Secured Transactions Flashcards
Article 9 of the UCC
1
Q
When dealing with purchasers of chattle papers, what does “new value” mean?
A
“New value” means that the purchaser must give new consideration, such as cash or credit, to the transferor. Therefore, parties who take the chattel paper as payment for a debt, or as proceeds of other collateral, are excluded.
2
Q
What is the priority between a security interest in fixtures versus a real property interest?
A
Generally, a security interest in fixtures is subordinate to a conflicting interest of an encumbrancer or owner of the related real property other than the debtor. However, a security interest in fixtures has priority over an interest in the real property with which the fixtures are associated if the security interest in fixtures is perfected by a fixture filing before the real property interest is recorded.
3
Q
What is “acceptance of collateral”?
A
In lieu of disposing of the collateral, the secured party may usually accept the collateral in full or partial satisfaction of the obligation secured by the collateral.
4
Q
What is the treatment of a disposition deficiency?
A
If, after the required payments and applications of proceeds have been made, there is a deficiency, then the obligor generally is liable for the deficiency.
5
Q
What procedure should be followed if a debtor changes his, her, or its legal name?
A
If the debtor changes its name and the filed financing statement consequently becomes seriously misleading, then the secured party has four months in which to file an amendment to the financing statement reflecting the new name. Should the secured party fail to act within this four-month window, collateral acquired by the debtor after the four-month period is not covered by the financing statement. If a new debtor becomes bound by a security agreement, and the difference between the name of the original debtor and the name of the new debtor causes the financing statement to be seriously misleading, then the secured party has a similar four-month window in which to act.
6
Q
What is the time limitation to redeem collateral used to satisfy their secured debt?
A
Redemption cannot occur if the secured party has disposed of the collateral or entered into a contract for its disposition, accepted the collateral in full or partial satisfaction of the obligation secured by the collateral, or collected on the collateral.
7
Q
What is the special rule regarding PMSI in fixtures?
A
A PMSI in fixtures has priority over a prior interest in the real property with which the fixtures are associated when: i) The debtor has an interest of record in the real property (e.g., is an owner) or is in possession of the real property (e.g., is a lessee); and ii) The security interest is perfected by a fixture filing before the goods become fixtures or within 20 days thereafter.
8
Q
What priority is a PMSI in goods other than inventory or livestock given?
A
A PMSI in goods other than inventory or livestock prevails over all other security interests in the collateral, even if they were previously perfected, if the secured party perfects before or within 20 days after the debtor receives possession of the collateral.
9
Q
In a consumer transaction, may a secured party accept collateral for full or partial satisfaction?
A
In a consumer transaction, a secured party can accept the collateral only in full satisfaction of the obligation; an acceptance in partial satisfaction of the obligation is not allowed. Any attempted acceptance in partial satisfaction is void.
10
Q
May a person amend a financing statement?
A
A person may amend a financing statement, such as by adding or deleting collateral covered by the statement. The amendment is generally effective as to the added item only from the date of the amendment. An amendment does not extend the period of effectiveness of the financing statement.
11
Q
Under Georgia law, what is an oral objections affect on the “breach of the peace”?
A
The unequivocal oral protest of a defaulting debtor is a sufficient objection to render subsequent seizure an unlawful breach of the peace.
12
Q
What is the effect of after-acquired property and future advances on financing statement collateral?
A
A financing statement may be effective to cover after-acquired property if such property falls within the collateral described, whether after-acquired property is mentioned as such in the financing statement or even contemplated by the parties at the time that the financing statement was authorized. Similar treatment is accorded to future advances.
13
Q
What is the right to use or operate collateral?
A
The secured party may use or operate collateral for the purpose of preserving the collateral or its value. In addition, use or operation with respect to collateral that is not consumer goods may be in the manner and to the extent agreed to by the debtor.
14
Q
What is the effect of an account debtor?
A
Upon receipt of notification, the account debtor may discharge her obligation only by paying the assignee; a payment made to the assignor does not discharge the account debtor’s obligation. Against the assignee, the account debtor may raise, unless waived, claims and defenses that arise from the transaction with the assignor who created the account, even those that accrue after the account debtor is notified of the assignment.
15
Q
How are proceeds in fixtures handled?
A
Generally, the basic rules (e.g., first-to-file-or-perfect) govern priority if there are conflicting security interests and at least one of those interests is claimed as proceeds. Moreover, the filing or perfection date for the original collateral is treated as the filing or perfection date for the proceeds. UCC § 9-322(b)(1). This rule controls, even when the security interest in inventory is a PMSI, because the super-priority of a PMSI in inventory does not extend to proceeds that are not cash.
16
Q
Who is entitled to file a financing statement?
A
Although the secured party or a representative of the secured party usually files the financing statement, any person may do so. The signature of the filing party is not required.
17
Q
Under Georgia law, what does the PMSIs in livestock “notification” requirement require?
A
Notification is required only when the previously perfected security interest has been perfected by filing. When the PMSI is in livestock, the notification that must be sent to the holder of any conflicting security interests is effective only for six months
18
Q
What is the general rules regarding what transactions follow Article 9 processes?
A
Article 9 governs a transaction that creates, by agreement, a security interest in personal property or a fixture. In addition, a lease, consignment, agricultural lien, and even a purchase of personal property may be subject to Article 9. Also, a real-property transaction can produce an obligation, such as the promissory note secured by a mortgage, that can be the subject of an Article 9 security interest.
19
Q
What is the treatment of a disposition surplus?
A
If, after the required payments and applications of proceeds have been made, there is a surplus, the secured party generally must pay the surplus to the debtor.
20
Q
What are “chattel paper”?
A
“Chattel paper” consists of one or more records that evidence both (i) a monetary obligation (e.g., a negotiable note) and (ii) a security interest in specific goods (e.g., a security agreement) or a lease of specific goods.
21
Q
Generally, when does a security interest “attach”?
A
For the security interest to be enforceable against the debtor, three conditions must coexist: i) Value has been given by the secured party; ii) The debtor has rights in the collateral; and iii) The debtor has authenticated a security agreement that describes the collateral, or the secured party has possession or control of the collateral pursuant to a security agreement.
22
Q
What is the only manner that deposit accounts or letter-of-credit rights may be perfected?
A
By control.
23
Q
What additional information must a notice for a consumer goods transaction include?
A
In addition to the above requirements for a non-consumer goods transaction, proper notice in a consumer goods transaction must also include: i) A description of any liability for a deficiency of the person to whom the notification is sent; ii) The telephone number from which the redemption amount is available; and iii) The telephone number or mailing address from which additional information concerning the disposition and secured obligation is available.
24
Q
What is a security interest general an interest in?
A
A security interest is generally an interest in personal property or fixtures that secures payment or performance of an obligation.
25
Who is entitled to notice?
Notification of disposition is required to be sent to (i) the debtor, (ii) any secondary obligor, and, in the case of non-consumer goods, (iii) any other secured party or lien holder who held a security interest that was perfected by filing or pursuant to a statute, and (iv) any other party from whom the secured party has received authenticated notice of a claim or interest in the collateral.
26
What is the limitation on taking possession of collateral under default?
A secured party is required to use judicial process (e.g., a replevin action) to obtain possession of the collateral unless possession can be obtained without breach of the peace.
27
What is the treatment of sales of accounts, chattel paper, payment intangibles, or promissory notes?
When the underlying transaction is the sale of accounts, chattel paper, payment intangibles, or promissory notes, then the debtor is not entitled to any surplus, and the obligor is not liable for any deficiency.
28
What is the effect of a low disposition price?
A low price may trigger careful scrutiny by the court of the disposition and its reasonableness.
29
What is the "safe harbor" rule regarding debtor identification on financing statements?
Under the “safe harbor” rule, adopted by only a few jurisdictions, the financing statement may include the debtor’s “individual name” (which the UCC does not define), the name on the debtor’s driver’s license, or the debtor’s surname and first personal name.
30
What is the effect of an error in the secured party's name on a financing statement?
An error in the name of the secured party on a financing statement is usually not seriously misleading and does not affect the perfection of the security interest because the filing system is not geared to a search based on the secured party’s name. Nevertheless, the secured party who files a financing statement with such an error may be subject to estoppel in favor of a holder of a conflicting claim in the collateral.
31
When are proceeds entitled to automatic continuous perfection?
1) Cash Proceeds 2) "Same Office"
32
When may a secured party purchase the disposed collateral?
A secured party may purchase the collateral at a public sale, but she cannot do so at a private sale unless the collateral is of a kind that is customarily sold on a recognized market (e.g., the New York Stock Exchange) or the subject of widely distributed standard price quotations. A secured party cannot purchase the collateral at a private sale when the prices are individually negotiated or when items are not fungible in a recognized market.
33
What is the effect of an error in the debtor's name on a financing statement?
