Secured Transactions Flashcards
What is a secured transaction?
transaction intended to create a security interest in personal property of fixutres.
What is the definition of Equipment
a good, given as collateral, that is used in the business
What is the definition of Inventory
a good, given as collateral, that is used for sale
What is the definition of Consumer goods
a good, given as collateral, that is used for personal use
What is the definition of a farm product?
corps, livestock or supplies in farming operations if debtor engaged in farming operations, given as collateral
Types of Intangible collaterals
- Instrument - checks or promissory notes, given as collateral.
- Document - bills of lading or warehouse receipts, given as collateral
- Chattel paper - record evidencing 1) monetary obligation and 2) security interest
- Investment property
- Accounts - a right to payment for property sold or services rendered
- Deposit accounts
- Commercial tort claims - 1) claimant is Org.; or 2) claimant is person and claim arouse out of profession and does not include damages for personal injury
- General Intangibles
What is the definition of Collateral
Collateral is personal property that can be recouped by a creaditor upon failure to pay back the debt
! What is after-acquired property clause
Allows to attach security interest to the property as soon as the the debtor acquires an interest in that property.
Without it - the secured interest only reaches collateral that the debtor had rights in at the time the debtor signed the security agreement.
Except, when the collateral is rapidly depleted and replenished (inventory, accounts)
Who is the creditor trying to protect itself against?
Debtor
Other creditors
Trustee and bankrupcy
Subsequent purchaser
How can a creditor protect its interest from the debtor?
attachment
How can a creditor protect its interest from 3rd parties?
attachment and perfection
What are the elements of Attachment?
Means the security interest has been created.
1. Property owned by debtor; and
2. Interest creation: A security agreement
- language creating security interest
- describe collateral so it is reasonably identifiable
- signed by debtor
3. Give value
What are the elements of Perfection?
- File financing statement /w recording office w/i 20 days of the attachment;
- description of collateral
- name of debtor
- name of creditor
- debtor must authorize (satisfied if signed security agreement)
- filing fee
- Automatic perfection
- PMSI in consumer goods
- creditor loses to a subsequent purchaser unless the creditor files a financing
statement 1) w/i 20 days of the INITIAL attachment; or 2) before they get it
- creditor loses to a subsequent purchaser unless the creditor files a financing
- PMSI in consumer goods
- Take possession/ control
How to perfect a non-consumer deposit account
Control:
1. the bank in which deposit account is maintained, automatically has control
2. putting account in secured party’s name
3. control agreement
How to perfect a secured interest in vehicle
By notation on the certificate of title
Except, if used as inventory, by filing a financing statement
In a financial statement, what name should be used?
Assuming that the driver license is valid and not expired, under the name that is on the ID
In a financial statement, does an error in a name make it invalid?
No, so long as it is not seriously misleading
For how long is financing statement valid
5 years, then need to file a continuation statement after 4.5 years passed but before 5
If Alex bought TV from BestBuy, it attached and perfected. Alex moved to a different state. Does BestBuy need to perfect again?
Yes, within 4 months
If Alex bought TV from BestBuy, it attached and perfected. Alex sent his TV to his mom who lives in a different state. Does BestBuy need to perfect again?
Yes, within 1 year
What are the creditor’s responsibilities for the collateral?
use reasonable care to preserve collateral in its possession
confirm unpaid balance on request
file or send a debtor a termination statement once the debt is paid
When does the creditor have secured interest in PROCEEDS
If Identifiable, the creditor has security interest in proceeds upon attachment of collateral
Can commingled cash proceeds be identifiable?
Yes, courts look at the lowest amount of cash in the deposit account after the deposit of the proceeds, and hold that amount identifiable.
If the debtor changes its use of a collateral (e.g. inventory to consumer goods), does the creditor need to file or amend financing statement?
No. it remains effective to perfect the security interest
How long is automatic perfection of proceeds?
- perfected first 20 days
- protected further if 1) identifiable cash or 2) original collateral perfected by financing statement; filing would be in the same place; and proceeds not purchased with cash proceeds
- or can amend the financing statement within 20 days to perfect
C loans money to D and takes a security interest in D’s inventory. Attaches and pefects. D sells inventory on credit. As such, D gets accounts. Accounts are identifiable proceeds. For how long are proceeds protected?
