Term
| What does ARticle 9 apply to? |
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Definition
| promissory notes, chattel paper, accounts, payment intangibles and commercial consignments |
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Term
What are article 9 transactions?
what are not? |
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Definition
security for performance of an obligation. it is a consensual, contractual, second remedy
NOT:
real estate liens (except fixtures)
non-consensual liens
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Term
| What is a security interest? |
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Definition
| the right to keep or sell the collateral if the debtor defaults on his obligation to the creditor |
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Term
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Definition
purchase money security interest
where creditor sells the goods to the debtor on credit, retaining a security interest in the goods, or creditor advances funds used to purchase goods |
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Term
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Definition
| property subject to the security interest |
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Term
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Definition
consumer goods
farm products
inventory
equipment
instruments
documents
accounts
deposit accounts
health care insurance receivables
chattel paper
electronic chattel paper
letter of credit right
commercial tort claims
general intangibles
investment property
proceeds |
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Term
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Definition
| goods for family purposes |
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Term
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Definition
| crops, livestock, products of livestock in hands of farmer (not equipment) |
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Term
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Definition
goods held for sale, lease or used short term
ex of used for short term: shopping bags of a store
lease: cars at Hertz rental |
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Term
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Definition
goods used in business long term
business use: if not inventory, it's equipment (catch-all)
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Term
| What if you have a good that you use at home for most of the week and then use at work on the weekend, what is it? |
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Definition
look to the primary use
here it's home use so it's a consumer good |
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Term
| What if you have a good that you use exclusively at home but then you permanently move it to your office, what is it? |
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Definition
| It is STILL consumer goods!! Collateral in the same hands does NOT change. |
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Term
| What is the test for software? |
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Definition
Is the software embedded into the goods
Test: embedded means affirmly fixed thereto as to be considered part thereof. If so, the software is part of the goods for all purposes. If not, the software is a general intangible |
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Term
| when is the only time that collateral can change in the same person's hand? |
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Definition
a farmer's goods (crops) can become inventory
farmer's corn is initially farm products but once it is processed it become inventory |
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Term
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Definition
| Article 3, UCC, or a promissory note (Even if nonnegotiable, if it is a type used in the regular course of business), which is transferred by indorsement plus delivery |
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Term
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Definition
warehouse receipts (a receipt issued by a warehouse)
bills of lading: issued by common carrier (anyone who has the bill has control over the goods)
delivery order (goods in hand of bailee) |
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Term
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Definition
right to payment- with no writing (oral), or insufficient writing to be an instrument or chattel paper
Includes credit card debts
Excludes:
deposit accounts, health care insurance receivables and investment property.
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Term
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Definition
accounts maintained with a bank
excludes instruments and consumer transactions |
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Term
| Health care insurance receivables |
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Definition
| right to payment, under insurance, for health care goods or services provided |
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Term
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Definition
writing(s) evidencing
1. obligation
2. security interest
so the paper has to say these things on it! |
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Term
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Definition
| chattel paper evidence by information stored in electronic form |
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Term
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Definition
right to payment under a letter of credit (so the debtor is borrowing by giving this right of payment as collateral)
Excludes:
right to draw on a letter of credit |
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Term
| commercial tort claims (not individual tort claims) |
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Definition
tort claims filed by a business that arose out of business (excluding personal injury)
requires specificity, and there can be no "after-acquired tort clauses" |
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Term
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Definition
Catch-all for NON-GOODS
ex: trademark, goodwill, taxi medallion, liquor license, blueprints or inventions, collection of signatures |
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Term
investment property
ways to hold it |
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Definition
certificated securities (held by you in paper form)
uncertificated securities (held by you in computer form)
securities accounts (intermediary holding in their name) |
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Term
