Secured Transactions Flashcards
(132 cards)
1
Q
personal property
A
tangibles, semi-tangible, and intangible products that have value like inventory, farm products, equipment, fixtures, documents, commercial tort claims, and accounts receivable
2
Q
attachment
A
a security interest is enforceable against the debtor and third parties of the collateral if:
- value is given by the secured party to the obligor;
- the debtor has rights in the collateral or the power to transfer rights;
- and one of the following:
a. the debtor has authenticated a security agreement that provides for a description of the collateral;
b. collateral is in possession of the secured party;
c. secured party has control (if deposit account, electronic chattel paper, investment property, or letter-of-credit rights)
3
Q
perfection
A
attachment plus additional step:
financing statement is filed, control, possession (automatic or temporary)
4
Q
debtor
A
one who has ownership interest in the collateral even if not liable on the obligation
5
Q
obligor
A
obliged to pay obligation secured by personal property even if no ownership interest in the collateral
6
Q
secondary obligor
A
a co-signer: one whose obligation is secondary or one who has a right of recourse against the principal obligor, debtor, or the property of the principal
7
Q
consumer transaction
A
loan transaction secured by consumer goods that are held by a consumer debtor for household, personal, or family usage
8
Q
debtor’s rights
A
debtor has rights in the collateral or power to transfer rights to a secured party
9
Q
for bankruptcy, you need a ___ claim in order to _____
A
perfected; have a secured claim
10
Q
lien creditors include
A
bankruptcy trustees, debtor-in-possession, judicial liens, IRS liens
11
Q
in bankruptcy, lien creditors can
A
avoid any security interest in property subject to the bankruptcy estate that is unperfected at the time of the bankruptcy filing
12
Q
composite document rule
A
compilation of promissory note, financing statement, and correspondence satisfies attachment rules
13
Q
security agreements can describe property
A
by UCC type, like equipment, inventory, but NO supergeneric descriptions like all assets or all personal property
14
Q
financing statements can describe property
A
using supergenerics like all personal property or all assets
15
Q
rebuttable presumption rule
A
presumption exists that a security interest attaches to after-acquired collateral even if a security agreement does not include an AAP clause if:
1. the collateral is inventory, accounts receivable, or farm products; AND
2. the secured party’s security agreement describes the above-listed collateral.
Presumption is rebutted by:
1. Security agreement language manifests an intent to limit the collateral to specifically identified property; or
2. Party presents clear and convincing evidence of contemporaneous intent to limit the collateral
16
Q
value for attachment can be
A
money, but also:
- by making a binding commitment to extend credit;
- by taking security interest for, or in total or partial satisfaction of a preexisting claim;
- in return for any consideration sufficient to support a simple contract
17
Q
doctrine applied in determining whether a debtor had rights in collateral owned by another party
A
- adverse possession;
- use and control;
- permission or consent
18
Q
financing statements are filed
A
in secretary of state’s filing office usually in debtor’s state except for fixtures, minerals to be extracted, and timber to be cut (filed in county recorder’s office)
19
Q
to be an effective financing statement, need to:
A
tender and submit fee to filing office
20
Q
if financing statement is refused, filing office must
A
notify within 2 days with reason why and indicate date and time it would have been filed if accepted. If not properly rejected, can be challenged and may be effective
21
Q
financing statements can be rejected for:
A
not proper medium, not full fee, cannot index because no debtor name, or if amending, does not identify initial financing statement or is no longer effective
22
Q
financing statements can be filed ____ to attachment and priority date is _____
A
prior; date of filing, not attachment
23
Q
perfected security interest in collateral also grants:
A
perfected interest in the proceeds from the collateral
24
Q
financing statement is only authorized for:
A
collateral contained in security agreement
25
if financing statement is properly rejected, it is
ineffective to perfect a security interest
26
if financing statement has incorrect information and is rejected
financing statement is effective but not against a purchaser including a secured party that gave value in reasonable reliance of the absence of the financing statement. Bankruptcy trustee/lien creditors are still subordinate
27
control for perfection
only way to perfect deposit accounts and letter of credit rights. can be used for perfection of electronic chattel paper and investment property
28
