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23 Cards in this Set
- Front
- Back
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What is the scope of article 9?
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Applies to voluntary or consensual security interests in:
Personalty (goods) Fixtures Contractual security interests: interests in personal property Sales of accounts, payment intangibles, promissory notes Agricultural liens Leases intended to serve as security arrangements What it does not apply to: NOT real estate NOT mechanics' liens NOT statutory liens |
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What is tangible collateral?
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Consumer goods: items used for personal or familial purposes like home, dining set, blender, refrigerator, car
Equipment: items used in business, like cash registers, dental chair Inventory: goods held for sale or lease, such as store's stock of stereos or furniture Farm products: crops, livestock, supplies, such as eggs, corn, cows Fixtures: items annexed to realty such as sprinkler system, furnace |
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What is intangible collateral?
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Patents, copyrights, trademarks
Stocks, bonds, mutual funds Proceeds from sale of collateral Accounts: right to payment for goods or services Promissory notes and drafts |
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What is attachment? How is it fulfilled?
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Attachment: means the security interest is enforceable
Requires 3 things: Value: must be given by the creditor Contract: called the security agreement or record, required to evidence the transaction UNLESS the secured party has taken possession of the collateral Record must: Be authenticated by the debtor: signed or electronically marked AND Reasonably identify the collateral Rights: in the collateral |
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What is perfection of a security interest?
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Perfection is a publicity device that the secured party does to put the world on record or constructive notice of the secured party's existence; it helps protect the secured party from competing competitors
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How is perfection attained?
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By the secured party's taking possession of the collateral
Automatic perfection for purchase money security interests (PMSIs) in consumer goods Secured party files notice of the security interest in the public records: Temporary perfection: security interest in proceeds from original collateral is continuously perfected for 20 days from the debtor's receipt of proceeds; when new value is given, perfection is valid for 20 days after attachment without need for filing or possession Control: only applies to security interests in investment property, nonconsumer deposit accounts, electronic chattel paper |
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What is a PMSI?
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security interest that enables debtor to purchase the goods
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What does filing of a security interest require?
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What is filed:
Could be the security agreement Usually is a financing statement, which is a simple document whose only purpose is to provide sufficient notice for interested parties to make followup inquiries Contents of the financing statement: Only need contain: Debtor's name and address, Creditor's name and address, Description of the collateral (can be generic) Where filed: With the state secretary of state where the debtor is located If the debtor is an individual: he is located in the state of principal residence If the debtor is a registered organization: it is located in the state under whose laws it is organized EXCEPTION for collateral that is timber, minerals, or fixtures: file locally in county where the realty is located |
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What is an AUPie (Attached Unperfected Creditor)?
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creditor/lender who creates an enforceable security interest; it attaches by either never perfects or tries to perfect and botches
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What is an LC (lien creditor)?
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general unsecured creditor who goes to court to get a judicial lien on the collateral, uses the system
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What is a PAC (Perfected Attached Creditor)?
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creditor who succeeds in attaining perfection; did everything right
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What is a NOCie (non-ordinary course buyer)?
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someone who purchases the collateral from a merchant's inventory (ex: buys guitar from a guitar store); is the supreme winner
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What is a GUC (general unsecured creditor)?
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lender who enver bothered to take collateral (lend $ to someone and don't take collateral to back it up); supreme loser
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What is the priority of secured interests?
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BIOC
PAC LC NOCie AUPie GUC |
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Against whom does an AUPie have priority?
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AUPie's interest is enforceable against the debtor
AUPie will defeat any subsequent AUPie and any GUC But AUPie will lose to PAC, LC, any buyer without knowledge of the security interest |
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Against whom does a BIOC have priority?
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PAC generally loses; buyer in ordinary course of business takes free of a perfected security interest in seller's inventory
Why: promote commerce and honor buyers' expectations |
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Against whom does a PAC prevail?
