FL SECURED TRANSACTIONS

Question 1

Secured Transaction

Answer 1

A transaction intended to create a security interest in personal property or fixtures. Generally involves a sale on credit or a loan in which the seller or lender obtains a lien on some or all of the debtor’s property as security for payment.

Question 2

PMSI

Answer 2

Can arise in two ways
(1) Secured party sells the goods on credit and retains a security interest or
(2) the creditor loans funds to enable the debtor to buy specific collateral, which is used by the debtor to acquire that collateral, and creditor takes SI in that collateral

Question 3

After Acquired Property Clause

Answer 3

Secured party intends to obtain a SI not only in debtor’s present property, but also in property that debtor will obtain in future. This is permissible. Without an explicit after acquired property clause in the SA, the SP’s SI only reaches collateral that the debtor had rights in at the time the debtor signed the SA.
EXCEPTION
Even without an after acquired property clause, a SI will attach automatically to collateral of a type that’s rapidly depleted and replenished, such as accounts and inventory. A SI will also automatically attach to identifiable proceeds of collateral.

Question 4

Future Advance Clause

Answer 4

Secured party contemplates making future loans to the debtor and wants to secure these future advances in the present security agreement. This is permissible. New security agreement is not needed when future advance is made.

Question 5

Attachment

Answer 5

Deals with those steps legally required to give the secured party a SI in the collateral that is effective as against the debtor. Once a SI attaches, it is effective against the debtor and the creditors has all rights of secured creditor. A creditor is NOT a secured creditor until attachment.

Question 6

Perfection

Answer 6

Perfection deals with those steps legally required to give the SP an interest in the collateral that is effective as against the word. Generally, perfection is the process of giving public notice of the SI to the world.

Question 7

Financing Statement

Answer 7

A FS is the document generally used to provide public notice of the SI

Question 8

Types of Goods

Answer 8

Goods include all things that are movable and tangible personal property. Goods also include fixtures.
1. Consumer goods - goods used or bought primarily for personal, family, or household purposes
2. Equipment - goods used or bought for use in business. (Also default category for goods)
3. Farm products - crops or livestock or supplies used or produced in farming operations, or products of crops or livestock in unmanufactured states if they are in possession of a debtor engaged in farming operations.
4. Inventory - goods held for sale, or lease, and goods that are to be furnished under service Ks and materials used or consumed in business in short period of time

Question 9

Intangible or Semi Intangible Collateral

Answer 9

1. Instruments - pieces of paper representing the right to be paid money
2. Documents - document that represents the right to receive goods
3. Chattel paper - record which evidences both (1) monetary obligation and (2) a SI in a lease of specific goods - either a tangible medium or intangible medium (electronically stored)
4. Investment property - includes items such as stocks, bonds, mutual funds, etc.
5. Accounts - includes a right to payment for property sold or services rendered (NOTE - a K obligation arising from a loan of money is not an account)
6. Deposit accounts - an account maintained with a bank. (NOTE, in general Art 9 only applies to SI in non consumer deposit accounts and account monies claimed as proceeds of other collateral)
7. Commercial tort claims - claim where (1) claimant is an org or (2) is an individual, the claim arose out of the claimant’s business or profession and does not include damages for PI or death
8. General intangibles — any property not coming w/n the scope of other definitions, such as patent or trademark

Question 10

Scope of Art 9

Answer 10

Applies to following transactions
1. Transaction that creates SI by K
2. Seller’s retention of title
3. Agricultural liens
4. sale of accounts, chattel paper, payments intangibles and promissory notes
5. Commercial assignment of goods (where goods for personal, family, or household purposes) worth 1k or more to persons who (1) deal in goods of that kind under a name other than consignor’s (2) are not auctioneers and (3) are not generally known by their creditors to be substantially engaged in selling goods of others
6. A secured sale disguised as a lease — where the rental obligation is not terminable by lessee and either (1) the lease term is equal to or greater than the remaining economic life of the goods (2) lessee is bound to purchase the goods at the end or renew lease for the remaining economic life of the goods or (3) at the end of the lease, the lessee has an option to purchase the goods or renew the lease for the life of goods for none or nominal consideration `

Question 11

Requisites for Attachment

Answer 11

3 requirements which must coexist
1. Security Agreement (1) the creditor taking possession (2) an authenticated SA or (3) creditor taking control of nonconsumer deposit accounts, electronic chattel paper, or investment property
2. Value has been given
3. Debtor has rights in collateral

Question 12

Security Agreement Req

Answer 12

The agreement must be evidence by a record and must show an intent to create a SI. The agreement must be authenticated by the debtor. The agreement must contain a description of the collateral. The description must reasonably identify the collateral. No super generic descriptions, such as, “all of the debtor’s assets.”

