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Secured Transactions - Barbri
Terms in this set (102)
Problem with Being an Unsecured Creditor?
All you get is a mere promise to repay.
If the debtor fails to pay, the creditor must bring suit, get a judgment, and have the sheriff seize enough of the debtor's non-exempt property to satisfy the judgment. This is expensive and time-consuming.
And debtor may not have enough non-exempt property for this to work in your favor/fight other creditors. Remedy? USC's charge you higher interest rates!
Great Framework to Keep in Mind for Exam!
1. Is the transaction within scope of Article 9?
2. Classify the collateral.
3. Determine if a security interest has been created, that is, has attachment occurred.
4. Determine if the security interest has been properly perfected.
5. Determine the persons who are making claims to the collateral.
6. Apply proper priority rules and rules regarding repossession.
Transactions within the Scope of A9?
1. Collateralized Transaction - Any transaction (regardless of its form) which is intended to create a security interest in personal property or fixtures.
The property used as collateral may be: already owned by the debtor; to be acquired with a loan, that it, a purchase-money security interest (2 ways to do this: seller financed and TP financed; with TP want to guarantee the money actually spent on item financed, usually write a direct check); After-acquired.
2. Sales of Receivables - The outright sale of accounts, chattel paper, payment intangibles, and promissory notes are covered by Article 9.
4. Agricultural Liens Created by Statute - Article 9 covers agricultural liens, that is, nonpossesory liens on farm products such as crops and livestock created by state law in favor of a person who provides goods or services to a farmer.
5. Lease-Purchase Agreements
Special Concepts to Watch for b/c they have lots of special rules/exceptions!
2. Future Advances
A consignment is a bailment by the owner/bailor/consignor under which the
bailee/consignee has authority to sell.
To the world, consignee appears to own the goods and thus the true owner (consignor) may be required to comply with Article 9 to gain protection over
consignee's other creditors.
Which consignments have to comply with A9?
3 Elements Required:
a. Consigned goods are worth a total of $1,000 or more, and
b. The consignor did NOT use the goods for personal, family, or household
c. Potentially Deceptive Consignee
Who is a potentially deceptive consignor?
The consignee must be in a position to deceive potential creditors with the consigned goods.
(1) Consignee deals with goods of that kind under a name other than the consignor's name,
(2) Consignee is not an auctioneer, and
(3) Consignee is not generally known by consignee's creditors to be substantially engaged in selling consigned goods.
When is a Lease within A9 scope?
Examples of evidence of secured transaction:
Lessee cannot terminate the 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.
What is excluded from A9?
1. Rights governed by federal law
2. Real Property (except fixtures)
3. Tort claims (except commercial tort claims)
4. Deposit Accounts in Consumer Transactions!!****
5. Statutory Liens
6. Wage Assignments
Key Caveats About Collateral Classification to Keep in Mind?
1. Many rules regarding perfection, priority, repossession, resale, etc. depend on the type of
2. Mutually exclusive — Any particular item can be only one type of collateral.
3. Debtor's use determinative — Classify collateral from the debtor's perspective.
What is a good under A9?
All movable items and fixtures @ time of attachment of security interest.
Specifically included: standing timber; growing crops; unborn young of animals.
Specifically excluded: money; minerals BEFORE extraction; collateral in other categories.
4 types of goods?
1. Consumer Goods - personal, family, or HH purposes.
2. Equipment - goods used or bought for use primarily in business (includes farming or a profession) (includes goods by non-profit or govt entity)
Default category - if a good does not fit within the other three categories, then it is deemed to be equipment.
3. Inventory: (1) Goods held for sale or lease in the ordinary course of business; (2) Raw material & work in progress; (3) Consumed materials
4. Farm Products
Requirements to qualify as a farm product?
To be a farm product, two requirements must be satisfied:
(1) In possession of the farmer engaged in farming operations (i.e. ONLY the farmer who grew it or raised it can have a farm product), and
(2) In an unmanufactured condition (pasteurizing milk probably OK, but making ice cream probably isn't)
Key to note re classification of collateral?
Multiple Uses? PRINCIPAL USE is determinative.
Other Items that fall w/in A9 scope but are NOT goods?
