Secured Transactions Flashcards
Overview statement
If you have a security interest in collateral, it must have attached and been perfected to be protected in order for you to pursue a remedy upon default
4 classifications of goods
Consumer goods
inventory
Equipment
Farm products
Consumer goods
Goods bought for use primarily for personal, family, household purposes
Inventory
Goods held for sale or lease or used/consumed in business
Equipment
goods for use primarily in biz (machinery, office furniture, computers used)
Equipment
Farm products
crops, live stock, etc. owned by farmer
Non collateral goods
Accounts (right to payment for property sold, leased, licensed, etc.) or services rendered
Attachment requirements
Attachment is a prerequisite to a security interest arising. Once attachment occurs, a creditor will be a secured party and have rights against the debtor
- Value must be given by secured party to the debtor
- debtor must have Rights in collateral
- Binding security agreement –> requires (AID): authentication, intent to create security agreement, description of collateral
Security Agreement requires
Authentication (signed in writing or w/ intent to mark or adopt record) , intent to create security agreement, and description of collateral
satisfies SoF - need to know what is being secured, must be in writing/otherwise authenticated, and there must be words granting the security agreement
OR possession
After-acquired property
Security agreement can cover after-acquired property and doesn’t need to specifically reference it to be effective. Exception: doesn’t apply to consumer goods, unless acquired within 10 days after secured party gives value
What is perfection?
Perfection of a security interest is required to provide protection to the secured party against claims by 3rd parties.
4 methods: filing, possession, control, automatic perfection
Automatic Perfection
Upon attachment, perfection occurs without additional steps
Applies to:
- PMSI: (1) when creditor sells good to debtor on credit (2) when loan used to purchase goods and reserves security interest
attachment via possession
Possession can function as attachment and perfection
PMSI
Purchase Money Security Interest: gives a lender a security interest in goods that’ve been purchased with funds borrowed form them or purchased on credit for them
Exists for 1. Goods (including fixtures) and 2. Software
Exists when: 1. creditor gives value to debtor and debtor uses can to acquire rights in or use of collateral; OR
2. Securted party sells collateral to debtor, and debtor enters into agreement requiring it to pay secured party all or part of purchase price
Perfection via control
- Perfection by control allowed for deposit account or letter of credit rights
- Control can’t require debtor’s cooperation for access
- If secured party holding account is bank, control is automatic
PMSI for non consumer goods
Priority if filed before 20 days after D receives collateral
Proceeds
Proceeds are anything given in exchange for the collateral as a result of debtor’s rights in collateral. A security interest automatically attaches to identifiable proceeds
Garage Sale Buyer (consumer to consumer goods)
Consumer buyer who 1. buys goods for value 2. for personal, family, or household use, 3. from a consumer seller 4. without knowledge of the security interest.
UNLESS prior to the purchase, the secured party has filed a financing statement covering the goods. Good must be consumer goods both when seller has them and when buyer buys them for this to apply.
PMSI has priority if financing statement filed
BOCB
Buyer in the ordinary course of business generally does not take collateral subject to security interest (whereas buyer not in the ordinary course of business does - unless interest not perfected and he doesn’t otherwise know about it)
Buyer not in the ordinary course of business
Buyer not in ordinary course of business generally does take interest subject to security interest, unless he doesn’t know about it and interest not perfected)
Secured party vs. Lien creditor priority
The general rule is that, btw a secured party and a lien creditor, priority belongs to the secured party, provided it perfects before the lien arises.
If interest was unsecured or only perfected after lien creditor served the writ, then lien creditor has priority.
Debtor means of protecting himself (2)
(1) Sale must be commercially reasonable
(2) Debtor must receive written notification of the sale.
- The debtor and perfected secured parties (or secured parties who have notified the secured party of their interest) must know when the chance to redeem collateral is going to pass
Remedies if secured party fails to comply with (1) commercially reasonable sale or (2) providing written notification of sale to debtor
- Damages - including consequential, but debtor has duty to mitigate. If collateral constitutes consumer goods, statutory damages
- Sale (court may order)
- Rebuttable presumption (consumer vs. non consumer transaction)
