Secured Transactions Bar Exam - Bar Exam Outlines

Secured Transactions

BASIC APPROACH

• Classify the collateral

• Determine if a security interest has been created, ie. Attachment

• Determine if the security interest has been properly Perfected

• Determine the persons who are making claims to the collateral

• Apply proper Priority rules and rules regarding Repossession

SCOPE OF ARTICLE 9

• Subject Matter of Article 9

  • Is the transaction within the scope of Article 9

    • Collateralized Transaction

      • Any transaction (regardless of its form) which is intended to create a security interest in PERSONAL PROPERTY or FIXTURES

      • Property Types:

        • Already owned by debtor

        • To be acquired with loan= Purchase Money Security Interest (PMSI)

        • After Acquired

• Sales of Receivables

  • Outright sale of accounts, chattel paper, payment intangibles, and promissory notes are covered by Article 9

• Consignments

  • Consignments which must comply w/ Article 9

    • Consigned goods are worth a total of $1000 or more, AND

    • The consignor did not use the goods for personal, family, or household purposes, AND

    • Potentially Deceptive Consignee (not pawn shop)

      • Consignee deals w/ goods of that kind under a name other than the consignor's name

      • Consignee is not an auctioneer, and

      • Consignee is not generally known by consignee's creditors to be substantially engaged in selling consigned goods

• Agricultural Liens Created by Statute

• Lease-Purchase Agreements

  • Does not govern true leases of personal property

  • BUT, a lease which is actually an installment sale is covered

    • Ex. Lessee cannot terminate lease AND:

    • Lease term is equal to or greater than remaining economic life of goods, or

      • Lessee owns property at end of lease term, or

      • Lessee has option to buy for nominal consideration at end of lease term

• Exclusions from Article 9

  • Rights Governed by Federal Law prevail

    • Ie. ships, planes, railroad engines

  • Real Property (except Fixtures)

  • Tort Claims

    • BUT, commercial tort claims, business claims not involving personal injury are covered (unfair competition)

  • Statutory Lien

    • Landlord lien, mechanics liens

  • Wage Assignments

CLASSIFICATION OF COLLATERAL

• Overview

  • Mutually Exclusive

    • Any particular item can only be one type of collateral

  • Debtor's Use Determinative

    • Classify collateral from Debtor's perspective

• Goods

  • In General

    • Moveable Items & Fixtures

    • Specific Inclusions= goods

      • Standing timber

      • Growing Crops

      • Unborn young of Animals

    • Specific Exclusions= Not Goods

      • Money

      • Minerals In Place Before Extraction

      • Collateral that Fits Other Categories (8 other)

• Classification of Goods (4 Types)

• Consumer Goods

  • Personal, family, or household purposes

• Equipment

  • Goods used or bought for use primarily in business (including farming or a profession)

  • Equipment= DEFAULT CATEGORY: if good doesn’t fit other category then deemed equipment

• Inventory

  • Goods held for sale or lease in the ordinary course of business

  • Raw material & work in progress

  • Consumed materials

    • At law firm your papers, pencils, pens, yellow pads, ink cartridges, etc.

• Farm Products

  • Ex. Cows, corn, turkey, pigs, wheat, eggs even in carton (until at store)

  • To be a farm product, 2 Elements

    • In possession of farmer engaged in farming operations, AND

    • In an UN-MANUFACTURED condition

• Multiple Uses

  • Principal use determinative
    

• Semi-Tangible & Intangible Collateral

  • Instruments

    • Instruments represent MONEY

      • Ex. Commercial paper, check, notes, drafts, certificate of deposit

  • Documents

    • Writing that represents goods

      • Warehouse Receipt- goods in storage

      • Bill or Lading- goods in transit

• Chattel Paper

  • Single writing or group of writings evidences 2 Things

    • Monetary Obligation (eg. Promisorry note), PLUS

    • Security interest in or Lease of Goods

• Account

  • Any right to payment of money for goods sold or leased or for services rendered NOT evidenced by an instrument or chattel paper

  • Typical ACCOUNTS RECEIVABLE of a business- what clients owe you

  • Includes contract rights which have not yet been earned by performance

  • Includes computer software license fees and credit card receivables

• Deposit Accounts

  • Checking & Saving Account

• Investment Property

  • Wall Street Stuff

    • Stocks, bonds, mutual funds

• Commercial Tort Claims

  • Business tort claims that don’t involve personal injury

    • Ex. Unfair competition claim

• General Intangibles

  • Any other type of personal property except money

    • Ex. Patents, copyrights, trade name, liquor license

• Proceeds

  • Proceeds are whatever is received upon the sale, exchange, collection or other disposition of collateral or proceeds

    • Proceeds may include collateral a creditor could not have a security interest in if originally used as collateral, such as cash

ATTACHMENT

• Three Elements (VCR)

  • Creditor Gave Value

  • Contract- The Security Agreement

  • Debtor has Rights in collateral

NO Attachment till have ALL elements satisfied

• Creditor Gives Value

  • Money, goods on credit, etc.

