Secured Trans Flashcards
6 steps to the basic approach to an ST transaction
- is transaction w/in the scope of art. 9
- classify collateral
- determine if SI has been properly created (has attachment occurred)
- determine the persons who are making claims to the collateral
- apply proper priority rules and rules governing repossession
List the 5 different types of transactions
- collateralized transaction
- sale of receivables
- consignments
- Ag lien created by statute
- Lease Purchase Agreements
what is a collateralized transaction
a type of ST transaction
any transaction, regardless of form, intended to create SI in personal property or fixtures.
property used:
- -already owned by debtor
- -acquired w/loan (PMSI)
- -after acquired property (inventory to be acquired in the future)
what is sale of receivables?
a type of ST transaction
outright sale of accounts chattel paper, payments intangibles, promissory notes
ex: selling bank outstanding accounts receivable
Consignments
Owner of the thing is the consignor/bailor and the bailee/consignee has authority to sell it for a commission from bailor
since it looks like bailor just owns it to the rest of the world he has to comply with art. 9 to get protection from his creditors
types of consignments that must comply with art. 9 (3)
- consigned goods worth total of 1000+
- consignor did not use goods for personal, family or household purposes
- a potentially deceptive consignee (consignee deals with like goods, not generally known to be in consignment)
what are agricultural liens created by statute?
A ST transaction
non possessory lien on farm products like crops/livestock created by state law for person who provides goods/services to the farmer
what is a lease purchase agreement?
when a lease isn’t a normal lease but an installment sale/credit sale
(ex: lease is equal to economic life of goods or lessee owns the property at the end, or option to buy for very nominal consideration
why do you need to classify the collateral?
can a piece of collateral fall into more than one classification?
from whose perspective do you classify collateral?
list the classification categories (3)
need to b/c rules of perfection and priority (and repossession/resale) depend on what it is
no, a piece of collateral can only be in one category
classify collateral from debtors perspective
- -principle use is determinative
- -principle use can change
- Goods
- semi-intangibles/intangibles
- proceeds
In general what is a ‘good’
what is specifically included
what is specifically excluded
list the ‘goods’ subcategories (3)
a category of classification for collateral
a good in general is a movable item or fixture
specifically included:
- standing timber
- growing crops
- unborn animals
specifically excluded
- money
- minerals before extraction
subcategories:
1. equipment
2. inventory
3. farm products
what is ‘equipment’
a type of good (a classification of collateral)
goods used/bought primarily for use in business (including farm or profession)
the default category under goods
what is ‘inventory’
a type of goods (a classification of collateral)
- -goods held for sale/lease in the ordinary course of business
- -raw materials and works in progress
- -consumed materials (ex: office supplies)
what is ‘farm products’ (2 req)
a type of goods (a classification of collateral)
any type of crops/livestock if meet 2 req:
- in possession of farmer engaged in farming operation
- in unmanufactured condition (ex: milk that’s not pasteurized yet)
list the subcategories under the semi-intangible/intangible classification of collateral (8)
- instruments
- documents
- chattel paper
- account
- deposit account
- investment property
- commercial tort claim
- general intangibles
what is an ‘instrument’
a type of intangible (a classification of collateral)
instruments represent money
ex: commercial paper, note, draft
what is a ‘document’
a type of intangible (a classification of collateral)
document of title
warehouse receipt
bill of lading (good in transit)
what is ‘chattel paper’
writing that evidence:
–monetary obligations (like a promissory note) and security interest in/lease of goods
what is an ‘account’
a type of intangible (a classification of collateral)
right to payment of money for goods sold/leased or services rendered not evidenced by instrument or chattel paper (ex: accounts receivable)
includes software licenses, fees, credit card receivables
what is a ‘deposit accounts’
a type of intangible (a classification of collateral)
checking/savings account of business but not a CD (a CD is an instrument)
accounts with financial institution
what is ‘investment property’
a type of intangible (a classification of collateral)
wall street stuff, stocks and bonds
what is ‘commercial tort claims’
a type of intangible (a classification of collateral)
business tort claims that do not involve personal injury
what is ‘general intangibles’
any other type of personal property, like IP, copyright, etc.
what are proceeds?
a classification category for collateral
whatever is received on sale, exchange, collection or other disposition of collateral/proceeds
what is attachment?
3 elements
the process by which the Si is created and becomes enforceable against the debtor so the creditor can repossess the collateral if the debtor doesn’t pay
- value: creditor gave value
- contract: Security agreement
- rights: debtor has rights in the collateral
(can occur in any order)
Explain the contract (the Security agreement) required for attachment
written or oral
contract between debtor and creditor where debtor gives creditor an SI in the collateral
can be oral (if collateral is in the creditors possession. a pledge)
or can be with authenticated record
- written/electronic
- signed w/present intent to ID debtor and adopt agreement
- describe collateral so it is clear what property can be repossessed upon default
can a security agreement be evidenced by control?
yes, SA is demonstrated by control if the collateral is a non consumer deposit account, electronic chattel paper, or investment property
after acquired property
consumer good exception
commercial tort claim
using new property to secure old loans
called floating lien, common with inventory and equipment
typically, SI doesn’t attach until stuff it bought and then attaches
Consumer Good Exception: after acquired property clause will only work for consumer goods acquired w/in 10 days of creditor giving value
doesn’t work with commercial tort claims
future advances
debtor can agree that collateral will serve as as collateral for new loans as well as current
–line of credit agreements
ex: get a line of credit for 75K but don’t wan it all now
Perfection and when is it relevant?
