Secured Transactions

Question 1

Collateral—2 types of PMSI

Answer 1

fixtures or personality subject to security interest. Creditor can look to for satisfaction. Purchase money sec interest (2 kinds):

1) Seller financed PMSI - secured party sells D collateral on credit and retains security interest in item sold;
2) Enabling loan – loan to D enabling D to buy specific collateral, and creditor takes sec interest in specific collateral.

Question 2

After Acquired Property Clause

Answer 2

permissible, and allows secured party to obtain sec interest in D’s future prop.

Question 3

Future Advance Clause

Answer 3

permissible, and allows secured party to contract to make future advances secured by present security agreement.

Question 4

Attachment

Answer 4

steps legally required to give secure party a security interest in collateral that is effective against debtor. Creditor not secured creditor until attachment

Question 5

Perfection

Answer 5

steps legally required to give secured party interest in collateral effective against the world. Generally, perfection = providing public notice of security interest.

Question 6

Financing Statement

Answer 6

doc used to provide public notice of security interest in order to perfect

Question 7

Attachment’s 3 requirments

Answer 7

makes security interest enforceable. Three Req’ts (VCR):

(1) Value – must be given by creditor. Any consideration to support a simple K is enough;
(2) Contract – K must evidence secured transaction, unless secured party has taken possession of the collateral (security agmt). K must (i) be authenticated, and (ii) reasonably identify collateral;
(3) Rights – D must have right to encumber collateral.

Question 8

Ways to Perfect

Answer 8

Puts world on record or constructive notice of secured party’s existence. Several ways to perfect security interest:

(1) Possession; security interest perfected as soon as Secured party takes possession of physical collateral;
(2) Control: when collateral is investment property and electronic chattel paper;
(3) Notation of lien on certificate of title: where collateral is automobile;
(4) Secured party files notice in public records: (MOST COMMON: Financing Statement) Need only provide enough info to enable others to make inquiries. Need only be “simple and sparse”, but must include D’s and creditor’s name and address, plus description of collateral. Notice filed with secretary of state where D located (Individual → state of principal residence; Registered org → state under whose laws organized. EXCEPT if collateral relates to land → county where land located.);
(5) Purchase money security interests (“PMSI”) in consumer goods: = AUTOMATIC perfection.

Question 9

Perfection as to Proceeds

Answer 9

If secured party has perfected security interest in collateral, they automatically have perfected security interest for 20 day in proceeds D receives in exchange for collateral.

After 20 days, must take steps to perfect new interest, UNLESS:

(a) identifiable cash proceeds; or
(b) security interest in orig collateral perfected by filing financing statement, security interest for new collateral/proceeds would be filed in same place as financing statement for orig collateral, and proceeds not purchased with cash proceeds of collateral.

Question 10

Change in use of Collateral effect on Financing Statement

Answer 10

does not change effectiveness of filed financing statement to perfect security interest.

Question 11

Priority Generally

Answer 11

If multiple secured parties claim same collateral, the first to file OR perfect has priority. Each claimant entitled to payment in full before a subordinated claimant entitled to take

Question 12

Hierarchy of Priorities

Answer 12

(1) Buyer in Ordinary Course (“BIOC”) – buyer who purchases goods from merchant in good faith, w/o knowledge that sale violates rights of another party in the goods, and in ordinary course from person in the business of selling such goods.
(2) Perfected Attached Creditor (“PAC”) – Article 9 creditor who attains perfection.
(3) Lien Creditor (“LC”) – general creditor who gets judicial lien on the collateral.
(4) Non-Ordinary Course Buyer (“NOCB”) – purchases collateral outside ordinary stream of commerce (e.g., buying stereo from florist) – takes collateral subject to perfected security interests. But, takes free from un-perfected security interests if no knowledge.
(5) Attached Unperfected Creditor (“AUPC”) – Article 9 creditor who attaches security interest, but AUPC either: (i) never perfects, or (ii) tries to perfect, but fails.
(6) General Unsecured Creditor (“GUC”) – lender that fails to take collateral.

Question 13

AUPC vs. the World

Answer 13

Enforceable against D, and defeats subsequent AUPC and any GUC. AUPC loses to PAC, to LC, and any buyer without knowledge of security interest

Question 14

PAC vs. the World

Answer 14

PAC defeats all. EXCEPT - (i) another PAC who filed first; (ii) Certain PMSI-holders (After-acquired collateral financier: secured creditor who takes as collateral “all of D’s X.”; and Holder of a PMSI: security interest enabling D to purchase goods); and (iii) BIOC.

