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Bar Exam: Outline > Secured Transactions (MEE) > Flashcards

Secured Transactions (MEE) Flashcards

1
Q

Tangible Collateral

A

Goods and software

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2
Q

Goods

A
  • Encompasses anything that is moveable at the time that the SI attaches
  • Debtor’s principal use at time the SI attaches determiens the class of goods
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3
Q

Types of Goods

A
  • Consumer goods
  • Farm products
  • Inventory
  • Equipment
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4
Q

Consumer Goods

A

Goods acquired primarily for personal, family, or household purposes

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5
Q

Inventory

A

Goods, other than farm products, held for sale or lease; are furnished under a service contract; or consist of raw materials, works in process, or materials used or consumed in a business in a short period of time (e.g., fuel)

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6
Q

Equipment

A

Catchall class consisting of goods that are not consumer goods, farm products, or inventory

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7
Q

Software

A
  • Software embedded in godos is treated as part of goods in which it is embedded
  • Software not embedded in goods is treated as a general intangible
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8
Q

Intangible Collateral

A
  • Determined without reference to debtor’s use
  • Uncategorized intangible collateral are referred to as general intangibles
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9
Q

Types of Intangible Collateral

A
  • Chattel paper
  • Document: Document of title, which confers on holder ownership rights in goods held by bailee
  • Instruments: Negotiable and nonnegotiable
  • Investment Property: Includes both certificated and uncertificated securites, as well as securities accounts
  • Accounts
  • Commercial tort claims: Excludes tort claims by individual for personal injury or death
  • Deposit accounts
  • Letter-of-credit right
  • General intangibles
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10
Q

Chattel Paper

A

One or more records that evidence both (i) a monetary obligation and (ii) a security interest in specific goods or a lease of specific goods

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11
Q

Accounts

A
  • Right to payment for property sold, leased, or licensed, or services rendered
  • Also included is a right to payment for issuance of insurance policy, use of a credit or charge card, or winning a lottery
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12
Q

Deposit Accounts

A

Includes a savings, passbook, time, or demand account maintained with a bank

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13
Q

Eligible Transactions: General Rule

A
  • Article 9 governs a transaction that creates an SI in personal property or a fixture
  • A consignment, agricultural lien, and even a purchase of personal property may be subject to Article 9.
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14
Q

Eligible Transactions: Leases

A
  • Covered under Art. 9 when the transaction, although in the form of a lease, is in substance a secured transaction
  • Lease creates a security interest if: (i) lease payments must be made for full term of the lease and are not subject to termination and (ii) lessee has an option to become the owner of the goods for nominal consideration at conclusion of lease agreement.
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15
Q

Eligible Transactions: Real Property

A
  • Not generally subject to Art. 9
  • Can apply Art. 9 to an SI in a secured obligation (e.g., a promissory note) even though obligation is itself secured by a transaction to which Art. 9 does not apply (e.g., real property mortgage)
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16
Q

Attachment

A

An SI that is enforceable against the debtor with respect to the collateral is said to have “attached” to the collateral. A SI is attached if:
1. Value given by the secured party;
2. Debtor has rights in the collateral;
3. Debtor has authenticated a security agreement that describes the collateral, or the secured party has possession or control of the collateral pursuant to a security agreement

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17
Q

Attachment: Security Agreement

A

Security agreement must:
(i) be in a record;
* Written or typed document

(ii) contain a description of the collateral; and
* Super-generic description (“all debtor’s assets) is not sufficient, but unless collateral is consumer goods/commercial tort, can identify the Art. 9 type of collateral

(iii) be authenticated by the debtor
* Typically signed

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18
Q

Attachment: Value

A

Value may be given:
* By providing consideration sufficient to support a simple K;
* By extending credit;
* By, as a buyer, accepting delivery under a preexisting K; or
* In satisfaction of, or as security for, part or all of a preexisting claim

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19
Q

Attachment: After-Acquired Collateral

A

General Rule: SI may cover collateral owned when security is granted and collateral that debtor acquires after the SI is given
Exceptions: After-acquired clause is not effective for consumer goods, unless debtor acquires them within 10 days after secured party gives value, or a commercial tort claim

