Collateral Flashcards
Security Interest - Concept
A property interest created by agreement or operation of law to secure performance of an obligation
Security Interest - UCC art 9 Purpose
- Reduce creditor risk in case of default of payment
- By securing obligation with collateral
Collateral - Concept
Property pledged as security against interest
Collateral - Types of Property (2)
1) Tangibles
2) Intangible
Collateral - Importance of distinction btwn tangible/intangible (3)
1) Method of perfection
2) Filing requirements (when apply)
3) Priority for creditors
SI -Tangible Property - Rules regarding use
- Primary use in debtor’s hands set as of date of attachment
- Primary use controls, independent of later use : i.e. Horse
- If later use modification, duty of report
SI - Tangible Property - Types (5) + 1
1) Inventory
2) Equipment
3) Consumer Goods
4) Farming products
5) Manufactured home + Proceeds
SI -Tangible Property - Inventory - Concept
Goods for sale or lease in ordinary course of business
SI -Tangible Property - Inventory - Includes/Excludes
- Includes: raw material, work in progress, materials used or consumed
- Excludes: farm products
SI - Tangible Property - Equipment - Concept
- Goods used or bought for use in the productive capacity of business
SI- Tangible Property - Equipment - Includes/Excludes
- Includes: machinery, manufacture, equipment, furniture, office computer and equipment
- Excludes: farm products and consumer goods
SI -Tangible Property - Consumer Goods - Concept
- Goods used or bought for non-business purposes, but for personal, family or household purposes
- Have no amount limit as collateral
- Need of more detailed description
- i.e.: house furniture, personal computer, TV
SI -Tangible Property - Farming Products
- Include: Crops, livestock and supplies (i.e. fertilizers)
- Exclude: Farm machinery (is equipment)
SI -Tangible Property - Manufactured Home
Fixed dwelling structure over 320 sq/f with plumbing, heating, AC, electrical system, etc.
Intangible Property - Types (11) + 1
1) Instrument: negotiable or other (i.e. promissory note)
2) Document of title
3) Chattel Paper
4) Account
5) Deposit Account
6) Investment property
7) Commercial tort claim
8) Letter of credit
9) Insurance Policy proceeds
10) Financing Lease of personal property
11) Gral - “residual” + Proceeds thereof
SI -Intangible Property - Instruments - Gral / scope, use as E, perfection(gral)
- For negotiable instruments and other written instruments: i.e. promissory note
- As evidence of right to receive payment
- SI perfected with possession
SI -Intangible Property - Instruments - Transfer
Delivery + proper endorsement
- SI perfection with possession
SI -Intangible Property - Document of title - gral/ concept, traditional use
- Written description/ID/declaration of good authorizing the holder to receive/hold/dispose goods it covers
- In regular business use as E of person being entitled to receive goods held by others.
- i.e.: warehouse receipt
SI - Intangible Property - Chattel Papers - Concept
- Written document (single record) showing both a monetary obligation and a SI in specific secured goods/software.
SI -Intangible Property - Chattel Papers - Gral / transfer, usual use,
- Can be sold with SA (security agreement) itself along with the interest in the collateral
- Can be electronic, intangible or material
- Usually used in consumer transaction when consumer buys goods in credit by signing a promissory note and seller retaining SI in the goods
SI -Intangible Property - Account
- Unsecured right to payment of a money obligation (as reflection of balance owed by debtor to creditor)
- i.e. account receivable, credit card balance
SI- Intangible Property - Deposit Account
- Any bank account other than consumer’s checking account
- i.e. bank demand, time savings, passbook account
SI -Intangible Property - Investment Property
- Under art 8 UCC
- i.e.: Certificated/uncertificated securities, commodity accounts, commodity accounts to buy or sell in the future
SI - Intangible Property - Commercial Tort Claim
- Tort claim where the claimant is an organization OR an i_ndividual and the claim comes in the course of the business or profession of the claimant_
- Does NOT include damages arising out of personal injury to or the death of an individual.
- Needs for more detailed description
SI -Intangible Property - Letter of Credit / concept, form
- Right to receive payment under UCC art 5 letter of credit, usually to secure payment in international transaction once a good is delivered
- In the form of a letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount.
SI - Intangible Property - Policy Insurance / when and when not
- As “proceeds” when insurance claim is based upon destruction or involuntary conversion of secured collateral
- Not in relation to original policy, when creditor interest varies from the one of original beneficiary
SI -Intangible Property - Financing Lease of personal property
- When term of lease is > than expected asset life
- The lease transfer title then to debtor
- Requires filing for perfection
SI -Intangible Property - Gral or “Residual” or “catch-all”
- To include copyrights, software, trademark, patents, franchise rights, software, royalties
SI- Proceeds - Gral / source, content, [SI after sale??}
- Of both tangible and intangibles UNLESS otherwise provided by SA
- Include whatever is received by the debtor upon the sale/exchange/other disposition of primary collateral
- “whatever”: can be $ or property
[- SI continues with collateral once attached/perfected???]
SI - Proceeds - Relation with SI (“automatic SI”)
- SI from SA continues with collateral once attached/perfected
- “Automatic SI” for 20 days after attachment/perfection.
- After 20 days: SI survives only in:
1) Cash traceable by creditor
2) Non-cash when new FS filed with particular identification of these new non-cash proceeds.
Collateral Description - Gral / standard for detail and burden, difference SAvsFS, grl categories
- “Reasonable detail” for creditor to ID (is his burden)
- SA less liberal than FS (SA require at least specify use by debtor)
- Gral categories accepted: “all collateral”, “all personal property”
Collateral Description - Special rules (2)
- No gral description allowed for consumer goods and commercial tort claim
- For crops/timber/minerals need to include address and description of the property where they are located
Secured Transactions - Purchase Money Security Interest (PMSI) - Gral/ special relation, creditor’s dual position, burden of proof, exclusion
- Special nexus btwn collateral and obligation, because collateral itself secures the repayment of its puchase price owed to creditor
- Creditor can have “dual status”, when PMSI on only 1 of mx collateral assets (as PMSI and gral creditor)
- Burden of proof: party claiming interest
- Bank loan for working capital doesn’t qualify bc is not associated w/specific good (as a general loan)
Secured Trans - PMSI - Creation Methods (2)
1) Collateral Sale
2) Loan to acquire specific collateral
Secured Trans - PMSI - Creation Methods - Collateral Sale
Creditor sells good to debtor who takes a paper receivable (i.e. account) securing the payment with the same good
Secured Trans - PMSI - Creation Methods - Loan to acquire collateral
Creditor loans $ to debtor to buy specific collateral
Secured Trans - PMSI - Advantages (4)
1) Unlike non-PMSI it can affect household goods sold to debtor
2) For consumer goods it allows for perfection by mere attachment
3) Provides a 20-day grace period from reception to file when interest on non-inventory (equipment) goods
4) For inventory goods it has super priority
Secured Trans - PMSI - Advantage - Super priority on Inventory - Requirement
Notice to other SI creditors w/claims over same inventory
- Prevents previous creditors to claim collateral on “After-acquired” clause
