Secured Transactions Flashcards Preview

NY Bar 2014 > Secured Transactions > Flashcards

Flashcards in Secured Transactions Deck (87):
1

Secured Transactions - Source of Law?

UCC Article 9

2

What is the scope of Article 9?

Applies to consensual security interests in personalty and fixtures.

3

How does a creditor attach under Art 9?

To attach you need:
Value
Contract
Rights in the collateral
[VCR]

4

Once attached, how does the creditor attain PERFECTION?

PERFECTION = PUBLICITY
By putting the world on RECORD NOTICE of its existence.

5

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

First in time = first in right.
The first to perfect takes first, generally.

6

What if the debtor DEFAULTS on the debt or obligation?

The Art 9 creditor has statutory and judicial remedies

7

What is personalty under Art 9?

Goods.

8

Does Art. 9 apply to statutory or mechanic's liens?

No. Art. 9 applies only to consensual liens.

9

Collateral Classifications

1. Tangible
2. Intangible

10

Tangible Collateral Test

Subjective - collateral's primary use in the hands of the debtor (subjective).

11

Tangible Collateral Types

1. Consumer goods
2. Equipment
3. Inventory
4. Farm products
5. Fixtures

12

Intangible Collateral Types

1. Patents
2. Trademarks
3. Copyrights
4. Stocks
5. Bonds
6. Mutual funds
7. Proceeds from the sale of collateral
8. Accounts
9. Promissory notes
10. Drafts

13

Three Requirements for Attachment

Value must be given by creditor
Contract must evidence the secured transaction
Rights in the collateral - debtor must have rights in the collateral
[VCR]

14

When will Attachment exist without a writing/contract?

If the secured party is in POSSESSION of the collateral.

15

How can the RECORD/Contract be authenticated?

1. Signed/Electronically marked; and
2. Reasonably identify the collateral

16

Are "after-acquired collateral clauses" enforceable?

Yes.
Floating lien: A lien on a set of assets that can change in quantity and scope over time (e.g. inventory).

17

How does the creditor perfect security interests?

By record or constructive notice through:
1. Possession
2. Files public record notice

18

What is the purpose of creditor perfection?

Protects the secured party from competing creditors.

19

What is a PMSI?

Purchase Money Security Interest
Enables the debtor purchase the goods and applies to CONSUMER GOODS ONLY.
Automatic attachment but still has to file within 20d of buyer taking possession.
Not just vendor - any loan specifically for purchasing the goods.

20

What must a creditor file for public record notice?

A "financing statement" containing:
1. Debtor's name and address
2. Creditor's name and address
3. Description of the collateral (even general - "all of his assets")

21

Where is the "financing statement" (UCC) filed?

With the Secretary of State in the state where the:
INDIVIDUAL DEBTOR has principal residence.
CORPORATIOND DEBTOR is organized.
(EXC - land based collateral)

22

Exception to central filing of financing statement

If the collateral is timber, minerals, or fixtures then it is filed locally in the county where the land is located.
(Not with SoS)

23

What is an AUPie?

Attached Unperfected Creditor

24

What is a lien creditor ("LC")?

A general unsecured creditor who goes to court to get a judicial lien on collateral

25

What is a Perfect Attached Creditor ("PAC")?

Art 9 creditor who succeeds in attaining perfection.

26

What is a NOCie?

Non-Ordinary Course Buyer who purchases the collateral OUTSIDE the normal stream of commerce.

27

What is a BIOC?

Buyer In the Ordinary Course who purchases the collateral in the normal stream of commerce.

28

What is a GUC?

General Unsecured Creditor - creditor who never bothered to take collateral

29

What is the order of subordination?
[BPL NAGs me in Rivlin]

1. BIOC
2. PAC
3. LC
4. NOCie
5. AUPie
6. GUC

30

Can a PAC perfect by filing EARLY?

Yes, beginning during negotiations and gets the benefit of the early filing date.

31

What is an AACF?