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Definition
| whatever is acquired upon disposition of collateral (so it is collateral that has changed forms because in another person's hands- so the collateral is called "new form" but also called proceeds of "old form") |
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Term
| proceeds is usually one of 4 things, what are they? |
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Definition
account, proceeds of inventory
instrument (ex: check), proceeds of inventory
chattel paper, proceeds of inventory
cash, proceeds of inventory |
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Term
| can proceeds be mutligenerational? |
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Definition
| yes, can have proceeds or proceeds |
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Term
| do security interests continue in proceeds? |
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Definition
yes, generally
ex: if C has a security interest in some property of D and D sells it for an instrument, C would have a security interest in the instrument- as proceeds |
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Term
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Definition
| person having an interest in the collateral |
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Term
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Definition
| the party to which the interest is transferred (so the lender) (includes consigner) |
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Term
| steps in making a security interest? |
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Definition
1. Creation
2. Attachment
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Term
| What are the steps ways a security interest can be created? |
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Definition
possession: secured party has possession of whatever debtor pledges to get the credit
OR
security agreement |
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Term
| what has to be in the security agreement? |
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Definition
1. authenticated record (written or electronically stored)
2. signed by debtor (or marked electronically)
3. describing collateral
4. control |
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Term
| How must the collateral be described in the security agreement? |
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Definition
must reasonable identify the collateral
can be by category of collateral, so long as objectively determinable
a supergeneric description ("all my assets) is NOT effective |
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Term
| Which types of collateral must be evidenced by control? |
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Definition
| if collateral is deposit account, electronic chattel paper, letter of credit right, or investment property, the security agreement may be evidenced by control |
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Term
| What are the steps for attachment? |
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Definition
secured party must give value
debtor must have rights in the collateral
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Term
| what is sufficient for "value"? |
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Definition
attachment will NOT occur by gift
preexisting debt is value |
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Term
| If the debtor has to have rights of ownership in the collateral, is an after-acquired clause ok? |
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Definition
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Term
| What is an after-acquired property clause? |
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Definition
| future collateral for present loan |
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Term
| under an after-acquired property clause, when does attachment occur? |
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Definition
| no attachment until the debtor acquired an interest in the property |
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Term
| When is an after-acquired property clause NOT ok? |
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Definition
there is a 10 day limit on after-acquired property clause for additional security for consumer goods (so the property that the security interest is on is consumer good)
commercial tort claims cannot be used in an after-acquired property clause |
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Term
| If the debtor must have rights in the collateral, will a future advance clause suffice? |
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Definition
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Term
| what is a future advance clause? |
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Definition
| present collateral for a future loan |
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Term
| under a future advance clause, when does attachment occur? |
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Definition
| no attachment until the secured party gives value |
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Term
| What must happen in order for creditor to have rights against others (i.e. subsequent purchasers, (un)secured creditors, lien creditors, ect.)? |
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Definition
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Term
| What are the five methods of perfection? |
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Definition
filing
possession
control
automatic
temporary
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Term
Methods of perfection
Filing
what kinds of collateral is it effective? |
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Definition
| effective as to all kinds of collateral EXCEPT deposit accounts and money (EXCEPT as to proceeds) |
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Term
Methods of perfection
Filing
What is filed? |
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Definition
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Term
Methods of perfection
Filing
Requirements for financing statement? |
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Definition
it must be authorized by the debtor in writing, or by authenticated record. This authority is kept by the secured party. (an authenticated security agreement would suffice)
contains the names, addresses and description of the collateral |
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Term
Methods of perfection
Filing
What is required for the name in the fin. statement? |
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Definition
REQUIRED: name of debtor
