1-4 Terminology, Creation of Security Interest, Scope, Perfection Flashcards
What is a secured transaction?
A transaction intended to create a security interest in personal property or fixtures.
to spot a secured transaction, look for
(1) a credit transaction and
(2) an agreement that creates a lien in favor of the creditor in the debtor’s personal property to secure the debt.
What is a security interest?
An interest in personal property or fixtures that secures payment or performance of an obligation.
What is collateral?
The property subject to a security interest.
A PSMI can arise in two ways:
- secured party sells the goods to the debtor on credit and retains a security interest in the goods sold, or
- the creditor loans the funds to the debtor to enable the debtor to buy specific collateral, those funds are used by the debtor to acquire the specific collateral, and the creditor takes a security interest in that collateral. PSMI secures whatever portion of the purchase price still has to be paid.
What is attachment?
attachment is the process that creates a valid security interest in a secured transaction, establishing the rights and obligations between the debtor and the secured party.
What is perfection?
Deals with those steps legally required to give the secured party an interest in the collateral that is effective as against the world.
In general, perfection is the process of giving public notice of the security interest to the world.
What is a financing statement?
The document generally used to provide public notice of the security interest, and so to perfect the security interest.
What are goods (tangible collateral)?
Includes all things which are movable at the time the security interest attaches.
What are the four types of goods?
- consumer goods
- equipment
- farm products
- inventory
There are three requirements for attachment, which must coexist:
- parties must agree to create the security interest AND
- value must be given by the secured party, AND
- the debtor must have rights in the collateral.
form of the authenticated security agreement:
a. evidenced by a record –> must show an intent to create a security interest
b. agreement must be authenticated –> usually means signed by the debtor
c. description of collateral –> must reasonably identify collateral
(no supergeneric descriptions)
proceeds must be “identifiable”
“identifiable” means that the proceeds can be traced back to the original collateral.
First Bank has a security interest in Hilda’s inventory. Hilda sells some inventory on credit. Does First Bank’s security interest reach the accounts resulting from such sales?
Yes, if identifiable and likely identifiable here.
What about identifiable in the case of commingled cash proceeds?
Identifiable proceeds can be traced using the lowest intermediate balance rule.
lowest intermediate balance rule
Under that rule, you will look at the bank account starting at the time the proceeds are deposited and ending at the time you are applying the rule. The lowest balance during that time period is the secured party’s identifiable proceeds (but the amount cannot exceed the value of the cash proceeds originally deposited)
there are 5 methods of perfection:
- filing;
- taking possession of the collateral;
3 control - automatic perfection; and
- temporary perfection.
perfection by filing
effective for all classes of collateral except deposit accounts and money
perfection by possession
effective for all classes of collateral except general intangibles, accounts, nonconsumer despoit accounts, nonnegotiable documents, and electronic chattel paper, although it is impractical for some classes of collateral (e.g. if secured party takes debtor’s equipment or inventory, it will be difficult for debtor to run his business.)
perfection by automatic
most commonly effective only as to PMSIs in consumer goods
perfection by temporary
effective for 20 days (and possibly longer) for proceeds; 20 days when a secured party gives new value under a security agreement where collateral is a negotiable document, instrument, or certified security; 20 days where a secured party makes available a negotiatble document, instrument, certificated security, or goods in possession of a bailee on a temporary basis (e.g. for debtor to present for payment or to sell); four months where debtor moves from one state to another if debtor’s location governs perfection
perfection by control
effective ONLY for nonconsumer deposit accounts, electronic chattel paper, and investment property.
Eight types of intangible or semi-intangible collateral
- instruments
- documents
- chattel paper
- investment property
- accounts
- deposit accounts
- commercial tort claims
- general intangibles
Generally, how can a security interest in goods be perfected?
May be perfected by filing a financing statement indicating the collateral.
