Secured Transactions Flashcards
what is a security interest?
an interest in personal property or fixtures that secured payment or performance of an obligation.
what is a security agreement?
a consensual agreement that creates a security interest
what is a debtor and obliger?
a debtor is any dude who has an interest, other than the security interest or other lien, in the colloteral, such as the sole owner. so in secured transactions context really anyone who has a non-debt interest in the collateral.
an obliger is any person who must pay with respect to the obligation that is secured by a security interest in collateral. so for example someone who guarantees a loan might be an obliger without being the debtor.
what is a good? some counterintuitive examples.
anything that is moveable at the time that a security interest attaches. this includes fixtures, standing timber that is to be cut, unborn animals, growing or unharvested crops, and manufactured homes
how many classes of goods are there? can a good be in more than one category of goods?
4; no.
list the four classes of goods.
cosumer goods, farm products, inventory, and equipment
classification of goods is based on…
classification of goods is based on the debtor’s principal use at the time when the security interest attaches
define first class of goods: consumer goods
those goods acquired primarily for personal, family, or household purposes
define second class of goods: farm products
those goods that are crops or livestock, and any supplies that are used or produced in farming.
define third class of goods: inventory
those 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.
define fourth class of goods: equipment
this is a catch-all class. all goods that are not consumer goods, farm products, or inventory.
like normal goods, intangibles are classified in terms of principal use. T/F
F
what is a quasi-intangible good?
a good that is tangible enough to be physically possessed but does not constitute a “good”. usually a writing, like contracts or NIs
main types of quasi-intangible property
documents, instruments, investment property (like stocks and bonds), and chattel paper
what is a document in context of quasi-intangible property?
a document of title, which confers on the holder ownership rights in goods
what is an instrument, in the context of quasi-intangible property?
negotiable instruments, such as promissory notes and checks, and non-negotiable 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.
what is investment property, in the context of quasi-intangible property?
includes both certificated securities (attached to a certificate) and uncertificated securities (like stuff recorded electronically w/o certifcate), such as stocks and bonds
what is chattel paper in context of quasi-intangible property?
chattel paper consists of one or more records that evidences both (1) a monetary obligation and (2) a security interest in specific goods or a lease of specific goods. e.g. a security agreement that also shows the amount due
what are the main cateogries of true intangible goods and what are they?
- accounts. NOT CHECKING ACCOUNT, but the right to payment of a monetary obligation like accounts receivable
- deposit accounts. incldues checking, savings, passbook, time, or demand account maintained with a bank
- commercial tort claim. tort claims possessed by an organization, or by an individual that arose in the cousre of the individual’s business.
- general intangibles. catch-all category of personal property that is not included in the other types of collateral
are personal tort claims covered in the tort category of intangible goods?
no
Article 9 covers any transaction that…
creates, by contract, a security interest in personal property or a fixture.
Does article 9 cover leases?
if a true lease, then no. but if really a disguised sale with a security interest, then yest.
test for when a lease is actually a disguised sale
it is a disguised sale if lessee must pay consideration to lessor and the payment obligation cannot be terminated by the lessee, AND at least one of the following conditions is met:
- the original term of the lease is equal to or greater than the remaining economic life of the goods
- 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
- the lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or nominal addiitonal consideration upon completion of the lease
- 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
some consignments may fall within the scope of Article 9 as a…
purchase-money security interest in the consigned inventory
in order for a consignment to be subjet to Article 9, the following must be met:
- a person (i.e.the consignor) must deliver goods to a merchant, who deals in the goods of that kind, for the merchant to sell (and who does not operate under the same name as the consignor);
- the merchant is not generally known by its creditors to be substantially engaged in selling goods for others or is not an auctioneer;
- the value of the goods delivered in each delivery must be at least $1000; AND
- the goods must not be consumer goods immediately before the delivery
Note: to protect their interests, consignors must perfect their interests like any other security interest
statutory liens in services and materials (mechanic’s liens) are/are not subject to Article 9
are not
agricultural liens are/are not subject to Article 9
are
agricultural liens include…
interests in farm products that secure payment for either
- goods or services furnished with respect to the debtor’s farming operation (like livestock feed sold to a cattle rancher); or
- rent on real property leased by a debtor in connection with a farming operation
which kinds of sales of receivables are included under Article 9? what would not be considered a sale of a receivable?
