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89 Cards in this Set

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A security interest/lien is defined as:
prop. interest in a debtor's personal property, created by CONSENSUAL AGREEMENT, that SECURES PAYMENT or PERFORMANCE of an obligation owed by the debtor.
Ownership interest is defined as:
exclusive right to possession
List the four types of liens:
1. Article XI security interest
2. Judicial liens (invol)
3. Tax lien (invol)
4. Hybrid (statute/vol/or invol)
Sale on Credit (PMSI) is defined as:
Seller sells goods on credit to buyer. Via a written security agreement, buyer grants seller a security interest in the goods to secure payment. Buyer gets the goods and seller has a PMSI (obligation to pay the price of the collateral); obligation secured by what was purchased.
A transferor of property can/cannot transfer more interest than he has in the property.
CANNOT.
VOID title means:
no title beyond a bare possessory right (no legal right).
If a thief sells property to an innocent buyer, the true owner recovers the property through a writ of ________.
Replevin
Sole proprietorship is defined as:
one owner of business. Liable for debts of business and business is liable for debts of sole proprietorship.
Unlimited Liability Companies are:
owner responsible for debts of organization.
Two types:
Joint venture: each of owners would be responsible for all debts of the organization].

General partnership: responsibility for debts of organization is first partnership property and then it is the partners.
Limited liability companies:
owners not responsible for debts of organization. Organization is completely separate from owners.

Limited Partnership:
LLP: You cannot be a LLP without permission of the state government.
What are the remaining rights of seller in the goods that are sold to the buyer?

Hypo: 7/1 S owns goods, sells them to B who promises to pay 10/1. B gets possession of goods. 10/1 B doesn’t pay.

Can S recover the goods sold to B?
1. Sale on credit; promise to pay

GR title transfers to B upon sale 2-401(2); so S does not have Writ of Replevin against B; only COA is for breach of K.
A’s bales of cotton worth $5K were stored in A’s warehouse. B stole the cotton and sold to C. C paid FMV for cotton w/o notice.

#1 C is in possession of cotton; A brings replevin action against C; what result?

#2 Assume C resold to D prior to learning of A’s right; does A still have COA against C?

#3) Does A have any rights against D?

d) Does D have right of recourse against C?
Answer to #1: Title remains w/A, A has superior rights, so A can recover goods from C .

Answer to #2: Not replevin but tort of conversion; A can sue C for damages; idea is that A has ownership interest entailing right of possession and C interfered w/ A’s property right to possession of the cotton; strict liability for C.

Answer to #3: A has right of replevin or conversion.

Answer to #4: implied warranty (promise) 2-312 by seller that he has good title of the goods and entitled to sell the title; therefore D would have COA for breach of implied warranty of good title.
A buyer of collateral gets the property subject to perfected security interest UNLESS:
BIOCOB.
Hypo: Sears borrows money from Bank One w/gives Bank One security interest in all inventory. Sears sells washing machine to Buyer.

What is Sears?
BIOCOB takes washing machine free of security interest; alleviates any title risk incurred by buyer when dealing w/merchant.