1. Instruments (these represent cash)
2. Documents (these represent documents of title under A7)
3. Chattel Paper
4. Accounts - Any right to the payment of money for goods sold or leased or for services rendered NOT evidenced by an instrument or chattel paper
5. Deposit Accounts (your regular checkings/savings/CD's)
6. Investment Property (stocks, bonds, mutual funds, brokerage accounts, commodity K's)
7. Commercial tort claims
8. General Intangibles (any other type of personal property, EXCEPT money; i.e., INCLUDES copyright, patents, liquor license, good will, computer source code, electronic cooperative capital credits)
What is chattel paper?
Single writing or group of writings evidencing two things:
a. Monetary Obligation (e.g., promissory note), PLUS
b. Security Interest in or Lease of Goods
What do accounts include?
The typical accounts receivable of a business - what your clients will owe you.
Includes contract rights which have not yet been earned by performance.
Includes computer software license fees and credit card receivables.
Key definition to know! What are proceeds?
Proceeds are whatever is received upon the sale, exchange, collection or other disposition of collateral or proceeds.
Special rule to know about proceeds?
Proceeds may include collateral a creditor could not have a security interest in if originally
used as collateral, such as the cash in the above example.
Definition of Attachment?
Attachment is the process by which a security interest is created and becomes enforceable against
the debtor so the creditor can repossess the collateral if the debtor does not pay.
Elements of Attachment (VCR)?
Three elements (VCR):
1. Value - Creditor gave Value
2. Contract — The security agreement
3. Rights - Debtor has Rights in collateral
The elements of attachment may occur in any order.
No attachment until ALL elements satisfied.
How do you prove a security agreement?
3 different methods:
1. Oral (pledge) - SA can only be oral if the collateral is in the creditor's possession. Creditor duty of reasonable care of collateral.
2. Authenticated Record
3. Control (works for nonconsumer deposit accounts, electronic chattel paper, or investment property). Control basically means the creditor has the right to sell or cash in the collateral without further action from the debtor (think of a stock certificate converted into bearer certificate with special endorsement)
Requirements to have authenticated record?
Requirements of an authenticated record:
a. Evidence of Record
Record may be written or electronic as long as it is signed or marked electronically with present intent to identify the debtor and adopt the agreement.
b. Description of Collateral
Description must reasonably identify the property, that is, make it clear what property the creditor may repossess if the debtor defaults.
What is a reasonable description of collateral as necessary for a Authenticated Record?
1. Rule is REASONABLE id, not EXACT id, so a minor error in serial no. will NOT be fatal.
2. Description is adequate if the description may be by category or type, quantity, computational formula, or any other method which is objectively determinable. BUT this does NOT work for consumer goods and commercial tort claims (need a more specific description for these).
3. Supergeneric descriptions will fail, i.e. "all my personal property" is NO GOOD.
Special rule re "Debtor Giving Value" re After-Acquired Property?
Called a "floating lien."
Key to note: NO attachment of security interest until the debtor actually buys the inventory.
Consumer Good Exception - An after-acquired property clause will work only for consumer goods acquired within 10 days of the creditor giving value.
Commercial Tort Claim Exception - DOESN'T WORK FOR commercial tort claims.
Definition of Future Advance?
Debtor can agree that the collateral will serve as collateral for new loans, as well as the current loan. A line of credit arrangement.
Key Essay Tips re Whether need to discuss perfection?
If the fight is between the debtor and the creditor, go to the default analysis. The creditor will usually prevail if the creditor has attached.
If fight is between the creditor and a third party claiming the same collateral, perfection is relevant.
Perfection is the process by which the creditor protects the security interest from most other claimants to the same collateral.
Elements of Perfection?
2. Act of Perfection
What are the 6 different methods of perfecting?
Filing; Automatic Permanent; Possession
Control; Automatic Temporary; Notation
a. Possession of Collateral by Creditor
b. Filing of Financing Statement by Creditor
c. Automatic Permanent— attachment alone is sufficient
d. Automatic Temporary — attachment alone sufficient for short period of time
f. Notation of Security Interest on Certificate of Title
Perfection by Possession?
1. Almost All Collateral May be Perfected by Possession
2. Loss of Possession:
a. General Rule - If the creditor no longer has possession of the collateral, perfection is LOST :(
b. Twenty Day Exception for Instruments, Negotiable Documents, and
(Discussed later with temporary automatic perfection.)
What types of collateral may NOT be perfected by possession?
electronic chattel paper
Perfection by filing financing statement?