receivables under Article 9:
payment intangibles, chattel paper, accounts, promissory notes (PICPAPN)
Art. 9 does not apply to sales and assignments that by their nature do not concern commercial financing transactions. two notable examples are if the receivables is part of the the sale of a whole business (this would be consdiered a true sale) or assignment of a single receivable in satisfaction of a preexisting debt.
are real property transactions subject to Art. 9?
real property transactions are not governed by Art. 9, but transactions that use real property to secure an Art. 9 receivable are.
e.g. A lends B $300k to buy a home secured by a mortgage. A then gets a loan from C for $100k and signs a promissory note for that amount and secures the note with the mortgage from B. The morgage between A and B is not governed by Art. 9, but the transaction between A and C is.
What is the Texas law re: assignment of rents and what is it called?
Under the Texas Assignment of Rents Act, an assignment of rents arising from real property creates a presently effective security interest in the accured and unaccrued rents.
What the hell is this attachment thing anyway?
A security interest that is enforceable against the debtor with respect to the collateral is said to have “attached” to the collateral.
what are the conditions that must be met for attachment?
- value has been given;
- debtor has rights in the collateral; AND
- debtor has authenticated with a description of the colateral OR the secured party has possession or control of the collateral pursuant to the security agreement
elaborate on the 1st requirement of attachment: value has been given
the same threshold of consideration needed to make a K valid, but unlike normal K law, past consideration will suffice if seucring something that already had consideration given. in other words no new value needs to be given.
for example if A loans B $100, and later realizes he should have secured the loan, he can go back to B and get B to sign a security agreement taking an interest in B’s rare farts collection. A does not need to make a new loan/give new consideration for him to get the security interest in the precious farts.
does attachment happen to the entire collateral or only the interest/rights the debtor has in the collateral?
only the rights the debtor has in the collateral.
to be enforceable, the security interest must have these three things; explain
- record (*see exception)
- description of the collateral
- authentication by debtor
- record - can be any tangible medium or electronic form. possession (for tangible) or control (for certain intangible) is an alternative to the requirements of a tangible record, as long as still pursuant to a security agreement (so e.g. an oral agreement)
- description - must reasonably describe the collateral, even if by class, but cannot be super generic (so e.g. “all A’s equipment” is fine but “all A’s assets” is not)
- authentication - normally a signature but can be any symbol adopted by the debtor (such as an email moniker)
if secured party opts for possession or control, they owe these duties
duty of reasonable care and duty to keep the collateral identifiable and to relinquish the colalteral once the underlying obligation has been satisfied.
PMSI stands for..
purchase money secured interests
PMSI only applies to
goods and software
How does a lender’s PMSI arise?
a secured party gives value to the debtor in order to enable the debtor to acquire rights in or use the goods, and the value given is so used
e.g. A loans B $100 to buy a pachooga (and the loan is secured by the pachooga). B actually uses the money to buy the pachooga. Then, A would have a PMSI in the pachooga.
How does a seller’s PMSI arise?
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.
e.g. A sells a pachooga to B for $100 on credit, pursuant to a security agreement under which A retains a security interest in the pachooga. A has a PMSI in the pachooga.
PMSI’s are an exception to the attachment requirement for enforcement. T/F
F, the security interest must attach before a PMSI is created
a consignment of goods creates…
a PMSI in the inventory.
e.g. A gives B a bunch of pachoogas with an agreement that B only has to pay for the pachoogas he sells and must return the rest. under this agreement, A has a PMSI in the inventory of pachoogas he supplied to B
when does a PMSI in software exist?
only when the debtor acquired its interest in the software in an integrated transaction in which the debtor also acquired an interest in goods (e.g. some computers), 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 secure an obligation with respect to the goods.
what are dual-status PMSIs?
in non-consumer goods transactions, collateral can have PMSI status even if:
- it also secures another obligation;
- the underlying obligation is also secured by other non-PMSI collateral; or
- the underlying obligation has been renewed, refinanced, or restructured
what are accessions? what are commingled goods?