Exceptions:
agriculture; no BIOCOB

going out of business sale; no BIOCOB

sales when merger occurs; no BIOCOB
What is the strong arm clause?
Strong arm clause wipes out unperfected SI; but usually respects perfected SI. Gives bankruptcy trustee status of lien creditor. Serious fairness issues but policy is to protect the overall financial well of financial structure as a whole; not individual small businesses.
Security Interest is:
an interest in personal property or fixtures which secures payment or
performance of an obligation. 1-201(37). Collateral is property subject SI; 9-102(a)(12).
Security Agreement is:
consensual, created by agreement of parties; 9-201 and in compliance w/certain formalities; 9-203(b); which creates a SI 9-102(a)(73) to secure performance of an obligation, usually to pay money. An all obligations clause secures the payment as well as adherence to the terms of the SA. An acceleration clause allows the creditor to accelerate the loan and demand full payment. After acquired clause covers the continued turnover of inventory to continue to secure the loan. Negative pledge clause keeps collateral free and clear of rival claims.
GR for Ordering Priority:
First in time, first in right if done right
Remember to include residual ownership interest in all hypos
Hypo: Assume BO perfected, in 5/2003 AWC sold and delivered all whistles to Wal Mart w/paid for it. When AWC defaults against BO can BO recover the inventory?
? BR is that purchasers take subject to perfected SI; 2-403(1); however 9-320(a) says No, b/c WalMart is a BIOCOB who takes free of SI created by seller even though perfected. Policy is to promote salability of goods.
Hypo: AWC owes BO $100K w/perfected SI in all inventory and accounts. AWC owes MSB $75K, initially unsecured but got writ of execution and levied against inventory and accounts. Both MSB and BO have interest, in addition to AWC residual ownership interest. Inventory and accounts are sold producing $125K. Who gets what?
BO is first perfected; has priority; gets 100% of their debt; $100K
MSB is second; subordinate; gets $25K of $75K and COA against AWC for breach
AWC has nothing
Hypo: Main Motors sells about 700 new cars each year at retail value of $13,500,000; 1/3 of this amount is sales of used cars taken as trade ins. First Bank lends money to MM for floor planning; takes SI hostage collateral in cars/PP of MM to secure. ? w/car sold:
FB
-gets promise to repay
-SI in inventory perfection upon filing financing statement

MM
-gets promise to pay
-SI in specific goods; chattel paper; valuable collateral perfection via Certificate of Title Act; sends in Manufacturer Statement of Origin to the state w/then issues Title showing MM as first lien holder on face of title

BIOCOB takes free of FB’s SI but subject to MM’s SI via SA; car is hostage collateral

All Obligations Clause secures repayment and adherence to all terms of SA; breach of any term can cause acceleration of debt via acceleration clause.

Deficiency Judgment is difference b/w sale of item held hostage by SI and amount owed.
GR: Two documents required to create a perfected SI?

The exception?
1) SA serves two policy considerations: evidentiary function & SofF
i) writing
ii) signed by debtor
iii) describing collateral or categories of collateral

2) Financing Statement; accurately completed and filed in UCC office

Exception: Bollinger totality of transaction; no formal SA was ever signed but various documents signed by debtor evidence intent to create a SA; read in conjunction w/financing statement signed by parties and filed in appropriate office enough to establish a SA; look at totality of transaction, here meets both policy concerns; evidentiary and SofF.
Requires for Attachment/Enfor?
1. Value (loan, sale on credit, promise to pay, antecedent debt).

2. Rights in collateral (cannot be thief, mere possessory right is not enough)

3. One of Specific Four Conditions Met; 9-203(3)(b)(3)(A-D)

A. debtor signed or otherwise authenticated a SA w/description of collateral and if timber, land concerned

B. the collateral is not a certificated security & is in the possession of secured party pursuant to debtor’s SA

C. collateral is a certificated security in registered form and the security certificate has been delivered to the secured party pursuant to debtor’s SA

D. collateral is deposit accounts, electronic chattel paper, investment property, letter of credit rights or electronic documents, and the secured party has control pursuant to debtor’s SA.
Main Motors sells about 700 new cars each year at retail value of $13,500,000; 1/3 of this amount is sales of used cars taken as trade ins. First Bank finances (floorplans) MM and takes SI in cars and PP of MM (hostage collateral) to secure via SA. MM defaults. What are FB’s remedies?
i) can sue for breach of K; 9-601(a) gives money judgment at law; only COA w/o SI

ii) tangible collateral can seize (repo) out of inventory; 9-609 and sell, apply proceeds

iii) intangible collateral assert rights to payments by directing payers to pay FB not MM

iv) “ “ deposit accounts; remove monies and apply to debt
: FB sent MM letter w/financing statement attached and MM signed letter and returned. Thereafter signed a promissory note and FB paid GM for trailerload of cars. Does FB have enforceable SI in the cars?
Under Bollinger argue totality of circumstances, all met so there is an enforceable SI
Car was omitted from the Loan Request Form and this form and promissory note only documents executed by MM.

