Secured Transactions Flashcards
Accessions
Goods that are physically united with other goods in such a manner that the identity of the original good is not lost
- E.g., tire on a car
After-acquired property clause
- Without an explicit clause, the secured interest only reaches collateral the debtor had rights in at the TIME of signing the security agreement
- Requires a CLAUSE indicating security interest in after-acquired property, e.g., “owned now or acquired later.”
- EXCEPTION: courts may imply one if the collateral is of a type rapidly depleted and replenished (inventory, accounts), i.e., without it, the security interest attaches to nothing
Grant of security interest in property obtained in the FUTURE
- Enforceable
- Contract b/w debtor creditor that allows creditor to take future property
ATTACHES whne debtor obtains an interest in property
Attachment, Generally
Gives the creditor rights against the debtor in the collateral.
To attach a security interest , requires ALL OF (in any order)
- The DEBTOR must AUTHENTICATE a SECURITY AGREEMENT granting the creditor a security interest in collateral that DESCRIBES the collateral OR the creditor must take POSSESSION of the collateral
- The CREDITOR must GIVE VALUE and
- The DEBTOR must have RIGHTS in the collateral
Security interest has been CREATED; steps necessary to create security interest effective against the DEBTOR
- All rights of secured creditor
** Not a secured creditor until ATTACHMENT
Change in use of collateral
Filed financing statement remains effective to protect the security interest
- No duty to monitor, amend, even if seriously misleading
Consumer-to-Consumer Sales
Buyer takes free of security interest if
- No knowledge
- For value
- Personal use
- No filed financing statement prior to purchase
- Consumer goods in hands of both buyer and seller
Beats out a PMSI for consumer goods unless the PMSI was also filed!
** Do PMSI automically attach?
ONLY IN CONSUMER GOODS!
** Name on financing statement
Debtor’s name must be listed on financing statement. Financing statement is only void if the name is seriously misleading.
Search with correct name using filing office’s standard search logic
- Would that still retrieve the financing statement?
- Cannot correct for SPELLING ERRORS!
** Order of attachment v. perfection
Cannot be perfected before attachment, but can happen simultaneously
Original Use Test
A debtor’s original intended use of collateral governs the collateral’s classification
** Perfected v. perfected
First to file financing statement OR perfect (whichever is earlier) wins
- Get whichever date is better for you
- Getting FINANCING STATEMENT filed ASAP (i.e. before security agreement is even entered into) is critical! Can save priority
- Knowledge of other interest does not matter
Not date of attachment!
Perfected v. unperfected
PERFECTED party wins
- Good strategy to challenge perfection of creditor
Perfection
A security interest is perfected when it has ATTACHED AND use method of PERFECTION
- Order does not matter
1. AUTOMATIC perfection upon attachment - PMSI in CONSUMER goods *** if not otherwise covered by a title statute
2. POSSESSION of the collateral by the secured party (not the debtor!) - Moment of possession; continues only so long as possession is retained
- Requires PHYSICAL possession, e.g., goods, not intangibles!
- Money: perfected ONLY by possession!
3. CONTROL - Investment property: taken whatever steps necessary to sell without further intervention from creditor
- Electronic chattel paper: system showing transfer of interest reliably establishes secured party as assignee
4. NOTATION of the lien on the certificate of title - ONLY way to perfect a security interest in property with TITLES, even if it is PMSI in a consumer goods!
- Must be done by relevant governmental authority
- E.g., cars and trucks, go to DMV
- If debtor was holding goods as INVENTORY, must perfect by filing a financing statement, instead of marking each and every certificate of title
5. By filing a FINANCING STATEMENT
** Perfection by Filing a Financing Statement
Aka UCC
Financing statement must contain notice indicating that person may have security interest in collateral
* Unlike security agreement, need not be signed by debtor, but must be AUTHORIZED, i.e., creditor is authorized to file financing statement
* Can use financing statement form, own document..anything with this info
Must contain -
1. Debtor’s NAME and filing address (indexed by name)
- Majority rule: name on unexpired driver’s license issued by state where statement will be filed
- If no applicable license, just their “name”…name by which you are known in the community
- If there is an error in the financing statement, just cannot be SERIOUSLY MISLEADING
- Cannot JUST be their trade name! E.g., unofficial company name
- Not responsible for filing office errors
- Describe the COLLATERAL
- Same rules as for security agreement, EXCEPT that here, SUPER GENERIC DESCRIPTIONS (e.g., all of debtor’s property) are VALID in financing statement
- Does NOT need to mention after-acquired property in financing statement as long as it is indicated in security agreement, and description in financing statement is broad enough to cover it - Secured party’s NAME and filing address
- Error is not seriously misleading
Perfection of a non-consumer deposit account
Only by CONTROL!