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20
Q

Attachment: Proceeds from Collateral

A

A SI in collateral automatically attaches to identifiable proceeds from the sale, exchange, or other disposition of the collateral

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21
Q

Purchase-Money Security Interest

A
  • Gives lenders a SI in goods that have been purchased with funds borrowed from them or purchased on credit from them.
  • Subject to special rules with respect to perfection and priority
  • May exist only with respect to two types of collateral— goods (including fixtures) and software
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22
Q

PSMI in Goods

A

Exists when:
* A secured party gave value (e.g., made a loan) to the debtor and the debtor uses the loan to acquire rights in or use of the collateral; or
* A secured party sells the collateral to the debtor, and the debtor enters an agreement requiring it to pay the secured party all or part of the purchase price (i.e., sale of goods on credit)

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23
Q

PSMI in Software

A

Exists only when:
1. Debtor acquired his interest in software in an integrated transaction in which debtor also acquired an interest in goods (e.g., computer), and
2. Debtor acquired that interest in the software for the principal purpose of using the software in the goods

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24
Q

Accessions

A
  • Goods that are physically united with other goods isuch that the identity of the original goods is not lost (e.g., tires installed on a car).
  • SI that is created in collateral that becomes an accession is not lost due to the collateral becoming an accession.
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25
Q

Commingled Goods

A
  • Goods that are physically united with other goods such that their identity is lost in a product or mass
  • No SI in specific good that has been commingled or subsequently becomes commingled, but SI may attach to product or mass that results when goods are commingled
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26
Q

Perfection

A
  • “Perfection” of a security interest is generally necessary for the secured party to have rights in the collateral that are superior to any rights claimed by third parties.
  • A security interest is “perfected” upon: (i) attachment of that interest and (ii) compliance with one of the methods of perfection.
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27
Q

Methods of Perfection

A
  • Filing of a finance statement
  • Possession of the collateral
  • Control over the collateral
  • Automatic perfection (either temporary or permanent)
  • Statute
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28
Q

Financing Statement: Elligible Collateral

A

A security interest in any collateral, except a deposit account, money, or letter-of credit rights that are not a supporting obligation, may be perfected by filing a financing statement

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29
Q

Financing Statement

A

A financing statement must contain:
1. The debtor’s name;
2. The name of the secured party or a representative of the secured party; and
3. The collateral covered by the financing statement

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30
Q

Financing Statement: Debtor’s Name

A
  • Typically, name on debtor’s current driver’s license or state-issued ID card
  • Debtor’s trade name: Insufficent by itself; not needed if debtor’s name is correctly provided
  • Registered organization: Name shown on public organic records (e.g., articles of incorporation)
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31
Q

Filing Statement: Debtor’s Name Change

A
  • Secured party has four months to amend financing statement
  • If not done, collateral acquried by debtor after four-month period not covered by financing statement
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32
Q

Financing Statement: Error in Debtor’s Name

A
  • A financing statement that fails to accurately contain the debtor’s name may be “seriously misleading” and ineffective to perfect the SI.
  • Exception: When a standard search of filing office records under the debtor’s correct name would disclose the financing statement, erroneous name does not make financing statement seriously misleading and it is valid.
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33
Q

Financing Statement: Description of Collateral

A
  • Financing statement may include super-generic description of collateral (“all debtor’s assets) if description sufficiently indicates collateral
  • After-acquired property and future advances: Financing statement may be effective to cover if such property falls within collateral described, whether or not contemplated by parties
  • Proceeds: SI in proceeds is perfected even if not mentioned in financing statement
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34
Q

Financing Statement: Filing Location for Collateral

A

Secretary of state of the state of the debtor’s location
* Individual debtor: State in which debtor maintains principal residence
* Partnership debtor: State in which it maintains place of business, if more than one, then CEO’s office
* Corporation: State in which its organized

