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Flashcards in Secured Transactions Deck (16)

What is the scope of UCC Art. 9?

Applies to VOLUNTARY, CONSENSUAL security interests in PERSONALTY (i.e. goods; things) or FIXTURES Does NOT apply to staturtory liens or mechanics liens (NOT voluntary) NOTE: when the collateral is REAL ESTATE, apply the law of mortgages


Under UCC Art. 9: what is a Debtor? Secured creditor? Security agmt? Security interest? Collateral?

1) Debtor = entity who OWES the money 2) Secured party/creditor = entity who LENDS the money 3) Security agmt = the K or RECORD 4) Security interest = the RIGHT that the creditor has in the debtor's personalty or fixtures 5) Collateral = the PERSONALTY or FIXTURES that a creditor can look to for satisfaction


What are the 6 types of collateral goods under Art. 9?

TANGIBLE COLLATERAL Classification of tangible property DEPENDS on the PRIMARY use by the debtor... 1) Consumer goods - those used for personal or familial purposes (car, frig, stove, etc) 2) Equipment - items used in business (cash registers, dentist chair, sewing machine, etc) 3) Inventory - goods held for sale or lease (i.e. merchandise) 4) Farm products - crops, livestock, supplies used in farming, etc 5) Fixtures - items annexed to REALTY (lighting, sprinklers, furnaces, etc) INTANGIBLE/SEMI-TANGIBLE COLLATERAL 6) Intangibles/semi-intangibles - IP; stocks/bonds; proceeds from collateral sales; accounts receivables; promissory notes


What is attachment?

When a security interest has "attached", that means that it is ENFORCEABLE 


What are the 3 reqs for attachment?  

V-C-R 1) VALUE must be given by creditor (e.g. $$) 2) a CONTRACT (aka record aka "security agmt") must evidence the secured trxn, UNLESS the secured party has taken possession of the collateral Record MUST (1) be authenticated (signed or e-signed) by the debtor; AND (2) reasonably identify the collateral 3) the debtor must have RIGHTS in the collateral


What is an "after acq'd collateral cl"?

Aka a "floating lien" that covers NOT ONLY presently owned property BUT ALSO anticipated property Floating liens ARE ENFORCEABLE e.g. taking a lien in "Staples invetory, whether now held or hereafter acquired"  


What is perfection?

Perfection = publicity! Securied party "perfects" to put the world on record (constructive) notice of the secured party's existence Helps protect the secured party from competing creditors NOTE: Art. 9 allows for early filing and LATER attachement, which "relates back" to filing date for priority purposes


Under UCC Art. 9, what does a proper lien req?

1) Voluntary/consensual trxn in personalty or fixtures AND 2) Attachment → Value from credito; Contract/agmt; Rights in collateral (VCR) AND 3) Perfection → Possession; Filing; Purchase Money Security Interest (PMSI)  


What 3 ways can a creditor attain perfection?

3 ways... 1) By taking POSSESSION of the collateral (from the debtor) 2) Purchase Money Security Interests (PMSIs) get AUTOMATIC perfection for consumer goods ONLY PMSI = security interest that enables a debtor to purchase the goods in question UCC wants to ENCOURAGE these trxns 3) Filing notice: the secured party files notice of the security interest in the public records Puts the world on RECORD (constructive) notice of the filer's claim A "financinig stmt" is filed (stripped down vers of security agmt) → purpose is to proved JUST ENOUGH INFO to allow other creditors to "follow-up" (i.e. debtor and creditor names/addys; BASIC description of the collateral) Fin stmt is filed with the Sec of State where DEBTOR is located EXCEPTION: if collateral concerns land (e.g. timber, minerals, fixtures, etc) → filed where BLACKACRE is 


For priority purposes, what is the ranking order of players?

