Secured Transactions Flashcards
1
Q
Collateral Categories: Equipment
A
Goods that are not consumer goods, farm products, or inventory
2
Q
Collateral Categories: Consumer goods
A
Goods used for or bought for household, personal, or family use.
3
Q
Collateral Categories: Inventory
A
goods held for sale or lease, goods furnished under a contract of service, supplies used in manufacturing, materials consumed in a business and work in progress
4
Q
Collateral Categories: Farm Products
A
crops, livestock, unmanufactured products of livestock (e.g., eggs), and supplies used or produced in farming operations and either in the possession of or used by a farmer.
5
Q
When does a PMSI arise?
A
PMSI arises where the creditor (i) sells goods to the debtor on credit and reserves a security interest in those goods, or (ii) advances the funds used to purchase goods and reserves a security interest in those goods
6
Q
When does a PMSI have priority over conflicting security interests in the same collateral?
A
If the PMSI is perfected before or within 20 days of the debtor gaining possession of the goods (goods being the collateral the PMSI is in). Note: special rules for PMSI in inventory—need to give notice to other parties
7
Q
When does a PMSI have priority over conflicting security interests in INVENTORY
A
A PMSI in inventory has priority over a conflicting security interest in the inventory if: (i) The PMSI in inventory is perfected at the time the debtor gets possession of the inventory (the filing must take place before the inventory is delivered to the debtor); and (ii) Any secured party who has filed her security interest in the same inventory receives an authenticated notification of the PMSI before the debtor receives possession of the inventory, and the notification states that the purchase money party has or expects to take a PMSI in inventory of the debtor described by kind or type.
8
Q
A description that describes the collateral as “all of debtor’s assets” is sufficient for what purpose?
A
To identify collateral in a financial statement BUT NOT in a security agreement
9
Q
What security interests can be perfected by filing?
A
All security interests besides deposit accounts and money.
10
Q
What security interests can be perfected by possession?
A
Any tangible collateral. Includes negotiable interests if they are tangible.
11
Q
What security interests can be perfected by control?
A
only security interests in investment property, nonconsumer deposit accounts, and electronic chattel paper
12
Q
What security interests can be perfected automatically?
A
Only PMSI’s in consumer goods.
13
Q
What is the garage sale rule?
A
It is an exception to the superpriority of the PMSI in consumer goods. Normally a PMSI in consumer goods perfects automatically. However, when the debtor is a consumer, and sells the collateral to another consumer who takes it for value and without notice of the security interest, the second consumer has priority unless the creditor files a financial statement. So while a PMSI automatically perfects, it will lose priority over the garage sale purchaser unless the creditor perfects tradititionally by filing.
14
Q
What is required for a security interest to be effective between the parties?
A
Attachment
15
Q
Which UCC article governs secured transactions?
A
Article 9
16
Q
Which transactions does article 9 apply to?
A
- Contractual security interests
- Sales of accounts, chattel paper, payment intangibles and promissory notes
- Commercial consignment of goods worth a total of $1000 or more.
- Agricultural liens
- Leases intended to serve as security interests
- seller’s retention of title in delivered goods.
17
Q
What does article 9 specifically not cover?
A
does not apply to most transfers of interests in land
18
Q
A security interest in nonconsumer goods does not lose its status as PSMI if
A
- interest is also secured for by prop that was not purchased with the loan money
- collateral secures advances
- PSMI is refinanced
19
Q
3 types of collateral
A
tangible collateral
intangible collateral
proceeds
20
Q
4 types of tangible collateral
A
Consumer goods: goods for personal, family, or household use
inventory: goods held for sale or lease and good consumed by a business
Farm products: goods used or produced in farming that are in the possession of or used by a farmer
equipment: goods that are not the others.
21
Q
Intangible Collateral 8 types
A
instruments documents Chattel paper (records evidencing botha monetary obligation and a security interest in goods accounts (rights to payments) Deposit accounts (article 9 applies only to nonconsumer accounts investment propety commercial tort claims general intangibles
22
Q
Proceeds
A
whatever is received upon sale, exchange or other disposition of collateral or proceeds. Include 2nd gen proceeds. includes insurance payable by loss of collateral unless paid to someone other than the debtor or secured party
23
Q
Attachment generally
A
security interest is not enforceable unless it has attached.
24
Q
Requisites for attachment
A
Must co-exist
- parties agree to create a security interest
- value must be given by the secured party AND
- Debtor must have rights in the collateral
25
Agreement to create security interest must be evidenced by
1. creditor taking possession of the collateral
2. debtor's authentication of a security agreement describing the collateral or
3. creditor taking control of certain types of collateral.
