Secured Transactions Flashcards
1
Q
Scope of Article 9
A
Governs transactions that Create security interest in personal property or fixtures May include agricultural liens Goods or services for farming operation Rent OR certain rights to payments: Chattel paper Promissory notes Accounts Intangibles
2
Q
Secured Transaction
A
Consensual agreement between
Debtor and creditor that
Debtor’s personal property will serve
As collateral for loan
3
Q
Leases under Article 9
A
When transaction in economic reality or
Substance a secured transaction determined on
Case-by-case basis
4
Q
Test for Article 9 covering Leases
A
Lessee is obligated to pay
Full obligation regardless if
Lease terminated early AND
One of following present:
Original term of lease equal to or
Greater than remaining life of goods,
Lessee bound to lease for remaining economic
Life of goods,
Lessee has option to renew lease for remaining
Economic life of goods for no additional OR
Nominal additional consideration, or
Lessee has option to become owner for no or
Nominal additional consideration
5
Q
Circumstantial Test if Lease Test Fails
A
Facts of case
When in doubt, FILE financing statement
6
Q
Test for Article 9 covering Consignments
A
Owner delivers goods to merchant for
Merchant to sell,
Merchant deals in goods of kind
Not operate under name of consignor
Not be generally known by creditors to
Be substantially engaged in selling goods of others
Not be an auctioneer,
Each delivery must be valued at least $1,000
At time of delivery, and
Not be consumer goods immediately before delivery
7
Q
Consignment
A
When party has ownership of goods but
Gives possession of goods to another
Party for purpose of allowing consignee to sell goods
8
Q
Security Interest
A
Interest in personal property or fixtures that
Secures payment or performance of obligation
9
Q
Secured Party
A
Creditor who obtains security interest in
Debtor’s property
Usually person who loaned money or
Extended credit to obligor
10
Q
Obligor
A
Party that must pay or perform on
Obligation secured by collateral
11
Q
Debtor
A
Person who has interest, other than
Security interest or other lien, in collateral
Usually also obligor (but not required)
12
Q
Collateral
A
Property subject to security interest,
Characterization of which can affect validity of
Security interest, and way it can be perfected, and
Rights of third parties in collateral
13
Q
Tangible Goods
A
Movable at time secured interest attaches Determined by debtor’s principal use at Time security interest attaches: Consumer goods Farm products Inventory Equipment PMSI Software
14
Q
PMSI Tangible Goods
A
Only exists in goods
15
Q
Consumer Goods Tangible Goods
A
Goods acquired primarily for
Personal, family, or household purposes
16
Q
Farm Products Tangible Goods
A
Crops Livestock Supplies used Things produced (i.e. eggs) in farming operations BUT NOT farm equipment
17
Q
Inventory Tangible Goods
A
Goods held for sale or lease But not farm products, including: Goods furnished under service contract Raw materials Works in progress Materials used or consumed in business
18
Q
Equipment Tangible Goods
A
Not consumer goods, farm products, or inventory
Usually goods used primarily in business
I.e. machinery, delivery vans, office equipment
19
Q
Fixtures Tangible Goods
A
Attached to real property in such way that
Interest arises in them under real property law
20
Q
Software Tangible Goods
A
Software embedded in goods
Diagnostic computer program
Treated as part of goods in which embedded
21
Q
Intangible Collateral
A
Chattel paper Document Instruments Investment property Accounts Commercial tort claims Deposit account Letter of credit right General intangibles
22
Q
Accounts Intangible Collateral
A
Right to payment for goods sold Property licensed, or Services rendered, OR Issuance of insurance policy, Use of credit or charge back, or Winning lottery
23
Q
Deposit Account Intangible Collateral
A
Savings, passbook, time, or demand account
Maintained with bank
24
Q
Commercial Tort Claims Intangible Collateral
A
Claims possessed by org or an individual that
Arose in course of org or individual’s business but
Does not personal injury or death
25
Investment Properties Intangible Collateral
Certified and uncertified securities
| Stocks and bonds.
26
Chattel Paper Intangible Collateral
```
Obligations for goods sold on credit,
Rental payments from lease agreement
Requires:
Monetary obligation
Security interest or lease
```
27
Letter of Credit Intangible Collateral
Right to payment or performance under letter of credit
28
Payment Intangibles Collateral
Catch-all for rights to payment, where
One party under obligation to another (debtor) but
No promissory note
29
General Intangibles Collateral
Residual category and includes anything
| Not fit in any other category
30
Change in Classification Collateral
As collateral passes from debtor to debtor or the principal use changes, the classification may also change.
