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33 Cards in this Set
- Front
- Back
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What is the scope of Article 9?
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Consensual security interests in personalty and fixtures...
...collateral for a loan (like jewelry or something) |
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How does a creditor create an enforceable security in debtor's collateral (attachment)?
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Value... Contract... Rights in the collateral
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Once attached, how does the creditor attain perfection?
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By placing the world on record notice of its existence
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When more than one creditor has a stake in the same collateral, what are the rules of priority?
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Generally, the first to perfect takes first!
FIRST IN TIME FIRST IN RIGHT |
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What if the debtor defaults on the debt or obligation?
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The Article 9 creditor has statutory and judicial remedies
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Does collateral in land place us within the scope of article 9?
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NO
Article 9 is for personalty and fixtures |
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Do you need a security agreement if the creditor has taken possession of the collateral?
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NO
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What is needed for a valid security agreement (also called a record)?
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1. It needs to be authenticated by the debtor (signature or electronic marking)
2. It must reasonably identify the collateral |
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Can you take a security interest in something that the debtor doesn't have the current rights to?
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YES... after-acquired collateral clause
EXAMPLE: A lends $50,000 to B, Inc., taking a security interest in all of B's (inventory, equipment), whether now held or hereafter acquired |
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How does a creditor obtain PERFECTION?
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1. Taking possession of the collateral until the debt is paid... possession equals perfection
2. PMSIs (purchase money security interests)... automatic perfection 3. File notice of the security interest in the public records... this puts others on record/constructive notice of the claim |
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What is filed to put the world on notice for purposes of perfection?
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1. Security agreement... but this is rare
2. FINANCING STATEMENT- simple document whose only purpose is to provide interested parties with sufficient information to make followup inquiries (debtor name and address, creditor name and address, description of collateral)... file with the secretary of state in the state where the debtor is located |
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What is the hierarchy for creditor priority for purposes of secured transactions?
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1. BIOC (buyer in ordinary course)- you buy a guitar from the store
2. PAC (perfected attached creditor)- the collateral is attached and perfected 3. LC (lien creditor)- unsecured creditor who goes to court to get a judicial lien on the collateral 4. NOCie (non-ordinary course buyer)- you buy a guitar from an auto mechanic 5. AUPie (Attached Unperfected Creditor)- creditor attaches the collateral but never perfects it 6. GUC (general unsecured creditor)- a lender who lends money but never bothers to take collateral in exchange for it |
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If you have two PACs who have perfected rights to the same item, who wins?
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FIRST IN TIME FIRST IN RIGHT
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What is the effect of early filing for purposes of secured transactions?
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Article 9 lets you file a financing statement during the negotiation period... if someone else perfects title after this early filing and then you perfect title after that...
...you still win! |
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What is a PMSI holder and what is an AACF?
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AACF- after-acquired collateral financier... this is a secured creditor who takes as collateral a security interest in all of debtor's equipment or inventory, whether now or hereafter aquired
PMSI holder- a creditor who extends credit to debtor to buy X and in exchange, gets a security interest in X |
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Who wins in a battle between an AACF and a PMSI holder?
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Equipment- if the AACF is over equipment, the PMSI holder has a higher priority if it files properly within 20 days after the debtor takes possession
inventory- if the AACF is over inventory, the PMSI holder wins if he files properly and notifies the AACF before the debtor gets possession. |
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Analyze...
1. On January 1, Macy's borrows $2 million dollars from Bank, granting Bank a security interest in all of Macy's equipment, whether now or hereafter acquired... Bank perfects its interest 2. On Feb 1, Macy's buys 10 cash registers from Office Depot, granting Office Depot a security interest in the cash registers |
EQUIPMENT
Bank has an AACF Office Depot is a PMSI holder in order for Office Depot to have a higher priority in case Macy's defaults, it must file properly within 20 days of Macy's getting the registers |
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Analyze
1. On January 1, Macy's borrows $2 million dollars from Bank, granting Bank a security interest in all of Macy's inventory, whether now or hereafter acquired... Bank perfects its interest 2. On Feb 1, Macy's buys Armani's spring line, granting Armani a security interest in the line |
INVENTORY
Bank has an AACF Armani is a PMSI holder in order for Armani to have a higher priority in case Macy's defaults, it must file properly AND notify the Bank before Macy's gets possession of the line |
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PAC v. BIOC... who wins?
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BIOC!
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If a debtor defaults on a payment, what can the holder of a security interest do?
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SELF HELP REPOSSESSION... this is allowed so long as the creditor does not breach the peace
breaching the peace merely means that you can't do anything that is provocative or likely to cause violence... if the debtor objects, that's it! |
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If it appears like you will breach the peace if you try to repossess, what can you do as a creditor?
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JUDICIAL ACTION... get a judicial writ, ordering the sheriff to obtain possession of the collateral and deliver it to the secured party
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What is strict foreclosure?
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Keeping the collateral when the debtor defaults on his payments...
...this discharges the debt |
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How do you strictly foreclose?
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CONSUMER GOODS- send notice to the debtor and any secondary obligors
NON-CONSUMER GOODS- send notice to debtor, other secured parties who have told the foreclosing creditor of their security interest in the same collateral, perfected creditors, and secondary obligors |
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What is a secondary obligor?
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A guarantor of the debtor's debt...
...Joe is the debtor. Sarah promises that if Sarah cannot pay, she will... Sarah is a secondary obligor |
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What is the 60% rule concerning consumer goods and strict foreclosure?
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If the debtor has paid 60% of the loan, strict foreclosure is not allowed. Instead, the secured party must sell the collateral within 90 days or be liable in conversion
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When will strict foreclosure not be allowed?
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When a party objects within 20 days after notice is sent... in that case, the collateral must be disposed of by sale
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What is the procedure for selling collateral after a default?
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Send notice to the proper parties (same parties as involved in strict foreclosure) and then sell it at either a public or private sale
PUBLIC SALES- the notice must state the time and place of the sale PRIVATE SALES- notice must state the time after which the sale will be made ("please be advised that after Feb.1, 2009, secured party will sell the following collateral...") |
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What additional provisions are mandatory for notice of sale when consumer goods are involved?
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1. How to calculate any deficiency
2. How debtor can redeem |
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Can the secured party buy the collateral at a sale after default?
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PUBLIC SALE- yes
PRIVATE SALE- as long as there are external market checks |
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What is a deficiency judgment and what is the limitation on it?
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If you owe $100,000 and the Bank sells your collateral for $60,000... you still owe $40,000 (the bank will get a deficiency judgment against you)
LIMITATION... if the collateral is sold at a low price to an insider buyer, the price deducted from the loan will be calculated based on what an independent third party would have paid (this limits fraud) |
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When is a debtor's right to redeem cut off?
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Upon sale or strict foreclosure
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What does a debtor have to pay in order to redeem?
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the amount owed AND all missed payments PLUS any interest and creditor's reasonable expenses (including attorney fees)
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What is an acceleration clause?
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This permits the creditor to declare the full balance due in the event of default...
...to redeem, the debtor would have to pay the whole amount plus interest and expenses |
