Attachment, Perfection + Priority Flashcards
Attachment
Process by which a security agreement is created/becomes enforceable
Once attached = rt to enforce, rt to repossess if default
Attachment Requirements
1) Secured party gives value AND
2) Debtor has rts in collateral OR power to transfer rts in collat AND
3) Debtor has authenticated a security agreement that sufficiently describes the collat
Description of Collateral (Attachment)
Must r. identify what is described
Gen. CAN describe by UCC type (ex. “all my inventory”) UNLESS consumer goods AND consumer transaction
CANNOT be supergeneric (ex “all my stuff/property”) (vs. perfection–OK if supergeneric)
Attachment + After-Acquired Property
General rule: interest attaches to after-acquired prop if specifically say so in agreement
Inventory OR accts receivable = after-acquired clause implied
CAN’T have interest in after-acq. consumer goods acquired >10 days after sec. party gave value
(“all furniture…hereafter acquired–> only furniture acq. w/in 10 days of giving value–consumer protection)
Attachment + Future Advances
Can state that collateral covers not just value given now, but value given in future (ex. if paying in installments of 10K–if specify, can say collat. secures future disbursements too)
Attachment + Proceeds
A security interest in collateral automatically extends to all IDable proceeds of collateral
NOT = orig interest disappears–gen, sec interests survive sale
CAN have interest in both original collat. + proceeds, up to amt owed (Sell boiler in exchange for chickens–interest in both)
Perfection
Process by which secured party gives notice to the world of its interest
V. imp. re: priority
Perfected if
1) Attached AND
2) Reqs for perfection met
CAN meet reqs before attach– interest perfected on attachment AND relates back
Main Ways to Perfect
1) Filing Financing Statement (most common)
2) Possession
3) Control
4) Automatic Perfection
Can stack different methods of perfection on top of each other–but gap = lose priority
Financing Statement Requirements
File in correct location + has:
1) Name of debtor AND
2) Name of sec party/party’s rep AND
3) Description of the collateral AND
4) Authorized by debtor (Implicit authorization if same description as valid sec. agreement)
Valid for 5 years after filing
Renew by filing continuation statement w/in 6 mo before expires–extends for 5 more yrs beyond expiration date
Filing Location
Usually = file financing statement w/ Sec of State of rel state (exceptions–fixtures, autos)
Law re: perfection/filing = law of jx where debtor located
Individual = principal residence
Non-registered org (ex. partnership) =place of business OR (if >1) chief exec. office
Registered org = state of organization
Fixtures = Office of County Clerk (land recs) where land attached to located
Auto = notation on cert of title (can be in lieu of filing)
Sufficient Description (Filing)
1) Description that r. IDs what describes (ex. “inventory?) OR
2) Indication that fin. statement
CAN be supergeneric (ex. “all assets”), vs. sec. agreement–idea = notice to look further
Often–brief, 1 pg data entry form
Fixture Filing
1) Normal filing reqs AND
2) Indicate covers fixtures (usually = checkbox) AND
2) Indicate must be filed in real prop. records AND
3) Describe real prop. fixture related to AND
4) Give r. prop owner’s name, if different
Fixture
Good so related to real property that interest in them passes under real estate law (ex. chandelier installed in ceiling)
Major q–would removing item cause damage to prop?
Perfection + Motor Vehicle
Motor vehicle = ONLY perfect if notation on certificate of title
Idea–anyone who gets car can see on title cert. that interest attached
Equivalent to filing–> don’t have to also file too
Financing Statement Errors
Can have minor errors IF won’t make statement seriously misleading
Can’t file in wrong place
Can’t fail to provide name
Can’t not get debtor auth.
Standard Search Logic Exception
Old rule–even one letter off re debtor name = **misleading, failure ** (idea–search by name, so v. v. imp.)