1. Almost All Collateral May be Perfected by Filing
What types of collateral may NOT be perfected by filing?
The following types of collateral may not be perfected by filing:
What is required to have a valid financing statement?
a. Names of Debtor and Creditor
b. Addresses of Debtor and Creditor (Exception: If financing statement is accepted by filing office.)
c. Debtor's Authorization in an Authenticated Record (The authorization CANNOT be oral; Authorization of the financing statement is AUTOMATIC if the debtor authenticated the underlying security agreement; Debtor may authorize financing statement after filing)
d. Description of the Collateral (The description may be in broader terms than the security agreement such as "all assets." After-acquired property covered by the security agreement that fits within the description is automatically included.)
point of the filing statement is NOTICE, so ok if have a broader description than what it says in your SA with debtor.
e. Description of the Land if the Collateral is Timber, Minerals, Fixtures, or Crops
What result if error in the financing statement?
Minor errors that are not seriously misleading are
Designation of Debtor (the Debtor's Name)
a. Individual = Individual's Name (as on driver's license is sufficient)
b. Registered Organization (corporation, partnership) = name under which entity organized
c. Trade Name = not sufficient, unless extremely similar to the debtor's name. (A trade name will work only if the name is SO SIMILAR to the debtor's name that the financing statement would be discovered in a search of the Secretary of State's records in response to a request using the debtor's name)
Change in the Debtor's Name?
a. Collateral Debtor Has at the Time of the Name Change — Perfection Continues
b. Collateral Debtor Obtains Within Four-Months of Name Change — Perfection Continues
c. Collateral Debtor Obtains After Four Months of Name Change — Perfection Ends Unless Refiled Under New Name Within the Four Month
Where to file the FS?
a. General Rule = Secretary of State's Office in Austin
b. Fixtures, Minerals, and Timber to Be Cut = County Where Mortgage on Real Estate Would Be Filed
How long does the FS last?
A financing statement is effective for 5 years from the date of filing.
Important exception: A recorded real property mortgage covering fixtures continues UNTIL the mortgage is released or satisfied.
What to do if you want to extend effective period of your financing statement?
To extend the effectiveness of a filing, the creditor should file a continuation statement within 6 months prior to the expiration date and BEFORE the 5 years expires.
How do you terminate a financing statement?
Consumer Goods = REQUIRED. The creditor must file a termination statement in a timely manner, that is, the earlier of: (1) Within 20 days after the debtor's written demand; or (2) Within one month after there is no outstanding secured obligation or commitment to make advances, even without a demand from the debtor.
Non-consumer Goods = ONLY upon debtor's request. Creditor must provide the debtor with a termination statement within 20 days of written demand. The DEBTOR has the responsibility of filing the termination statement and must incur the cost.
Penalty for Fraudulent Filing?
A person may not file a financing statement the person knows is forged, contains a material false statement, or is groundless.
Minimum penalty = $5,000 plus court costs and reasonable attorney's fees.
Don't have to prove ANY actual damages and guaranteed to clear $5,000!
Automatic Permanent Perfection?
1. PMSI in Consumer Goods (Warning — this special purchase-money security interest rule is only for consumer goods that are NOT either certificate of title items or fixtures.) So probably won't work for a car!
2. Assignment of Insignificant Amount of Debtor's Accounts
3. Sale of Promissory Notes
Automatic temporary perfection?
1. Proceeds: Are automatically perfected for 20 days from the debtor's receipt of the proceeds.
2. New Value for Instruments, Negotiable Documents, and Certified Securities: Creditor is automatically perfected for 20 days (a grace period to perfect using normal methods) from time of attachment if the creditor gave new value. *
Good to see example on pg. 19 for this
3. Delivery of Instrument, Negotiable Document, or Certified Security to Debtor
for 20 Days For Certain Purposes Examples of these purposes include for sale, exchange, or presentation of the collateral. *
Good to see example pg. 20 for this
What can be perfected by control?
Investment Property, Nonconsumer Deposit Accounts, Electronic Documents, and Electronic Chattel Paper
Special rule for control of deposit accounts?
If a deposit account, secured party has control if the secured party is the bank in which the deposit account is maintained.
What is perfected by notation on certificate of title?
1. Motor vehicles
3. Manufactured Housing
When is notation of certificate of title adequate for perfection?
