Bar Prep: Secured Transactions

Front 1

What is a security interest?

Back 1

A security interest arises when a party uses certain property as collateral to secure repayment of funds to another party. The creditor's interest in the collateral is called a security interest.

Front 2

To what does UCC article 9 apply?

Back 2

1. Transactions creating a security interest in personal property or fixtures
2. Agricultural liens
3. Sales of accts. receivable, chattel paper, negotiable instruments, promissory notes, & payment intangibles
4. Consignments
5. Certain leas-purchase agreements

Front 3

When is UCC article 9 NOT applicable?

Back 3

1. Landlord's liens
2. Assignment for claim of wages or salary
3. Non-agricultural liens
4. Sale of accounts, etc., as part of sale of business
5. transfer of interest under insurance policy
6. Right of recoupment
7. Interest in or lien on real property

Front 4

Four categories of collateral

Back 4

1. Goods
2. Tangible intangibles
3. Intangible intangibles
4. Investment property

Front 5

Four categories of Goods

Back 5

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

Front 6

Three categories of Tangible Intangibles

Back 6

1. Instruments
2. Documents of title
3. Chattel paper

Front 7

Three categories of intangible intangibles

Back 7

1. Accounts
2. Commercial tort claims
3. General intangibles

Front 8

Three categories of Investment Property

Back 8

1. Certificated & uncertificated securities
2. Securities accounts
3. Commodity contracts

Front 9

Define consumer goods

Back 9

Consumer goods are those used or bought for use primarily for personal, family, or household purposes

Front 10

Define Inventory

Back 10

Inventory is goods other than farm products held for sale or lease, and includes raw materials and materials used or consumed in the business (pencils, etc.)

Front 11

Define Equipment

Back 11

Equipment is goods other than consumer goods, farm products, or inventory (e.g., machinery tools, delivery trucks)

Front 12

How do you determine the characterization of a goods used in multiple capacities?

Back 12

Look to the "primary use" of the good by the owner

Front 13

Define Fixtures

Back 13

Fixtures are goods that become so related to particular real estate that an interest arises under real estate law.
A security interest in fixtures is generally subordinate to a conflicting interest in the related real estate by one other than the debtor.

Front 14

Define Accessions

Back 14

Goods that are physically united with other goods such that the identity of the original goods is not lost.
A security interest may be created in an accession and continues after it becomes an accession. If perfected, the interest remains perfected when the collateral becomes an accession.

Front 15

Define commingled goods

Back 15

Goods that are physically united with other goods such that the identity of the original goods is lost in a product or mass.
A security interest does not exist in commingled goods, but may attach to a mass that results when goods become commingled. If perfected, the security interest in the commingled goods becomes perfected as to the resulting product.

Front 16

Define Tangible Intangibles

Back 16

Certain intangibles that are commonly reduced to tangible or written form

Front 17

How is a security interest created

Back 17

Agreement + Attachment

A security interest is created by
(1) a written security agreement OR by the secured party's taking possession, delivery or control of the collateral with the intent to secure a debt
(2) plus attachment of the security interest to the collateral.

Front 18

What are the requirements for a valid security agreement?

Back 18

Must be in writing and contain:
1. A granting clause, stating that it is creating a security interest
2. A description of the collateral that reasonably identifies what is being described
3. Authentication by the debtor (generally by signature)

Front 19

A security agreement is generally effective...

Back 19

between the parties, against purchasers of the collateral, and against creditors.

Front 20

What is required for attachment of the security interest?

Back 20

1. Secured party gives value
2. Debtor has rights in the collateral or power to transfer rights in the collateral to the secured party
3. Debtor has authenticated a security agreement that sufficiently describes the collateral (or possession/control)

Front 21

Discuss "after-acquired collateral"

Back 21

A security agreement may provide for an interest in after-acquired collateral. An interest in inventory or accounts receivable always creates an interest in after-acquired collateral.
A security agreement may NOT create an interest in after-acquired CONSUMER goods, unless debtor acquires those rights within 10 days of the secured party giving value (e.g., BestBuy card creating an interest in everything purchased by the card)

Front 22

Discuss "future advances"

Back 22

A security agreement may provide that collateral secures future advances from the secured party, e.g. a revolving credit agreement

Front 23

Discuss security interest in proceeds of collateral

Back 23

Security interest in collateral continues regardless of sale, etc., of the collateral, unless the secured party authorizes sale free from the interest, A security interest in collateral automatically extends to identifiable proceeds of the collateral.