#1 Does FB have an enforceable SI in the omitted car?

#2: Would a signed Dealer Inventory SA cover the slip-up?

#3: Same answer if only stated “motor vehicle inventory located at dealer’s address as set forth above”

#4 Would answer be same if 5 of the Dealer Inventory SA contained no subparagraphs and covered only “all dealer’s personal property”
#1: No, fails at SofF

#2: Yes, b/c part of the inventory classification; 9-108(b) says generic category is ok

#3: No, b/c 9-108(c) says no super generic categories

#4: Not reasonably certain as to what is being attached so it would fall out
Hypo on “after acquired” collateral: Assume that in connection w/the loan and establishment of line of credit w/FB, MM signs the Dealer Inventory SA on 3/19/2002. MM grants a SI to FB in all of MM inventory “now owned and hereafter acquired”. On 9/1/2002 MM bought and took delivery of 15 used cars at a wholesale dealer’s auction, paying cash. FB did not directly finance the acquisition. MM immediately puts the 15 used cars in inventory.

Does FB have a SI in the 15 used cars in MM’s inventory?
Yes; attaches 9/1/2002.
Hypo on “obligations secured”: Assume that MM signs the Dealer Inventory SA and among other things, MM granted a SI to FB to secure “the prompt and punctual payment and performance of all liabilities and obligations of MM to FB of any nature whatsoever. On 12/1/2002 FB makes a $500K loan to MM to enable MM to acquire new cars for its inventory form GM, is that loan a secured loan under the 3/19/2002 SA?
Yes.
What is the process by which a secured party gives public notice to the world that she may have a security interest in ID'd collateral:
perfection
Financing statement lasts for:
five years -- MUST file within six months of expiration via a continuation statement
Security agreements in disguise:
1. seller reserves title until full payment.

2. Security lease

3. Cosignment

4. Sale of certain financial devices held by a creditor (accounts, chattel paper, payment intangibles, or promissory notes)
T/F: You can have a gift security interest.
False.
T/F: Rights in the collateral are not acquired until delivery of the collateral?
True.
T/F: If one has only signed a promissory note and has made an oral agreement with the debtor, this is not enough to establish objective evidence that there is a security agreement?
True.
What are the classification of goods:
1. consumer goods
2. farm products
3. inventory
4. equipment
What are the three days to exercise the rt. of possession?
1. Debtor Consents
2. Judicial process
3. Self-help w/o judicial process
What are the two policies behind breach of the peace?
Territorial: an enclosed place by the debtor where the debtor has a REASONABLE EXPECTATION to be free from the exclusion of others.

Social Condition: prevent violence
Using force...
Threat (implicit or explicit)...
Debtor asks repo to stop...

These are all:
breaches of peace
What are the remedies for debtor for breach of peace:
1. Debtor gets damages (creditor responsible for the damages in the amount the debtor can prove a loss)
2. Trespass (if invasion of private space).
3. Conversion
4. Punitive Damages (rare)
What is not a remedy for a breach of peace:
Debtor does not get the collateral back if the debtor has defaulted.
What does buyer get at foreclosure sale?
a) all rights of debtor in sale (residual ownership interest)

b) free of the SI being enforced

c) free of any subordinate SI

d) subject to any senior SI being enforced

e) title risk usually brings collateral below FMV
In a strict foreclosure situation, the secured creditor MUST SELL if:
60% of obligation has been paid by debtor.
What are the five methods of perfection?
1. Five Methods of Perfection

a. Filing Financing Statement

b. Take possession of collateral (tangible)

c. Take control of financial devise (intangible)

