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July 2023 MEE > Secured Transactions MEE > Flashcards

Secured Transactions MEE Flashcards

1
Q

Secured Transaction

A

transaction intended to create a security interest in personal property or fixtures

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2
Q

Debtor

A

debtor is the person owes payment or performance of the obligation secured

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3
Q

Secured Party (aka Creditor)

A

secured party is a lender, seller, ot other person whose favor there is a security interest

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4
Q

Security Agreement

A

agreement between the debtor and the secured party that creates the security interest

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5
Q

Security Interest

A

a security interest is an interest in personal property or fixtures that secures payment or performance of an obligation - when that contingency (default) occurs, the property interest springs to life and the creditor has rights in the debtor’s collateral

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6
Q

Collateral

A

collateral is the property subject to a security interest - property that the secured party can repossess upon default to ensure that the debt is paid

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7
Q

Purchase Money Security Interest (PMSI)

A

special type of security interest in goods

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8
Q

PSMI Arises in One of Two Ways

A

(1) the secured party sells the goods to the debtor on credit and retains a s security interest in the goods sold OR
(2) creditor loans the funds to the debtor to enable the debtor to buy specific collateral, those funds are used by the debtor to acquire the specific collateral and the creditor takes a security interest in that collateral - secures whatever portion of the purchase price still has to be paid

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9
Q

After Acquired Property Clause

A

permissible - a secured party will want to obtain a security interest not only in the debtors present property, but also in property that the debtor will obtain in the future

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10
Q

Future Advance Clause

A

permissible - a security party contemplates making future loans to the debtor and wants to secure these future advances in the present security agreement

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11
Q

Attachment

A

those steps legally required to give the secured party a secured interest in the collateral - once attached, it is effective against the debtor and the creditor has all of the rights of a secured creditor under Article 9

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12
Q

When is a creditor a secured creditor?

A

a creditor is not a secured creditor until attachment

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13
Q

Perfection

A

process of giving public notice of the security interest to the world

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14
Q

Financing Statement

A

document generally used to provide public notice of the security interest and so to perfect the interest

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15
Q

Goods

A

include all things which are movable at the time the security interest attaches - goods also include fixtures

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16
Q

Four Types of Goods (tangible collateral)

A

depends on how the debtor is using the collateral

(A) Consumer Goods
(B) Equipment
(C) Farm Products
(D) Inventory

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17
Q

Consumer Goods

A

goods used or bought primarily for personal, family, or household purposes

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18
Q

Equipment

A

goods that are used or bought for use in a business

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19
Q

Farm Products

A

crops or livestock or supplies used or produced in farming operations or products of crops or livestock in their unmanufactured states if they are in the possession of a debtor engaged in farming operations

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20
Q

Inventory

A

goods held for sale or lease, goods that are to be furnished under service contracts, and materials used or consumed in a business in a short period of time

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21
Q

Default Good Category

A

if the collateral is a good, and it doesn’t fit the definition of consumer goods, inventory, or farm products, it is classified as equipment

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22
Q

Intangible or Semi Intangible Collateral

A

depends on the nature of the collateral (rather than its use)

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23
Q

Intangible or Semi Intangible Collateral Categories

A

(A) instruments
(B) documents
(C) chattel paper
(D) investment property
(E) accounts
(F) deposit accounts
(G) commercial tort claims
(H) general intangibles

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24
Q

Intangible or Semi Intangible Collateral - Instruments

A

pieces of paper representing the right to be paid money, like promissory notes, drafts, and certificates of deposit

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25
Q

Intangible or Semi Intangible Collateral - documents

A

a document that represents the right to receive goods (bill of lading, warehouse receipt)

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26
Q

Intangible or Semi Intangible Collateral - chattel paper

A

a record or records which evidence both (i) monetary obligation and (ii) a security interest in or a lease of specific goods

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27
Q

Intangible or Semi Intangible Collateral - investment property

A

includes such items as stock, bonds, mutual funds, and brokerage accounts containing such items

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28
Q

Intangible or Semi Intangible Collateral - deposit accounts

A

an account maintained with a bank - Article 9 only applies to security interests in Non consumer deposits accounts and account monies that are claimed as proceeds of other collateral

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29
Q

Intangible or Semi Intangible Collateral - commercial tort claims

A

a tort claim where (i) the claimant is an organization or (ii) the claimant is an individual, the claim arose out of the claimant’s business or profession, and the claim does not include damages for personal injury or the death of an individual

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30
Q

Intangible or Semi Intangible Collateral - general intangibles

A

any personal property not coming within the scope of the other definitions, such as patent and trademark rights, copyrights, and goodwill

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31
Q

Article 9 Applies to - I.

A

a transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract

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32
Q

Article 9 Applies to - II.

A

a seller’s retention of title - if a seller and a buyer of goods agree that the seller will retain title to the goods after they are delivered until the buyer has paid for them, the agreement will be treated as the seller’s retention of a security interest

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33
Q

Article 9 Applies to - III.

A

agricultural liens - that is, nonpossessory liens on farm products that are created by state statute in favor of persons providing goods, services, or rental to farmers

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34
Q

Article 9 Applies to - IV.

A

sales of accounts, chattel paper. payment intangibles, and promissory notes

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35
Q

Article 9 Applies to - V.