possession for perfection
only if collateral is tangible or semi-tangible: equipment, inventory, tangible chattel paper, negotiable documents, goods, money, instruments, farm products. unauthenticated security agreement and possession is enough for perfection
29
automatic perfection
purchase-money security interest in goods is attached (value, rights, description) except if goods are subject to statute/treaty (like cars)
30
temporary perfection
usually when possession is perfection. If debtor needs possession to sell collateral, have 20 days after giving it to them where perfection is achieved even though not in possession of item
31
accounts or accounts receivable
any credit offered that is not signed and is due within short period - less than 120 days
32
debtor's name on financing statement: individual and sole proprietorship
2 alternatives in the code:
A: match driver's license name or if none, then should be individual name or surname and first personal name
B: individual name, surname/first personal name, or driver's license
33
debtor name on financing statement: registered organization
name under which the registered organization was registered
34
debtor name on financing statement: unregistered organization
if debtor has a name, the name of the organization, if no debtor name, then list of all partners, members, associates, etc
35
financing statement is seriously misleading if:
debtor's name is incorrect. Exception: safe harbor - if search of FS under debtor's correct name using standard search logic of the filing office discloses the incorrect FS, then it is not seriously misleading
36
trade names on financing statements are:
not sufficient
37
perfection of proceeds and attachment of proceeds
automatic attachment and automatic perfection for 20 days provided there was a perfected security interest in the collateral
38
after 21st day for proceeds perfection: three rules
noncash proceeds rule
identifiable cash proceeds rule
perfection by other means rule
39
noncash proceeds rule
test for determining if you have perfected security interest in proceeds:
1. Do you have FS in original collateral? If yes, continue.
2. If you filed FS for proceeds, would it be same place as original collateral? If yes continue
3. Are the second level proceeds purchased with cash proceeds? If NO then YOU DO HAVE a security interest in the proceeds. If yes to #3, then no security interest in second-level proceeds
40
perfection of identifiable cash proceeds rule
as long as cash proceeds are identifiable, even if commingled with other funds, there is automatic continuous perfection
41
perfection by other means rule
If not cash proceeds, or noncash proceeds rule fails, then if financing statement covered "all assets" or "all personal property" then you likely have perfection in the proceeds
42
post filing events that affect the financing statement
transfer of collateral
change of debtor name
change of business structure
43
transfer of collateral for financing statement
attachment automatically transfers and still perfected even if secured party knows or consented to it unless authorized sale free of interest. Exception: perfection only for one year if buyer is in another jurisdiction. If filed within one year, then maintains priority back to original date, if filed after one year, then that is new priority date
44
change in debtor's name for financing statement effectiveness
name change must be seriously misleading and if so, still effective to perfect a security interest in collateral acquired before change or within four months after the name change is seriously misleading. Not effective for acquired collateral more than four months after unless amendment is filed within that four month period
45
change in business structure for financing statement effectiveness
security agreement becomes effective to create a security interest in the person's property if by operation of law (change in structure) or by contract or the person becomes generally obligated for the obligations of the other person, including under the security agreement and acquires or succeeds to all or substantially all of the assets of the other person. Filed financing statement naming original debtor is effective to perfect a security interest in collateral in which a new debtor has or acquires rights if it had been effective against the original debtor. If seriously misleading after (name change) then the same four month rule applies as in change of debtor's name and first to file wins except if the purchase money security interest rule applies
46
purchase money security interest rule
when a party provides money for a particular item and takes security interest in it, lender jumps ahead of original lender so long as it is perfected when debtor takes possession of it or within 20 days of possession
47
central filing system
records financing statements, amendments, etc. and if indexed wrong by this office, does not affect effectiveness. Risk of loss on searching party.