1. Perfection if Collateral is Consumer Goods or Equipment = notation of security interest on certificate of title
2. Perfection if Collateral is Inventory = file or take possession (rationale - not fair to make dealers keep track of all these certificates of title!)
Special Rules for Proceeds?
1. General Rule: Perfection continues for 20 days
2. When Perfection Continues Beyond 20 Days :)
a. Same Office? Original security interest perfected by filing and a financing statement covering the proceeds would be filed in the same place as the original collateral.
b. Identifiable Cash Proceeds (perfected as long as the cash remains identifiable)
c. Proceeds Perfected Within the 20 Day Period (The perfection could occur without further action on the creditor's part or the creditor might need to take action to perfect.)
What state law do you use to determine whether a creditor is perfected?
1. General Rule: Law of the state where the debtor is located. For an individual = principal residence. For Registered Org = Law of state where organized. For Unregistered Org = place of business, but if more than one place of business, chief executive office.
2. Exceptions #1: Have to follow law of collateral's location IF:
a. Security Interests perfected by possession
d. Agricultural Liens = Law of state where farm product covered by the lien is
3. Exception #2: Certificate of Title Items = Law of state which issued most recent certificate of title
4. Exception #3: Deposit Accounts = Law of state in which bank has its chief executive office
What do you do if a debtor or debtor's collateral changes states?
a. General Rule = If debtor moves, perfection continues for four months
b. Perfection by Possession = Perfection continues as long as perfected under new state's law
c. Certificate of Title Items = Perfection continues for as long as it would have under the original certificate of title
2 Step Analysis for Priority Fight?
Two step process:
1. Classify persons claiming the collateral.
2. Determine who prevails.
If more than two claimants, pick any two, determine who has priority, and then pit the
winner against one of the remaining claimants. Continue in a similar manner until you determine who has top priority. Repeat the process to determine number two, three, etc
UOA - re Priority?
Subordination Agreement: By contract, the competing parties may agree to a priority order different from the normal
rules. This is called subordination.
SECURED PARTY vs. SECURED PARTY?
1. Both Creditors Unperfected = first to attach prevails
2. One Creditor Perfected = perfected creditor prevails (Knowledge of prior unperfected security interest doesn't harm)
SECURED CREDITOR vs. UNSECURED/GENERAL CREDITOR?
Secured creditor prevails.
Perfected status of secured creditor is IRRELEVANT
Rule for SECURED PARTY vs. SECURED PARTY where both are PERFECTED?
General Rule = first creditor to either (1) file or (2) perfect
First creditor to do the first of filing or perfecting prevails (not both)
Doesn't matter which creditor first had a security agreement with the debtor.
Doesn't matter which creditor ATTACHED first.
Doesn't matter which creditor PERFECTED first if one creditor filed before that perfection.
Knowledge of Creditor A who filed first that Creditor B has subsequently filed and perfected, but before Creditor A perfects, is IRRELEVANT.
Policy: to promote reliance on the filing system so that creditors in the position of Bank A can check to see that the debtor's assets are unencumbered, file
a financing statement, and then loan the money with confidence that it has priority without having to continuously recheck the records.
Exception #1 to General Rule for SECURED PARTY vs. SECURED PARTY where both are PERFECTED?
Exception if One Creditor Has Purchase Money Security Interest in Goods (other than inventory and livestock):
The purchase-money security interest creditor prevails (even though second in time) if
it is perfected:
(1) at the time the debtor receives possession of the collateral, or
(2) within 20 days of when the debtor received possession of the collateral.
Exception #2 to General Rule for SECURED PARTY vs. SECURED PARTY where both are PERFECTED?
Exception if One Creditor Has Purchase-Money Security Interest in INVENTORY:
Purchase-money security interest creditor prevails if:
(1) Purchase-Money Security Interest Creditor Perfected AT TIME Debtor Receives Possession of the Inventory, AND
(2) Proper Notice to Holders of Conflicting Security Interests:
Authenticated notification to all creditors who have already filed with respect to the collateral.
This notice must:
explain that the creditor is obtaining a purchase-money security interest in INVENTORY;
describe the collateral, and
be given BEFORE the debtor receives possession of inventory
Key to Note: The notice is effective for deliveries of the same type of collateral for 5 YEARS
Exception #3 to General Rule for SECURED PARTY vs. SECURED PARTY where both are PERFECTED?
