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79 Cards in this Set

  • Front
  • Back
What is a Secured Transaction?
A transaction intended to create a security interest in personal property or fixtures. (Generally involves a sale on credit or a loan in which the seller or the lender obtains a lien on some or all of the debtor's property as a security interest).
What to look for to identify a Secured Transaction problem?
1) Credit transaction (sale on credit or a loan) AND
2) an agreement that creates a lien in favor of the creditor in the debtor's personal property to secure the debt.
What is a Debtor?
The person who owes payment or performance on the obligation secured.
What is a Secured Party?
A lender, seller, or other person in whose favor there is a security interest.
What is a security agreement?
The Agreement between the Debtor and the security party that creates the security interest.
What is a security interest?
An interest in personal property or fixtures which secures payment or performance of an obligation. It is a contingent property interest in the D's collateral that the D grants to the C. When the contingency (default) occurs the property interest springs to life and the C has rights in the D's collateral.
What is collateral?
The property subject to a security interest. (Property that the secured party may repossess upon default to ensure debt is paid).
What is a Purchase Money Security Interest?
Two kinds:
1) Secured party sells D collateral and retains a security interest in the item sold (Seller Financed PMSI) AND
2) An enabling loan -- a loan to a D that enables the D to buy specific collateral and the C take a security interest in teh specific collateral (Financier Financed PMSI)
NOTE: the credit or loan proceeds MUST actually be used to acquire the collateral.
What is an After Acquired Property clause?
A clause that allows a secured party to obtain a security interest in property that the D will obtain in the future. (This is permissible).
What is a Future Advance clause?
A clause that allows a secured party to secure future advances to a D in a present security agreement. (This is permissible).
What is attachment?
Deals with those steps legally required to give a secured party a security interest in the collateral that is effective as against the debtor. A creditor is not a secured creditor until attachment against the debtor.
What is Perfection?
Deals with those steps legally required to give the secured party an interest in the collateral that is effective against the world (other creditors).
What is a financing statement?
Document generally used to provide public notice of the security interest and so to perfect the security interest.
What are the two broad types of collateral?
1) Goods: tangible, movable, personal property
2) Semi Tangible and Intangible property (8 types)
Define Goods:
Includes all things which are movable at the time the security interest attaches, and include the unborn young of animals and growing crops. Also includes fixtures.
What are the 4 classifications of goods?
1) Consumer Goods: used OR bought for use primarily for personal, family, or household purposes.
2) Equipment: Used or bought for use primarily in business (catch all category).
3) Farm Products: crops or livestock or supplies used or produced in farming operations or products of crops or livestock in their UNMANUFACTURED states in hands of farmer.
4) Inventory: held by person holding them for sale or lease or to be furnished under service contracts; materials used or consumed in business (in a short period of time).
What are the 8 types of Semi Tangible or Intangible property?
1) Instruments
2) Documents
3) Chattel Paper
4) Investment property
5) Accounts
6) Deposit Accounts
7) Commercial tort claims
8) General intangibles
Define instruments:
Negotiable instruments and any other writing which evidences a right to the payment of a monetary obligation and which are in the ordinary course of business transferred by delivery with any necessary indorsement or assignment. (E.g., promissory note, check)
Define Documents: (Almost never tested on)
Doc which in the regular course of business is treated as evidencing that the person in possession of it is entitled to receive, hold, and dispose of the doc and the goods it covers. (E.g., bill of lading, warehouse receipt).
Define Chattel Paper:
A record or records which evidence both:
1) a monetary obligation AND
2) a security interest in or a lease of specific goods.
A record is info that is stored in either a tangible medium or an intangible medium (electronically), which is called electronic chattel paper.
Define Investment Property:
Includes items such as stocks, bonds, mutual funds, and brokerage accounts containing such items.
Define Accounts:
(Accounts Receivable - NOT bank accounts) A right to payment (not evidenced by an instrument or chattel paper):
1) for goods
2) For services
3) for real property
4) (etc....)
Define Deposit Accounts:
(A business account) An account maintained with a bank. (NOTE: Art. 9 only applies to nonconsumer deposit accounts and deposit accounts that are claimed as proceeds of other collateral.
Define Commercial Tort Claims:
A claim arising in tort with respect to which:
1) the claimant is an organization OR
2) where the claimant is an individual and the claim arose in the claimant's business or profession and does not include damages fro personal injury or the death of an individual.
Define General Intangibles:
(Catchall) any personal property not coming within the scope of other definitions. (e.g., intellectual property)
What does Art. 9 apply to? (rarely tested on)
1) Any transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract;
2) an agricultural lien;
3) a sale of accounts, chattel paper, payment intangibles, or promissory notes;
4) certain consignments;
5) a secured sale disguised as a lease
How do you distinguish a "true lease" from a "disguised lease"?
Ask whether the transaction is, in substance, a lease or a sale.
What are the 3 requirements for Attachment?
1) There must be a SECURITY AGREEMENT;
2) The secured party must have GIVEN VALUE;
3) The Debtor must have rights in the Collateral.