A financing statement that fails to accurately contain the debtor’s name is seriously misleading and therefore not effective to perfect the security interest. Nevertheless, when a standard search of the filing office records under the debtor’s correct name would disclose such a financing statement, the erroneous name does not make the financing statement seriously misleading.
34
Under Georgia law, what priority does a mechanic's lien on farm machinery or equipment possess?
Under Georgia law, a mechanic’s lien on farm machinery or equipment will have priority over any perfected security interest covering that collateral, unless the perfected party filed a financing statement and the financing statement describes the particular piece of farm machinery or equipment that the perfected security interest applies to.
35
How is a security interest in proceeds perfected?
A security interest in proceeds enjoys temporary perfection and may also be entitled to indefinite automatic perfection. This perfection occurs even though the financing statement does not specifically mention proceeds.
36
Under Georgia law, what is the length of perfection associated with filing.
In Georgia, the financing statement is effective for five years or until the 20th day after any earlier maturity date required to be specified on the financing statement.
37
What is the objection period for secondary obligors when a secured party seeks to accept the collateral for full or partial satisfaction?
A secured party wishing to accept collateral in partial satisfaction must also send its proposal to any secondary obligor. An objection to the acceptance by a person to whom notification was sent is effective if it is received by the secured party within 20 days from the date that the notification was sent to that party.
38
What is an "agricultural lien"?
An “agricultural lien” is an interest in farm products (e.g., crops, livestock) that secures payment or performance of an obligation for either (i) goods or services furnished with respect to the debtor’s farming operation (e.g., livestock feed sold to a cattle rancher) or (ii) rent on real property leased by a debtor in connection with a farming operation.
39
Under Georgia law, what does the PMSIs in inventory "notification" requirement require?
Notification is required only when the previously perfected security interest has been perfected by filing. Notification is good for a five-year period and may be renewed.
40
What name is used for "registered organizations"?
When the debtor is a registered organization, the debtor’s name for purposes of the financing statement must be the name shown on public organic records. A public organic record includes the articles of incorporation or equivalent formation records filed to create a business entity, the record initially filed by a business trust, legislation that creates an organization, or a government-issued charter that forms an organization.
41
Under Georgia law, where should a person file a financing statement unrelated to real property?
For all collateral not related to real property, the financing statement, including one covering collateral of transmitting utilities, should be filed with the office of the clerk of the superior court of any county of Georgia (not with the secretary of state).
42
What is the general rule regarding cross-collateralization of PMSIs in inventory?
If inventory subject to a PMSI secures not only its own price or enabling loan but also the price or enabling loan of other purchase-money inventory, then the security interest in the inventory is a PMSI not only to the extent that the inventory secures its own price but also the price of the other inventory.
43
What types of collateral are associated with PMSIs?
A PMSI may exist only with respect to two types of collateral—goods (including fixtures) and software.
44
In what circumstances is collateral automatically perfected?
i) The casual or isolated assignment of accounts or payment intangibles that does not transfer a significant part of the assignor’s outstanding accounts or payment intangibles; ii) Sale of a payment intangible or promissory note; and iii) PMSI in consumer goods.
45
What is required within a security agreement?
For a security interest to attach to collateral, there must be a security agreement. In addition, the secured party must satisfy the Article 9 Statute of Frauds. This means that the security agreement must be established by the debtor’s authentication of the agreement, or the secured party’s possession or control of the collateral.
46
What is the general notice requirement for a disposition of collateral?
A secured party is generally required to send an authenticated notification of disposition. The notification is required to be reasonable as to its content, the manner in which it is sent, and its timeliness.
47
Must you file for collateral proceeds of non-filing collateral?
If the proceeds of non-filing collateral are filing collateral and the security interest in the non-filing collateral has been perfected by a method other than filing, then priority among conflicting perfected interests in the filing collateral is determined by the time of filing of a financing statement that covers the collateral.
48
What is the affect of a lapse between a perfected security interest versus another perfected security interest?
When there has been filing or perfection by a secured party, a lapse (i.e., a subsequent period in which there is neither filing nor perfection by that secured party) restarts the clock for that secured party; the date of perfection for that secured party is the earlier of the date of filing or perfection that occurs after the lapse.
49
What is the term for debtor interstate movement automatic temporary perfection?
If a debtor moves to another state, a perfected security interest remains perfected for four months after the debtor’s change in location, unless perfection would have ceased earlier under the law of the debtor’s former state. This four-month grace period also applies to collateral the debtor acquires after the debtor moves, i.e., the filer has perfection for four months in collateral acquired post-move.
50
What is the priority of proceeds from a PMSI in livestock?
The rule for proceeds from a PMSI in inventory generally applies to proceeds from livestock in which a PMSI is held. In addition, priority extends to identifiable products in their unmanufactured states (e.g., raw milk) in which a security interest is perfected.
51
What is the general rule regarding default?
A security agreement is a contract. Contract law therefore determines the enforceability of any terms in a security agreement.
52
When do "consignments" fall within Article 9?
. In order for a consignment to be subject to Article 9, the following requirements must be met: i) A person (i.e., the consignor) must deliver goods to a merchant for the merchant to sell; ii) The merchant (i.e., the consignee) must: a) Deal in goods of that kind, b) Not operate under the name of the consignor, c) Not be generally known by its creditors to be substantially engaged in selling the goods of others, and d) Not be an auctioneer; iii) With respect to each delivery, the value of the goods delivered must be at least $1,000 at the time of the delivery; and iv) The goods must not be consumer goods immediately before the delivery.
53
What are "commercial tort claims"?
“Commercial tort claims” include tort claims possessed by an organization, or by an individual that arose in the course of the individual’s business. Excluded are tort claims by an individual for personal injury or death.
54
What is the rule regarding a buyer in the ordinary course of business who purchases collateral?
A buyer in the ordinary course of business (BOCB) takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence.
55
How is price determined in a disposition?
Article 9 does not mandate a specific price that must be obtained by the secured party in disposing of the collateral. The mere fact that a higher price could have been obtained by disposing of the collateral in a different manner or at a different time does not establish that the disposition was not commercially reasonable.
56
What is the effect of a filing office incorrectly indexing a financing statement?
The effect of the filing office’s incorrect indexing of a financing statement does not affect the effectiveness of the filed financing statement. The risk of a filing-office error rests on those who search the files rather than on those who file a financing statement.
57
How are deposit accounts perfected?
A security interest in a deposit account can be perfected only by control. A secured party has control of a deposit account if: i) The secured party is the bank with which the deposit account is maintained; ii) The bank, secured party, and debtor agreed in writing to follow the instructions of the secured party; or iii) The secured party becomes the bank’s customer with respect to the deposit account.
58
What purchases are under Article 9?
Subject to several exceptions, the sale of accounts, chattel paper, payment intangibles, and promissory notes is subject to Article 9. Such transactions, however, are not subject to Article 9 if the sale is part of a sale of the business out of which they arose. In addition, the following assignments are not subject to Article 9: i) The assignment of accounts, chattel paper, payment intangibles, or promissory notes for the purposes of collection only; ii) The assignment of a single account, payment intangible, or promissory note in full or partial satisfaction of a preexisting indebtedness; and iii) The assignment of a right to payment under a contract to an assignee who is also obligated to perform under the contract.
59
What are "general intangibles"?
“General intangibles” is the residual category of personal property that is not included in other types of collateral. Included among items that are general intangibles are copyrights, things in action (e.g., legal claims), payment intangibles (i.e., a general intangible under which the account debtor’s principal obligation is a monetary obligation), and software-not-part-of-goods.
60
How should a debtor redeem collateral used to satisfy their secured debt?
To effect a redemption, the redeemer must fulfill all obligations secured by the collateral (e.g., payment of monetary obligations currently due, including obligations resulting from the default) and reasonable expenses, including attorney’s fees, incurred by the secured party in retaking the collateral or preparing for its disposition. If the security agreement contains an acceleration clause, then the redeemer must tender the entire balance of the secured obligation.
61
What warranties exist at a disposition of collateral?
A disposition of collateral includes warranties of title, possession, and quiet enjoyment that generally accompany the disposition of property of the same type as the collateral. These warranties may be disclaimed or modified.
62
What additional information should financing statement include?
i) Contain the addresses of both the debtor and the secured party; and ii) Identify whether the debtor is an individual or organization.
63
What are the steps surrounding determining claimant priority?
The determination of priority involves two steps: i) Identify the status of each claimant; and ii) Apply the appropriate priority rule. A common error is the failure to properly characterize the status of the competing parties.
64
When does a buyer not in the ordinary course of business take collateral free of a security interest?
A buyer not in the ordinary course takes free of a security interest to the extent that she secures an advance made after the earlier of: i) The time the secured party acquires knowledge of the buyer’s purchase; or ii) 45 days after purchase.
65
Under what circumstances may a mortgage serve as the financing statement?
With respect to collateral related to real property, a mortgage may serve as a financing statement, provided it contains the necessary information. A mortgage is effective as of the date of its recording.
66
What is the only manner that money may be perfected?