accessions are goods that are physically united with other goods in such a manner that the identity of the original goods is not lost
commingled goods are goods that are physically united with other goods in such a manner that their identify is lost in a product or mass
what is the effect of collateral becoming a an accession vs a commingled good?
if collateral becomes an accession, that does not destroy the security interest in the collateral. if becomes commingled, the security interest now attaches to the product or mass.
explain how art 9 treats after-acquired property
a security interest only attaches to the described collateral, so if a creditor wants to have an interest attach to stuff acquired after the agreement, the creditor must include an after-acquired property clause.*
e. g. just describing the collateral as “all of B’s equipment” would only attach to the equipment at the time of agreement, so must say something like “all of B’s currently owned and subsequently acquired equipment” to get the subsequent equipment.
* Exeption: a majority of courts find that the simple description of “inventory” implies that it includes after-acquired inventory due to the high turnover inherent in inventory
“Proceeds” are defined broadly by UCC as:
- whatever is acquired uppn the sale, lease, license, exchange, or other disposition of collateral;
- whatever is collected on, or distributed on account of, collateral;
- rights arising out of collateral (so super broad);
- legal claims arising out of the collateral; or
- insurance claims arising out of the collateral
in order to receive proceeds of the collateral in addition to the collateral, debtor must include a proceeds clause. T/F
F, no addiitonal clause in the security agreement is necessary to reach proceeds as attachment of collateral gives the secured party the rights to proceeds automatically
what is the different between attachment and perfection
attachment dsecribes the process by which a security interest becomes enforceable against the debtor while perfection generally gives the secured party superior rights in the collateral to an unperfected secured party (and possibly priority over other secured parties)
in order for a secured interest to be perfected, it must be attached. T/F
T
so ask (1) was the interest attached?, and then (2) was the interest perfected?
perfection requires one of the following:
- filing a financing statement;
- possession of the collateral;
- control over the collateral; or
- can also be automatic upon attachment in some circumstances
the thing you have to file if you want to perfect through filing is called the
financing statement
filing is sufficient for perfecting any collateral except:
desposit accounts, money, letter-of-credit
notice, this list does not include normal account like accounts receivable, so that can be perfected through filing
financing statments must have this information
- debtor’s name
- secured party’s name
- a description of the collateral
additional stuff that is technically required but errors will not make the financing statement ineffective PLUS even leaving blank is fine if the filing office nonetheless accepts with blanks:
- address of both the debtor and secured party
- identify whether the debtor is an individual or organization
additional information is required for real-property related collateral such as fixtures, extracted collateral such as oil, and timer to be cut. for such collateral, you need this additional info:
- an indication that it covers this type of collateral
- an indication that it is to be filed in the real property records
- a description of the real property to which the collateral relates, and
- name of a record owner of the real property if the debtor does not have an interest of record in the real property
on a financing statement, the debtor’s name must be _____ and connot be ____
the debtor’s name must be its correct legal name and connot be seriously misleading. what is and is not seriously misleading is further elaborated by rules
when is an individual debtor’s name considered correct on a financing statement?
if an individual debtor has a state-issued, current (i.e. unexpired) driver’s license or ID, then the financing statement is only correct (in other words, not seriously misleading) if it provides the name on the license/ID (most recent if multiple issued). if no license/ID, then must contain either the legal name or the surname and first personal name.
this is what is must be to be “correct” but this is still subject to safe harbor that makes it not seriously misleading
when is a corporation or registered org’s name considered correct in a financing statement?
if the debtor is a registered organization, then the name on financing statement is the name shown on the “public organic records” (this includes the articles of inc or other formation records filed to create a business entity, the record initially filed by a business trust, the legislation that creates an organization, the government-issued charter that forms an organization, etc.). So filing only under the organization’s trade name is insufficient and if statement shows registered name but not trade name, that is fine–it’s only the registered name that matters.
if debtor’s name on financing statement is incorrect, what happens?
normally the financing statement must have the debtor’s legal name and cannot be seriously misleading. otherwise could be voided. however, there is a safe harbor if a search for the correct legal name in the filing office would uncover the misleading financing statement.
