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88 Cards in this Set
- Front
- Back
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What transactions does Art. 9 apply to? |
1. Contractual security interests (personal property or fixtures to secure payment) (PSMI) 2. Sales of accounts, chattel paper, payment intangibles and promissory notes 3. Commercial consignments (limitations apply) 4. Agricultural liens (but only for perfection and priority, their creation is under statute) 5. Leases intended to serve as security arrangements (but not true leases) 6. A seller's rentention of title to delivered goods |
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What does Art. 9 notably not apply to? |
Land! |
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What is a PSMI? |
Purchase money security interest: a security interest in goods that arises when: 1.creditor sells the goods but retains security interest in them for the purchase price (e.g. you buy something on credit and seller retains sec. interest in the thing) OR 2. the creditor advances the debtor the funds used to buy the goods and takes an interest in the goods (i.e. than bank lends you $ for the thing and takes an interest in it) |
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Can a PSMI exist in non-consumer goods (i.e. not for family/personal/household purpose)? |
Yes, if: 1. the security interst is also secured by other or after-acquired property) 2. the collateral also secures future advances OR 3. the PMSI has been refinanced, consolidated, etc. |
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Can a PSMI exist in consumer goods (i.e. for family/personal/household purpose)? |
Yes, but the courts must determine the appropriate rules for these. |
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What are the tangible collateral goods? |
1. Consumer goods 2. Inventory 3. Farm products 4. Equipment |
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What are consumer goods? |
Those bought for personal/family/household purposes Tangible collateral |
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What is inventory? |
Goods held for sale/lease and goods consumed by a business (i.e. fuel to run a factory) Tangible collateral |
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What are farm products? |
Goods used or produced in farming that are in the possession of or used by the farmer Tangible collateral |
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What is equipment? |
Durable goods used by a business (aka goods that aren't consumer goods, inventory or farm products) Tangible collateral |
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What are instruments? |
Notes, Drafts and certificates of deposits (e.g. checks) Intangible collateral |
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What is a negotiable instrument? |
A writing that promises payment of a fixed amount of money Intangible collateral |
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What are documents? |
Bills of lading and warehouse receipts |
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What is chattel paper? |
Records showing monetary obligation and security interest in or lease of goods, e.g. promissory note and written security agreement. Sounds like it's an IOU Intangible collateral |
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What is an account? |
Right to payment for goods, services etc. - Accts receivable Intangible collateral |
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What are deposit accounts? |
Savings accts, etc. Intangible collateral |
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What is investment property? |
Stocks, bonds, mutual funds, brokerage accts, etc. Intangible collateral |
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What tort claims are also included under Art. 9? |
Commercial tort claims that either are filed by organizations or filed by individuals that arose out of their business and don't involve personal injury Intangible collateral |
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What are general intanglibles? |
This is the misc. category but is basically things like copyrights and good will Intangible collateral |
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What are proceeds? |
This is also under Art. 9 and includes things that are received upon the sale, exchange, collection or other disposition of collateral or proceeds - includes things like insurance payable by reason of loss or damage to the collateral, unless that payment is payable to someone other than the debtor or secured party |
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What must you do to make a security interest enforceable? |
Attachment. Perfection is not required for enforceability. |
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What are the requirements for attachment? |
1. Parties agree to create the security interest (see slide on how this is shown) 2. Value is given by the secured party (a preexisting debt counts) AND 3. The debtor has rights (e.g. ownership) in the collateral |
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How can parties evidence their agreement to create collateral? |
1. Creditor taking possession of the collateral 2. Debtor's authentification/signing of a security agreement describing the collateral OR 3. the creditor taking control of certain types of collateral |
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Can a debtor's right to possession of collateral suffice for attachment? |
Yes. Rights in collateral includes rights of possession and isn't limited to title in the collateral. |
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How specific must a description of collateral in an authenticated security agreement be? |