In ORDER or priority... 1) Buyer in Ordinary Course: BFP who purchases the collateral from a MERCHANT ↓ 2) Purchase Money Security Interests (PMSIs) these creditors get SUPER priority for purchase money loans in CONSUMER goods PMSIs in INVENTORY or EQUIPMENT can get superpriority, if certain reqs met ↓ 3a) Perfected Attached Creditor: creditor who SUCCEEDS in attaining perfection RULE b/t PACs: First in time, FIRST in priority 3b) Lien Creditor: general UNSECURED creditor who goes to COURT to get a judicial lien on the collateral ↓ 4) Non-ordinary Course Buyer: BFP who purchases the collateral from a NON-MERCHANT ↓ 5) Attached Unperfected Creditor: creditor who creates an enforceable security interest (i.e. it attaches), BUT doesn't properly PERFECT (for whatever reason)  ↓ 6) General Unsecured Creditor: creditor who DID NOT take collateral ↓ 7) Debtor


Who wins in this priority fight: "floating lien" vs. purchase money security interest (who came later)?

1) When the collateral is EQUIPMENT, later PMSI wins over prior "floating lien" IF: PMSI creditor FILES properly w/in 20 DAYS of debtor taking possession of goods 2) When the collateral is INVENTORY, later PMSI wins over prior "floating lien" IF: PMSI creditor FILES properly BEFORE debtor takes possession of inventory; AND PMSI creditor NOTIFIES prior secured creditors BEFORE debtor takes possession


How is default defined under UCC Art. 9?

It's NOT! "Default" is defined in the INDIVIDUAL party's K (security agmt)


Once default has occured, how can a creditor reposses collateral under UCC Art. 9?

2 ways... 1) Self-help repossession: IS allowed under Art. 9 so long as there is no "BREACH OF THE PEACE" Breach of peace = if the creditor does something LIKELY to cause violence (whether or not there actually IS violence); OR cause ANY type of protest from a debtor; OR impersonate a law enforcement officer Civil AND criminal penalties attach to a creditor's misconduct Creditor may NOT enter a debtor's HOME w/o voluntary and contemporaneous consent 2) Judicial action: creditor obtains a judicial writ (replevin) and a SHERIFF obtains possession of the collateral


What are a creditor's options for remedy once they have reposessed collateral?

2 options... 1) Strict foreclosure: occurs when the secured party retains collateral in FULL satisfaction of the debt still owed (i.e. no deficiency jdmts)  Consumer goods: Secured party must send a WRITTEN proposal to retain collateral in satisfaction of debt to: (1) the debtor; AND (2) secondary obligors (co-signers) The 60% Rule: if a consumer has paid 60% of the cash price (PMSI); OR loan (non-PMSI), then strict foreclosure is NOT allowed→must instead sell w/in 90 DAYS (or be liable for conversion) Non-consumer goods: the WRITTEN proposal is sent to: (1) the debtor; (2) OTHER secured creditors; (3) secondary obligors; AND (4) perfected creditors NOTE: if ANY of the notified parties OBJECTS w/in 20 DAYS after notice is sent, strict foreclosure is NOT allowed (must be disposed by sale) 2) Sale: secured party may sell the collateral and apply proceeds to the debt Every asepct of the sale must be "commercially reasonable" Notice in a consumer goods sale: must be sent to (1) debtor; AND (2) secondary obligors w/in commercially reasonable time Notice in a non-consumer good sale: must be sent to (1) debtor; (2) perfected creditors; AND secondary obligors w/in 10 DAYS Content of the notice depends on TYPE of sale (public v. private) Public: time/place of sale Private: must state the time AFTER WHICH  the sale will be made Secured party MAY buy at public sale (mkt check), but NOT private sale   


If a collateral sale is not suffiicent to cover balance, what can a creditor do?

Deficiency judgment: going after debtor personally NOTE: if a secured creditor sells collateral at a low price to an insider...deficiency is based on fair mkt appraisal


When can a debtor redeem on its defaulted secured collateral?

Debtor's right to redeem the collateral is CUT OFF once the secured party has RESOLD or completed a STRICT FORECLOSURE To redeem, the debtor must pay: the amt owed, PLUS interest, expenses & fees If the security agmt contains an acceleration cl (i.e. permits creditor to declare full balance due if one pmt is missed), a debtor must pay off the ENTIRE debt, PLUS interest, expenses & fees