Secured Transactions Flashcards
secured transaction
transaction intended to create security interest in personal prop or fixtures
Involves sale on credit or a loan in which seller or lender obtains a lien on some or all of the debtor’s prop
sale on credit
get something w/o paying full price
debtor
person who owes payment or performance of obligation secured
secured party
lender in whose favor here is a security interest (person who $ owed to)
secured creditor
creditor with special collection rights
security interest
interest in personal property or fixtures that secures payment or performance of an obligation
Contingent property interest
default
event causing security interest to spring to life
collateral
prop subject to security interest
purchase money security interest (PMSI) : types
Seller financed PMSI
Secured party sells collateral on credit
Retains security interest in collateral
Financier-financed PMSI
Loan to purchase collateral
Loan used to acquire that collateral
Creditor takes security interest in that collateral
after acquired property clause
grant of security interest in prop obtained in future
GR: Security interest only reaches collateral debtor had rights in at time of signing security agreement , unless explicit after- acquired property clause in the security agreement
EXCEPTION
Collateral is of a type rapidly depleted and replenished ( inventory, accounts)
future advance clause
grant of security agreement securing future loans with same collateral
attachment
steps necessary to create security interest effective against debtor
perfection
steps necessary to create security interest effective against the world
Giving public notice of security interest to world
financing statement
doc used to convey notice of security interest
Types of collateral
goods
intangible and semi-intangible prop
scope of Article 9
Goods
Tangible, movable personal property
Consumer goods
Goods used or bought for use for personal family household purposes
Equipment
Used or bought for use in a business
Catch all provision
Farm products
Crops or livestock or supplies used or produced in farming operations or products of crops or livestock if in possession of a debtor engaged in farming operations
Inventory
Goods held for sale or lease, goods that are to be furnished under service contracts, and materials used or consumed in a business in a short period of time
Classify based on how collateral is used by debtor
intangible and semi-intangible prop (8)
Instruments = piece of paper representing the right to be paid money ( checks, promissory notes, drafts, etc)
documents= document that reps right to receive goods ( bills of lading, warehouse receipts)
Chattel paper= record or records which evidence
Monetary obligation
Security interest in or lease of specific goods
Record = info stored in either tangible or intangible medium
Electronic medium = electronic chattel paper
Investment prop ( stocks bonds)
Accounts ( right to payment for prop sold or services rendered)
Deposit accounts =account maintained with a bank
Business bank account not personal bank account can be used
Commercial tort claim
General intangibles ( intellectual property, goodwill)
Payment intangible = settling a law suit
scope of article 9
regardless of form creates a security interest in personal prop or fixtures
Tricky language of Contractual lien ( trying not to apply Article 9 because didn’t say security interest language or article 9) = security interest regardless of the language form if has that effect of security interest Aricle 9 applies
Consignment = like agent, nonowner selling goods for the principal
Secured sale disguised as a lease
True lease not covered by article 9
attachment requirements
Security agreement
Creditor taking possession of the collateral = pledge
If security agreement oral
Authenticated security agreement
In writting
Record showing intent to create security interest
Signed by debtor (any symbol made with intent to authenticate)
Describe collateral = reasonably identify
Super generic descriptions is not sufficient ( ex:all of debtors assets )
Creditor taking control of nonconsumer deposit
Value given
Any consideration
Debtor gave consideration implicitly by promising to repay the debt
Past consideration is enough
Debtor’s rights in collateral
Ownership
Proceeds
Anything received from sale, exchange, collection, or other disposition of collateral or proceeds
If attach in collateral automatically get security interest in identifiable proceeds
Identifiable means that the proceeds can be traced back to the original collateral
commingled cash proceeds
lowest intermediate balance rule applies
In the case of commingled cash proceeds, the identifiable proceeds can be traced using the lowest intermediate balance rule
Rule
Look at bank account starting at time proceeds are deposited and ending at time applying rule
Lowest balance during that time period is the secured party’s identifiable proceeds
Amount cannot exceed the value of the cash proceeds originally deposited
supporting obligation
the attachment of a securinty interest in accounts, chattel paper, documents, general intangibles, instruments , and investment property automatically extends to a supporting oblicgation for that collaterall = surety
Perfection Timing
security interest attached and do one of the methods
automatic perfecting method
security interest that is not covered by a title statute is automatically perfected upon attachment
PMSI in consumer goods
possession (pledge) perfecting method
Take actual possession of collateral , tangible things
Perfected moment from the moment of possession and continues as long as possession is retained
Only way to perfect money
control method of perfection
Security interests in investment property, nonconsumer deposit accounts, and electronic chattel paper may be perfected by control
Only way to perfect deposit account
Non consumer deposit account
Automatic control by bank maintaining account
Putting account in secured party’s name
Control agreement: K between debtor, creditor, and bank account
notation on certificate of title method of perfection
Security interest in motor vehicle required to be titled can only be perfected by notation on the certificate of title issued by state.
