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39 Cards in this Set
- Front
- Back
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Attached Unperfected Creditor |
Article 9 creditor who creates an enforceable security interest [it attaches, but either never bothers to perfecter tries to perfect but botches the effort, perhaps by filing in the wrong place] * Loses to any perfected attached creditor, competing lien creditor, or buyer * Defeats ONLY later in time attached unperfected or general unsecured creditor |
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Lien Creditor |
General unsecured creditor who goes to court to get a judicial lien on the collateral |
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Perfected Attached Creditor |
Article 9 lender who attaches and properly attains protection * Does everything right * Defeats everyone except a PAC who filed first, certain PMSI-holders or a competing buyer in the ordinary course |
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Non-Ordinary Course Buyer |
Someone who purchases thecollateral outside the ordinary stream of commerce * Most B on the exam will be in the ordinary course EX: Steven Tylerbuys a guitar from his auto mechanic |
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Buyer in Ordinary Course |
Someone who purchases thecollateral from a merchant’s inventory EX: Steven Tyler buys a guitarfrom Sam Ash Guitar Store |
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General Unsecured Creditor |
* Supreme loser |
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Rank of creditors under Article 9 |
Supreme to last: 1. Buyer in the ordinary course 2. Perfected Attached Creditor 3. Lien creditors 4. Non-Ordinary course buyer 5. Attached unperfected creditor 6. General unsecured creditor |
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Early filing under Article 9 |
Special effect to early filing: Can file from the onset of the negotiations Priority will relate back to the early filing [Must later attach] |
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Purchase Money Security Interest (PMSI) |
A security interest that enables the debtor to purchase the goods (or an extension of value by a lender who takes ascollateral a security interest in the very item that its loan enables thedebtor to acquire) [UCC Favourite- Enhanced preferential treatment] |
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Scope of Article 9 |
Article 9 applies to consensual security interests in personalty (personal property) and fixtures * Generally personalty = goods [Loans in personalty- "chattel mortgages"] [Land is not within the scope of Article 9] |
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How does a creditor "attach" (create an enforceable security interest indebtor’s collateral)? |
V- Value (given) C- Contract R- Rights in the collateral |
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Default |
Debtor has breached the K (as defined in the security agreement) * The Article 9 creditor has statutory and judicial remedies |
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Priority in Collateralization |
Purpose of collateralization General rule: the first to perfect takes first ("first in time first in right") * Each securedparty seeks to subordinate, not share * Each claimant entitled to satisfaction in full before a subordinated claimant is entitled to take |
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Perfection [Publicity] |
Once a security interest is attached to a debtor's collateral, it is perfected by placing the world on record notice of its existence * Helps to protect the secured party from competing creditors 1. Secured party takes possession of collateral 2. Automatic perfection for PSMIs 3. Secured party files notice in public records |
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Debtor |
Entity who owes the money |
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Secured Party Secured Creditor |
Entity who lends the money |
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Security Agreement |
(AKA contract or record) authentication of the fact of collateralization |
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Security Interest |
Right the creditor has in debtor's personalty or fixtures |
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Collateral |
The personalty or fixtures that creditor can look to for satisfaction Tangible goods: Consumer goods, equipment, inventory, farm products, fixtures Intangibles or semi-tangibles: Patents, copyrights, trademarksstocks, bonds, mutual funds, inventory sale profits, accounts receivable, promissory notes, drafts |
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Consumer goods |
Those items used for personal or familialpurposes, such as a home dining room set, blender, oven,refrigerator, car |
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Equipment |
Items used in business, such as Macy’s cash registers,Mrs. Field’s cookie ovens, Le Cirque restaurant’s china, Dr.Dentist’s dental chair, Armani’s sewing machines |
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Inventory |
Goods held for sale or lease, such as Circuit City’s stockof stereos, Nordstrom’s spring clothing line or Ethan Allen’sfurniture line |
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Farm Products |
Crops, livestock and supplies used in farmingoperations, such as eggs, corn and cows in possession of a farmer |
