West Virginia Bar - Secured Transactions

Front 1

Are sales of receivables covered by Article 9?

What are some examples of receivables?

Back 1

Yes

Outright sales of accounts, chattel paper, payment intangibles and promissory notes

Front 2

Under what conditions must a consignor comply with Article 9 to protect its interest in consigned goods against creditors?

Back 2

- Consigned goods are worth $1,000 or more
- Consignor did not use the goods for personal, family or household purposes
<and>
- The consignee is a person who:
- Deals in goods of that kind under a name other than the consignor's
- is not an auctioneer
- Is not generally known by her creditors as substantially engaged in selling the goods of others

Front 3

Are the rules for perfection & priority of agricultural liens the same as for security interests?

Back 3

Yes, basically the same

Front 4

Under what circumstances will a transaction be deemed to create a security interest rather than a lease?

Back 4

The rental obligation is not terminated by the lessee and either:
- the lease term is equal or greater than the remaining economic lif eof the goods
- the lessee is bound to purchase the goods at the end of the lease for the remaining economic life of the goods
<or>
- at the end of the lease, the lessee has an option to purchase the goods or renew the lease for the remaining econmic life of the goods for no or nominal consideration

Front 5

What are situations in which Article 9 does not apply?

Back 5

- Transactions governed by other federal, state or foreign laws
- Most transactions involving interests in or liens on land (except fixtures)
- Assignment of deposit accounts in consumer transactions, except with respect to consumer deposit accoutns that are proceeds of collateral, and priorities in those proceeds
- state statutory or common law liens given for services or materials, such as the mechanic's leins, except with respect to priorities in the personal proeprty covered by the liens
and
- assignment of claims for wages

Front 6

What is a Purchase Money Security Interest (PMSI)?

Back 6

a special type of security interest in goods that has priority over all other security interests in the same goods.
Arises when certain condition are met.

Front 7

What are the conditions that will cause a PMSI to arise?

Back 7

A creditor sells the goods to the debtor on credit, retaining a security interest in the goods for all or part of the purchase price
<or>
A creditor advances funds that are used by the debtor to purchase goods. Here, the creditor and seller are 2 different persons.

Front 8

Hypo:
1) Ron goes to the Bank and borrows $1,000 for a dentistry kit, giving the Bank a security interest in the kit. He then proceeds to the dentistry supply store and buys the kit. Who has PMSI in the kit?

2) Ron takes the money that the Bank gave him for the kit and buys candy. Then he purchases the kit on credit from the dentistry supply store. Who has PMSI in the kit?

Back 8

1) Bank

2) The store

Front 9

Dual Status Rule:

A security interest in NON-consumer goods does not lose its status as a PMSI if:

Back 9

- the purchase money collateral also secures an obligation that is not a purchase money obligation (lending money on more than one transaction on the same
machine)

- Non-purchase money collateral also secures the purchase money obligation (collateral is the purchase money goods and goods already owned by the debtor)

- the purchase money obligation has been renewed, refinanced, consolidated or restructured

**This rule only applies to non-consumer goods; the courts must determine the appropriate rule for consumer goods.

Front 10

What are the 3 main classes of collateral?

Back 10

1) Tangible Collateral or Goods

2) Intangible or Semi-Intangible Collateral

3) Proceeds

Front 11

What are the 4 types of Tangible Collateral?

Back 11

1) Consumer goods
2) Farm Products
3) Inventory
4) Equipment

**All things movable at the time the security interest attaches, including: unborn animals, timber to be cut, growing crops, etc

Front 12

Hypo:
If a debtor maintains:

1) a razor in his office to keep himslef trim for business purposes
2) a razor at home
3) a razor on the shelf to sell

Back 12

1) equipment

2) consumer good

3) inventory

Front 13

What are the 8 types of Intangible or Semi-Intangible Collateral?

Back 13

1) Instruments: paper that represents the right to be paid
2) Documents: paper that represents the right to receive goods
3) Chattel Paper: record evidencing a monetary obligation, security interest in or a lease of specific goods
4) Accounts: right to payment, other than an instrument or chattel paper
5) Deposit Accounts: Article 9 only applies to non-consumer deposit accounts and accounts that are claimed as proceeds of other collateral
6) Investment Property: stocks, bonds, mutual funds and brokerage accounts
7) Commercial Tort Claims:
8) General Intangibles: software, patent/trademark rights

Front 14

What is included in the term "Proceeds"?

