Secured Transactions Endgame Challenge Flashcards
A creditor who loans money, or sells an item on credit (at least in part), to a debtor/purchaser often “wants to be able to rely on something other than the debtor’s promise” to repay; that something is usually a se_________ in____________, which is basically a right to specific items of per______ pro_______(usually called co__________) if the debtor fails to pay.
Item #2: A se__________ in___________ is an “interest in personal property or fix________ that secures the payment or per______________ of an obligation.” It is effective/enforceable between the parties when it att_______. Once it att_________, if the debtor def _ _ _ _ _, the creditor generally may take the co_______ to satisfy the debt.
Item #3: But even a creditor with a se_________ in__________ in the co_________ may not be paid from the proceeds of the co________ because of conflicting claims to the co_______, such as from other creditors. In order to maximize its rights against third parties, the creditor may take additional steps to per _ _ _ _ its security interest. “Per________ basically serves as a form of no _ _ _ _” to third parties. Disputes between creditors and others over the debtor’s property are determined under the rules of pri _ _ _ _ _.
Item #4: Article 9 generally applies to all kinds of con_____________ se___________ in___________ in per_______ pro_________ and fix _ _ _ _ _. Fix_______ generally are items of per_______ prop_________ that become firmly affixed to re _ _ es _ _ _ _.
Article 9 can apply to 4 situations that may not initially appear to involve se_______ in___________.
Situation #1: Sales of Accounts Receivables
Item #5: Outright sales of accounts receivables, cha _ _ _ _ paper, payment intangibles, and prom__________ notes are treated as Article 9 security interests.
Although these appears to be outright sales, the buyer must comply with Article 9 to protect its interest against th _ _ _ par________. [Prof Note: The policy rationale is that otherwise future creditors could be mis _ _ _. For example, after one creditor has purchased the debtor’s accounts receivables, another creditor (without notice of the prior sale) might agree to loan money to the debtor based on the debtor’s account receivables as collateral.]
First Exception: If the account receivables are sold along with sub______________ all of the assets of the related bus____________.
Second Exception: If the accounts receivable are purchased for “purposes of collection only” (as by a collection agency)—see Casebook page 43.
Situation #2: Consignments
Item #6: In a consignment, the owner/consignor owns the property and retains ti _ _ _, but the owner delivers poss_______ to the consignee, so that the consignee can attempt to s_____ the item. If the goods fail to sell, the consignee may simply return the property back to the owner/consignor.
Although the owner/consignor retains t _ _ _ _ to the property, Article 9 generally treats this as a se_________ in__________, and the owner/consignor must provide no _ _ _ _ to be perfected.
The rationale is that otherwise future potential creditors may be mis_____, thinking that the goods on consignment are actually owned by the consignee and could serve as collateral on a loan to the consignee.
Item #7: Exceptions: A consignment will not be treated as a security interest if:
(i) The consigned goods, in total, are worth less than $________;
(ii) The consignor used the goods for per_______, fam _ _ _, or hou_________ purposes (thus a consignment of old clothes [choose one: would/would not] create a security interest;
(iii) The consignee is an auc_____________;
(iv) The consignee is generally known by its creditors to be “substantially eng_______ in the sale of goods for ot________;” OR
Item (v) The consignee normally does not deal in goods of that k _ _ _ .
Situation #3: Rental Agreements: (Barbri page 3)
Item #8: Whether a rental agreement is actually a disguised sale with a security interest is determined on a ca _ _-by-ca _ _ basis. Nevertheless, the transaction will be treated as a sale-and-a-security-interest if the renter cannot ter________ the obligation, and either
(i) the rental term is eq _ _ _ to or gre______ than the remaining economic life of the item, OR
(ii) the renter is obligated to purchase the item at the end of the rental term, OR
(iii) at the end of the rental term, the renter has the op _ _ _ _ to purchase the item for no consideration or nom______ con_____________.
As a result, a transaction characterized by the parties as a “rental” agreement may be treated as a sale-and-a-sec________ agreement.
Situation #4: Conditional Sales Agreement/Retention of Title.
