleading under Article 9 as financing statements are indexed under the debtor’s name. Although minor errors in the debtor’s name will not invalidate the financing statement, the statement must not contain any seriously misleading errors. An individual debtor’s name is proper if it matches her name on her unexpired driver’s license. A registered organization’s name (e.g., a corporation, limited partnership, or limited liability company) is sufficient if it matches the name on the public organic record (i.e., the publicly available record that forms or organizes the organization) most recently filed in the jurisdiction of organization. A financing statement is not seriously misleading if it would be discovered in a filing office search under the debtor’s correct name, using the filing office’s standard search logic.
Where is a financing statement filed?
State Secretary of State, in the state where the debtor is located.
Individual - principal residence
Registered organization - state under whose laws it is organized.
Exception: if the collateral is timber, minerals, or fixtures, file locally, in the county where realty is located!
What is the basic concept in collateral recuperation prioritization?
Priority is the purpose of collateralization. The secured party seeks to subordinate, not to share. Piggish norm. Each claimant entitled to satisfaction in full before any subordinated or junior lienholder is entitled to look to the collateral for satisfaction
What is an Attached Unperfected Creditor?
Article 9 creditor who creates an enforceable security interest (attaches), but either never bothers to perfect (possession, PMSI, filing), or tries to perfect but botches the effort, perhaps by filing in the wrong place.
Defeats any later-in-time AUC
What is a Lien Creditor?
General unsecured creditor who went to court to get a judicial lien on the collateral.
Never bothered to get the collateral in the first place, but now sees that they should do something in order to be made whole, so they obtained a lien on the collateral.
What is a Perfected Attached Creditor?
Article 9 creditor who succeeds in attaining perfection, does everything right.
