Secured Transactions Flashcards
(202 cards)
1
Q
What are consumer goods?
A
Goods purchased for personal, family or household use
2
Q
What are farm products?
A
Includes crops, livestock, supplies used (e.g. animal feed) or produced (e.g. eggs or vegetables)
3
Q
What does the ‘farm products’ category not include?
A
‘Farm products’ does not include equipment (e.g. tractors)
4
Q
Attachment + Perfection = ?
A
Attachment + Perfection = Good standing in a priority dispute
5
Q
What are the three categories for classifying collateral?
A
(1) Goods
(2) Quasi-Tangibles
(3) Intangible Property
6
Q
Article 9 governs…
This is the all-important opening sentence!
A
Article 9 governs transactions, regardless of form, that create a security interest in prersonal property or fixtures by contract.
7
Q
What is ‘equipment’?
A
Equipment is the residual, catch-all category for goods that are not consumer goods, farm products or inventory.
8
Q
A
9
Q
What is ‘inventory’?
A
Includes goods, other than farm products, that are held for sale or lease (i.e. items on the shelf). Also includes:
- Goods furnished under a service contract
- Works of progress and
- Raw materaisl used or consumed in business
10
Q
At what point/when are ‘goods’ classified?
A
Goods are classified **when the security interest attaches. **
11
Q
When can a ‘good’ become a ‘fixture’?
A
Goods can become fixtures when attached to real property (especially in a permanent way)
12
Q
What is an ‘instrument’?
A
A writing evidencing a right to payment of a monetary obligation (e.g. a promissory note or check)
13
Q
What is a document of title?
A
A document of title confers on the holder ownership rights in goods held by a bailee.
14
Q
What is ‘chattel paper’?
A
Chattel paper is a record evidencing a monetary obligation + evidence of security interest.
15
Q
What is ‘investment property’?
A
Stocks and bonds
16
Q
How do we classify a good?
A
To classify a good, look at the debtor’s principal use at the time the security interest is created.
17
Q
Although not a ‘moveable,’ what other things fall under the ‘goods’ category?
A
(1) Fixtures
(2) Standing timber
(3) Unborn animals
(4) Growing or unharvested crops
(5) Manufactured homes
18
Q
What are the four sub-categories of goods?
A
(1) Consumer goods
(2) Farm products
(3) Inventory
(4) Equipment
19
Q
Can the classification of goods change?
A
Yes, the classification of goods can change as the collateral passes or the prinicipal use of the collateral changes.
20
Q
A landscaper gets a loan from her bank and grants as security her right to receive payments from clients. This collateral is a _______.
A
This is an ‘account’ because it is the right to be repaid for services rendered.
21
Q
A business loans money to many parties and holds numerous promissory notes that represent obligatioins to repay. If the business then uses those notes as collateral for a loan, the notes are an example of __________.
A
An instrument
22
Q
What is a ‘deposit account’?
A
A deposit account is simply a bank account.
23
Q
What is an ‘account’?
A
An account is a right to payment of monetary obligations for property that is sold, leased, or licensed, or for services rendered.
24
Q
What is ‘payment intangibles’?
A
This is the catch-all category for rights to payment.
25
What is a 'disgused lease' (broadly)?
A transaction that is labeled as a 'lease' but in fact is a secured transaction in substence.
26
What are some key indicators of a disguised lease?
Courts will often apply an economic realities test to determine if the debtor is effectively buying the goods over time rather than truly 'leasing' them.
Indicators include:
(1) "No Return" conditions
(2) Ability to buy back the item for a nominal fee
(3) Financial responsiiblity for the econoimc life of the good
27
Attachment is what allows a security interest to become ______.
Enforceable
28
What are the three required conditions for attachment?
(1) Value has been given by the secured party
(2) The debtor has rights in the collateral to pledge it - e.g. ownership (or at a minimum the right to transfer)
(3) Satisfaction of the Article 9 Statute of Frauds
29
What are the three ways that the Article 9 Statute of Frauds can be satisfied for attachment?
The debtor may do one of the following:
(1) Authenticate a security agreement
(2) Obtain possession or
(3) Obtain control pursuant to a security agreement.
30
When the conditions for Artilce 9's Statute of Frauds coexist, the security interest has attached unless ...
there is an agreement to postpone the time of attachment.