31
Attachment
Required for security interest to be enforceable
Value given by secured party
Debtor has rights in collateral
Debtor has authenticated security agreement that
Describes collateral or secured party has
Possession or control of collateral
32
Value Attachment
Consideration sufficient to form contract,
Extending credit, accepting delivery under
Pre-existing contract, or in satisfaction of
Pre-existing claim
No new value needs to be given and no
Money needs to exchange hands
May provide collateral that secures future advances
33
Rights in Collateral Attachment
ONLY attaches to rights debtor has
Including limited rights
Thieves cannot grant security interests in stolen
Goods because no rights in collateral
34
After Acquired Property Attachment
Attachment does not occur until
| Debtor obtains rights in collateral
35
Security Agreement
Must satisfy Statute of Frauds
| Required to attach
36
Authentication Record Security Agreement
Be in a record
Contain description of collateral
Be authenticated by debtor
37
Record Security Agreement
Tangible medium but
No need of writing
Includes electronic records
38
Description Security Agreement
Described in sufficient detail to make
Possible to reasonably identify
Generic description “debtor’s entire inventory” sufficient
39
Exception to Description Security Agreement
Consumer goods or commercial tort claims
| Identified with particularity
40
Super Generic Description Security Agreement
Descriptions such as “all the debtor’s assets" or
| All the debtor’s personal property not sufficient
41
Authenticated by Debtor Security Agreement
Authenticated by party against whom enforced
| Signature of debtor or execution of record
42
Possession of Collateral Security Agreement
```
Possession satisfy authentication:
Consumer goods
Equipment
Farm products
Chattel paper
Tangible documents
Certified securities
Instruments
Money
```
43
Control of Collateral Security Agreement
```
Control satisfies authentication:
Electronic chattel paper
Investment property
Letter of credit rights
Deposit accounts
```
44
After-Acquired Collateral Security Agreement
If original agreement states applies to
After-acquired property i.e.
All of debtor’s existing and after-acquired collateral
45
Exception to After-Acquired Collateral Security Agreement
Not effective if consumer goods, UNLESS
Debtor acquires within 10 days after value, or
Commercial tort claim
46
Proceeds Security Agreement
Automatically attaches to identifiable proceeds
| When sold, leased, exchanged, etc.
47
Duties of Secured Party in Possession
Duty of Care
Duty to Keep Collateral Identifiable
Duty to Relinquish Possession
48
Duty of Care Secured Party in Possession
Act with reasonable care with respect to collateral
49
Duty to Relinquish Possession Secured Party in Possession
Once satisfied, must relinquish control
50
Charge for Expenses Rights of Secured Party in Possession
Right to charge debtor reasonable expenses
51
Purchase Money Security Interest (PMSI) Attachment
Secured party retains interest in goods sold
| Only collateral in goods or software
52
Components of Purchase Money Security Interest (PMSI) Attachment
Value given by secured party to debtor and
Debtor incurred obligation to enable debtor to
Acquire rights in goods or
Secured party sold goods to debtor, and
Debtor incurs obligation to pay secured party
All or part of purchase price
53
Dual Status Purchase Money Security Interest (PMSI) Attachment
Secured interest taken in goods as PMSI
Then later, secured party extends more credit
Non-PMSI interest in later extended credit
54
Accessions Attachment
Physically united with other goods in such
Manner identity of OG goods not lost
I.e. tires installed on car.
Security interest in accession not lost
55
Commingled Goods Attachment
Physically united with other goods to
Point identity lost in product or mass
No security interest in commingled goods
56
Perfection Secured Transactions
```
Gives rights in collateral superior to
Any rights claimed by third parties
Filing finance statement
Possession
Control
Automatic perfection
```
57
Financing Statement Perfection
Debtor’s name
Name of secured party or rep
Collateral covered by financing statement
58
Application of Financing Statement Perfection
```
Filing statements perfect for all collateral
EXCEPT:
Deposit accounts
Money
Letters of credit
Collateral subject to other methods
(i.e. certificate of title laws).
