REG - Secured Transactions Flashcards
What happens with for a purchaser for value at the disposition of collateral by a secured creditor after the debtor’s default?
A purchaser for value at a public sale who is without knowledge of any defects in that sale and who is not in collusion with the secured creditor will take the property free of the debtor’s rights and any security interests.
A purchaser for value at a private sale will take free of the debtor’s rights and any security interests if he acts in good faith. The debtor’s remedy for an improperly conducted sale is a cause of action for money damages against the secured party.
The debtor and any secondarily secured party have an absolute right to redeem the collateral by tendering all amounts due the secured party.
What can a secured creditor do at a public or private sale?
A secured creditor may dispose of the collateral at either a public or private sale. The secured party may buy party may buy at any public sale and may also buy at a private sale if the collateral is either widely distributed at a standard price or is customarily sold in a recognized market.
Secured parties with subordinate claims do not have the right to redeem the collateral after disposition to a third party has been made. Subordinate secured parties do have a right to the proceeds from the disposition after pmt of the secured party’s reasonable expenses and the debt secured by the collateral.
What does the perfection of a security interest by filing a financing statement do?
It serves to protect the secured party’s interest in the collateral against most creditors who acquire a security interest in the same collateral after the filing. It will not defeat all other parties who acquire an interest in the same collateral; rather it gives the secured party his best possible rights in the collateral.
Purchasers from a merchant in the ordinary course of business can take the collateral free of any prior perfected security interest unless the purchaser knew that the merchant was selling the goods in violation of a financing statement.
Note a creditor does not need to perfect the security interest to enforce it against the debtor.
What can perfect a security interest?
Documents of title (negotiable warehouse receipts) merely represent the goods, thus a perfectly security interest in the warehouse receipts (by taking possession of the documents) is also a perfected security interest in the goods covered by the document. They could have perfected by filing a financing statement, but doing so would not protect them against a good faith purchaser.
When a secured party is taking a possessory security interest, an oral security agreement is sufficient to create such an interest.
A, a wholesaler of TVs contracted to sell 100 to B, a retailer. B signed a security agreement with the 100 sets as collateral. The security agreement provided that A’s security interest extended to the inventory, to any proceeds thereform, and to the after acquired inventory of B. A filed security interest centrally. B sold a set to C who had knowledge of A’s perfected security interest. C gave a note for the purchase and signed a security agreement using the set as collateral. B is in default. What can A do?
Proceeds include whatever is received on the sale of the collateral. The secured party, A, has the ability to assert rights against the proceeds received by the debtor, B, upon sale of the collateral. A has a perfected security interest in the proceeds from the sale of the TV sets because the security agreement states proceeds are covered. A is entitled to any pmts C makes to B on the note.
Normally, access to the proceeds upon default by the debtor is an integral part of an inventory financing agreement. C is a purchaser in the ordinary course of business, is free of A’s perfected security interest in inventory.
C would be subject to A only if he knew that the sale was in violation of the A’s security agreement.
Who has priority claim? A is seller and has purchase money security interest and filed financing statement when B defaulted B is purchaser C is secured creditor of B in TV D is creditor on B's default E is customer bought TV from B
A took a purchase money security interest in the TV which is considered consumer goods in customer’s possession. A’s security interest was perfected automatically upon attachment. Thus, A can defeat a subsequent secured creditor C of the TV set as A’s security interest was perfected prior to C’s perfected. A can also defeat a creditor of B, D as D’s judgment was after A’s perfection.
E, normally a good faith purchaser for person use would defeat a prior perfection. However, A engaged in a second method of perfection (filing financing statement) prior to the sale of the TV to B, allowing A to defeat E.
What is required to create an enforceable security interest under the Secured Transactions Article of the UCC?
A security agreement must exist
The secured party must give value
The debtor must have rights in the collateral
Note that a financing statement does not need to be filed to create an enforceable security interest.
What takes priority: prior perfected security interest vs artisans lien
The UCC states that when a person in the ordinary course of business furnishes services or materials for goods subject to a security interest, an artisan’s lien on such goods, which arises under state law, takes priority over prior perfected security interests unless the statute expressly provides otherwise.
When does attachment take place?
A lends to B and A gets B to sign a security agreement that listed as collateral all of the present and future inventory of B. A did not file financing statement. C is aware of security interest and extends credit.
Attachment takes place due to the face that there was a signed security agreement, A gave value, and B had rights in collateral. Thus, A’s security interest against B is enforceable.
If A does not perfect its security interest, it is not effective against third parties unless they were aware of it. C was aware so A has priority over C.
What is the effective date of when the security interest attaches?
June 3 - A loans B 20k to buy PCs used in business, B executes promissory note and security agreement
June 7 - B purchases PCs and gets possession
June 10 - C, creditor of B levied on PCs
Attachment of a security interest occurs when the following 3 reqs are fulfilled: secured party gives value, debtor has rights in the collateral, and a record of the security agreement exists.
The secured party gave value and the security agreement existed June 3, but the debtor did not acquire any rights in the collateral until June 7, the day of purchase.
A qualifies as purchase money secured lender.
Under the Secured Transactions article of the UCC, what are the duties of a secured party?
Filing or sending the debtor a termination statement when the debt is paid
Confirming at the debtor’s request, the unpaid amount of the debt.
Using reasonable care in preserving any collateral in the secured party’s possession
How does does filing a financing statement last?
Filing a financing statement lasts for 5 years and can be continued with a continuation statement if filed within 6 months of expiration. Financing statements can be refiled for each new five year period.
Filing a financing statement is one way to perfect an attached security interest, but is not a requirement for attachment of a security interest to occur.
A gave loan to B for purchase of equipment with a security interest. B is in default and A has possession of equipment. What are their rights?
Upon default, the secured party A has right to sell the collateral at either a private or public sale. in both, A must act in a commercially reasonable manner and normally must give notice to the debtor prior to the sale.
B can redeem the collateral at any time up to when it is sold by paying the full obligation plus expenses of the secured party incurred during the repossession of the equipment.
A may retain the collateral if written notice of such was sent to the debtor, B and B did not object within 21 days.
Upon default, the secured party has the right to retain or sell the collateral to satisfy the obligation. However, the secured party cannot retain the collateral if it is consumer goods and the debtor has paid 60% or more of the obligation. In example, it is equipment not consumer goods, and 50% paid not 60% so B is not entitled to a compulsory disposition.
If collateral is consumer goods, A can sell at private sale without notice to other secured parties. However, A must notify B the debtor before the sale unless the collateral is perishable or threatens to decline in value.
If the collateral increases in value while in A’s possession, A can keep the increase as additional security unless actual money is received by A, in which case the secured party must give it to the debtor or apply the amount to the obligation.
What is automatic perfection? A sells to B and has security interest signed but did not file a financing agreement. B sells to C who is unaware and B does not pay.
Automatic perfection is obtained when it has a purchase money security interest in consumer goods since the steps for attachment took place and B bought item for household use.
However, auto perfection is not effective against a good faith purchaser for value who buys from a consumer for consumer use.
A cannot repossess from C.
When does a security interest attach?
Security interest attaches when the following occurs in any order: secured creditor gives value, debtor has rights in the collateral, and a security agreement exists (debtor must have agreed). The security agreement can be oral if the secured party obtains possession or control of collateral. It can also be in writing or authenticated electronic form, where it has to demonstrate the debtor’s intent to create a security interest, and describe the collateral.
Upon attachment, the security interest is enforceable between the debtor and secured party. If it is perfected by filing financing statement in the appropriate state office, it is effective against subsequent creditors claiming an interest in the collateral.