By Possession.
67
What is the purpose of filing?
Filing is the most common method of perfection. The primary objective of filing is to give interested parties notice of the existence of the security interest.
68
What is the treatment of notice in a consumer goods transaction?
In a consumer goods transaction, a secured party must send an explanatory notice to the debtor detailing the deficiency and/or surplus and the basis on which it was calculated. This explanation, which must be in writing, can be demanded by the debtor or consumer obligor, in which case the secured party has 14 days after receipt of the demand in which to send the explanation or, in the case of a deficiency, a waiver of the secured party’s right to the deficiency. A secured party who fails to send such a notice may be liable for any loss caused, plus $500.
69
How does knowledge of another secured interest affect priority?
A secured party’s knowledge of another security interest in the same collateral does not affect the secured party’s priority.
70
What is "accession"?
Accessions are goods that are physically united with other goods in such a manner that the identity of the original goods is not lost, such as memory installed in a computer, or tires installed on a car. A security interest that is created in collateral that becomes an accession is not lost due to the collateral becoming an accession. Moreover, a security interest can be created in collateral that is an accession.
71
What is a "letter-of-credit right"?
A “letter-of-credit right” is a right to payment or performance under a letter of credit, even though the beneficiary has not demanded—nor is the time ripe for —payment or performance.
72
What are transactions in the form of a lease follow Article 9?
A transaction in the form of a lease is treated as creating a security interest if the lessee must pay consideration to the lessor for the right to possess and use the goods for the term of the lease, the payment obligation cannot be terminated by the lessee, and one of the following four conditions is also met: i) The original term of the lease is equal to or greater than the remaining economic life of the goods; ii) The lessee is bound to renew the lease for the remaining economic life of the goods or is bound to become owner of the goods; iii) The lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement; or iv) The lessee has an option to become the owner of the goods, for no additional consideration or nominal additional consideration, upon completion of the lease agreement.
73
Under what circumstances is collateral automatically temporarily perfected?
1) If new value is given under an authenticated security agreement; 2) If the secured party makes the collateral available to the debtor for the purpose of selling or exchanging the collateral; 3) When collateral or a debtor moves from one state to another state.
74
What are "goods"?
“Goods” encompasses anything that is “moveable at the time that a security interest attaches.” Also included within the definition of goods are (i) fixtures, (ii) standing timber that is to be cut and removed pursuant to a contract, (iii)unborn animals, (iv) growing or unharvested grown crops, including crops produced on trees (e.g., apples), vines (e.g., grapes), or bushes (e.g., blueberries), and (v) manufactured homes.
75
How is the time of disposition determined?
Article 9 does not mandate a specific time in which a disposition must occur. Instead, circumstances may dictate that the collateral is held due to the collapse of a market for the collateral, or the collateral that is comprised of a large number of a specific items be sold over time in parcels rather than immediately in bulk in order not to depress the market.
76
How should a financing statement address proceeds?
A financing statement need not make specific reference to proceeds in order for a security interest in proceeds to be perfected.
77
How are PMSIs in other types of goods perfected?
PMSI in other types of goods (e.g., inventory, equipment) or in automobiles is not automatically perfected.
78
What are "electronic chattel paper"? "Tangible chattel paper"?
If the record is stored electronically, then the chattel paper is known as “electronic chattel paper.” If the record is maintained on paper or another tangible medium, then the chattel paper is referred to as “tangible chattel paper.”
79
What is the "duty of reasonable care"?
The secured party in possession of collateral has the duty of reasonable care with respect to custody and preservation of the collateral. The duty of care cannot be circumvented by an agreement between the debtor and the secured party, but the parties can determine the standards for judging such care; such standards must be reasonable.
80
Who is a "consumer buyer"?
A consumer buyer is a person who: i) Buys consumer goods for value; ii) For his own personal, family, or household use; iii) From a consumer seller; and iv) Without knowledge of the security interest.
81
When are proceeds entitled to automatic temporary perfection?
If the security interest in the original collateral is perfected, then a security interest in proceeds is temporarily perfected for 20 days from the time it attaches.
82
Who are "statutory or common-law lien creditors"?
A statutory or common-law lien creditor is a creditor who obtains a possessory lien on the property of another by operation of a statute or common-law rule. Unlike an Article 9 security interest, these are nonconsensual liens.
83
What types of collateral are subject to the rule regarding delivery of collateral to the debtor automatic temporary perfection?
Collateral subject to this rule includes certificated securities, negotiable documents, instruments, and goods in the possession of a bailee and for which a negotiable document has not been issued.
84
What is the priority of proceeds from a PMSI in inventory regarding proceeds consisting of accounts or chattel paper?
The priority of a PMSI in inventory generally does not extend to proceeds consisting of accounts or chattel paper. The priority can, however, extend to proceeds consisting of either chattel paper (as well as chattel paper proceeds) or instruments if the purchase-money secured party otherwise satisfies the requirements for securing a priority (e.g., takes possession of the chattel paper or instruments).
85
What is the priority between a PMSI versus another PMSI?
If there are two or more competing PMSIs, then the first-to-file-or-perfect rule generally governs priority.
86
What is the term for new value automatic temporary perfection?
If new value is given under an authenticated security agreement, a security interest in certificated securities, negotiable documents, or instruments is automatically perfected for 20 days from the time it attaches without filing or the taking of possession.
87
What are the basic remedies for a secured party's failure to comply with Article 9?
1) Injunction relief 2) Actual damages 3) Conversion Action
88
Who is a "general creditor"?
A general creditor is one who has a claim, including a judgment, but who has no lien or security interest with respect to the property in question (i.e., the collateral).
89
When do you classify goods?
Generally, goods are classified when the security interest attaches.
90
What is required for a statutory or common-law lien creditor to have priority over a secured creditor?
A statutory or common-law lien has priority over a security interest, including a perfected security interest, in goods, provided: i) The effectiveness of the lien depends on the lien holder’s possession of the goods; and ii) The lien secures payment or performance of an obligation for services or materials furnished with respect to goods by the lien holder in the ordinary course of that person’s business (e.g., supplier’s lien, mechanic’s lien).
91
What is the debtors notification rights?
When there is not an outstanding secured obligation and the secured party is not committed to make advances or otherwise give value, the debtor can demand that the secured party notify account debtors (i.e., persons obligated to the debtor on an account, chattel paper, or general intangible) that they are no longer required to make payments to the secured party. The secured party must send the notification within 10 days after receiving an authenticated demand by the debtor.
92
What are the requirements for a buyer of a negotiable instrument or document?
The buyer of a negotiable instrument who qualifies as a holder in due course under Article 3, the buyer of a negotiable document of title that has been duly negotiated under Article 7, and a protected purchaser of a security under Article 8 may take free of a perfected security interest in the instrument, document of title, or security.
93
Under Georgia law, what is the description requirement for mechanic's liens on farm machinery or equipment?
A description of the farm machinery or equipment is sufficient if it reasonably identifies the collateral. A mistake in the description will not invalidate the description if it provides a key to identifying the farm machinery or equipment.
94
Under Article 9, what is software?
Software embedded in goods, such as a diagnostic computer program contained in an automobile, is treated as part of the goods in which it is embedded. Software that is not embedded in goods, such as software sold in a separate box at a retail store, is treated as a “general intangible.”
95
What is required on a financing statement?
i) The debtor’s name; ii) The name of the secured party or a representative of the secured party; and iii) The collateral covered by the financing statement. This “bare bones” information is intended to provide a person, such as a potential creditor of the debtor, with enough information to make further inquiries of the debtor or secured party as to the existence and terms of a security interest.
96
Who is an obligor?
An obligor is a person who must pay (or otherwise perform) with respect to the obligation that is secured by a security interest in the collateral.
97
What are the special rules regarding default of a security interest covering fixtures?
When a security agreement covers fixtures, a secured party may proceed as to the fixtures in accord with the rights and remedies with respect to the real property. When a secured party’s security interest has priority over owners and individuals who encumber real property, that secured party may remove the fixture from the real property. With respect to an owner or encumbrancer who is not the debtor, the secured party is liable for the cost of repairing any physical object damaged by the removal but not for any reduction in the value of the real property due to the removal.
98
What may a secured party do to collateral ceased through default?
After default, a secured party may sell, lease, license, or otherwise dispose of all or any of the collateral. Within limits, the secured party may keep the collateral (strict foreclosure) in full or partial satisfaction of the obligation.
99
Does a transferee of money or funds take the collateral free of the security interest?
A transferee of money usually takes the money free of a security interest. Similarly, a transferee of funds from a bank deposit account usually takes the funds free of a security interest in the deposit account. Note that a debtor is not treated as a transferee. A transferee is not entitled to this favorable treatment if the transferee acts in collusion with the debtor in violating the rights of the secured party.
100
Are there redemption rights to collateral?
A debtor, secondary obligor, or any other secured party has the right to redeem collateral.
101
What is the rule regarding "consumer" buyers?
