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Bar Prep > Bar Prep - NY Secured Transactions > Flashcards

Bar Prep - NY Secured Transactions Flashcards

1
Q

What is the scope of Article 9?

A

Applies to consensual security interests in personality and security fixtures.

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2
Q

How does a creditor create an enforceable security interest in debtor’s collateral?

A

VCR.

Value
Contract
Rights in collateral

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3
Q

Once attached, how does the creditor attain perfection?

A

Put world on RECORD NOTICE of its existence

Perfection = publicity

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4
Q

When more than one creditor has stake in same collateral, what are rules of priority?

A

First in time, first in right.

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5
Q

What if debtor DEFAULTS on the debt or obligation?

A

Creditor has statutory and judicial remedies.

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6
Q

When collateral is real estate, what law applies?

A

Law of mortgages (NOT art. 9)

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7
Q

When collateral is personalty or fixtures, what law applies?

A

Article 9

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8
Q

True or false: Personalty = goods

A

True

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9
Q

True or False: Art. 9 applies to statutory or mechanics liens

A

FALSE.

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10
Q

Entity who owes $ is…

A

Debtor

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11
Q

Entity who lends $ is…

A

Secured party or secured creditor

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12
Q

What is the contract, record or writing that authenticates deal?

A

Security agreement

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13
Q

Right creditor has in debtor’s in personalty or fixtures known as….

A

Security interest

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14
Q

What is collateral?

A

Personalty or fixtures creditor can look to for satisfaction

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15
Q

Collateral most likely appears in what form?

A

Tangicle collateral or goods, meaning:

Consumer goods
Equipment
Inventory
Farm products
Fixtures
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16
Q

What is the key for purposes of classifying tangible collateral?

A

Primary use in the hands of YOUR DEBTOR (Subjective test).

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17
Q

What does attachment mean?

A

Is the security interest enforceable?

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18
Q

What are the three requirements for attachment?

A

Value - must be given by creditor

Contract - call security agreement, must evidence the secured transaction UNLESS the secured party has taken possession of the collateral

Rights

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19
Q

True or False: if secured party is in possession of the collateral, there is no need for a record.

A

TRUE - (though uncommon) it is more common that debtor is in possession of collateral, – thus need a writing.

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20
Q

What are the requires of a record?

A

(a) Authenticated by debtor (signed or electronically marked) AND
(b) Reasonably identify collateral

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21
Q

What is an After Acquired Collateral Clause?

A

AKA - “Floating Lien”

They are enforceable.

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22
Q

What is perfection?

A

PUBLICITY DEVICE.

Something secured party does to put world on record or constructive notice of secured party’s existence.

**Helps to protect secured party from competing creditors.

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23
Q

How can secured creditor attain perfection?

A

(a) Taking possession of collateral
(b) Automatic perfection for purchase money security interests (PMSIs) in consumer goods

(c)

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24
Q

What is purchase money security interest?

A

PMSI - security interest in chattel

PMSI in consumer goods are perfected automatically, upon attachment.

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25
Q

If creditor wants to attain perfection when debtor retains possession, what options are available?

A

(a) PMSI (in consumer good)

(b) File notice in public records

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26
Q

What is a financing statement?

A

UCC-1

Name of document typically filed for notice. Purpose is to provided interested parties with sufficient information to make FOLLOW UP INQUIRIES.

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27
Q

What are the key buzzwords regarding contents fo a financing statement?

A

SIMPLE AND SPARCE

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28
Q

What are the only requirements for a financing statement?

A

(i) Debtor’s name and address
(ii) creditors name and address
(iii) description of collateral

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29
Q

True or false: In a financing statement, super-generic descriptions of the collateral are not allowed

A

FALSE - general descriptions are ok.

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30
Q

What is an attached unperfected creditor?

A

Art. 9 creditor who creates an enforceable security interest (attaches) but never bothers to (a) perfect OR (b) improperly perfects.

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31
Q

Generally, where is the financing statement filed?

A

Centrally, with the state Secretary of State, in state where DEBTOR is located.

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32
Q

What is the general rule regarding where the financing statement is filed if the debtor is an individual?

A

State of principle residence.

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33
Q

What is the general rule regarding where a financing statement is filed if the debtor is a registered organization?

A

File in state where organization is organized.

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34
Q

What is the exception to central filing?

A

Timber, minerals or fixtures (collateral that has to do with land).

Then file LOCALLY in county where land collateral is located.

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35
Q

That is the basic priority concept if more than one party stakes claim to the same collateral?

A

Secured party seeks to SUBORDINATE, not to share.

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36
Q

True or false: Each claimant is entitled to satisfaction IN FULL.

A

TRUE - each is entitled to satisfaction in full before a subordinated claimant is entitled to take.

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37
Q

What is a lien creditor?

A

General unsecured creditor who does to court to get a judicial lien on the collateral.

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38
Q

What is a perfected attached creditor?

A

Article 9 creditor who succeeds in attaining perfection.

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39
Q

What is a Non-Ordinary Courts Buyer?