Exception if One Creditor has a Purchase-Money Security Interest in Livestock:
Basically, apply the same rules as for purchase-money security interest in inventory.
Exception #4 to General Rule for SECURED PARTY vs. SECURED PARTY where both are PERFECTED?
Exception for Deposit Accounts
Secured party with CONTROL prevails.
Exception #5 to General Rule for SECURED PARTY vs. SECURED PARTY where both are PERFECTED?
Secured party who has control over investment property has priority over a secured party who does not have control (e.g., a secured party who perfected by filing). **Good to see example of this on pg. 27 of lecture handout!
SECURED PARTY vs. DONEE?
If the debtor makes a gift of the collateral to a donee, the collateral remains subject to the
security interest in the donee's hands.
General Rule: SECURED PARTY vs. PURCHASER?
General Rule = secured party prevails
Exception #1 to General Rule: SECURED PARTY vs. PURCHASER?
Debtor has Permission to Sell = purchaser prevails
Exception #2 to General Rule: SECURED PARTY vs. PURCHASER?
Secured Party Unperfected at Time of Purchase:
Purchaser wins if:
(1) Buyer gives value,
(2) Buyer receives delivery of the item, and
(3) Buyer has NO KNOWLEDGE of security interest at time of delivery.
Exception to the Exception? If purchase-money security interest creditor perfects within 20 days after debtor receives the collateral but after debtor sells collateral to purchaser, creditor will prevail over the "gap" purchaser.
Exception #3 to General Rule: SECURED PARTY vs. PURCHASER?
A buyer in the ordinary course of business can prevail even over a perfected creditor
if the following requirements are satisfied:
a. Good Faith (Honesty in fact and observance of reasonable commercial standards)
b. Without Knowledge of a Security Interest Violation
c. Purchase of Goods that are Not Farm Products
d. Ordinary Purchase (Purchase must be from a person in the business of selling goods of the kind)
e. Security Interest Created by the Seller (Buyer is only free of security interests created by the immediate seller to the buyer!!)
f. Creditor Not Perfected by Possession
Exception #4 to General Rule: SECURED PARTY vs. PURCHASER?
Consumer Purchaser of Consumer Goods Exception (Garage Sale Exception):
Purchaser prevails if:
a. Consumer goods in Seller's hands.
b. Consumer goods in Buyer's hands.
c. Buyer has no knowledge of security interest.
d. Buyer pays value.
e. Creditor Not Perfected by Possession
f. Creditor's interest is UNFILED prior to purchase
Exception #5 to General Rule: SECURED PARTY vs. PURCHASER?
The creditor gives more money to the debtor based on collateral that the debtor has
ALREADY sold to a purchaser who does not qualify as a buyer in the ordinary course of
A non-buyer in the ordinary course of business CAN prevail over a secured creditor for
future advance amounts (not the prior advances) made AFTER the FIRST of these events occurs:
a. Secured creditor obtains knowledge of the purchase, OR
b. 45 days have elapsed from the date of the purchase.
Good to see example of this on pg. 31 of lecture handout!
Exception #6 to General Rule: SECURED PARTY vs. PURCHASER?
Holder in Due Course of Negotiable Instrument:
A holder in due course will prevail over earlier perfected interests in the negotiable
What is a lien creditor?
General (unsecured) creditors who have acquired a judicial lien by a levy on the debtor's property. The term also includes the bankruptcy trustee.
General Priority Rules for SC vs. Lien Creditor?
a. If Secured Creditor Unperfected at Time Lien Attached = lien creditor prevails
b. If Secured Creditor Perfected at Time Lien Attached = secured creditor prevails
Exception #1 to General Priority Rules for SC vs. Lien Creditor?
If a purchase-money secured creditor perfects by filing within 20 days after the debtor receives possession, the creditor will defeat lien creditors who obtained their liens in the gap period.
Exception #2 to General Priority Rules for SC vs. Lien Creditor?
The secured creditor will LOSE priority to a lien creditor for future advances after BOTH
of the following two things occur:
(a) the secured creditor obtains knowledge of the lien, AND
(b) 45 days elapse from the date of the lien.
SECURED CREDITOR vs. STATUTORY MECHANIC'S LIEN?
