Secured Transactions Flashcards
Collateral Descriptions
What is the term to describe goods that are not consumer goods, farm products, or inventory?
(e.g., durable goods used in a business, paintings on an office wall)?
Equipment.
Equipment refers to goods that are not consumer goods, farm products, or inventory.
Collateral Descriptions
__________ describes crops, livestock, unmanufactured products of livestock (e.g., eggs), and supplies used or produced in farming operations and either in the possession of/used by a farmer.
Farm products.
Farm products are crops, livestock, unmanufactured products of livestock and supplies used or produced in farming operations and either in the possession of or used by a farmer.
Collateral Descriptions
What is the term for goods held for sale or lease, goods furnished under a contract of service, supplies used in manufacturing, materials consumed in a business?
Inventory.
Inventory includes goods held for sale or lease, goods furnished under a contract of service, supplies used in manufacturing, materials consumed in a business (e.g., fuel used to run a factory), and work in progress.
Collateral Descriptions
What is the term for goods used or bought for personal, family, or household purposes?
Consumer goods.
Consumer goods are goods used or bought for personal, family, or household purposes.
A security interest cannot be __________ until it has attached.
Perfected.
A security interest cannot be perfected until it has attached.
In most states, and for most types of collateral, a financing statement must be filed with the secretary of state of the state where… __________.
The debtor is located.
In most states, and for most types of collateral (including goods), a financing statement must be filed with the secretary of state of the state where the debtor is located.
A PMSI (purchase money security interest) arises where the creditor:
- _____________________________
- _____________________________
A PMSI arises where the creditor:
1) Sells goods to the debtor on credit and reserves a security interest in those goods, or
2) Advances the funds used to purchase goods and reserves a security interest in those goods.
A PMSI in __________ is perfected as soon as it attaches.
Consumer goods.
A PMSI in consumer goods is perfected as soon as it attaches.
The original filing of a financing statement generally is effective for _ ___ from the date of filing.
5 years.
The original filing of a financing statement is effective for 5 years from the date of filing.
This does not include filings for transmitting utilities or manufactured home transactions.
To continue the effectiveness of a financing statement, a continuation statement must be authorized by:
A The debtor only.
B The secured party only.
C Either the debtor or the secured party.
D Both the debtor and the secured party.
B The secured party only.
Only the secured party must authorize the continuation statement; the debtor need not do so.
In general, Article 9 applies to contractual security interests in _________________, but not other forms of real property.
Personal property and fixtures.
In general, Article 9 applies to contractual security interests in personal property and fixtures, but not other forms of real property.
E.g., Article 9 does not apply to a sale or mortgage of a single family home or a mechanic’s lien on a commercial building.
Collateral Descriptions
An attorney’s set of Southwest Reporters would be classified as _________________.
Equipment.
Equipment refers to goods that are not consumer goods, farm products, or inventory.
Which of the following are not considered “proceeds” under Article 9?
A
Funds the creditor has agreed to loan the debtor in the future, secured by the same collateral.
B
Cash received when the collateral was leased to a third party.
C
An item traded in exchange for the collateral.
D
Money received from an insurance company for damage to the collateral.
A
Funds the creditor has agreed to loan the debtor in the future, secured by the same collateral.
Funds the secured party has agreed to loan the debtor in the future are future advances, not proceeds.
“Proceeds” include whatever is received upon the sale, lease, exchange, license, collection, or other disposition of collateral or proceeds.
This can include cash received from a lease of the collateral, an item traded for the collateral, and money received from an insurance company for damage to the collateral.
What is the ‘Garage Sale’ rule?
If the buyer of consumer goods resells the goods to another consumer (i.e., a buyer who buys for his own personal, household, or family use), the second buyer takes the consumer goods free of the security interest, so long as the second buyer’s purchase is:
1) Without knowledge of the security interest,
2) For value, and
3) Before a financing statement covering the goods has been filed.
__________ gives the creditor rights against the debtor in collateral.
Attachment.
Attachment gives the creditor rights against the debtor in collateral.
To attach a security interest, either:
1A. _____________________________; OR
1B. _____________________________; AND
2. _____________________________
3. _____________________________
To attach a security interest:
1A. Debtor must authenticate a security agreement granting the creditor a security interest in collateral that describes the collateral; OR
1B. Creditor must take possession of the collateral
2. Creditor must give value
3. Debtor must have rights in the collateral
A creditor can perfect a security interest in goods by:
- _____________________________
- _____________________________
A creditor can perfect a security interest in goods by:
- Filing a financing statement that is authorized by the debtor in an authenticated record in the proper public office
- By taking possession
A PMSI is created when a creditor…
- _____________________________; and
- _____________________________
A PMSI is created when a creditor…
- advances credit/provides funds needed to make a purchase possible; and
- takes a security interest in the goods purchased
A Purchase Money Security Interest (PMSI) perfects automatically in _________________.