if the debtor changes its name causing the financing statement to be come seriously misleading, the ______ has ______ (time) to file an amendment to the financing statement reflecting the new name.
secured party; 4 months
if amendment is not filed to address a debtor’s name change within the allowed time period, then…
collateral acquired after the period is not covered by the financing statement
if the secured party’s name is incorrect in financing statement, what happens?
this does not affect the perfection of the security interest, but the secured party who files a financing statement with such an error may be estopped in favor of a holder of a conflicting claim (normal estoppel requirements like reliance apply).
in the financing statement, there must be a description of the collateral. how are the requirements for the description in the financing statement different from the requirements in the security agreement itself?
if described just like the security agreement, then that is fine for the financing statement. but unlike the security agreement, it can also be super generic in the financing statement, such as “all debtor’s assets”
why is the description of the collateral allowed to be broader/super generic in the financing statement when that is not allowed in the security agreement?
the theory is that, unlike the security agreement actually creating and encapsulating the agreement, the financing statement’s purpose is just to put others on notice that the secured party might have a secured interest in some shit–saying “all assets” in the financing doc doesn’t actually mean the interest is in all assets.
the financing statement requires an after-acquired clause to reach after-acquired property. T/F
F, it does not have to mention that it covers after-acquired property, but it must still be broad enough to cover such collateral
in a financing statement, proceeds are implied. T/F
F, unlike in the security agreement, proceeds are not implied. must make specific reference to proceeds in order for a security interest in proceeds to be perfected. also, further action may still be required (later slides will discuss)
does debtor have to sign the financing statement? explain
they do not have to sign, but they must authorize filing in an authenticated/signed record. an authenticated security agreement automatically authorizes a filing with respect to the collateral covered in the agreement.
where do you file a financing statement? elaborate based on individual, registered orgs, and unregistered orgs.
generally, with the Secretary of State of the state where the debtor is located–not necessarily where the collateral is located.*
for individuals, this is their principal residence.
for registered organizations, this is the state in which the organization is registered.
for unregistered organizations, this is the state in which the organization maintains its place of business. if more than one place of business, then where it has its chief executive office.
*EXCEPTION: real-property related collateral like fixtures should be file in the real property records in the county where the property is located. additionally, under the Texas Assignment of Records Act, a security interest in rents arising from real property is perfected when the document creating the assignment is recorded in the county in which any part of the property is located.
if financing statement is missing any required info, then the filing office may reject the statement, in which case the financing statement is treated as if…
it was never filed
if the filing office’s rejection of a financing statement is unjustified, then…
the financing statement is treated as having been filed, except with respect to purchasers or subsequent secured parties of the collateral who give value in reasonable reliance on the absence of the record from the files
if the filing office just incorreclty indexes the financing statement, then…
this does not affect the effectiveness of the filed financing stement.
financing statements are effective for…
5 years from the date of filing
how can you continue a financing statement beyond the 5-year period?
you must file a continuation statement within 6 months prior to the expiration of the financing statement
what does succesfully filing a contiuation statement do?
grants another 5-yr period
debtor’s authoriztion is/is not needed to file a continuation statement
is not
are you able to end the effectiveness of a financing statement early? if so, how?
yes, but filing a termination statement
a secured party may perfect a security interest in most tangible collateral by taking posession. the following collateral may be perfected by possession:
my groin itches nonstop due to cramped pants
M G I ND TCP
money, goods, instruments, negotiable documents, tangible chattel paper
NOTE: for money, posession is the ONLY way to perfect
a secured party may perfect a security interest in certain collateral by taking control of the collateral. the following collateral can be perfected by control:
i presume even cramped pants do at least offer comfortable rear end design
IP ECP DA LOCR ED
investment property, electronic chattel paper, deposit accounts, letters-of-credit rights, and electronic documents
NOTE: for deposit accounts and letter-of-credit rights, control is the ONLY way to perfect
a secured party can gain control over a deposit account in one of three ways:
- the secured party is the bank maintaining the account;
- the debtor, secured party and bank have authenticated a record agreeing that the secured party has control; or
- the secured party’s name is added to the debtor’s account
regrdless of the rules re perfection by posesssion or control, some types of perfection can occur upon attachment automatically. they can be divided into two types of perfection:
two types of automatic perfection: indefinite and temporary periods of perfection
what is the major type of automatic indefinite-period perfection?
a PMSI in consumer goods (other PMSI’s are not automatic). so a secured party does not need to file a statement or have possession to have a perfected PMSI in consumer goods.
what are the three major ways in which automatic temporary-period perfection arises?
