secured transactions Flashcards
1
Q
Attack Outline
A
1) For each party claiming interest, determine whether the secured interest has ATTACHED
2) For each attached interest, determine whether it has PERFECTED
3) For each perfected interest, determine who has PRIORITY
4) If the collateral is sold/disposed of, determine which party receives PROCEEDS
2
Q
Tangible Collateral
A
- Anything moveable at the time that a security interest attaches
- 4 kinds:
1) Consumer goods: for personal, family, or household
2) Farm products: farm-related, but not equipment
3) Inventory: goods (that aren’t farm products) that are held for sale, “on the shelf”
4) Equipment: catchall, everything else
3
Q
Intangible Collateral
A
- Anything NOT moveable at the time of attachment
- 9 types, 2 of focus:
1) Accounts: the right to payment for goods sold/services rendered, etc.
2) Deposit Account: savings account, etc.
4
Q
Leases as a Security Interest
A
- General rule: A transaction in the form of a lease creates a security interest if lease payments must be made for the full term of the lease and are not subject to termination and the lessee has an option to become the owner of the goods for nominal consideration at the conclusion of the lease agreement
5
Q
Attachment, Elements
A
1) VALUE has been given by the secured party
2) the debtor has RIGHTS in the collateral
3) the debtor has an authenticated SECURITY AGREEMENT that describes the collateral,
6
Q
Attachment, Value
A
- Value may be given:
1) by CONSIDERATION
2) by EXTENDING CREDIT
3) by, as a buyer, ACCEPTING DELIVERY under a preexisting contract
4) In SATISFACTION of, or as security for, part or all of an existing claim
7
Q
Attachment, Debtor’s Rights
A
- Debtor must have RIGHTS in the collateral for the security interest to attach
- Security interest attaches ONLY to collateral Debtor has rights to, however limited those rights may be
- Applies to collateral that the Debtor acquires in the future
- If collateral is sold, attachment continues to the proceeds (same w/ perfection too)
8
Q
Accessions
A
- Goods that are physically united with other goods, such that the original IDENTITY is not lost
9
Q
Attachment, Security Agreement
A
1) must be in a RECORD, like a typed doc
2) must be AUTHENTICATED, and
3) must contain a DESCRIPTION of the collateral (like “all of D’s equipment)
10
Q
Purchase Money Security Interest (PMSI)
A
- Gives lenders a security interest in goods that have been purchased with funds borrowed/on credit from them
- Only exist w/ 2 types of collateral: 1) Goods(including fixtures) and 2) Software
- PMSI in goods exists when SP gave value (loan) to D and D uses loan to acquire rights in the loan
-e.g. S sells car to D, D borrows money from B to fund purchase of car, B has PMSI in car - OR when SP sells the collateral directly to D, and they agree D will pay SP over time
11
Q
Perfection, Methods
A
1) FILING a Finance Statement
2) POSSESSION of the collateral
3) CONTROL of the collateral
4) AUTOMATIC perfection
5) STATUTE
12
Q
Perfection, Filing a Financing Statement
A
- Valid for any collateral EXCEPT for deposit acc, money, letter of credit
- MUST Contain:
1) NAMES of D and SP
2) the COLLATERAL covered - TIMING:
-Effective on date of filing
-good for 5 year increments
-must be renewed w/in 6 months of 5yrs lapsing - Error in D’s Name: statement invalid if error is “seriously misleading”, UNLESS standard search would disclose the truth
13
Q
Perfection, Automatic Perfection
A
- Some types are just automatic
- PMSI in Consumer Goods is automatic
14
Q
Perfection, Timing
A
- Security interest is deemed Perfected at the point where
a) attachment has occurred, AND
b) method of perfection occurs
15
Q
General Creditor
A
- Has a claim, but no lien or security interest in subject property
- A secured party will ALWAYS prevail over general creditor
16
Q
Judicial Lien Creditor
A
- Creditor who acquires a lien on the collateral by a judicial process, rather than by operation of law
- Has priority over General Creditor, but NOT over a perfected security interest (even if it is not perfected at time of judicial lien and later becomes perfected)
17
Q
Transferee
A
- Persons who obtain full title to the goods as a result of a transfer of the collateral from Debtor
18
Q
Transferee v. SP w/ a Security Interest
A
- If Transferee is not a BUYER, and SP does not AUTHORIZE transfer, then the security interest continues, and the SP wins
19
Q
Buyer v. SP w/ an Unperfected Security Interest
A
- A buyer, other than a SP, of collateral that is goods, chattel paper, tangible chattel paper, tangible docs, or a security cert takes FREE of an UNPERFECTED security interest in the collateral IF Buyer:
1) Gives VALUE
2) Receives DELIVERY of collateral, and
3) w/o KNOWLEDGE of the existing security interest
20
Q
Buyer v. SP w/ Perfected Security Interest
A
- A buyer of collateral subject to a perfected security interest generally takes the collateral subject to that interest, UNLESS the SP has AUTHORIZED its sale free of the security interest
21
Q
Buyer in the Ordinary Course of Business (BOCB)
A
- A person who:
-Buys goods
-In the ordinary course of business
-From a Merchant of those goods
-In Good Faith
-w/o knowledge that the sale violates the rights of another - BOCB takes goods free of a security interest that the seller gave to the creditor in the goods, EVEN IF the security interest is Perfected and the buyer knows of its existence
22
Q
Consumer Buyer
A
- Person who:
-Buys consumer goods for value
-For own personal/family/household use
-From a consumer seller, AND
-w/o knowledge of the security interest
23
Q
PMSI SPeicale PRolblem
A
- Remember, a PMSI gives lenders a special security interest in goods that have been purchased with funds borrowed from them or purchased on credit from them
- A PMSI in consumer goods is automatically perfected upon attachment. Perfection through filing a financial statement is not required, but a party with a PMSI may still elect to file a financial statement.