A

Someone who purchases the collateral outside the ordinary stream of commerce.

40
Q

What is a Buyer in Ordinary Course?

A

Someone who purchases the collateral from a merchant’s inventory.

41
Q

What is a General Unsecured Creditor?

A

Lender who NEVER BOTHERED to take collateral – SUPREME LOSER.

42
Q

What is the the general rule regarding priority of creditors (order)?

A

(1) Buyer in Ordinary Courts
(2) Perfected Attached Creditor
(3) Lien Creditor
(4) Non-Ordinary Course Buyer
(5) Attached Un-perfected Creditor
(6) General Unsecured Creditor

43
Q

What is an After-Acquired Collateral Financier?

A

A secured creditor who takes as collateral a security interest “in all of Debtor’s business equipment where now held or here after acquired.”

44
Q

What does the language “where now held or hereafter acquired” represent?

A

After Acquired Collateral Clause

45
Q

True or False: Attached unperfected creditor’s interest is enforceable against debtor and will defeat subsequent:

(i) attached unperfected creditor and
(ii) general unsecured creditor

A

true.

46
Q

True or False: Attached Unperfected Creditor loses to (i) Perfected attached creditor, (ii) Lien creditor and (iii) any buyer w/o knowledge of security interest.

A

True.

47
Q

What are the exceptions to the general rule that a perfected attached creditor defeats all?

A

Perfected Attached Creditors defeat all EXCEPT:

(i) PAC who filed FIRST
(ii) PMSI-Holder
(iii) Buyer in Ordinary Course

48
Q

True or False: Article 9 allows for early filing, even at the onset of loan negotiations.

A

TRUE. If an early filer subsequently attaches, she is allowed the benefit of her early filling.

Priority will relate back to the early filing date.

49
Q

What is a PMSI?

A

A security interest that enables the debtor to purchase the goods.

PMSI - it is an extension of value by a lender who takes as collateral a security interest in the very item that its loan enables the debtor to acquire.

50
Q

How does AACF collide with the PMSI-holder?

A

(i) When the collateral is EQUIPMENT.

(ii) When the collateral is INVENTORY.

51
Q

How can PMSI-holder obtain priority collateral classified as INVENTORY?

A

Must satisfy two requirements:

(i) File properly before debtor takes possession AND
(ii) Notify bank before debtor takes possession

52
Q

Explain the general rule that Perfected Attached Creditors lose to Buyer in Ordinary Course.

A

A buyer in the ordinary course of business takes free of a perfected security interest in seller’s inventory.

Rationale –> promote commerce and honor buyers reasonable expectations.

53
Q

What is the definition of default?

A

Debtor has breached the contract (not defined in Art. 9 but defined in contract or security agmt).

54
Q

What options are available to Art. 9 secured creditor when a debtor defaults?

A

(a) Self-Help Possession
(b) Repossession by judicial action
(c) Strict foreclosure

55
Q

What is self-help possession?

A

Permissible repossession option available provided CREDITOR DOES NOT BREACH THE PEACE.

56
Q

Regarding self-help repossession, when does a breach of peace occur?

A

Whenever secured party’s actions are likely to CAUSE VIOLENCE (whether secured party did something provocative or likely to cause violence).

57
Q

What is the rule regarding repossession when the collateral is debtor’s home?

A

SP MAY NOT entered debtor’s home without voluntary and contemporaneous consent.

58
Q

What is the rule regarding repossession when collateral is outside.

A

SP may take the collateral so long as there is no debtor objection.

59
Q

What is repossession by judicial action.

A

If the secured party chooses not the resort to self-help repossession, he may OBTAIN JUDICIAL MERIT, ordering the sheriff to obtain possession of collateral and delivery it to SP.

60
Q

What is writ of replevin?

A

Appropriate writ for a repossession by judicial action in NY.

61
Q

What is the definition of strict foreclosure?

A

Strict foreclosure occurs when the secured party retains collateral in full of satisfaction of debt still owed.

AKA - creditor lawfully retains the collateral and the debt in turn is canceled.

62
Q

How can secured party accomplish strict foreclosure?

A

The secured party must send a WRITTEN proposal to retain the collateral in satisfaction of the debt.

63
Q

To whom does the secured party send a strict foreclosure proposal when the collateral is CONSUMER GOODS?

A

(a) When collateral is consumer goods – notice sent to debtor and secondary obligors.

64
Q

To whom does the secured party send a strict foreclosure proposal when the collateral is NOT CONSUMER GOODS?

A

(b) Collateral NOT consumer goods – notice sent to debtor and other secured parties (who know of their security interest in collateral) AS WELL AS perfected creditors and secondary obligors.

65
Q

When will a strict foreclosure not be allowed?

A

Upon the objection notification of parties within 20 days after notice sent, strict foreclosure will not be allowed.

Instead collateral must be disposed of by sale.

66
Q

What is the 60% rule?

A

Special protection for consumer debtors.

