Article 9 Secured Transactions Flashcards
Security Agreement
An agreement that creates or provides for an interest in personal property that secures payment or performance of an obligation.
Security Interest
An interest in real or personal property which secures the payment of an obligation.
Collateral
A contractual security interest in personal property or fixtures that secure payment or performance of an obligation (i.e., debt).
-E.g., equipment, inventory, consumer goods, proceeds and accounts, etc.
-NOTE: Under the UCC, security interests are limited to personal property and fixtures - NOT REAL PROPERTY.
Attachment: when does it occur?
Under the UCC, attachment occurs when the debtor has agreed to RECEIVE VALUE (i.e., cash or credit) from the secured party (i.e., the bank or creditor) and OBTAINED RIGHTS in the secured property.
-E.g., Bank approves a loan for J to purchase a car that he possesses and uses. Bank has an electronic lien on the title of the car until J pays off the debt to Bank.
3 Requirements to Attach a Security Interest
1) There must be a valid Security Agreement (i.e., the debtor has authenticated a security agreement that provides a description of the collateral);
2) Value must be given; and
3) The debtor must have rights in the collateral (e.g., he must own it or be leasing it).
Purchase Money Security Interest
PMSI is a security interest taken or retained by the seller of the collateral (car) to secure all or part of its price. (e.g., seller of car finances the purchase of the car)
-OR an interest taken by a creditor who, by making advances or incurring an obligation, GIVES VALUE in order to enable the debtor to acquire rights in or use the collateral if such value is in fact so used. (e.g., Bank gives Purchaser (debtor) a $30,000 draft to Tally Toyota in order for Purchaser to purchase a car)
-NOTE: This is often tested w/after-acquired property clauses.
Proceeds (definition)
Under the UCC, proceeds means whatever is acquired upon the sale, lease, license, exchange or other disposition of collateral.
-This includes all rights arising out of collateral such as insurance for damage to collateral.
Commingled Proceeds
Goods that are physically united with other goods in such a manner that their identity is lost in a product or mass.
-A security interest MAY attach to a product or mass that results when good become commingled goods.
Identifiable Proceeds
Proceeds that are commingled with other property are identifiable proceeds if:
1) the proceeds are GOODS; or
2) if the proceeds are not goods, to the extent that the secured party can identify the proceeds by a method of tracing.
Perfection by a Financing Statement
Most secured parties prefer to perfect a security interest by filing a financing statement.
-A valid financing statement must include (1) the debtor’s full name, (2) the secured party’s full name, and (3) indicate the collateral.
-A financing statement contains detailed info about a security interest in collateral used to secure debt. Once this document is filed with the FL SOS, it will notify other creditors that the secured party has a priority interest in the collateral.
Perfection by Possession
In FL, a secured party may perfect a security interest in negotiable documents, goods, instruments, money or tangible chattel paper by possessing the debtor’s assets pledged as collateral.
Description of Collateral (references to all of debtor’s assets or property)
The financing statement is filed under the name of the debtor. The debtor’s full name MUST be registered accurately.
–If the financing statement is NOT correct, the security interest will not be perfected.
In addition, the financing statement must provide either a description of the collateral that reasonably identifies what is described or an indication that the financing statement covers all assets or personal property of the debtor.
Description of Collateral (after-acquired property)
A security interest in after-acquired property may be created under the UCC.
-The term “after-acquired property” is commonly used for two purposes:
1) subjecting additional property to the creditor’s lien, and
2) removing doubts that may arise as to whether improvements, repairs and additions made since execution of the agreement are included.
Priority among Multiple Security Interests
The priority of a secured party regards the party’s right to payment in the event of default by a debtor. If the debtor defaults, a secured party with a security interest in collateral will have a claim of ownership in the collateral.
General Rule: The first to perfect has priority. If two conflicting security interests are unperfected, the first to attach has priority.
-Note: A PMSI creditor can get SUPER PRIORITY over third parties who perfected their interests first.
Default Remedies
Upon default, a secured party may sell, lease, license or otherwise dispose of any or all the collateral in its present condition or following any commercially reasonable preparation or processing.
-Possession may be done by judicial process or without judicial process if it occurs without a breach of peace (i.e., self-help). This is commonly known as repossession.
