Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

REG > Secured Transactions > Flashcards

Secured Transactions Flashcards

1
Q

What is a secured transaction?

A

A transaction between a debtor and a creditor with a “security interest,” i.e. property of the debtor claimable by the creditor if the debtor defaults

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Which part of the Uniform Commercial Code governs secured transactions?

A

Article 9 – it applies to any transaction intended to create a security interest, whether the collateral is tangible or intangible

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

To what transactions does UCC Article 9 NOT apply?

A

Transactions involving real estate, timber and minerals which are not contracted to be removed from their land, employee wages/salary, insurance policies, and others

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is a BOC?

A

Buyer in the Ordinary Course of Business – a buyer who purchases an item in good faith from someone whose ordinary business involves selling such items

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What counts as tangible collateral?

A

Goods which are movable at the time of attachment or which are fixtures

Classified according to use (e.g. equipment, consumer goods)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are pure intangibles for collateral?

A

Rights to receive property (e.g. accounts receivable, payment streams), general intangibles (e.g. goodwill, patents, copyrights)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are documentary intangibles for collateral?

A

Property where the ownership rights are embodied in writing (e.g. negotiable instruments, securities, documents of title)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is chattel paper?

A

A documentary intangible which represents both a monetary obligation (usually as a negotiable instrument) and a security interest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What can the debtor request of the creditor to keep track of his debt?

A

An accounting of the unpaid debt and the related collateral

A creditor must fulfill this request for free once every six months during the course of the debt

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is a financing statement?

A

A document filed by a creditor outlining the arrangement between him and the debtor

Must contain description of collateral and debtor’s signature

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are fixtures?

A

Goods fixed to real estate, categorized as real property

Excludes building materials used for an improvement on the land

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are accessions?

A

Related to fixtures, accessions are personal property which are installed to become a part of real property (or other personal property)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is attachment?

A

When a security interest becomes enforceable against the debtor

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are the three requirements for attachment to occur?

A

(1) Secured party (creditor) gives value
(2) Debtor has rights in the collateral
(3) Either (a) debtor and creditor create a security agreement, signed by the debtor (or “authenticated,” if electronic), or (b) the creditor possesses the collateral

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is a purchase money security interest (PMSI)?

A

Collateral for a debt, the funds of which were used to purchase the collateral item itself

E.g. if a debtor borrows from a bank to buy a machine, and uses that machine as collateral for the loan

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Is it possible to have future property serve as collateral?

A

Yes – this would be an “after-acquired interest”; e.g. a debtor can say that certain accounts receivable which arise in the future will be collateral

The security interest will not attach until the property comes into existence, however

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Are there limits to after-acquired security interests?

A

Yes: after-acquired interests generally cannot attach to consumer goods, unless those goods are accessions

Exception: if the debtor acquires the goods within 10 days after receiving value from the creditor, then it is fine

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What are future advances?

A

Value given by the creditor in the future though secured by present collateral

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

If a debtor is in possession of the collateral, can he sell it to someone else?

A

Yes, so long as the signed security agreement does not prohibit doing so

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Does the creditor retain an interest in the collateral if the debtor sells it?

A

Yes, unless the sale was authorized in the security agreement, or if it was made to a BOC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

How do proceeds from the sale of collateral affect the creditor’s security interest?

A

Unless the security agreement says otherwise, the creditor retains an interest in the proceeds from the sale of collateral, including any later sales of the proceeds themselves

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

If a creditor is in possession of collateral and does not show reasonable care in holding and preserving it, does he lose his security interest?

A

No, although he is liable for any harm caused

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

If a creditor is in possession of collateral, for what types of expenses is the debtor still responsible?

A

(a) reimbursing creditor for reasonable expenses to hold and maintain it
(b) paying for accidental loss (insofar as creditor’s insurance doesn’t)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

If a creditor is in possession of collateral, can he use it as collateral to a different creditor?

A

Yes, so long as he does not hurt the debtor’s right to redeem it

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What is the perfection of a security interest?

A

The publicly available proof that the creditor has interest in the collateral

Very important for placing a creditor’s interest in collateral higher than others

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What are three ways a security interest can be perfected?

A

(1) filing a financing statement
(2) creditor taking possession of collateral
(3) automatically by law

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What is field warehousing?

A

Collateral is placed on the property of the debtor under the supervision of an independent warehouseman

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What is the main risk of field warehousing?

A

The risk that the debtor fraudulently misrepresents the collateral

Safeguards: segregating the collateral, warehouseman should have clear control and be independent

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What is the most common way to perfect security interests?

