Secured Transactions Flashcards
Collateral
Collateral is property that the secured party can repossess upon default to ensure debt is paid.
security interest
A security interest is an interest in personal property or fixtures that secures payment or performance of an obligation
security agreement
A security agreement is a consensual agreement that provides for the security interest. The substance controls, not the form
obligor
The obligor is the person who must pay/perform obligation that collateral secures
debtor
debtor is the person who has the interest (other than security interest) in collateral.
secured party
A secured party is the creditor who obtains the security interest
four tangible collaterals
1) equipment, 2) inventory, 3) consumer goods, and 4) farming equipment
equipment
the default rule which is all collateral that is used during one’s business.
inventory
Inventory is the sale or lease of goods and also includes goods that are easily depleted or replenished.
Consumer goods
Consumer goods are goods that are used for personal or household use
farming goods
the goods that are used in the use of a farm.
intangible collaterals
1) negotiable instruments,
2) documents such as bill of sales,
3) investments,
4) non consumer bank accounts,
5) commercial tort actions,
6) general intangibles that involve trademark or patents. The collateral is categorized based on the debtor’s usage of the goods.
Attachment
a security interest becomes secured when there is an attachment.
Attachment occurs when there is (i) an authorized security agreement (ii) for value (iii) and the debtor owns the right to the collateral
The security interest agreement must be:
signed by the debtor, and must properly and reasonably identify the collateral. Under the security agreement, the debtor’s name must be indicated properly under the agreement because the search will occur according to the debtor’s name under the index-search of the registry. Otherwise, it may be deemed to be “substantially misleading” if it is nor recorded under the debtor’s name.
PMSI
A security interest in goods is a PMSI if the collateral secures a purchase money obligation incurred with a respect to that collateral
A PMSI arises when
(i) 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; or
(ii) a creditor advances funds that are used by the debtor to purchase the goods.
Perfection
The next issue is whether the parties perfected their security interest. Perfection can occur in one of five manners: (i) possession, (ii) control, (iii) filing a financing statement, (iv) certificate of title, and (v) automatic perfection
Perfection nuances
Automatic perfection only arise when there is a perfected security interest in the good that is the basis of the security agreement.
Possession can perfect when the secured interest creditor maintains the goods that are subject of the security interest.
Possession is rare, however, because most of the time, the debtor needs the good that has the security interest. Investments and non consumer bank accounts may only be perfected by control.
Cars must be only perfected by certificate of title, unless they are used for inventory purposes- then filing a financing statement is required given the quantity of cars involved. Proceeds of the aforementioned are automatically perfected for 20 days and no other conduct is required if the same office rule applies or if the proceeds are case proceeds.
After acquired goods
After acquired goods of the same collateral in a financing statement is maintained unless it is consumer goods in which case it is perfected if the debtor acquires the goods within 10 days or it is not permitted when it is a commercial tort action.
financing statement
When using a financing statement, the debtor must sign the financing statement, and there must be adequate description of the collateral and it must be filed with the FL Registry of Secured Transactions.
Priority
The next issue is who has priority to which collateral. Priority issues arise when there are either perfected secured creditors or unperfected secured creditors, or if it involves a buyer in the ordinary course of business.
Perfected security interest v perfected security
Priority between a perfected security interest and a perfected security, the general rule is the first to file or the first to perfect.
PMSI
A purchase money security interest (PMSI) in collateral other than inventory or livestock has priority over secured interests in the same goods if they have perfected when the debtor receives the goods and gives an authorized notification to all other secured interests in the goods.
Accessions
The security interest in the whole, when perfected in compliance with the requirements of the certificate of title statute, has priority over the security interest in the accession.
When goods are physically united with other goods in such a manner that the identity of the original goods is not lost, the goods become accessions.
A security interest in goods that is created and perfected before the goods become accessions continues after the goods become accessions.
Certificate of title
used to perfect a security interest in motor vehicles.
financing statement
must include
• the name of the debtor
• the name of the secured party or the secured party’s representative
• a description of the collateral covered by the financing statement.
Length of effectiveness for filing statement
A filed financing statement is effective for five years after the date of filing.
• If the financing statement expires without a continuation statement being filed, the financing statement will lapse. Upon lapse, the financing statement becomes ineffective, and any security interest that was perfected by the financing statement becomes unperfected.
• A continuation statement must be filed within six months before the expiration of the five-year period.
• A continuation statement extends the effectiveness of the original filing statement for another five-year term from the date the financing statement would have become ineffective absent the filing of the continuation statement.
• Continuation statements may be filed repeatedly to extend the effectiveness of the financing statement.
Automatic perfection
- There are limited instances in which perfection is automatic. The most common is when the security interest is a PMSI in consumer goods, which perfects upon attachment