48
initial financing statements
five year life span except for public finance, manufactured homes that are mobile, transmitting utilities, and records as a mortgage
49
financing statements are authorized by:
authenticated record of authorization or authenticated security agreement. Unauthorized financing statements are ineffective and subject to actual and statutory damages.
50
amendments to financing statements
add or delete collateral
add debtor
additions require authorization from debtor
change info- use original filing number
changing debtor's name can be authorized by secured party of record
51
continuation for financing statement
additional 5 years. Must file within 6 months of expiration. If lapse, not effective and deemed never to have been perfected against a purchaser for value.
52
termination of financing statement
consumer goods: must terminate within 30 days of full payment or within 20 days of debtor demand
commercial cases: if debtor demands after full payment, must terminate within 20 days by terminating directly or sending debtor a statement they can file themselves
53
information statement
anyone can file
info not directly in relation to financing statement but still want to give notice
does not affect effectiveness of financing statement
54
third party possession on behalf of secured party for perfection
cannot be debtor; third party must have authenticated record acknowledging that it holds possession for the SP's benefit or third party takes possession after it authenticates a record of the same. Not required to do so and under no obligation to hold it longer than needed. Constructive possession for the SP as long as third party has it. If returned to debtor, becomes unperfected
55
promissory notes
an instrument record evidencing a monetary obligation owed to someone; must be endorsed.
56
to obtain control of a deposit account for perfection
secured party is the bank maintaining the deposit account or SP enters into an authenticated control agreement with SP, debtor, and bank that will comply with instructions originated by SP directing disposition of the funds in the deposit account without further consent of the debtor (which bank can reject). OR SP becomes the bank's customer by putting their name on the account (bank can reject)
57
collateral for purchase money security interests
goods/software that secure a purchase money obligation
58
purchase money obligation
obligation of an obligor that was incurred for: all or part of purchase price of the collateral (vendor financed - vendor PMSI) or value given to enable the debtor to acquire rights in or use of collateral if the value is so used (third party financing - nonvendor PMSI)
59
priority for vendor PMSI and nonvendor PMSI
vendor has priority because they gave up property (if done at the same time)
60
security agreement for PMSI
must have language granting security interest and description of collateral. If consumer goods MUST BE SPECIFIC DESCRIPTION and not UCC type
61
not filing a financing statement when PMSI is automatic grants
no priority or perfection in bankruptcy proceedings - must file financing statement to prevail
62
for non-possessory security interests the choice of law is:
where the debtor is located and governs perfection, the effect of perfection or nonperfection, and priority
63
debtor location for filing financing statement: individual
principal residence
64
debtor location for filing financing statement: unregistered organization
if one location, then place of business or if more than one location, where the chief executive office is or place where debtor manages the main part of its business operations or place where persons dealing with the debtor would normally look for credit info
65
debtor location for filing financing statement: registered organization
state in which it is incorporated or registered
66
debtor location for filing financing statement: non-US debtor
if their law requires public notice, then according to that law and if not, then DC
67
possessory collateral choice of law:
local law where collateral is possessed governs perfection, effect of perfection or nonperfection, and priority
68
bifurcation of perfection rules choice of law
where negotiable documents, goods, instruments, money, or tangible chattel paper is located
69
if secured party has perfected its security in the old jurisdiction, security interest remains perfected until
earliest of the time perfection would have ceased under the law of the old jurisdiction OR the expiration of four months after the debtor changes its location to another jurisdiction. If SP perfects in new jurisdiction before the earliest time, then remain perfected. If not, then becomes unperfected and is deemed to never have been perfected as against a purchaser for value.
70
property acquired after a move to a new jurisdiction
financing statement filed in old jurisdiction remains effective to perfect in the after acquired property if the FS would have been effective to perfect in the collateral had the debtor not changed locations and will remain perfected if it becomes perfected in the new jurisdiction the earlier of when it would cease to be perfected in the old jurisdiction or within four months after debtor changed location. If not perfected then becomes unperfected and deemed to have never been perfected against a purchaser for value
71
perfection for certificate of title goods
security interest must be listed on the certificate of title - financing statement is not necessary or effective to perfect
72
choice of law for certificate of title goods
local law of jurisdiction where COT is covered (applied for). Does not matter where debtor is located.