31
The most common means by which to evidence the debtor's assent to the security agreement is by...
An authenticated record
32
What are the requirements for an authenticated security agreement?
(1) The agreement must be in a record that is in writing or electronic
(2) The agreement must contain a description of the collateral that reasonably identifies it
(3) The agreement must be authenticated by signing or some other mark which represents present intent
33
What is a supergeneric description of collateral?
Vague and overly-broad descriptions such as 'all the debtor's assets' are supergeneric - i.e. insufficient as an adequate description of the collateral.
34
Is a collateral description like 'all the debtor's cars' acceptance under the Article 9 Statute of Frauds?
Yes, because it is identifiable.
35
There are ... classes of goods, each of which is ..... at any particular moment in time; however, the ....... may change during the life of the goods.
There are **four** classes of goods, each of which is **mutually exclusive** at any particular moment in time; however, the **classification** may change during the life of the goods.
36
For goods to be considered 'farm products,' the debtor must be engaged in what?
Farming operations
37
Equipment usually refers to goods that are used or bought for use primarily in....?
business
38
What happens if the debtor uses the property for multiple purposes? How do we classify?
The **principal use** to which the debtor puts the property determines the class of goods.
39
A retailer of pianos uses the pianos as collateral to obtain a loan. The pianos are ____ for purposes of the security interest created by the retailer.
A mother buys her daughter a piano to use at home to practice for her upcoming recital. The piano is a _________.
A symphony buys one of the pianos' to use during concerns and uses it as collateral to guarantee that it will pay the retailer for the piano. The piano is ____ for purposes of the security interest created.
equipment
consumer good
equipment
40
How do we classify software?
Software embedded in goods is treated as part of the goods in which it is embedded.
Software that is not embedded is treeated as a 'general intangible'.
41
Chattel paper consists of one or more records that evidence both (i) ... and (ii) ...... .
Chattel paper consists of one or more records that evidence both (i) a monetary obligation and (ii) a security interest in specific goods.
42
What is excluded from the 'commerical tort claims' category?
Excluded are tort claims by an individual for personal injury or death.
43
What are some common goods within the 'general intangibles' category?
Included among items that are general intangibles are:
- Copyrights
- Payment intangible
- Software that are not part of goods
44
# True or False
A true of lease of goods is governmened by Article 9.
False! Leases are only covered under Article 9 when the transaction, although purportedly a lease, is in economic reality or substance a secured transaction.
45
What test do we use to determine if a 'lease' is, in fact, a lease (vs a secured transaction)?
We look at the economic reality of the transaction. This is determined by the substance over form - we ignore the parties' characterization of the transaction.
46
When is a transaction in the form of a lease treated as creating a security interest?
A 'disguised lease' is treated as a secured transaction if:
- The lessee must pay consideration for the right to possess and use the goods for the entire term of the lease
- The payment obligatioin cannot be terminated
- Lessee has the option to become owner of goods or buy them back for no additional (or nominal) consideration OR
lessee is bound to pay for remaining economic life of the good or bound to become its owner
47
What is a consignment?
A consignment in secured transactions is a business arrangement where an owner (the consignor) delivers goods to another party (the consignee) to sell on their behalf. Under the UCC Article 9, consignments are treated as security interests in certain circumstances
48
What are the four elements needed for a consignment to be subject to Article 9?
1. The goods are delivered to the consignee primarily for **sale**
2. The merchant (consignee) must be a merchant who: (i) deals in goods of that kind and (ii) is not known by creditors to substantiallty sell goods belonging to others, and (iii) is not an auctioneer.
3. The value of the goods is at least $1,000 in total
4. The goods must not be consumer goods immediately before the delivery.
49
What is an agricultural lien?
An interest typically in farm products (e.g. crops or livestock) that secures payment of an obligation for either: goods or services related to farming or rent on real property leased for farming.
Examples:
- A lien on crops for unpaid amounts owed to a supplier of seeds or fertilizer.
- A lien on livestock for unpaid veterinary services.
- A lien in favor of a landlord for unpaid rent on farmland.
50
How can 'value' be given for attaching a security interest?
Value may be given by:
- Providing consideration sufficient to support a simple contract (usually in the form of a loan)
- Extending credit
51
A security interest that is enforceable against the debtor with respect to the collateral has ________ to the collateral.
attached
52
For a security interest to be enforceable against the debtor, what three conditions must coexist?