```
59
Filing of Financing Statement Perfection
Filed in central filing office/secretary of state
| Where Debtor located
60
Exception to Financing Statement Perfection
Real property related collateral must file in
County where real property located including
Fixtures, extracted collateral, oil/gas, and timber
61
Debtor Name Financing Statement
Full debtor’s correct legal name
62
Individual Debtor Name Financing Statement
Maj: driver’s license or state issued ID
| If no current ID, only correct legal name
63
Minority of Individual Debtor Name Financing Statement
Min: safe harbor for using “individual’s name,”
Driver’s license name, or
Surname and first personal name
64
Name Change Debtor Name Financing Statement
If changed by debtor, then secured party has
| Four months to file amended financing statement
65
Errors Financing Statement
If seriously misleading, then fails
66
Description of Collateral Financing Statement
Use description in security agreement or
| Use generic description
67
Errors of Description of Collateral Financing Statement
```
Debtor may demand secured party
Prepare termination statement with
Respect to erroneous collateral to file
Consumer goods:
Secured party must file termination statement
```
68
Duration of Collateral Financing Statement
Effective for five years and effective upon
| Delivery to filing office and tender of filing fee
69
Possession Perfection
Taking possession of collateral
Only remains secure while retains possession
Casual or isolated assignments that
Don’t transfer significant part of accounts
Receivables does not count
70
Money Possession Perfection
ONLY way to perfect in money
71
Control Perfection
Taking control of collateral
Only remains secure while secure party retains control
Casual or isolated assignments that
Don’t transfer significant part of accounts
Receivables does not count
72
Deposit Account Control Perfection
ONLY way to perfect by:
Secured party bank where deposit account maintained Agreed writing with instructions of secured party, or
Secured party becomes bank’s customer with
Respect to deposit account
73
Automatic Perfection
Under certain circumstances, security interest
| Automatically perfected
74
PMSI Automatic Perfection
PMSI in consumer goods automatically
| Perfected upon attachment
75
Other Automatic Perfection
Casual or isolated assignment of accounts or
Payment intangibles that does not transfer
Significant part of assignor’s outstanding
Accounts or payment intangibles AND
Sale of payment intangible or promissory note
76
Temporary Automatic Perfection
When change to collateral or debtor
77
Name Change Temporary Automatic Perfection
Name change, secured party has
| 4 months to file amended financial statement
78
Moves out of State Temporary Automatic Perfection
Remains perfected for 4 months unless
| Financing statement lapses earlier
79
Collateral Move out of State Temporary Automatic Perfection
Debtor still owns collateral, no refiling necessary
Collateral transferred to new debtor out of state,
Secured party one year to file listing new debtor
80
Proceeds Perfection
Interest in proceeds granted temporary
Perfection status for 20 days BUT
Must amend financing statement to retain priority
81
Automatic Perfection Proceeds
Proceeds used to purchase same
Type of identifiable collateral,
Same office rules, or
Cash proceeds
82
Cash Automatic Perfection Proceeds
Perfection continues indefinitely so long as
| Cash proceeds identifiable
83
Same Office Rules Automatic Perfection Proceeds
Financing statement covers original collateral
Proceeds can be perfected in same central filing office
Proceeds not acquired with cash proceeds
84
Vehicles Perfection
Covered under certificate of title statutes and
Follow appropriate state statute for attachment and
Perfection, NOT PMSI
85
Failure to Perfect
If buyer of accounts does not perfect its interest,
Seller continues rights in those accounts
I.e. can perfect in already attached collateral
86
Priorities Secured Transactions
Article 9 prioritizes claims and pays them in order
Identify status of each claimant, and
Apply appropriate priority rule
87
Secured Creditors
```
Hold security interest in collateral
Determine:
Whether and when interest attached,
Whether and when interest perfected, and
Whether it is PMSI
```
88
Unsecured Creditors
```
No security interest in collateral
No rights against property but
Contract rights against creditor and
Can obtain rights in collateral by
Getting security interest or lien
```
89
Lien Creditors
Judicial
| Statutory
90
Other Secured Creditors
```
Purchasers of chattel paper,
Promissory notes, accounts, or
Payment intangibles treated as secured
Transactions with attached interest
Determine if perfected
```
91
Perfected Secured vs. Perfected Secured (neither PMSI)
First in time to file or perfect takes priority
92
Perfected Secured vs. Unperfected Secured