Statutory lien prevails if ALL of following conditions satisfied:
1. Person furnished services or materials with respect to the goods covered by the
2. Furnishing was in ordinary course of business; AND
3. Collateral is in the POSSESSION of the statutory lien holder.
Special Priority Rule for Proceeds?
Priority for the proceeds is the same as the priority in the original collateral AS LONG AS the security interest in the proceeds is perfected.
Key to note: if screw up perfection in original collateral, screw up priority/perfection for the proceeds :(
What is a fixture?
Ordinary building materials (e.g., brick, lumber, nail, siding, shingles, wiring, pipes,
etc.) cease to be goods when incorporated into a structure and are real property.
Thus, a creditor with a security interest in these ordinary building materials loses its
security interest once construction occurs.
A fixture is a good which is not completely integrated into the building although it is so related to the real estate that an interest in it arises under the real estate law.
A fixture can be removed but some damage will occur to the realty.
Examples: furnace, air conditioning unit, hot water heater
General Rule: FIXTURES — SECURED PARTY vs. HOLDER OF REAL PROPERTY MORTGAGE?
Secured party MAY win if:
a. Perfected BEFORE Real Estate Interest Recorded, AND
b. Perfected With a Fixture Filing
A fixture filing is a financing statement which meets the following additional
(1) Describes the real property
(2) Filed in office where a mortgage on the real property would be recorded
Exception #1 to General Rule: FIXTURES — SECURED PARTY vs. HOLDER OF REAL PROPERTY
Purchase Money Security Interest Exception
Purchase-money secured creditor, even though perfected AFTER real property interest is
of record, can prevail if:
a. Purchase-Money Secured Creditor Perfected by Fixture Filing,
b. Perfected Within 20 days of Good Becoming a Fixture; AND
c. Competing Real Estate Interest is NOT a Construction Mortgage (Construction mortgage is the loan which enabled the whole building process to begin and thus it is NOT defeated by a later purchase-money security interest.)
Weird issue re readily removable collateral or fixture?
Sometimes, there is a debate whether an item is a fixture or merely a good. Generally, if the good is readily removable, it will be treated as a regular good, rather than as a fixture, and thus may be perfected without a fixture filing.
Examples: a refrigerator in your house, a copy machine in your office
Fixture Security Interest vs. Lien Creditor?
A security interest in fixtures that is perfected in ANY manner prevails over a later-acquired judicial lien, EVEN IF the perfection was NOT done via a fixture filing.
Perfected Security Interest in Crops vs. Perfected Security Interest in Land on which crops are growing?
A perfected security interest in crops has priority over a conflicting interest in the land on which the crops are growing. It does NOT matter who filed or perfected first.
Issue to Watch for - BANKRUPTCY - May change the normal priority rules so need to cross-reference bankruptcy lecture notes here!
Review breach of peace hypos for REPO on pg. 36 of lecture handout.
Key Caveat re Breach of Peace?
Non-delegable duty - cannot pin blame on the repo guys. Creditor is STRICTLY LIABLE even if the repo guy is an independent K'er!
Could end up being liable for conversion of repo'd item, AD's, and possibly PD's...
Creditor 2 choices after proper repossession?
1. Resell Collateral — sue for deficiency, give surplus to debtor
2. Strict Foreclosure — keep collateral and call things square
What is required for sale of collateral by Creditor?
1. Notice of Sale
2. Debtor's Right to Redeem
3. Standard of Care
4. Ability of Creditor to Purchase at Resale
5. Title of Purchaser at Resale
6. Application of Resale Proceeds
8. Penalty for Not Complying With Resale Requirements
Notice of Sale?
a. General Rule = Notice Required
When is notice of sale NOT required?
(1) Perishable Collateral
(2) Collateral Threatening to Decline Speedily in Value
(3) Collateral is Customarily Sold on a Recognized Market
Required contents for notice of sale?
(1) Description of debtor and secured party
(2) Description of the collateral
(3) Method of sale
(4) Statement that debtor is entitled to an accounting and the charge, if any
(5) Time and place of public sale; time after which a private sale will be made (earliest date of sale)
(6) If the collateral is consumer goods, the notice must also:
(a) Explain that debtor liable for deficiency
(b) Telephone number of person from whom debtor can obtain amount needed to redeem the collateral
(c) Telephone number or address from which debtor can get additional information about the sale
When does notice of sale have to be sent out?