(1) Value has been given by the secured party
(2) The debtor has rights in the collateral
(3) The debtor has authenticated a security agreement or the secured party has possession or control of the collateral
53
What is a future advance?
A security agreement may provide that collateral secures future money/loans/credit (e.g future advances) given by the secured party.
E.g. A debtor grants a secured party a security interest "in all inventory now owned and hereafter acquired" in exchange of a loan of $50,000 and all future loans made.
54
The basic rule is that a debtor must have rights in the collateral. A security interest attaches only to ___________.
the rights that the debtor actually has.
55
For a security interest to attach to collateral, there must be a ....
security agreement
56
The most common means by which to evidence the debtor's asset to the security agreement is by an...
authenticated record
57
An authentication record is the most common means by which to evidence a debtor's asset to the security agreement. To satisfy this requirement, the security interest must.... (three things)?
(1) Be in a record
(2) Contain an adequate description of the collateral, and
(3) Be authenticated by the debtor
58
The description of teh collateral for the authenticated record must at least ....... .
The description of the collateral for the authenticated record must at least **reasonably identify** the collateral.
59
A description fo the Article 9 type of collateral (e.g. "all the debtor's equipment" or "debtor's entire inventory") is an insufficient description.
False!
60
**Supergeneric or sufficient?
**
(1) All the debtor's personal property
(2) All the debtor's assets
(3) All the debtor's inventory
(1) Supergeneric
(2) Supergeneric
(3) Sufficient
61
# True or False
A security agreement must be signed or executed by the debtor to be enforceable against them.
True!
62
An original authenticated security agreement cannot apply to a new debtor, even if they become bound to the original agreement. An additional, amended agreement is needed.
False! No additional agreement is needed.
63
A lends money to B. To ensure repayment, A accepts B's stero as collateral. A takes possession of the stero pursuant to their oral agreement that the stereo will be returned to B when A has been repaid. Has an enforceable security agreement been made?
Yes, absolutely.
64
A lends money to B. To ensure repayment, B pledges the money in his savings account as collateral. Instead of taking actual, physical possession, A take control of the deposit account by getting the debtor and bank to agree to follow A's orders. Is an enforceable security agreement created?
Yes, their agreement and A's control of the account create a seucrity interest in favor of A.
65
Is a new security agreement needed to cover after-acquired collateral?
No new security agreement is necessary when the collateral is acquired later if the original security agreement provides that it applies to after-acquired collateral.
66
What type of language creates an 'after-acquired' clause?
"All inventory/equipment now owned or hereafter acquired"
67
What is the exception to an after-acquired clause (i.e. when are they not effective)?
An after-acquired clause is not effective if the collateral is **consumer goods**, unless the debtor acquires them within **10 days**.
68
Does a security interest in collateral attach to 'proceeds'?
Yes, a security interest in collateral **automatically** attaches to **identifiable** proceeds.
69
A secured party acquires a security interest in a debtor's inventory. The debtor then sells items of inventory in exchange for checks. Will the secured party's interest attach to the checks?
Yes, it will attach to the checks if they are identifiable as proceeds.
70
A secured party acquires a security interest in a debtor's inventory. The debtor then sells items of inventory and receives fro buyers a promise to pay in full within 90 days. Will the security interest attach and what type is this collateral?
Yes, the secured party's security interest **will attach** to the **accounts**.
71
# True or False
A secured party acquires interest in a debtor's inventory. The inventory is damaged in a fire by the arsonist. Will the secured party's security interest attach to anything?
Yes, it coudl attach to whatever insurance payments are due the debtor and/or to the debtor's commercial tort claim against the arsonist.
72
What are three duties arising from the secured party's possession or control of the collateral?
(1) Duty of reasonable care to **preserve** the collateral.
(2) Duty to **keep** the collateral **identifiable**
(3) Duty to **reqlinquish** possession / control upon satisfaction of the secured obligation
73
What rights does a secured party in possession or control of collateral have?
(1) Right to charge the debtor for reasonable expenses incurred in the custody and preservation of collateral
(2) Right to use or operate chattel to preserve it (or its value)
(3) Right to hold any proceeds (except money or funds) received from the collateral
74
Who bears the risk of accidental loss or damage of the collateral?
The debtor bears the risk of accidental loss or damage to the collateral. Debtor is liabile to the secured party for any deficiency not covered by insurance.
