Flashcards in Bar Prep - NY Secured Transactions Deck (96)
What is the scope of Article 9?
Applies to consensual security interests in personality and security fixtures.
How does a creditor create an enforceable security interest in debtor's collateral?
Rights in collateral
Once attached, how does the creditor attain perfection?
Put world on RECORD NOTICE of its existence
Perfection = publicity
When more than one creditor has stake in same collateral, what are rules of priority?
First in time, first in right.
What if debtor DEFAULTS on the debt or obligation?
Creditor has statutory and judicial remedies.
When collateral is real estate, what law applies?
Law of mortgages (NOT art. 9)
When collateral is personalty or fixtures, what law applies?
True or false: Personalty = goods
True or False: Art. 9 applies to statutory or mechanics liens
Entity who owes $ is...
Entity who lends $ is...
Secured party or secured creditor
What is the contract, record or writing that authenticates deal?
Right creditor has in debtor's in personalty or fixtures known as....
What is collateral?
Personalty or fixtures creditor can look to for satisfaction
Collateral most likely appears in what form?
Tangicle collateral or goods, meaning:
What is the key for purposes of classifying tangible collateral?
Primary use in the hands of YOUR DEBTOR (Subjective test).
What does attachment mean?
Is the security interest enforceable?
What are the three requirements for attachment?
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
True or False: if secured party is in possession of the collateral, there is no need for a record.
TRUE - (though uncommon) it is more common that debtor is in possession of collateral, -- thus need a writing.
What are the requires of a record?
(a) Authenticated by debtor (signed or electronically marked) AND
(b) Reasonably identify collateral
What is an After Acquired Collateral Clause?
AKA - "Floating Lien"
They are enforceable.
What is perfection?
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.
How can secured creditor attain perfection?
(a) Taking possession of collateral
(b) Automatic perfection for purchase money security interests (PMSIs) in consumer goods
What is purchase money security interest?
PMSI - security interest in chattel
PMSI in consumer goods are perfected automatically, upon attachment.
If creditor wants to attain perfection when debtor retains possession, what options are available?
(a) PMSI (in consumer good)
(b) File notice in public records
What is a financing statement?
Name of document typically filed for notice. Purpose is to provided interested parties with sufficient information to make FOLLOW UP INQUIRIES.
What are the key buzzwords regarding contents fo a financing statement?
SIMPLE AND SPARCE
What are the only requirements for a financing statement?
(i) Debtor's name and address
(ii) creditors name and address
(iii) description of collateral
True or false: In a financing statement, super-generic descriptions of the collateral are not allowed
FALSE - general descriptions are ok.
What is an attached unperfected creditor?
Art. 9 creditor who creates an enforceable security interest (attaches) but never bothers to (a) perfect OR (b) improperly perfects.
Generally, where is the financing statement filed?
Centrally, with the state Secretary of State, in state where DEBTOR is located.
What is the general rule regarding where the financing statement is filed if the debtor is an individual?
State of principle residence.
What is the general rule regarding where a financing statement is filed if the debtor is a registered organization?
File in state where organization is organized.
What is the exception to central filing?
Timber, minerals or fixtures (collateral that has to do with land).
Then file LOCALLY in county where land collateral is located.
That is the basic priority concept if more than one party stakes claim to the same collateral?
Secured party seeks to SUBORDINATE, not to share.
True or false: Each claimant is entitled to satisfaction IN FULL.
TRUE - each is entitled to satisfaction in full before a subordinated claimant is entitled to take.
What is a lien creditor?
General unsecured creditor who does to court to get a judicial lien on the collateral.
What is a perfected attached creditor?
Article 9 creditor who succeeds in attaining perfection.
What is a Non-Ordinary Courts Buyer?
Someone who purchases the collateral outside the ordinary stream of commerce.
What is a Buyer in Ordinary Course?
Someone who purchases the collateral from a merchant's inventory.
What is a General Unsecured Creditor?
Lender who NEVER BOTHERED to take collateral -- SUPREME LOSER.
What is the the general rule regarding priority of creditors (order)?
(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
What is an After-Acquired Collateral Financier?
A secured creditor who takes as collateral a security interest "in all of Debtor's business equipment where now held or here after acquired."
What does the language "where now held or hereafter acquired" represent?
After Acquired Collateral Clause
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
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.
What are the exceptions to the general rule that a perfected attached creditor defeats all?
Perfected Attached Creditors defeat all EXCEPT:
(i) PAC who filed FIRST
(iii) Buyer in Ordinary Course
True or False: Article 9 allows for early filing, even at the onset of loan negotiations.
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.
What is a PMSI?
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.
How does AACF collide with the PMSI-holder?
(i) When the collateral is EQUIPMENT.