Perfected wins
93
Unperfected Secured vs. Unperfected Secured
First to attach or become effective takes priority
94
PMSI for Goods Other than inventory vs. Secured (not PMSI)
PMSI if secured party perfects within
20 days of debtor receiving goods
Otherwise, first in time to file or perfect takes priority
95
Proceeds PMSI for Goods Other than inventory vs. Secured (not PMSI)
Priority will extend to proceeds
96
PMSI for Inventory vs. Secured (not PMSI) or Lien
PMSI takes priority if:
Perfected before inventory delivered to debtor
Secured party sends authentication notice to
Conflicting security interests before
Debtor receives good
Otherwise, first in time to file or perfect takes priority
97
Proceeds PMSI for Inventory vs. Secured (not PMSI) or Lien
Priority only extend to identifiable cash
Proceeds received on or before
Delivery of inventory
98
PMSI vs. PMSI
```
If one PMSI secures price of collateral
For seller while other secures loans
Enabling purchase (buyer), then
Seller’s PMSI takes priority
Otherwise, first in time to file or
Perfect takes priority
```
99
Perfected Secured vs. Lien
Perfected security takes priority
100
Unperfected Secured vs. lien
Lien creditor priority UNLESS
Secured interest filed financing statement
But not yet given value, then
Secured interest will take priority
101
Secured vs. Statutory Lien
```
Statutory lien priority over
Security interest so long as:
Effectiveness of lien depends on
Lien holder’s possession of goods and
Lien secured payment or performance of
Obligation for services/materials furnished in
Ordinary course of person’s business
I.e. mechanic’s liens
```
102
Secured Party vs. Secured Party of Future Advances
First in time to file or perfect has priority
103
Secured Party of Future Advances vs. Lien Creditor
```
If advance made within 45 days of
Lien creditor’s interest arising,
Secured party has priority
If advance made MORE than 45
Days after lien arises, advances
Subject to lien creditor UNLESS
Advance or commitment made without
Knowledge of lien
```
104
Fixtures Secured Interest vs. Real Property
Security interest priority if security interest
Perfected by fixture filing before
Real property interest recorded
105
Fixture Filing
Provides description of real property related to fixture
106
Fixtures PMSI vs. Real Property
PMSI has priority if perfected if:
Debtor has interest of record in real property and
Fixture filing before goods become fixtures or
Within 20 days thereafter
107
Exception Fixtures PMSI vs. Real Property
```
Construction mortgage priority over
Subsequent security interest if recorded BEFORE
Goods become fixtures AND only covers
Goods became fixtures before
Completion of construction
```
108
Transferee (not Buyer) vs. Secured Interest
Security interest continues unless
| Secured party authorized transfer free
109
Buyer vs. Unperfected Security Interest
```
Buyer of goods, tangible chattel paper,
Tangible docs, takes free of
Security interest if buyer:
Gives value,
Receives delivery of collateral, and
No knowledge of existing security interest
```
110
Buyer vs. Perfected Security Interest
Buyer generally takes subject to interest
UNLESS secured party authorized
Sale free of security interest
111
BOCB Exception Buyer vs. Perfected Security Interest
Buyer in ordinary course of business takes free if:
Buys goods,
In ordinary course,
From seller in the business of selling goods of kind
Does not include pawn broker or farming products
In good faith, and
No knowledge sale violates rights of another
112
Consumer Buyer Exception (“Garage Sale”) Buyer vs. Perfected Security Interest
```
Consumer buyer takes free if buyer:
Buys consumer goods for value,
For own personal, family, or household use,
From consumer seller, and
No knowledge of security interest
```
113
Exception Consumer Buyer Exception (“Garage Sale”) Buyer vs. Perfected Security Interest
Secured party filed financing statement
Covering goods prior to purchase,
Consumer buyer takes subject to security interest
114
Chattel Paper Purchaser vs. Security in Proceeds of Inventory
```
Purchaser has priority if:
Purchaser gives new value and takes control
Purchase made in good faith, and
Does not indicate has been
Assigned to other than purchaser
For all other security interests
Changed to without knowledge
```
115
Negotiable Instrument or Document Priority
```
Purchaser has priority if:
They give value
Take possession, and
With good faith and no knowledge it
Violates rights of secured party
```
116
Buyer and Future Advances Priority
If buyer takes subject to security interest AND
After sale secured party makes future advance
Buyer takes free of that advance if:
Secured party has knowledge of buyer’s
Purchase at time of advance OR
Future advance made at least 45 days after purchase
117
Default Secured Transaction
Not defined in Article 9
Look to security agreement and k law
