Secured Transactions Flashcards by MacGregor Greenlee

The Article 9 types of tangible collateral are

Any tangible, movable personal property in one of these categories:

-Consumer Goods -used/bought for personal use
-Equipment - (default) used/bought for business use
-Farm Products
-Inventory - goods for sale or lease OR raw business materials used in short period of time

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The test to determine what category of goods collateral fits into is:

The debtor’s original use of the goods

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Article 9 types of collateral include:

-Tangible (consumer goods, equipment, farm prods, inventory)
-Intangible (instruments, docs, chattel paper, record)

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Intangible goods as collateral include:

-Instruments - promissory notes, checks
-Documents - Warehouse receipts
-Chattel paper - (1) monetary obligation (ie Promissory Note) AND (2) security interest in specific goods
-Record - writing or electronic equivalent
-Accounts payable - right to payment
-Non-con deposit accounts
-Commercial tort claims
-Payment intangible - debtor’s monetary obligation
-General intangible - anything else

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By definition, secured transactions creates

a security interest in personal property or fixtures that is only triggered by default

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To create a security interest, a security agreement must include language that

expressly creates the security interest

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A purchase money security interest (PMSI) can be created in two ways:

Seller financed - purchase on credit provided by the seller who takes a security interest in the item
Financier financed - Loan to debtor for specific collateral, used to purchase that collateral, with the creditor taking a security interest in the item

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An after acquired property allows

A creditor to take a security interest in property later acquired by the debtor

Requires a clause in the security agreement

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A future advance clause allows

A creditor to make future loans to the debtor which are secured by the original security agreement

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At attachment, the security interest is ____ and requires _____

Created (once all reqs met)

-Agree to create a security interest (1 of 3 ways)
-Value given
-Debtor rights in collateral

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For the first requirement of attachment, two parties agree to create the security interest in one of three ways:

Creation of an authenticated security agreement
Creditor takes possession of collateral
Creditor takes control of non-con deposit accounts, electronic chattel paper, and investment property

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To agree to create a security interest (first requirement of attachment), a security agreement must

-Writing or electronic record with a present intent to create a security interest
-Authenticated by the debtor - any signature or mark indicating intent to be bound
-Reasonably identifying the collateral (all equipment/inventory is suff, just not “all property”)

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Proceeds are ____ and always ____

Anything reasonably identifiable as resulting from sale, exchange, or other disposition of collateral

Create a security interest in the proceeds unless otherwise agreed

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Perfection of a security interest is

the process of providing public notice to secure priority

Being unperfected does not render an interest unsecured

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Perfection occurs when:

Attachment AND one of the following:

Automatic perfection - PMSI Cons Goods
Perfection by possession
Control
Notification on certificate of title
Filing financial statement

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Perfection by possession characteristics:

-Money can only be perfected by possession
-Intangibles can’t be perfected by possession
-Perfection lasts as long as possession is held

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Control perfection characteristics:

-Security interest in non-con deposit accounts can ONLY be perfected by control (Ownership, Management, Control Agreement)
-Investment paper or Chattel paper - Creditor has right to sell or is assignee

Notification on certificate of title perfection characteristics:

-Only way to perfect for Cars/Trucks
-Requires notation by government authority on certificate of title
-EXCEPT - where car dealers (holding for sale or lease) are taking debt on their inventory, then perfection by financing statement

Perfection by financing statement characteristics:

Requirements of statement
-Debtor’s/Secured Party’s names
-Description of collateral
-Authorized by debtor
-Filed with SoS unless real prop, then county

Priority between secured perfected creditor and secured perfected creditor

First to file financing statement OR perfect (attach+method of perfection)

Remember PMSI CG auto perfects on attach

Priority between unperfected vs unperfected

First to perfect wins

Priority between Perfected Security Creditor vs Unperfected

Perfected always win

Special PMSI Priority rules for PMSI in Equipment/Con Goods

Takes priority over conflicting interests in the same goods or their proceeds if:
-Interest perfected before or within 20 days after debtor receives possession of the goods

Special PMSI Priority rules for PMSI in Inventory and livestock

Takes priority over conflicting interests in the same goods or their proceeds if:
-Perfected at time of possession
-Other secured party gets authenticated notification within 5 years

Priority between SF PMSI and FF PMSI:

Seller wins

Priority between conflicting security interest in deposit accounts is determined by:

highest method of control 1. Ownership - listed on bank account 2. Management - in their bank 3. Control agreement

A buyer of secured property typically _____ unless _____

Takes subject to the security interest 1. Authorized w/o Sec Int - Explicitly/Implicitly through sale of inventory to ordinary consumers, buyer takes free of any security interest 2. Buyer in Ordinary Course from Seller of those Goods takes free of a security interest from the seller, but subject to any preexisting security interests

For consumer to consumer sales

The buyer takes free of SI if: -No knowledge of SI -Buys for value -For personal use (consumer goods) UNLESS the Creditor filed a financial statement (constructive notice) or the buyer knew of SI (actual notice) A PMSI on consumer goods that did not file (b/c it doesn't have to in order to perfect) would be stripped for failure of notice in this situation

Priority between a Secured Party and a Judicial Lien Creditor:

-Perfection before Levy = Sec Party wins -Levy before perfection = Lien Creditor wins

Priority between a secured creditor and a statutory lien holder:

Statutory lien holder takes priority IF -Goods/services provided in normal course of business AND -Lien holder has possession

On default, a creditor is entitled to use self help if

it can be done without a breach of the peace (potential to lead to violence)

A sale on default MUST be

commercially reasonable or the seller will be liable for actual damages

Chattel paper requires

(1) monetary obligation (ie Promissory Note) AND (2) security interest in specific goods

Accessions are

goods physically united with other goods such that their identity is not lost (tires on a car)

A security interest in an accession is perfected

if the security interest is perfected when the collateral becomes an accession, then the security interest in the collateral remains perfected

For accessions, the priority rules are

Generally the same (first to file or perfect or special PMSI rule) EXCEPT when a security interest in whole (I.e. a vehicle) is perfected under certificate of title, then the security interest in the whole prevails over the interest in the accession

A fixture is

a good so related to real property that an interest in them arises under real property law Personal property attached to real estate with the intent that it become permanent are fixtures

To perfect a security interest in a fixture

A fixture filing must be made in the office where real estate filings are made UNLESS readily removable, in which case any method of perfection grants priority

Perf SI in Fixtures vs any subsequent real estate interest:

Perf SI in Fixtures wins

Secured party v. prior real estate interest

Prior real estate interest properly recorded wins EXCEPT PMSIs take priority if perf'd before or w/in 20 days of them becoming fixtures Construction mortgages beat PMSIs

After acquired clauses that create a security interest in the property are perfected according to the

rules applicable to the type of collateral Ineffective perfection for the initial property type does not prevent perfection in the later acquired property if the requirements for that type of collateral were met

Failure to include correct Corp name (using debtor's trade name) on a financing statement has what effect

Renders the statement insufficient to perfect UNLESS the name is not seriously misleading because a search of debtor's correct name would still reveal the financing statement