Question 13

Value must be given (attachment)

Answer 13

any consideration sufficient to support a simply contract is value and even past consideration will suffice as value as long as the security interest is intended as security for past consideration. (Every debtor, at a minimum, either implicitly or explicitly promises to repay which is sufficient for consideration_

Question 14

Debtor Must Have Rights in Collateral

Answer 14

The debtor must have rights in the collateral. Don’t confuse having rights in collateral with having title to collateral. Title to goods matters only for consignments. For attachment, a limited right in collateral is sufficient.

Question 15

After Acquired Property Clause & Consumer Goods and Tort Claims

Answer 15

An after acquired property clause does not apply to consumer goods unless the debtor acquires rights in the goods w/n 10 days after the creditor gives value. Does not apply to commercial tort claims.

Question 16

Proceeds

Answer 16

A security interest in collateral automatically attaches to identifiable proceeds of the collateral, UOA. Proceeds include whatever is received upon the sale, exchange, collection, or other disposition of collateral or proceeds. Proceeds include second generation proceeds. Insurance for loss or damage to collateral is a proceed unless payable to someone other than debtor or SP. Claims arising out of the loss of, defects in, or damage to collateral are also proceeds.

Question 17

Commingled Cash Proceeds - Lowest intermediate balance rule applies

Answer 17

In the case of commingled proceeds, the identifiable proceeds can be traced using the 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 SP’s identifiable proceeds, but cannot exceeds value of cash proceeds originally deposited.

Question 18

Supporting Obligations

Answer 18

Attachment of SI in accounts, chattel paper, docs, general intangibles, instruments, and investment property automatically extends to a supporting obligation for that collateral (ex, surety).

Question 19

Methods of Perfection

Answer 19

When attachment has occurred + one of following methods
1. Filing
2. Taking possession
3. Control
4. Automatic perfection and
5. Temporary perfection

Question 20

Automatic Perfection

Answer 20

In certain situations, a SI is automatically perfected upon attachment. The most common such situation is a PMSI in consumer goods. A PMSI in consumer goods is perfected as soon as it attaches

Question 21

Perfection by Possession

Answer 21

Where SP takes actual possession of the collateral, the SI is perfected from the moment of possession and continues as long as possession is retained.
Collateral that cannot be pledged:
- security interests in general intangibles
- deposit accounts
- nonnegotiable documents
- electronic chattel paper
- certificate of title goods
- accounts

Question 22

Perfection by Control

Answer 22

SI in investment property, nonconsumer deposit accounts, and electronic chattel paper may be perfected by control. Note that SIs in nonconsumer deposit accounts can only be perfected by control (unless they’re perfected as proceeds of collateral)

Question 23

Control of Nonconsumer Deposit Accounts

Answer 23

The bank in which a nonconsumer deposit account is maintained automatically has control over the deposit account. If the SP is not such bank, it may obtain control by either
— putting the deposit account in the SP’s name or
— agreeing in an authenticated record w/ the debtor and bank in which the deposit account is maintained that the bank will comply w/ the SPs orders regarding the deposit account w/o requiring debtor’s consent

Question 24

Control of Investment Property

Answer 24

When the SP has taken whatever steps are necessary to be able to have the investment property sold w/o further action from the owner.

Question 25

Perfection for Motor Vehicles

Answer 25

Under the state’s certificate of title law, SIs in motor vehicles required to be titled can only be perfected by notation on the certificate of title issued by the state.
EXCEPTION - dealers
SIs created by dealers in vehicles held in inventory for sale or lease are perfected by filings a FS under the ordinary code rules, even if a cert of title covering the vehicle is outstanding.

Question 26

Perfection by Filing

Answer 26

A SP may obtain perfection by filing a FS that must contain
— the debtor’s name and mailing address
— the SP’s name and mailing address and
— a description of the collateral covered by the FS
May be perfected by filing as to all kinds of collateral except deposit accounts and money.

Question 27

Debtor’s Name for FS

Answer 27

1. For an individual
   — with an unexpired driver’s license or personal ID card issued by FL — debtor’s name must match license or card
   — without a license, must include debtor’s individual name or personal name and surname
2. registered organization
   — must match its most recent public organic record
   — partnership, then the partnership name

Question 28

Effect of Error in Debtor’s Name

Answer 28

Minor errors in the debtor’s name won’t invalidate a FS but seriously misleading errors will. A FS is not seriously misleading if it would be discovered in a filing office search under the debtor’s correct name using the filing office’s standard logic.
Generally, search logic can never overcome spelling error.
If there is an error by the filing office the failure of them to file correctly does not impact the effectiveness

Question 29

Debtor Name Change

Answer 29

If the debtor’s name changes and the FS becomes seriously misleading, the FS is effective only against collateral acquired by the debtor before the name became insufficient and w/n 4 months after.
Must go amend the FS statement.