- when the secured party perfects by possession and subsequently gives the collateral over to the debtor for resale;
- when either the debtor or collateral moves from one state to another; or
- when the collateral is exchanged for or gives rise to proceeds
when the secured party is perfected and makes the collateral available to the debtor for purposes of selling or exchanging the collateral, the security interests in the collateral remains perefected for ___. So basically the secured party has that amount of time to….
20; perfect in some other way like filing or retaking posssession
when debtor moves states, a perfected security interest remains perfected for ____ after the debtor’s change in location
4 months
when collateral is transferred to a person located in another state who becomes a debtor, a perfected security interest generally remains perfected for ____ after the transfer
one year
perfected security interest remains perfected when a debtor or the collateral itself moves states. what happens if there is later a lapse in the perfection? e.g. the secured party does not file in time
if the security interest is not perfected in the second state before the expiration of the applicable temporary perfection period, the security interest generally ceaces to be perfected (so prospectively), but with purchasers for value, such as subsequent secured parties, the original security interest is deemed never to have been perfected
when security interest in original collateral is perfected, a security interest in its proceeds is automatically perfected for ___ from the time it attaches, but it can be indefinite in two circumstances:
20 days; cash proceeds and same office rule
indefinite automatic perfection of proceeds happens with __ ___ proceeds
identifiable cash. so, unlike cash itself (which can only be perfected with poessession), cash proceeds are automatically perfected
explain the same office rule w/r/t automatic perfection of proceeds
a perfected security in proceeds may continue indefinitely when
- a filed financing statement covers the original collateral;
- the proceeds are collateral in which a security interest may be perfected by filing in the same office in which the oirignal financing statement has been filed; AND
- the proceeds are not acquired with cash proceeds
NOTE: if the original financing statement describes the collateral broadly enough (e.g. all of bob’s assets) then there is no need to even bring up the same office rule because a proceed would still be covered
NOTE: if the proceed is subject to a special statute in lieu of Art. 9, then the statute controls (e.g. if someone trades the collateral for a car which in the state is covered by a special certificate of title statute)
There are conflicts between three major types of creditors. What are they named?
general creditors (unperfected), judicial lien creditors, and secured creditors
what is a general creditor
someone who has a claim, including a judgment, but who has no lien or security interest with respect to the property in question
what is a judicial lien creditor
a creditor who acquires a lien on the collateral by a judicial process, rather than by operation of law
what are the three types of secured creditors for priority purposes
for priority purposes, there are three major types of secured creditors: those that have perfected, those that have not (“unperfected”), and those that have perfected a PMSI
unperfected secured creditor vs general creditor
a secured party will always prevail over a general creditor
unperfected secured creditor vs judicial lien creditor
a judicial lien creditor always has priority over an unperfected secured interest. however, if a judgment lien is acquired AFTER attachment of a security interest, then the judicial lien creditor must not have knowlege of the security interest at the time the lien attaches
perfected secured creditor vs judicial lien
a perfected secured creditor is prioritized over a judicial lien creditor
PMSI vs judicial lien
for priority purposes, if the secured party has a PMSI that perfects before or within 20 days after the debtor receives possession of the collateral, then perfection will revert back to the date the debtor receives possession
so e.g. if there was an intervening judicial lien between when the debtor gets posesssion and when original PMSI holder files a financing statement (within 20 days), then the original secured party’s perfection will relate back
advances made within ____ of a judicial lien creditor becoming such will have priority
45 days
advances made more than ____ days after someone becomes a judicial lien creditor are subordinate to the lien creditor unless:
- the advance is made without knowledge of the lien; OR
2. the advance is made pursuant to a commitment entered into without knowledge of the lien
the rules around priority between advances and judicial liens basically give secured parties a __day window to advance money regardless of ___
45; knowledge
the general rule for all secured interests vs other secured interests
the general rule is that the first to file or perfect wins
perfected security interest vs unperfected security interest
the perfected interest takes over the unperfected interest regardless of the date the security agreement was signed or the interest attached
unperfected secured interests vs unperfected secured interest
the “first in time, first in right” rule applies with the critical time being the time of attachment
perfected secured interest vs perfected secured interest
the first to file or perfect has priority. when both security interests are perfected, priority dates from the time of filing or perfection, whichever is first
PMSIs are an exception to the first in time principle. As long as propertly perfected, a PMSI will generally have priority over all other security interests (with a few exceptions). T/F
T
a PMSI in consumer goods is perfected…
automatically
a PMSI in equipment and ___ is perfected ______
a PMSI in equipment and fixtures is perfected by filing within 20 days of either the debtor receiving the goods or the goods becoming fixtures
a PMSI in inventory is perfected…
by filing prior to the debtor receiving possession of the inventory AND to be perfected the secured party must notify all conflicting security interest holders of the PMSI prior to the debtor receiving possession.