UCC– OK if search of recs w/ correct name, using office’s standard search logic would disclose miswritten fin. statement
Financing Statements + Sale, Disposal, Etc. of Collateral
No effect– s. interest still exists–> fin. statement still valid
Proceeds of Perfected Collateral
Default: perf collateral = auto perf of proceeds for 20 days after attachment (i.e. debtor receives proceeds)
Continues past 20 days if
1) **Filed statement. covers original collat **AND
2) Would perfect proceeds by filing in same office (i.e. not vehicle, fixture) AND’
3) Proceeds not acquired w/ cash proceeds (not 2d gen proceeds–widget–> goat OK, widget–>cash–>goat N/A) OR proceeds identifiable cash proceeds
OR
4) Otherwise perfect proceeds w/in time period (original statement covered proceeds, amended to include proceeds, etc.)
Perfection + Name Changes
Perfection + Moving
Get 4 month grace period
Within 4 months–must amend or (if new state) file in new location
Failure = unperfected, lapse
Perfection By Possession
Only applies to
1) Tangible Negotiable Docs
2) Goods
3) Instruments
4) Money
5) Tangible Chattel Paper
Must use r. care in custody/preservation-can charge r. expenses to debtor
3d party possession IF 3d party authenticates record stating holding for sec parties’ ben
Perfection via Control
Only applies to
1) Investment Securities (ex. stocks, bonds)
2) Letter-of-Credit Rights
3) Deposit Accts (only can perfect via control)
4) Electronic Chattel Paper
Control + Investment Securities
Ex. stocks, bonds
Control depends on form of prop
Certificated sec. in bearer form (ie. “X shares owned by bearer of this cert”)– possession of sec
Certificated sec. in registered form (i.e. X shares owned by Jane Doe”)–possession of of sec. AND security endorsed to sec party OR registered/re-reg. in name of sec. party
Uncertificated security - possession OR issuer agrees will comply w/ instructions from sec. party
Control + Letter of Credit Rights
Control if issuer has consented to an assignment of proceeds of letter of credit
Perfection + Deposit Accounts
Only way to perfect–control
1) Secured party is bank where acct maintained (home-bank rule–form of auto perfection) OR
2) Debtor, sec. party + bank have agreed in authenticated (writing + signed) record that bank will obey sec. party instructions w/out consulting debtor if default OR
3) Sec. party becomes bank’s customer re: acct
Common Types of Automatic Perfection
1) PMSI in consumer goods
2) Home bank rule re: dep. accts
3) Assignment of accts/payment intangibles that are not by selves or in conjunction a sig. part of outstanding accts/payment intangibles (basically–if have sec. interest in 1 of 500 outstanding accts, so small not worth trouble to req. much)
4) Grace periods (temporary)
Perfection + Purchase Money Security Interests
PMSI of consumer goods = auto perfect on attachment
Permanent attachment–no need to file, renew
Exception: motor vehicle or fixture
ONLY if consumer goods
N/A if **vehicle
Unperfected Security Interest v. Unperfected Sec. Interest
Priority to first interest to attach
First in time, first in right
Perfected Security Interest v. Unperfected Sec. Interest
Perfected interest wins–has priority even if attach later
Perfected Security Interest v. Perfected Security Interest
First to file OR perfect (whichever **first, w/out gaps)
File ≠ perfect
File but don’t attach/sign agreement till after 2d sec. interest perfect–> still win b/cause filed first
Exception–if instrument
OR chattel paper AND perfection by possession–priority over int perfected by filing, even if didn’t file/filed later
Priority Exception re: Instruments + Chattel Paper
If perfect by possession = have priority over party who perfected by filing (even if didn’t file/filed later)
Perfected PMSI
Perfected PMSI wins over other security interests IF PMSI perfected when debtor gets possession of collat OR w/in 20 days after
“Second in time, first in right”
Exception: inventory PMSI requires extra steps
Perfected PMSI Inventory Rule
PMSI Inventory = get priority over earlier s.i. ONLY IF
1) PMSI party notifies 1st party in authenticated (in writing AND signed) notice that expect to obtain PMSI AND
2) PMSI perfected at time debtor gets possession–no grace period
Lien Creditor
Creditor that has acquired interest in prop by attachment, levy, etc, or is bankruptcy trustee
For bar–once get judgement + get sheriff, etc. to grab stuff => lien creditor, do priority analysis
Lien Creditor v. Security Interest
Generally–still 1st in time, 1st in rt
Secured party has priority IF
1) Perfects before OR
2) Files + evinces sec. agreement before (i.e.–signed sec. agreement or possession or control, + file = priority)
PMSI v. Lien Creditor
If PMSI perfected w/in 20 days after debtor receives collateral => take priority over intervening lien creditor
Accession
Goods that are physically united w/ other goods in such a matter that the ID of the original is not lost
Ex. custom bicycle seat = accession to bike attached to, engine is accession to car, etc.