NOT required: signature of the debtor
trade name of the debtor IS sufficient |
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Term
Methods of perfection
Filing
What is required for addresses on the fin statement? |
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Definition
| if the financing statement is accepted by the filing office w/o addresses, it is still effective |
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Term
Methods of perfection
Filing
What is required for description of the collateral in a fin statement? |
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Definition
supergeneric description IS effective
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Term
Methods of perfection
Filing
What if the debtor's name is "seriously misleading"? |
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Definition
If seriously misleading the filing ineffective
If NOT seriously misleading then filing effective
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Term
Methods of perfection
Filing
When is an incorrect debtor's name still sufficient? |
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Definition
the name is sufficient if it would be found using filing office's search logic
NOTE: this is important b/c statements are indexed under the debtor's name. Thus, lending decisions are made based upon this search |
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Term
Methods of perfection
Filing
Where is the financing statement filed? |
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Definition
| the location of the debtor (as opposed to the collateral) determines where and whose law governs |
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Term
Methods of perfection
Filing
Where is the fin. statement filed-general rule? |
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Definition
| central filing with the secretary of state |
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Term
Methods of perfection
Filing
What is the exception to the general rule that a fin. statement is filed centrally with the secretary of state? |
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Definition
there is local filing for real estate related collateral (ex: timber to be cut, minerals and fixtures)
if not sure if a fixture, file both in the real property records and with secretary of state |
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Term
Methods of perfection
Filing
Where to file if registered organization? |
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Definition
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Term
Methods of perfection
Filing
where to file if individual? |
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Definition
| state of individual's principal residence |
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Term
Methods of perfection
Filing
where to file if organization with one place of business? |
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Definition
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Term
Methods of perfection
Filing
where to file if organization has more than one place of business? |
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Definition
| state where chief executive office is located |
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Term
Methods of perfection
Filing
How long is a financing statement original filing effective? |
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Definition
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Term
Methods of perfection
Filing
What are post-initial filings called? |
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Definition
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Term
Methods of perfection
Filing
When can you file a continuation? |
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Definition
during the last six months of the effective period of a prior filing
(this will continue the effectiveness of the filing for 5 more years)
(debtor need not authorize, only the secured party needs to authorize the continuation statement) |
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Term
Methods of perfection
Possession
What kind of collateral CANNOT be perfected by possession? |
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Definition
accounts, deposit accounts, electronic chattel paper, letter of credit rights, and general intangibles
(filing or control is needed for these) |
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Term
Methods of perfection
Possession
If perfect by possession, what duty does the secured party owe the debtor? |
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Definition
duty of reasonable care
debtor must reimburse the secured party for any reasonable expenses |
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Term
Methods of perfection
Control
Control is the exclusive method of perfection for what type of collateral? |
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Definition
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Term
Methods of perfection
Control
What happens when a deposit account is perfected by control? |
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Definition
| deposit bank agrees that it will act on secured party's instructions w/o any further debtor action |
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Term
Methods of perfection
Control
For a letter of credit rights, when does control occur? |
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Definition
| when issuer of letter consents in writing to assignment of the proceeds |
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Term
Methods of perfection
Control
How to perfect by control of investment paper that is a certificated security? |
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Definition
bearer paper: secured party needs possession
registered (ex: order paper): secured party needs possession plus indorsement
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Term
Methods of perfection
Control
How to perfect by control of investment paper that is a uncertificated security? |
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Definition
| Secured party must be registered as owner; or owner acknowledges he is holding for secured party; or issuer agrees he will comply with the secured party's instructions |
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Term
Methods of perfection
Control
How to perfect by control of investment paper that is a security account? |
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Definition
| secured party must be entitlement holder, or intermediary agrees it will comply with his orders |
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Term
Methods of perfection
Automatic
Which security interests are perfected when they attach? |
