Secured Transactions Flashcards
Secured transaction
agreement between debtor and accreditor that debtor’s personal prop will serve as collateral for the loan
If debtor defaults, creditor has all rights to repossess the collateral and use it to satisfy the debt
attachment
arrangement linking debt to a particular piece of collateral; how security interests are created; how the prop becomes liable for the debt; how creditors get repossession rights; all you need to get enforcement rights, no perfection needed
perfection
providing notice of a security interest that allows creditor to establish a claim superior to other parties who may wish to claim an interest in the same collateral; Need attachment + perfection = to have good standing in a priority dispute
priority
process of resolving priority disputes between multiple claimants to same collateral
enforcement
rights and duties of a secured party who enforces its interest in collateral
Steps for answering a question
- Who has priority?: 6-step approach
- Enforceable interest?: attachment
- Creditor perfect?: perfection
Who has priority? 6-step approach:
- Determine that you have a secured transactions problem - “security agreement,” “security interest”
- Move to the call of the question, identify and classify the property at issue
- Determine which parties have or claim an interest in the collateral
- For each security interest, assess:
- Attachment: Has that security interest attached? To which collateral? When?
- Perfection: Has the secured party perfected its security interest? When? How? Has anything happened that might destroy perfection? - Use this information to find the correct priority rule
- Apply the priority rule to the fact and resolve the dispute
security interest
interest in personal prop or fixtures that secures payment or perf of an obligation
security agreement
Foundation of a security interest; contract that creates a security interest
secured party
creditor who obtains security interest in debtor’s prop
obligor
party that must pay or perform the obligation that collateral secures; usually same person as debtor
debtor
party who has an interest other than security interest in the collateral; Usually debtor owns the collateral; usually same person as obligor
ex: friend helps you by co-signing loan and her car secures the loan - she is the debtor (you are the obligor and she is a secondary obligor)
Article IX covers…
Governs transactions, regardless of form, that create a security interest in personal prop or fixtures by contract
Does article IX apply to real estate/prop?
No, except to fixtures
Agricultural liens
interest in farm products that secures payment or perf of an obligation for goods or services furnished with respect to farming ops or for rent on real prop in connection with a farming opp; covered by article IX
Are sales of rights to payment covered by article IX?
Certain ones:
1) Chattel paper
2) Promissory notes
3) Accounts
4) Payment intangibles
Treat the buyer as a secured party and seller as the debtor.
Meaning buyer must perfect its interest in purchase collateral in order to have a superior claim.
Are consignments covered by article IX?
Certain consignments
collateral
prop subject to a security interest
how to classify collateral?
Look at principal use at hands of debtor
Goods
anything movable at the time the security interest attaches
But also includes fixtures, standing timber, unborn animals, growing or unharvested crops, manufactured homes
Consumer goods
goods acquired primarily for personal, family or household purchases; subcategory of goods
Ex: electronics, furniture, boats, home appliances
Farm products
crops, livestock, supplies used or produced in farming ops; subcategory of goods
Ex: animal feed, fertilizer, eggs, veggies
Not farm products: farming equipment—we treat this as equipment
Inventory
Goods that are not farm products that are held for sale or lease. Also includes goods furnished under service contract, raw materials, works in progress, or materials used or consumed in business. Subcategory of goods.
Ex: anything out on shelf at stores
equipment
Goods that don’t fit into other defs. Subcategory of goods.
Machinery, delivery vans, office equipment, farming equipment
Fixtures
Subcategory of goods???
If attached to real property in such a way that an interest arises in them under real prop law. Basically, once attached not going to take it with you when you move; kind of permanent.
Ex: toilet, septic tank, chandeliers (vs. curtains)
Can classifications change?
Yes
Rights to payment
right to be repaid money by a third party that debtor uses as collateral for a loan.
Look for transaction where 3rd party owes money to debtor and that right to payment is the collateral for the loan.
Start by ruling out chattel papers or instruments. If not either of those, most likely an account. But those don’t encompass right to be repaid by a loan of money, so if it’s that, then consider payment intangibles.
Instrument
subcategory of right to payment
includes promissory notes, checks, and drafts(?). Governed by article 3 of UCC.
If you see a check or a promissory note and that is collateral for the loan, it’s an instrument.
Chattel paper
subcategory of right to payment
record with 1) a monetary obligation and 2) a security interest or a lease
Ex: article 9 secured transaction—if that contract used as collateral for diff loan
Ex: if landlord uses your apartment lease as collateral for loan
Accounts
subcategory of right to payment
Right to be repaid money for prop sold, leased, or licensed, or for services rendered. Also includes a company’s accounts receivable, right to be repaid under insurance, and amounts owing on credit cards.
Payment intangibles
subcategory of right to payment
Catch-all category. A right to be repaid a loan of money that does not itself qualify as an instrument or chattel paper.
Accounts does not include rights to be repaid a loan of money.
Documents
documents of title that give holder ownership rights in goods held by a bailee. Someone is holding the goods and there is a document representing the ownership rights to the goods.
Ex: bills of laiding(?) Warehouse receipts; Investment prop, r(?) certificated and uncertified securities, stocks and bonds
Deposit accounts
bank account (Vs. account: the right to payment for goods sold or services rendered)
Commercial tort claims
Claims possessed by an org or individual that arose in course of org’s or individual’s business.
Does not include claims for personal injury or death.
Letter of credit rights
right to payment for perf under a letter of credit
General intangibles
Residual category.
Ex: Blueprints, copyrights, trademarks, software
Attachment requirements
Violet Roses Smell Amazing
- Value
- Rights in the collateral
- Security agreement
Value requirement for attachment
- Typically given by secured party—the loan that’s underlying secured transactions
- Can be given by providing the samed(?) consideration needed for the contract
- But no new value needs to be given
- Binding commitment to extend credit in the future is also value (line of credit)
- May provide for future advances
Rights in the collateral requirement for attachment
- Debtor must have this
- Often draws from property/sales law if complicated
- Security interest only attaches to the rights the debtor has in the collateral. Ex: if it’s a leasehold, joint tenants, etc.
- Thieves cannot grant security interests in stolen goods. But if debtor has voidable title to goods, may still have power to transfer good title to good faith purchaser for value. Then debtor can create an enforceable security interest. Secured party qualifies as a good faith purchaser for value.
- May come up in context of after acquired prop (prop acquired after loan signed). Security interest can attach, but does not occur until debtor obtains rights in the collateral.
Security agreement requirement for attachment
Most often, an authenticated security agreement describing collateral.
If not, secured party can get possession or control pursuant an oral or unauthenticated agreement. Could also transfer possession or control of the collateral to the secured party and that would satisfy this component. Must be pursuant to a security agreement. Person in possession or control must act with reasonable care wrt the collateral, must keep it identifiable, must relinquish it once obligation satisfied, and can charge debtor for reasonable expenses for storing and maintaining it.
Needed components for an authenticated security agreement describing the collateral:
RAD:
Record:
- Does not need to be written, but stored in a way that is retrievable (like email)
Authenticated (by the debtor):
- Signing, whatever symbol you’d attach to show intent of debtor to be bound
Describe (the collateral):
- Standard: Must reasonably ID the collateral.
- -> Ex: “all of the debtor’s inventory”; serial number; your Mazda (if you only have one; all the jeweler’s Rolex watches.
- -> Not ex: some of the Rolex watches; my favorite Rolex watches…
- Exception: For consumer goods and commercial tort claims, need more particularity.
- -> Ex: “all of my consumer goods” is NOT sufficient
- A super generic one (like all of the debtor’s assets) not reasonable.
- -> But fine when describing collateral in financing statement.
Possession vs. control:
Possession: If you can hold it
Control: Things you can’t hold
After-acquired prop
Prop acquired by debtor after security interest attaches (after loan is closed)
After-acquired prop rule re: attachment
Because a security interest only attaches to collateral described in security agreement, a creditor that wants to have a security interest in prop acquired by debtor after agreement authenticated, they must include an after-acquired prop clause.
Language: “all of the debtors existing and after-acquired…,” “all of the X now owned or hereafter acquired”
If no reference to it, then gen rule is that interest only attaches to collateral that existed at time agreement executed. Exception: in most states, agreement that describes inventory or accounts, rebuttable presumption that it includes after-acquired inventory or accounts.
Accessions
goods physically united with other goods so that ID of original goods is not lost
Ex: security interest in car stereo installed in car, stereo now accession to the car
What happens if accession?
if collateral becomes this, security interest not lost, it continues in the accession
Does it expand it? Look to terms of security agreement to see whether lender with security interest in prop to which accession is united obtains a security interest in rest of the goods.
Comingled goods
Also united, but ID is lost.
What happens if comingled goods?
Security interest does not continue in OG goods when comingled, but will attach to larger product/mass that results.
Ex: Security interest in flour and eggs, mixed together to make cookies. Interest in flour/eggs will not continue. Creditors have proportional interest in cookies that resulted.