d. Certificate of Title Acts

e. Automatic Perfection (by operation of law)
i) Seller of goods on credit reserves title until full payment
ii) Security Lease; 1-203 documented as lease but no meaningful economic life at end of lease; law treats as sale; imports all Art. 9 and transferor retains no title in goods and holders only a SI w/must be perfected to be enforceable.
iii) Consignment 9-102(a)(20); 1-201(b)(35); 9-109(a)(4); 9-103(d)
Hypo: FB loan to MM, MM sells car to Lee who obligates himself through chattel paper to 48 payments to MM. FB has in inventory and chattel paper. If MM defaults on loan to FB, what remedies?
FB can assert SI in chattel paper against Lee and force payments to be made directly to FB. Can not assert SI in inventory against Lee b/c he is BIOCOB.
Security interest in proceeds of original collateral automatically attaches to any _____ of the original collateral; 9-315(a)(2).
identifiable proceeds
Tracing Rule/WILO/Lowest Intermediate Balance Rule:
whenever identifiable
cash proceeds are deposited into general account those proceeds w/be the last
removed from account; protects SC until account funds are depleted.
Temporary automatic perfection of proceeds:
for at least 20 days from date the SI attaches to proceeds; 9-315(c) & (d)
Continuous perfection after initial 20 days if any of following applies:
a) Same Place Rule: automatic continuous perfection if FS covers original collateral filed in same place as FS would be filed to cover collateral; or

b) Proceeds are identifiable cash proceeds (debtor sold OC for cash); or

c) Action Required to Perfect was done w/in 20 days after automatic attachment
i) SC takes possession
ii) SC files FS or amends to continue uncovered collateral
iii)if identifiable cash proceeds extends automatically
Proceeds -NOT CONTINUED IF INTERVENING CASH PHASE RULE APPLIES:
cuts off automatic perfection (debtor converts OC to cash and then purchases something w/cash.
Proceeds - Relation Back Rule is:
Relation-Back Rule - the time of filing to perfect original collateral is the time for filing as to proceeds; 9-322(b)(1). Applying the First to File or Perfect priority rule, first in time wins w/regard to collateral as well.
Bankruptcy respects _____ SI. Strong Arm Clause wipes out _____ SI.
1. perfected
2. unperfected
Upon filing bankruptcy, there is automatic stay, which means:
no activity w/D; no repos; no collection; nothing. Stay includes the creation or perfection of SI; no more activity allowed involving D.
Hypo: $100cash and $2,900 check = MM cash proceeds. MM goes to computer store and buys new desk top computer for $3K (uses identifiable cash proceeds to purchase another item). Is MM automatically perfected beyond 20 days?
No b/c rule cuts off automatic perfection; would have to file amended FS to continue.
Iif debtor changes location you have automatic perfection for:
4 months following change but must re-file in new location or lose perfection; 9-316.
Hypo: Original SA covers everything including chattel paper. If chattel paper is sold, does SI follow proceeds?
Yes, for 20 days (automatic perfection) and continues beyond b/c FS was originally filed in location of debtor so perfection continues automatically and relates back to original filing date. If original SA did not cover chattel paper but it was identifiable cash proceeds of collateral w/was originally w/in SA it would still have automatic perfection beyond the 20 days as identifiable cash proceeds.
Hypo: S sells goods to D; D bails goods w/Bailee; goods subject to SI owned by D; S has SI in same goods. How does S perfect?
a) file FS as to goods b/c goods NOT in possession of D

b) 9-313(c) bailee can authenticate a record (sign an agreement) during the terms of the SA b/w D and S (see comment 4); this will not work if bailee is lessee in D’s OCofB b/c D controls B.
Hypo: Goods held by Bailee who is issued Negotiable Title of Goods; how does a secured party perfect?
a) SP can file as to the goods
b) SP can take possession of the negotiable document (this is the best way)
c) SP can file as to the document; thereby limiting effect of possession
Commercially Reasonable Standard - requirements:
a) Commercially Reasonable Standard and duties goes to all

b) Sale can be Public or Private, as long as CR

c) Public Sale - must have meaningful opportunity for bidding w/suff. notice

d) Private Sale - FMV closely watched

e) Notice must give adequate notice of sale (perishable item exception)

i) to debtor b/c of Right of Redemption; ensure CR followed, Bankruptcy

ii) to other creditors and parties of interest
iv) Deficiency Judgment; 9-616(b); 9-625(e)(5)(6) requirements:
a) must send detailed explanation to debtor of how calculated; burden on SC

b) non compliance liability for any loss caused plus $500

c) most states if consumer shows SC violated CR; absolute bar to DJ
Creditor Misbehavior; 9-625-628

