Secured Transactions

Front 1

5 things covered by Article 9

Back 1

1. accounts
2. chattel paper
3. payment intangibles
4. promisory notes
5. commercial consignments

Front 2

security interest

Back 2

it's a right to collateral

PMSI - where creditor sells the goods to the debtor on credit, retaining a security interest in the goods, or creditor advances funds used to purchase the goods

Front 3

consumer goods

Back 3

KEY: family use

Front 4

farm products

Back 4

crops, livestock, etc. in hands of a farmer

Front 5

inventory

Back 5

good held for sale or lease

Front 6

equipment

Back 6

goods used in business - long term

Also note:
- primary use test
- original use test
- general use rule (i.e. no changing in one person's hands)
- farmer exception to gen use rule
- software, embedded test

Front 7

instruments

Back 7

Art. 3, UCC - money paper, or a promissory note, transferred by indorsement and delivery

Front 8

documents

Back 8

Art. 7, UCC - includes only the following:

1. warehouse receipts
2. bills of lading
3. delivery order

no other docs! term of art!

Front 9

accounts

Back 9

right to payment - with no writing, or insufficient writing to be an instrument, or chattel paper.

excludes deposit accts, health care insurance receivables and investment property

includes credit card debt

Front 10

deposit accounts

Back 10

accts maintained with a bank

Front 11

health care insurance receivables

Back 11

right to pymt, under insurance, for health care goods or services provided

Front 12

chattel paper

Back 12

writing(s) evidencing 1) obligation and 2) security interest (i.e., I will pay you $1 a month for this tie, and if I default, you get tie back)

Front 13

electronic chattel paper

Back 13

chattel paper evid by info stored in an electronic form

Front 14

letter of credit right

Back 14

rt to pymt under a letter of credit. Excludes the rt to draw on a letter of credit

Front 15

commercial tort claims

Back 15

tort claims filed by a business that arose out of business (excluding personal injuries).

Reqs specificity.
No "after-acquired tort clauses"

Front 16

general intangibles

Back 16

anything else! Catchall term for non-goods (patents, Tm, goodwill, liquor licenses, taxicab medallions)

Front 17

investment property

Back 17

certificated securities - held by you in paper form

uncertificated - held by you in electronic form

Hint 17

2 types

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proceeds

Back 18

whatever is acquired upon disposition of collateral (it is collateral that has changed in form) ***security interests generally continue in proceeds
Nothing is in proceeds by itself, it's always proceeds plus one of the 15 cats above
Usually, one of four things:
a) Accounts
b) Instrument
c) Chattel paper
d) Cash (never an initial kind of collateral, doesn't make sense)

Hint 18

definition, then usual 4 types

Front 19

3 steps between debtor and creditor

Back 19

1. creation
2. attachment
3. perfection

Front 20

creation - ways to establish

Back 20

possession OR
security agreement

Front 21

possession

Back 21

giving up the object to the creditor (like a pawn shop, where you give up ring for $)

Front 22

security agreement

Back 22

when you want to borrow $ but can't give up possession (say, equipment in a restaurant)
a) Authenticated record (written or elec stored), b) Signed by debtor (or marked electronically),
c) Describing collateral.

d) Control (if collateral is one of below, then the sec agmt may be evid by control):
i) Deposit acct ii) Electronic chattel paper
iii) Letter of credit right
iv) Investment property

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2 reqs for attachment

Back 23

1. secured party must give value
2. debtor must have rts in the collateral

Front 24

execeptions to need for debtor rts in collateral

Back 24

i) Ten day rule for add'l security for consumer goods
ii) Commercial tort claims

Front 25

after-acquired property clause

Back 25

btor acquired an interest in the property (eg chair seller - collateral will be sold, so you do agmt w/existing chairs and future chairs as collateral for present loan)

Front 26

future advances clause

Back 26

- ok - present collateral for a future loan; no attachment until the secured party gives value (collateral serves as security not just for present obligation, but for advances the creditor makes to the debtor in the future)

Front 27

5 methods of perfection

Back 27

1. filing
2. possession
3. control
4. automatic
5. temporary

Front 28

filing (how to file, and what it's effective for)

Back 28

effective to all kinds of collateral except deposit account and money (except as to proceeds)

1. file financing statement
2. in the location of the debtor
3. lasts for 5 years

Front 29

info in the filing statement

Back 29

Includes names, addresses and descriptions of the collateral
1. Names - name of debtor req'd; signature not. Trade name of debtor is insufficient.
2. Addresses - if filing office accepts w/out addresses, it is still effective
3. Description - supergeneric (ie "all assets") is effective (but not for a security agreement). TEST: is it seriously misleading? If yes = ineffective. The name is sufficient if it would be found using the filing office's search logic.

Hint 29

3 things

Front 30

where is the financing stmt filed?

Back 30

1. generally, central filing w/ the secretary of state.

2. local filing for real estate transactions

quirks:
1. Registered orgs - state where organized
2. If individual - stat of indiv principal's residence
3. If org with one place of business - that state
4. If org w/ more than one place of business - state where chief exec office is located

Front 31

possession - cannot perfect...(5 things)

Back 31

accounts, deposit accounts, elec chattel paper, letter of credit rts, and general intangibles

Hint 31

A
DA
ECP
LCR
GI

Front 32

control - applies to 3 categories

Back 32

1. deposit accts
2. letter of credit rts
3. investment property

Hint 32

3 types

Front 33

control & deposit accts

Back 33

control is the exclusive method of perfection of deposit accts. Bank agrees that it will act on secured party's instructions w/out any further debtor action

Front 34

control & letter of credit rts

Back 34

control occurs when issuer of letter consents in writing to assnmt of the proceeds