Perfection: process by which a creditor protects it’s SI from most other claimants to the same collateral
relevant when the fight over the thing is between the creditor and a third party claiming the same collateral
not relevant when it it between the debtor and the creditor (here creditor wins if attachment)
2 elements of perfection
6 ways to perfect
attachment
- -value
- -contract
- -rights (debtor has rights)
and act of perfection
- -appropriate act depends on the classification
1. possession
2. filing financial statement
3. automatic permanent (attachment alone is enough)
4. automatic temporary (attachment alone sufficient for short time)
5. control
6. notation of the SI on the cert. of title
possession by perfection
when does it work?
when doesn’t it
how is it lost
exception to how it’s lost
a way to perfect SI
almost all tangible collateral may be perfected by possession b/c it puts the world at notice
but the thing has to be very physical in nature, so not accounts, electronic docs, intangibles
if creditor loses perfection, it will be lost and as though he never had it.
20 day exception for instruments, negotiable documents and certificated securities
filing of financing statement
what it does/doesn’t work for
4 requirements
a way to perfect SI
almost all collateral can be perfected like this
–not: deposit accounts or money
requirements
- name of debtor and creditor
- address of debtor/creditor
- debtors authorization in authenticated record
- description of collateral ( can be broad) or land if it’s timber or something
filed under debtors name
what if debtor changes his name (so the financing statement won’t be found now)
if the debtor changes his name:
–for the collateral debtor has at the time of the change perfection continues
–for the collateral debtor gets w/in 4 months of the name change: perfection continues
–for the collateral debtor gets after the 4 months after the name change: perfection ends unless refilled under new name
where do you file a financing statement?
usually the state’s office in austin
but fixtures, minerals, timber: county where mortgage on real estate would be filed
how long do financing statements last?
how do you extend it?
5 years from the date of filing
except for recorded real property mortgage covering fixtures. that will continue until the mortgage is released/satisfied
to extend effectiveness of financing statement, creditor should file continuation statement w/in 6 months prior to the 5 year expiration date
Termination Statement
when required, what it is, consumer v. non consumer goods
consumer: req. creditor must file the earlier of:
- -w/in 20 days after debtors written demand
- -w/in 1 month after no outstanding secured obligation or commitment to make advances, even w/o demand
non consumer: only at debtors request
- -then must do it w/in 20 days of demand
- -debtor has responsibility of filing it and paying fees
fraudulently filing financing statement
can’t file financing statement if you know it’s forged, has a materially false statement or is groundless
min penalty: 5K plus court costs and reasonable attorney fees
automatic permanent perfection
PMSI or sale of promissory notes
automatic temporary perfection
proceeds
new value for instruments
delivery of instrument
proceeds: automatically perfected for 20 days, after debtor gets them then need to do something
new value for instruments, negotiable documents, certified securities: automatically perfected for 20 days (ex: D gives bank an SI and bank gives D 1K. 20 days automatic perfection in 1K)
delivery of instrument, negotiable doc, or security to D for 20 days
–lose possession but still perfected for 20 days. better get it back in 20 days
Perfection by control
investment property, non consumer deposit accounts, electronic docs.
means creditor has right to sell/cash in collateral w/o further action by debtor
notation on the cert. of title to show perfection
cars
boats
manufactured housing
note directly on the certificate
but not if it is collateral inventory. then you have to file or take possession.
–difference between an individual’s car and dealership’s cars
perfection of proceeds
automatic perfection for 20 days. then will last longer if:
–same office: ex: D gives bank SI in inventory and the bank perfects by filing. then D trades inventory for equipment, the bank remains perfected b/c both the inventory and the equipment are perfected in the SoS office
–identifiable cash proceeds: ex: D gave bank SI in equipment, but then D sole some of for money. Bank still perfected as long as cash identifiable
–proceeds perfected w/in 20 day period
in multistate transactions, which state’s version of the UCC is used?
if the person moves?