EXCEPTION
Security interest created by dealers in vehicles held in inventory for sale or lease are perfected by filing a financing statement
filing method of perfection
Debtor’ s name and mailing address
secured party’s name and mailing address
desciption of collateral
No debtor signature, but must authorize
file financing statement at secretary state
debtors name and mailing address
individual = unexpired driver’s license
No divers license = file under name , name known in community
Minor error of name won’t invalidate financing statement
Seriously misleading error will invalidate
Not misleading when
Search with correct name
Using standard search logic
Would find finacing statement
Failure of the filling office to correctly index a financing statement doesn’t impact its effectiveness
Financing statement under old name still good on collateral received 4 months or less after change
No trade name
secured party’s name and mailing address
Error in secured party’s name will not make financing statement seriously misleading
decription of the collateral
Reasonably identifies collateral
May contain a supergeneric description of the collateral
Real property
Description of the related real prop
Name of the record owner
Indication that it is to be filed in the real prop records
no need to mention after acquired prop to perfect if description in statement is broad enough to cover
no debtor signature, but must authorize
Before or after filed
Automatically authorizes= if debtor authenticates the financing statement or authenticates a security covering the same collateral as the financing statement
file financing statement at secretary state
State to file in = state where state law applies
Exception: timber minerals, fictures= file locally
Where debtor is located
individual= principal residence
Registered organization = where organzied
unregistered= place of business if only one or at chief executive office if has more one place of business
If debtor move 4 months from time move to refile in new state
If collateral moves to new owner is unperfected after one year unless refiled
Length of financing statement effectiveness= 5 years
To extend file continuation statement
File between 6 months before expiration
Termination statement
Secured party must on demand of the debtor, within 20 days, file a termination statement or provide one to the debtor
perfection for proceeds
Perfected security interest in collateral extends to proceeds for 20 days
Perfection continues if: proceeds are identifiable cash proceeds, OR
Original collateral perfected by financing statement
Security interest in proceeds type would be perfected by filing in same place, AND
Proceeds not purchased with cash proceeds
Perfected Secured Party v Perfected secured party fight
First to file OR perfect ( whichever is earlier) wins
Knowledge about others interest is irrelevant
unperfected secured party v. unperfected secured party fight
first to attach wins
Perfected secured party v. unperfected secured party
perfected party wins
PMSI Superiority (goods/equipment ,inventory/livestock)
Superior to prior perfected security interests in the same collateral if
PMSI in goods/equipment jumps to front of priority line if perfected immediately or within 20 days
In inventory/ livestock k
Takes priority over conflicting security interests if
Before debtor receives possession
Secured party perfects and
Sends authenticated notice to other holders and
Notice received within 5 years of debtor getting possession
Conflicting PMSI, seller PMSI wins
conflicting security interest in investment property
Control beats other perfection methods
Deposit account control
Best: put it own name
Next best: maintain account
Worst: control agreement
Earlier control beats later control
Debtor’s intermediary beats other creditors
secured party v. buyer
Secured party wins, unless
Secured party authorized sale
Express or implied ( inventory sell to ordinary consumer)
Buyer in the ordinary course
Takes free of a security interest
Created by his/her seller
Buyer in ordinary course means
Buyer in good faith
Without knowledge of violation of secured creditor rights