- If a financing statement for a PMSI in consumer goods is not filed, and the consumer buyer does not know of the PMSI, then he will take free of the security interest
- If the party holding the PMSI in consumer goods does in fact file, then his security interest will be good even against a consumer buyer
24
Q
Perfected Security Interest v. Perfected Security Interest
A
- Priority goes to first party to either 1) file Financing Statement or 2) Perfect
25
Perfected Security Interest v. Unperfected Security Interest
* Perfected > Unperfected
26
* Unperfected Security Interest v. Unperfected Security Interest
* If neither party has perfected, then first party to ATTACH has priority
27
* PMSI in goods (except livestock or inventory) v. Security Interest (perfected or unperfected)
* PMSI > SI, so long as the PMSI is perfected before or w/in 20 days after Debtor receives possession of the collateral
28
PMSI in inventory or livestock v. Security Interest
* PMSI > SI, IF:
1) PMSI is perfected by the time Debtor receives possession of the collateral, AND;
2) PMSI party sends an authenticated notification of the PMSI to the holder of any conflicting security interest before Debtor receives possession of the collateral
29
PMSI v. PMSI
* Priority goes to first party to either 1) file a Financing Statement or 2) Perfect
30
Construction Mortgage
* Secures an obligation incurred for the construction of an improvement on land, including [all fees]
* Must be specified as a construction mortgage in the records
* Has priority over a subsequent security interest in a fixture, including a PMSI in a fixture
* The construction mortgage must be recorded before the goods become fixtures, and it covers only goods that become fixtures before completion of the construction.
31
Default, Generally
* Default will be the failure of the obligor to make timely payments to the secured party
* Once Default has occurred, SP may:
1) Seek possession of collateral, and either
-Sell it, or
-Retain it in full or part
2) Initiate a judicial action to obtain a judgment
OR
3) Pursue any agreed-upon action (w/in stat limit)
32
Security Agreement covering Fixtures
* When a security agreement covers fixtures, a secured party may proceed as to the fixtures in accord with the rights and remedies with respect to the real property
* When a secured party’s security interest has priority over owners and individuals who encumber
real property, that secured party may remove the fixture from the real property.
* With respect to an owner or encumbrancer who is not the debtor, the secured party is liable for the cost of repairing any physical object damaged by the removal but not for any reduction in the value of the real property due to the removal
33
Possession of Collateral after Default
* After default, a secured party is entitled to take possession of the collateral.
* No NOTICE required, UNLESS agreed upon
34
Disposing of Collateral after Default, Generally
* After Default, a SP may keep or sell/otherwise dispose of collateral.
35
Standard for Disposing of Collateral Defaulted on
* All aspects of the disposition of collateral must be conducted in a commercially reasonable manner
* Reasonable when conducted:
1) In the usual manner on a RECOGNIZED MARKET, such as a stock exchange that has standardized price quotations for fungible goods
2) At the PRICE CURRENT in any recognized market at the time of disposition, OR
3) Otherwise in conformity w/ REASONABLE COMMERCIAL PRACTICES in that field
36
Disposing of Collateral after Default, PRICE
* does not matter if higher/lower than what should be expected, as long as PROCESS was commercially reasonable
37
Disposing of Collateral after Default, NOTICE
* SP required to send authenticated notification of disposition, w/ reasonable parameters
* Required to be sent to 1) Debtor, 2) Any Secondary Obligor, 3) Any SP or Lien Holder who held a security interest that was perfected by filing or pursuant to statute, and 4) Any other Party from whom the SP has received authenticated notice of a claim
* Timing of notice must be reasonable
38
Cash Proceeds from a Disposition
* SP must apply cash proceeds in this order:
39
)
1) Reasonable expenses for collection and enforcement, including reasonable attorney's fees
2) Satisfaction of obligations secured by the security interest
3) Satisfaction of any subordinate security interests, PROVIDED THAT jr sp made an authenticated demand for proceeds before distribution of proceeds is complete
4) Remainder of proceeds to Debtor
40
Disposition, Treatment of Surplus or Deficiency
a) Surplus: If, after the required payments and applications of proceeds have been made, there is a surplus, the SP generally must pay surplus to Debtor
b) Deficiency: If a deficiency, then the Obligor generally is liable for the deficiency