75
Can a debtor assign their right to payment of an account, chattel paper, or payment intangible?
Yes, then can. The secured party can notify the account debtor to make payments directly to them.
76
What is a PMSI?
A PMSI stands for "Purchase Money Security Interest" - it is a type of security interest that is given special priority.
77
A PMSI may only exist with respect to which two types of collateral?
A PMSI may only exist with respect to **goods (including fixtures)** and **software**
78
# True or False
Because a PMSI is special, it does not have to be an attached security interest (i.e. it does not have to meet the three attachment requirements).
False!
79
When does a PMSI in goods exist?
| Two situations
**(1) Loan for Purchase:** secured party provides value (e.g. a loan) to enable the debtor to acquire the goods, and the debtor uses the funds for that purpose.
**(2) Sale on Credit:** secured party sells goods to debtor, who incurs as an obligation to pay all or part of the purchase price
80
What security interest does a consignor in the consigned goods have?
A PMSI in inventory
81
When does a PMSI in software exist?
(1) The software was acquired in an integrated transaction with goods (e.g. a computer)
(2) The software is primarily used with those goods
(3) The security interest in the software secures an obligation related to the goods
82
What is accession?
Accessions are goods that are **physically united with other goods** such that **the identity of the original goods is not lost**
Examples: memory installed in a computer or tires installed on a car.
83
Does a security interest in collateral that becomes an accession remain valid?
Yes, a security interest in collateral is not lost when it becomes an accession.
84
What determines whether a secured party acquires a security interest in the whole when collateral becomes an accession?
The description of the collateral in the security agreement determines whether the secured party acquires a security interest in the whole.
85
What are commingled goods?
Commingled goods are physically united with other goods in such a way that **their identity is lost** in the product/mass.
86
Can a security interest be obtained in specific goods after they become commingled?
No, a security interest in specific goods cannot be obtained after they become commingled.
87
What can a security interest attach to after goods are commingled?
A security interest can attach to the resulting product or mass.
88
What happens to an existing security interest in collateral that becomes commingled goods?
The security interest is transferred to the resulting product or mass.
89
If more than one security interest attaches to the product or mass, which security interest has priority?
- Perfected vs. Unperfected
- More than 1 Perfected
A **perfected security interest has priority** over an unperfected interest at the time the collateral becomes commingled.
If more than one SI is perfected, the SIs **rank equally in proportion to the value** of the collateral at the time.
90
# True or False
Perfection has no relevance to the secured party's rights against the debtor.
True, once a security interest attaches, the secured party has enforceable rights against the debtor.
91
Perfection of a security interest is generally necessary for the secured party to have rights in the collateral that are ________ to other claims by third parties.
superior
92
Under Article 9, what are the four ways a secured party can perfect a security interest?
(1) Filing a financing statement
(2) Possession of the collateral
(3) Control over the collateral
(4) Automatic perfection
93
What is the most common method of perfection?
Filing a financing statement is the most common method of perfection.
94
Which types of collateral **cannot** be perfected by filing a financing statement?
- Deposit account
- Money
- Letter-of-credit rights that are not a supporting obligation
95
What is the primary objective of filing?
The primary objective of filing is to give interested parties notice of the existence of the security interest.
96
97
How can a security interest in *money* be perfected?
Only by **possession**
98
How can a security interest in a *deposit account* or *letter-of-credit rights* be perfected?
Only by **control**
99
How can a security interest in *accounts* be perfected?
Only by **filing**
100
What information must a filing statement contain?
(1) Debtor's name and address
(2) Name and address of the secured party
(3) Desription of the collateral
(4) Identify the debtor as an individual or organization
101
The information provided in a filing statement enables a person to make ________ of the debtor or secured party as to the existence and terms of a security interest.
further inquiries
102
What are two alterantives to a financing statement?
A **security agreement** often contains the info necessary for a financing statement and may be filed to perfect a security interest.
For real property collateral, a mortgage may also serve as a financing statement if it has sufficient info.
103
How must an individual debtor's name appear on the financing statement (called the 'only-if' approach)?
The financing statement must reflect the name on the debtor's current driver's license.
104
Is identification of the debtor by their trade name sufficient?
No, identification of the debtor solely by their trade name is insufficient. The debtor's name must be correctly provided.