general rule: where debtor is located
- individual: residence
- organization: state where organized/place of business
(exception for timber, fixtures or things perfected by possession. deposit accounts)
if debtor moves, perfection continues for 4 months
-perfection by possession continues if perfected under new state law
Priority: a Secured Creditor v. Unsecured Creditor
secured creditor wins
the perfected statutes of the secured creditor is irrelevant
ex: PMSI in TV and a CC
Priority: Secured Creditor v. Secured Creditor
if both are unperfected: first to attach
if one is perfected: that person wins
if both are perfected: the first to either file or perfect (knowledge is irrelevant)
Priority exception for a PMSI in goods
if one creditor has a PMSI in goods (not livestock) then PMSI creditor prevails even if second as long as it is perfected at the time the debtor gets possession of the collateral that the PMSI is based on or w/in 20 days after
Priority exception for PMSI in inventory
notice
how long notice lasts
PMSI in livestock is basically the same
if one creditor has a PMSI in inventory, he will win if:
- -PMSI creditor perfected at time debtor gets possession of inventory and
- -proper notice of conflicting security interests
- —to creditors who already filed w/respect to the collateral explaining the PMSI, describing the collateral
notice must be done before debtor gets possession
notice effective for 5 years
Priority exception for deposit accounts
secured party with control will win
priority exception for investment property
secured part with control over investment property has priority over secured party who doesn’t
Priority: Secured Party v. Donee
if debtor makes gift of the collateral to a donee, the collateral remains subject to the SI
Secured Party v. Purchaser
generally the Secured party wins
exceptions where the purchaser will win
- gives value
- takes delivery of the item
- has no knowledge of the SI at the time of delivery
however, if PMSI creditor perfects w/in the 20 day after debtor gets the collateral, but sometime after debtor sells it to purchaser the creditor will win
Priority exception for the BIOC
BIOC wins over secured creditor if:
- -good faith, honesty in fact and reasonable commercial standards
- -w/o knowledge of SI violation
- -goods, not farm products
- -ordinary purchase (from person in business of selling goods of that kind)
- -creditor not perfected by possession
ex: bank with SI in store’s inventory, but store can still sell inventory to customers
never works for pawn shop
not for future advances
priority exception for the Consumer purchaser of consumer goods (garage sale exception)
purchaser prevails if:
- -consumer goods in buyers hands
- -consumer goods in seller’s hands
- -buyer has no knowledge of SI
- -buyer pays value
- -creditor not perfected by possession
Priority: Secured Creditor v. Lien Creditor
lien: general unsecured creditors who have judicial lien or a bankruptcy trustee
- if secured creditor is unperfected at time of lien, lien creditor wins
- if secured creditor is perfected then he wins
PMSI has those 20 days to perfect
future advances: Secured creditor will lose priority to lien creditor for future advances after both:
- -secured creditor gets knowledge of the lien
- -45 days elapse
Secured Creditor v. Stat. Mechanics Lien
mechanics lien wins if:
- -person furnished services/parts and labor/ with respect to goods covered by the SI
- -in the ordinary course of his business
- -collateral is in the possession of the stat. lien holder
Priority with fixtures. the secured party or the holder of the mortgage?
gen the secured party if:
- -perfected before real estate interest recorded and
- -perfected w/fixture filing
PMSI will win if it’s a fixture filing w/in the 20 days (but only if the competing real estate interest isn’t a construction mortgage)
Remedy of Repossession (if there is a default)
no judicial process needed, it’s a self help remedy
don’t need to give debtor notice
can’t breach the peace during repo (if so, strictly liable. conversion, actual damages, punitive)
Creditors choice after Repo
- resell collateral
- -sue for deficiency or give surplus to debtor - strict foreclosure
- -keep collateral and call it good
Does creditor who has repossessed an item have to give debtor notice of the sale?
when not
contents of notice
timeliness
who gets notice
generally yes
not if:
- perishable
- going to decline quickly in value
- it’s customarily sold on recognizable market (stock)
contents of notice:
- description of debtor, secured party, collateral
- method of sale
- statement debtor entitled to accounting
- time and place of sale
- explain D liable for deficiency
- number to reach ppl to get info about sale
must be timely before the sale
who: Debtor, sureties, if not consumer goods then other creditors
Debtor’s right to redeem
debtor has ability to cure default and regain collateral if:
- not yet sold
- strict foreclosure not occurred
- D didn’t waive right
- must pay fulfillment of all obligations
- must pay creditors reasonable expenses
standard of care for sale of collateral after repo
must be commercially reasonable. fact question
burden of proof on creditor to show commercial reasonableness
ability of creditor to purchase the collateral at the re-sale
public sale/auction: yes b/c there is a bidding to keep it fair
private sale only if recognized market (stocks) or widely distributed standard price
the title the purchaser gets at resale of collateral
the reselling creditor warrants title, possession, quiet enjoyment unless disclaimed
penalty for not complying w/resale req
actual damages and if consumer goods the finance charge plus 10% of principal
Strict Foreclosure
creditor takes the collateral in total satisfaction of the debt
for consumer goods this is the only option (if they pick foreclosure) but for non consumer goods they can take it in part satisfaction and demand money for rest
express and implied strict foreclosure
express: debtor agrees in authenticated record made after default
implied: debtor fails to object to creditor’s proposal to strictly foreclose w/in 20 days
If debtor objects to strict foreclosure
if timely (w/in 20 days) then has to sell it