A consumer buyer of consumer goods takes free of a security interest, even if perfected, unless prior to the purchase, the secured party filed a financing statement covering the goods. This is often referred to as the “garage sale” rule, because that type of sale would qualify.
102
When is a conversion action appropriate?
If a secured party improperly repossesses collateral, then the debtor may be able to pursue a conversion action under tort law, rather than under the UCC.
103
What is "collateral"?
Property subject to a security interest is called “collateral.” Such property may be tangible or intangible. The characterization of collateral as, for example, inventory or a deposit account can affect the validity of a security interest, the way in which a security interest can be perfected, and the rights of a third party in the collateral, such as a buyer of collateral.
104
What is a "record" when referring to a security agreement?
The agreement must be in a tangible medium (e.g., a writing on paper) or in another medium, such as electronic, that can be retrieved in a perceivable form.
105
What is the priority between a lender with a PMSI versus a seller with a PMSI?
If there are two competing PMSIs and one PMSI secures the price of the collateral for the seller of the collateral while the other PMSI secures loans enabling the purchase of the collateral, then the PMSI taken by the seller has priority over the PMSI taken by the lender.
106
How does consignment affect a debtor's right to the collateral?
Generally, if the consignor retains title to the consigned goods, the consignee does not have rights in the consigned goods. Consequently, a security interest in the consignee’s inventory, for example, would not extend to the consigned goods. However, when the consignment is covered by Article 9, the consignee is treated as having the consignor’s rights in the consigned goods.
107
What is the right of loss or damage?
The debtor bears the risk of accidental loss of, or damage to, the collateral; consequently, the debtor is liable to the secured party for any deficiency in effective insurance coverage.
108
Who is a "judicial lien creditor"?
A judicial lien creditor is a creditor who acquires a lien on the collateral by a judicial process, rather than by operation of law.
109
When does a PMSI in goods exist?
A PMSI in goods exists when: i) A secured party gave value (e.g., made a loan) to the debtor and the debtor incurred an obligation to enable the debtor to acquire rights in or use of the goods, and the value given was so used; or ii) A secured party sold goods to the debtor, and the debtor incurs an obligation to pay the secured party all or part of the purchase price (i.e., a sale of goods on credit).
110
What is perfection by filing?
A security interest in any collateral, except a deposit account, money, or letter-of-credit rights that are not a supporting obligation, may be perfected by filing a financing statement.
111
What are consumer goods?
“Consumer goods” are those goods acquired primarily for personal, family, or household purposes.
112
What is the general rule to determine priority regarding a security interest that secures a future advance?
In determining the priority of a security interest that secures a future advance when there is a conflicting security interest in the same collateral, the first-to-file-or-perfect rule generally applies. Consequently, the time that an advance is made is usually not determinative of priority unless a financing statement was not filed with respect to the security interest and the advance, as value given, constitutes the final step for attachment and perfection of that interest.
113
When may a secured party accept collateral in full satisfaction of an obligation secured by the collateral?
A secured party may accept collateral in full satisfaction of an obligation secured by the collateral when: i) The debtor consents, after default, to the acceptance in an authenticated record; or ii) The debtor does not object to the secured party’s proposal to accept the collateral within 20 days after the proposal is sent.
114
Under what circumstances may a security agreement serve as the financing statement?
A security agreement usually contains more information than is required of a financing statement. Consequently, a security agreement that contains the information necessary for a financing statement may be filed as a financing statement to perfect a security interest.
115
What collateral may be perfected by control?
Perfection by control of the collateral may only be achieved with respect to a security interest in investment property, deposit accounts, letter-of-credit rights, electronic chattel paper, or electronic documents. Gaining control for purposes of attachment also suffices for purposes of perfection.
116
Under Georgia law, how do courts treat a judicial lien creditor?
Under Georgia law, a judicial lien is treated as a security interest perfected by filing at the time the judgment was duly recorded. Accordingly, a judicial lien creditor who has properly recorded has priority over a secured party that files or perfects after the judgment lien is recorded. A secured party who files or perfects his interest before a judgment lien is properly recorded takes priority over the judicial lien creditor.
117
What is the effect of lapse perfection on the rule regarding interstate movement automatic perfection?
If a security interest is not perfected in the second state before the expiration of the applicable temporary perfection period, then the security interest generally ceases to be perfected prospectively (i.e., upon the expiration of the temporary perfection period). With respect to a purchaser for value, such a security interest is deemed never to have been perfected.
118
How is debtor's authorization achieved in a financing statement?
If the debtor has authenticated the security agreement, then this authentication constitutes an authorization to file the financing statement with respect to the collateral covered by the agreement (i.e., an “ipso facto authorization”). Alternatively, the debtor may specifically authorize the filing of the financing statement in an authenticated record.
119
What priority does a purchasers of chattel paper have priority over the interest of a secured party other than those who claims the chattel paper as proceeds of inventory subject to a security interest?
The purchaser of chattel paper has priority over all other types of security interests in chattel paper (i.e., a security interest in chattel paper that is claimed other than merely as proceeds of inventory subject to a security interest) provided that: i) The purchaser gives new value and takes possession or obtains control of the chattel paper; ii) The purchase is made in good faith and in the ordinary course of the purchaser’s business; and iii) The purchase must be made without knowledge that the purchase violates the rights of the secured party.
120
What is an instrument?
“Instruments” encompass negotiable instruments, such as promissory notes and checks, as described in Article 3, and nonnegotiable instruments that evidence a right to the payment of a monetary obligation and are transferred in the ordinary course of business by delivery, such as a certificate of deposit from a bank. When coupled with evidence of a security interest, the two combined constitute chattel paper.
121
May a secured party ignore default?
The secured party may choose to ignore a default, but such action may constitute a waiver of the secured party’s rights that would otherwise arise upon the default.
122
What is the priority between an unperfected security interest versus another unperfected security interest?
If neither interest is perfected, then the “first in time, first in right” rule applies with the critical time being the time of attachment.
123
How does "accession" affect priority?
A security interest in an accession is subject to general priority rules. Such a security interest is subordinate to a security interest in the whole collateral that is perfected under a certificate-of-title statute.
124
How are letter-of-credit rights perfected?
A security interest in letter-of-credit rights, if such rights are a supporting obligation for other collateral (e.g., chattel paper) is perfected by the perfection of the security interest in the other collateral. Otherwise, perfection of a security interest in letter-of-credit rights may be perfected only by control.
125
Under Georgia law, what is the "priority over crops" rule?
A perfected security interest in growing crops for new value given to enable the debtor to produce the crops during production season, and given within three months before the crops were planted, takes priority over any perfected security interest or agricultural lien incurred more than six months before the crops were planted. This is true even if the secured party that gave new value knew of the earlier security interest or agricultural lien.
126
In what manner may a secured party dispose of collateral?
A secured party may dispose of the collateral publicly or privately.
127
What happens to proceeds from collateral?
A security interest in collateral automatically attaches to identifiable proceeds.
128
What is the rule regarding "clean" certificate of title?
If a certificate of title issued by one state fails to indicate that goods (e.g., an automobile) are or may be subject to a security interest perfected under the laws of a second state (i.e., a “clean” certificate of title), then the buyer of the goods can take free of the security interest, provided the buyer receives delivery of the goods after issuance of the certificate without knowledge of the prior security interest. Similarly, the holder of a conflicting security interest has priority over such an out-of-state security interest, provided the holder’s interest attaches and is perfected after the issuance of the certificate and the holder does not have knowledge of the out-of-state security interest.
129
What is the date a security interest is perfected?
The date of perfection is the date on which the security interest first became perfected.
130
What is the consequences of default?
Once a default has occurred, the secured party may: i) Seek possession of the collateral and, in order to satisfy the obligor’s outstanding obligation, either: a) Sell the collateral; or b) Retain it in full or partial satisfaction of the obligation; ii) Initiate a judicial action to obtain a judgment based on that obligation; or iii) Subject to statutory limitations, pursue any course of action to which the debtor and obligor have agreed.
131
What is a "fixture filing"?
A fixture filing is the filing of a financing statement covering goods that are or are to become fixtures. The financing statement must be filed in the office designated for the filing or recording of a mortgage on the related real property.
132
What is the priority requirements associated with security interests associated with Article 2 contracts?
When a buyer or seller has a security interest arising under Article 2, the interest has priority over a conflicting security interest created by the debtor under Article 9, as long as the buyer or seller retains possession of the goods.
133
What is required for a timely notice in a transaction other than a consumer transaction?
In a transaction other than a consumer transaction, when a secured party sends a notification of disposition after default and at least 10 days before the earliest time for disposition set forth in the notification, the timeliness of the notice is reasonable, provided that the notice is sent in a commercially reasonable manner.
134
What doe the "new value" requirement for BOCB require?
The buyer can purchase goods for cash, on credit, or in exchange for other goods, but does not achieve BOCB status if he acquires the goods in total or partial satisfaction of a money debt.