• Contract- The Security Agreement

  • Contract between the debtor and creditor in which debtor gives creditor a security interest in the collateral

  • Methods of Proving Security Agreement

    • Oral

      • ONLY if collateral is in creditor's possession

        • Ex. Pledge (pawn shop)

        • Creditor must take reasonable care of collateral

• Authenticated Record (Most Common)

  • Evidence of Record

    • Written or electronic

    • Signed or marked w/ present intent to identify the DEBTOR and adopt the agreement

  • Description of Collateral

    • Must reasonably identify the property, to make it clear what can be repossessed if default

      • Consumer goods & tort claims may not be described by type alone

      • Super-generic descriptions not allowed: ie. "all my personal property"

• Control

  • Security agreement may be demonstrated by control if the collateral is deposit accounts, electronic documents or chattel paper, or investment property

    • Control basically means creditor has right to sell or cash in the collateral w/o further action from debtor

    • NOTE:

      • Blank endorsement, special endorsement on check

• Debtor Has Rights in The Collateral

  • Rights like ownership or identification to a contract

  • Cant use other person's property as collateral w/o their permission

• After-Acquired Property

  • Using New Property As Collateral For Old Loan

    • Debtor can agree that new acquisitions or property will serve as additional collateral for an old loan

      • Referred to as Floating Loan and very common with INVENTORY

• Consumer Goods Exception- 10 day limitation from creditor giving value

  • An after-acquired property clause will work only for consumer goods acquired w/in 10 DAYS of creditor giving value

• Commercial Tort Claim Exception

  • After-acquired property clauses wont work w/ commercial tort claims

• Future Advances

  • Debtor can agree that the collateral will serve as collateral for new loans, as well as the current loan

    • Line of Credit

    • Looks for words "serve as collateral for current debt/obligation to creditor and any new or hereafter accruing debt/obligation to creditor"

PERFECTION

• Elements of Perfection

  • Attachment

    • Value

    • Contract

    • Rights

  • Act of Perfection

    • Appropriate act depends on type of collateral.

• Perfection by Possession

  • Almost all collateral may be Perfected by Possession

    • Puts world on notice

  • Exceptions (nothing to possess)

    • Accounts

    • Deposit accounts

    • Nonnegotiable documents

    • Electronic chattel paper

    • General intangibles

  • Loss of Possession

    • General Rule

      • Perfection is lost when possession by creditor is lost

    • 20 day exception for Instrument, Negotiable Documents, & Certified Securities

• Filing of Financing Statement- UCC-1

  • Almost all collateral may be Perfected By Filing

  • Exceptions

    • Deposit accounts

    • Money

  • Requirements of Financing Statement (puts on inquiry notice)

    • Names of Debtor & Creditor

      • Debtor:

        • Individual= individual name

        • Registered Organization= Name under which entity organized

        • Trade Name of Sole Proprietorship= not sufficient, unless extremely similar

      • Change in Debtor name

        • Collateral debtor has at time of name change= perfection continues

        • Collateral debtor obtains w/in 4 months of change- Perfection continues

        • Collateral debtor obtains after 4 months of change- perfection ends unless refiled under new name w/in the 4 months period

    • Addresses of Debtor & Creditor

      • Unless financing statement accepted by filing office

    • Debtor's Authorization (signed/electronic) in an Authenticated Record

      • Cant be oral

      • Authorization of financing statement is automatic if debtor authenticated the underlying security agreement

      • Debtor can authorize the filing statement after filing

    • Description of Collateral

      • Broader than w/ security agreement

      • "all assets" possible

      • After-acquired property automatically included if fits w/in description

    • Description of the Land if Collateral is Timber, Mineral, Fixtures, or Crops

  • Errors in Financing Statement

    • Minor errors that are not seriously misleading are excused

  • Place of Filing

    • General Rule= County Clerk Office of Oklahoma County

    • Fixtures, Mineral, Timber= County where mortgage on real...