105
What is the rule for naming on a filing statement if the debtor is a registered organization, not an individual?
The name shown on public organic records is required.
106
What is the rule if a debtor changes its name (so it no longer matches what's on the filing statement)?
If the debtor changes its name and the filed financing statemetn becomes **seriously misleading**, the secured party has **4 months** to amend.
107
What happens if a secured party fails to change their name on the filing statement within the 4-month window?
Should the secured party fail to amend their filing statement within four months, **collateral acquired by the debtor after the four-month period is no longer covered. **
108
What happens if there is an error in the debtor's name on the filing statement?
A filing statement that fails to accurately contain the debtor's name is **'seriously misleading' and not effective**.
109
What is the exception to the 'seriously misleading' naming convention rule?
If a standard search of the filing office records under the debtor's correct name would disclose the incorrectly named statement, the errouneous name does not make the financing statement 'seriously misleading'
110
Is an error in the name of the secured party usually 'seriously misleading'?
No, it does not affect perfection because the filing system is index by the debtor's name, not the secured party.
111
Does a financing statement need to make specific reference to 'proceeds' for a security interest in such proceeds to be perfected?
No, this is not required.
112
A debtor's signature is specifically needed to authorize the filing of a financing statement.
False. The debtor must authorize but can do this in other ways - e.g. with a handprint.
113
Who is entitled to file a financing statement?
Although usually the secured party will file, any person may do so.
114
Where are financing statements usually filed?
Financing statemetns are generally filed with the secretary of state in **the state where the debtor is located** (central filing).
115
For how long is a financing statement generally effective?
**Five years** after the date of filing
116
How do we determine the date upon which a filing statement becomes effective?
A financing statement is generally effect upon its **delivery to the financing office and tender of the filing fee**.
117
What happens if the filing office refuses to accept a financing statement for filing?
This depends on whether the refusal was justified or unjustified.
**Justified**: Financing statement is treated as having not been filed.
**Unjustified:** Financing statement is treated as having been filed
118
On what grounds can the filing office refuse to accept a financing statement for filing (i.e. when is this justified)?
The grounds upon which the filing office may justifiably refuse to accept a financing statement:
- Failure to pay fee
- Failure to submit by authorized method/medium
- Failure of the record in identifying the debtor
119
Who bears the risk of a filing-office error?
The risk of a filing-office error rests on **those who search the files** rather than on those who file the statement.
120
# True or False
If a filing office incorrectly indexes a financing statement, is is not considered effective.
False, a filing office's incorrect indexing of a financing statement does not affect its effectiveness.
121
Can a financing statement be renewed?
Yes, a financing statement can be renewed for another five-year period if the request to renew is made within 6 months prior to the expiration.
122
How is the effectiveness of a financing statement terminated?
A financing statement can be terminated by filing a **termination statement.**
123
Which type of collateral cannot be perfected by possession?
Money
124
# True or False
A security interest in collateral is only perfected by possession while the secured party **retains** possession.
True!
125
Can a security interest entitled to automatic perfection be perfected through another permitted method too?
Yes, a security interest entitled to automatic perfection can also be perfected by: filing, possession, or control.
126
Which type of PMSI is automatically perfected upon attachment?
A PMSI in **goods** is automatically perfected upon attachment.
127
# True or False
A PMSI in **goods** is not automatically perfected upon attachment.
False!
128
# True or False
A PMSI in **inventory** is not automatically perfected upon attachment.
True!
129
A security interest can be perfected before it attaches.
True! Although typically a security interest attaches and then is perfected, this can happen in any order.
130
What is the rule if a security interest is perfected by one method and later perfected by another?
As long as there is no lapse in perfection, a change in method of perfection is fine and will be continuous.
131
Can a holder of a priority agree to subordinate his interest to another's interest?
Yes, this is allowed.
132
What are the two steps for determining priority of conflicting interests in collateral?
Step (1): **Identify the ****status** of each claimant
Step (2): **Apply** **the** appropriate priority **rule**
133
What are the three groups of people with competing claims against the secured party's interest?
(1) Creditors
(2) Transferees and buyers
(3) Other secured parties
134
What is a judicial lien creditor?
A judicial lien creditor is a creditor who acquires a lien on the collateral by judicial process.
135
What is the rule for a location change and filing?