73
goods become covered by a COT when:
a valid application and the applicable authority; whatever jurisdiction that happens, that is the jurisdiction of cover and that state's laws apply
74
change of cover for certificate of title goods
cover ceases in old jurisdiction once covered in new jurisdiction
75
if cover in new jurisdiction and no security interest recorded on certificate of tltle
perfection remains until the earlier of: when the security interest would have become unperfected under the law of the old jurisdiction or four months after the goods had become so covered in the new jurisdiction. If that that expires the secured party is unperfected and is deemed never to have been perfected against a purchaser for value
76
first to file rule
priority is given to secured party that is either first to file or first to perfect
77
future secured advance enjoys the same priority as an earlier secured advance provided that
earlier advance is perfected and the future advance is secured by the same collateral as the earlier advance
78
to have priority in future advances if no future advance clause in security agreement
execute new security agreement for that and if covered by old financing statement OR if new financing statement filed and old one was never terminated and covered collateral, then priority dates to old one
79
future advances that rely on automatic perfection
only date to when advance was made and it is not made pursuant to a commitment entered into before or while the security interest is perfected by a method other than automatic/temporary perfection
80
future advance ____ priority over lien creditor if ______
has; made without knowledge of the lien or with knowledge if made within 45 days of lien attaching
81
future advance for intervening buyer
intervening buyer takes free of a secured party's perfected security interest in purchased goods securing a future advance if the secured party makes the advance with knowledge of the intervening purchase. Intervening buyer takes subject to secured party's security interest in purchased goods securing a future advance if the secured party makes the advance within 45 days of the purchase without knowledge of the purchase
82
purchase money security interest priority - noninventory
PMSI in a good other than inventory or livestock has priority over a conflicting security interest in the same good provided that PMSI is perfected when the debtor takes possession or is perfected within 20 days of debtor's possession. Also has priority in identifiable proceeds
83
transformation rule
PMSI is transformed into an ordinary obligation if a refinance, new obligation added to an existing one, an ordinary obligation is added, or new PM collateral is added. ONLY for consumer goods and courts can choose dual status or transformation rule to apply
84
PMSI priority rule in inventory
PMSI inventory has priority over conflicting security interest if: security interest is perfected when debtor takes possession, secured party sends authenticated notice to the conflicting interest party, then notification is received within 5 years prior to possession and the notification indicates the secured party has or expects to acquire PMSI in inventory and describes the inventory. Subject to deposit account control.
85
chattel paper
a record of monetary obligation (like a promissory note) and evidence of a security interest (security agreement). Can be one record or in separate records and includes leases.
86
general buyer priority rule
buyer has priority over secured party if buyer purchases goods, tangible chattel paper, documents, or instruments and takes free of a security interest if the buyer: gives value, receives delivery of the collateral without knowledge of the security interest and before the security interest is perfected.
87
buyer in the ordinary course
party that buys in good faith, buys in the ordinary course of business, buys from one in the business of selling that type of good, buys without knowledge that the purchase violates the rights of a third party
88
preempting the general buyer priority rule
applicable to sale of goods: a buyer takes free of a secured party's perfected security interest in a good if: the buyer is a buyer in the ordinary course and seller who purchased goods is the person who created the security interest on behalf of the SP
89
buyer priority for consumer to consumer transactions
a buyer from a person who used/bought goods for personal, family, or household purposes takes free of a security interest even if perfected, if the buyer buys: without knowledge of the security interest for value primarily for the buyer's own personal, family, or household purposes, and before the filing of a financing statement covering the goods
90
certificate of title buyer priority rule
if new dealer is financing their inventory and financier gets MCO as collateral in inventory and dealer does not pay financier after selling a car, the buyer does not get COT. So, instead financing a new dealer's inventory is perfected by filing a financing statement for those. Even if financier would have possession of the MCO, buyer would still win under buyer priority rule
91
dual debtor priority rule
bulk purchases; security interest created by the debtor (the buyer) is subordinate to a security interest in the same collateral created by another person (the seller) if: the debtor acquired the collateral subject to the security interest created by the other person, the security interest created by the other person was perfected when the debtor acquired the collateral; and there is no period thereafter when the security interest was unperfected
92
rights to payment types
accounts, chattel paper, instruments, and general payment intangibles (mortgages, etc)
93
accounts
right to receive money in exchange for goods sold or services rendered. Usually evidenced by invoice. NOT a promissory note and no security interest in the good. Can be short term repayment contract - less than 120 days
94
general payment intangibles
general intangible under which the account debtor's principal obligation is a monetary obligation. Not a security agreement and not an instrument. mortgages or real property loans
95
account debtor
the buyer of the good that signs a payment intangible. Not just accounts.
