REG 20 - Secured Transactions Flashcards
Collateral
(UCC Article 9 - Secured Transactions)
A transaction where a Creditor either lends money or gives credit to the Debtor & in exchange obtains a security interest in the Debtors’ property called Collateral (UCC Article 9).
The property is usually either Personal Property or Fixtures, NOT Real Property
Collateral Types - Tangible (4)
UCC applies to non-realty only. Primary types of Tangibles:
- Inventory - Debtor intends to sell the collateral in the ordinary course of business.
- Consumer Goods - Debtor intends to use the goods personally.
- Equipment - Debtor intends to use the goods in a trade or business.
- Chattel Paper - Writings that evidence both a monetary obligation & security interest in specific goods or equipment.
Collateral Types - INtangibles (4)
UCC applies to non-realty only. Primary types of INtangibles:
- Accounts - any right to payment for goods or services that is not evidenced by instrument. Credit card receivables.
- Negotiable Instruments
- Warehouse Receipts
- Bill of Lading
Parties against whom the Creditor needs protection?
(DOTS)
- Debtor - Creditor must attach
- Other Creditors - Creditor must attach & perfect
- Trustee-in-bankruptcy - Creditor must attach & perfect
-
Subsequent Buyer - Creditor must attach & perfect
- But 2 loopholes apply:
- 20 Day Rule
- Inventory Rule
- But 2 loopholes apply:
Purchase Money Security Interest
(PMSI)
When the Creditor gives the Debitor the purchase money or credit to aquire the collateral. A security interest in the collateral that is generally of a higher priority than DOTS (Automatic Perfection).
Attachment - PIG
Attachment gives a secured party (Creditor) the right to repossess collateral, when the Debtor doesn’t pay the secured debt. This gives the Creditor legally enforceable rights against ONLY the Debtor. In order to attach all 3 must occur:
- Property rights in collateral by debtor (“Rights”)
-
Interest must be Created - one of 2 ways:
-
Signed Security Agreeement - which must have:
- A reasonable description of the collateral
- Signed by the Debtor
- Take Possession (pledge as collateral)
-
Signed Security Agreeement - which must have:
-
Give Value to the Debtor
- Example: A line of credit or cash is given to Debtor
Perfection - FAT
(Heavily Tested)
Perfection gives the creditor legally enforceable rights against the Debtor & all other parties (DOTS) claiming an interest in the same collateral. To perfect, a security interest must be first attached & any 1 of the followng must be satisfied:
- File a Financing Statement
- Automatic Perfection
- Take Posession of the collateral
Perfection - FAT
(Heavily Tested)
Perfection gives the creditor legally enforceable rights against the Debtor & all other parties (DOTS) claiming an interest in the same collateral. To perfect, a security interest must be first attached & any 1 of the followng must be satisfied:
- File a Financing Statement - in the appropriate public office (For Consumer goods, Inventory, or Equipment)
- A description of the types of collateral
- Signature & address of Debtor
- Name & address of Creditor
- NOTE: Once perfected by filing a financing statement, perfection remains in effect for a period of 5 years. The period may be extended indefinitely by the filing of continuation statements by the creditor.
Perfection - FAT
(Heavily Tested)
Perfection gives the creditor legally enforceable rights against the Debtor & all other parties (DOTS) claiming an interest in the same collateral. To perfect, a security interest must be first attached & any 1 of the followng must be satisfied:
-
Automatic Perfection
- A PMSI in consumer goods (Debtor uses $$ to buy consumer goods) is automatically perfected without filing or taking posession as soon as it attaches.
- Loophole - if the Debtor sells the consumer goods to another good faith consumer, the new purchaser takes the property free of the automatic perfection (can’t be chased by Creditor)
-
To close the loophole, the Creditor must file a Financing Statement within 20 days of attachment.
- The 20-day rule also applies to equipment or consumer goods, but NOT inventory.
- A PMSI in consumer goods (Debtor uses $$ to buy consumer goods) is automatically perfected without filing or taking posession as soon as it attaches.
Perfection - FAT
(Heavily Tested)
Perfection gives the creditor legally enforceable rights against the Debtor & all other parties (DOTS) claiming an interest in the same collateral. To perfect, a security interest must be first attached & any 1 of the followng must be satisfied:
-
Take Posession of the collateral or document of title to the collateral.
- Must be done for negotiable & non-negotiable instruments, investment securities, & money.
Inventory Rule
If acquiring goods in the ordinary course of business (inventory to seller), buyer’s claim is superior to all other claims. So if the goods are purchased from a retailer the inventory is acquired free of all other claims, even if the purchaser is aware of the claims.
Manufacturer > Wholesailer > Retailer > Consumer
NOTE: Manufacturer cannot go after Retailer if the goods were considered inventory to the Wholesailer (Inventory Rule).
Creditor Responsibilities (3)
A secured creditor has certain responsibilities to the debtor in connection with the security agreement. They must:
- Use reasonable care to preserve any collateral in their possession.
- Confirm the unpaid amount of the debt when requested by the debtor.
- File or send the debtor a termination statement releasing the collateral once the debt has been repaid.