A

commercial consignments of goods - worth total of $1000 or more to persons who (1) deal in goods of that kind under a name other than the cosignors, (2) are not auctioneers, and (3) are not generally known by their creditors to be substantially engaged in selling the goods of others

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36
Q

Article 9 Applies to - VI.

A

a secured sale disguised as a lease - that is, leases that are intended to serve as security arrangements and a lease where the rental obligation is not terminable by the lesee and either (1) the lease term is equal to or greater than the remaining economic life of the goods, (2) the lesee is bound to purchase the goods at the end of the lease or to renew the lease for the remaining economic life of the goods, or (3) at the end of the lease, the lesee has an option to purchase the goods or renew the lease for the remaining economic life of the goods for no or nominal consideration

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37
Q

Attachment

A

rights against the debtor are established by attachment

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38
Q

Perfection

A

rights against third parties are established by perfection

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39
Q

Requisites for Attachment

A

a security interest is not enforceable unless it has attached - must coexist:

parties must agree to create the security interest as evidenced by (1) the creditor taking possession of the collateral, (2) an authenticated security agreement, or (3) the creditor taking control of nonconsumer deposit accounts, electronic chattel, and investment property AND
value must be given by the secured party AND the debtor must have rights in the collateral

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40
Q

Form of the Authenticated Security Agreement - evidence by a record

A

the agreement must be evidenced by a record (that is, written or electronically stored information) and must show an intent to create a security interest

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41
Q

Form of the Authenticated Security Agreement - agreement must be authenticated

A

must be authenticated by the debtor - it is signed by the debtor - any symbol, including an electronic symbol, that is made with the present intent to authenticate the record will work

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42
Q

Form of the Authenticated Security Agreement - Description of Collateral

A

the agreement must contain a description of the collateral - must reasonably identify the collateral - can be described broadly by category or type or specifically

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43
Q

Description of Collateral - Consumer Goods, Consumer Securities Accounts, and Commercial Tort Claims

A

cannot be described by type alone; a more specific description is needed

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44
Q

Value Must be Given

A

the secured party needs to give value to create the security interest - any consideration is sufficient to support a simple contract is value - even past consideration will suffice as value, as long as the security interest is intended as security for the past consideration

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45
Q

Rights and Duties of Secured Party in Possession

A

secured party in possession must use reasonable care in storing and preserving the collateral but is entitled to reimbursement for reasonable expenses in caring for the collateral - risk of loss of property in the secured party’s possession is on the debtor to the extent of any insurance deficiency

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46
Q

Secured Party in Possession or Control - Increased Value

A

the secured party in possession or control may hold an increase in value of, or profits from, the collateral as additional security, but money so received must be given to the debtor or applied against the secured obligation

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47
Q

Two Keys to Attachment

A

(1) all three requirements for attachment must be present
(2) there must be an authenticated security agreement or the creditor must take possession or control of the collateral

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48
Q

Scope of the Security Interest - After Acquired Property - Without Express Agreement Provision

A

without an explicit after acquired property clause in the agreement, the secured party’s security interest only reaches collateral that the debtor had rights in at the time the debtor signed the agreement

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49
Q

Scope of the Security Interest - After Acquired Property - With Express Provision

A

if the security agreement has an explicit after acquired property clause, the security interest will attach to the property as soon as the debtor acquires an interest in the collateral

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50
Q

Scope of the Security Interest - After Acquired Property - Exceptions

A

even without an after acquired property clause, a security interest will attach automatically to
(i) collateral of a type that’s rapidly depleted and replenished, such accounts and inventory and
(ii) identifiable proceeds of collateral, even without an after acquired property clause

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51
Q

Scope of Security Interest - After Acquired Property - Consumer Goods and Commercial Tort Claims

A

(i) after acquired property clause does not apply to consumer goods unless the debtor acquires rights in the goods within 10 days after the creditor gives value
(ii) an after acquired property clause does not apply to any commercial tort claims

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52
Q

Scope of Security Interest - Proceeds

A

security interest in collateral automatically attaches to identifiable proceeds of the collateral

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53
Q

Scope of Security Interest - What are proceeds

A

include whatever is received upon the sale, exchange, collection, or other disposition of collateral or proceeds

insurance payable by reason of loss or damage to the collateral is a proceed, unless it is payable to someone other than the debtor or secured party

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54
Q

Scope of Security Interest - Proceeds Must be Identifiable

A

the proceeds can be traced back to the original collateral

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55
Q

Scope of Security Interest - Commingled Cash Proceeds

A

the identifiable proceeds can be traced using the lowest intermediate balance rule

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56
Q

Scope of Security Interest - Commingled Cash Proceeds - Intermediate Balance Rule Applies

A

look at the bank account starting at the time the proceeds are deposited and ending at the time of applying the rule - the lowest balance during that time period is the secured party’s identifiable proceeds

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57
Q

Scope of Security Interest - Supporting Obligations

A

attachment of a security interest in accounts, chattel paper, documents, general intangibles, instruments, and investment property automatically extends to a supporting obligation for that collateral

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58
Q

Perfection of Security Interest

A

to acquire maximum priority in the collateral over most third parties, the secured party must perfect

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59
Q

5 Methods of Perfection

A

(1) filing
(2) taking possession of the collateral
(3) control
(4) automatic perfection
(5) temporary perfection