What are the requirements of a Security Agreement?
1) Unless the collateral is in the possession or control of the secured party pursuant to an agreement, a written (or electronically stored) security agreement is required.
2) If collateral is in possession of secured party an ORAL agreement is sufficient (called a "pledge")
What is the required form of a WRITTEN security agreement?
1) Must be evidenced by a record and must show an intent to create a security interest.
2) Must be authenticated by the debtor (may be signature or a symbol).
3) Must contain a description of the collateral (and if it involves timber to be cut, a description the land) (must "reasonably identify the collateral")
What does it mean to "give value"?
Any consideration sufficient to support a simple contract is enough. Even PAST consideration is enough.
May secured debt include future advances?
Yes
What is the general rule regarding after acquired property?
Without an explicit after acquired property clause in the security agreement, the secured party's security interest only reaches collateral that the debtor had rights in at the time the debtor signed the security agreement.
What are the exceptions to the general rule regarding after acquired property?
1) Even without an explicit after acquired property clause, courts will imply such a clause when the collateral is of a type that is rapidly depleted and replenished.
2) Does not attach under an after acquired property clause to consumer goods UNLESS the debtor acquires rights in them within 10 days after the secured party gives value.
Does secured property generally include proceeds?
Yes, unless otherwise agreed, a security interest automatically gives the secured party a right to identifiable proceeds.
Define Proceeds:
Includes whatever is received upon the sale, exchange, collection, or other disposition of collateral or proceeds. (Includes insurance payouts on damaged goods, unless that is payable to someone other than the D or secured party).
What is the Lowest Intermediate Balance Test?
When proceeds are commingled with other cash, this test is applied to determine which part is identifiable so that the secured party has a security interest in it. THE TEST: look a the balance in a commingled account starting at the time the proceeds are deposited and ending at the time you are applying the test. The lowest balance during that time period is the secured party's identifiable proceeds.
What is Perfection of Security Interests?
Deals primarily with rights as between the secured party and third parties.
What are the methods of Perfection?
1) Automatic Perfection
2) Possession of collateral by secured party
3) Perfection by control
4) Notation of lien on certificate of title
5) Filing a financing statement
What is Automatic Perfection?
Most common situation is with a Purchase Money Security interest in Consumer Goods.
What is the result of possession of collateral by secured party?
This counts as perfection (BUT continues only so long as possession continues). INAPPLICABLE to items you can't take possession of (deposit accounts, general intangibles)
What is Perfection by Control?
Security in investment property and electronic chattel paper may be perfected by control. Security interests in NONCONSUMER DEPOSIT ACCOUNTS can ONLY be perfected by control.
How may control be asserted over Nonconsumer Deposit Accounts?
1) The bank in which the account is maintained automatically has control over the account.
2) If secured party is not a bank, it can obtain control by: a) putting the deposit account in the secured party's name; OR b) agreeing in an authenticated record with the debtor and the bank that bank will follow the secured party's orders w/out further consent by the debtor.
What is perfection by Notation of Lien on certificate of title?
The only way to perfect a security interest in an automobile is for the secured party to note its lien on the certificate of title. (EXCEPTION: if the D is holding the car as inventory, the secured party MUST perfect by filing a financing statement against the inventory)
What is perfection by filing a Financing Statement?
1) Notice filing: puts world on notice that a person has a security interest in the collateral indicated.
What are the necessary contents of a Financial Statement?
1) Debtor's Name
2) Description of Collateral
3) Secured Party's name
4) Real property related financing statements
5) No signature required, though D must authorize the filing.
6) Authenticated security agreement itself may be filed (but if filed it must contain all the elements discussed above.
What are the requirements for Debtor's name?
1) Must be Legal Name: If D is an individual, his "legal name" (name by which known in the community) must be given. If corp, corp name (NOT trade name).
2) If error in name: Statement is effective as long as error is not misleading ("not misleading" = if search under D's correct name would retrieve the erroneous financing statement).
What if Debtor changes his name?
Financing statement is effective before or within 4 months after change. Not effective to perfect AFTER 4 mos unless an amended financing statement is filed within 4 mos.
What is the requirement for the Description of Collateral?
Must "reasonably identify"
What are the rules related to Secured Party's name?
An error in name will not be seriously misleading because there will be no search for it.
What are the rules regarding a real property related financing statement?
Statement must describe the realty and indicate that it is to be filed in the real property records.
How may a D authorize filing?
1) Expressly (by signature) OR
2) Automatically through security statement.
Where is a financing statement generally recorded?
1) With the Secretary of state.
2) If Real estate related filing = w/ real estate records in the county where the real property is located.
Where is a statement recorded when it involves multi state transactions?
1) General rule: file in state where the D is located (if D = individual, then principal residence; If registered org, then where organized; If unregistered org, principal place of business or chief executive office)
What if D moves?
Secured party will become unperfected 4 mos after the D's move UNLESS it files a financing statement in the new jxs before that 4 mos is over.
What collateral is transferred to a new state?