135
May a person terminate a financing statement?
The effectiveness of a financing statement may be terminated by the filing of a termination statement.
136
How are PMSI in software applied?
A PMSI in software exists only when the debtor acquired his interest in software in an integrated transaction in which the debtor also acquired an interest in goods (e.g., a computer), and the debtor acquired that interest in the software for the principal purpose of using the software in the goods. The security interest in the software must also secure an obligation with respect to the goods, and the secured party must hold a PMSI in the goods.
137
What is the time limitation to redeem collateral used to satisfy their secured debt?
Redemption cannot occur if the secured party has disposed of the collateral or entered into a contract for its disposition, accepted the collateral in full or partial satisfaction of the obligation secured by the collateral, or collected on the collateral.
138
What is the alternative "rendering equipment unusable" for default possession?
As an alternative to securing possession of the collateral after a default, a secured party may render equipment unusable. This is usually followed by the disposal (e.g., sale) of the collateral on the debtor’s premises.
139
What additional information must a financial statement include regarding collateral related to real property?
The financing statement must, in addition to the information required for all financing statements, contain: i) An indication that it covers this type of collateral; ii) An indication that it is to be filed in the real-property records; iii) A description of the real property to which the collateral relates; and iv) The name of a record owner, if the debtor does not have an interest of record in the real property.
140
What liens are subject to Article 9?
Unlike statutory and common-law liens, an agricultural lien is subject to Article 9.
141
What is the priority between a security interest in fixtures versus a judicial lien?
A security interest in fixtures has priority over a subsequent judicial lien on the real property with which the fixtures are associated if the security interest in fixtures was perfected by any method. The method of perfection is not limited to a fixture filing; the judicial creditor who seeks a lien is not a reliance creditor who has searched the real property records.
142
What is the term for collateral interstate movement automatic temporary perfection?
If collateral is transferred to a person located in another state who becomes a debtor (i.e., takes the collateral subject to the security interest), then a perfected security interest generally remains perfected for one year after the transfer, unless perfection would have ceased earlier under the law of the former debtor’s state.
143
How do you classify goods with multiple uses with a single debtor?
When the debtor uses the property for multiple purposes, the principal use to which the debtor puts the property determines the class of the goods.
144
When may a secured party accept collateral in partial satisfaction of an obligation secured by the collateral?
A secured party may accept collateral in partial satisfaction of an obligation secured by the collateral if the debtor consents, after default, to the acceptance in an authenticated record.
145
Who is a debtor?
A debtor is a person who has an interest, other than a security interest or other lien, in the collateral, such as the sole owner of the collateral. Although the debtor is usually also the obligor, the debtor need not be.
146
What is a document?
A “document” refers to a document of title, which confers on the holder ownership rights in goods held by a bailee, such as a bill of lading, transport document, a dock warrant, a dock receipt, a warehouse receipt, and an order for the delivery of goods.
147
What is the application of non-cash proceeds from a disposition?
A secured party must apply or pay over for application non-cash proceeds of a disposition only if the failure to do so would be commercially unreasonable. If the secured party does apply or pay over for such proceeds, then he must do so in a commercially reasonable manner.
148
What is the priority of proceeds from a PMSI in goods?
The priority of a PMSI in goods generally extends to the identifiable proceeds of the original collateral, but only as to proceeds in which the security interest is perfected when the debtor receives possession of the collateral or within 20 days thereafter.
149
When is a filing effective?
A financing statement is generally effective upon its delivery to the filing office and tender of the filing fee provided that it contains the basic required information.
150
What is perfection by control?
A secured party may perfect a security interest in specific collateral by taking control of the collateral. The security interest remains perfected only while the secured party retains control.
151
What is a "secured transaction"?
A secured transaction under Uniform Commercial Code (UCC) Article 9 typically involves a relationship between two parties, a debtor and a creditor, that arises when the debtor has given certain assurances in the form of a security interest in specific property (i.e., collateral) to assure that the obligation will be performed.
152
What are the four classifications of goods?
1) Consumer Goods 2) Farm Products 3) Inventory 4) Equipment
153
What are equipment?
“Equipment,” a catchall class, consists of goods that are not consumer goods, farm products, or inventory. It usually refers to goods that are used or bought for use primarily in a business, such as employees’ desks or machinery used in manufacturing.
154
What is the collateral description requirement for a security agreement?
The description of the collateral need only reasonably identify the collateral. It may specifically list the collateral, such as by identifying the object and its manufacturer, model and serial number, but such an exact and detailed description is not mandated. A description of the Article 9 type of collateral (e.g., “all of debtor’s equipment” or “debtor’s entire inventory”) is usually sufficient unless the collateral is consumer goods or a commercial tort claim, but a super-generic description of collateral as “all the debtor’s assets” or “all the debtor’s personal property” is not sufficient.
155
What is the priority of proceeds from a PMSI in inventory?
The priority of a PMSI in inventory extends to identifiable cash proceeds received on or before the delivery of the inventory to a buyer if: i) The PMSI is perfected when the debtor receives possession of the inventory; and ii) The purchase-money secured party sends an authenticated notification to the holder of the conflicting security interest, revealing the secured party’s intent to acquire a PMSI in the inventory of the debtor and describing the inventory.
156
Under a PMSI, how are payments applied?
When the extent to which a security interest is a PMSI depends on the application of a payment of a particular obligation, the payment must be applied: i) In accordance with the parties’ reasonable agreement; ii) If there is no reasonable agreement, in accordance with the manifestation of the obligor before or at the time the payment is made; or iii) If neither (i) nor (ii) apply, then first to unsecured obligations and then to obligations secured by a PMSI in the order in which the obligations were incurred.
157
How does PMSI in consumer goods affect the consumer buyer rule?
A PMSI in consumer goods is automatically perfected. Filing is not required. If a PMSI in consumer goods is not filed, and the consumer buyer does not know of the PMSI, then he will take free of the security interest. If the party holding the PMSI in consumer goods does in fact file, then his security interest will be good even against a consumer buyer.
158
When is actual damages appropriate in a secured transaction?
If a secured party fails to comply with Article 9, then the debtor or other secured party may seek damages for any loss caused by the secured party’s failure. This loss may include losses resulting from the debtor’s inability to obtain alternative financing or from the increased cost of obtaining such financing. The debtor may seek consequential damages, but she is subject to the duty to mitigate damages.
159
What is the debtors account rights?
A debtor may obtain information from a secured party about the secured obligation and the collateral in which a secured party may claim a security interest. The debtor may request an accounting from the secured party. In addition, the debtor may submit a list of collateral and a statement of the aggregate amount of unpaid secured obligations, which the secured party may approve or correct. Generally, the secured party has 14 days to respond after receiving the debtor’s request.
160
What are PMSIs?
Purchase-Money Security Interests (PMSIs) are special type of security interest that may be accorded special rules with respect to perfection and priority.
161
What are the two rules regarding debtor identification on financing statements?
(1) The "only-if" rule. (2) The "safe harbor" rule.
162
What is the term for delivery of collateral to the debtor automatic temporary perfection?
If the secured party makes the collateral available to the debtor for the purpose of selling or exchanging the collateral, then the security interest in the collateral remains temporarily perfected for 20 days.
163
What is the "dual status" rule for non-consumer goods transaction?
In a transaction other than a consumer-goods transaction, a PMSI does not lose its status as a PMSI merely because: i) The collateral also secures an obligation that is not a purchase-money obligation (e.g., equipment that secures a bank loan to the buyer for the purchase of the equipment is subsequently used as collateral for a second bank loan to the buyer); ii) The collateral that is not purchase-money collateral also secures the purchase-money obligation (e.g., equipment owned by the debtor prior to the time that the debtor borrows money to buy additional equipment when the previously owned equipment also serves as collateral for the purchase-money obligation); or iii) The obligation has been renewed, refinanced, consolidated, or restructured.
164
What are "commingled goods"?
Commingled goods are goods that are physically united with other goods in such a manner that their identity is lost in a product or mass.
165
To whom, other than the debtor, should a secured party notify if he, she, or it wishes to accept collateral in full or partial satisfaction of the obligation?
In addition to the debtor, a secured party wishing to accept collateral in full or partial satisfaction of the obligation must send his proposal to: i) Any secured party or lien holder who, 10 days before the debtor consented to the acceptance, held a security interest that was perfected by filing or by compliance with a statute, treaty or regulation; and ii) Any person from whom the secured party received, before the debtor consented to the acceptance, an authenticated notification of a claim of an interest in the collateral. A secured party wishing to accept collateral in partial satisfaction must also send its proposal to any secondary obligor.
166
Who are the three parties involved in a secured transaction?
There are three types of parties with respect to a secured transaction: a secured party, an obligor, and a debtor.
167
What is the right to hold proceeds?
As additional security, the secured party in possession or control of collateral may hold any proceeds, except money or funds, received from the collateral. Any money or funds received must be applied to reduce the secured obligation or remitted to the debtor.