After Acquired Collateral Fiancier
(Creditor who takes as collateral a security interest "in all of Debtor's [ ]"e.g. floating lien holder)

32

Who wins in an AACF v. PMSI with Equipment?

PMSI wins, even if later in time, so long as it files properly within 20 days of the debtor taking possession.

33

Who wins in an AACF v. PMSI with Inventory?

PMSI gets priority ONLY IF:
1. PMSI files properly BEFORE debtor takes possession AND
2. PMSI must notify AACF before debtor takes possession.
(to prevent debtor fraud, floating lien creditor should know status all the time)

34

Default Defined

A breach of the CONTRACT or security agreement.

35

Default & Self Help

Self help repossession is PERMISSIBLE so long as the creditor does not BREACH THE PEACE.

36

Self Help Repossession - Breach the Peace Defined

Whether the creditor did something provocative likely to incite violence
OR
over any protest of the debtor, however mild.
OR
impersonating law enforceemnt (= constructive force)

37

Self Help Repossession - Entry into creditor's home?

Home enjoys "zone of privacy".
May not enter without voluntary and contemporaneous CONSENT!

38

What is a judicial writ ordering sheriff repossession in NY?

Writ of replevin.

39

Strict Foreclosure

Creditor retains the collateral in full satisfaction of the debt.
To do so, must send notice proposing to strictly foreclose. To whom?

40

Strict Foreclosure - notice to whom?

Consumers goods: To debtor and secondary obligors (guarantors and co-signers).
Not consumer goods: Also other known secured parties.

41

How can strict foreclosure be prevented?

If a notified party objects within 20 days after notice, strict foreclosure is not allowed.
Collateral must then be disposed of by sale.

42

60% Rule for Consumer Goods

No strict foreclosure if collateral is consumer goods AND debtor has paid 60% of:
[non-PMSI] the loan
[PMSI] the cash price
Secured party must sell collateral within 90 days or be liable in conversion.

43

The Sale - General Requirements

Must be COMMERCIALLY REASONABLE, whether sale is public or private. (Use this term all over the essay?)

44

The Sale - Notice

Required to be sent to debtor and secondary obligors and known/perfected secured creditors.
Notice period: REASONABLE. In non-consumer - 10d is reasonable.

45

The Sale - May the creditor purchase at the sale?

If public sale - yes
If private sale - no

46

The Sale - Consumer protections

For consumer goods there are rules about:
- How to calculate deficiency
- How debtor can redeem

47

Deficiency Judgment

Credit files a deficiency judgment if the sale does not satisfy the loan.

48

Effect of collusion

If secured party sells low to an inside buyer, we apply the price payable by "an independent 3rd party"

49

How can debtor redeem?

Before foreclosure or resale, debtor must pay
1. missed payments owed; and
2. interest; and
3. creditor's reasonable expenses including attorney's fees.

50

Acceleration Clause

Permits the creditor to declare the entire balance immediately due if any default occurs.

51

Commercial Paper - Source of Law

UCC Article 3

52

COMMERCIAL PAPER
Bright Line Rule

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.

53

Negotiable Instrument Defined

A writing calling for the payment of money.

54

Negotiable Instruments - 2 Types

1. Promissory note
2. Draft

55

Promissory Note - Defined

A writing articulating a specific promise to pay. (Not just IOU)

56

Draft Defined

A written order or command to pay.
(Check)

57

Draft - players

Drawer - gives order.
Drawee - the bank
Payee - the beneficiary of the order (can "indorse")

58

Requirements for a Negotiable Instrument
(otherwise just a contract)

WOSSUPP:
1. Writing
2. payable "to Order" or "bearer"
3. Signed by its maker or drawer
4. recite a Sum certain
5. contain Unconditional promise or order (and no others)
6. Payable on demand or at a definite time; and
7. Payable in currency.

59

Conditions permissible in negotiated instrument

Referring to another writing.
Referring to collateral, repayment, acceleration (eg. accelerated upon specific event - OK!).

60

Reciting a Sum Certain - Must it recite a specific interest rate?

