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59 Cards in this Set

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  • Back
What is a pledge?
a security interest by possession
What is a security agreement?
1. Security agreement effective by to its terms between the parties, against purchasers of collateral and creditors.
What are the requirements for security agreement?
1. must be authentication (adopt a symbol)

2. adequate description of collateral
What is a floating lien?
Generally stays in existence even though collateral may change (important for inventory and accounts)

Note: general rule courts will imply for inventory and accounts but not for equipment.
What is the exception to a floating lien?
after acquired consumer goods--no security interest will attach to consumer goods unless the debtor (retailer) acquires rights in the consumer goods within 10 days after the secured party gives value
How does future commercial tort claims attach?
In order for commercial tort claim to attach, it must be in existence when security agreement is authenticated.
What is a Future Advances Clause?
Generally--secures a present debt but also any future advance; a security agreement can create a security interest in the collateral covering not only the current loan but also future loans by the same creditor.
What are the requirements for attachment?
1. parties have an agreement (oral or written)

2. Creditor must give value

3. the debtor must have property rights
What are the four methods of perfection?
1. the filing of a financing agreement

2. pledge or possession of the collateral

3. automatic perfection and

4. certificate of title
What is perfection by filing?
a record or records of an intitial financing statement and any filed record relating to the initial financing statement.
What must be in the financing statement?
1. name of the debtor and the identity of the debtor

2. super generic description in financing statement is allowed.
How long is financing statement good for?
Financing statement is good for five years.
When can a secured party renew its financing statement?
a secured party can extend the effectivenes of a financing statement about to expire by filing a continuation statement.

Note: a statement may be filed within 6 months before the expiration of the financing statement adds 5 new years from the lapse date.
What is lapse of financing statement?
a filed financing statement lapses unless a continuation statement is filed in 6 months before the expiration of 5 year period, the security interest becomes unperfected. Original statement is no longer effective and the secured party must file a new financing statement.

Note: if the security interest becomes unperfected upon lapse, it is deemed never to have been perfected as against a purchaser of the collateral
What is perfection by possession/pledge?
delivery-perfect a security interest in negotiable documents, instruments, money or tangible chattel paper by taking possession of the collateral.
What is a purchase money security interest?
an interest in consumer goods that arises in connection with the purchase goods is perfected automatically.
What is an enabling loan/PMSI?
a loan which allows the creditor purchase the goods used as the collateral.

Note: direct purchase money--security is taken by the seller of the collateral to secure all or part of "its" price
What is the exception to the enabling loan?
no automatic pefection for automobiles.
What is the rule for consumer goods as after acquired property?
No security attaches under an after-acquired property clause to consumer goods when given as additional security unless the debtor acquires rights in them 10 days after secured party gives value
Generally what is priority?
perfected creditor will trump an unperfected
What is the priority of unperfected creditors?
1. general creditors--no priority an unperfected secured creditor has priority over a creditor has no security in collateral.
What is automatic perfection?
Generally the secured party need only make sure that the security interest has attached; perfection is thereby accomplished.
How does one perfect in proceeds?
Revised Section 9-315(d) would change the period of grace for perfection as to proceeds. It would allow 20 days from the time the proceeds interest attaches, rather than ten days from the time of the debtor's ''receipt of the proceeds,
What is the exception of continued security interest in proceeds?
1. the secured party authorizes the sale under the security agreement
What is priority between two perfected security interests?
There are two perfected security interests for the same collateral is priority goes to whichever secured party is the first either to file or perfect.
What is priority of a lien creditor over unperfected secured party?
lien creditors prevails over unperfected secured party before they perfect.
When does a PMSI prevail over a lien creditor?
PMSI prevails over a lien creditor if the PMSI is perfected within 20 days of buyer taking possession
What is the general rule for Non-inventory PMSI?
a noninventory perfected PMSI takes priority over conflicting security interests in the same collateral and in all identifiable proceeds

Note: If the interest then the filing still goes back to the initital purchase date

Note: Non-inventory PMSI trumps prior secured party with floating lien.