168
Under Georgia law, what is required to continue perfection of a security interest through filing beyond the initial filing?
In Georgia, the continuation statement is effective for five years starting from either the date on which the financing statement would have become ineffective in the absence of filing or any earlier maturity date of the secured obligation.
169
What is "perfection" of a security interest?
Perfection of a security interest is generally necessary for the secured party to have rights in the collateral that are superior to any rights claimed by third parties. Perfection has no relevance to the secured party’s rights against the debtor. A security interest is perfected upon attachment of that interest and compliance with one of the methods of perfection.
170
When is injunctive relief appropriate in a secured transaction?
When a secured party has not proceeded in accordance with Article 9 (e.g., has failed to notify the debtor as to a disposition of the collateral), the debtor or other secured party may seek injunctive relief from a court to compel or restrain collection, enforcement, or disposition of collateral on appropriate terms and conditions.
171
What is the duty to keep collateral identifiable?
The secured party in possession of collateral must keep the collateral identifiable but may commingle fungible collateral.
172
What is the limitation on deficiency in a consumer transaction?
If the transaction is a consumer transaction and a secured party’s collection, enforcement, disposition, or acceptance is not in accord with Article 9, then many courts follow the rebuttable presumption rule that is applicable to a commercial transaction. Some courts, however, apply an absolute bar rule, under which the non-complying secured party cannot recover a deficiency.
173
How does the rule regarding interstate movement of collateral or debtors affect continuous automatic perfecting collateral?
A perfected possessory security interest in collateral generally remains continuously perfected, despite the movement of the collateral to another state, when the security interest is perfected under the laws of the state to which the collateral is moved.
174
What is the exception to the after-acquired collateral rule?
An after-acquired clause is not effective if the collateral is consumer goods, unless the debtor acquires them within 10 days after the secured party gives value, or a commercial tort claim.
175
Under Article 9, what is "default"?
“Default” is not defined by Article 9. Instead, the parties to a security agreement are free to agree to the circumstances that give rise to a default, such as the debtor’s transfer of the collateral without authorization. In the absence of such an agreement, the only event of default will be the failure of the obligor to make timely payments to the secured party.
176
What is the general rule regarding whether a transferee takes intangible collateral free from the security interest?
A buyer, other than a secured party, of intangible collateral, such as accounts, or a general intangible, such as a copyright, takes free of an unperfected security interest in the same collateral if the buyer: i) Gives value; and ii) Without knowledge of the existing security interest.
177
What is the effect of unjustified refusal of a financing statement by a filing office?
If the filing office’s refusal to accept a financing statement for filing is unjustified, then the financing statement is treated as having been filed. Such a financing statement is effective except with respect to a purchaser of the collateral who gives value in reasonable reliance upon the absence of the record from the files.
178
What are excluded from "accounts"?
Excluded are rights to payments that are evidenced by another type of intangible collateral, such as an instrument or chattel paper and those that arise out of a transaction that is not contained within the definition of an account.
179
What is the non-filing collateral exception to the proceeds rule?
If the collateral is of a type for which perfection may be achieved by a method other than filing and for which secured parties who so perfect generally do not expect or need to conduct a filing search (e.g., chattel paper, deposit accounts, negotiable documents, instruments, investment properties, letter-of-credit rights), then priority in the original collateral generally continues in the proceeds, provided that: i) The security interest in the proceeds is perfected; and ii) The proceeds are cash proceeds or proceeds of the same type as the original collateral.
180
Who are transferees of collateral?
Transferees of the collateral are persons who obtain full title to the goods as a result of a purchase from the debtor.
181
Under Georgia law, what is the affect of an advance?
Georgia does not recognize the priority rule regarding a lien creditor and a secured party that provides an advance to the debtor.
182
What are the obligations between a secured party and account debtor?
Upon default, a secured party may notify an account debtor (i.e., a person obligated on an account, chattel paper or general intangible, but not a person obligated on a negotiable instrument) to make payment to the secured party. In addition, the secured party may exercise any rights of the debtor with respect to the obligation of the account debtor. In a commercially reasonable manner, the secured party may collect from the account debtor, and, if the account debtor does not pay, the secured party may enforce the obligation of the account debtor.
183
What is the general rule regarding "after-acquired collateral"?
A security interest may apply not only to the collateral that the debtor owns at the time the security is granted, but also to collateral that the debtor acquires in the future. No new security agreement is necessary when the collateral is acquired later if the original security agreement provides that it applies to after-acquired collateral.
184
What does the "authenticated record" requirement require?
The most common means by which to evidence the debtor’s assent to the security agreement is by an authenticated record. To satisfy this requirement, the security agreement must: i) Be in a record; ii) Contain a description of the collateral; and iii) Be authenticated by the debtor.
185
What is the duty to relinquish possession of collateral?
The secured party has a duty to relinquish possession of the collateral upon satisfaction of the secured obligation and the secured party is not committed to make advances or otherwise give value. Failure to do so constitutes conversion.
186
How are PMSIs in consumer goods perfected?
A PMSI in consumer goods is automatically perfected upon attachment. A secured party does not need to file a financing statement or have possession to have a perfected PMSI in consumer goods.
187
What is an "investment property"?
“Investment property” includes both certificated and uncertificated securities, such as stock and bonds, as well as securities accounts, security entitlements, commodity accounts, and commodity contracts.
188
What is perfection by possession?
A secured party may perfect a security interest in most collateral by taking possession of the collateral. As a general rule, this security interest remains perfected only while the secured party retains possession.
189
What is an "deposit account"?
A “deposit account” includes a savings, passbook, time, or demand account maintained with a bank. Excluded are investment property and accounts evidenced by instruments, such as certificates of deposit.
190
When is using collateral for full or partial acceptance always not permitted?
If the goods are consumer goods in the possession of the secured party, and the debtor has paid at least 60% of the cash price in the case of a PMSI, or at least 60% of the obligation secured in a non-PMSI case, then the secured party cannot keep the goods in satisfaction of the debt; they must be sold. A debtor may waive this right to force a sale of the collateral, provided it is done after default in an authenticated agreement.
191
Under Georgia law, what additional information must a financial statement include regarding consumer goods?
Under Georgia law, the financing statement must also include the maturity date of the secured obligation (or state that such obligation is not subject to a maturity date) when (i) the collateral covered by the financing statement consists only of consumer goods and (ii) the secured obligation is originally $5,000 or less.
192
What is the treatment of "low price" disposition to a secured party?
When a disposition of the collateral is made to a secured party, a person related to the secured party, or a secondary obligor, the secured party may lack the incentive to maximize the proceeds of the disposition. If the amount of the proceeds in such a disposition is significantly below the range of proceeds that a disposition to someone other than the secured party, person related to the secured party, or a secondary obligor would have brought, then the amount of the deficiency may be adjusted to reflect the higher price that would have been realized from the other person.
193
May a security agreement way redemption rights?
The security agreement may not contain a waiver of the right to redemption by the debtor or secondary obligor; any such attempted waiver is void. After default, a debtor or secondary obligor may waive the right of redemption in an authenticated agreement.
194
What is the value requirement for the consumer buyer rule?
Unlike the BOCB exception, the “garage sale” exception merely requires a buyer to give value, rather than new value. Consequently, acquisition of the consumer goods in total or partial satisfaction of a money debt constitutes giving value.
195
What are the rights of an assignee regarding debtors?
The rights of an assignee are subject to all terms of the agreement between the account debtor and the assignor and any defense or claim in recoupment arising from the transaction that gave rise to the contract. Other defenses and claims that the account debtor has against the assignor may be raised only if they have accrued prior to the account debtor’s receipt of notification of the assignment. Unless the account debtor incurred the debt as a consumer, account debtor’s claims and defenses may only serve to offset the amount that the account debtor owes.
196
What are "accounts"?
“Accounts” include the right to payment for goods sold, property licensed, or services rendered. Also included is a right to payment for the issuance of an insurance policy, the use of a credit or charge card, or winning a lottery.
197
Under Georgia law, what is "breach of the peace"?
A secured party seeking repossession of collateral will not avoid liability for breach of the peace by employing an independent contractor to repossess the collateral.
198
What must notice contain?
Except in a consumer goods transaction, the contents of a notification of disposition are sufficient when the notification contains: i) A description of the debtor and the secured party; ii) A description of the collateral; iii) A statement as to the method of disposition; iv) A statement that the debtor is entitled to an accounting of the unpaid indebtedness and the charge, if any, for providing that accounting; and v) A statement of the time and place of a public disposition or the time after which a private disposition is to be made.
199
What is the security interest of a consignor considered?
The security interest of a consignor in the consigned goods is a PMSI in inventory.
200
How does a debtor maintain a right to the collateral?
For the security interest to attach to the collateral, the debtor generally must have rights in the collateral. The basic rule is that a security interest attaches only to the rights that the debtor has. A debtor’s limited rights in collateral are sufficient for a security interest to attach.
