Secured Transactions Flashcards
What are the four types of tangible collateral?
- consumer goods
- equipment
- farm products
- inventory
what are consumer goods?
goods used or bought primarily for personal, family, or household purchases
What is equipment?
goods that are used or bought for use in a business - default category for goods
What are farm products?
crops, livestock, or supplies used or produced in farming operations
Used by a farmer
What is inventory?
goods held for sale or lease and materials used or consumed in a short period of time
What is a PMSI?
Purchase money security interest - can be created in two ways:
- secured party sells the goods to the debtor on credit and retains a security interest in the goods sold; or (seller-financed PMSI)
- creditor loans the funds to debtor to enable the debtor to buy the specific collateral, the funds are used by the debtor to buy the specific collateral, and the creditor takes a security interest in that collateral (financer-financed PMSI)
When does a creditor become secured?
upon attachment
rights against the debtor
When does the creditor have rights against other debtors?
at perfection - process of giving public notice of the security interest
What is the financing statement?
provides public notice of the security interest and perfects it
what is the security agreement?
agreement between the debtor and secured party that creates the security interest
What is a security interest?
contingent property interest in the debtor’s collateral that the debtor grants the creditor
How do you determine what kind of collateral a tangible good is?
how the debtor is using it
How do you determine the category of intangible/semi-tangible collateral?
the nature of the collateral
What is an instrument?
promissory notes, drafts (checks)
What is investment property?
stocks, bonds, mutual funds, brokerage accounts
What are accounts?
right to payment for property sold or services rendered
- accounts receivable
What is a deposit account?
an account maintained with a bank - nonconsumer deposit account
What is a commercial tort claim?
(1) claimant is an organization; or (2) claimant is an individual, the claim arose out of the claimant’s business or profession, and the claim does not include damages for personal injury or death of individual
What are general intangibles?
default – intellectual property
What is chattel paper?
- monetary obligation
2. security interest in or lease of specific goods
What are the three steps for attachment?
- parties must agree to create a security agreement;
- value must be given by the secured party; and
- debtor must have rights (ownership) in the collateral
How to form an authenticated security agreement
- record with intent to create a security interest
- must be authenticated by debtor (any symbol will work)
- there must be a description that reasonably identifies the collateral (no supergeneric descriptions)
What is sufficient for value given for attachment?
any consideration even past consideration
After acquired property and exeception
explicit after-acquired property clause
exception - attach automatically to collateral that is rapidly depleted and replenished - accounts and inventory to identifiable proceeds
How to determined commingled cash proceeds?
- lowest intermediate balance rule
does unperfected = unsecured security interest?
No, secured has to do with attachment
How do you perfect a security interest?
- attachment
2. perfection
How to perfect a security interest?
- Automatic perfection of PMSI in consumer goods as soon as it attaches
- perfection by taking possession - the only way money can be perfected
How to perfect a security interest? (5)
- Automatic perfection of PMSI in consumer goods as soon as it attaches
- perfection by taking possession - the only way money can be perfected
- Perfection by control – only way deposit accounts can be perfected
- perfection for motor vehicles – notation on certificate of title by govt
- perfection by filing
how to perfect by control? (nonconsumer deposit accounts)
- nonconsumer deposit accounts - in the bank where the deposit account is, the bank automatically has control. if not a bank, can obtain control by:
a. putting the account in the secured party’s name
b. control agreement - bank will comply with secured party’s orders without requiring debtor’s consent
Perfection for motor vehicles exception
dealers in vehicles held in inventory for lease or sale are perfected by filing a financing statement, not by getting a notation on the certificate of title (too many cars to make that feasible)
How to perfect by filing
filling a financing statement containing:
- debtor’s name and mailing address
- secured party’s name and mailing address
- description of collateral covered
Debtor’s name for financing statement requirements
- individual = VA driver’s license
- registered organization = public organic record
trade name is not sufficient
Effect of an error in debtor’s name on financing statement
minor errors have no effect
seriously misleading errors will, a financing statement is not seriously misleading if it would be discovered in a filing office search under the debtor’s correct name
errors by the filing office do not effect its effectiveness
What is required for description of collateral on financing statement?
reasonably identifies the collateral, can be supergeneric (unlike security agreement)
Does a financing statement need to mention after-acquired property to perfect a security interest?
no, as long as collateral description is broad enough to cover the after-acquired property
Will a misspelling of the secured party’s name make a financing statement seriously misleading?
no, searches are conducted by debtor’s name
Does a debtor need to authorize the filing of the financing statement?
Yes, in any signed writing. Deemed authorized if the debtor authenticates the financing statement or security agreement covering the same collateral
Where is a financing statement filed?
State Corporation Commission
UNLESS, timber, minerals, fixtures – county where located
What state law governs perfection?
generally, where the debtor is located
If a debtor moves, how soon until the security interest becomes unperfected?
4 months
How long is a financing statement valid for?
5 years
- continuation for additional 5 years
- authorization of debtor is not required
perfection for proceeds
- secured party automatically has perfected security interest in any proceeds for 20 days after receipt
continues to be perfected if:
a. proceeds are identifiable cash proceeds
b. security interest was perfected by filing a financing statement and proceeds would be filed in the same place, cannot be purchased with cash proceeds
Priority between perfected secured parties
first to file OR first to perfect
priority between unperfected secured parties
first to attach has priorities
PMSI super majority
PMSI in goods other than inventory and livestock (equipment for example) has priority over conflicting security interests in the same goods or their proceeds if the interest is perfected within 20 days after debtor receives possession of the goods
PMSI in inventory and livestock
priority if:
- perfected at the time the debtor gets possession of the inventory; and
- any secured party receives authenticated notification of the PMSI before the debtor receives possession
Priority rules for conflicting security interests in deposit accounts
- perfected by control has priority over conflicting security interest that is perfected by another method
- conflicts over control:
- co-owner
- bank
- control agreement
When a buyer buys/leases something with a security interest, it stays on the item except:
- authorized sales (express or implied with inventory)
- unauthorized sales
- Buyer in Ordinary Course - takes free of nonpossessory security interest in the goods created by the buyer’s seller
- Buyer not in the ordinary course - takes subject to perfected security interests and free of unsecured unless they knew of the interest
What is a buyer in the ordinary course of business
one who buys goods (1) in good faith; (2) without knowledge that the sale violates the rights of another; (3) in the ordinary course of business from a seller in the business of selling goods of the kind purchased
Buyer in ordinary course - unauthorized sales exception
BIOC takes free of nonpossessory security interest in the goods CREATED BY THE BUYER’S SELLER, even though the interest is perfected and the buyer knows of the interest
PMSI grace period exception
if secured party files a financing statement with respect to a PMSI within 20 days after the debtor receives the collateral, the secured party will have priority over a judicial lien arising between the time of attachment and filing
When is self help available?
if it can be done without a breach of the peace (potential to lead to violence)
physical presence + objection
unauthorized breach of the home
Every aspect of the foreclosure sale must be ______ _____
commercially reasonable
a secured party is liable for _____ damages caused by failure to follow any of the Code’s rules for repossession and sale
actual
- minimum of 10% of cash price of goods + interest
possible loss of deficiency judgment
if there was no commercially reasonable sale
presumption that the sale proceeds = debt
Where does a fixture filing need to be made?
in the office where the mortgage on real estate would be filed
Consumer to consumer sales - priority exception
a buyer takes free of security interest, even though its perfected, if the buyer buys:
(1) without knowledge of the security interest;
(2) for value
(3) for the buyer’s own personal, family, or household purposes; and
(4) before a financing statement covering the goods has been filed
