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52 Cards in this Set

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  • Back
Are sales of receivables covered by Article 9?

What are some examples of receivables?

Outright sales of accounts, chattel paper, payment intangibles and promissory notes
Under what conditions must a consignor comply with Article 9 to protect its interest in consigned goods against creditors?
- Consigned goods are worth $1,000 or more
- Consignor did not use the goods for personal, family or household purposes
- 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
Are the rules for perfection & priority of agricultural liens the same as for security interests?
Yes, basically the same
Under what circumstances will a transaction be deemed to create a security interest rather than a lease?
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
- 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
What are situations in which Article 9 does not apply?
- 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
- assignment of claims for wages
What is a Purchase Money Security Interest (PMSI)?
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.
What are the conditions that will cause a PMSI to arise?
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
A creditor advances funds that are used by the debtor to purchase goods. Here, the creditor and seller are 2 different persons.
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?
1) Bank

2) The store
Dual Status Rule:

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

- 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.
What are the 3 main classes of collateral?
1) Tangible Collateral or Goods

2) Intangible or Semi-Intangible Collateral

3) Proceeds
What are the 4 types of Tangible Collateral?
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
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
1) equipment

2) consumer good

3) inventory
What are the 8 types of Intangible or Semi-Intangible Collateral?
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
What is included in the term "Proceeds"?
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)
Security agreements are not enforcable unless attached.

What are the 3 requirements for attachment?
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.
What are 3 ways that the agreement to create a security interest can be evidenced?
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
Value must be given by the secured party or on his behalf. What are the requirements of consideration to be "value"?
- 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
What qualifies as "rights in the collateral"?
An ownership in, or the right to obtain possession of the collateral
May a creditor obtain a security interest in "after-acquired" property?
Yes, but there must be a clause in the security agreement permitting the attachment of property acquired "now or in the future"
Must there be a clause to attach proceeds or floating liens?
No, it is automatic

* A floating lien is attachment of new items when there was a replacement of inventory, accounts, stock, etc
What is the exception to the after-acquired property clause?
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
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?
1) Filing
2) Taking possession of the collateral
3) Control
4) Automatic perfection
5) Temporary perfection
If a party completes all the steps necessary for perfection before the security interest attaches, when will the perfection actually take place?
At the time the security interest attaches (not before)
Despite perfection, a non-possessory security interest may nevertheless be subordinated to some types of adverse 3rd parties.
What are two examples?
1) Ordinary course buyers of inventory

2) Holders in due course of negotiable instruments
A security interest may be prefected by filing (either in writing or electronically) as to all kinds of collateral except:
Deposit accounts

(unless they are proceeds of original collateral)
What type of filing is acceptable in WV for a security interest?
"Notice" filing: given by filing a financing statement
What elements must a financing statement include?
- 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
How are financing statements indexed?
By the debtor's name
What effect will an error in the debtor's name have?
Minor errors are overlooked, but the error may not be "seriosuly misleading".
At what location should the filing be made?
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.
How long is the filing of a financing statement good for?
5 years
Except: utilities and some fixtures are until terminated
Mortgages until the mortgage is satisfied
Mobile homes and public finance is 40 years
When should the continuation statement be filed?
In the last 6 months of the effective period; it ned not be authorized by the debtor, only the secured party
How is a financing statement terminated?
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
Where are security interests in motor vehicles filed?
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.
What are the types of collateral that cannot be perfected by possession?
Accounts, certificate of title goods, deposit accounts, non-negotiable documents, chattel paper or general intangibles
When is the time of perfection by possession?
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
What security interests may be perfected by control?
In investment property, non-consumer deposit accounts and electronic chattel paper
When is perfection automatic?
*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
For how long are the proceeds from original collateral perfected?
20 days - unless the statutory requirements to maintain perfection are automatically met
A security interest in proceeds will continue to be perfected beyond 20 days if:
- 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
What are 4 conflicts that can arise in priority?
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
May a party entitled to priority contractually substitute their rights to other parties?
Yes, even though Art. 9 provides rules for priority
Between 2 unperfected secured parties -
the first to attach has priority
Between an unperfected and a perfected secured party -
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
Between perfected secured parties -
"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.
Between perfected secured parties - Special rule for deposit accounts, one party has control
A security interest in a deposit account that is perfected by control has priority over one that is perfected by another method.
Between perfected secured parties - Special rule for deposit accounts, more than one party has control
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
When more than one party has a secured interest in an investment property, who generally has priority?
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.
A PMSI has a ______priority
Super - but for the PMSI creditor, there would be no inventory, goods, etc
A PMSI in inventory has priority over a conflicting security interest if:
- 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
A PMSI in goods <other than inventory> has priority over conflicting security interests only if:
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.
What are the 2 general rules for conflicting PMSIs?
1) a PMSI seller has greater priority over a PMSI lender

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