201
What is the general rule regarding whether a transferee takes tangible collateral free from the security interest?
A buyer, other than a secured party, of collateral that is goods, tangible chattel paper, tangible documents or a security certificate takes free of an unperfected security interest in the same collateral if the buyer: i) Gives value; and ii) Receives delivery of the collateral; iii) Without knowledge of the existing security interest.
202
Can there be an agreement not to assert defenses against an assignee?
Article 9 specifically recognizes the validity of an agreement between an account debtor and assignor that the account debtor will not assert against an assignee any claim or defense that the account debtor may have against the assignor.
203
What is the requirement for the description of the collateral on a financing statement?
The financing statement must contain a description of the collateral that sufficiently indicates the collateral. This requirement can be satisfied by a description that meets the requirements for the security agreement. Alternatively, when the security interest covers all of the debtor’s assets or personal property, the financing statement, unlike the security agreement, can contain a broad statement to that effect without identifying each of the types of collateral covered.
204
Under Article 9, what gives a secured transaction "value"?
Value may be given: i) By providing consideration sufficient to support a simple contract; ii) By extending credit, either immediately or under a binding commitment to do so (the debtor need not draw upon the credit); iii) By, as a buyer, accepting delivery under a preexisting contract, thereby converting a contingent obligation into a fixed obligation; or iv) In satisfaction of, or as security for, part or all of a preexisting claim.
205
Article 9 allows what four types of "perfection"?
Under Article 9, there are four ways by which a secured party can perfect a security interest: i) Filing of a financing statement; ii) Possession of the collateral; iii) Control over the collateral; and iv) Automatic perfection (either temporary or permanent).
206
What status does a general creditor have compared to a secured creditor or party?
A general creditor has no interest to assert under Article 9; this type of creditor does not have a claim to particular property owned by the debtor. A secured party will always prevail over a general creditor with respect to the debtor’s collateral.
207
What does the knowledge requirement for BOCB require?
The requirement that a BOCB take without knowledge means actual knowledge that the sale is in violation of another party’s rights. Mere notice or reason to know is insufficient.
208
What is the priority between a security interest in fixtures versus a construction mortgage?
A construction mortgage has priority over a subsequent security interest in a fixture, including a PMSI in a fixture. The construction mortgage must be recorded before the goods become fixtures, and it covers only goods that become fixtures before completion of the construction.
209
What is the effect of an error in the description of collateral in a financing statement?
If there is an error with respect to the collateral covered by a financing statement, then the debtor may demand that the secured party prepare a termination statement with respect to the erroneous collateral and provide the debtor with the termination statement for the debtor to file, or in the case of consumer goods, the secured party is the one who must file the termination statement.
210
What types of collateral are considered "related to real property"?
(i) a fixture filing with respect to goods that are or are to become fixtures, (ii) as-extracted collateral (i.e., oil, gas or other minerals subject to a security interest that is created by a debtor having an interest in the minerals before extracted and that attaches to the minerals as extracted), and (iii) timber to be cut.
211
What is the effect of commingling goods on security interest?
An existing security interest in collateral that subsequently becomes commingled goods is transferred to the resulting product or mass. Once the goods have been commingled, a security interest cannot be created in separate goods.
212
What is required for a timely notice?
In general, the test for the timeliness of a notification of a disposition is reasonableness. The notification should be sent sufficiently far in advance of the disposition to allow the notified party to act on the notification.
213
Under what circumstances does a buyer take title to collateral free from the security interest?
A buyer of collateral subject to a perfected security interest generally takes the collateral subject to that interest, unless the secured party has authorized its sale free of the security interest.
214
What is the right to charge for reasonable expenses?
The secured party in possession of collateral has the right to charge the debtor for reasonable expenses (e.g., storage, insurance, and taxes) incurred in the custody, preservation, use, or operation of the collateral; such expenses are also secured by the collateral.
215
What is the minimum statutory damages for consumer goods?
If the collateral is consumer goods and a secured party fails to comply with the default rules of Article 9, then a debtor or secondary obligor may recover an amount not less than the credit service charge, plus 10% of the principal amount of the obligation or the time-price differential, plus 10% of the cash price, even if the actual damages are less.
216
Under Georgia law, where should a person file a financing statement related to real property?
The financing statement should be filed in the office for recording a mortgage on the related real property when (i) the collateral consists of timber to be cut, minerals, or crops, or (ii) the collateral is or is to become a fixture and the filing is a fixture filing.
217
What does it mean for a secured party to possess the collateral?
A secured party’s possession of tangible (e.g., goods) or quasi-intangible (e.g., chattel paper) collateral satisfies the Article 9 Statute of Frauds. However, the secured party’s possession must be pursuant to the security agreement.
218
What rules apply to deposit accounts?
Article 9 does not apply to a deposit account that is pledged as collateral in a consumer transaction, but such an account that is received as proceeds is subject to the rules regarding proceeds.
219
What are inventory?
“Inventory” includes goods, other than farm products, that are held for sale or lease; are furnished under a service contract; or consist of raw materials, works in process, or materials used or consumed in a business.
220
Who are the three types of potential claimants?
Other persons with interests that may conflict with a secured party’s interest traditionally fall into one of three groups: i) Creditors; ii) Transferees/buyers; and iii) Other secured parties.
221
What are the special rules regarding default of a security interest in an accession?
After default, a secured party with a security interest in an accession that has priority over the claims of anyone having an interest in the whole may remove the accession from the other goods.
222
Who is the "secured party"?
A secured party is the person in whose favor a security interest is created under the security agreement. Usually, the secured party is the person who has loaned money or extended credit to the obligor. A secured party may also include a consignor; the buyer of accounts, chattel paper, payment intangibles, or promissory notes; or the holder of an agricultural lien.
223
What is an "agreement"?
Typically, Article 9 applies to a consensual agreement that provides for a security interest. If the substance of the transaction is the creation of a security interest, then Article 9 applies regardless of the form of the transaction or the name given to it by the parties. It is, therefore, the substance of the transaction, not its form, that determines whether Article 9 is applicable. An agreement is the bargain-in-fact between the parties.
224
What is the application of cash proceeds from a disposition?
A secured party must apply, or pay over for application, cash proceeds of a disposition in the following order: i) Reasonable expenses for collection and enforcement, including reasonable attorney’s fees and other legal expenses to the extent permitted by agreement and not prohibited by law; then ii) Satisfaction of obligations secured by the security interest or agricultural lien; then iii) Satisfaction of any subordinate security interests, provided that the junior secured party made an authenticated demand for proceeds before distribution of the proceeds is complete; then iv) The remainder of the proceeds to the debtor.
225
Does a secured party owe a duty to a person that the secured party does not know is a debtor or an obligor?
A secured party does not owe a duty to a person that the secured party does not know is a debtor or an obligor.
Similarly, a secured party does not owe a duty to a debtor or an obligor of whose existence the secured party is aware, but whose identity the secured party does not know, or with whom the secured party does not know how to communicate.
226
What is the exception to the UCC Judicial Lien Rule?
If the secured party has a PMSI that is perfected before or within 20 days after the debtor receives possession of the collateral, then the security interest takes priority over the rights of a creditor that arose between the time the security interest attached and the time of filing. A secured party with a PMSI will prevail over any creditor that obtains a lien within that 20-day period.
227
What are the transferee's right in a collateral disposition?
A sale of the collateral gives the purchaser at the sale all of the debtor’s rights in the collateral. If the transferee/purchaser acts in good faith, then the disposition discharges the security interest being foreclosed and any subordinate security interests and liens, even though the secured party fails to comply with Article 9. However, the transferee takes the collateral subject to any security interests that were senior to the security interest foreclosed.
228
What is the "same office" rule regarding automatic continuous perfection?
A perfected security interest in proceeds may also continue indefinitely when: i) A filed financing statement covers the original collateral; ii) The proceeds are collateral in which a security interest may be perfected by filing in the office in which the financing statement has been filed; and iii) The proceeds are not acquired with cash proceeds. However, under this option, if the original filing ceases to be effective after the 20-day period, then the security interest in proceeds also ceases to be automatically perfected.
229
What is the Georgia after-acquired collateral rule?
Georgia follows the majority view that after-acquired collateral may be implied in the security agreement as long as the description reasonably identifies the property.
230
What can the amount of the obligation in a PMSI in goods include?
The amount of the obligation can include expenses incurred in connection with acquiring rights in the collateral, sales taxes, duties, finance charges, interest, freight charges, administrative charges, expenses of collection and enforcement, attorney’s fees, and similar obligations.
231
What is the general assignment of account rights?
If the debtor assigns his right to receive payment on an account, chattel paper, or a payment intangible, then the secured party, after default or earlier if the debtor so agrees, may notify an account debtor (i.e., a person obligated on an account, chattel paper, or general intangible, but not a person obligated on a negotiable instrument) to make payment to the secured party. The notification must be authenticated by the debtor (i.e., assignor) or secured party (i.e., assignee) and must reasonably identify the rights assigned. Generally, a term in the agreement between the account debtor and the assignor that prohibits or otherwise restricts assignment is ineffective.