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Definition
PMSI in CONSUMER GOODS
Assignment of accounts, health care insurance receivables or payment intangibles (ex: hospital will prevail over the trustee if you go bankrupt)
SALE of payment intangibles or promissory notes (ex: buyer need do nothing to prevail over trustee, but if you only borrow (not sell) then perfection would be required
Security interests in investment property (3 situations) |
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Term
Methods of perfection
Control
Three situations when security interest in investment property is automatic? |
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Definition
1. if debtor is a broker or securities intermediary
2. debtor purchased through intermediary and has not been paid yet
3. broker to broker transactions |
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Term
Methods of perfection
Temporary (grace periods)
When is there a four month grace period? |
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Definition
goods and debtor move to different state
organization changes its name (not a new legal entity) |
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Term
Methods of perfection
Temporary (grace periods)
When is there a twenty day grace period? |
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Definition
twenty day period for proceeds
twenty day period for instruments, negotiable documents, and certificated securities |
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Term
Methods of perfection
Temporary (grace periods)
What does it mean that there is a 20 day grace period for proceeds? |
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Definition
a security interest in proceeds from original collateral is continuously perfected for 20 days from the debtor's receipt of the proceeds
this security interest become unperfected on the 21st day after the debtor's receipt of the proceeds unless the statutory requirements are complied with |
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Term
Methods of perfection
Temporary (grace periods)
When will the security interest in proceeds continue to be perfected beyond the 20 days? |
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Definition
If:
Same office rule
cash proceeds rule
the security interest in the proceeds is perfected w/in the 20 day period |
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Term
Methods of perfection
Temporary (grace periods)
What is the same office rule? |
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Definition
the security interest in proceeds will continue to be perfected beyond the 20 days if:
(1) the s.i in the original collateral was perfected by filing a financing statement,
(2) a s.i in the type of collateral constituting the proceeds would be filed in the SAME PLACE as the fin statement for the original collateral
AND
(3) the proceeds were not purchased with cash proceeds of the collateral |
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Term
Methods of perfection
Temporary (grace periods)
What is the cash proceeds rule? |
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Definition
the security interest in proceeds will continue to be perfected beyond the 20 days if:
the proceeds are identifiable cash proceeds |
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Term
Methods of perfection
Temporary (grace periods)
When is there a 20 day grace period for instruments, negotiable documents and certificated securities? |
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Definition
new value given
OR
delivery of collateral to debtor for disposition |
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Term
Methods of perfection
Temporary (grace periods)
instruments/negotiable documents/certificated securities
What is the rule when new value is given? |
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Definition
| a secured party who advances new value under an authenticated security agreement obtains a 20 day perfection period from the time of attachment, even though the secured party does not file a fin. statement or take possession of the collateral |
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Term
Methods of perfection
Temporary (grace periods)
instruments/negotiable documents/certificated securities
what is the rule if the collateral is delivered to debtor for disposition? |
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Definition
where creditor has possessory security interest in one of these types of collateral or in goods not covered by a negotiable document in possession of bailee
AND
makes any of the above available to the debtor on a temporary basis (ex: for sale, exchange, or presentation)
perfection continues for 20 days,
after which time the creditor must reprefect by filing or taking possession
Or lose his prefection |
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Term
Secured Party v. Lien Creditor
What is key in this type of case? |
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Definition
Perfection is key
(20 day grace period for PMSI (not in consumer goods b/c they are automatic)) |
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Term
Secured Party v. Lien Creditor
What is the bankruptcy exception to the rule that a perfected secured creditor will win in this case? |
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Definition
| Secured party DOES NOT take priority over trustee in bankruptcy when security interest was given for ANTECEDENT DEBT w/in 90 days of declaration of bankruptcy |
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Term
Perfected Secured Party v. Purchaser (buyer of goods)
Who will prevail? |
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Definition
| Depends on who the buyer and the seller are |
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Term
Perfected Secured Party v. Purchaser (buyer of goods)
Who will prevail if the sale is a consumer to consumer sale? |
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Definition
the purchaser prevails (takes free of claim of secured party) UNLESS perfection by filing
NOTE: automatic perfection is ineffective |
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Term
Perfected Secured Party v. Purchaser (buyer of goods)
Who prevails if the purchaser is a business? |
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Definition
Secured party prevails
Automatic perfection is effective |
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Term
Perfected Secured Party v. Purchaser (buyer of goods)
Who prevails if the purchaser is a purchaser from a business? |
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Definition
| purchaser wins even if filing by secured party |
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Term
Perfected Secured Party v. Purchaser (buyer of goods)