Consumer goods.
A Purchase Money Security Interest (PMSI) perfects automatically in consumer goods.
What is required to be included in a financing statement?
- ________________________
- _______________________
- _______________________
What is required to be included in a financing statement?
- Debtor’s name and address
- Creditor’s name and address
- Description of collateral
The most common route to perfection: the secured party ______ ________ of the security interest in the public records.
Files notice.
The most common route to perfection: the secured party files notice of the security interest in the public records.
Classifying interest holders
Below is the list of potential interests, what is the order of priority for each of the below?
- AUPie (Attached Unperfected Creditor)
- LC (Lien Creditor)
- PAC (Perfected Attached Creditor)
- NOCie (Non-Ordinary Course Buyer)
- BIOC (Buyer in Ordinary Course)
- GUC (General Unsecured Creditor)
In order of priority, as a generalization, this is the typical rank:
- BIOC (Buyer in Ordinary Course)
- PAC (Perfected Attached Creditor)
- LC (Lien Creditor)
- NOCie (Non-Ordinary Course Buyer)
- AUPie (Attached Unperfected Creditor)
- GUC (General Unsecured Creditor)
Classifying interest holders
A PAC (Perfected Attached Creditor) is ________________________________________.
A PAC (Perfected Attached Creditor) is an Article 9 creditor who successfully perfects their interest.
Classifying interest holders
A BIOC (Buyer in Ordinary Course) is ________________________________________.
A BIOC (Buyer in Ordinary Course) is someone who purchases collateral from a merchant’s inventory.
A BIOC has the highest priority, generally.
Classifying interest holders
An AUPie (Attached Unperfected Creditor) is ________________________________________.
An AUPie (Attached Unperfected Creditor) is an Article 9 creditor who creates an enforceable security interest (one that attaches) but who either never perfects, or fails to perfect properly.
Classifying interest holders
An LC (Lien Creditor) is ________________________________________.
An LC (Lien Creditor) is a general unsecured creditor who goes to court to get a judicial lien on the collateral.
Classifying interest holders
A NOCie (Non-Ordinary Course Buyer) is ________________________________________.
An NOCie (Non-Ordinary Course Buyer) is one who purchases the collateral outside of the ordinary stream of commerce.
Classifying interest holders
A GUC (General Unsecured Creditor) is ________________________________________.
A GUC (General Unsecured Creditor) is a lender who never bothered to take collateral.
A GUC has the lowest priority.
What is the scope of Article 9?
Article 9 applies to consensual security interests in personalty and fixtures.
Once attached, how does a creditor attain perfection?
A creditor attains perfection by putting the world on record notice by filing, or by taking possession of the collateral, or automatically if creditor holds a PMSI in consumer goods.
If a debtor breaches, a creditor has 5 options:
- ________________________
- _______________________
- _______________________
- _______________________
- _______________________
If a debtor breaches, a creditor has 4 options:
- Self-help repossession
- Repossession by judicial action
- Strict Foreclosure
- Sale
- Action for deficiency judgment
If a debtor defaults, the debtor has a limited right of redemption. A debtor can redeem by ________________________________________.
Paying the missed payments plus accrued interest and creditor’s reasonable expenses (including legal fees).
If a debtor defaults, the debtor has a limited right of redemption. A debtor can redeem by Paying the missed payments plus accrued interest and creditor’s reasonable expenses (including legal fees).
VOCAB
Debtor
A debtor is the party who owes.
VOCAB
Secured Party/Creditor
A secured party/creditor is the party who lends.
VOCAB
Security agreement
The security agreement is a contract or record of the agreement.
VOCAB
Security Interest
The security interest is the right a creditor has in debtor’s personalty/fixtures.
VOCAB
Collateral
Collateral is personalty/fixtures that the creditor can look to for satisfaction.
When a security interest is Attached, the interest is _________.
Enforceable.
When a security interest is Attached, the interest is enforceable.
The three requirements for Attachment:
- ________________________
- _______________________
- _______________________
The three requirements for Attachment: (V.C.R.)
- Value must be given by creditor (ex. creditor lends $)
- Contract must evidence the secured transaction (unless the secured party has taken possession of the collateral)
- Rights in the collateral. The debtor must have rights in the collateral.
___________ is best understood as a Publicity Device.
Perfection
Perfection is best understood as a Publicity Device