A

Filing a financing statement – must be done with a filing officer, often a recorder of deeds

30
Q

How do filing requirements differ for a purchase money secured creditor?

A

He has 20 extra days to file the financing statement, and when he files, the date of the purchase becomes the effective date of filing

31
Q

Which collateral is required to be perfected by filing?

A

Pure intangibles

Almost all other collateral can be perfected by filing

32
Q

How long does a financing statement keep a security interest perfected?

A

Five years, though it can be renewed

33
Q

How can a financing statement filing be renewed?

A

By filing a continuation statement – filed at the same place as the financing statement, and within six months of the expiration date for the five years

34
Q

What is a termination statement?

A

Statement that the creditor no longer has a security interest – if the debtor demands it, the creditor must send this to the debtor and to the filing officer(s) after the debt is discharged

35
Q

How is the jurisdiction for the filing location of a financing statement determined?

A

By the location of the debtor (not the creditor or the collateral) – where “location” = place of residence, not business

36
Q

For filing purposes, what is the jurisdiction if the debtor is a company or resides outside the U.S.?

A

If a company (e.g. corporation), jurisdiction is the state of organization

If the debtor’s location is outside the U.S., the location is deemed to be the District of Columbia

37
Q

What must be included in a financing statement?

A

(1) debtor’s name and mailing address
(2) creditor’s name and mailing address
(3) description of collateral
(4) debtor’s signature (this can be waived if the debtor is unavailable or if there are multiple filings)

38
Q

What is a main way in which perfection by possession differs from perfection by filing?

A

Perfection by possession does not require a security agreement

39
Q

Which collateral is required to be perfected by possession?

A

Money, instruments (negotiable or not), nonnegotiable documents of title

40
Q

Which collateral can be perfected by possession or by filing?

A

(1) goods
(2) chattel paper
(3) letters and advances of credit
(4) negotiable documents of title

41
Q

When automatic perfection occurs for a security interest, at what point does it occur?

A

At the point of attachment

42
Q

What are different reasons why a security interest might be automatically perfected?

A

(1) to give the creditor time to take possession of the collateral
(2) to retain perfection if the creditor must give collateral into the debtor’s possession
(3) to retain perfection for collateral that is the proceeds of perfected collateral
(4) if the creditor has a purchase money security interest (PMSI) in consumer goods
(5) if the creditor gains an interest in an insignificant amount of the debtor’s accounts receivable on an infrequent basis

43
Q

How does automatic perfection work to give the creditor time to take possession of the collateral?

A

A security interest in instruments or negotiable documents of title becomes perfected (upon attachment) for 20 days

44
Q

How does automatic perfection work if the creditor must give collateral into the debtor’s possession?

A

Perfection lasts for 20 days, and is subject to these conditions:

  • if the collateral is an instrument, it had to be given to the debtor for sale, presentment for payment (as a negotiable instrument), or collection
  • if the collateral is a document of title, it had to be given for sale, transshipment, or manufacturing
45
Q

How does automatic perfection work to retain perfection for collateral that is the proceeds of already-perfected collateral?

A

Grants the creditor 20 days to fully protect (i.e. perfect) the collateral which is the proceeds of perfected collateral

If filing a financing statement for the proceeds, the creditor does not need to mention “proceeds” unless they are substantially different from the original collateral, or not identifiable with it, or filed in a separate place

46
Q

How does automatic perfection work if the creditor has a PMSI in consumer goods?

A

He automatically acquires permanent perfection, subject to these conditions:

  • doesn’t apply if the collateral is controlled by a title statute (e.g. a car)
  • doesn’t apply at the point the good becomes a fixture
  • the creditor’s claim to the collateral is not good against a BFP, unless he has filed a financing statement for the collateral
47
Q

How does automatic perfection work if the creditor gains an interest in an insignificant amount of the debtor’s accounts receivable on an infrequent basis?

A

He automatically acquires permanent perfection – again, so long as the creditor is not assigned the debtor’s accounts on a frequent basis

48
Q

What is the UCC’s purpose concerning priority among creditors’ claims?

A

To have a balance between creditors’ secured interests and the free flow of goods in the market

Covered in UCC Article 9 (the details of which are all in the previous cards)

49
Q

Who are different parties that can compete for a debtor’s property?

A

Unsecured creditors, purchasers of collateral (either in the ordinary course of business, or not), secured creditors, lien creditors

50
Q

How does an Article 9 creditor’s claim compare with an unsecured creditor’s?

A

Even if unperfected, the Article 9 creditor’s security interest would give him a better claim to that particular collateral than any unsecured creditor

51
Q

How does an Article 9 creditor’s claim compare with a BOC’s?