a PMSI in fixtures vs other security interests in the real property itself (+ exception)
a PMSI in fixtures has priority over even a prior interest in the real property with which the fixture is assocaited if:
- the debtor has an interest of record in the real property (e.g. is the owner) or is in possession of the real property (e.g. a lessee); AND
- the security interest is perfected by a fixture filing before the goods become fixtures or within 20 days thereafter
BUT exception:
so PMSIs in fixtures generally win except a construction mortgage has priority over a subsequent PMSI in a fixture IF:
1. the construction mortgage is recorded before the goods become fixtures; AND
2. it only covers goods that become fixtures before the completion
how is a PMSI in consumer goods perfected and what does it take priority over?
automatically; everyone but a BIOCB and consumer-to-consumer transactions
how is a PMSI in goods–other than consumer or fixtures–perfected and what does it take priority over?
filing within 20 days of the debtor receiving collateral; everyone but a BIOCB
how is a PMSI in fixtures perfected and who does it take priority over?
filing a fixture filing prior to or within 20 days of the goods becoming fixtures; everyone but a construction mortgage
how is a PMSI in inventory perfected and who does it take priority over?
filing prior to the debtor receiving possession AND sending proper notice to conflicting secured parties; everyone but BIOCB
A buyer takes priority over any unperfected security interest, provided that:
- the buyer gives value;
- the buyer receives delivery of the collateral; AND
- the buyer buys without knowledge of the preexisting security interest
Buyer vs Perfected security interest (exceptions on separate slide)
Generally, a buyer of goods takes goods subject to a perfected security interest, but this is subject to some exceptions.
What are the exceptions to the general rule that a buyer of goods takes goods subject to a perfected security interest (just naming–elaborate on separate slide)
- a BIOCB
- a consumer buyer
- a buyer vs future advances
- a buyer in the ordinary course of business takes free of a security interest created by the seller, even if perfected and even if the buyer knows of its existence, if: (a) the buyer bought goods, not including farm products, (b) from a merchant who is in the business of selling goods of that kind, and (c) in good faith and without actual knowledge that the sale violates the rights of another in the same goods.
2.
elaborate on the first exception (BIOCB) to general rule that a buyer of goods takes goods subject to a perfected security interest
a buyer in the ordinary course of business takes free of a security interest created by the seller, even if perfected and even if the buyer knows of its existence, if:
(a) the buyer bought goods, not including farm products
(b) from a merchant who is in the business of selling goods of that kind, and
(c) in good faith and without actual knowledge that the sale violates the rights of another in the same goods.
in what way is BIOCB a misnomer?
because the focus is actually not on the buyer but the seller. the buyer does not have to be purchasing in the ordinary course of their business. rather, the seller has to be selling in the ordinary course of its business.