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35
Q

Filing Statement: Filing Location for Collateral Related to Real Property

A

Office for recording a mortgage on the related real property

36
Q

Financing Statement: Timing

A
  • Effective date of filing: Delivery to filing office/tender of filing fee
  • Length of Perfection: Effective for 5 years
  • Continuation Statement: May be continued for another 5 years by filing continuation statement within six months prior to expiration of statement. Failure to do so renders SI treated as never having been perfected against purchaser of collateral for value.
37
Q

Perfection: Possession

A

Perfection exists only during period of possession. Collateral perfected by possession:
* Goods
* Instruments
* Negotiable Documents
* Money
* Tangible Chattel Paper
* Certificated Security

38
Q

Perfection: Control

A

Perfection exists only while secured party retains control. Collateral perfected by control:
* Investment Property
* Deposit Accounts: Only method of perfection
* Letter-of-credit rights: Control is only method, unless rights are a supporting obligation for collateral
* Electronic chattel paper
* Electronic documents

39
Q

Perfection: Control over a Deposit Account

A
  1. Secured party is the bank with which the deposit account is maintained;
  2. The bank, secured party, and debtor agreed in writing to follow the instructions of the secured party; or
  3. The secured party becomes the bank’s customer with respect to the deposit account.
40
Q

Indefinite Automatic Perfection

A
  • A PSMI in consumer goods is automatically perfected upon attachment
  • A secured party does not need to file a financing statement or to have possession to have a perfected PMSI in consumer goods, but, not filing and perfecting can affect a secured party’s priority against a consumer buyer
41
Q

Temporary Automatic Perfection

A
  • New Value: If new value given under authenticated security agreement, SI in certificated securities, negotiable documents, or instruments is temporarily perfected for 20 days from attachment
  • Delivery of collateral to debtor: If collateral is delivered to debtor for purpose of selling or exchanging it, SI in collateral remains temporarily perfected for 20 days
  • Interstate Movement of Collateral or Debtor
42
Q

Temporary Perfection: Interstate Movement of Collateral or Debtor

A
  • Movement of debtor to another state: Four-month grace period for a perfected SI
  • Movement of collateral to debtor in another state: One-year grace period for a perfected SI
43
Q

Proceeds: Temporary Automatic Perfection

A

If SI in original collateral perfected, SI in proceeds perfected for 20 days from attachment

44
Q

Proceeds: Indefinite Automatic Perfection

A
  • Pursuant to financing statement
  • Cash Proceeds: If SI in original collateral perfected, SI in identifiable cash proceeds is perfected indefinitely
  • Same Office: If filed financing statement covers original collateral and proceeds are collateral in which an SI may be perfected by filing in the office in which the financing statement has been filed, perfected SI in proceeds may continue indefinitely. Does not apply to proceeds acquired with cash proceeds.
45
Q

Priority: Unsecured General Creditor

A

An SI always prevails over a general creditor’s rights in the debtor’s collateral

46
Q

Priority: Judicial Lien Creditor

A
  • Perfected SI: Has priority over a judicial lien
  • Unperfected SI: Judicial lien has priority unless only reason SI was unperfected was that secured party had not yet given value
  • PMSI Exception: If a PMSI is perfected before or within 20 days after debtor receieves possession of collateral, PMSI has priority over a creditor’s rights that arose between time of attachment of SI and filing
  • Advances: SI securing advance is subordinate to lien creditor’s right when advance is made more than 45 days after person becomes lien creditor, unless advance is made without knowledge of the lien
47
Q

Priority: Statutory/Common-Law Lien Creditor

A

A possessory lien has priority over any SI if the lien secures payment for goods or servies furnished in the ordinary course of business (e.g., mechanic’s lien) unless statute provides otherwise

48
Q

Priority: Transferee v. Secured Party with An SI

A

SI generally continues in collateral unless secured party authorized transfer free of SI

49
Q

Priority: Buyers v. Unperfected SI

A

Buyer takes collateral free of SI if buyer:
* (i) gave value,
* (ii) receieves delivery,
* (iii) without knowledge of the SI