Notice must be sent a reasonable amount of time before the sale.
It is a fact question as to what is a reasonable time but in a nonconsumer transaction, 10 days or more before the sale is considered reasonable
Who is entitled to notice of sale?
(1) Debtor — unless debtor has waived notice in an authenticated agreement
AFTER default (security agreement does NOT work)
(3) If Collateral NOT Consumer Goods - Notice to Creditors Who Have Perfected by Filing, Notation on Certificate of Title, or Who Have Given Notice to Reselling Creditor
When does Debtor have right to redeem?
Debtor has the ability to cure the default and regain the collateral if certain requirements satisfied:
a. Creditor Has Not Yet Sold or Entered Into a Contract To Sell Collateral
b. Strict Foreclosure Has NOT Yet Occurred
c. Debtor Has Not Waived the Right to Redeem AFTER Default
d. Debtor Must Tender Fulfillment of All Obligations Secured By the Collateral.
Not enough just to tender the late payments. Watch out for acceleration clauses.
e. Debtor Must Tender Creditor's Reasonable Expenses
Examples: repossession costs, storage, preparation for sale
Creditor Std of Care in conducting sale process?
All aspects of the sale, that is, the method, manner, time, place, and terms, MUST be commercially reasonable.
It is a fact question whether the sale was commercially reasonable.
Merely because a better price COULD have been obtained does NOT make sale
unreasonable BUT if the difference in price is substantial, the sale will be closely analyzed.
BURDEN OF PROOF is on the creditor to show commercial reasonableness of the sale in a
Can creditor purchase at resale?
1. Public sale (auction)= YES
2. Private Sale (ONLY if): (1) Collateral is customarily sold in a recognized market, or
(2) Collateral is subject to widely distributed standard price quotations
What is title of purchaser at resale?
The reselling creditor warrants title, possession, and quiet enjoyment of the collateral
by the purchaser UNLESS the creditor takes steps to disclaim the warranties.
What is order for Application of Resale Proceeds?
a. Reasonable Expenses of Reselling Creditor
b. Satisfaction of Debt
c. Satisfaction of Subordinate Creditors
d. Surplus, if any, to Debtor
Status of DJ creditor?
Penalties for noncompliance with resale requirements?
a. Creditor Liable for Actual Damages: This liability could be to the debtor or to another creditor.
b. Consumer Goods: The creditor is AUTOMATICALLY liable for amount equal to finance charge PLUS 10% of the principal.
c. Effect on Creditor's Ability to Recover Deficiency
(1) Consumer Transactions = ABSOLUTE BAR to recovery of deficiency :(
(2) Nonconsumer Transactions = REBUTTABLE PRESUMPTION that value of collateral was equal to amount of debt
Secured creditor MAY prove otherwise and still recover a deficiency.
What result if collateral accounts or instruments?
The creditor directs the obligor to make payments directly to the creditor, rather than to the debtor
T/F - Creditor can retain collateral in partial satisfaction of debt in consumer situations?
The creditor may retain the collateral in total satisfaction of the debt.
In non-consumer situations, the creditor may retain the collateral in total or partial satisfaction of the debt.
Requirement in order to use strict F/C?
a. Debtor Consents: (1) Express (The debtor agrees in an authenticated record made AFTER default); OR (2) Implied
The debtor fails to object to the creditor's proposal to strictly foreclose within 20 days of when the creditor sent notice.
b. Creditor Sends Authenticated Notice to Retain Collateral to:
(1) Debtor — UNLESS the debtor has waived notice in an authenticated agreement made AFTER default
(2) If Collateral NOT Consumer Goods - Notice to Creditors Who Have Perfected by Filing, Notation on Certificate of Title, or Who Have Given Notice to Creditor
c. No Timely Objection
If the debtor or another creditor objects in writing within 20 days, the creditor may NOT keep the collateral and MUST conduct a resale.
Strict F/C exception in TX?
Exception for High Equity (debtor has paid 60% of price) Consumer Goods —
resale necessary within 90 days of repossession
I.e., MUST do re-sale.
OTHER SETS BY THIS CREATOR
Wills and Estates (TX)
Real Property Learning Set 4
BARBRI Real Property
OTHER QUIZLET SETS
Architectural History: Lecture 03
P&G sir fundamentals quality study guide
Women's Roles in Small Island