Security interest remains attached to accession, b/cause IDable
Commingled Goods
Goods that are physically united w/ other goods in such a manner that ID of original lost
Ex. flour used to make cake–flour no longer sep + IDable
No interest in orig. once commingled– but interest in resulting product (ex. cake made from flour)
Multiple interests in comm. good = rank equally in prop to value of collat at time b/came commingled
Ex. A flour interest, B egg interest– tie re: priority, but if eggs 2x as $$, get 2:1 proportion of cake
Accessions + Priority
Generally– same analysis
Exception = accession subordinate to whole IF whole perfected by cert of title (i.e. motor vehicle)
Have s. interest in car + in engine–> vehicle has first dibs over whole item
Commingled Goods + Priority
Bank 1 interest in flour, Bank 2 interest in eggs (both commingled goods)–> tie re: priority, but rank in proportion to value at time commingled (ex. if eggs 2x more $$ than flour–eggs get interest in cake 2:1)
Bank 1 interest in flour, Bank 2 interest in baked goods (interest in commingled vs. interest in resulting product) = first in time or PMSI
Buyer v. Secured Party
Buyer takes subject to sec. interest UNLESS
1) Sec. party authorizes sale free of interest OR
2) Buyer In the Ordinary Course of Business (BIOCOB) OR
2) Consumer-to-Consumer/”Garage Sale” Exception OR
3) Buyer of Chattel Paper IF a) BIOCOB; + b) gives value + takes poss/control; + c) no sign on paper assigned to other party
BIOCOB Exception
Buyer in the ordinary course of business
1) Buys goods in good faith AND
2) Buys w/out knowing sale violates rts of another AND
3) In ord course of business AND
4) From person in bus of selling goods of that kind
=
Take free of any sec. interest (int doesn’t survive sale)
NOT BIOCOB if one-off, not what seller usually sells
OK if know interest exists,– just can’t know violating interest
Garage Sale/Consumer-To-Consumer Exception
1) Buys goods for personal, family or household use
2) From someone who used goods for that purpose
3) For value
4) Without knowledge of sec interest (vs. BIOCOB–just can’t know violation)
5) Before financing statement filed
=
Take free of sec. interest
DO NOT need filing to perfect PMSI
DO NEED filing to avoid garage sale exception (even if PMSI)
BIOCOB v. Garage Sale Exception
BIOCOB–CAN know security interest exists,
CAN’T know violating interest (ex. acting in violation of clause in agreement)
Garage Sale Exception–can’t know any interest exists at all–know = N/A
Chattel Paper Exception re: Priority
Buyer of chattel paper has priority IF
1) good faith + ordinary course of business AND
2) Gives value AND takes possession/control of chattel paper AND
3) No indication on paper that assigned to other party
Fixtures v. Mortgage
MUST file fixture filing
No fixture filing = never priority
Same gen rules as others: prior rec mortgage has priority UNLESS PMSI AND perfected by fixture filing before goods become fixtures (installed) OR w/in 20 days after
Fixture priority => have right to remove from prop on debtor’s default