1. Injunction:

2. Damages in tort to debtor or other parties:
#1: can be automatic stay if bankruptcy filed

#2: must prove “but for” and then be put in same position as if bad behavior had not occurred
Creditor Misbehavior:

Special Circumstances; Differences b/w Consumer and Business Debtor

a) When loan was to consumer to buy collateral then consumer gets PMSI. If SC has wrongly repo’d collateral the Consumer gets:


Hypo: Principal loan amount is $15K; interest over the life of loan is $3K;
10% of principal is $1,5K; so damages = $4,500K
Time Differential Plus 10% of Cash Price
Sale of goods on credit uses purchase price plus finance charges of same
[which is the time differential b/w cash price and purchase price]
$15K cash price or $18K financed price=TD of $3K plus 10% of cash
price = $1,5K so damages = $4,500K
Business Debtor (no special circumstances here)
If business debtor alleges SC violated CR standard debtor has burden
of going forward; there is a rebuttable presumption that SC followed CR.

ii) Damages in tort to debtor or other parties; must prove “but for” and then
be put in same position as if bad behavior had not occurred
Special Circumstances; Differences b/w Consumer and Business Debtor
a) When loan was to consumer to buy collateral then consumer gets PMSI.
If SC has wrongly repo’d collateral the Consumer gets credit service charge
plus 10% of the principal as damages. Credit service charge is the interest and related charges as defined w/in the documents.
credit service charge plus 10% of the principal as damages. Credit service charge is the interest and related charges as defined w/in the documents
Creditor Misbehavior:

Hypo: Principal loan amount is $15K; interest over the life of loan is $3K; 10% of principal is $1,5K; so damages = __________.
$4,500K
Creditor Misbehavior / Time Differential =
Plus 10% of Cash Price Sale of goods on credit uses purchase price plus finance charges of same [which is the time differential b/w cash price and purchase price] $15K cash price or $18K financed price=TD of $3K plus 10% of cash price = $1,5K so damages = $4,500K
If business debtor alleges SC violated CR:
standard debtor has burden of going forward; there is a rebuttable presumption that SC followed CR.
Debtor's Right to Redemption:
Before the secured creditor sells or collects the collateral -> may be able to redeem by paying all the obligations that is owed/due.

Installments: you cannot just pay the installments you missed (you have to pay all that is due).
Debtor counterclaims for damages:

1. Absolute Bar Rule:
2. Rebuttable Presumption:
1. Absolute Bar: If debtor shows secured creditor violated an article XI requirements, the deficiency is barred and there is n o deficiency judgment.

2. Rebuttable Presumption: If the debtor shows a violation by the secured creditor, he can rebut the presumption by showing the fair liquidation value of the collateral.
Strict foreclosure is when:
secured creditor takes the collateral and accepts as partial or full satisfication of the debt taking it free of a security interest or lien and is full or partial satisfication of the debt.
Strict Foreclosure -

T/F: Other secured creditors have to be notified of the proposal and they must consent to full or partial foreclosure.
True.
T/F: A debtor cannot agree to strict foreclosure until he defaults.
True.
In business tranactions, the secured creditor is presumed to have complied to Article XI requirements. T/F.
True
A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral:
unless an agreement expressly postpones the time of attachment. 9-203.
A debtor who is an individual is located:
A debtor who is an individual is located at the individual's principal residence.
A debtor that is an organization and has only one place of business is located:
A debtor that is an organization and has only one place of business is located at its place of business.
A debtor that is an organization and has more than one place of business is located:
A debtor that is an organization and has more than one place of business is located at its chief executive office.
Except as otherwise provided in subsection (e), a buyer of goods from a person who used or bought the goods for use primarily for personal, family, or household purposes takes free of a security interest, even if perfected, if the buyer buys:
(1) without knowledge of the security interest;

(2) for value;

(3) primarily for the buyer's personal, family, or household purposes; and

(4) before the filing of a financing statement covering the goods.
a financing statement is sufficient only if it:
(1) provides the name of the debtor;