Question 15

Self-Help Possession

Answer 15

Allowed to repossess collateral w/o judicial process so long as creditor doesn’t “breach the peace” (conduct likely to cause violence). Physical presence of D + verbal objection gen enough to cause breach of peace. If collateral in D’s home, creditor may not enter w/o vol and contemporaneous consent. If collateral outside home, creditor may take if no objection by D.

Question 16

Repossession by Judicial Action

Answer 16

Secured party can go to court to get a judicial writ, ordering sheriff to obtain possession and deliver it to the secured party

Question 17

Strict Foreclosure

Answer 17

Upon default or repossession, secured party retains collateral in full satisfaction of debt. Secured party must send written proposal to retain collateral:

If any party objects within 20 days after notice sent → NO strict foreclosure – collateral must be disposed of by sale (may object for any or no reason)

Question 18

Strict Foreclosure: Consumer Goods

Answer 18

give notice to (1) debtor; (2) any secondary obligors (i.e. co-signers)

Question 19

Strict Foreclosure: Not Consumer Goods

Answer 19

give notice to (1) debtor; (2) any other secured party from whom foreclosing party has received notice of a claim to the collateral; and (3) any other perfected third party that filed financing statement or made notation on a certificate of title.

Question 20

Consumer Goods 60% Rule

Answer 20

No strict foreclosure IF D paid at least 60 % of cash price in the case of a PMSI; or 60 % of loan in other cases. Secured party must sell collateral within 90 days after repossession.

Question 21

Sale of Collateral

Answer 21

Upon default, secured party may sell, lease or license collateral, and apply profit to debt.

REQ’TS:
(1) Sale must be commercially reasonable as to method, manner, time, place and terms;

2) Reasonable authenticated notice must be sent (w/n reasonable period of time before sale (e.g. 10 days):
—Consumer Goods: notice to D and secondary obligors.
—Non-Consumer Goods: notice to D, other secured parties, perfected creditors and secondary obligors;

3) Content of notice must include:
—For Non-Consumer Goods: (a) description of D & secured party, (b) description of collateral, (c) method of sale (public or private), (d) statement that debtor is entitled to accounting for unpaid debt, and (e) time and place of public sale or when private sale will take place.
—For Consumer Goods: same as above + how D can calculate D’s deficiency and redeem collateral

Question 22

Action for Deficiency Judgment

Answer 22

If proceeds from collateral less than amt owed, secured party can proceed against D for deficiency judgment. But, if collateral sold cheap to inside buyer, deficiency calculated using price an independent 3rd party would have paid.

Question 23

Debtor’s Right to Redeem (Acceleration Clause)

Answer 23

Right to redeem before collateral resold or strict foreclosure. D must tender amt owed + reasonable expenses.

Acceleration clause may require D to tender entire balance to redeem.

Question 24

Fixtures

Answer 24

Goods that have become so attached to real property that an interest in them arises under real property law. (e.g. built in appliances, central air, elevators, etc.) Ordinary building materials not considered fixtures. Interests in fixtures may arise under UCC and real estate law.

Question 25

Perfection or Fixtures

Answer 25

Must make “fixture filing” in office where mortgage on real estate would be filed. Same req’ts as financing statement + reasonable ID of real estate, and name of owner

Question 26

Secured party v. subsequent real estate interest

Answer 26

security interest in fixtures > real estate interest arising after perfection of security interest by fixture filing.

Question 27

Secured party v. prior real estate interest

Answer 27

prior real estate interest properly recorded > later security interest.

EXCEPT: PMSI takes priority if perfected by fixture filing before goods become fixtures or within 20 days thereafter.

Question 28

When filing not required for Fixtures

Answer 28

No fixture filing necessary if fixtures are readily removable (1) factory or office equipment; (2) equip not primarily used in operation of the real estate; or (3) replacements of domestic consumer appliances

Question 29

Accessions

Answer 29

Goods physically united with other goods in manner that the identity of original goods is not lost. (e.g. tires on car)

Question 30

Perfection of Accessions

Answer 30

If security interest perfected when collateral becomes accession, it remains perfected in the collateral.

Question 31

Priority of Accessions

Answer 31

Same priority rules as fixtures.

Special rule – security interest in accession is subordinate to security interest in the whole which is perfected by compliance with requirements of a certificate of title.

Question 32

Removal of Accession

Answer 32

Secured party may remove accession if security interest has priority over claims of every person with interest in the whole. Secured party responsible for injury to whole or other goods resulting from removal.