Back 14

They constitute any collateral that has changed in form from a previous catagory; they can be cash or non-cash; Insurance payment or claims (as long as they are payable to the debtor)

Front 15

Security agreements are not enforcable unless attached.

What are the 3 requirements for attachment?

Back 15

1) agreement

2) value given by secured party

3) debtor must have rights in the collateral

** These 3 may occur in any order, but all must exist before a security interest will attach.

Front 16

What are 3 ways that the agreement to create a security interest can be evidenced?

Back 16

1) Authenicated Security Agreement: signed or electronically marked by both parties
2) Possession
3) Control: such as over a deposit account, electronic chattel paper, investments

Front 17

Value must be given by the secured party or on his behalf. What are the requirements of consideration to be "value"?

Back 17

- any consideration sufficient to support a simple contract will be value

- the consideration need not be performed, there just must be a binding obligation to perform

a pre-existing debt will be value (even though it would not be consideration) if the security interest is intended as security for the pre-existing debt

Front 18

What qualifies as "rights in the collateral"?

Back 18

An ownership in, or the right to obtain possession of the collateral

Front 19

May a creditor obtain a security interest in "after-acquired" property?

Back 19

Yes, but there must be a clause in the security agreement permitting the attachment of property acquired "now or in the future"

Front 20

Must there be a clause to attach proceeds or floating liens?

Back 20

No, it is automatic

* A floating lien is attachment of new items when there was a replacement of inventory, accounts, stock, etc

Front 21

What is the exception to the after-acquired property clause?

Back 21

There is no attachment of subsequent commercial tort claims; the creditor must obtain rights of consumer goods within 10 days of the debtor giving value

Front 22

To acquire maximum priority in the collateral over most other 3rd parties, it is not enough for the security interest to attach; The secured party must also perfect.
What are the 5 methods of perfection of a security interest?

Back 22

1) Filing
2) Taking possession of the collateral
3) Control
4) Automatic perfection
5) Temporary perfection

Front 23

If a party completes all the steps necessary for perfection before the security interest attaches, when will the perfection actually take place?

Back 23

At the time the security interest attaches (not before)

Front 24

Despite perfection, a non-possessory security interest may nevertheless be subordinated to some types of adverse 3rd parties.
What are two examples?

Back 24

1) Ordinary course buyers of inventory

2) Holders in due course of negotiable instruments

Front 25

A security interest may be prefected by filing (either in writing or electronically) as to all kinds of collateral except:

Back 25

Deposit accounts
and
Money

(unless they are proceeds of original collateral)

Front 26

What type of filing is acceptable in WV for a security interest?

Back 26

"Notice" filing: given by filing a financing statement

Front 27

What elements must a financing statement include?

Back 27

- Name and address of the debtor
- Name and address of the secured party
- Indication of collateral covered by the financing statement
- If the collateral includes real property, a description of the real property
- Must be authorized in writing by the debtor (even if done within a reasonable time after the filing)
- If the parties choose, and the documents meet all of the above, the security agreement itself may serve as the financing statement, as well as a mortgage

Front 28

How are financing statements indexed?

Back 28

By the debtor's name

Front 29

What effect will an error in the debtor's name have?

Back 29

Minor errors are overlooked, but the error may not be "seriosuly misleading".

Front 30

At what location should the filing be made?

Back 30

Generally, with the WV Secretary of State.

However, timber to be cut, minerals and fixtures are filed with the real property records in the County Clerk's Office. To be sure, file at both offices.

Front 31

How long is the filing of a financing statement good for?

Back 31

5 years
Except: utilities and some fixtures are until terminated
Mortgages until the mortgage is satisfied
Mobile homes and public finance is 40 years

Front 32

When should the continuation statement be filed?

Back 32

In the last 6 months of the effective period; it ned not be authorized by the debtor, only the secured party

Front 33

How is a financing statement terminated?

Back 33

Secured party has no obligation to terminate a financing statement.
However, if there are ni obligations, the secured party must file a termination within a month of the obligation's end or within 20 days if the debtor requests it

Note: if there is no termination statement filed, the financing statement remains effective for the entire 5 years, even with no obligation

Front 34

Where are security interests in motor vehicles filed?

Back 34

For drivers: this is handled by the DMV, a notation on the certificate of title. Filing or possession under Art. 9 is neither required nor perfected.

For dealers: lease vehicles or those in inventory are perfected by the ordinary rules, even though a certificate of title in the vehicle is outstanding.