No, in that case the statutory rate will be used.
"Sum certain" - ability to calculate exact amount without reference to any other source.

61

What causes of action on commercial paper?

1. Contract/signature liability
2. Warranty/Transfer liability

62

For contract liability, who is the defendant?

The maker/promissor/signatory.

63

What does an indorser promise?

If the check bounces and indorser is notified, indorser promises to pay.

64

What happens when the words "without recourse" appear?

Indorser/signor passes title with no signature liability.

65

Warranty/Transfer Liability - Defined

Liability for SELLING a defective instrument

66

Who is the defendant in a warranty/transfer liability action?

Any transferor who sells the negotiable instrument

67

Who may sue for breach of warranty?

Anyone in possession of an indorsed instrument.
If not indorsed, only direct transferee can sue transferor.

68

What warranties in a warranty/transfer claim?

1. D (transferor) has good title to the instrument
2. All signatures are genuine and authorized
3. Instrument has not been materially altered (forgery=breach).
4. No defense/claim against D == instrument is enforceable.
5. D has no knowledge of bankruptcy or insolvency action against the maker or drawer.

69

What makes an instrument duly negotiated?

An instrument that was properly transferred --> Holder in Due Course

70

Duly Negotiated - Payable to the order of a specific payee

When it is delivered to that specific payee.
Thereafter - must be indorsed.

71

Types of Indorsements

1. Special or blank
2. Restrictive unrestrictive

72

Special Indorsement

Names a particular person as the designated indorsee. Indorsee must SIGN for it to be duly negotiated.

73

Blank Indorsement

Does not name a specific indorsee.
Negotiated by delivery alone.

74

Restrictive Indorsement

Contains a restriction such as "deposit only."

75

Holder in Due Course Status - Requirements

A holder who takes the instrument:
1. for VALUE
2. in GOOD FAITH (subjective!)
3. WITHOUT NOTICE of a defect (objective! Should have known?)

76

Holder in Due Course Status - "Value" Requirement

Not "consideration".
Not promise to do something later.
Can be payment for old debt.

77

Holder in Due Course Status - "No notice" Requirement - Arrears

Principal in arrears = defect! No HIDC.
Interest in arrears = not a defect. Can be HIDC.

78

Holder in Due Course Status - "No notice" Requirement - Examples of defects

Appearance gives notice (stamped "void")
Obligation is voidable (bad consideration)
Competing claim (lost/stolen)
Fiduciary negotiated instrument in breach of fiduciary duty.

79

Holder in Due Course & Shelter Rule

Transferee acquires whatever rights the HIDC transferor had and become an HIDC.
EVEN IF other HIDC requirements are not fulfilled!!

80

Rights and Liabilities of a Holder in Due Course

1. HDC takes free from CLAIMS and PERSONAL DEFENSES; but
2. Subject to REAL DEFENSES.

81

HDC - Claim Defined

A claim is a right to a negotiable instrument because of superior ownership.
This is defeated by HIDC transferee.

82

HDC - Personal Defenses Defined

Every defense available in ordinary contract actions, such as:
- lack of consideration
- unconscienciability
- waiver
- estoppel
- fraud in the inducement
These are defeated by HIDC transferee.

83

HDC - Real Defenses Defined

HIDC takes subject to these!
[MAD FIFI]
Material Alteration
Duress
Fraud In the Factum
Incapacity
Illegality
Infancy
Insolvency

84

HDC - Material Alteration Defined

A change in the terms of the instrument.
Maker may bear liability for negligence in leaving open spaces on the check.

85

HDC - Fraud in Factum

"Real fraud" - lie about instrument. (Lying to maker about meaning of note)
Other fraud - eg. about goods sold - is personal fraud and does not pass to HDC.

86

When does death of customer revoke bank's authority to pay check?

Bank knows of death and has reasonable time to act on knowledge.

87

Stop payment order - how long valid?

Oral - 14d, renewable during period.
Written - 6 months, renewable every 6m.