In ordinary course
From seller of goods of that kind
Only taken free from liens created by their seller
Buyers not in the ordinary coiruse
Take subject to perfected security interests
Take free of unperfected security interest
Consumer to consumer sales
Buyer takes free of security interestif
No knowledge
Value
Personal use
No financing statement
Secured party vs. Judicial Lien creditor
Judgement lienholder: a creditor who won a judgment in court
Judgement lienholder wins if lien arose before security interest was perfected
PMSI special priority rule
Secured party files a financing statement with respect to a PMSI within 20 days after debtor receives collateral, security party will have priority over a judicial lien
Future advance
Perfected future advances to gain priority over a subsequent judicial lien, the future advance must be made
Without knowledge of lien
Within 45 days of lien arising , or
Pursuant to a commitment entered into without knowledge of the lien
Secured part v. statutory lienholder
Statutory lienholder wins if they maintain possession of collateral
default
event causing security interest to spring to life
self- help repossession
Creditor takes collateral without judicial process if this can be done without a breach of the peace
Breach of peace
Conduct that can lead to violence
Example: physical presence + verbal objection
Unauthorized entry into home = breach of peace
Need consent at time of entry
Taking car from driveway = no breach of peace
Business premises less likely to be a breach of peace
Picking lock and not relocking on the way out = breach of peace
Replevin
Ct proceeding to repossess collateral
Render equipment unusable
Self help in accounts
Payment to the debtor will not discharge the obligation , must pay secured party
strict foreclosure
Creditor keeps collateral itself to satisfy debt ( instead of selling it)
Need to notify any other creditor that has lien on collateral
If objects can’t keep
Need consent of debtor
If objects, can’t keep
resale of collateral
Forclosing lien and any junior liens get wiped off
Senior liens stay on
Need reasonable notic
Sent in reasonable time before sale
public= notice of time and place of sale
Private salee= notice of the time after which the sale will occur must be given
Every aspect of sale must be commercially reasonable
If not creditor penalized
Proceeds of Sale
Repay costs of repossession and sale
Pay off debt of the foreclosing creditor
Pay off junior creditors
Any money left over debtor gets surplus
Deficiency judgment
Amount creditor can collect from debtor beyond value of collateral
Creditor penalization
Statutory penalty for consumer goods
No commercially reasonable sale = no deficiency judgment
Right to redeem
Debtor’s ability to recover collateral by paying everything owed to creditor
Do before foreclosure sale
fixture
goods permanently attached to real property
perfecting fixtures
Fixture fling
Not just a financing statement , normally needed for fixtures
Require info from financing statement + description of real prop + name of owner
Fille with county filing
fixture rights on default
Creditor reimburse owner of prop for cost to repair damage to prop caused by removal but not for any other diminution in value
fixture priority
Secured party v. subsequent real estate interest
Security interest in fixture has priority over any real estate interest that is recorded subsequent to the perfection of the security interest by fixture filing
Secured party v. real estate interest
First in time wins, unless security interest is PMSI, then PMSI wins
Construction mortgage takes priority over a subsequent PMSI in fixtures, even if security interest is perfected by a fixture filin w/i 20 days of affixation
accessions
goods physically united with other goods ( tires on a car)
accessions perfection
if a security interest is perfected when the colateral becomes an accession, the security interest remains perfected in the collateral
accessions priority
General priority rules apply to accessions
Special rule
Except security interest in accession is
Subordinate to security interest in whole
Perfected by compliance with title statute