- Bank where maintained automatically has control over account
- Putting deposit account in secured party’s name
- Control agreement: contract b/w debtor, creditor, and bank to give bank account to creditor
** Perfection of a PMSI
- Consumer goods: automatically perfected
- Equipment: usually by filing; any time within 20 days after the debtor gets POSSESSION of the collateral
- Inventory: usually by filing; by the time the debtor gets the collateral (no 20 day period) and others with a previously filed secuirty interest in the inventory must be given notice
** Perfection of a PMSI in Consumer Goods
Automatically perfected upon attachment
** Perfection of a security interest in goods
A creditor can perfect a security interest in goods by
- FILING, in the proper public office, a financing statement that is authorized by the debtor in an authenticated record or
- Taking POSSESSION
** Perfection of PMSI in equipment
Has priority if the PMSI is perfected when the debtor receives possession of the equipment (or within 20 days thereafter)
Perfection of security interest in accession
If a security interest is perfected when the collateral becomes an accession, the security interest remains perfected in the collateral.
Perfection, Generally
To obtain rights against another CLAIMANT to a debtor’s collateral, a secured party must also perfect its security interest.
Steps necessary to create security interest effective against the WORLD (i.e., other creditors)
- C.f. attachment…debtor
- Process of giving PUBLIC NOTICE of security interest
Rights as between the secured party and third parties (e.g., other creditors)
** Unperfected ≠ Unsecured!
- Creditor is unperfected….but that has nothing to do with security. Unperfected secured creditor
Priority of accessions
Generally, same rules. If the accession becomes PART of a whole that is subject to a security interest that has been perfected in compliance with a CERTIFICATE OF TITLE statute, the security interest in the whole has priority over the security interest in the accession.
- Want people to be able to rely on certificate of title without having to check whether parts of the car, etc. are encumbered
- VEHICLES: a security interest in an accession (e.g., tire) is subordinate to a security interest in a whole (e.g., car) which is perfected in compliance with statute
** Purchase money security interest **
A PMSI arises whe
- A creditor sells the goods to the debtor on credit, retaining a security interest in the goods for all or part of the purchase price
- A creditor advances funds that are used by the debtor to purchase the goods
“A PMSI arises when a creditor sells goods to a debtor on credit, retaining a security interest in the goods for the purchase price.”
Special KIND of security interest…on credit + secured interest
SELLER FINANCED PMSI
1. Secured party sells debtor collateral on CREDIT
3. Retains security INTEREST in collateral (items sold)
FINANCER-FINANCED PMSI (someone other than seller)
1. Loan to purchase SPECIFIC collateral
2. LOAN used to acquired THAT collateral
3. Creditor takes security interest in that collateral
* Must use THAT money for THAT item
** Requirements for Attachment
The instant these requirements are met, ATTACHMENT occurs
- SECURITY AGREEMENT
- Writing
- Oral, if the collateral is in the possession of the secured party [PLEDGE]
- Control, if collateral is a non-consumer deposit account, electronic chattel paper, investment property - VALUE HAS BEEN GIVEN
- By secured party
- Very liberal, any consideration sufficient to support a simple contract
- Also includes PAST consideration
- Every debtor has given value to the creditor…promise to repay loan
- ** Creditor gave value to debtor? - DEBTOR HAS A RIGHT IN THE COLLATERAL
- E.g., must actually own the thing you give as collateral
** Types of Collateral under Article 9
- Goods
- Semi-intangible and intangible property