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60
Q

Perfection Timing

A

not enforceable until it attaches to the collateral - if all steps for perfection are taken before the security interest has attached, perfection will occur upon attachment

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61
Q

Attachment

A

establishes the secured parties rights in the collateral as against the debtor

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62
Q

Attachment Requirements

A

(i) an agreement to create a security interest evidenced by possession, by the debtor’s authentication of the security agreement, or by control
(ii) value given by the secured party
(iii) debtor has a rights in the collateral

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63
Q

Perfection - Automatic Perfection - PMSI in Consumer Goods

A

most common situation, in which a security interest is automatically perfected upon attachment, is a PSMI in consumer goods

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64
Q

Perfection - Automatic Perfection - PMSI In Consumer Goods - Limitations

A

(i) a security interest in motor vehicles can be perfected only on the vehicles certificate of title
(ii) PMSI in fixtures will have priority over an encumbrance of the real estate only if the PMSI holder files a fixture filing

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65
Q

Perfection - Perfection by Taking Possession (Pledge)

A

security interest in most types of collateral can be perfected simply by taking possession of the collateral

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66
Q

Perfection - Perfection by Taking Possession - Timing

A

where the secured party takes actual possession of the collateral, the security interest is perfected from the moment of possession and continues as long as possession is retained

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67
Q

Perfection - Perfection by Taking Possession - Collateral in Hands of Bailee

A

where the collateral is in the hands of the bailee, the secured party is deemed to be in possession from the moment the bailee authenticates a record acknowledging that it is holding the collateral for the secured party’s benefit

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68
Q

Perfection - Perfection by Taking Possession - Collateral that is not applicable

A

security interests in general intangibles, deposit accounts, nonnegotiable documents, electronic chattel paper, certificate of title goods, and accounts cannot be perfected by possession

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69
Q

Perfection - Perfection by Control - Applicable Property

A

security interests in investment property, Non consumer deposit accounts, and electronic chattel paper may be perfected by control

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70
Q

Perfection by Control - Methods of Obtaining Control - Nonconsumer Deposit Accounts in Bank

A

the bank in which a nonconsumer deposit account is maintained automatically has control over the deposit account

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71
Q

Perfection by Control - Methods of Obtaining Control - Nonconsumer Deposit Accounts - Secured Party is not a Bank

A

if the secured party is not such a bank, it may obtain control over a nonconsumer deposit account by either:
(i) putting the deposit account in the secured party’s name OR
(ii) agreeing in an authenticated record with the debtor and the bank in which the deposit account is maintained that the bank will comply with the secured party’s orders regarding the deposit account without requiring debtor’s consent

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72
Q

Perfection by Control - Methods of Obtaining Control - Investment Property

A

a secured party has control of an item of investment property when the secured party has taken whatever steps are necessary to be able to have the investment property sold without further action from the owner

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73
Q

Perfection by Control - Methods of Obtaining Control - Electronic Chattel Paper

A

a party has control over electronic chattel paper when a system put in place to show the transfer of interests in chattel paper reliably establishes the secured party as the asignee

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74
Q

Perfection for Motor Vehicles

A

security interests in motor vehicles required to be titled can only be perfected by notation on the certificate of title issued by the state - any other method wont work

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75
Q

Perfection for Motor Vehicles - Exception - Dealers

A

security interests created by dealers n vehicles held in inventory for sale or lease are perfected by filing a financing statement under the ordinary Code rules even if a certificate of title covering the vehicle is outstanding

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76
Q

Perfection by Filing - Records to be Filed

A

a secured party may obtain perfection by filing (either in writing or electronically) a financing statement

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77
Q

Perfection by Filing - Financing Statement

A

Must contain:
(i) debtors name and mailing address
(ii) secured party’s name and mailing address
(iii) a description of the collateral covered by the financing statement

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78
Q

Perfection by Filing - Applicable and Nonapplicable Collateral

A

a security interest may be perfected by filing as to all kinds collateral except deposit accounts and money

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79
Q

Perfection by Filing - Debtor’s Name Index

A

are indexed under the debtor’s name

80
Q

Perfection by Filing - Debtor is Individual with Good Driver’s License

A

in most states, if the debtor is an individual with an unexpired driver’s license issued by the state where the financing statement is to be filed, the debtor’s name on the financing statement must match the license

81
Q

Perfection by Filing - Debtor is Individual without Good Driver’s License

A

if the debtor does not have a valid drivers license, then the financing statement may include the debtor’s individual name or the debtor’s personal name and surname

82
Q

Perfection by Filing - Debtor is Registered Organization

A

if the debtor is a registered organization the debtors name must match its most recent public organic record

83
Q

Perfection by Filing - Effect of Error in Debtor’s Name

A

minor errors in the debtor’s name wont invalidate a financing statement, but seriously misleading errors will

84
Q

Perfection by Filing - Not Seriously Misleading

A

a financing statement is not seriously misleading if it would be discovered in a filing office search under the debtor’s correct name, using the filing office’s standard search logic

85
Q

Perfection by Filing - Errors by Filing Office

A

the failure of the filing office to correctly index a financing statement does not impact its effectiveness

86
Q

Perfection by Filing - Debtors Name Change

A

if the debtor’s name as indicated on a filed financing statement becomes insufficient and thus seriously misleading the financing statement is effective only against the collateral acquired by the debtor before the name became insufficient and within 4 months after