elaborate on the second exception (consumer buyer) to general rule that a buyer of goods takes goods subject to a perfected security interest
if someone:
- buys consumer goods for value
- for his own persona, family, or household use,
- from a consumer seller; AND
- without knowledge of a security interest
then: the buyer takes free of the security interest, even if perfected, UNLESS prior to the purchse the secured party had filed a financing statement covering the goods.
this is called the garage sale rule. NOTE: a PMSI with automatic protection would not be protected under the garage sale rule since never file a financing statement
elaborate on the third exception (advacnes) to general rule that a buyer of goods takes goods subject to a perfected security interest
a purchaser who does not qualify as a BIOCB may still take free of a security interest to the extent that it secures an advance made after the earlier of:
- the time the secured party acquires knowledge of the buyer’s purchase; or
- 45 days after purchase
how is default defined in Art. 9?
trick question bitch! default is not defined in Art. 9. to determine if there is default, refer to the security agreement
although art. 9 does not define default, it must be some sort of non-payment. T/F
F, bitch
in event of default, the secured party may seek to possess the collateral either through ___ or ___.
judgment or non-judicial re-possession
self-help repossession is limited in that the repossession cannot ___. explain
breach the peace; the term is not defined but typically any criminal act will constitute a breach of peace, such as pulling out a gun or threatening physical harm. EVEN brining a police officer, if the officer is not there pursuant to a writ of execution, is a per se breach of peace. dayumm son. beyond criminal shit, there typically must be some potential for violence.
what is an alternative to self-help repossession for equipment? what else can it apply to and how?
a secured party may render equipment (like heavy machinery) unusable, like putting a boot on a truck. this can also apply to consumer goods only by agreement
in the case of accounts, the secured party has the option to…
step into the debtor’s shoes for 3rd parties THAT OWE THE DEBTOR. the secured party can collect directly from the 3rd parties but must give notice
in the case of fixtures, the secured party is entitled to…
repossess, like remove, the fixture. however, if the real property owner is someone other than the debtor, then the secured party must reimburse the owner for any damages cause by the removal, but not for dimunition in value caused by the absence of the goods
in the event of default, a secured party may sell, lease, license, or otherwise dispose of all or any collateral so long as the disposition is _____.
but must be done publicly (T/F)
in all ways commercial reasonable; F, bitch, can be done publicly or privately
a disposition is commercially reasonable if the collateral:
a disposition is commercially reasonable if the collateral:
- is sold in the usual manner on a recognized market at the price current in any recognized market at the time of the disposition; OR
- otherwise in conformity with reasonable commercial practices among dealers in the type of property that was disposed
price alone does not establish that a disposition was not commercially reasonable, but a low price can trigger ______ of _______
careful scrutiny by the court of all aspects of the disposition and its reasonableness
what does art 9 mandate as reasonable timing for disposition?
trick question, bitch! it does not mandate a specific time but surrounding circumstances may dictate what is commercially reasonable
w/r/t disposition, the secured party must give notice to:
- the debtor
- any other secured party or lienholder that was perfected by filing or pursuant to a statute; and
- any other party from whom the secured party has received authenticated notice of a claim or interest in the collateral.
w/r/t disposition, the secured party must give notice within ____ days
trick question, bitch! just must give notice in a reasonable time period. however, Art. 9 does give a safe harbor that 10 days notice is always reasonable.
a notice of impending disposition by the secured party must contain:
- the debtor and the secured party’s name
- a description of the collateral
- how, when, and where the collateral will be disposed; AND
- a statement that the debtor is entitled to an accounting of the unpaid indebtedness and the charge, if any, for providing that accounting
If consumer good, notice must ALSO contain:
- a description of any liability for a deficiency of the person to whom the notification is sent;
- the phone number to contact for the redemption amount; AND
- the phone number or mailing address to contact for other information concerning the disposition and secured obligation
a secured pay, or pay over for application, cash proceeds of a disposition in the following order:
reasonable expenses, secured party, subordinate liens, debtor
in other words:
- own costs - reasonable expenses for collection and enforcement, including reasonable atty’s fees if provided for in the security agreeement
- own money - to satisfy debt owed to the foreclosing secured party
- others - to satsify any subordinate (not senior liens) security interests (provided that the junior secured party makes a demand prior to the distribution of proceeds
- the schmuck - the remainder of proceeds go to the debtor
if proceeds from a disposition are insufficient to pay the underlying obligation, then the secured party can seek _____ for the remaining amount, but the secured party may be _____
deficiency judgement; an unsecured creditor for that amount
How are senior liens treated in the event of default and dispossession of the colalteral?