Front 35

control & investment property

Back 35

analagous to commercial paper
i) Certificated security - bearer: secured party needs possession. Registered: needs possession plus indorsement
ii) Uncertificated security - secured party must be registered as owner, or owner acknowledges he is holding for secured party, or issuer agrees he will comply with the secured party's instructions
iii) secured party must be entitlement holder, or intermediary agrees it will comply with his orders

Front 36

automatic - 4 security interests that are perfected when they attach

Back 36

a) PMSI in consumer goods
b) Assnmt of accts, healt care insurance receivables or pymt intangibles
c) Sale of pymt intangibles or promissory notes d) Security interests in invstmt property

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temporary

Back 37

4 months -
- if goods and debtor move to diff state
- org chgs its name (not a new legal entity)

20 days
- for proceeds, instruments, negotiable docs and certificated securities

Front 38

same office rule

Back 38

The security interest in proceeds will continue to be perfected beyond the 20 days if:
- The security interest in the org collateral was perfected by filing a financing stmt, and
- a security interest in the type of collateral constituting the proceeds would be filed in the same place as the financing stmt for the orig collateral, and
- the proceeds were not purchased with cash proceeds of the collateral

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cash proceeds rule

Back 39

The security interest in proceeds will continue to be perfected beyond the 20 days if the proceeds are identifiable cash proceeds

Front 40

The security interest in proceeds will continue to be perfected beyond the 20 days if (3rd way)...

Back 40

the security interest in the proceeds s perfected w/in the 20 day period

Front 41

priorities:
Secured party v. lien creditor

Back 41

KEY is perfection! (20 day grace period for PMSI). Ask - did creditor perfect? If Y, he wins!

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priority:
unperfected secured party v. purchaser

Back 42

buyer prevails, takes free of claim of unperfected secured party

Front 43

priority:
Consumer purchaser to consumer purchaser

Back 43

garage sale - purchaser prevails (takes free of claim of secured party) unless filing. Automatic perfection is ineffective.

Front 44

priority:
business purchaser

Back 44

Secured party prevails. Automatic perfection is effective.

Front 45

priority:
BIOC (purchaser from a business)

Back 45

Purchaser wins even if filing by secure party! Same rule for purchase of software - you take free of claim of secured party of licensor

Front 46

priority:
HDC Rule

Back 46

HDC (holder in due course) takes free of personal defenses and claims (even over earlier perfected security interest)

Front 47

priority:
Future advances (may not need to know)

Back 47

gen, if a creditor makes a future advance, the time of perfection of it relates back to the time of perfection of orig advance. However, buyer or lessee not in the ord course of business can gain priority over a secured party who makes a future advance on collateral after the buyer purchases the collateral

Front 48

priority:
secured party v. secured party - gen rule, and exceptions

Back 48

first to file or perfect
Exceptions:
1. PMSI - (and chattel paper or instruments proceeds) - notice, no grace
2. PMSI - equipment (and proceeds) - grace, no notice
3. purchaser of chattel paper (with possession) takes over non-possessory secured party as proceeds of inventory

Front 49

priority:
secured party v. secured party, re: investment property

Back 49

secured party with control prevails over secured party who filed

Front 50

secured party v. secured party,
priority of proceeds

Back 50

1) Filing collateral - secured party would normally achieve priority by filing a financing stmt (goods, accts, commercial tort claims, gen intangibles, nonnegotiable docs)
2) Nonfiling collateral - secured party would normally achieve priority by possession or control, rather than filing (chattel paper, deposit accts, neg docs, instruments, and investment property)

very confusing rule - see outline

Front 51

fixtures

Back 51

personal property that becomes real estate by affixation

Gen, first to file or record prevails.
Exception: PMSI secured party who makes fixture filing w/in 20 days will prevail over prior real estate filing
Exception to exception: a construction mortgagee prevails so long as recorded before the goods became fixtures, and goods became fixtures before the completion of construction

Front 52

accessions

Back 52

added value to personal property (motor to car)
a) Exception: if accession became part of whole asset subj to cert of title law (automobiles), the security interest in the whole (car) has priority over the security interest in the accession

Front 53

rights upon default

Back 53

1. collection and enforcement by secured party
2. possession and disposition by secured party
3. noncompliance
4. acceptance of collateral in full (or partial) satisfaction (strict foreclosure)
5. application of proceeds of sale

Front 54

collection and enforcement by a third party

Back 54

i. Secured party gets rts against debtor, and any other person obligated to make pymt
ii. Collection rt of secured party - w/ nongoods collateral (eg, accts), where agreed, the secured party is entitled to notify the acct debtor to make pymt to her rather than the debtor in default

Front 55

possession and disposition of secured party (2 pts of each)

Back 55

possession - self-help (w/out breach of peace), replevin (sequestration)

disposition - commercial reasonableness, form of notification (to whom, contents - nonconsumer goods v. consumer goods)

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noncompliance

Back 56

i. Liability for dmgs (lpuse $500 for each noncompliance)
ii. If consumer goods - statutory - 10% of purchase price, and all interest chrgs to be paid over the life of the loan. Some juris say can't have deficiency; others allow but creditor must prove $ due

Front 57

Acceptance of collateral in full (or partial) satisfaction (strict foreclosure) in nonconsumer goods cases

Back 57

parties can agree to vol turnover in ret for an agreed credit against the debt w/ the debtor acknowledging remaining deficiency

Front 58

Acceptance of collateral in full (or partial) satisfaction (strict foreclosure) in consumer goods cases

Back 58

parties can agree to vol turnover in ret for full satisfaction only

Front 59

application of proceeds of sale

Back 59

1. Expenses
2. Satis of obligation secured by security interest (1st mortgage)
3. Satis of obligation secured by subordinate security interest (2nd, 3rd, 4th mortgage)
4. Debtor or trustee