96
factor
party that buys payment intangibles
97
assignor/assignee in chattel paper, AR, or non-negotiable instruments
assignor is the dealer that makes the payment intangible to the account debtor and the assignee is the purchaser or secured party of the payment intangible
98
maker/payee/indorsee of negotiable instruments
maker is the buyer of goods, payee is the dealer that grants the payment intangible to the maker, and indorsee is the factor or secured party that buys or is assigned the payment intangible
99
purchaser of rights to payments
secured party and must compete with other secured parties asserting an interest in these rights of payments. Purchasers must attach and perfect their interest and is subject to Article 9.
100
automatic attachment
for accounts, chattel paper, promissory notes, and payment intangibles
101
perfection for accounts
financing statement
102
perfection for chattel paper
electronic: financing statement or take control
tangible: financing statement or possession
103
perfection for payment intangibles & promissory notes
automatic upon attachment
104
perfected priority rule
priority for perfected parties over unperfected parties.
105
priority in chattel paper as proceeds or otherwise
a purchaser of chattel paper has priority over a secured party that is asserting a security interest in the chattel paper merely as a proceed of inventory or otherwise, provided that the purchaser gives new value and either takes possession or control of the chattel paper and the paper does not indicate it has been assigned to an identified assignee other than the purchaser
106
instrument priority rule
a purchaser of an instrument has priority over an SP that has perfected its security interest in the instrument by method other than possession if the purchaser gives value, takes possession in good faith and without knowledge that it violates the rights of the secured party
107
if SP perfects by possession and purchaser asks SP to hold onto the instrument on their behalf, then
both have possession: SP actual and purchaser constructive. Priority then goes to first to file.
108
giving new value for chattel paper can be
making loan based on value of chattel paper, purchase chattel paper after it was generated, or PMSI in inventory from which the chattel paper is generated
109
obtaining control of a deposit account
automatic for depository bank if the bank has a security interest in the deposit account
110
deposit account priority rule
perfection by control has priority over perfection through another means such as perfection in cash proceeds or control agreements, except if SP becomes named customer on account, then they have priority
111
tracing rule: lowest intermediate balance rule
identifiable cash proceeds consist of the lowest balance in the DPA between:
1. the time the cash proceeds are deposited and
2. the time that the secured party sought to enforce its security interest in the cash proceeds
112
default is:
defined in security agreement and can be failure to pay, failure to maintain insurance, keeping certain liquidity ratios, or even certain things that make SP feel insecure about ability to pay back loan
113
remedies for default
foreclosure, reduce claim to judgment, or otherwise enforce security agreement. Are cumulative and can be exercised simultaneously
114
foreclosure:
can be self-help repossession or judicial foreclosure
115
self-help repossession
can take back collateral but cannot breach the peace
116
breaching the peace in self-help repossession
risk of invoking violence or results in eruption of violence. If you breach the peace, walk away and go to court.
117
if breach the peace during repossession, can be liable for
conversion and debt can be extinguished as punishment. Also elimination of finance charges, elimination of loan balance, retention of collateral with elimination of charges.