Secured party will become unperfected 1 yr after transfer UNLESS it files new statement before 1 yr.
How long is a financing statement effective?
1) For 5 yrs from date of filing
2) It may be extended by filing a CONTINUATION STATEMENT, if filed in the last 6 months of the life of the financing statement.
What happens when the D's obligation and the Secured Party's commitment ends?
Upon receive an authenticated demand by the D, Secured Party must w/in 20 days provide the D with a termination statement indicating end of security interest in the collateral. If financing statement covers consumer goods, w/in 1 mo of no outstanding obligation SP must file a termination statement of pay damages.
How is an interest in Proceeds perfected?
If SP has perfected security interest in collateral, he has automatic interest in Proceeds for 20 days. To extend beyond 20 days, SP must take new action to perfect UNLESS:
1) the proceeds are identifiable cash proceeds OR
2) The security in the original collateral was perfected by filing a financing statement, a security interest in teh type of collateral ....
What are the Priority rules for a secured party v. Secured party?
General Rule: the first to file or perfect, whichever occurs first, has priority. (This is for perfected secured v. perfected secured)
What if it's an unperfected secured party v. an unperfected secured party?
First to attach wins
If perfected secured v. unperfected secured?
Perfected wins.
What is the special rule related to PMSI in Equipment?
PMSI in such goods has priority over a conflicting security interest in the same goods or its proceeds if the PMSI is perfected at the time the debtor received possession of the collateral or within 20 days thereafter.
What if there are conflicting PMSI interests?
Code says that a Seller PMSI has priority over a Lender (Financier) PMSI.
What are the Special Priority rules for investment property?
1) Security interest perfected by control has priority over one perfected by another method
2) If conflict between interests perfected by control, they rank according to time of gaining control.
3) Interest granted to d's intermediary has priority over interest granted to another secured party.
4) Otherwise, first to file or perfect governs.
What are the Special priority rules for Deposit Accounts?
1) A security interest perfected by control has priority over a security interest via proceeds.
2) If conflicting interests each were perfected by control, rank according to time of obtaining control.
3) A SP who obtained control by putting the deposit in its own name prevails over others.
4) Bank has priority over other secured parties EXCEPT those who have control by putting it in their name.
What are the priority rules for a secured party v. buyer of the collateral?
1) General Rule: security interest is still attached.
2) Authorized Sale: if the sale is authorized by the SP free of the security interest the buyer takes free of the interest.
3) Unauthorized sale: A buyer in the ordinary course of business takes free of the security interest even though the security interest is perfected and the buyer knows of its existence.
What is a buyer in the ordinary course?
A person who buys goods in good faith, without knowledge that the sale violates the rights of another person, and in the ordinary course from a person in the business of selling goods of that kind.
What if a Buyer NOT in the ordinary course of business buys in an unauthorized sale?
They take subject to the security interest (BUT take free of unperfected interests unless they know of the security interest.
What is the special rule for Consumer to Consumer sales?
A buyer takes free of a security interest even though it is perfected if he buys WITHOUT KNOWLEDGE of the security interest, with value, and for his own personal, family, or household use UNLESS prior to the purchase the SP filed a financing statement covering such goods.
What is the priority between a Secured party and a Judgment lien holder?
An unperfected security interest is subordinate to the rights of a person who becomes a lien creidtor before the interest is perfected. If the interest is perfected before the person becomes a lien creditor, the security interest has priority. LIEN CREDITOR = an unsecured creditor who has obtained a judgment and has levied on that judgement.
What is the special rule for a PMSI v. Lien Creditor?
If the SP files w/ respect to the PMSI w/in 20 days after the debtor receives possession of the collateral, he takes priority over the rights of a lien creditor which arises between the time the interest attaches and the time of filing.
What are the priority rules for Future advances?
A future advance by a secured creditor has priority over a lien creditor if the future advance is made:
1) w/out knowledge of the lien;
2) w/in 45 days of the lien arising, OR
3) pursuant ot a commitment entered into without knowledge of the lien.
What is the priority between a secured party and a statutory lien claimant?
Statutory lien beats a perfected security interest.
Define Default:
Art. 9 does not define it. Typically it's defined in individual security agreements. In the absence of such, default has been restricted to failure to perform or pay the obligation when it is due. (
What is Self Help Repossession?
After default the SP is entitled to take possession of the collateral without judicial process if this can be done without breach of peace. When SP breaches the peace he loses right to repossess and may be sued for conversion and is liable for actual damages.
What constitutes Breach of the Peace?
Any conduct by the SC that has the POTENTIAL to lead to violence. Generally physical presence of the D plus verbal objection is enough.
What if self help is unavailable?
SP can use judicial process to get the goods.
What is Retention of Collateral (Strict Foreclosure)?
After default and repossession a SP may propose retaining the collateral as satisfaction of the debt IF:
1) SP sends its proposal to any other SP who has received notice AND any SP who has perfected on the collateral by filing or noting a lien on title. If notified party objects w/in 20 days collateral must be disposed of at sale.
2) SP must ALSO obtain consent from D