Question 30

Description of Collateral for FS

Answer 30

An authenticated security agreement requires the collateral to be reasonably identifiable, which is the same for FS. However, unlike requirements for an authenticated SA, a financing statement MAY contain a super generic description of the collateral.

Question 31

After Acquired Property and FS

Answer 31

The financing statement need NOT mention after acquired property to perfect a SI in such property if the description in the FS is broad enough to cover the after acquired property.

Question 32

Real Property Related FS

Answer 32

Must also contain (1) a description of the related real property (2) the name of the record owner (if not debtor) and (3) indication that it is to be filed in the real property records

Question 33

Debtor must Authorize Filing of FS

Answer 33

For a FS to be effective, the debtor must authorize the filing in any signed writing, either before or after it is filed. In addition, the debtor automatically authorizes the FS if the debtor authenticates the FS or authenticates a SA covering the same collateral as the FS. (Ipso Facto)

Question 34

Place of Filing FS

Answer 34

Generally - Filing must be done with the Florida Secured Transaction Registry
EXCEPTION
1. If collateral is timber to be cut or minerals, or if it is or is to become a fixture and the filing is a fixture filing, filing is in the office of the circuit court.

Question 35

Which law applies?

Answer 35

The law of the state where the debtor is located generally governs perfection of the SI. Therefore, SP must generally file in that state.
Location of Debtor
1. If individual - she is located at her principal resident
2. Registered organization - debtor is located in the state where the organization is organized
3. Unregistered organization - it is located at its place of business if it only has one place of business, or at its chief executive office if it has more than one place of business

Question 36

Movement of Debtor

Answer 36

The SP will become unperfected 4 months after the debtor’s move unless the SP files a FS in the new jdx before that 4 month period if the debtor is moving to a different state.
If the collateral is transferred to a new owner who is located in a different state, the SI will become unperfected one year after the collateral moves unless the secured creditor files a FS in the new jdx before that one period.

Question 37

Continuation Statement

Answer 37

A FS is valid for 5 years. A continuation statement may be filed, good for an additional 5 years. The continuation statement can only be filed w/n 6 months before the lapse of the filed statement. The authorization of the debtor is not required for a continuations statement, the SP must authorize it.

Question 38

Termination Statements

Answer 38

Generally, a SP is not obligated to terminate a FS. However, if there is no outstanding obligation of the debtor and no commitment on the part of the SP to make further advances, or if the debtor didn’t authorize the initial filing of the initial FS, the SP must, on demand of the debtor, w/n 20 days, file a termination statement or provide one to the debtor.

Question 39

Perfection for Proceeds

Answer 39

If a SP has a perfected SI in collateral, the SP automatically has a perfected SI in any proceeds of the collateral for 20 days after receipt of the proceeds.
The SI in proceeds will continue to be perfected beyond the 20 days if
— The proceeds are identifiable cash proceeds
— The SI in the original collateral was perfected by filing a FS, a SI in the type of collateral constituting the proceeds would be filed in the same place as the FS for the original collateral, and the proceeds were not purchased w/ cash proceeds of the collateral. (Inventory to accounts is the most common)
— the SI in the proceeds in perfected w/n the 20 day period

Question 40

Change in Use of Collateral

Answer 40

If the debtor changes its use of the collateral, the filed FS remains effective to perfect the SI. The SC has no duty to monitor the collateral or to amend the financing statement, even if the creditor knows the description is seriously misleading.

Question 41

Priority Between Perfected Secured Parties

Answer 41

When there are conflicting perfected SIs in the same collateral, priority goes to whichever party was the first to either file or perfect — whichever is earlier — provided that there is no period thereafter when there is neither filing nor perfection.

Question 42

Priority Between Unperfected Secured Parties

Answer 42

When two unperfected SIs conflict, the first to attach has priority.

Question 43

Priority between Unperfected and Perfected Secured Parties

Answer 43

A perfected security interest generally prevails over an unperfected security interest.