87
Q

Perfection by Filing - Description of Collateral

A

the description of collateral in a financing statement is sufficient if it reasonably identifies the collateral, which can be broadly by category or type or specifically

88
Q

Financing Statement versus Authenticated Security Agreement

A

unlike the requirements for an authenticated security agreement, a financing statement may contain a supergeneric description of the collateral, such as “all assets”

89
Q

Perfection by Filing - Financing Statement - After Acquired Property

A

financing statement need not mention after acquired property to perfect a security interest in such property if the description in the financing statement is broad enough to cover the after acquired property

90
Q

Perfection by Filing - Financing Statement - Secured Party’s Name

A

an error in the secured party’s name will not make the financing statement seriously misleading

91
Q

Perfection by Filing - Financing Statement - Real Property Related Collateral

A

financing statements that cover real property related collateral (timber to be cut, minerals, fixtures) must also contain:
(1) a description of the related real property
(2) the name of the record owner (if not debtor)
(3) an indication that is to be filed in the real property records

92
Q

Perfection by Filing - Financing Statement - Debtor Must Authorize Filing

A

for filing statement to be effective, the debtor must authorize the filing in any signed writing either before or after it is filed - additionally, the debtor automatically authorizes the financing statement if the debtor authenticates the financing statement or authenticates a security agreement covering the same collateral as the financing statement

93
Q

Perfection by Filing - Financing Statement - Authenticated Agreement Itself May Be Filed

A

authenticated security agreement itself may be filed as the financing statement if the parties so desire - if its filed, it must contain all of the elements

94
Q

Perfection by Filing - Financing Statement - Effect of Missing Address

A

in a financing statement that doesnt contain the debtor’s and/or secured party’s mailing address is accepted by the filing office, the financing statement is effective despite the lack of the addresses

95
Q

Perfection by Filing - Financing Statement - Place of Filing

A

file centrally - filing must be done centrally in the office of the secretary of state

96
Q

Perfection by Filing - Financing Statement - Exception to File Centrally

A

if the collateral is timber to be cut or minerals, or if the collateral is or is to become a fixture and the filing is a fixture filing, filing is in the county where a mortgage on real estate is filed (locally)

97
Q

Perfection - Which State’s Laws Govern - General Rule

A

the law of the state where the debtor is located generally governs perfection of the security interest - the secured party must generally file the financing statement in that state

98
Q

Perfection - Location of Debtor - Individual

A

if the debtor is an individual, they are located in the state of their principal residence

99
Q

Perfection - Location of Debtor - Registered Organization

A

if the debtor is a registered organization, the debtor is located in the state under whose laws it is organized

100
Q

Perfection - Location of Debtor - Unregistered Organization

A

if the debtor is an unregistered organization, it is located at its place of business if it only has one place of business or at its chief executive office if it has more than one place of business

101
Q

Perfection - Which State’s Law Governs - Fixtures and Timber to be Cut

A

the perfection of possessory security interests, as well as security interests in fixtures and timber to be cut, is governed by the law of the state in which the collateral is located

102
Q

Perfection - Which State’s Law Governs - Goods Covered by Certificate of Title

A

if goods are covered by a certificate of title, the law of the state issuing the most recent certificate of title governs perfection

103
Q

Perfection - Which State’s Law Governs - Deposit Accounts

A

if the collateral is a deposit account, unless the debtors agreements with the bank provide otherwise, the law of the state in which the bank has its cheif executive office governs perfection

104
Q

Perfection - Which State’s Law Governs - Investment Property Certificated Security

A

if the collateral is certified security, the law of the state where the certificated security is located governs perfection

105
Q

Perfection - Which State’s Law Governs - Investment Property Uncertificated Security

A

if the collateral is an uncertificated security, unless the debtors agreements with the issuer provide otherwise, the law of the state where the issuer was organized governs perfection

106
Q

Perfection - Which State’s Law Governs - Investment Property Securities Account

A

if the collateral is a securities account, unless the debtor’s agreements with the securities intermediary provide otherwise, the law of the state where the securities intermediary’s chief executive office is located governs

107
Q

Perfection - Which State’s Law Governs - Investment Property Exception

A

if a security interest in investment property is perfected by filing, or if its automatically perfected by a securities intermediary, the law of the state where the debtor is located governs perfection

108
Q

Movement of Debtor or Collateral From One Statement or Another - Relocation of Debtor Where Perfection is Governed by Debtor’s Location

A

if the perfection of a security interest is governed by the law of the state in which the debtor is located, and the debtor moves from one state to another, the security interest generally will become unperfected 4 months after the debtor move unless the secured party files a financing statement in the new jurisdiction before that 4 month period is up

109
Q

Movement of the Debtor or Collateral from One State to Another - Debtor in Different State and Perfection is Governed by Debtor’s Location

A

if collateral is transferred to a new owner who is located in a different state, the security interest will become unperfected one year after the collateral moves unless the secured creditor files a financing statement in the new jurisdiction before that one year period is up

110
Q

Movement of the Debtor or Collateral from One State to Another - Other Collateral - Collateral in Which Security Interest is Perfected by Possession