50
Q

Priority: Buyers v. Perfected SI

A

Buyer generally takes collateral subject to the SI

51
Q

Priority: Buyer in the Ordinary Course of Business

A

A buyer in the ordinary course of business (BOCB) takes goods free of a security interest the seller gave to the creditor in the goods, even if the security interest is perfected and buyer knows of its existence. A BOCB is a person who:
* (i) Buys goods (not farm products);
* (ii) In the ordinary course of business;
* (iii) From a merchant who is in the business of selling goods of that kind;
* (iv) In good faith; and
* (v) Without knowledge that the sale violates another’s rights in the goods

52
Q

Priority: Consumer Buyer

A

A consumer buyer of consumer goods takes free of a security interest, even if perfected, unless prior to the purchase, secured party filed a financing statement covering the goods (applies to PMSI in goods). A consumer buyer is a person who:
* (i) Buys consumer goods for value;
* (iii) For his own personal, family, or household use;
* (iii) From a consumer seller; and
* (iv) Without knowledge of the security interest.

53
Q

Priority: Purchasers of Chattel Paper

A

A purchaser of cahttel paper has priority over an SI in the chattel paper if the purchaser:
* (i) gives new value and has possession/control of the collateral;
* (ii) Purchase is made in good faith and in the ordinary course of business, and
* (iii) The chattel paper does not indicate an assignment to an identified assignee or a purchase made without knowledge that the purchase violates secured party’s rights

54
Q

Priority: Buyer of Negotiable Instrument or Document

A

Buyer takes free of any SI

55
Q

Priority: Buyer not in Ordinary Course of Business (Future Advances)

A
  • Buyer generally takes free of any SI that secures an advance made after the earlier of (i) the time the secured party acquires knowledge of purchase or (ii) 45 days after purchase
  • Buyer takes subject to SI if advance is made pursuant to commitment entered into without knowledge of buyer’s purchases and before expiration of 45-day period
56
Q

Priority: Transferee of Money or Funds

A
  • Generally takes free of an SI in money or funds
  • A debtor is not treated as an SI
57
Q

Priority: Art. 2 Security Interest v. Art. 9 Security Interest

A

Art. 2 SI of a buyer or seller with possession of the goods has priority over an Art. 9 SI

58
Q

Priority: “Clean” Certificate of Title

A

Buyer without knowledge of a prior SI not noted on the title takes the goods free of that SI

59
Q

Priority: Perfected SI vs. Perfected SI

A
  • First to file or perfect
  • Lapse in filing restarts clock
60
Q

Priority: Perfected SI v. Unperfected SI

A

Perfected SI has priority over an unperfected SI

61
Q

Priority: Unperfected SI v. Unperfected SI

A

First to attach has priority

62
Q

Priority: PMSI v. non-PMSI

A

Generally PMSI has priority over a prior non-PMSI SI

63
Q

Priority: PMSI in Goods other than Inventory or Livestock v. any SI

A

PMSI has priority if perfected before or within 20 days after debtor receives possesion of collateral

64
Q

Priority: PMSI in Inventory or Livestock v. any SI

A

PMSI has priority if:
* (i) perfected by the time the debtor receieves possession of the collateral, and
* (ii) PMSI party sends an authenticated notice of the PMSI to the holder of any conflicting SI before the debtor receives possesion of the collateral (notification only required when SI was perfected by filing)

65
Q

Priority: Perfected PMSI v. Perfected PMSI

A
  • First to file or perfect has priority
  • Exception: Seller with a PMSI has priority over a lender with a PMSI
66
Q

Priority: Proceeds from PMSI in Goods

A

Priority of a PMSI in goods generally extends to proceeds of original collateral, if SI is perfected when debtor receieves possession of collateral or within 20 days thereafter

67
Q

Priority: SI in Fixtures v. Real Property Interest

A

SI in fixtures has priority over an interest in the real property with which the fixtures are associated if the SI in fixtures is perfected by a fixture filing before the real property interest is recorded

68
Q

Priority: Perfected SI in Fixtures v. Subsequent Judicial Lien

A

Perfected SI in fixtures has priority

69
Q

Priority: PMSI in Fixtures v. Prior Real Property Interest

A

PMSI in fixtures has priority if perfected by fixture filing before goods become fixtures or within 20 days after

70
Q

Priority: SI in Fixtures v. Prior Construction Mortgage

A

Prior construction mortgage has priority if recorded before goods become fixtures

