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Secured Transactions
new york bar exam
25
Law
Post-Graduate
07/04/2012

Additional Law Flashcards

 


 

Cards

Term
When does Art. 9 apply?
Definition

To consensual security interests in personalty and fixtures.

 

(Note: when the security is real property, apply the law of mortgages)

Term
What items can be collateral?
Definition

Consumer goods: items used for personal or familial purposes

Equipment: items used in business

Inventory: goods held for sale or lease

Farm products: crops, livestock, supplies used in farm operations, etc.

Fixtures: items annexed to realty

Term
What is attachment?
Definition
It means that the security interest is enforceable.
Term
What are the 3 requirements for attachment?
Definition

VCR:

1. Value must be given by the creditor

2. Contract (security agreement)

3. Rights in the collateral belonging to the debtor

Term
What is required of the contract (a.k.a. security agreement or record)?
Definition

1. Be authenticated (signed or electronically marked) by the dealer

2. Reasonably identify the collateral

 

Note - security agreement is not required if secured party has already taken possession of the collateral

Term
What is an after-acquired collateral clause?
Definition

A security interest in inventory or some other body of property that will be increased, e.g., "in all of Staples' inventory, whether now held or hereafter acquired."

 

A.k.a. a floating lien

 

After-acquired collateral clauses are enforceable

Term
What is perfection of a security device?
Definition

The method by which a secured party puts the world on notice of its interest in the property

 

Protects the secured party from competing creditors - subsequent parties take w/ notice of the first party's priority

Term
How does a secured party obtain perfection?
Definition

1. Taking possession of collateral

2. Purchase money security interest (PMSI) is automatically perfected.

PMSI = security interest that enables debtor to purchase goods

3. Filing notice of security interest in public records

Term
What notice must be filed to put the world on notice of a secured party's interest?
Definition

1. Security agreement - but rare

2. Financing statement - brief doc stating debtor's name and address, creditor's name and address, and generic description of description of collateral - much more common

Only needs to provide enough info for a searcher to make reasonable follow-up inquiries

 

Term
Where is notice filed for protecting a security interest?
Definition

1. In the state where the debtor is located (individual - state of residence; corporation - state under whose laws it is organized)

2. However, if collateral is timber, minerals, or fixtures, filing is done in the county where the real property is located.

Term
What is the order of priority for interests in a secured piece of property?
Definition

BIOC à PAC à LC à NOCie à AUPie à GUC

Term
What is default?
Definition
Defined in the security agreement - occurs when debtor breaches a term of the agreement
Term
What are a secured party's options once a debtor has breached?
Definition

1. Self-help repossession

2. Repossession by judicial action

3. Strict foreclosure

4. Sale

5. Action for deficiency judgment

Term
What is a secured party allowed to do in repossessing by self-help?
Definition

Can repossess collateral so long as no breach of the peace occurs.

 

Breach of the peace = actions by secured party that are likely to cause violence; any protest by the debtor whatsoever = breach of peace

Term
What happens to a secured party that repossesses improperly?
Definition
If secured party misuses color of law or otherwise breaches the peace, civil and criminal penalties attach.
Term
Can a secured party enter debtor's home to repossess collateral?
Definition

Not without the debtor's contemporaneous and voluntary consent.

 

Home = zone of privacy

Term
How does a secured party obtain repossession by judicial action?
Definition
Go to court to obtain a judicial writ (NY: writ of replevin); give writ to sheriff who will obtain possession of the collateral and deliver it to the secured party.
Term
What is strict foreclosure?
Definition

Available to a secured party after obtaining possession of collateral - SP retains collateral in full satisfaction of the debt

 

Works best when SP has some use for the collateral or the value of the collateral roughly matches the amount of debt outstanding.

Term
How does a secured creditor go about obtaining strict foreclosure?
Definition

Send written proposal to debtor & secondary obligors (for consumer goods) or debtor, other SPs of whom foreclosing SP is aware, & secondary obligors (for non-consumer goods)

 

If any of the notified parties objects w/in 20 days, strict foreclosure is not allowed and instead foreclosure must be done by sale.

Term
What is the 60% rule?
Definition

If the collateral is consumer goods and the debtor has already paid 60% of the loan in non-PMSI or 60% of the cash price in a PMSI, strict foreclosure not allowed.

Term
What is the secured party's sale remedy?
Definition

Secured party may sell the collateral and apply the proceeds toward payment of the debt

2 rules: 

1. Sale must be commercially reasonable

2. Prior to sale, reasonable notice must be given

Term
What notice is required for foreclosure by sale?
Definition

For consumer goods, notice must be sent to debtor and secondary obligors

For non-consumer goods, notice must be sent to debtor, other secured parties, and secondary obligors

 

For public sale, notice must be given of the time and date of the sale

For private sale, notice must be given of the date after which the collateral will be sold

 

No bright-line rule of how much advance notice is needed - must be commercially reasonable

In non-consumer transactions, notice sent 10 days or more before sale is presumptively reasonable

Term
May a secured party purchase the collateral at a foreclosure sale?
Definition

Yes, if it is a public sale.

 

If it is a private sale, secured party may not purchase unless there are external market checks - too much potential for self-dealing

Term
What is an action for deficiency judgment?
Definition
Available when the proceeds of the sale are less than the amount owed - secured party can bring suit against the debtor for the deficiency.
Term
What is the debtor's limited right of redemption?
Definition

Debtor may redeem the collateral by paying the amount owed + interest + creditor's reasonable expenses

 

If the security agreement contained an acceleration clause, debtor must pay off the entire debt + interest and expenses

 

Cut off once the SP has sold the collateral or completed a strict foreclosure.

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