A

if a perfected security interest in collateral is a possessory security interest - and the collateral is moved from one state to another, the security interest will remain perfected without any future action as long as the security interest is also perfected by possession under the laws of the new state

111
Q

Movement of Debtor or Collateral from One State to Another - Certificate of Title Property

A

if a vehicle is moved from one state to another and is covered by a certificate of title issued by the new state, a security interest in the vehicle that was properly perfected in the original state lasts as long as it would have if the vehicle had not been covered by the new certificate of title

112
Q

Movement of Debtor or Collateral from One State to Another - Certificate of Title Property - Exception

A

if a vehicle subject to a perfected security interest in one state is moved to a new state and is covered by a certificate of title issued by the new state, the security interest in the original state is perfected as against a purchaser for value of the vehicle only until the earlier of:

(i) time when the security interest would have become unperfected in the original state if the vehicle had not been covered by the new cert or
(ii) 4 months after the vehicle is covered by the new certificate of title

113
Q

Movement of the Debtor or Collateral from One State to Another - Exception - Clean Certificate of Title Issued in New State

A

if the certificate of title issued in the new state does not note the secured party’s interest in the vehicle, the following parties have priority over the secured party:
(i) a buyer of the vehicle who is not in the business of selling vehicles who purchases for value and receives delivery of the vehicle without knowledge of the interest and
(ii) a secured party who perfects a security interest in the vehicle without knowledge of the other security interest after the clean certificate of title is issued in the new state

114
Q

Movement of the Debtor or Collateral from One State to Another - Deposit Accounts, Uncertificated Securities, and Securities Accounts

A

if the bank, issuer, or securities intermediary moves to a new state, perfection of an interest in the deposit account, uncerttificated security, or securities account continues until the earlier of:
(i) the time when the security interest would have become unperfected in the original state if the bank, issuer, or securities intermediary had not moved to the new state or
(ii) 4 months after the bank, issuer, or securities intermediary moves to the new state

115
Q

Continuation Statements

A

a financing statement is valid for 5 years - continuation is good for an additional 5 years - can only be filed within 6 months before the lapse of the filed statement

116
Q

Termination Statements

A

a secured party is not obligated to terminate a financing statement - if there is no outstanding obligation of the debtor and no commitment on the party of the secured party to make further advances, or if the debtor didn’t authorize the filing of the initial financing statement, the secured party must, on demand of the debtor, within 20 days file a termination statement or provide one to the debtor

117
Q

Termination Statement - Timing for Consumer Goods

A

the secured party must file the termination statement within 1 month after there is no obligation or commitment, or if the debtor demands it, within 20 days of the demand

118
Q

Temporary Perfection

A

if a secured party has perfected, the secured party automatically has perfected in any proceeds of the collateral for 20 days after receipt of the proceeds - continues beyond 20 days if:
(i) proceeds are identifiable cash proceeds
(ii) original collateral was perfected by filing a financing statement, a security interest in the type of collateral constituting the proceeds would be filed in the same place as the finiancing statement for the original collateral, and the proceeds were not purchased with cash proceeds of the collateral OR
(iii) the security interest in the proceeds is perfected within the 20 day period

119
Q

Temporary Perfection for Instruments, Negotiable Documents, and Certified Securities - New Value

A

where new value is given under an authenticated security agreement for instruments, negotiable documents, and certified securities, perfection is valid for 20 days after attachment neither filing nor possesion is necessary

120
Q

Temporary Perfection for Instruments, Negotiable Documents, and Certified Securities - Delivery of Collateral to Debtor for Disposition

A

where the creditor who has perfected their interest by possession delivers instruments, negotiable documents, certified securities or goods in the possession of a bailee to the debtor for disposition, perfection is valid for 20 days, after which creditor must reperfect or lose the perfection

121
Q

Change in Use of Collateral

A

if the debtor changes it use of the collateral, the filed financing statement remains effective to perfect the security interest - secured creditor has no duty to monitor the collateral or amend the financing statement

122
Q

Secured Party versus Secured Party

A

when there are conflicting perfected security interests in the same collateral, priority goes to whichever party was the first to either file or perfect - whichever is earlier - provided that there is no period thereafter when there is neither filing nor perfection

123
Q

Priority Between Unperfected Secured Parties

A

when two unperfected security interests conflict, the first to attach has priority

124
Q

Priority Between Unperfected and Perfected Secured Parties

A

a perfected security interest generally prevails over an unperfected security interest

125
Q

PMSI Superpriority

A

PMSI enjoys a superpriority - theyre superior to prior perfected security interests in the same collateral if certain conditions are met

126
Q

PMSI in Goods Other Than Inventory and Livestock

A

PMSI in goods other than inventory and livestock has priority over conflicting security interests 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

127
Q

PMSI Inventory in Livestock

A

PMSI in inventory collateral has priority over a conflicting security 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 and
(ii) any secured party who has filed their interest in the same inventory receives 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 - good for 5 years

128
Q

Cosigner Has PMSI Inventory

A

under Article 9, a cosigners interest in the cosigned goods is considered to be a PMSI in inventory - a cosigner can acquire PMSI super priority in the cosigned goods if the cosigner complies with the above requirements for gaining PMSI superiority in inventory

129
Q

Conflicting PMSI

A

if more than one party has PMSI superpriority, the following rules apply:
(i) a secured party who has a PMSI in collateral as a seller has priority over a secured party who has a PMSI in the same collateral as a lender
(ii) otherwise, the first secured party to file or perfect prevails