they do not get any of the proceeds from disposition. intsead, they continnue to have a security interest in the collateral while all junior liens are extinguished by the sale
instead of disposing of the collateral, a secured party may just keep the collateral in full or partial satisfaction of the debt if certain conditions are met. T/F
T
a secured party may accept collateral in full satisfaction of an obligation secured by the collateral when:
- the debtor consents, after default, to the acceptance in an authenticated record; OR
- the debtor does not object to the secured party’s proposal to accept the collateral within 20 days after the prposal is sent
- AND regardless of 1 or 2, the secured party must also meet rules regarding notice to other secured parties (covered in another slide)
a secured party may accept collateral in partial satisfaction of an obligation secured by the collateral when…; how is this different from full satisfaction?
the debtor consents, after default, to the acceptance in an authenticated record AND secured party must also meet rules regarding notice to other secured parties (covered in another slide)
unlike full satisfaction, there is no option for the secured party to move ahead if no objection within 20 days after the proposal is sent–the debtor must consent
explain the rules concerning notice that the secured party who is accepting collateral as payment of debt (whether full or partial) must make to other secured parties
if accepting collateral as payment, the secured party must send notice to other secured parties who have an interest in the same collateral and cannot accept the collateral in full or partial satisfaction if it receives an objection to the proposed acceptance within 20 days after such notice was sent
Exception: can accept the collateral only in full
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/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.
For partial satisfaction in particular, the secured party must also send its proposal to any secondary obligor.
An objection to the debtor’s acceptance (of a proposal to dispose by secured party) 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
special rules exist for _____ transactions w/r/t accepting collateral as satisfaction of debt; it must be ___. but exception….
consumer transactions. it must be in full satisfaction of the obligation. cannot be for partial satsifaction.
exception: the 60% rule.
if the goods are consumer goods AND the debtor has paid 60% (of the cash price in case of a PMSI or of the obligation in a non-PMSI case) then the goods must be sold (so CANNOT be accepted as payment) unless the debtor waives his right to force a sale AFTER default in an authenticated agreement
what is redemption and when it is allowed.
up to any point before the secured party has disposed of or entered into a contract to dispose of the collateral, the debtor can fulfill all obligations and redeem the collateral.
redemption does not require paying reasonable expenses of the repossession, just the underlying debt. T/F
False, bitch! the fulfillment of obligations includes reasonable expenses for repossession
a secured party’s failure to comply with Art. 9 (e.g. by breaching the peace, failing to give proper notice, not disposing in commercial reasonable manner, etc) can lead to…
injunctive relief, damages, and/or the reduction of any deficiancy judgment sought by the secured creditor
in the case of a secured party’s failure to comply with Art. 9, the debtor or other secured party may seek damanges for any loss caused by the secured’ party’s failure to comply. this includes/does not include loss resulting from debtor’s inability to obtain alternate financing or increase in financing costs
includes
in the case of a secured party’s failure to comply with Art. 9, if the debtor is getting damages and the collateral is consumer goods, then there is a statutory…
minimum. the debtor may recover an amount not less than the credit service charge + 10% of the principal amount of the obligation or the time-price differential + 10% of the cash price, even if the actual damages are less
in the case of a secured party’s failure to comply with Art. 9, when a court orders a reduction of a deficiency judgment, there is a rebuttable presumption that the…. However…
secured party is not entitled to collect a deficiency. this can be overcome by showing that the deficiency would have existed even had the secured party complied with Art. 9.
However, if it is a consumer transaction and a secured party’s collection, enforcement, disposition, or acceptance is not in compliance with Art. 9, then there is an absoute bar to the non-compliant secured party recovering a deficiency (btw this is a minority/Texas rule)
When a secured party improperly repossesses collateral, the debtor is confined to UCC law and cannot prusue a conversion action using non-UCC law. T/F
False, bitch!