It can be described broadly by category or type or specifically (e.g. serial number), as long as it's not a supergeneric description Consumer goods, consumer securities accts and commercial tort claims need more description |
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What can a creditor obtain control over? |
1. Nonconsumer deposit accts 2. Electronic chattel paper 3. Investment property |
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How can creditor control a nonconsumer acct? |
If the creditor is the bank, it's automatic. If the creditor is not the bank, it can put the acct in it's name or agree in an authenticating record with the debtor and the bank that the bank will comply with the secured party's orders |
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How can a creditor control electronic chattel paper? |
A system in place transfers the interest and reliably establishes the secured party as the asignee |
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How can a creditor control investment property? |
1. Taking possession of the certificate 2. Debtor tells security acct intermediary that secured party has the same rights as him and interm. should comply with his orders without owner's consent |
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What are a secured's responsibilities when in possession or control? |
Secured party in possession: use reasonable care in storing and preserving collateral - is entitled to reimbursement for associated reasonable expenses Risk remains on debtor for any insurance deficiency |
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What are a secured's rights when in possession or control? |
They may hold any increase in the value of, or profits from, the collateral (except money) as additional security Money received must be given to the debtor or applied against the security obligation |
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What is a security agreement for? |
Attachment |
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What is a financing statement for? |
Perfection |
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When does after-acquired property attach as a security interest? |
It usually only happens if there is an after-acquired property clause in the security agreement, but if this is the case then it happens automatically Also automatically attaches to proceeds from the disposition of collateral and new items of inventory collateral, even withou the clause Doesn't apply to consumer goods unless debtor gets rights in the goods within 10 days after creditor gives value Doesn't apply to commercial tort claims |
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What are the methods of perfecting? |
1. Filing 2. Taking possession 3. Control 4. Automatic perfection 5. Temporary perfection None of that matters if you don't have attachment |
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What must a financing statement contain? |
1. Debtor's name and address 2. Secured party's name and address 3. Indication of the collateral covered by the financing statement 4. Debtor must authorize it 5. If it's real property related collateral, also needs description of the realted property, name of the record owner and indication that it's to be filed in the real property records |
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What cannot be perfected by filing? |
Deposit accounts and money |
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What if there's an error in the debtor's name in the financing statement? |
Minor errors are fine, but not seriously misleading errors such that the statement couldn't be discovered using the debtor's correct name with the filing officer's standard search logic The secured party basically has 4 months to refile after a name change |
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What if there is a missing address on the financing statement? |
If it's nonetheless accepted by the filing office, then the statement is still effective |
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How specific must a description of collateral in a financing statement be? |
It can indicate collateral broadly by category or type or specifically, and unlike security agreements, they can alternatively include super generic indication of the collateral, such as "all assets" Doesn't have to mention after-acquired property if the statement is broad enough to cover it, e.g. if it says "equipment" |
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How long is filing valid for? |
5 years. You can get a continuation for another 5 within 6 months of the first 5 years running out |
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What can't be perfected by possession? |
1. general intangibles 2. nonconsumer deposit accts 3. nonnegotiable documents 4. electronic chattel paper 5. certificate of title goods 6. accounts |
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For possession perfection, when does perfection happen? |
At the time of possession, in part because possession often creates attachment |
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How is a consumer goods PMSI perfected? |
AUTOMATICALLY - It's perfected as soon as it attaches, without needing possession or filing Exception: Cars need notation in the certificate of title |
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How is an inventory or equipment PMSI perfected? |
It may be perfected (usually filing) within 20 days after debtor gets possession |
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When a debtor moves to a different state and his location determines which law governs perfection, must the security be re-filed? |
No, it remains temporarily protected in the new state for four months or until perfection in the first state lapses |
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How long will security interests in proceeds be perfected for? |