Item #9: If the seller delivers poss_______ of the goods to the buyer, but the seller will retain title to the goods until the buyer has made all the pay_________, the seller will be treated as retaining a security interest. [Prof Note: This is consistent with UCC 2-401(1) (second sentence)]
Item #10: Exceptions: Article 9 generally does not apply to the following transactions:
(i) Transactions governed by fed______ law, such as when the collateral is air______ or rail________, ships, copy_______, pat_______, and trade_________.
(ii) transactions governed by state law, such as for mech_______ liens and repair/auto-garage liens.
(iii) real es_______ transactions
Item #11: Super-Priority for “Purchase Money Security Interests” (PMSI) [Prof Note: In this introductory section, Barbri discusses some topics briefly, and then covers them in greater detail later—this is the case with PMSI.]
A PMSI is a special type of security interest that can have priority over all other security interests if various conditions are met. [Prof Note: As discussed later, the conditions for per___________ a PMSI interest (and having priority) can depend on whether the collateral is (i) con__________ goods, (ii) inventory, or (ii) other collateral, such as equ___________. At this point, Barbri merely describes a PMSI and does not discuss those further topics.]
A PMSI occurs when:
(i) The seller sells goods to the debtor on credit and retains a security interest in those goods for all or part of the pur________ pr _ _ _, or
(ii) The creditor loans $$$ to the debtor to pur________ goods, and the collateral is the goods pur___________.
[Prof Note: Rationales for Super-Priority: The PMSI creditor adds value; without the PMSI creditor, the debtor would not have acquired the goods; allowing another creditor to take those asset would be a wind _ _ _ _ to that other creditor.
* A consignor can have a PMSI interest.
Item #12. Collateral in General. Collateral is the property subject to the security interest. There are 3 broad classes of collateral—tangible, proc _ _ _ _, and “intangible/semi-intangible.” It is important to know the collateral’s “type” because certain rules (e.g., such as to how to per _ _ _ _ or have priority) can depend on the type of collateral involved.
Item #13. Types of Tangible Collateral
Type #1: Consumer goods: used or bought for per________, fam _ _ _, or household purposes (e.g., a tractor used to move grass at home).
Type #2: Farm Products: “Crops, livestock, unmanufactured products of livestock (e.g. eg _ _), and supplies used or produced in farming operations . . . if they are in the possession of, or used by, a far _ _ _.” [UCC 9-102(a)(34)
Type #3: Inventory: “Goods that are . . . held for sale . . . (e.g., a tractor at a farm implement store), . . . materials that are used up quickly or consumed in a bus____________ (e.g., fuel used to run a factory), and work in pro_______ (e.g., a partially built tractor). [UCC 9-102(a)(48)]
Type #4: Equipment: Goods that are not consumer goods, farm products, or inventory (e.g. durable goods used in a bu_______, such as mac_______ used in a factory).
Question: What type of tangible collateral would a “painting on an office wall” be? _________
Item #14: How to Determine the Type of Tangible Collateral: It does not necessarily depend on the nature of the collateral, but rather on the pri _ _ _ _ u _ _ by the debtor at the time the security interest att_________.
Matching Game with an Electric Razor
Q#1: Debtor opens a store and includes the electric razor a. Consumer Good
among the stock of goods to sell
Q#2: Debtor keeps the razor at home for shaving b Inventory
Q#3: Debtor keeps the razor at the office to keep c. Equipment
trim for business purposes
Item #15: Intangible or semi-intangible collateral
Matching Game
Q#1: Promissory notes, checks, C.D.s a. Chattel Paper
Q#2: Bills of Lading & Warehouse Receipts b. Investment Property
Q#3: Retail sales contracts (such as with a car sale) c. Accounts
Q#4: Right to payment for services or goods rendered d. Deposit Accounts
(such as a doctor’s right to collect from a patient for services)
Q#5: Nonconsumer accounts at a bank e. General Intangibles
Q#6: Stocks, bonds, mutual funds, brokerage accounts f. Documents
Q#7: Right to a tax refund, software, copyrights, patents, g. Instruments
trademarks