26
Description of collateral in authenticated security agreement
can be described braodly by category (equipment) or specifically. Supergeneric description not enough "all of debtors assets"
27
Creditor can obtain control over 3 types of collateral in order to attach the security interest
1. non-consumer deposit accounts
2. electronic chattel paper
3. investment property
28
Methods of obtaining control: Non-consumer deposit accounts
Bank that houses the accounts automatically has control.
If the secured party is not a bank it can obtain control by either
1. putting account in secured pary's name
or
2. entering into an authenticated record with debtor and bank that bank will comply with secured aprty's orders.
29
Methods of obtaining control: Electronic chattel paper
Party is in control when a system is put in place to show the transfer of interests in chattel paper reliably established the secured party as the assignee.
30
methods of obtaining control: Investment property
Certificated security in bearer form = take possession.
Certificated secrity in registered form = possession and indorsement
Securities account = owner instructs intermediary party that secured party has the same rights in account and they must comply with secured partys orders.
31
Rights and duties of secured party in possession or control
In possession: Must use reasonable care in storing and preserving the collatearl. Entiteld to reimbursement for reasonable expenses in caring for collateral. Risk of loss on debtors
In possession or control: secured party may hold any increase in value of or profits from the collarteral as additional security. Must be applied against the secured obligation.
32
After-Acquired Property
Security agreement may create a SI in property to be acquired in the future. Will attach as soon as debtor acquires property
33
Exception to after-acquired property
does not apply to consumer goods unless the debtor acquires rights in the goods within 10 days after the creditor gives value.
Does not apply to commercial tort claims
34
Future Advances
a Security agreement may provide that the collateral will serve as security for future advances
35
Why perfect a SI?
to establish maximum priority in the collateral over third parties.
36
What is the effect if a party takes steps to perfect before attachment?
The interest will perfect upon attachment. you cannot perfect an interest that is not attached.
37
Perfection By Filing: financing statement contents
1. debtor's name and mailing address
2. Secured party's name and mailing address
3. if the collateral is real property related ---> description of the real property, name of the record owner and indication that it is to be filed in the real prop records
38
Perfection By Filing: what cannot be perfected this way?
Deposit accounts and money
39
Perfection By Filing: Debtors' name
Generally name on unexpired drivers' license or name in public organic record for orgs. Minor errors in name will not invalidate but seriously misleading errors will.
40
Perfection By Filing: Effect of Debtor's name change
If D changes name such that the financing statemnet becomes seriously misleading the statement is only effective against collateral acquired by debtor before the name was insufficient and four months after.
41
Perfection By Filing: Effect of missing address
if its accpeted by the filing office, it is effective without it.
42
Perfection By Filing: indication of collateral
may contain a supergeneric unlike in an authenticated security agreement
43
Perfection By Filing: Debtor must authorize filing of financial statement
must be authorized in an authenticated record. Can be before or after it is filed. Can do so by authenticating the financing statement or the security agreement.
44
Perfection By Filing: After-acquired property
financing statement need not mention after acquired prop to perfect an interest in it if the description of collateral is broad enough to encompass it.
45
Perfection By Filing: place of filing
Must be done centrally in secretary of state. Anything property realted file locally in the county property records.
46
Perfection By Filing: how long is the filing effective?
Valid for five years. Continuation statement may be filed for additional five. Can be filed within 6 months of lapse. Authorization of debtor not requried for continuation.
47
Perfection By Filing: Certificate of Title Law
Security interests in motor vehicles required to be titled are perfected by notation on the certificate of title. Securirty interest created by dealers in vehciles held for sale are perfected by ordinary filing under the uCC
48
Perfection by Taking Possession (pledge): what cannot be pledged
intangibles, non-consumer deposit accounts, nonnegotiable documents, electronic chattel paper, certificates of title goods and accounts cannot be perfected by possession
49
Perfection by Taking Possession (pledge): time of perfection
When the secured party takes actual possession the interest is perfected and stays perfected till returned. When collateral is in hands of baillee, the secured party is deemed to have possession from the moment authenticates a record acknowledging it is holding for the secured party's benefit.
50
Perfection by control:
allowed in investment property, non-consumer deposit accounts and electronic chattel paper. See earlier cards.
51
Automatic Perfection
A PMSI in consumer goods is perfected as soon as it attaches. Neither filing nor possession by the creditor is necessary.
52
Limitations of Automatic perfection of PMSI in consumer goods
interest in motor vehciles can be perfected only by notattaion on certificate of title. PSMI in fixtures will have priorty over encumbancer of real estate only when the PMSI holder files.
53
Temporary Perfection: proceeds
SI in proceeds form original collateral is perfected for 20 days from when debtor gets receipt.