Rule –> if the collateral is consumer goods and the debtor has paid 60% of the loan in the even of a non-PMSI or 60% of the cash price in the event of PMSI IS NOT ALLOWED.

Instead - SP must sell collateral within 90 days or be liable in conversion.

67
Q

True or False: The SP may sell the collateral and apply the sale proceeds to the debt.

A

True.

68
Q

What are the two governing guideposts on the sale of collateral?

A

(1) Every aspect of sale must be – COMMERCIALLY REASONABLE.

(2) Prior to sale, reasonable notice must be sent

69
Q

If the collateral is consumer goods, reasonable notice of sale must be sent to ____?

A

Debtor and secondary obligor

70
Q

What is a secondary obligor?

A

Guarantor of debt.

71
Q

If the collateral is not consumer goods, reasonable notice of sale must be sent to ____?

A

(i) Debtor
(ii) Secured parties who have advised the foreclosing creditor of their security interest
(iii) As well as perfected creditors AND secondary obligors.

72
Q

If disposition is by public sale, the notice of sale must state ___?

A

Time and place of sale.

73
Q

If disposition is by private sale, the notice must state ___?

A

TIME AFTER WHICH the sale will be made.

74
Q

What additional consumer-protective provisions are mandatory?

A

How to calculate deficiency and how debtor can redeem.

75
Q

How much advance notice is required for the sale of collateral?

A

COMMERCIAL REASONABLENESS.

76
Q

When may the secured party by at a collateral sale?

A

Public sale – Yes

Private sale – No, to prevent risk of self-dealing.

77
Q

What remedy available to secured party when a collateral sale fails to satisfy the outstanding debt?

A

Secured party may proceed against debtor for a deficiency judgment.

78
Q

What is the debtor’s limited right of redemption?

A

The debtor’s right to redeem the collateral is cut off once the the secured party has RESOLD or complete a STRICT FORECLOSURE.

79
Q

To redeem, the debtor must pay the amount owed PLUS ___?

A

Interest and creditor’s reasonable expenses including attorney fees.

80
Q

What is the function of an acceleration clause?

A

Permits creditor to declare the full balance due in the event of default – TO REDEEM, the debtor must pay off the the entire debt + interest + expenses

81
Q

What does Art 3 of the UCC govern?

A

Commercial paper.

82
Q

What is the bright line rule regarding commercial paper.

A

When a NEGOTIABLE INSTRUMENT is DULY NEGOTIATED to a HOLDER IN DUE COURSE, the holder in due course takes the instrument free of all claims to it, free of PERSONAL DEFENSES and subject only to REAL DEFENSES.

83
Q

What are the types of negotiable instruments?

A

(a) Promissory note
(b) Draft (typically a check)

–> Both writings call for the payment of $

84
Q

What are the parties to a promissory note called?

A 
"Maker" = promisor
"Payee" = promisee
85
Q

What are the parties to a draft called?

A 
"Drawer" = gives the order (writes check)
"Drawee" = order to do paying (bank)
"Payee" = beneficiary
86
Q

What is an indorser?

A

Signs on the back.

87
Q

What is required for a writing to qualify as a negotiable instrument?

A

(i) writing
(ii) payable to order of bearer
(iii) signed by maker or drawer
(iv) reciting a sum certain
(v) containing an unconditional promise or order, and no additional promsies or orders
(vi) payable on demand or within definitive time
(vii) payable in currency

88
Q

What is required for writing to qualify as a negotiable instrument?

A

WOSSUPP

writing
order or bearer (payable to)
signed by maker or drawer
sum certain
unconditional promise and no additional promises
payable on demand
payable in currency
89
Q

What is WOSSUPP?

A

Requirements for writing to qualify as negotiable instrument.

writing
order or bearer (payable to)
signed
sum certain
unconditional promises
payable on demand
payable in currency
90
Q

What is the difference for the signature requirements of a note vs. draft?

A

Note = signed by maker (promisor)

Draft = signed by drawer (person writing check)

91
Q

What is the difference for the promise requirements of a note vs. draft?

A

NOTE –> instrument must contain an unconditional promise to qualify as a note

DRAFT –> instrument must contain unconditional order.

92
Q

What are the requirements for a holder in due course?

A

Take for value; in good faith; and without notice.

93
Q

What situations does a taker who meets HDC requirements still not become a HDC of instrument?

A

(i) Purchases instrument at judicial sale or takes under legal process
(ii) Acquires instrument in taking over estate, or
(iii) purchases the instrument as part of a bulk transaction not in regular course of business.

94
Q

When is an instrument negotiable?

A

In writing and signed by maker or drawer, containing an unconditional promise or order to pay sum certain and payable on demand or at definite time.

WOSSUPP

95
Q

True or False: To be payable at a definite time, an instrument by its terms must be payable on or before a stated date or at a fixed period after a stated date.

A

True.

Watch for an undated writing.

96
Q

When is a guarantor liable to holder?

A

Not until holder has EXHAUSTED ALL REMEDIES against debtor or has shown such an effort is futile.

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