232
What determines whether accession is allowed?
Generally, the description of the collateral in the security agreement will determine whether a secured party acquires a security interest in the whole in the event its collateral becomes an accession.
233
What is the priority between a perfected security interest versus an unperfected security interest?
If only one security interest is perfected and the other is not, then the perfected interest takes over the unperfected one.
234
What are farm products?
“Farm products” are goods that are crops or livestock and include supplies that are used or produced in farming. Excluded from farm products is standing timber for which there is not a contract to cut and remove. It is important to remember that for goods to be considered farm products, the debtor must be engaged in a farming operation.
235
What are "intangible collateral"?
Intangible collateral includes nine classes of personal property. The first four classes listed below are sometimes referred to as “quasi-intangible” property because a writing usually exists that defines the property right.
236
Under Georgia law, what is required to terminate a financing statement for non-consumer goods?
If the financing statement covers non-consumer goods, then the secured party must send the debtor a termination statement or file the termination statement in the filing office within (i) 90 days after there is no obligation secured by the collateral and no commitment required of the secured party or (ii) 20days after a secured party receives an authenticated demand from the debtor, whichever is earlier.
237
Who is a buyer in the ordinary course of business?
A BOCB is a person who: i) Buys goods (not including farm products); ii) In the ordinary course of business; iii) From a merchant who is in the business of selling goods of that kind; iv) In good faith; and v) Without knowledge that the sale violates the rights of another in the same goods.
238
What is the effect of justified refusal of a financing statement by a filing office?
When the filing office’s refusal to accept a financing statement for filing is justified, the financing statement is treated as having not been filed. Grounds upon which the filing office may justifiably refuse to accept a financing statement include the failure to tender the required fee, the failure to submit the financing statement by an authorized method or medium of communication, and the failure of the record to identify a debtor.
239
What are the requirements for a buyer of a non-negotiable instrument or document?
A purchaser of even a non-negotiable instrument will have priority over a security interest if the purchaser gives value and takes possession of the instrument in good faith and without knowledge that the purchase violates the rights of the secured party.
240
What are "proceeds"?
The term “proceeds” means: i) Whatever is acquired upon the sale, lease license, exchange, or other disposition of collateral; ii) Whatever is collected on, or distributed on account of, collateral; iii) Rights arising out of collateral; iv) To the extent of the value of collateral, claims arising out of the loss, nonconformity or interference with the use of, defects or infringement of rights in, or damage to, the collateral; and v) To the extent of the value of collateral and to the extent payable to the debtor or the secured party, insurance payable by reason of the loss or nonconformity of, defects or infringement of rights in, or damage to, the collateral.
241
What does it mean for a secured party to control the collateral?
Similarly, for certain types of intangible collateral (i.e., deposit accounts, electronic chattel paper, electronic documents, investment property and letter of credit rights), which typically have no physical existence, a secured party’s control of the collateral satisfies the evidentiary requirement that the debtor assent to the security agreement, provided the control is pursuant to the security agreement.
242
What is the priority between a perfected security interest versus another perfected security interest?
When there are two or more perfected secured parties with rights in the same collateral, the first to file or perfect has priority. In other words, if both security interests are perfected, then priority dates from the time of filing or perfection, whichever occurs first.
243
How do you classify goods with multiple uses with multiple debtors?
The same property may fall into different classes with respect to different debtors.
244
What is the exception to the general rule that determines priority regarding a security interest that secures a future advance?
Perfection of a security interest dates from the time that an advance is made to the extent that the security interest secures an advance that: i) Is made while the security is only automatically or temporarily perfected; and ii) Is not made pursuant to a commitment entered into before or while the security interest is perfected by any other method of perfection. The advance is made “pursuant to a commitment” when the secured party is obligated to make the advance.
245
When does a purchasers of chattel paper have priority over the interest of a secured party who claims the chattel paper as proceeds of inventory subject to a security interest?
The purchaser of chattel paper has priority over the interest of a secured party who claims the chattel paper merely as proceeds of inventory subject to a security interest provided that: i) The purchaser gives new value and takes possession or obtains control of the chattel paper; ii) The purchase is made in good faith and in the ordinary course of the purchaser’s business; and iii) The chattel paper does not indicate that it has been assigned to an identified assignee other than the purchaser.
246
Is use of a "trade name" sufficient?
Identification of the debtor solely by the debtor’s trade name is insufficient. By contrast, failure to include the debtor’s trade name does not affect the effectiveness of the financing statement when the debtor’s name is correctly provided.
247
Is there a notice requirement prior to taking possession of collateral under default?
After default, a secured party is entitled to take possession of the collateral. Unless the security agreement provides otherwise, a secured party is not required to give notice of default, nor is he required to give notice of his intent to take possession of the collateral.
248
When is a security interest perfected?
A security interest is perfected upon (i) attachment of that interest and (ii) compliance with one of the methods of perfection.
249
May a secured party cumulatively or simultaneously seeks multiple remedies?
The secured party may pursue any or all of these remedies and may do so simultaneously, provided the secured party acts in good faith.
250
What is the limitation on deficiency in a commercial transaction?
If a secured party’s collection, enforcement, disposition, or acceptance is not in accord with Article 9 and the transaction is a commercial transaction, then there is a rebuttable presumption that the secured party is not entitled to collect a deficiency. The secured party can rebut this presumption in whole or in part by showing that the deficiency would have existed even had the secured party complied with Article 9. The debtor or secondary obligor may not seek damages if a deficiency is merely reduced or eliminated as a consequence of the secured party’s failure to comply with Article 9.
251
What priority is a PMSI in inventory or livestock given?
A PMSI in inventory or livestock prevails over all other security interests in the same collateral, even if they were previously perfected, if: i) The PMSI is perfected by the time that the debtor receives possession of the collateral; and ii) The purchase-money secured party sends an authenticated notification of the PMSI to the holder of any conflicting security interests.
252
What is the "only if" rule regarding debtor identification on financing statements?
The financing statement must reflect the name on the debtor’s current (i.e., unexpired) driver’s license or state-issued identification card (issued by the state in which the financing agreement will be filed). If the debtor does not have a driver’s license, the filer must use either the individual name of the debtor (i.e., the debtor’s current legal name) or the debtor’s surname and first personal name. A majority of jurisdictions have adopted this approach.
253
What is the exception to the notification rules?
A secured party is not required to send a notice of disposition when: i) The collateral is perishable or threatens to decline speedily in value; ii) The collateral is of a type customarily sold on a recognized market; or iii) The persons entitled to notification waive the right to notification.
254
What is the "dual status" rule's effect?
Under the “dual status” rule, a security interest may be a PMSI to some extent and a non-PMSI to some extent. In such a transaction, the secured party claiming a PMSI has the burden of establishing the extent to which the security interest is a PMSI. Note that for consumer-goods transactions, the treatment of a PMSI as having a “dual status” is left to the courts.
255
What is a "construction mortgage"?
A mortgage that secures an obligation incurred for the construction of an improvement on land, including the cost of acquiring the land, and that indicates it is a construction mortgage in the real property records.
256
What does it mean that a security agreement is "authenticated"?
A security agreement must be authenticated by the party against whom it may be enforced (i.e., the debtor). The most common method of authentication is for the debtor to sign or execute the record that evidences the security agreement.
257
What is the purpose of a security interest?
The purpose of a security interest is to:
i) Make the debt more easily collectible if the debtor cannot or refuses to pay the obligation;
ii) Provide the secured party with a position superior to other creditors who might attempt to obtain the same collateral to secure or collect their debts; and
iii) Provide the secured party with rights to obtain the collateral if it is sold or otherwise transferred to a third party.
258
How are cash proceeds perfected if the security interest in the original collateral is perfected?
If the proceeds are identifiable cash proceeds and the security interest in the original collateral is perfected, the perfected security interest in the proceeds continues indefinitely, even though the security interest in the original collateral subsequently ceases to be perfected. The identification of cash proceeds is left to common law. Note that cash proceeds include more than just money. They also include checks, deposit accounts, and the like.
259
What is the duty to relinquish control of collateral?
a secured party in control of collateral has a duty to relinquish control when there is not an outstanding secured obligation and the secured party is not committed to make advances or otherwise give value. Generally, the secured party has 10 days from receiving an authenticated demand by the debtor to relinquish control; this time period may be varied by the parties’ agreement. Upon the secured party’s failure to relinquish control, the debtor has the same remedy as if the secured party failed to file a termination statement.
260
May a security agreement provide for future advances?
In addition to value given at the time that a security agreement is entered into, the security agreement may provide that the collateral secures future value (e.g., future advances) given by the secured party. Note that with regard to perfection of a security interest, however, the financing statement is not required to refer specifically to future value.