71
Q

Priority: Proceeds

A
  • General rule: First to file or perfect
  • Filing or perfection date for original collateral is filing or perfection date for proceeds
72
Q

Priority: Future Advances

A
  • General rule: First to file or perfect
  • Perfection generally dates from time the advance is made
73
Q

Default: Consequences

A

Secured party may (i) seek possession of the collateral and sell it or retain it, or (ii) sue for a judgment based on the obligation

74
Q

Default: SI in Fixtures

A
  • Secured party may remove the fixture from the real property if the SI has priority
  • Secured party is liable for repair costs
75
Q

Default: Possession of Collateral

A
  • Secured party is not required to give notice of default, nor an intent to take possession of the collateral, but cannot acquire collateral through breach of the peace
  • If equipment is too large or difficult to physically possess, equipment can be rendered unusable
76
Q

Disposition of Collateral: Standard

A

All aspects of the disposition must be commercially reasonable (method, manner, time, and place)
* Price: No specific price must be obtained; mere fact that higher price could have been obtained odes not establsih unreasonableness
* Time: Immediate disposition is not always required

77
Q

Commercially Reasonable

A

Disposition is commercially reasonable when conducted:
* In the usual manner on a recognized market, such as a stock exchange, that has standardized price quotations for fungible goods;
* At the price current in any recognized market at the time of the disposition; or
* Otherwise in conformity with reasonable commercial practices among dealers in the type of property that was the subject of the disposition.

78
Q

Disposition: Types

A

Disposition may be by either public or private sale, but secured party cannot purchase collateral at a private sale

79
Q

Disposition: Notice

A

Secured party must send authenticated notification of disposition at least 10 days before the disposition to:
* (i) debtor,
* (ii) any secondary obligor,
* (iii) any other secured party or lien holder who has an SI perfected by filing, and
* (iv) any party who has notified the secured party of a claim/interest in the collateral

80
Q

Disposition: Notice Exceptions

A
  1. Collateral is perishable or threatens to decline speedily in value;
  2. Collateral is of a type customarily sold on a recognized market;
  3. Person waived his right in an authenticated writing
81
Q

Application of Cash Proceeds from Disposition

A

First to reasonable disposition expenses, then to satisfy secured obligation, then to satisfy subordinate SI, then any remainder to debtor

82
Q

Application of Proceeds from Disposition: Treatment of Surplus/Deficiency

A

Generally, debtor is entitled to any surplus and is liable for any deficiency, except with:
* Sale of accounts,
* Chattel paper,
* Payment intangibles, or
* Promissory Notes

83
Q

Strict Foreclosure: Full Satisfaction of Obligatoin

A

Permissible if (i) debtor consents, after default, to acceptance in an authenticated record, or (ii) debtor does not object to secured party’s proposal to accept collateral within 20 days

84
Q

Strict Foreclosure: Partial Satisfaction of Obligation

A

Debtor consents, after default, to acceptance in an authenticated record

85
Q

Strict Foreclosure: Special Rules for Consumer Debtors

A
  • Partial satisfaction: Acceptance of collateral in partial satisfaction of obligation is not permitted in consumer transaction
  • Strict Foreclosure: If consumer goods are in possession of secured party, no strict foreclosure if debtor has paid at least 60% of cash price/obligation; goods must be sold. Can be waived after default in an authenticated agreement.
86
Q

Redemption of Collateral

A
  • Redeemer must fulfill all obligations secured by collateral and reasonable expenses incurred by secured party in retaking the collateral or preparing for its disposition
  • Time limit: Redemption not permitted after disposition or foreclosure
  • Waiver: Only permitted after default and by authenticated agreement, except in consumer-goods transaction
87
Q

Limitation on Deficiency for Failure to Comply with Art. 9

A

Commercial Transactions: Rebuttable presumption that secured party is not eneitled to collect a deficiency; rebutted by showing deficiency would have nonetheless existed.
Consumer Transactions: Many courts apply same rule as for commercial transactions, but some courts bar deficiency

Bar Exam: Outline (15 decks)

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