54
Temporary Perfection: Instruments, Negotiable documents, and certificated securities
Where new value is given under an authenticated secutirty agreement for these items, perfection is valid for 20 days
55
Temporary perfection: delivery of collateral to debtor for dispotition
where creditor has perfected SI by possession and delivers instruments, negotiable docs, or certificated securities to the debtor for disposition, the perfection is good for 20 days.
56
Temporary perfection: debtor moves
Where debtor moves and perfection is determined by where debtor is, perfection remains temporarily valid in the new state.
57
Continuation of perfection in proceeds beyond the 20 days will survive if
1. the SI in the OG collateral was perfected by filing, a SI in the type of collateral that makes up the proceeds would be filed in the same place and the proceeds were not purschaed with cash proceeds of the collateral (same office rule)
2. The proceeds are identifiable cash proceeds (cash proceeds rule)
3. The security interest is perfected within 20 days.
58
Priorities (SP v. SP): Priority between 2 unperfected SPs
when 2 unperfected security interests conflict, the first to attach has priority
59
Priorities (SP v. SP): Priority between unperfected SP and perfected SP
A perfected SI prevails over an unperfected security interest
60
Priorities (SP v. SP): Priority between 2 perfected SPs
rank in priority according to time of filing or perfection. Priority dates from the time a filing is first made covering the collateral or the time the security interest is first perfect, whichever is earlier.
61
Special priority rules for conflicting security interests in investment property
First to file or perfect generally governs. However, a SI perfected by control has priority over a security interest perfected by any other method.
62
PSMI Superpriority: generally
a PMSI has a superpriority. They are superior to prior perfected security interests in the same collateral if certain conditions are met.
63
PMSI Superpriority: PMSI in inventory (and livestock)
A PMSI in inventory collateral has priority over a conflicting interest in the same inventory or proceeds of the inventory that are chattel paper, instruments, or cash if
i. it is perfected at the time the debtor gets possession of the inventory (filing must take place before the inventory is delivered to debtor) and
ii. Any secured party who has perfected his SI in the same inventory receives written notification of the PMSI before debtor receives possession of the inventory and notification states that the the PMSI party has or expects to take a PMSI in the inventory of the debtor.
* note: a consignor's interest in the consigned goods is considered to be a PMSI in inventory.
64
PMSI Superpriority: PMSI in goods other than inventory or livestock
Has priority over conflicting SI in the same goods or their proceeds if the interest is perfected before or within 20 days after the debtor receives possession of the goods.
65
PMSI Superpriority: Conflicting PMSIs
- PMSI as a seller has priority over a secured party who has a PMSI as a lender
- Otherwise first to file or perfect prevails
66
Priority for Chattel Paper Purchasers
If a purchaser of chattel paper in good faith gives new value and takes possession of the chattel paper in the ordinary course of business the purchaser will have priority over
i. a security interest in chattel paper that arises emrely as proceeds of inventory so long as the chattel paper does not indicate that it has been assigned to anyone other than the purchaser. AND
ii. Any other security interest in the chattel paper as long as the chattel paper purchaser acquires the interest without knowledge that its purchases violated the rights of the secured party.
67
Priority for Instrument Purchasers
A purchaser of an instrument has priority over a perfected security interest if the purchaser gives value, and takes possession of the instrument in good faith and without knowledge that the purchase violate the rights of teh secured party.
68
Priority in proceeds: filing vs. nonfiling collateral
Filing collateral is collateral in which a secured party would normally achieve priority by filing a financing statement.
Non-filing collateral is collateral which a secured party would normally achieve priority by possession or control
69
Priority in proceeds: general rule
A perfected security interest in proceeds will have the same date of priority as the perfected security interest in the original collateral as long as the perfection of the proceeds extends beyond the 20 day temporary perfection period.
70
Priority in proceeds: special rule for certain proceeds of non-filing collateral
A secured party has priority in the proceeds of non-filing collateral if
1. she has priority in the original collateral
2. her security interest in the proceeds is perfected and
3. the proceeds are cash proceeds or proceeds of the same type as the original collateral
71
Priority in proceeds: exception to the special rule for proceeds of non-filing collateral
if a security interest in original collateral that is non-filing collateral is perfected by a method other than filing and the proceeds of the original collateral ARE filing collateral, the first secured party to file an interest covering the proceeds has priority.
72
Priority for SI in Fixtures between SP in fixture and holder of interest in real prop
first to file a fixture filing or record its real prop interest has priority. EXCEPTION: A PMSI SP who makes a fixutre filing within 20 days after affixation will prevail over any real prop interest in the sam fixutre that was recorded prior to affixation. (exception for construction mortgages)
73
Priority for SI in accession vs. SI perfected by notation on certificate in title
Usually the general rule of first to file or perfect. Exception: if the accession becomes part of a whole that is subject to a SI perfected by notation on a certificate of title, the SI in the whole has priority over SI in the accession. (new motor on car = interest in car has priority)
74
Effect of fixture of accession interest with priority
Secured party with prioirty may remove the fixture but must reimburse any owner who is not the debtor for the cost of repairs or phyiscal injury to property
75
Priority between SI in crops and SI in property
A perfecte SI in crops has priority over a conflicting interest in real property regardless.