130
Q

Special Priority Rules for Conflicting Security Interests in Investment Property

A

a security interest perfected by control has priority over a security interest perfected by any other method - for conflicting interest perfected by control, they rank according to the time of obtaining control

131
Q

Special Priority Rules for Conflicting Security Interests in Deposit Accounts

A

perfected by control has priority over a conflicting security interest that is perfected by another method

if there are conflicting ones by control, they rank according to the time of obtaining control, subject to exceptions

132
Q

Special Priority Rules for Conflicting Security Interests in Deposits Accounts Exceptions

A

(a) a secured party who has obtained control by putting the deposit account in the party’s name has priority over all other secured parties with control and
(b) a bank that has control because it maintains the deposit account has priority over all secured partys who has obtained control by putting the account in their name

133
Q

Purchasers of Chattel Paper and Instruments - Chattel Paper Purchasers

A

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 has priority over:
(i) a security interest in chattel paper that arises merely as proceeds of inventory, as long as the chattel paper doesnt indicate that it has been assigned to anyone other than the purchaser, and
(ii) any other security interest in the chattel paper, as long s the chattel paper purchaser acquired their interest without knowledge that its purchase violated the rights of the secured party

134
Q

Purchasers of Chattel Paper and Instruments - Priority of Proceeds

A

a chattel paper purchaser also has priority in the proceeds of the chattel paper if either (1) the purchaser would have had priority under the general priority rules or
(2) the proceeds are the specific goods covered by the chattel paper or cash proceeds of the specific goods

135
Q

Purchasers of Chattel Paper Instruments - Instrument Purchasers

A

a purchaser of an instrument has priority over a perfected security interest in the instrument if the purchaser gives value and takes possession of the instrument in good faith and without knowledge that the purchase violates the rights of the secured party

136
Q

Filing Collateral

A

collateral in which a secured party would normally achieve priority by filing a financing statement

137
Q

Non Filing Collateral

A

collateral in which a secured party would normally achieve priority by possession or control, rather than filing

138
Q

Priority in Proceeds - General Rule

A

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 security interest in the proceeds extends beyond the 20 day temporary perfection period

139
Q

Priority in Proceeds - Special Rule for Certain Proceeds of Non-Filing Collateral

A

a secured party has priority in the proceeds of non-filing collateral if:
(1) the secured party has priority in the original collateral, (2) their security interest in the proceeds is perfected, and (3) the proceeds are cash proceeds or proceeds of the same type as the original collateral - if proceeds are proceeds, all intervening proceeds must be cash proceeds, proceeds of the same type as the original collateral or accounts relating to the collateral

140
Q

Special Rule for Certain Proceeds of Non-Filing Collateral - Exception

A

if a security interest in the original collateral is nonfiling collateral is perfected by a method other than filing, and the proceeds of the original collateral are fling collateral, the first secured party to file in a financing statement covering the proceeds has priority in the proceeds

141
Q

Secured Party versus Buyer or Other Transferee

A

when a buyer or a lessee buys or leases something with a security interest on it, the security interest stays on the item

142
Q

Secured Party versus Buyer or Other Transferee - Authorized Sales

A

if the sale or lease of the collateral is authorized by the secured party free of the security interest, the transferee takes free of the security interest - the authorization may be express or it may be implied

143
Q

Secured Party versus Buyer or Other Transferee - Unauthorized Sales

A

a buyer in the ordinary course of business takes free of a nonpossessory security interest in the goods created by the buyers seller, even though the security interest is perfected and even though the buyer knows of the security interest

144
Q

Secured Party versus Buyer or Other Transferee - Unauthorized Sales

A

a buyer in the ordinary course of business takes free of a nonpossessory security interest in the goods created by the buyers seller, even though the security interest is perfected and even though the buyer knows of the security interest

also applies to lessees of goods

145
Q

Buyer in the Ordinary Course of Business

A

one who buys goods (1) in good faith, (2) without knowledge that the sale violates the rights of another person in the goods and (3) in the ordinary course of business of selling goods of the kind purchased

146
Q

Buyers not in the Ordinary Course of Business

A

buyers or lessees not in the ordinary course of business:
(i) take subject to perfected security interests and
(ii) take free from unperfected security interests unless they know of the security interests when they give value or take delivery

147
Q

Buyers not in the Ordinary Course of Business Exception - Future Advances

A

a buyer or lessee not in the ordinary course of business has priority over future advances or commitments to make future advances made by a secured party either after the secured party learns of the purchase or lease or more than 45 days after the purchase or lease

148
Q

Buyers not in the Ordinary Course of Business Exception - PMSI Grace Period

A

if a secured party attaches a PMSI in the debtor’s collateral before the buyer or lessee without knowledge pays value and receives delivery, the secured party will have priority over the buyer or lessee if the secured party files within 20 days after the debtor receives the collateral

149
Q

Unauthorized Sales - Consumer to Consumer Sales

A

a buyer takes free of a security interest even though its perfected if the buyer buys (1) without knowledge of the security interest, (2) for value, (3) for the buyers own personal, family, or household purposes, and (4) before a financing statement covering the goods has been filed - goods must be consumer goods in the hands of both the buyer and seller