Question 44

PMSI Superpriority

Answer 44

PMSIs enjoy superpriority — they’re superior to prior perfected SIs in the same collateral if certain conditions are met.
A) PMSI in goods other than inventory and livestock
— Has priority over conflicting SIs in the same goods or their proceeds if the interest is perfected before or w/n 20 days after the debtor receives possession of the goods
B) PMSI in inventory and livestock
— Has priority over a conflicting SI in the same inventory or proceeds of the inventory that are chattel paper, instruments, or cash if
——- It is perfected at the time debtor gets possession and
——- sends authenticated notification of the PMSI before the debtor receives possession and the notification states that the purchase money party has or expects to take a PMSI
C) Conflicting PMSIs
—- seller financed PMSI has priority over finacer financed PMSI

Question 45

Special priority rules for conflicting SIs in investment property

Answer 45

A SI perfected by control has priority over a SI perfected by any other method.
For conflicting SIs perfected by control, they rank according to the time of obtaining control.

Question 46

Special priority rules for conflicting SIs in deposit accounts

Answer 46

A SI in a deposit account that is perfected by control has priority over a conflicting SI that is perfected by another method. If there are conflicting SIs that are perfected by control, they rank according to the time of obtaining control, subject to the following exceptions:
— A SP who has obtained control by putting account in SP name has priority over all other SPs and
— A bank that has control b/c it maintains the deposit account has priority over all SPs with control, other than the party who has obtained control by putting the account in their name

Question 47

Secured Party vs Buyer or Other Transferee

Answer 47

When a buyer or lessee buys or leases something with a SI on it, the SI stays on the item. There are a few exceptions:
— Authorized sales — if sale is authorized by the SP, may be express, or may be implied from the type of sale or seller’s conduct (implied authorization when selling inventory that it is being sold to consumer free of SI)
— Unauthorized sales —
(1) Buyer’s in the ordinary course of business — takes free of a non possessory SI in the goods created by the buyer’s seller
(2) Buyer’s not in the ordinary course — take subject to perfected SIs and take free from unperfected SIs unless they know of the SI when they give value or take delivery. EXCEPTIONS — (1) Future advances (2) PMSI grace period
(3) Consumer to Consumer sales — A buyer takes free of SI, even though its perfected, if the buyer buys (1) with out knowledge of the SI (2) for value (3) for the buyer’s own personal, family, or household purposes, and (4) before a FS covering the goods has been filed.

Question 48

Buyer in the ordinary course

Answer 48

A buyer in the ordinary course is one who (1) buys goods in GF (2) without knowledge that the sale violates the right of another in the goods and (3) in the ordinary course of business from a seller in the business of selling goods of the kind purchased

Question 49

Secured Party vs Judgment Lien Creditor

Answer 49

A judicial lien creditor (a person who has acquired a lien on the collateral through judicial attachment, levy or the like, or a bankruptcy trustee) prevails over the holder of a SI in collateral if the lien creditor becomes such before the SI is perfected. On the other hand, a prior perfected SI has priority over a judicial lien. Look to see when the sheriff levies on the collateral.

Question 50

PMSI Vs Lien Creditor

Answer 50

If the SP files a FS w/ respect to a PMSI w/n 20 days after the debtor receives the collateral, the SP will have priority over a judicial lien arising between the time the security interest attaches (levy) and the time of filing.

Question 51

Future Advances vs Lien Creditor

Answer 51

For a perfected future advance to gain priority over a subsequent judicial lien, the future advance must be made
1) w/o knowledge of the lien
2) within 45 days of the lien arising or
3) pursuant to commitment entered into without knowledge of the lien.

Question 52

SP v Possessory (Statutory) Lien Holder

Answer 52

A possessory lien imposed by other state law in favor of those who supply goods or services (merchants lien, artisan’s lien) has priority over a SI (even if perfected) as long as the goods or services were provided in the ordinary course of business and the collateral remains in the lien holder’s possession

Question 53

Default

Answer 53

The right of a SP to proceed against collateral is triggered by default. Art 9 does not define the events that trigger default, but the SA usually will define default.

Question 54

Self help Repossession

Answer 54

After default, the SP is entitled to take possession of the collateral w/o judicial process if this can be done w/o a breach of the peace. When a SP breaches the peace, the SP loses the authorization to repossess, may be sued for conversion, and is liable for damages.

Question 55

Breach of the Peace

Answer 55

Any conduct by the SP that has the potential to lead to violence is a breach of the peace. Generally, physical presence by the debtor plus a verbal objection by the debtor over the repossession is enough to create a breach of the peace.

Question 56

Rendering Equipment Unusable

Answer 56

Without removal, the SP may also make equipment unusable and dispose of it on the debtor’s property if the SP can do so w/o breach of the peace.