Temporarily perfected for 20 days. Longer if: 1. interest in original collateral was perfected by filing and the new proceeds would be filed in the same place as the original and the proceeds weren't purchased with cash proceeds of the collateral 2. the proceeds are identifiable as cash proceeds 3. the security interest in the proceeds is perfected within the 20-day period |
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Unperfected v. Unperfected - Who wins? |
First to attach |
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Perfected v. Unperfected - Who wins? |
Perfected |
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Perfected v. Perfected - Who wins? |
Whoever filed or perfected first (whichever is earlier) |
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Filing v. Control v. Automatic - Who wins? |
Control |
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PMSI in consumer goods v. other security interest - Who wins? |
PMSI |
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PMSI in Inventory or livestock v. other security interest - Who wins? |
PMSI IF: 1. Filing occurs before debtor takes possession AND 2. Secured party who has already perfected gets written notice before the debtor takes possession |
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PMSI in equipment v. other security interest - who wins? |
PMSI if the interest is perfected before or within 20 days after debtor receives possession |
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PMSI v. PMSI - Who wins? |
Secured party who has PMSI as a seller wins over someone who has it as a lender Otherwise,first secured party to file or perfect |
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How is an inventory or inventory PMSI perfected? |
Must be perfected (usually filing) by the time debtor gets possession and others with security interest must get written notice |
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What is filing collateral? |
Collateral in which a secured party would normally achieve priority by filing a financing statement |
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What is non-filing collateral? |
Collateral in cwhcih secured party normally achieves priority by possession or control rather than filing (e.g. chattel papers, cash, nonconsumer deposit accts, negotiable documents, instruments, investment property) |
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PMSI in proceeds v. other security interests - Who wins? |
PMSI |
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What is the day considered for proceeds' perfection? |
It's the same date of priority as the perfected security interest in the original collateral as long as it is the kind of proceed that can exceed the 20 day temporary perfection |
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When does a secured party have priority in the proceeds of non-filing collateral? |
When she: 1. has priority in original collateral 2. her security interest in the proceeds is perfected 3. the proceeds are cash proceeds or proceeds of the same type as the original collateral If it's proceeds of proceeds, all intervening proceeds must be cash, or the same type as original collateral or accts relating to collateral |
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What are fixtures? |
goods that become so attached to real property that an interest in them arises under real property law (e.g. built-in oven) |
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What are accessions? |
Goods that are physically united with other goods in such a way that the identity of the original goods is not lost (e.g. new pedals on a bike) |
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Holder of interest in a fixture v. Holder of interest in the real property that the fixture is attached to - who wins? |
First party to file a fixture filing or record its real property interest Except for PMSI who makes fixture filing within 20 days after affixation, who will win over any other interest in the fixture that was recorded prior to affixation |
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Holder of interest in a accession v. Holder of interest in the property that the accession is attached to - who wins? |
First to file or perfect, PMSI super-priority UNLESS it's an addition to an interest perfected by notation on a certificate of title (e.g. a car), in which case the interest in the whole car has priority |
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What if a priority fixture/accession security interest goes into default? |
Secured can remove it from the property but has to pay the owner for the cost of repairs for physical damage (but not for change in value) UNLESS the owner is also the debtor |
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Interest in crops v. interest in land where the crops grow - who wins? |
Crops |
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Unperfected secured v. buyer/lessee - who wins? |
Buyer/lessee AS LONG AS they didn't have knowledge of the security interest, gives value and receives the collateral (no delivery req. if it's electronic chattel paper, acct, general intangible or investment property) Exception: PMSI still win over buyer/lessee as long as file within 20 days after debtor gets possession |
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Perfected secured v. buyer/lessee - who wins? |
Perfected EXCEPT if: 1. secured consents to disposition of collateral free of security interest 2. buyer or lessee in ordinary course takes free of non-possessory perfected sec. interest unless they know it's in violation of the sec. interest 3. consumer purchaser from consumer has priority over PMSIs in consumer goods, unless they know of the sec. interest 4. buyer or lessee not in ordinary course has priority over future advances/c made by secured after secured learns of the purchase or lease (?) |