Who prevails if purchaser is a HDC? |
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Definition
HDC takes free of personal defenses and claims (Even over earlier perfected security interest)
NOTE: to be an HDC you have to have possession (have to be the holder) |
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Term
Perfected Secured Party v. Purchaser (buyer of goods)
What if future advances are involved- general rule? |
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Definition
| generally, if a creditor makes a future advance (i.e. advances value secured by an earlier security agreement under which there was an advance of value), the time of perfection of the future advance relates back to the time of perfection of the original advance. |
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Term
Perfected Secured Party v. Purchaser (buyer of goods)
What if future advances are involved- what is the exception to the general rule? |
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Definition
a buyer (or lessee) NOT IN THE ORDINARY COURSE OF BUSINESS can gain priority over a secured party who makes a future advance on collateral after the buyer purchases the collateral. Such a buyer has priority over a future advance made
(1) after the secured party LEARNED of the purchase
or
(2) more than 45 days after the purchase |
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Term
Perfected Secured Party v. Purchaser (buyer of goods)
What if future advances are involved- what is the exception to the exception? |
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Definition
| even if a secured party makes an advance after it learned of the purchase or more than 45 days after the purchase, if the future advance was made PURSUANT to a COMMITMENT made w/o knowledge of the purchase and before expiration of the 45 day period, the future advance has priority |
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Term
Secured party v secured party
Who prevails? |
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Definition
first to file OR perfect
filing may be made before attachment. first to file has priority even though later party made advances first and first party knew it |
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Term
| How to tackle secured v. secured problems on the bar |
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Definition
Take the assets the question asks about
name the assets
determine the claimants
determine the claimants status (ex: perfected secured party, unperfected secured party, lien creditor etc)
determine which claimant has top priority
why? (state the rule)
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Term
Secured party v secured party
What is the exceptions that first to file or perfect wins? |
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Definition
super priority (second in time prevails)
investment property exception
priority in proceeds
fixtures and accessions |
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Term
Secured party v secured party
Exceptions to general rule
Super priority situations? |
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Definition
PMSI in inventory, chattel paper proceeds or instruments proceeds
PMSI in equipment and proceeds
Purchaser of chattel paper (with possession) takes priority over non-possessory secured party as proceeds of inventory |
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Term
Secured party v secured party
Exceptions to general rule
Super priority
What must be given to get super priority in PMSI in inventory, chattel paper proceeds or instruments proceeds? |
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Definition
Notice (given by creditor to earlier perfected secured party)
There is NO grace period (must be perfected before debtor gets possession) |
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Term
Secured party v secured party
Exceptions to general rule
Super priority
What must be given to get super priority in PMSI in equipment or equipment proceeds? |
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Definition
No notice required
can have a grace period (can be perfected before or within 20 days after debtor gets possession)
NOTE: conflicting PMSI's: A secured party who has a PMSI in collateral as a seller has priority over a secured party who has a PMSI in the same collateral as a lender |
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Term
Secured party v secured party
Exceptions to general rule
investment property exception |
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Definition
| with investment property, secured party with control (or alternatively, with possession) prevails over secured party who filed- even if the control was later, and the secured party knew of the prior perfected (by filing) security interest |
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Term
Secured party v secured party
Exceptions to general rule
Priority in Proceeds
How are proceeds divided in order to determine priority? |
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Definition
| divided into "filing collateral" and "non-filing collateral" |
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Term
Secured party v secured party
Exceptions to general rule
Priority in Proceeds
What is filing collateral? |
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Definition
| filing collateral is collateral in which a secured party would normaly achieve priority by filing a financing statement (ie goods, accounts, commercial tort claims, general intangibles, and nonnegotiable documents) |
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Term
Secured party v secured party
Exceptions to general rule
Priority in Proceeds
What is non-filing collateral? |
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Definition
| non-filing collateral is collateral in which a secured party would normally achieve priority by possession or control, rather than filing (ie: chattal paper, deposit accounts, negotiable documents, instruments, and investment property) |
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Term
Secured party v secured party
Exceptions to general rule
Priority in Proceeds
Special rule |
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Definition
generally, under the first to file or perfect rule, a perfected security interest in proceeds will have the same date of priority as the perfected security interest in the original collateral, as long as the perfection of the security interest in the proceeds extends beyong the 20 day temporary perfection period.
B/c the rules governing priority in non-filing collateral contain many exceptions to the first to file or perfect rule the UCC contains a special priority rule for certain proceeds of that collateral.