If the debtor relocates to another state, the secured party must file in the new state within **four months or the interest will become unperfected**
136
137
Can items with certificates of title (e.g a vehicle) be perfected by filing?
No, items with certificates of title that are not classified as inventory cannot be perfecteed by filing.
138
Possession can function as both ____ and ______.
Possession can function as both **attachment** and **perfection**
139
If the secured party holding the account is a bank, control is ______.
automatic
140
What does 'automatic perfection' mean?
Automatic perfection means that upon attachment, perfection occurs without additional steps needed.
141
What is the general rule for priorities?
First in time, first in right
142
What are the two major exceptions to the general 'first in time, first in right' rule?
(1) Buyer in the ordinary course of business (BIOCOB)
(2) PMSI
143
# Which party has priority?
Secured Party vs. Judicial Lien Creditor
Secured party
144
# Which party has priority?
Perfected v Authorized Buyer
Authorized buyer
145
# Which party has priority?
Perfected vs BIOCOB
BIOCOB
146
# Which party has priority?
Perfected vs non-BIOCOB
Perfected
147
# Which party has priority?
Non-BIOCOB vs Future Advance Given After Purchase
Non-BIOCOB
148
# Which party has priority?
Perfected vs Garage Sale Buyer
Garage Sale Buyer
149
# Which party has priority?
PMSI in Consumer Goods vs Garage Sale Buyer
PMSI in consumer goods if financing statement was filed
150
# Which party has priority?
Perfected vs Unperfected
Perfected
151
# Which party has priority?
Unperfected vs Unnperfected
First to attach or become effective takes priority
152
# Which party has priority?
Secured vs Unsecured
Secured
153
Once default has occured, what may the secured party do?
(1) Seek possession of the collateral and sell it or retain it
(2) Initiate a judicial action to obtain judgment
(3) Pursue any other course of action agreed upon
154
Can a secured party take possession of collateral after default?
Yes, a secured party can take possession after default. Unless the security agreement provides otherwise, a secured party is not required to give notice of his intent to take possession
155
Can a secured party dispose of collateral after default?
Yes, a secured party may sell, lease, license, or otherwise dispose of all or any of the collateral.
156
What is the standard behind disposition of collateral upon default?
All aspects of the disposition of collateral (i.e. the method, manner, and time) must be conducted in a **commercially reasonable manner.**
157
What are the two ways a secured party may dispose of collateral?
A secured party may dispose of collateral **publicly** or **privately**.
158
A secured party may purchase collateral at a public sale, but not at a private sale.
This is true!
159
What happens if there is a surplus after the sale of collateral?
If there is a surplus, the secured party generally must pay the surplus to the debtor.
160
What happens if there is a deficiency after the sale of collateral upon default?
If, after the required payments and applications of proceeds have been made, there is a deficiency, then the obligor generally is liable.
161
What is the order in which a secured party must pay cash proceeds of a disposition?
(1) Reasonable expenses for collection and enforcement
(2) Satisfaction of obligations secured by teh security interest
(3) Satisfaction of any subordinate interests
(4) Remainder to debtor
162
What is the debtor's right to redeem?
A debtor has the right to redeem by paying the debt including reasonable expenses and attorney's fees.
163
When does the right to redeem expire?
The right to redeem expires upon resale, contract for sale, or discharge by retention.
164
Can a thief grant a security interest in stolen goods?
No, a thief cannot grant a security interest in stolen goods because they have no rights to the collateral.
165
# True or False
A binding commitment to extend credit qualifies as 'value' for attachment.
True!
166
# True or False
A security agreement may provide that the collateral secures future advances.
True!
167
# True or False
Super-generic descriptions will be adequate to **perfect** a security interest when described in a financing statement, but the security
agreement must be more specific.
True!
168
# True or False
Attachment by possession or control must be pursuant to an oral or unauthenticated security agreement.
True!
169
# True or False
A secured party in possession many not charge the debtor for expenses for storing and maintaining the collateral.
False, a security party in possession may charge for **reasonable** expenses.
170
# True or False
Courts can 'read in' an after-acquired clause even if there is not explicitly language.
True!
171
# True or False
If a security interest attaches to the original collateral, it also attaches to the proceeds automatically whether or not the security interest states
that it covers proceeds.
True
172
For the purposes filing a finance agreement, where is a corporation located?