76
Priority between unperfected SP and buyer or lessee
A person who buys or leases collateral from debtor has an interest in the collateral superior to an unperfected security interest if the buyer
i. takes without knowledge of the SI
ii. gives value
iii. receives delivery (not needed for intangibles)
77
PMSI grace period exception to priority between unperfected SP and buyer/lessee
if a SP attaches a PMSI in the debtor's collateral BEFORE the buyer pays value or receives delivery, the SP will have priority if she files within 20 days after the debtor received collateral.
78
Priority of perfected secured party v. buyer/lessee
SP has priority with some exception
79
Exceptions where a buyer/lessee will take priority over a perfected SP
1. SP consents to disposition of the collateral free of the SI
2. buyer/lessee in ordinary course of business takes free of a NON-POSSESSORY SI unless they know the sale is in violation of the SI
3. Consumer purchaser from a consumer has priority over PMSI in consumer goods unless they know of the SI (garage sale rule)
4. Buyer/lessee in the ordinary course of business has priority over future advances made by SP either after the SP learns of the purchase or more than 45 days after the purchase/lease
80
Priority in Secured party v. HDC
Holder in due course has priority
81
Priority in secured party v. transferee of money or deposit account funds
if a debtor transfer money or deposit account funds to person that person takes free of any SI in the money or funds unless they act in collusion with the debtor.
82
Unperfected SP v. judicial lien creditor
judicial lien creditor prevails over SI in collateral if lien creditor becomes such before the SI is perfected
EXCEPTION: A SP who attaches a PMSI in the debtor's collateral before a judicial lien creditor acquires an interest will have priority if they files within 20 days of debtor receiving collateral
83
Perfected SP v. judicial lien creditor
Prior perfected SI has priority over a lien. EXCEPTION: a judicial lien will have priority over a future advance that was perfected before the lien arose
84
Secured party v. Possesory lien holder (mechanics lien)
A possesory lien imposed by other state law in favor of those who supply goods/services has priority over a SI as long as the goods and service were provided in ordinary course of business and the collateral remains in their possession.
85
Secured Party v. Article 2 Claimant
If article 2 grants a buyer or seller a possessory security intrest in goods (buyer rightfully revokes acceptance of goods), they have priority so long as they remain in possession.
86
Rights on Default: Right take possession and sell collateral
Secured party has the right to either
1. sue on the debt itself
2. for non-goods collateral like accounts and instruments, obtain payment from person owing the debtor directly or
3. take possession and sell it by public or private sale and then sue to collect deficiencies
87
Rights on default: selling collateral
Sale must be commercially reasonable. Debtor, surety and in non-consumer goods cases other secured parties must recive notice at a reasonable time before sale and must contain details about the parties, the debt and the sale. Sale gives buyer whatever right the debtor has before SI.
88
Rights on default: factors to consider in reasonableness of sale
- sufficiency of advertising
- if collateral had limited market, whether people in the market were contacted
- whether the collatearl needed cleaning or repair
- if sale by public auction, the convenience of time and place
89
Rights on Default: Retention of collateral in satisfaction of debt
If debtor has paid 605% of cash price on PMSI consumer goods or 60% of loan in non-PMSI consumer goods, the secured party must dispose of the colalteral within 90s days after repossession or the debtor can recover it in conversion.
All other debt the SP can retain the goods for satisfaction of the debt but debtor must consent in record or not object within 20 days of being sent notice
90
Rights on default: debtor's right of redemption
Debtor has this right until the SP sells the collateral or discharges the debt
91
Rights on Default: what if SP fails to follow the code requirements for default?
liable for actual damages. If item is consumer good, debtor can recover a min 10% of cash price plus all interest on the loan and SP may lose right to deficiency judgment.
if item is nonconsumer goods: the rebuttable presumption rule applies.
92
Rights on default: what is the rebuttable presumption rule?
Where goods are nonconsumer goods and the SP fails to comply with Article 9 on default, the value of the goods is presumed to be equal tot he amount of debt unless the SP proves otherwise. i.e. no deficiency judgment.
93
Rights on default: Rules for when SP takes possession of collateral without judicial process
Can only be done if SP does not have to breach the peace. If Debtor objects, thats breach of peace.
94
Which state's law governs perfection? (
generally the law of the state where the debtor is located (principal residence)