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Fixtures |
Items annexed to realty, such as lighting fixtures, sprinklersystems, furnaces |
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Intangible or semi-intangible collateral |
patents, copyrights, trademarks stocks, bonds, mutual funds proceeds from the sale of collateral (profits) accounts (right to payment for goods or services)promisory notes drafts (evidencing a right to payment) |
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Attachment |
Means that the security interest is enforceable 1. Value must be given by creditor 2. Contract (Security Agreement or record authenticated by debtor sign or electronic mark & reasonable ID of collateral except if creditor takes possession of collateral) 3. Rights in the collateral held by debtor (Floating liens or “after-acquired collateral clauses” OK) |
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Perfection by Filing |
Puts competing creditors on record/constructive notice w/ sufficient info for follow up enquiries Document: filing statement UCC-1 Form Sparse Info: debtor's name & address, creditor's name & address, generic description of assets Where: Secretary of State where debtor's principal residence or place of incorp. except fixtures filing in place where realty located |
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Purchase money security interest (PMSI) |
Security interest under Art. 9 that allows the debtor to purchase the now encumbered goods * Applies only to consumer goods * PMSIs are UCC favourites * Good for economy so favourite treatment * Automatic perfection |
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PAC vs. BIOC |
General rule: PAC loses to BIOC. A buyer in the ordinary course ofbusiness takes free of a perfected security interest in seller’s inventory. Reasons: 1. to promote commerce 2. honour buyer’s reasonable expectations |
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AACF v. the PMSI-holder |
Equipment: PMSI-holder can achieve first priority by filing properly w/i 20 days after debtor takes possession Inventory: PMSI-holder must file & notify AACFbefore debtor takes possession to achieve first priority (in order to prevent debtor fraud) |
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Once debtor has defaulted, what can our Article 9 secured creditor do? |
1. Self-Help Repossession 2. Repossession by Judicial Action 3. Strict Foreclosure 4. Sale 5. Action for Deficiency Judgment |
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Self-Help Repossession (Default) |
Permissible so long as creditor doesn’t breach the peace with actions provocative or likely to cause violence * Made over any protest by the debtor, however mild is considered breach of peace * Debtor's home enjoys a zone of privacy & creditor may not enter home w/o voluntary and contemporaneous consent * Outside debtor's home is okay w/o debtor objection |
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Repossession by Judicial Action (Default) |
Secured party may obtain a judicial writ orderingthe sheriff to obtain possession of the collateral and deliver it to the securedparty |
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Strict Foreclosure (Default) |
Secured party retains collateral in full satisfaction of debt still owed (debt = cancelled) * Must send written proposal to: debtor & secondary obligors for consumer goods; debtor & other known secured Ps & perfected creditors & secondary obligors for ALL other goods Notice parties have 20 days to object * 60% RULE: If consumer good & debtor has paid 60% of loan in non-PMSI or 60% of cash price in PMSI, strict foreclosure is not allowed |
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Sale (Default) |
Assuming Strict Foreclosure is not an option, secured party may sell the collateral and apply the sale proceeds to thedebt (choosing private or public sale) 1. Must be commercially reasonable 2. Prior to the sale, reasonable notice must be sent (notice depends on type of sale/goods) |
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Action for Deficiency Judgment |
When the debt exceeds what the collateral is worth, secured P can proceed against debtor for a deficiency judgment * If secured P sells collateral at a low price to an insiderbuyer, the price independent 3rd party would have paid used to calculate deficiency |
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Notice of Sale (Default) |
Article 9 standard notice forms; 10 days or more Consumer goods: debtor & secondary obligors; additional consumer-protective provisionsare mandatory, including how to calculate any deficiency & how a debtor can redeem All other goods: debtor & other known secured Ps & perfected creditors & secondary obligors Private Sale: timeafter which sale will be made (secured P can't buy) Public Sale: time and place of sale (secured P can buy) |
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Debtor’s Limited Right of Redemption |
Cut off once the secured partyhas resold it or completed a strict foreclosure * To redeem, debtor must pay missed payment(s) + any accrued interest + creditors reasonable expenses (including attorney's fees) * If acceleration clause, must pay off the entire debt + interest + expenses |
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Acceleration Clause |
Permits thecreditor to declare the full balance due in the event of default |