150
Q

Secured Party v Holder in Due Course or the Like

A

a holder in due course of negotiable instrument has priority over a security interest in the negotiable instrument

151
Q

Secured Party versus Judicial Lien Creditor or Holder of Possessory Lien

A

a judicial creditor prevails over the holder of a security interest in collateral if the lien creditor becomes such before the security interest is perfected - a prior perfected security interest has priority over a judicial lien

152
Q

Judicial Lien Creditor

A

person who has acquired a lien on the collateral through judicial attachment, levy, or the like, or bankruptcy trustee

153
Q

Secured Party v Judicial Lien Creditor or Holder or Possessory Lien - Prior Filed Security Interest May Also Have Priority

A

the secured party will also have priority if the secured party obtained a security agreement and filed the financing statement before the judicial lien arose, as long as the secured party eventually attaches and perfects

154
Q

Secured Party v Judicial Lien Creditor Holder or Possessory Lien - PMSI Grace Period Exception

A

if the secured party files a financing statement with respect to a PMSI within 20 days after the debtor receives the collateral, the secured party will have priority over a judicial lien arising between the time the security interest attaches and the time of filing

155
Q

Secured Party v Judicial Lien Creditor Holder or Possessory Lien - Exception Future Advances

A

for a perfected future advance to gain priority over a subsequent judicial lien, the future advance must be made (1) without knowledge of the lien, (2) within 45 days of the lien arising or (3) pursuant to a commitment entered into without knowledge of the lien

156
Q

Secured Party v Judicial Lien Creditor Holder or Possessory Lien - Secured Party versus Possessory Lien Holder

A

a possessory lien imposed by other state law in favor of those who supply goods or services has priority over a security interest as long as the goods or services were provided in the ordinary course of business and the collateral remains in the lien holder’s possession

157
Q

Secured Party vs Article 2 Claimant

A

if article 2 grants a buyer or seller possessory security interest in goods, the article 2 claimant has priority over an article 9 secured party as long as the article 2 claimant retains possession of the goods

158
Q

Priorities Hierarchy

A

excluding investment property and nonconsumer deposit accounts, in which the party with control generally has priority, the ranking as follows: pg 47-48

159
Q

Default

A

security agreement usually will define the default to include events such as failure to pay or maintain insurance - if the security agreement lacks such a provision, default is generally construed as a failure to pay or perform

160
Q

Self-Help Repossession

A

after default, the secured party is entitled to take possession of the collateral without judicial process if it can be done without a breach of the peace

161
Q

Self Help Repossession - Loss of Authorization

A

when a secured party breaches the peace, the secured party loses the authorization to repossess, may be sued for conversion, and is liable for actual damages

162
Q

Breach of the Peace

A

any conduct by the secured party that has the potential to leas to violence - physical presence by the debtor plus verbal objection by the debtor is enough to create a breach of peace

163
Q

Breach of the Peace - Breaking and Entering Can be a Breach

A

breaking and entering a residence is probably a breach - the breaking and entering of a commercial property is less likely to be a breach - simple trespass is not breach

164
Q

Repossession - Judicial Process

A

if self-help is unavailable, the secured party can use judicial process to get the goods

165
Q

Rendering Equipment Unusable

A

without removal, the secured party may also make equipment unusable and dispose of it on the debtors property if the secured party can do so without a breach of the peace

166
Q

Self-Help in Accounts

A

if the debtor defaults and the collateral is an account, the secured party can notify the person owing money to the debtor to make the payment to the secured party, rather than the debtor - payment to the debtor will not discharge the obligation

167
Q

Strict Foreclosure - General Rule

A

the secured party may make full or partial strict foreclosure if the secured party does the following:
(i) the secured party must sent its proposal to retain the collateral to (1) any other secured party from whom the foreclosing party has received notice of a claim to the collateral and (2) any other secured party who has perfected a security interest in the collateral by filing a financing statement or noting its security interest on a certificate of title - if notified objects in 20 days the collateral must be disposed of by sale
(ii) the secured party must obtain the debtor’s consent - consents by either (a) agreeing in an authenticated record after default or (b) in case of a full strict foreclosure, failing to make an authenticated objection within 20 days after the secured party sends notice

168
Q

Strict Foreclosure Exceptions - No Partial Strict Foreclosure in Consumer Transactions

A

in a consumer transaction, a secured party may not keep the collateral in part satisfaction of the debt and seek a deficiency judgment - the secured party may keep the collateral only in full satisfaction of the debt

169
Q

Strict Foreclosure Exceptions - Consumer Goods 60% Rule

A

if the debtor has paid 60% of the cash price on a PMSI in consumer goods, or 60% of the loan on a non PMSI in consumer goods, the secured party must dispose of the collateral within 90 days after repossession

170
Q

Resale of Collateral

A

after default, the secured party may sell, lease, license, or otherwise dispose of the collateral in its condition when repossessed or after reasonable preparation - sale discharges the security interest under which the sale is being made and all subordinate security interests

171
Q

Resale of Collateral - Reasonable Notification Required

A

reasonable notice that is authenticated by the secured party must be given (1) to the debtor and any sureties on the debt, and (except in the case of consumer goods) (2) to any other secured parties who have notified the secured party of their interests and (3) to any secured parties who have perfected by filing a financing statement or making a notation on a certificate of title