118
judicial foreclosure
go to court, prove nonpayment/default to judge, get judgment and writ of execution, go to sheriff and they get the collateral
119
disposition of collateral after repossession
commercially reasonable sale, notification to parties, and debtor has certain rights
120
commercially reasonable sale
time, place, and manner of the sale must be commercially reasonable or in a manner that is ordinarily done by those selling that collateral. If needs repairs, repair it. Court usually favors private sales rather than public sales. Have to mitigate leaving a deficiency balance
121
notification to parties for disposition in default
consumer transactions: notify debtor and secondary obligors
commercial transactions: notify debtor, secondary obligors, and third parties with interests
122
rights of debtors in disposition sales for default
cannot waive commercially reasonable sale, but can agree to certain terms that are deemed to be commercially reasonable. Can waive notification and redemption (after default), but cannot waive distribution accounting.
123
reducing claim to judgment
obtain a judgment lien on property then attach lien to the property
124
junior secured parties that receive cash proceeds from the disposition of collateral in good faith and without knowledge that its receipt violates the rights of a senior secured party
takes it free of the other security interest/liens, is not obligated to apply the proceeds of the disposition to the satisfaction of obligations secured by the security interest or other lien, and is not obligated to account to or pay the holder of the security interest or other lien for any surplus. Still have to notify senior creditors and senior creditors can get injunction for them to stop.
125
redemption of collateral
right to redeem collateral. Debtor can pay back all that is due (not just past due) including any expenses and attorneys fees incurred in connection with the collection, enforcement, and disposition of the collateral. Right can be waived only after default. Consumer goods - can never waive right.
126
notification of disposition
Repossession - must notify of disposition of collateral. The notification date is the earlier date on which:
1. A repossessing secured party sends to the debtor and secondary obligor an authenticated notification of disposition, or
2. The debtor and secondary obligor waive the right to notification.
127
parties needed to notify in non-consumer goods transactions:
need to notify:
1. any person from which the repossessing secured party has received authenticated notifications of a claim or interest in the collateral
2. any other secured party or lienholder that, 10 days before the notification date, held a security interest in or other lien on the collateral perfected by the filing of a financing statement that:
a. identified the collateral
b. was indexed under the debtor's name as of that date and
c. was filed in the office in which to file a financing statement against the debtor covering the collateral as of that date and
3. any other secured party that 10 days before notification held a security interest in the collateral perfected by compliance with any statute, regulation, or treaty
128
notification requirements
nonconsumer goods: describe debtor and secured party, describe collateral intended for disposition, state method of disposition, state debtor entitled to accounting of the unpaid indebtedness and states the charge for the accounting, state time and place of a public sale or the time after which any other sale is to be made
For consumer goods, all the above plus description of any liability for a deficiency, telephone numbers and mailing addresses for redemption or other questions. Must be sent within reasonable time (10 days for nonconsumer, but longer for consumer)
129
deficiency balances
if repossessed, SP can seek deficiency balance if they have complied with default provisions. Only an issue if debtor places compliance in issue, like breach of peace, not adequate notification, not commercially reasonable sale. SP then has burden of establishing that the collection, enforcement, disposition, or acceptance was in accordance with Article 9.
130
if cannot prove complied in default for collecting deficiency balance, then deficiency
is limited to an amount by the sum of the secured obligation, expenses, attorneys fees exceeds the greater of: the proceeds received from the disposition, or the amount that would have been realized had compliance occurred. The rebuttable presumption rule here is that the debt owed is presumed to be equal to the fair market value of the collateral, including expenses to make deficiency zero out. Unless SP can prove amount is less than that and there is a deficiency. This is only in commercial transactions. Absolute bar in noncompliance in consumer transactions after rebuttable presumption rule is used.
131
Scope of Article 9:
Article 9 applies to transactions that create a security interest in personal property or fixtures, and also the sales of chattel paper, accounts, promissory notes, and payment intangibles.
132
lien creditors do not have priority over unperfected PMSIs when
PMSI has attached prior to lien arising and perfects within 20 days of attachment
