Secured Transactions Flashcards
Attachment
Attachment gives the creditor rights against the debtor in the collateral.
To attach a security interest:
(1) Either the debtor must authenticate a security agreement granting the creditor a security interest in collateral that describes the collateral of the creditor must take possession or control of the collateral;
(2) The creditor must give value; and
(3) The debtor must have rights in the collateral.
Perfection
A creditor can perfect a security interest in goods by (1) filing, in the proper public office, a financing statement that is authorized by the debtor in an authenticated record; or (2) by taking possession/control.
PMSI
Created when a creditor advances credit or provides the funds needed to make a purchase possible and takes a security interest in the goods purchased.
Consumer Goods
Goods that are used or bought primarily for personal, family, or household purposes.
PMSI in consumer goods is automatically perfected upon attachment.
Equipment
Used or bought for use in business.
ALSO DEFAULT CATEGORY - Goods that are not consumer goods, inventory, or farm products.
Perfected Security Interest v. Perfected Security Interest (Priority)
First to file or perfect
Farm Products
Crops or livestock or supplies used or produced for farming operations or products of crops or livestock in their unmanufactured states if they are in the possession of a debtor engaged in farming operations.
Inventory
Held by a person who holds them for sale or lease to be furnished under service contracts; or materials used or consumed in a business in a short period of time.
Security Agreement
For the security agreement requirement for attachment, the security agreement must contain:
(1) Intent to create a security interest;
(2) Authentication (signature); and
(3) Description of collateral (reasonably identify).
After Acquired Property
Without an explicit after-acquired property clause in the security agreement, the secured party’s security interest only reaches collateral that the debtor has rights in at the time the debtor signed the security agreement.
UNLESS collateral is inventory or accounts.
Proceeds
Includes whatever is received upon the sale, exchange, collection or other disposition of collateral or proceeds.
Unless otherwise agreed, a security interest automatically gives the secured party a right to identifiable proceeds.
Lowest Intermediate Balance Test
Look at the balance in a commingle bank account starting at the time the proceeds are deposited and ending at the time you are applying the test. The law deems that the lowest balance during that time period is the secured party’s identifiable proceeds (but cannot exceed the value of the cash proceeds originally deposited).
How do you determine if an error in the name on a financing statement is seriously misleading?
To determine if a name error is seriously, check whether a search under the debtor’s correct name, using the filing office’s standard search logic, would retrieve the erroneous financing statement. If it does, the name error is not seriously misleading. If it does not return the erroneous financing statement, then the error is seriously misleading.
How many months does a debtor have to change their name on a financing statement to remain perfected?
4 months.
Where should a financing statement for real property be filed?
In the county where located.
Where should a financing statement for anything that is not real property be filed?
With the SOS
Where do you file a financing statement if there are multiple state transactions?
If individual –> Where debtor is at her principal resident
If registered organization –> Where organized
If unregistered organization –> Where PPB or Chief Executive Office
If debtor moves, how long does the secured party have to file in new jurisdiction?
4 months
If collateral moves, how long does the secured party have to file in new jurisdiction?
12 months
How long is a financing statement good for?
5 years
continuation statement must be filed 6 months before end of 5 years to remain effective
Unperfected Security Interest v. Unperfected Security Interest (Priority)
First to attach has priority
Perfected Secured Creditor v. Unperfected Secured Creditor (Priority)
The perfected secured creditor has priority.
PMSI in Goods Other than Livestock/Inventory (Priority)
Has priority over a conflicting security interest in the same goods, or its identifiable proceeds if the PMSI is perfected at the time the debtor received possession of the collateral or within 20 days thereafter.
PMSI in Inventory/Livestock (Priority)
Has priority over a conflicting security interest in the same inventory or livestock if, before the debtor receives possession of the inventory or livestock, the secured party (1) perfects, and (2) sends an authenticated notification to holders of previously filed conflicting security interests in the collateral.
PMSI (Seller Financed) v. PMSI (Financer-Financed) (Priority)
Seller-financed PMSI has priority over a financer-financed PMSI
Buyer in the Ordinary Course
A person who buys goods in good faith, without knowledge that the sale violates the rights of another person in the goods, and in the ordinary course from a person in the business of selling goods of that kind.
They take free of a security interest created by his seller even though the security interest is perfected and even though the buyer knows of its existence.
Buyers Not in the Ordinary Course
They take subject to perfected security interests. They take free from unperfected security interests unless they know of the security interest.
Consumer to Consumer Sales
A buyer takes free of a security interest even though it is perfected if he buys without knowledge of the security interest, for value, and for his own personal, family, or household purposes, unless prior to the purchase the secured party has filed a financing statement covering such goods.
Secured Party v. Judgment Lien Holders (Priority)
If security interest perfects, then levies lien –> security interest has priority.
If levy precedes perfection of the security interest –> judicial lien has priority.
PMSI v. Judgment Lien Holder (Priority)
If secured party files with respect to a PMSI within 20 days after the debtor receives possession of the collateral, he takes priority over the rights of a lien creditor which arises between the time the security interest attaches and the time of filing.
Secured Party v. Statutory Lien Claimants (Priority)
Statutory lien beats security interest.
Breach of the Peace
Any conduct by the secured party that has the potential to lead to violence is a breach of the peace.
Generally, physical presence by the debtor (or a representative of the debtor) + verbal objection = breach of peace.
How do you perfect fixtures?
(1) File financing statement of regular requirements;
(2) Reasonably identify the real estate;
(3) Show the name of the owner.
Secured Party v. Subsequent Real Estate Interest (Priority)
A security interest in fixtures has priority over any real estate interest that arises subsequent to the perfection of the security interest by fixture filing.
Secured Party v. Prior Real Estate Interest (Priority)
A prior real estate interest that is properly recorded has priority over a security interest that subsequently arises.
EXCEPT: PMSI takes priority over an earlier in time realty interest if it is perfected by a fixture filing before the goods become fixtures of within 20 days thereafter.
Secured Party v. Construction Mortgage (Priority)
Construction mortgage takes priority over a subsequent PMSI in fixtures even if the security interest is perfected by a fixture filing within 20 days of affixation.
When is fixture filing unnecessary?
Need not fixture file as to readily removable
(1) factory or office machines; or
(2) equipment that is not primarily used or leased for use in the operation of the real estate; or
(3) replacements of domestic appliances which are consumer goods.
Accessions
Goods that are physically united with other goods in such a manner that the identity of the goods is not lost.