172
Q

Resale of Collateral - Timeliness

A

the notice must be sent within a reasonable time before the sale - in a nonconsumer transaction, notice is deemed to be sent within a reasonable time if its sent 10 days or more before the sale

173
Q

Resale of Collateral - Contents of Notice

A

for a public sale, notice of the time and place of sale is required - for a private sale, notice of the time after which the sale will occur must be given and the notice must also described the parties and the collateral

174
Q

Resale of Collateral - Sale Must be Commercially Reasonable

A

every aspect of the sale must be commerically reasonable

175
Q

Commercially Reasonable Factors

A

(a) sufficiency of the advertising
(b) if the collateral had limited market, whether people in that market were contacted
(c) whether the collateral needed cleaning or repair and
(d) if the sale was by public auction, the convivence of the time and place

176
Q

Resale of Collateral - Secured Party May Buy Collateral

A

the secured party may buy the collateral at any public sale but may buy at a private sale only if the collateral is a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations

177
Q

Resale of Collateral - Proceeds of the Sale

A

the money from a foreclosure sale goes first to repay the costs of repossession and sale, then to pay off the debt of the foreclosing creditor, and then to pay off the debt of creditors with lower priority then the foreclosing creditor

178
Q

Resale of Collateral - Secured Party’s Right to Deficiency Judgement

A

secured party may recover any deficiency from the debtor

179
Q

Resale of Collateral - Explanation of Deficiency Surplus

A

if the debtor is a consumer, then after the sale, the secured creditor must send the debtor an explanation of the calculation of any debt still owed

180
Q

Resale of Collateral - Failure to Comply with Code Rules - Actual Damages

A

a secured party is liable for the actual damages caused by failure to follow any of the codes rules

181
Q

Resale of Collateral - Failure to Comply with Code Rules - Minimum Recovery for Consumer Goods

A

if the collateral is consumer goods and the secured creditor violates the Code rules on default, the debtor is entitled to a minimum of 10% of the cash price of the goods plus an amount equal to all the interest charges to be paid over the life of the loan

182
Q

Resale of Collateral - Failure to Comply with Code Rules - Possible Loss of Deficiency Judgment

A

there is a rebuttable presumption that the sale proceeds equal the amount of debt - the secured party presumptively losses any deficiency

183
Q

Debtor’s Right to Redeem

A

any time before the secured party has resold the collateral or has entered into a contract for its disposition, or the obligation has been discharged by the secured party’s retention of the collateral, the debtor may redeem - the debtor must tender fulfillment of all obligations secured by the collateral plus additional reasonable expenses

184
Q

Fixture

A

goods that have become so related to real property that an interest in them arises under real property

185
Q

Fixture Perfection

A

a fixture filing must be made in the office where a mortgage on the real estate would be filed - a fixture filing statement must reasonably identify the real estate and must show the name of the owner

186
Q

Fixture Rights on Default

A

when the security interest in the fixture has priority over all interest in the property, the holder of the interest in the fixture may upon default remove the fixture from the real property - creditor must reimburse the owner of the property for the cost to repair damage to the property cause by removal, but not for diminution in value

187
Q

Fixture Priority - Secured Party v Subsequent Real Estate

A

a security interest in fixtures has priority over any real estate interest that is recorded subsequent to the perfection of the security interest by fixture filing

188
Q

Fixture Priority - Secured Party v Prior Real Estate Interest

A

a prior real estate interest that is properly recorded has priority over a secured interest that subsequently arises

189
Q

Fixture Priority - Secured Party v Prior Real Estate Interest Exception PMSI

A

a PMSI takes priority over an earlier in time realty interest if its perfected by a fixture filing before the goods become fixtures or within 20 days thereafter

190
Q

Fixture Priority - Secured Party v Prior Real Estate Interest Construction Mortgages

A

construction mortgage takes priority over a subsequent PMSI in fixtures, even if the interest is perfected by a fixture filing within 20 days

191
Q

Fixture Priority - Fixture Filing Unnecessary - Readily Removable Collateral

A

a secured party need not fixture file as to readily removable (1) factory or office machines, (2) equipment that is not primarily used or leased for use in the operation of the real estate, (3) replacements of domestic appliances which are consumer goods - any method of perfection before such goods become fixtures entitles the secured party to priority

192
Q

Fixture Priority - Fixture Filing Unnecessary - Consent, Disclaimer, or Right to Remove

A

a secured party need not perfect at all to have priority (1) if the encumberancer or owner of the real estate has, in an autehtnicated record, consented to the security interest or has disclaimed an interest in the goods as fixtures, or (2) if the debtor has a right to remove the goods against the real estate claimant

193
Q

Accession

A

goods that are physically united with other goods in such a manner that the identity of the original good is not lost

194
Q

Accession Perfection

A

if a secured interest is perfected when the collateral becomes an accession, the security interest remains perfected in the collateral

195
Q

Accession - Special Priority Rule Vehicles

A

a security interest in an accession is subordinate to a security interest in the whole which is perfected by compliance with the requirements of certificate of title statute

196
Q

Accession Removal and Reimbursement for Physical Injury to the Whole

A

a secured party may remove an accession from other goods if the secured interest in the accession has priority over the claims of every person having interest in the whole

July 2023 MEE (16 decks)

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