Its state of incorporation
173
For the purposes filing a finance agreement, where is a business that is not a registered organization located?
In the state in which it operates its business
174
For the purposes filing a finance agreement, where is an individual located?
The state of the principal residence
175
Parties usually search UCC filings by the ____ name.
debtor's name
176
If a debtor does not have a valid state-issued driver's license, what name do we use for filing?
Legal name
177
Secured parties have two options for describing collateral when they file their financing statement. What are they?
(1) Use the same types of descriptions used for a security agreement
(2) Unlike a security agreement, a financing statement can have a super-generic description.
178
Is the language “all assets” or “all personal property” effective to perfect a security interest in a financing statement?
Yes, this is effective to create a perfect interest.
179
Minor errors in a financing statement do not affect perfection unless they make the financing statement ___________.
seriously misleading
180
# True or False
Errors in the debtor's name are almost always seriously misleading
True!
181
If the mistake is seriously misleading, then the
security interest is not _________.
perfected
182
When the obligation is paid back, a ____ statement voids the financing statement.
termination
183
If the collateral is described in the security agreement but not the financing statement, the secure party is ________ but not _______.
attached but not perfected
184
If the collateral is described in the financing statement but not the security agreement, the secure party is ______________.
neither attached or perfected
(You cannot perfect a security agreement you have not attached to)
185
A security interest in proceeds is initially perfected for ____ days
20 days
186
Perfection will lapse for proceeds unless one of the following three cirumstances is present...
(1) The secured party takes necessary steps to amend the financial statement
(2) Cash proceeds rule: if collateral is sold, licensed, etc. perfection continues **indefinitely** so long as it remains **identifiable**
(3) Same office rule
187
# Who has priority?
Perfected vs. Perfected
First in time to file OR perfect takes priority
188
# Which party takes priority?
Uncle loans Kelly $1,000 on March 1st to help her starting a clothing line. That same day, Kelly signs a security agreement granting Uncle a security interest in Kelly's existing equipment to secure the loan made.
On March 5th, Kelly approaches Bank for additional funds. Kelly gives Bank authorization to file a financing statement cover all of her equipment and Bank files the statement listing 'all equipment' on March 5th.
On March 10, Uncle files a financing statement listing 'equipment' as collateral.
On March 15, Bank agrees to loan Kelly the requested funds and Kelly signs a security agreement granting Bank a security interest in all of her equipment.
Who has priority between Uncle and Bank?
1. The collateral here is equipment
2. Uncle's interest attached on March 1st and was perfected on March 10th.
3. Bank's interest did not attach until March 15th. It was perfected that same day.
189
# Which party takes priority?
Unperfected vs. Lien Creditor
Lien creditor will take priority over an unperfected security interest.
190
Attachment is the ____ to repossession rights or rights to enforce a security interest.
pre-requisite
191
The Article 9 enforcement rights are triggered by default. These rights are ____ and may be exercised ______.
These rights are **cumulative** and may be exercised **simultaneously**.
192
Once there has been a default, the secured party can repossess the collateral in one of two ways. What are they?
1. By using the judicial process (e.g. by filing a replevin action); or
2. By using self-help repossession
193
The repossession agent trespasses on land. Is this a breach of the peace?
No
194
The repossession occurs without a confrontation (at the dead of night). Is this a breach of peace?
No
195
The reposession agent breaks into the debtor's home or garage to get the item back. Is this a breach of the peace?
Yes
196
How do you repossess large equipment?
Equipment that is hard to reposses can be rendered unusable in lieu of repossession (and then sold on sight).
197
A disposition is commercially reasonable as a matter of law if the collater is... (three things).
(1) Sold in the usual manner in a recognized market
(2) Sold at the price current in that market
(3) Sold in conformity with reasonable commercial practices
198
Who must be given notice of the disposition?
Debtor, secondary obligors, other secured parties
199
If there is not enough money to satisfy the debt, the secured party can seek a ____ against the obligor for the remaining amount.
deficiency judgment
200
What happens to senior (superior) security interests following a disposition of collateral?
Senior (superior) security interests survive the sale (i.e., whoever purchases the collateral takes it subject to the senior, or superior, security interests.)
201
What is 'strict foreclosure'?
A secured party may accept the collateral in full or partial satisfaction of the debt.
202
A secured party that improperly repossesses collateral may be liable for the tort of ______.
conversion