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Secured v. holder in due course - who wins? |
Holder in due course |
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Secured v. Transferee of money or deposit acct funds - who wins? |
Transferee, unless it's COLLUSION (!) |
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Unperfected v. Judicial Lien - who wins? |
Judicial lien |
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Perfected v. Judicial Lien - who wins? |
Perfected (but not over future advances) |
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Secured v. Possessory lien - who wins? |
Possessory as long as they got it in the ordinary course and it's still in their possession |
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Secured v. Article 2 - who wins? |
Article 2 as long as retains possession of the goods (article 2 is for a buyer or seller's possessory sec interest in goods in situations where the buyer rightfully revokes acceptance, for instance) |
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Buyer in ordinary course v. Anyone - who wins? |
Buyer |
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List of priorities (not a cue card, just a refresher card) |
Buyer in ordinary course > Holder in due course > Transferee of money or funds from deposit acct > Purchasers of chattel paper or instruments who have possession/control > possessory lienholder > art. 2 claimant > PMSI Perfected interests and attached judicial liens ? purchaser of the collateral who buys for value and receives deliverty without notice of an unperfected > unperfected > debtor |
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What usually determines when default has occurred? |
The security agreement (except agricultural lien, which is determined by statute) |
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What can the secured do in the event of default? |
Sue on the debt itself OR Take possession of the collateral (can be done without judicial process if can be done wihout breach of the piece), sell it by public or private sale, and sue to collect the deficiency |
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What is the effect of a sale in event of default for the buyer? |
The buyer gets whatever rights the debtor had in the collateral and discharges the sec. interst under which the sale was made and all subordinate sec. interests |
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What standard will the court look for in the sale? |
Reasonableness of the sale. Sec. party must show he made an effort to obtain the best price. |
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What factors show the reasonableness of a sale in event of default? |
1. sufficiency of advertising 2. whether people were contacted, if it's in a limited market 3. whether collateral needed cleaning or repair 4. if it was a public auction, the convenience of the time and place If there's a very low price, courts will give extra scrutiny, but a low price by itself doesn't mean it was unreasonable |
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What happens if the debtor paid 60% of the cash price on PMSI consumer good or 60% of loan on non-PMSI consumer good and the collateral goes into default? |
The secured must dispose of the collateral within 90 days or the debtor can recover it in conversion |
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Can the secured retain collateral in the event of default as full satisfaction of the obligation? |
Yes, IF debtor consents to retention in authenticated record or, if the debt is being fully satisfied, doesn't object w/i 20 days of notice If someone objects, the secured must dispose of the collateral and properly disburse proceeds (You have to notify the debtor and the other secureds, so they can also object) |
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Can a secured keep collateral as partial satisfaction? |
Yes, for nonconsumer goods. They can keep it in partial satisfaction and seek a deficiency judgment for the remainder, as long as they meet the same requirements for secureds retaining collateral as full satisfaction |
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Can a debtor redeem a collateral that the seller has possessed in default? |
Yes, as long as it's before the secured has sold the collateral or discharged the debt by retention |
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What happens if a secured violates the code requirements for default? |
If it's consumer goods: the debtor can recover at a minimum 10% of the cash price of the goods + amt equal to the interest charges to be paid over the life of a loan - secured might also lose right to deficiency judgment If it's nonconsumer transactions: rebuttable presumption rule applies that unless secured proves otherwise, the value of the collateral is equal to the amount of the debt If it's consumer transactions: court can do what they want but usually will either follow the rebuttable presumption rule, deny deficiency, or allow secured to recover deficiency - actual damages that the debtor can prove |
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Which law governs? |
Law of state where debtor is located: FOr individual, is the principal residence For corporation, is state of inc. For unregistered orgs (e.g. gen. partnership) is the PPB or the chief executive office if ther's more than one PPB Exceptions: Possessory sec. interests and sec interests in fixture and timber = state where the collateral is located Goods with cert of title = last state of certificate of titlte Deposit accts = state where bank has chief exec. office Investment property = state where certificated security is located, or if sec is uncertificated the law of the state where the issuer was orgnaized Agricultural liens = state in which farm product covered by the lien is located |
