Secured Transactions Bar Exam Outline

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...

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