Question 57

Self help (accounts)

Answer 57

If the debtor defaults and the collateral is an account, the SP can notify the person owning money to the debtor to make payment to the SP rather than the debtor. On notification, the account debtor must pay the SP, rather than the debtor. Payment to the debtor will not discharge the obligation.

Question 58

Strict Foreclosure

Answer 58

After default and repossession, the SP may retain collateral in full/partial satisfaction of the debt if the SP does the following
1) send its proposal to retain the collateral to (a) any other SP from whom the foreclosing party has received notice of a claim to the collateral and (b) any other SP who has perfected a Si in the collateral by FS or noting on cert of title. It a notified party objects, the collateral must be disposed by sale.
2) the SP must also obtain the debtor’s consent. The debtor consents either by (1) agreeing in an authenticated record after default or (2) in the case of a full strict foreclosure, failing to make an authenticated objection.

Question 59

Resale of Collateral

Answer 59

Every single aspect of the foreclosure sale must be “commercially reasonable””
After default, the SP may sell, lease, license, or otherwise dispose of the collateral in its condition when repossessed or after reasonable preparation. The sale may be either public or private, and may be by one or more Ks. The sale discharges the SI under which the sale is being made and all subordinate SIs.
1) reasonable notice that is authenticated by the SP must be given to (1) debtor and any sureties on the debt and (2) to any other SP who have notified of their interests and (3) to any SP who perfected by filing. Notice is not required when collateral is perishable or threatens to decline rapidly in value.
2) notice sent within reasonable time. 10 days or more
3) content of notice depends on type of sale and collateral. For public sale notice of the time and place is required. For private sale notice of the time after which the sale occur must be given. Notice must also describe the parties and the collateral.

Question 60

Proceeds of the Sale

Answer 60

The money from a foreclosure sale goes first to repay the costs of repossession and sale, then to pay off the debt of the foreclosing creditor, and then to pay off the debt of creditors w/ lower priority than foreclosing party. If any money is left, the debtor gets the surplus.
If the collateral when sold doesn’t bring in enough to pay the expenses of sale and secured party’s debt, the secured party may recover any deficiency from the debtor.
If the debtor is a consumer then after the sale the SC must send debtor an explanation of the calculation of any debt still owed or money the debtor will receive.

Question 61

Failure to Comply W/ Code Rules (in foreclosure sale)

Answer 61

A) Liability for Actual Damages
B) Minimum Recovery for Consumer Goods
C) Possible loss of Deficiency Judgment (rebuttable presumption that the sale proceeds equal the amount of the debt)

Question 62

Debtor’s right to Redeem

Answer 62

Any time before the SP has resold the collateral or has entered into a K for its disposition, or the obligation has been discharged by the SP’s retention of the collateral, the debtor may redeem the collateral. Debtor must tender fulfillment of all obligations secured by the collateral plus additional reasonable expenses.

Question 63

Fixture

Answer 63

Fixtures are goods that have become so related to real property that an interest arises in them under real property law. NOTE no security interest can exist in ordinary building materials that are incorporated into an improvement on land.

Question 64

Perfection for Fixtures

Answer 64

To perfect a SI in fixtures, a fixture filing must be made in the office of the clerk of the circuit court. In addition, a fixture filing FS must reasonably identify the real estate and must show the name of the owner

Question 65

Rights on Default of Fixtures

Answer 65

When the SI in the fixture has priority over all interests in the real property, the holder of the Si in the fixture, may upon default, remove the fixture from the real property. If the debtor dos not own the property, the creditor must reimburse the owner of the property for the cost of repair damage

Question 66

Secured Party v Real Estate Interest

Answer 66

By statute in FL, a SI in fixtures generally is NOT VALID against someone w/ a conflicting interest in the real property unless (1) the SI was perfected by fixture filing, and (2) the real property interest arose after either the goods were affixed or the SI was perfected, whichever occurred later.
EXCEPTION
A perfected SI in fixtures has priority over a conflicting SI in the related real property if (1) the SI was perfected pursuant to FL’s cert of title law (2) the SI in a manufactured home transaction or (3) the party w/ the real prop interest consented to the SI or has disclaimed interest in the fixtures.

Question 67

Accessions

Answer 67

Accessions are goods that are physically united w/ other goods in such a manner that the identify of the original goods is not lost (ex, tires on car)

Question 68

Perfection in Accessions

Answer 68

If a SI is perfected when the collateral becomes an accession, the SI interest remains perfected din the new collateral.

Question 69

Priority

Answer 69

General rules of priority apply

Question 70

Special priority Rule - Vehicles

Answer 70

A SI interest in an accession is subordinate to a SI in a whole which is perfected by compliance with the requirements of the certificate of title statutes