A secured party has priority in the proceeds of non-filing collateral if:
(1) she has priority in the original collateral
(2) her security interest in the proceeds is perfected, and
(3) the proceeds are cash proceeds or proceeds of the same type as the original collateral
If the proceeds are proceeds of proceeds, all intervening proceeds must be cash proceeds, proceeds of the same type as the original collateral, or accounts relating to the collateral |
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Term
Secured party v secured party
Exceptions to general rule
Fixtures
What are they? |
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Definition
| personal property which become part of the realty by affixing |
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Term
Secured party v secured party
Exceptions to general rule
Fixtures
exception for fixtures |
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Definition
PMSI secured party who makes fixture filing w/in 20 days will prevail over prior real estate filing
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|
Term
Secured party v secured party
Exceptions to general rule
Fixtures
Exception to the fixtures exception? |
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Definition
| a construction mortgagee prevails so long as recorded before the goods became fixtures, and goods became fixtures before the completiong of construction |
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|
Term
Secured party v secured party
Exceptions to general rule
Accessions
What are they? |
|
Definition
|
|
Term
Secured party v secured party
Exceptions to general rule
Accessions
Rule for accessions |
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Definition
| The general rules of first to file or perfect, with PMSI superpriority, apply |
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|
Term
Secured party v secured party
Exceptions to general rule
Accessions
Exception for accessions |
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Definition
| if accession (ie motor) become part of whole asset subject to certificate of title law (automobiles), the security interest in the whole (car) has priority over the security interest in the accession |
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Term
Rights upon default
collection and enforcement by secured party
general rule: |
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Definition
generally, secured party gets rights as against the debtor, and any other person obligated to make payment (ie guarantor)
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Term
rights upon default
collection and enforcement by secured party
collection rights of secured party: |
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Definition
| with non-goods collateral (ie accounts) where agreed, the secured party is entitled to notify the account debtor to make payment to her rather than the debtor in default |
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Term
rights upon default
possession and disposition by secured party (nonjudicial foreclosure)
ways to get possession? |
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Definition
self-help (without breach of peace)
OR
replevin (action to get property back) |
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Term
rights upon default
possession and disposition by secured party
disposition (sell it) |
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Definition
was the sale commercially reasonable? (very subjective)
form of notification (safe harbor form) |
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Term
Rights upon default
possession and disposition by secured party
disposition
form of notification
to whom? |
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Definition
| unless the collateral is perishable or threatens to decline rapidly in value or is of a kind ordinarily sold in a recognized market, the secured party must give an authenticated (sworn) notice to the debtor and secondary obligor and other persons from which the secured party has received notice of a claim |
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Term
Rights upon default
possession and disposition by secured party
disposition
form of notification
what does the notification need to contain-nonconsumer goods? |
|
Definition
describe debtor and secured party
collateral
method of disposition
time and place of disposition |
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Term
Rights upon default
possession and disposition by secured party
disposition
form of notification
what does the notification need to contain-consumer goods? |
|
Definition
notice mandatory for consumer goods, no good faith exceptionl, statutory damages for noncompliance
liability for deficiency judgment
telephone number for redemption (can pay off before sale)
telephone number for additional information |
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|
Term
rights upon default
noncompliance |
|
Definition
liability for damages for loss caused by failure to comply (plus $500 for each case of noncompliance)
if consumer goods:
10% of the purchase price, and
all interest charges to be paid over the life of the loan (Credit service charge) |
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Term
rights upon default
acceptance of collateral in full (or partial) satisfaction (strict foreclosure)
nonconsumer goods: |
|
Definition
parties can agree to voluntary turnover in return for an agreed credit against the debt with the debtor acknowledgeing remaining deficiency
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Term
rights upon default
acceptance of collateral in full (or partial) satisfaction (strict foreclosure)
consumer goods: |
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Definition
| parties can agree to voluntary turnover in return for full satisfaction only |
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|
Term
rights upon default
application of proceeds of sale (what do to with the money?)
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Definition
these go in order:
1. expenses of retaking, holding, preparing, and disposing of collateral (including attorney fees)
2. satisfaction of obligation secured by security interest
3. satisfaction of obligation secured by subordinate security interest if secured party received demand
4. debtor or trustee |
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