Biz Law - Secured Transactions Flashcards
Secure transaction
Transaction in which debtor gives to the creditor an interest in specific personal property to secure the payment of the debt.
UCC Article 9 applies.
Secured party
The lender, seller or other party in whose favor the security interest arises i.e. the creditor
Fixture
Personal property which has become so attached to real property as to be considered part of the real property itself
Security interest
An interest in personal property or fixtures that secure payment or performance of an obligation
Security agreement
An agreement between the debtor and secured party that creates security interest.
May be oral or written. Must be written to enforce against debtor (unless secured party has possession of property)
Must be authenticated by debtor (signed).
Must reasonably identify the collateral.
Attachment of the security interest
Creation of a security interest. For security interest to be legally enforceable, must attach to particular collateral.
Before attachment, following must occur:
– Must be security agreement (oral or written)
– Secured party must give value
– Debtor must have rights in the collateral
Financing statement
File to give public notice of security interest: provide constructive notice.
Must contain following:
– Names and addresses of secured party and debtor
– Description of collateral
Perfection of a security interest
Security agreement binds parties but does not protect secured party against rights of third parties until perfected.
Both attachment and perfection of security interest must occur before interest is good against other creditors.
Perfection: accounts, contract rights, and general intangibles
Perfection by filing only
Perfection: goods
Perfection by taking possession or filing a financial statement. No filing needed if secured party has possession.
Perfection: consumer goods
PMSI
Automatically perfected upon attachment if purchaser buys on credit or secured party lends to debtor the funds used to make purchase. The security interest is called Purchase Money Security Interest.
However, not good against buyer who:
– Purchases without knowledge of security interest
– Gives value for goods
– Purchases for own personal family or household use
– Purchases before financing statement is filed
Perfection: instruments, documents and chattel paper
Perfection by possession or filing
Perfection: fixtures
Perfection only by filing financing statement with office work mortgages on real estate are recorded
Perfection: instruments and negotiable documents
Perfected by attachment alone for 21 days without filing or possession
Rights and duties of the secured party
If have possession of collateral, must exercise reasonable care in preserving. Legally, secured party is bailee in a mutual benefit bailment.
Rights and duties of the debtor
Expenses incurred in custody, preservation and operating of collateral are paid by debtor.
Risk of loss is with debtor
Conflicting security interest in the same collateral
Security interests rank in priority according to time of filing financing statements or perfection, whichever earlier. If no security interests perfected, priority based upon order they attached to collateral.
Holder of PMSI in inventory of debtor generally has priority over another secured party if perfected w/in 10 days of sale)
Buyer in ordinary course of business from merchant seller takes free of any security interest in the property purchased even if it is perfected and buyer is aware. Purpose is to allow to consumer to buy merchants inventory without fear it could be repossessed by secured party.
Preference payment
Preference is transfers of assets/payments made by debtor within 90 days prior to filing bankruptcy to a preferred creditor; one year if to insider: relative or business partner.
This defrauds all other creditors.
Preference can be avoided, set aside or overruled by the trustee.
Default
Not defined in UCC. So debtor and secured party can define what default is.
Generally, secured party can retain collateral to satisfy debt. Written notice of intention must be sent to debtor and any other secured party. If no objection received within 21 days, collateral may be retained. If objection is made, secured party must sell collateral.
If collateral is sold, proceeds go to pay expenses of sale, then to satisfy unpaid debt, then to any other debts owed by debtor to creditor. Remainder returns to debtor. If there is deficiency, debtor can be liable.
Common Law Lien
Given to artisans, innkeepers, and common carriers to secure payment for services rendered.
Artisan’s liens
Statutory lien arising from work done on personal property.
Has priority over any perfected security interest in the collateral.
Must give notice of legal action before selling debtors property to satisfy debt.
Mechanic’s lien
Contractors who provide labor or materials that improve real property can establish statutory lien on improved property for unpaid balance.
Must give notice of legal action before selling debtors property to satisfy debt.
Mortgage
Nonpossessory lien on real property to secure payment of debt.
Executed with same formality as deed. Statute of frauds requires that it must be in writing, oral mortgages are not enforceable. An unrecorded mortgage is only effective between the mortgagor and the mortgagee.
Person cannot issue mortgage unless person owns the property.
Priorities: tax and mechanics liens, first recorded mortgage, later recorded mortgages.
Recorded in the county where property is located.