Front 35

What are the types of collateral that cannot be perfected by possession?

Back 35

Accounts, certificate of title goods, deposit accounts, non-negotiable documents, chattel paper or general intangibles

Front 36

When is the time of perfection by possession?

Back 36

In the hands of the secured party: at the time of possession, for as long as possession is retained

In the hands of the bailee: from the time the bailee authenticates a record acknowledging that it is holding the collateral for the secured party's benefit

Front 37

What security interests may be perfected by control?

Back 37

In investment property, non-consumer deposit accounts and electronic chattel paper

Front 38

When is perfection automatic?

Back 38

*PMSI in consumer goods: perfected as soon as it attaches; only for consumer goods, PMSI in inventory or equipment must be filed to be valid; not valid for motor vehicles or fixtures

*Small-Scale Assignments of Accounts or Payment Intangibles: they must not transfer a significant part of the account balance

*Sales of Payment Intangibles or Promissory Note

*Beneficial Interest in Decedent's Estate

*Investment Property: if the debtor is a securities intermediary, the debtor purchased the asset through a securities intermediary and has not paid the price or dealer of securities purchases from another such dealer

Front 39

For how long are the proceeds from original collateral perfected?

Back 39

20 days - unless the statutory requirements to maintain perfection are automatically met

Front 40

A security interest in proceeds will continue to be perfected beyond 20 days if:

Back 40

- the security interest in the original collateral was perfected by filing a financing statement, a security interest in the type of collateral constituting the proceeds would be filed in the same place as the financing statement for the original collateral and the proceeds were not purchased with cash proceeds of the collateral (the same office rule)

- the proceeds are identifiable cash proceeds (cash proceeds rule)

- the security interest in the proceeds is perfected within the 20-day period

- of course, the security interest in the proceeds is perfected within 20 days

Front 41

What are 4 conflicts that can arise in priority?

Back 41

1) between 2 secured parties
2) secured party & a buyer
3) secured party & a lien creditor (usually a trustee in bankruptcy
4) secured party & an Art.2 Claimant

Front 42

May a party entitled to priority contractually substitute their rights to other parties?

Back 42

Yes, even though Art. 9 provides rules for priority

Front 43

Priority:
Between 2 unperfected secured parties -

Back 43

the first to attach has priority

Front 44

Priority:
Between an unperfected and a perfected secured party -

Back 44

The perfected secured party will prevail over an unperfected security interest, even if the perfected party tkaes a security intrest with knowledge of the earlier unperfected security interest

Front 45

Priority:
Between perfected secured parties -

Back 45

"First in time, first in rights"
- the first to file or perfect, whichever is earlier, provided that there is no period thereafter where there is no filing or perfection.

Front 46

Priority:
Between perfected secured parties - Special rule for deposit accounts, one party has control

Back 46

A security interest in a deposit account that is perfected by control has priority over one that is perfected by another method.

Front 47

Priority:
Between perfected secured parties - Special rule for deposit accounts, more than one party has control

Back 47

Ranked in order of time of obtaining control

Exceptions: party who has obtained control by putting the deposit account in his name has priority over others.
A bank that has control because it maintains the deposit account has control over all others, except the one who has put the deposit account in his name

Front 48

When more than one party has a secured interest in an investment property, who generally has priority?

Back 48

In order of priority:

1) An intermediary that has an interest granted by the debtor.
2) The first party who has control.
3) In absence of these, the first to file or perfect.

Front 49

A PMSI has a ______priority

Back 49

Super - but for the PMSI creditor, there would be no inventory, goods, etc

Front 50

A PMSI in inventory has priority over a conflicting security interest if:

Back 50

- the PMSI is perfected at the time the debtor gets possession of the inventory: the filing must take place before the inventory is delivered to the debtor
- Notification is required to any other secured party before the debtor recieves possession of the inventory; notification is good for 5 years in deliveries of the same type of collateral
- Livestock and their unmanufactured states (eggs) are considered inventory
- a so-signor is considered to be a PMSI in inventory

Front 51

A PMSI in goods <other than inventory> has priority over conflicting security interests only if:

Back 51

it the interest is perfected before or within 20 days after the debtor receives possession of the goods.
- There is no notification requirement to other secured parties.

Front 52

What are the 2 general rules for conflicting PMSIs?

Back 52

1) a PMSI seller has greater priority over a PMSI lender

2) otherwise, the first party to file or perfect prevails