Note: 20 day grace period
What are the requirements for perfection of inventory PMSI?
1.Perfection requirement. PMSI must be perfected before the debtor receives posession of the collateral

2. Notice requirement--secured party must send authenticated notice to any other prior security interest holder who has previously filed a financing statement covering inventory of the same type of goods before the date of filing made by the purchase money secured party

3. contents of notice--notice must state that the person sending the notice has or expects acquire a PMSI in the inventory.

4. Duration of notice 5 years.
What is the rule for two competing PMSI lenders?
General Rule-the seller of the collateral is favored enabling loans. A security interst securing an obligation incurred as all or part of the price of the collateral has priority over a security interest securing an obligation incurred for value given to enable the debtor to acquire rights in or the use of collateral
What is the rule for commercial consignments?
Consignor who consigns goods has a PMSI in inventory.
What is the rule dealing with Buyers in Ordinary Course?
It constitutes a major exception to the basic continuity rule of Section 9-306(2), which provides that the security interest continues in the original collateral notwithstanding the debtor's disposition of the collateral.1 The buyer in ordinary course rule of Section 9-307(1) and the rule of Section 9-306(2) which allows the buyer to take free of security interest when the sale is authorized by the creditor are the principal exceptions to the continuity of the creditor's security interest following a disposition of collateral in the form of goods

Note: buyer in the ordinary course of business'' means a person who in good faith and without knowledge that the sale to him is in violation of the ownership rights or security interest of a third party in the goods buys in ordinary course from a person in the business of selling goods of that kind but does not include a pawnbroker

Note:[c] An Ordinary and Innocent Transaction. The buyer must buy in ordinary course and in good faith and without knowledge that the sale is in violation of the ownership rights or security interest of a third party. As the text of Section 9-307(1) itself establishes, knowledge of the existence of the security interest does not disqualify a buyer.12 The courts have disagreed as to whether a ''subjective'' (honesty in fact) or objective (observance of reasonable commercial standards of fair dealing) standard should control in defining the good faith component
What are the requirements for a transaction of the buyer in ordinary course of business?
(1) goods;

(2) a buyer;

(3) an ordinary and innocent transaction;

(4) a seller ''in the business of selling goods'' of the kind involved; and

(5) the giving of new value by the buyer
What is priority between two secured but unperfected?
first to attach.
What is priority between perfected and unperfected?
perfected wins
What is priority between lien creditor and unperfected?
lien creditor wins
What is the priority between PMSI and Lien creditor?
PMSI wins if files before or within 20 days of the debtor gets the property
What is priority between two perfected interests?
First to file
What is priority between non-inventory (equipment) PMSI vs Perfected Interest?
Non-inventory wins and in identifiable cash proceeds if filed 20 days of debtor receiving possession
What is priority between Inventory PMSI and Perfected interest?
Inventory PMSI wins has to file before debtor receives property gives notice

Note: Consignment applies
What is the priority between two PMSIs lenders?
Seller wins
What is priority between perfected vs. buyer in ordinary course of business?
buyer of goods in good faith and without knowledge that the sale violates the rights of another person in goods.
What is the rule for Future Advances?
1. Clause expands the scope of the lien against collateral

Note: the creditor who is first to file or perfect has priority over a subsequent perfected creditor, even if the first creditor made a later future advance.
What are the liens that have priority over perfected security interest?
1. Artisan lien (improves personal property other than car)

2. Garage operator lien (improves car)

3. boarding animals lien

4. textile lien
What are fixtures?
goods are fixtures when they become so related to particular real estate than an interest in them arises under real estate.
How are fixtures determiend in NC?
Based on the intent of the parties
What is the general rule for priority of mortgage over a security interest in a fixture?
mortgage prevails as a security interest in fixtures will be subordinate to the conflicting of an encumbrancer or owner of the related real esate who is not the debtor
What is the exception of a mortgage having priority over a security interest in fixture?
PMSI in fixture will have priority over conflicting interest if:

1. debtor has an interest of record in or is in possession of the real property AND the security interest is a PMSI

2. The interest of the encumbrancer or owner arises before the goods become fixtures (prior recorded real esate mortgage) and

3. the security interest is perfected by a fixture filing before the goods become fixtures or within 20 days thereafter
What is the exception of fixture filing having priority over a mortgage?
Construction Mortgage
1. mortgage that is incurred for the construction of an improvement of an improvement on land, including the acquisition of land, if a recorded record of the mortgage so indicates

(i) no longer a construction mortgage if the fixture goes in after the projected is completed. Priority only to goods that become fixtures during the construction period leading to completion of the improvement

2. A security interest in fixtures is subordinate to a construction if a record of the mortgage is recorded before the goods become fixtures and the goods become fixtures before the completion of the construction.

Note: even a perfected PMSI in goods becoming fixtures during construction will be junior to the construction mortgage. This applies only during the construction period leading to teh completion of the improvement.
What is the exception to the construction mortgage having priority over a PMSI?
Fixture filing trumps a construction mortgage.

1. A perfected security interest in fixtures has priority over a conflicting interest of an encumbrancer or owner of real property if:
1. debtor has an interest of record in the real property or is in possession of the real property and the security interest
(i) perfected by a fixture filing before the interest of the encumbrancer

2. before the goods fixtures, the security interest is perfected by any method permitted and the fixtures are readily removable

3. the conflicting interest is a lien on the real property obtained by legal or equitable proceedings after the security was perfecte by any method (file a UCC-1 or fixture filing)
What is the general rule for priority in accessions?
When a security interest precedes installation. If a security interest is perfected when the collateral becomes an accession, the security interest remains perfected int the collateral.

Note: exception certificate of title
What is a security agreement?
an agreement that creates or provides for a security interest
What is a future advances clause?
secures a present debt but also any future advance; a security agreement can create a security in the collteral covering not only the current loan but also future loans by the same creditor. The security interest can expand according to the debtor's obligation
What is the general rule for proceeds?
a perfected security inerest in proceeds is a perfected secuirty interest if the security interest in the original collateral was perfected.
What is the 20 day rule for proceeds?
secured creditor perfected in the original collateral, interest in the proceeds is perfected for 20 days?
What is the exception to the 20 day rule for proceeds?
a secured creditor perfected in the original collateral, interest in the proceeds is perfected for 20 days unless

1. a filed financing statement in the original collateral

2. the proceeds are collateral in which a security may be perfected by filing in the office in which the financing statement and

the proceeds are not acquired with cash proceeds (in essence a swap of inventory for equipment)

If all these apply then financier remains perfected.
What is the rule for automatic perfection in proceeds acquired with cash proceeds?
It carries forward the basic rule that a security interest in proceeds remains perfected beyond the period of automatic perfection if a filed financing statement covers the original collateral (e.g., inventory) and the proceeds are collateral in which a security interest may be perfected by filing in the office where the financing statement has been filed (e.g., equipment)
What is the rule for proceeds acquired by cash proceeds?
A different rule applies if the proceeds are acquired with cash proceeds, as is the case if the original collateral (inventory) is sold for cash (cash proceeds) that is used to purchase equipment (proceeds). Under these circumstances, the security interest in the equipment proceeds remains perfected only if the description in the filed financing indicates the type of property constituting the proceeds (e.g., "equipment").
What is the general rule for priority in bank accounts in control of the creditor?
the security interest of the bank with which the deposit account is maintained normally takes priority over all other conflicting security interests in the deposit account, regardless of whether the deposit account constitutes the competing secured party's original collateral or its proceeds. A rule of this kind enables banks to extend credit to their depositors without the need to examine either the public record or their own records to determine whether another party might have a security interest in the deposit account