All remedies cumulative meaning
Exercised simultaneously
118
Enforcement Rights Default
Seek possession of collateral and either (a) sell or (b) Retain in full or partial satisfaction
Initiate judicial action
Subject to statutory limitations, pursue any
Course of action agreed upon
119
Repossession Default
Take possession by judicial process or
By self-help BUT ONLY if secured party can
Do so without breaching peace
120
Breach of Peace Repossession Default
```
Bringing officer to repossession
Breaking into debtor’s home or garage
Committing criminal act
Some physical confrontations
Some forms of deception or trickery
```
121
Not Breach of Peace Repossession Default
Trespass or repossession without confrontation
| Not constitute breach of peace
122
Oral Protest Repossession Default
Split: some breaches peace, some not
123
Large Equipment Repossesion
If hard to repossess, secured party may
Render it unusable, allowing disposal of
Collateral at debtor’s premises
124
Disposition Secured Transactions
Sell, lease, license, or otherwise dispose of
| Collateral so long as commercially reasonable
125
Commercially Reasonable Disposition Secured Transactions
Sold in usual manner recognized in market
At price recognized by market at time of disposition
Otherwise in conformity with reasonable commercial
Practices among dealers in type of collateral
126
Type of Disposition Secured Transactions
Public or private
Secured party can only purchase collateral
At public sale
Can only purchase at private sale if price
Fixed (i.e. stock exchange) or set by
Standard price quotes in recognized market
127
Notice Disposition Secured Transactions
Send authenticated notification of disposition
UNLESS:
Collateral perishable or threatens to decline speedily value
Type customarily sold on recognized market
Persons entitled to notification waive right
128
Who Notice Disposition Secured Transactions
Debtor
Secondary obligors (co-signers)
Other secured parties
Anyone else whom secured party has received
Notice of claim or interest in collateral
129
What Notice Disposition Secured Transactions
Description of debtor and secured party
Description of collateral
Method of disposition
Statement debtor entitled to accounting of unpaid indebtedness
Time and place of public disposition or time after which
Private disposition made
130
When Notice Disposition Secured Transactions
Reasonably timely i.e.
10 days prior to earliest time for disposition set
Forth in notification
131
Cash Application of Proceeds
Reasonable expenses for collection and enforcement
Pay off debt to foreclosing secured party
Subordinate interests provided make formal demand prior to distribution
Any surplus to debtor
132
Senior Interests Cash Application of Proceeds
Survive sale
133
Deficiency Cash Application of Proceeds
If funds not enough to satisfy debt foreclosed
| Can seek deficiency judgment against debtor/obligor
134
Non-Cash Application of Proceeds
Apply or pay for application non-cash proceeds
Only if failure would be commercially unreasonable. After all required payments and applications made
Remainder goes to debtor
135
Acceptance of Collateral (Strict Foreclosure)
Accepts the collateral in full or partial satisfaction
136
Full Acceptance of Collateral (Strict Foreclosure)
Debtor consents, after default, to acceptance
In authenticated record OR
Debtor does not object to proposal within 20 days
After proposal SENT
137
Exception to Full Acceptance of Collateral (Strict Foreclosure)
Debtor has paid back 60% of debt or value
Goods MUST be sold
Debtor can waive after default in authenticated record
138
Partial Acceptance of Collateral (Strict Foreclosure)
Debtor consents, after default, in authenticated record
| Consent by silence not permitted
139
Redemption Default
Paying entire secured interest and expenses
Prior to sale
Debtor CANNOT waive right
140
Fixtures Default
If secured party has priority over fixture
May be removed from real estate BUT
Will be liable for cost of any damages resulting
But NOT diminution in value by removing
141
Accessions Default
Secured party with priority allowed to remove
| Accession from other goods
142
Injunctive Relief Remedies for Non-Compliance
If failure to comply ongoing, debtor or
| Another secured party may ask court for injunction
143
Remedies for Non-Compliance Default
Injunctive Relief
Actual Damages
Deficiency Judgments
Improper Repossession
144
Commercial Transactions (Rebuttable Presumption) Deficiency Judgment Default
Secured party did not sell goods in commercially
Reasonable manner, not entitled to deficiency
Unless prove sale that complied with Article 9
Would have created deficiency
145
Consumer Transactions Default
Some courts follow rebuttable presumption rule but
Others treat as conversion barring
Recovery to deficiency
146
Improper Repossession Default
May result in liability under tort action