Front 24

Define "purchase money security interest"

Back 24

A security interest in goods is a purchase money security interest if it pertains to goods that are purchase money collateral. Purchase money collateral = goods securing a purchase money obligation incurred to purchase those goods. A purchase money obligation is one incurred as all or part of the price of the collateral or for value given to enable purchase/use of the goods.

Front 25

A security interest in Goods is a PMSI...

Back 25

...to the extent the goods are given as collateral for an obligation incurred for the purchase of those goods and actually used to purchase those goods.

Front 26

What is required to perfect a security interest?

Back 26

Attachment PLUS:
1. Filing of financing statement,
2. Possession,
3. Control, or
4. Automatic perfection (permanent or temporary)

Front 27

When is there automatic permanent perfection of a security interest?

Back 27

Where the security interest is a PMSI in consumer goods (excluding motor vehicles and fixtures), perfection is automatic upon attachment, and remains effective permanently.
Automatic permanent perfection also occurs in certain other situations, e.g., assignments of accounts, sale of promissory notes, some security interests.

Front 28

When is there automatic temporary perfection of a security interest?

Back 28

A security interest attaches to any identifiable proceeds of collateral upon disposition of the collateral. That interest is perfected automatically if the interest in the original collateral was perfected (unless the security agreement specifically exempted proceeds). This perfection continues only for 20 days, unless the proceeds are otherwise perfected.

Front 29

Requirements for a valid financing statement:

Back 29

1. Name of the debtor
2. Name of the secured party or representative
3. Description of the collateral
4. Authorized by the debtor (a valid security agreement constitutes authorization)

Front 30

Sufficiency of collateral description in a financial statement

Back 30

A financial statement sufficiently describes the collateral it covers if it provides (1) a description that reasonably identifies what is described, or (2) an indication that it covers all assets or all personal property.
UNLIKE for security agreements, a supergeneric description is SUFFICIENT

Front 31

Requirements for a fixture filing:

Back 31

A fixture filing must
1. have same info as regular financing statement
2. indicate it covers fixtures
3. indicate it is to be filed in the real property records
4. describe the real property to which the fixture is related
5. name of the record owner of the real property

Front 32

Basic priorities in competing security interests:

Back 32

General Rule: first in time, first in right
Between 2 unperfecteds: First to attach
Between perfected and unperfected: Perfected
Between 2 perfecteds: Earliest time of filing or perfection, continued without interuption

Front 33

Discuss PMSI and priority in competing interests

Back 33

A perfected PMSI in goods will prevail over a conflicting security interest if the PMSI is perfected upon possession or within 20 days thereafter.
If the PMSI is in inventory, then further steps are necessary.
Between conflicting PMSIs, a PMSI securing the price will prevail over one securing a loan; otherwise, first in time first in right applies.

Front 34

Exceptions to rule that security interest survives sale of the collateral

Back 34

1. Where secured party consents to sale free of the interest,
or where buyer is:
2. buyer in the ordinary course of business
3. buyer of consumer goods
4. buyer of chattel paper
5. buyer of an instrument
5. buyer who takes delivery

Front 35

Define Buyer in the Ordinary Course of Business (BIOCOB).

Back 35

A BIOCOB is one who:
1. buys goods in good faith,
2. buys without knowledge of the rights of others in the goods, and
3. buys in the ordinary course from one in the business of selling goods of that kind.

Front 36

Discuss the Consumer-to-Consumer exception.

Back 36

A buyer takes free of a security interest (even if perfected), where he buys goods:
1. from one who used or bought the goods primarily for personal use
2. without knowledge of the security interest
3. for value
4. primarily for buyer's personal use
5. before the filing of a financing statement

Front 37

What are a secured party's rights upon default?

Back 37

Secured party may reduce a claim to judgment, foreclose, or otherwise enforce the claim.
These rights are cumulative and may be exercised simultaneously.
Secured party may repossess tangible collateral if it can do so without a breach of the peace.
If collateral is accounts receivable, secured party may notify the person obligated on the collateral to make payment to the secured party.

Front 38

Discuss debtor's right to redeem.

Back 38

Debtor has a right to redeem collateral by tendering the amount of the obligation plus interest and reasonable expenses and attorney fees caused by default.
Redemption must be effected before:
1. collateral has been collected
2. secured party has disposed of the collateral or contracted for its disposition
3. secured party has accepted the collateral in full or partial satisfaction of the obligation

NB: Debtor may only waive right of redemption after default, not before, and never in a consumer goods transaction.