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Defeats all except:
PAC who filed first: First in time, first in right Certain PMSI holders Contest is between an after-acquired collateral financier (AACF) and the holder of a purchase-money security interest (PMSI) AACF: where there's an after-acquired collateral clause such that the secured creditor takes as collateral a security interest in "all of debtor's X, whether now held or hereafter acquired" PMSI: security interest that enables the debtor to purchase goods, ie, extension of value by lender who takes as collateral a security interest in the very item the loan enables the debtor to acquire How AACFs and PMSIs collide When the collateral is equipment: just need to file properly within 20 days to gain priority When the collateral is inventory: the PMSI can gain priority if 1) it files properly before debtor takes possession AND 2) it notifies the AACF before debtor takes possession |
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What are a secured creditor's options if a debtor defaults?
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Self-help repossession: permissible so long as creditor doesn't breach the peace
Repossession by judicial action: secured party can get a judicial writ ordering the sheriff to obtain possession of the collateral and deliver it to the secured party Strict foreclosure (after repossession): occurs when the secured party retains the collateral in full satisfaction of the debt; creditor lawfully retains the collateral, and the debt is cancelled Sale: if strict foreclosure is not possible, sale is the answer Action for deficiency judgment: if the outstanding debt is more than what the collateral nets, secured party can proceed against the debtor for a deficiency judgment Debtor's limited right of redemption |
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When can a secured creditor engage in self-help?
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Permissible so long as creditor doesn't breach the peace
Breach of peace: Occurs when the secured party's actions are likely to cause violence Question is whether the secured party did something provocative or likely to cause violence, not whether there was an actual fight Repossession made over any protest by the debtor, no matter how mild, constitutes breach of peace ("please stop") If the repossessor misuses color of the law, for example by impersonating law enforcement, he has used constructive force and has breached the peace Repossession when collateral is in debtor's home Home enjoys zone of privacy May not enter debtor's home without voluntary and contemporaneous consent Repossession when the collateral is outside the home May take the collateral so long as there's no debtor objection |
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When can a secured creditor engage in strict foreclosure?
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Secured party must send written proposal to retain collateral in satisfaction of the debt
When collateral is consumer goods: notice goes to the debtor and secondary obligors Secondary obligor is a guarantor of the debt When collateral is not consumer goods: notice goes to the debtor and other secured parties who have told the foreclosing creditor of their security interest in the collateral, as well as all perfected creditors and secondary obligors If any of them objects within 20 days after notice is sent, strict foreclosure won't be allowed and collateral must be disposed of by sale 60% rule: if the collateral is consumer goods and the debtor has paid 60% of the loan in the event of a non-PMSI or 60% of the cash price in the event of a PMSI, no strict foreclosure allowed Secured party must sell collateral within 90 days or be liable in conversion |
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How does a secured creditor sell collateral?
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Secured party may sell the collateral and apply the sale proceeds to the debt
Secured party chooses whether sale is public or private Every aspect of the sale must be commercially reasonable Prior to the sale, reasonable notice must be sent To whom notice must be sent: If collateral is consumer goods: notice must go to debtor and secondary obligors If collateral is non-consumer goods: notice must go to the debtor and those secured parties who have advised the foreclosing creditor of their security interest, as well as perfected creditors and secondary obligors Content of notice: If it is a public sale: notice must state time and place of sale If it is a private sale: notice must state time after which sale will be made For consumer goods: additional consumer-protective provisions are mandatory (how to calculate deficiencies, how debtor can redeem) How much advance notice: standard is commercial reasonableness Nonconsumer transaction: ten days or more before sale is reasonable Who can buy at the sale: Secured party can buy at the public sale but not at a private sale unless there are external market checks |
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What is debtor's limited right of redemption?
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Debtor's right to redeem collateral is cut off once the secured party has resold or completed a strict foreclosure
To redeem debtor must pay the amount owed plus any interest and creditor's reasonable expenses, including attorney's fees If the security agreement has an acceleration clause (permits creditor to declare the full balance due in the event of default), to redeem the debtor must pay off the entire debt plus interest plus expenses |
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What state law governs perfection?
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Generally, state where debtor is located
Exceptions: possessory security interests and security interests in fixtures and timber to be cut, goods covered by certificate of title, deposit accounts, investment property, agricultural liens |