A

Generally, even if it is perfected, and even if the BOC is aware of the Article 9 creditor’s claim, the BOC has a superior claim to that collateral

Remember, a BOC is one who has purchased the collateral from the debtor in the ordinary course of business

52
Q

When does an Article 9 creditor’s claim surpass a BOC’s?

A

If the BOC knows the collateralized goods should not be sold (e.g. if the goods are stolen), or if he is a BOC of farm products

53
Q

How does an unperfected Article 9 security interest fare against (1) a buyer who is not in the ordinary course of business, (2) a bulk transferee, or (3) a BOC of farm products?

A

The other party prevails if the buyer:

(a) gives value for the collateral,
(b) takes delivery of it (if tangible), and
(c) is ignorant of the security interest

54
Q

How does a perfected Article 9 security interest fare against a buyer who is not in the ordinary course of business?

A

His claim is generally superior, with a few exceptions

55
Q

How could two Article 9 creditors compete for the same collateral without fraud on the debtor’s part?

A

If the debtor gives a secured interest to one creditor for a certain amount (e.g. $500,000 in inventory) and another to another creditor (e.g. $450,000 in inventory), and then the total amount of collateralized goods reduces (e.g. below $950,000), then the legitimate creditors will compete for the collateral

56
Q

What is the general rule for two Article 9 creditors competing for the same collateral?

A

A perfected interest prevails over an unperfected one

If both are perfected, then whoever perfected first; if both are unperfected, then whoever had attachment first

57
Q

What is the general rule for resolving Article 9 creditors’ and lien creditors’ claims?

A

First in time prevails

58
Q

How does an unperfected Article 9 security interest fare against an owner of real estate to which the collateral is affixed?

A

The Article 9 interest generally loses unless:

  • the owner has consented in writing to the interest or disclaimed his own interest, OR
  • the debtor has the right to remove the collateralized goods
59
Q

How does a perfected Article 9 security interest fare against an owner of real estate to which the collateral is affixed?

A

The Article 9 interest generally wins if:

  • the security interest is perfected by filing before the owner’s interest is recorded, AND
  • it is a PMSI perfected by filing in real estate records within 20 days of the goods becoming fixtures
60
Q

How does an unperfected Article 9 security interest fare against someone who owns personal property to which the collateral is affixed?

A

The Article 9 interest generally wins if the interest exists before the property becomes affixed and if the owner presently has a claim to the whole property

61
Q

How does a perfected Article 9 security interest fare against someone who owns personal property to which the collateral is affixed?

A

The Article 9 interest generally wins, whether over current or later owners of the personal property

62
Q

Does a secured creditor require judicial process to seize collateral?

A

No, not if seizure can be done without breaching the peace

63
Q

If a secured creditor with a perfected interest acquires a lien by submitting his collateral claim to judgment, what is the effective date of that lien?

A

The same date for the perfection of the interest

64
Q

What is the debtor’s right to redeem collateral?

A

If the collateral has been taken by the creditor but not yet been disposed, the debtor can redeem it by fulfilling all the relevant duties and paying the relevant expenses (e.g. legal expenses)

65
Q

If a creditor sells collateral after the debtor defaults, how should the proceeds be applied?

A

(1) to the expenses of the creditor in holding and selling the collateral
(2) to the debtor’s debt
(3) to satisfy the debtor’s debt to another creditor upon the same collateral

66
Q

Under what circumstances does a creditor need to apply collateral proceeds to a subordinate creditor’s claim on the same collateral?

A

If that creditor provides written notice of demand before the proceeds are applied

67
Q

Is the debtor always entitled to surplus from collateral proceeds and liable to repay any shortage?

A

Not necessarily – for sales of accounts and chattel paper, the security agreement must provide that he is so entitled or liable

68
Q

When selling collateral, what must the creditor tell the debtor?

A

The time and place for a public sale, time for a private sale

Must also tell other secured creditors (who have given written notice)

69
Q

What is the special rule for selling collateral under a PMSI?

A

If the debtor has paid 60% of the cash price, the creditor must sell the collateral within 90 days after obtaining it

Also applies for a loan with a secured interest in consumer goods

70
Q

Is a secured creditor required to sell the secured collateral?

A

No, he can simply retain it to satisfy the debtor’s obligations – though he needs to notify the debtor and any other secured creditors (who have notified him)

71
Q

What happens if a secured creditor wishes to keep the collateral, but other secured creditors object?

A

If they object within 20 days, the creditor must sell the collateral

REG (43 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions