Secured Transactions Flashcards
What are the two types of PMSI?
- Seller financed - secured party sells collateral on credit and retains security interest.
- Financer Financed.
What are the collateral classifications?
- Goods- all things moveable at the time of attachment.
(a) Consumer goods (b) equipment - used or bought for use for business (default) (c) farm products (d) inventory (held for sale or lease). - Semi intangible and intangible property
(1) Instruments - paper representing the right to be paid money (promissory notes)
(2) Documents - papre representing right to recieve goods (bill of lading or warehouse recipets)
(3) Chattel paper - promise to pay combined with a security interest
(4) investment property
(5) Accounts - includes a right to payment
(6) Deposit accounts(nonconsumer)
(7) Commercial tort claims
(8) General intangibles - IP
What is the scope of article 9?
What is a disguised lease?
Article 9 applies to a transaction, regardless of its form, that creates a security interst in personal property or fixtures by contract.
A secured sale disgused as a lease - relevent question is at the time the parties entered into the transaction, was it reasonably likely that the lessor would get the item back when it still had meaningful economic value?. If no, then article 9 applies.
How is an article 9 security interest created?
Attachment. Unless the collateral is in the posession or control of the secuted party pursuant to an agreement, a written security agreement is required.
Possession - If collateral is in posession of secured party pursuant to an oral agreement, this meets the security agreement requirement. (pledge).
Control - if collateral is nonconsumer account, chattel paper, or investment property, security agreement may be evidenced by control.
A. The security agreement, when written, must (1) show an intent to create (2)authenticated by the debtor(signed or any symbol) (3) reasonably identify the collateral.
B. Secured party must have given value - any consideration, including past conisideration, is sufficient.
C. Debtor must have rights in the collateral.
What is the general rule on after aquired property?
Withoutn a explicity after aquired property cluase in the SA, the secured parties security interest only reaches collateral the debtor had rights in at the time the debtor signed the SA.
Exception - courts will imply an after aquired property clause when the collateral is the type that is rapidly depleted and replenished. (inventory, accounts).
What are proceeds and are they included in secured property?
What is the comingled cash test?
Includes whatever is recieved upon the sale, exhange, or other disposition of collateral.
A security interest autormatically gives the secured party a right to indentifiable proceeds.
Lowest intermediate balance test - look at balance in cominggled bank account starting at the time the proceeds are deposited and ending at the time you are applying the test. The lowest balance during that time is identifiable proceeds.
How may a security interest be perfected?
- Automatic perfection - PMSI in consumer goods.
- Possession of collateral by secured party -
- Perfection by control - (investment property and chattel paper, and nonconsumer bank accounts). Nonconsumer bank accounts can only be perfected by control!.
Nonconsumer bank accounts - (a) bank in which it is maintained automatically has control (b)putting the deposit account in the secured parties name or agreeing in authenticated record with debtor and bank that bank will follow secured parties orders without consent.
- Notation of lien on certificate of title - (cars and trucks ) - only way is to get relevant government authority to note secured parties lien on the title unless debtor is holding as inventory than you can just file a financing statement.
5. filing a UCC - 1 financing statement.
What must be included in a UCC - 1 financing statement?
Where are they filed?
How long do they last?
- Debtor’s name- unexpired driver’s license. if none, name in the community. (if error, as ling as it is not seriously misleading, it is fine). Can you find the name with the incorrect spelling?
- Description of the collateral (reasonably identify) - here, supergeneric desciprtions are valid unlike in the SA.
(3) Secured parties’ name- error doesnt matter.
(4) Real - property related financing statements - if involving real property, must indicate it should be filed with real property, identify the property, and give the name of the record owner of the property. - No signature required, but debtor must authorize the filing. However, they automatically authorize by signing the security agreement.
Usually with secretary of state in the state where the debtor is located. (if they move, secured party has four months and if the collateral is transferred, they have a year before it becomes unperfected.
5 years - if you are going to extend, you file a continuation statement between 4.5 and 5 years.
How are proceeds of perfected collateral also perfected?
If a secured party has a perfected secuirty interest in collateral, a secured party automoatically has a perfected security interest in whatever proceeds the detbor recieves in exhange for that collateral for 20 days. To remain perfected after 20 days, the secured party must take further action unless
- proceeds are identifable cash proceeds or
- The security interest in the orginial collateral was perfected by filiing a financing statement, and the proceeds would be perfected by filiing in the same place as the financing statement for the originial, and the proceeds were not purchased with cash proceeds of the collateral. (same office rule).
What is the general priority rule on a secrued party vs. a secured party?
Two unperfected?
What are the special rules?
The first to file or perfect, whichever occurs first, has priority.
First to attach
Perfected vs. unperfected secured creditor? - perfected secured wins.
PMSI in goods other than inventory or livestock - priority over a conflicting SI in the same goods or its identifidable proceeds if the PMSI is perfected at the time the debtor recieved possession of the collateral or within 20 days thereafter.
PMSI in inventory or livestock - if, before debtor recieves posession, the secured party (1) perfects and (2) sends an authenticated notifcation to holders of previously filed conflicting security interests in the collateral.
Conflicting PMSI - Seller financed beats financer financed.
Deposit accounts - A SI perfected by control has priority over a security interest perfected via proceeds. If both were perfected by control, then first to obtain control. One who put the account in own name wins. A bank that has control because they are the custodial bank is second.
WHat is the priority rule for a Secured party vs a buyer of collateral and its exceptions?
If you buy something with a security interest on it, the security interest stays on it. There are however, a few exceptions to this general rule.
- Authorized sale by secured party. - may be express or implied. (sale of inventory to an ordinary consumer).
- Unauthorzied sales - buyer in ordinary course of business takes free of a security interest created by his seller even if it is perfected and they know of SI.
(a) BIOC - good faith, without knowledge that the sale violates the rights of another person, person is in the business of selling such goods. You have to know it violates the security agreement. - Buyer not in ordinary course of business - take subject to perfected SI.
- Consumer to consumer - buyer takes free of SI even though it is perfected if he buys without knwoeldge, for value, and for personal use unless secured party files financing statement.
What is the rule on secured party vs. Judgement Lien holder?
What is the special rule?
UNperfected SI is subordinate to the rights of a perosn who becomes a lien creditor before the SI is perfected. If perfected before person becomes lien creditor, perfected wins.
PMSI vs. Lien creditor - if they file within 20 days after debtor recieves posession, he takes priorty over the rights of a lien creditor which arises between the time the SI attaches and the time of filiing.
Statutory lien beats out even a perfected security interest.
What is the rule on self help reposession(ST)?
Self help is permitted as long it can be done without breaching the peace. Breaching the peace is any conduct that has the potential to lead to violence. - Physcial presence + verbal objection usually satisifes.
What is the rule on the resale of collateral?
Every aspect of the sale must be commercially reasonable. - must provide notice, to debtor and other secured parties. If the sale is not commercially reasonable, a secured party is liable for the actual damages caused by the violation, the debtor is entitled to 10% of the cash price of the goods, and the secured party loses right to defiiency judgement.
What is a fixture?(ST) What is the priorty rule for fixtures?
What are accessions ?
Personal property that was intended to become a permanent aspect of realty.
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 vs. prior real estate itnerest - Prior real estate interest wins unless PMSI if it is perfected by fixture filing before the goods become fixtures or within 20 days thereafter.
goods that are physcially united with other goods in such a manner that the indeitfy of the originial good is not lost (car tires). - apply general rules.
