Secured Transactions Flashcards
Purchase Money Security Interest (PMSI)
Creating PMSIs
Seller-financed PMSI
o Secured party sells collateral on credit
o Retains security interest in collateral
Financer-Financed PMSI
o Loan to purchase collateral
o Loan used to acquire that collateral
o Creditor takes security interest in that collateral
A PMSI arises when (i) 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
Types of Collateral - Consumer Goods (MEMORIZE THESE)
Goods used or bought for personal, family or household purposes
Types of Collateral - Equipment (MEMORIZE THESE)
Goods that are used or bought for use in a business
**If the collateral is a good, and it does not fit the definition of consumer goods, inventory, or farm products, it is equipment!
Types of Collateral - Farm Products (MEMORIZE THESE)
Crops or livestock or supplies used or produced in farming production or products of crops or livestock in their unmanufactured states (such as ginned cotton, wool-clip, maple syrup, milk, and eggs) if they are in possession of a debtor engaged in farming operations
**Question will most likely talk about farmers!!
Types of Collateral - Inventory (MEMORIZE THESE)
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
Semi-Intangible and Intangible Property
Instruments (checks, promissory notes)
o Pieces of paper representing the right to be paid money
Documents (bills of lading, warehouse receipts)
o Represents the right to receive goods
Chattel paper
o A monetary obligation AND
o A security interest in or a lease of specific goods
Investment property (stocks, bonds)
Accounts (rights to payment)
o Includes a right to payment for property sold or services rendered
Non-consumer deposit accounts
o Account maintained with a bank
Commercial tort claims
General intangible (IP or goodwill)
o Catch-all category!
Attachment
Creating the security interest and gives the creditor rights against the debtor in the collateral
Attachment Requirements - 3 (MEMORIZE THESE)
- Security agreement
- Value given (Any consideration, even past consideration)
- Debtor’s rights in collateral (Must have rights in the collateral)
Security Agreement Requirements - 3 (MEMORIZE THESE)
- Record showing intent to create security interest
o Words saying I’m taking your property so I can sell if you do not pay - Authenticated by debtor
o Signature or any symbol - Describe collateral
o “Reasonably identify”
Normal vocabulary
Article 9 categories
**“All of debtors assets” -> NOPE NOT GOOD = SUPERGENERIC
If there is no authenticated security agreement, the creditor must take possession or control of the collateral
After-Acquired Property
Without an explicit after-acquired property clause, the security interest only reaches collateral that debtor had rights in at time of signing security agreement
- Going to want a provision that says this in the agreement or else you do not get it ^
Exception
o Collateral is of a type rapidly depleted and replenished (inventory, accounts)
After-acquired property does not apply to consumer goods unless the debtor acquires rights in goods within 10 days after the creditor gives value
A security agreement that includes an after-acquired property clause attaches when the debtor obtains an interest in the property
Proceeds
A security interest in collateral automatically attaches to identifiable proceeds of the collateral
Identifiable -> proceeds can be traced back to the original collateral
Proceeds -> Anything received from sale, exchange, collection, or other disposition of collateral or proceeds
Commingled Cash Proceeds - Lowest Intermediate Balance Rule
Look at the bank account starting at the time the proceeds are deposited and ending at the time you are applying the rule
The lowest balance during that time period is the secured party’s identifiable proceeds
If account has more money than security interest -> take the price of the security interest
If account has less money than security interest -> take the lowest amount the account had dropped too
Perfection
Giving public notice of a security interest
Requirements for Perfection
ATTACHMENT AND ONE OF THE FOLLOWING 5
- Automatic perfection
- Taking possession (Pledge)
- Control
- Notation on certificate of title
- Filing a financing statement (UCC-1)
Automatic Perfection
PMSI in consumer goods = automatically perfected upon attachment
Perfection may occur without filing for security interests in a small-scale assignment of an account or payment intangible that does not alone transfer a significant part of the assignor’s outstanding accounts or payment intangibles to the creditor.
Taking Possession
- Perfection occurs by taking possession of collateral like goods!
- Cannot take possession of a general intangible like an account!
- Can only perfect security interest in money by possession!*
Control and three requirements for control of Deposit Account
Investment property, non-consumer deposit accounts, and electronic chattel paper may be perfected by “control”
Control of Non-consumer Deposit Accounts (MEMORIZE THESE)
o Automatic control by bank maintaining account OR
o Putting account in secured party’s name OR
o Control agreement
Notation on certificate of title
Security interests in motor vehicles required to be titled can ONLY be perfected by notation on the certificate of title -> YOU SEE MOTOR VEHCILE, YOU COME HERE!**
Exception – Dealers
o Security interest created by dealers in vehicles held in inventory for sale or lease are perfected by filing a financing statement
Filing a Financial Statement (UCC-1) -> MEMORIZE THIS CAUSE ITS HEAVILY TESTED
- Debtor’s name
- Description of Collateral
- Secured Party’s name
Debtor’s Name
Debtor’s name must match license (Even if unexpired)
If debtor does not have license, file under their name
Do not file under a debtor’s trade name
Minor errors in the debtor’s name will not invalidate, unless SERIOUSLY MISLEADING
Filing office fucks up, does not impact effectiveness
Old name still good on collateral received 4 months or less after change
Description of Collateral
“Reasonably identify”
* Vocab!
* Article 9 categories!
* In financing statements, SUPERGENERIC description = VALID
Does not have to mention after-acquired property but must be broad enough
Secured Party’s name
Error does not matter!
Financing Statement not seriously misleading when…
- Search with correct name
- Using standard search logic
- Would find financing statement
Authorization on financing statement
- Debtor need not sign, but must authorize
How to authorize?
o May sign a writing
o The debtor automatically authorizes the financing statement if the debtor authenticates the financing statement or authenticates a security agreement covering the same collateral as the financing statement
Where to File financing statement
File financing statement centrally in the office of secretary of state
State to file in = state where state law applies
Exception
o Timber to be Cut, Minerals, and Fixtures -> file locally
o If it is real estate related collateral -> File with local country clerk!
Which State’s Laws Governs Perfection
Law of the state where the debtor is located generally
o Principal residence
Registered organization? (Corporation)
o Whatever state organization is organized in (Where incorporation is filed)
Unregistered organization? (Partnership)
o Place of business or at its chief executive office
Movement of Debtor or Collateral form one state to another
Debtor Moves Across States
o Got 4 months to refile or else un-perfection!
Collateral Moves Across States (Debtor transfers to new person)
o Got 1 year to refile or else un-perfection!
