Secured Transactions

Question 1

Scope of Article 9

Answer 1

Article 9 of the UCC applies to consensual security interests in peronalty (goods) or fixtures

Question 2

Categories of Tangible Goods

Answer 2

1. Consumer goods - those items used for personal or familial purposes
2. Equipment - items used in business
3. Inventory
4. Farm Products
5. Fixtures - items annexed to realty

Question 3

Attachment of Security Interest

Answer 3

Creation of an enforceable security interest

Requires:

1. Value must be given by the creditor (e.g., the loan)
2. a Contract (called the Security Agreemnt or Record) must evidence the secured transaction
   
   • in Writing, unless secured party has taken possession of the collateral
   • Signed by debtor and reasonably identify the collateral (generic descriptions not allowed)
3. Debtor must have Rights in the collateral

Question 4

After-Acquired Collateral Clauses

Answer 4

After-acquired collateral clauses (floating liens) are enforceable, except for consumer goods

E.g., a security interest “in all inventory, whether now held or hereafter acquired.”

Question 5

Perfection of Security Interest

Answer 5

Perfection is publication of the security interest – giving the world record or constructive notice.

How to attain perfection:

1. Taking possession of the collateral
2. Automatic perfection for Purchase-Money Security Interests (PMSIs) in consumer goods
3. File Notice of Security Interest in the public records (generally, with Secretary of State where debtor is located)
   
   • Financing Statement (simple and sparse) including
     
     • debtor’s name and address
     • creditor’s name and address
     • descprition of collateral (can be super-generic)
       *

Question 6

Priority: General Rules and Players

Answer 6

Generally, take in this order:

• BIOC - Buyer in the Ordinary Course
• PAC - Perfected Attached Creditor
• LC - Lien Creditor
  
  • General unsecured creditor who gets a judicial lien on collateral
• NOCie - Non-Ordinary Course Buyer
• AUPie - Attached Unperfected Creditor
  
  • loses to any buyer without knowledge of the security interest
• GUC - General Unsecured Creditor

Question 7

AACF PAC vs PMSI-holder

Answer 7

• An After-Acquired Collateral Financier (holder of a floating lien)
• If PMSI collateral is equipment
  
  • PMSI-holder can achieve first priority by filing within 20 days of debtor taking possession
• If PMSI collateral is for inventory
  
  • PMSI-holder can achieve first priority by filing befor debtor takes possession and notifying AACF PAC

Question 8

Default

Answer 8

Debtor has breached the Security Agreement (breach of contract)

• Look to contract
• Self-help repossession allowed, so long as it does not breach the peace; breach of peace=action likely to cause violence or over any protest by debtor
• Repossession by Judicial Action: get a writ from the court to be exectued by the sheriff
• Strict Foreclosure
• Sale
• Action for Deficiency Judgment

Question 9

Strict Foreclosure

Answer 9

Secured party retains collateral in full satisfaction of remaining debt

How to strictly foreclose:

• Consumer goods: Notice is sent to debtor and any secondary obligor
• Not Consumer goods: Notice is sent to debtor, known other secured interest holders, perfected creditors, and secondary obligors
• If any objection within 20 days, can’t strictly foreclose

Not allowed if collateral is consumer goods and debtor has paid 60% of the loan or 60% of the cash price in the case of PMSI

Question 10

Sale (Secured Transactions)

Answer 10

In case of breach, secured party can sell collateral and apply proceeds to the debt

• Every aspect of sale must be commercially reasonable
• Notice:
  
  • Consumer goods - sent to debtor and secondary obligors
    
    • must include how to calculate deficiency and how debtor can redeem
  • Other goods - sent to debtor, known secured interest holders, perfected creditors, and secondary obligors
• Public sale
  
  • Time and place must be included in notice
• Private sale
  
  • Notice must include time after which the sale will be made
• Secured party can by at public sale, but at private sale only if there are external market checks

Question 11

Action for Deficiency Judgment

Answer 11

If sale insufficent to cover debt, secured party may seek an action for a deficiency judgment

Question 12

Debtor’s Limited Right of Redemption

Answer 12

Right to redeem cut off once the collateral is sold or strict foreclosure is completed

To redeem, debtor must pay all missed payments, accrued interest, and reasonable expenses (including atty fees)

Accerlation Clauses are valid