(2) provides the name of the secured party or a representative of the secured party; and

(3) indicates the collateral covered by the financing statement.
A financing statement that provides only the debtor's trade name:
does not sufficiently provide the name of the debtor.
A financing statement sufficiently indicates the collateral that it covers if the financing statement provides:
(1) a description of the collateral pursuant to Section 9-108; or

(2) an indication that the financing statement covers all assets or all personal property.
A financing statement substantially satisfying the requirements of this part is effective, even if it has minor errors or omissions, unless:
the errors or omissions make the financing statement seriously misleading.
f a search of the records of the filing office under the debtor's correct name, using the filing office's standard search logic, if any, would disclose a financing statement that fails sufficiently to provide the name of the debtor in accordance with Section 9-503(a), the name provided:
does not make the financing statement seriously misleading.
If a debtor so changes its name that a filed financing statement becomes seriously misleading under Section 9-506:
(1) the financing statement is effective to perfect a security interest in collateral acquired by the debtor before, or within four months after, the change; and

(2) the financing statement is not effective to perfect a security interest in collateral acquired by the debtor more than four months after the change, unless an amendment to the financing statement which renders the financing statement not seriously misleading is filed within four months after the change.
A person may file an initial financing statement, amendment that adds collateral covered by a financing statement, or amendment that adds a debtor to a financing statement only if:
(1) the debtor authorizes the filing in an authenticated record or pursuant to subsection (b) or (c); or

(2) the person holds an agricultural lien that has become effective at the time of filing and the financing statement covers only collateral in which the person holds an agricultural lien.
By authenticating or becoming bound as debtor by a security agreement, a debtor or new debtor authorizes the filing of an initial financing statement, and an amendment, covering:
(1) the collateral described in the security agreement; and

(2) property that becomes collateral under Section 9-315(a)(2), whether or not the security agreement expressly covers proceeds.
A person may file an amendment other than an amendment that adds collateral covered by a financing statement or an amendment that adds a debtor to a financing statement only if:
(1) the secured party of record authorizes the filing; or

(2) the amendment is a termination statement for a financing statement as to which the secured party of record has failed to file or send a termination statement as required by Section 9-513(a) or (c), the debtor authorizes the filing, and the termination statement indicates that the debtor authorized it to be filed.
f a search of the records of the filing office under the debtor's correct name, using the filing office's standard search logic, if any, would disclose a financing statement that fails sufficiently to provide the name of the debtor in accordance with Section 9-503(a), the name provided:
does not make the financing statement seriously misleading.
If a debtor so changes its name that a filed financing statement becomes seriously misleading under Section 9-506:
(1) the financing statement is effective to perfect a security interest in collateral acquired by the debtor before, or within four months after, the change; and

(2) the financing statement is not effective to perfect a security interest in collateral acquired by the debtor more than four months after the change, unless an amendment to the financing statement which renders the financing statement not seriously misleading is filed within four months after the change.
A person may file an initial financing statement, amendment that adds collateral covered by a financing statement, or amendment that adds a debtor to a financing statement only if:
(1) the debtor authorizes the filing in an authenticated record or pursuant to subsection (b) or (c); or

(2) the person holds an agricultural lien that has become effective at the time of filing and the financing statement covers only collateral in which the person holds an agricultural lien.
By authenticating or becoming bound as debtor by a security agreement, a debtor or new debtor authorizes the filing of an initial financing statement, and an amendment, covering:
(1) the collateral described in the security agreement; and

(2) property that becomes collateral under Section 9-315(a)(2), whether or not the security agreement expressly covers proceeds.
A person may file an amendment other than an amendment that adds collateral covered by a financing statement or an amendment that adds a debtor to a financing statement only if:
(1) the secured party of record authorizes the filing; or

(2) the amendment is a termination statement for a financing statement as to which the secured party of record has failed to file or send a termination statement as required by Section 9-513(a) or (c), the debtor authorizes the filing, and the termination statement indicates that the debtor authorized it to be filed.