(ii) When the collateral is INVENTORY.
How can PMSI-holder obtain priority collateral classified as INVENTORY?
Must satisfy two requirements:
(i) File properly before debtor takes possession AND
(ii) Notify bank before debtor takes possession
Explain the general rule that Perfected Attached Creditors lose to Buyer in Ordinary Course.
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.
What is the definition of default?
Debtor has breached the contract (not defined in Art. 9 but defined in contract or security agmt).
What options are available to Art. 9 secured creditor when a debtor defaults?
(a) Self-Help Possession
(b) Repossession by judicial action
(c) Strict foreclosure
What is self-help possession?
Permissible repossession option available provided CREDITOR DOES NOT BREACH THE PEACE.
Regarding self-help repossession, when does a breach of peace occur?
Whenever secured party's actions are likely to CAUSE VIOLENCE (whether secured party did something provocative or likely to cause violence).
What is the rule regarding repossession when the collateral is debtor's home?
SP MAY NOT entered debtor's home without voluntary and contemporaneous consent.
What is the rule regarding repossession when collateral is outside.
SP may take the collateral so long as there is no debtor objection.
What is repossession by judicial action.
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.
What is writ of replevin?
Appropriate writ for a repossession by judicial action in NY.
What is the definition of strict foreclosure?
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.
How can secured party accomplish strict foreclosure?
The secured party must send a WRITTEN proposal to retain the collateral in satisfaction of the debt.
To whom does the secured party send a strict foreclosure proposal when the collateral is CONSUMER GOODS?
(a) When collateral is consumer goods -- notice sent to debtor and secondary obligors.
To whom does the secured party send a strict foreclosure proposal when the collateral is NOT CONSUMER GOODS?
(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.
When will a strict foreclosure not be allowed?
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.
What is the 60% rule?
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.
True or False: The SP may sell the collateral and apply the sale proceeds to the debt.
What are the two governing guideposts on the sale of collateral?
(1) Every aspect of sale must be -- COMMERCIALLY REASONABLE.
(2) Prior to sale, reasonable notice must be sent
If the collateral is consumer goods, reasonable notice of sale must be sent to ____?
Debtor and secondary obligor
What is a secondary obligor?
Guarantor of debt.
If the collateral is not consumer goods, reasonable notice of sale must be sent to ____?
(ii) Secured parties who have advised the foreclosing creditor of their security interest
(iii) As well as perfected creditors AND secondary obligors.
If disposition is by public sale, the notice of sale must state ___?
Time and place of sale.
If disposition is by private sale, the notice must state ___?
TIME AFTER WHICH the sale will be made.
What additional consumer-protective provisions are mandatory?
How to calculate deficiency and how debtor can redeem.
How much advance notice is required for the sale of collateral?
When may the secured party by at a collateral sale?
Public sale -- Yes
Private sale -- No, to prevent risk of self-dealing.
What remedy available to secured party when a collateral sale fails to satisfy the outstanding debt?
Secured party may proceed against debtor for a deficiency judgment.
What is the debtor's limited right of redemption?
The debtor's right to redeem the collateral is cut off once the the secured party has RESOLD or complete a STRICT FORECLOSURE.
To redeem, the debtor must pay the amount owed PLUS ___?
Interest and creditor's reasonable expenses including attorney fees.
What is the function of an acceleration clause?
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
What does Art 3 of the UCC govern?
What is the bright line rule regarding commercial paper.
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.
What are the types of negotiable instruments?
(a) Promissory note
(b) Draft (typically a check)
--> Both writings call for the payment of $
What are the parties to a promissory note called?
"Maker" = promisor
"Payee" = promisee
What are the parties to a draft called?
"Drawer" = gives the order (writes check)
"Drawee" = order to do paying (bank)
"Payee" = beneficiary
What is an indorser?
Signs on the back.
What is required for a writing to qualify as a negotiable instrument?
(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
What is required for writing to qualify as a negotiable instrument?
order or bearer (payable to)
signed by maker or drawer
unconditional promise and no additional promises
payable on demand
payable in currency
What is WOSSUPP?
Requirements for writing to qualify as negotiable instrument.
order or bearer (payable to)
payable on demand
payable in currency
What is the difference for the signature requirements of a note vs. draft?
Note = signed by maker (promisor)
Draft = signed by drawer (person writing check)
What is the difference for the promise requirements of a note vs. draft?
NOTE --> instrument must contain an unconditional promise to qualify as a note
DRAFT --> instrument must contain unconditional order.
What are the requirements for a holder in due course?
Take for value; in good faith; and without notice.
What situations does a taker who meets HDC requirements still not become a HDC of instrument?
(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.
When is an instrument negotiable?
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.
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.
Watch for an undated writing.