Indefinitely because 1) original collateral perfected by financing statement 2) filing would be in the same place; and 3) proceeds not purchased with cash proceeds
What is PMSI
Purchase Money Security Interest:
1. creditor gave the money to purchase goods that became the collateral
2. seller sells goods on credit and retain a security interest in the goods sold
it has priority over other interests
(in real property it does not protect against recording statutes)
Does day of attachment matter for priority of secured interests?
No, because attachment only protects against the debtor
Who wins between:
perfected security interests vs perfected security interest
First to file OR perfect (can file without attaching)
Who wins between:
unperfected security interests vs unperfected secured party
First to attach wins
Who wins between:
perfected security interests vs unperfected secured party
Perfected party wins
PMSI special perfection rule
PMSI in consumer goods - automatically perfected
PMSI special priority rule
PMSI in goods other than inventory or livestock - has total priority if perfected within 20 days
PMSI in inventory/Livestock - has total priority if
What way of perfecting is better in deposit accounts?
Best: put it in creditor’s name
Next best: creditor maintains account
Worst: control agreement
When can a subsequent buyer win against secured interest?
- express authorization from creditor
- inventory rule
- Acquiescence (no objection to open and continuous violation)
- BIOC
- Consumer to Consumer Sales
What is an inventory rule?
If a collateral is an inventory of the debtor, the creditor cannot go after its ordinary consumers
- applies ONLY to the original debtor
- protects ONLY ordinary consumers (not resale businesses)
E.g. Apple cannot go after a purchaser of Iphone at BestBuy if BestBuy failed to pay to Apple for the Iphone
What is BIOC rule?
Buyer,
1) in GF,
2) without knowledge of violation
3) in ordinary course
4) buys from merchant
- wipes out ONLY interests created by the seller
What is a consumer to consumer rule?
Buyer,
1) without knowledge of violation;
2) buys for value
3) consumer goods (in sellers hands and for consumer goods purpose)
4) before a financing statement is filed
- Wipes out all interests
Who wins between
Secured party v. Judgment lien creditor
First in time between
Levy (seizure of collateral) and security interest perfected
PMSI grace period exception v. judgment lien creditor
PMSI takes priority if recorded within 20 days of debtor receiving collateral
Who wins between secured party v. possessory lien holder
Statutory lienholder wins if they maintain possession of colalteral
Is Self-help repossession permissive?
Yes, if it is done without breach of the peace. Breach of the peace is potential violence. Generally, physical presence by the debtor plus verbal objection is enough.
In order to self-help repossess, can creditor render goods unusable?
Yes, if done without breach of the peace
In order to self-help repossess can a creditor direct all debtor’s debtors to pay directly to the creditor?
Yes, if collateral is accounts. Debtor can tell debtor’s debtors to pay the creditor and they MUST pay the creditor instead of a debtor.
Can the creditor repossess and keep the good for itself?
Strict Foreclosure - must send notice to all other creditors on this collateral. If any creditor or debtor objects - must sell
Requirements of a valid foreclosure sale
- Every aspect must be COMMERCIALLY REASONABLE
- Notice to known creditors and debtor (unless collateral is perishable or can rapidly decline in value)
- Notice must be sent within a reasonable time (in non-cosumer 10 days prior)
- have time and place
Can the creditor buy the collateral at a foreclosure sale?
Yes. if the sale is private, standard price quotations must be widely available or appropriate market for the good.
How is creditor penalized if the sale is not commercially reasonable?
- liable for actual damage
- no deficiency judgment
- Statutory penalty for consumer goods
Is right of redemption applies after the foreclosure sale?
No. must pay before foreclosure
acceleration clause may apply
Can a debtor reposses a fixture?
Yes, assuming the fixture filing at a county was done and the security interest in fixture has priority over all other interests.
What is accession
goods physically united with other goods in such a manner that it is still identifiable
what PMSI exceptions exists in fixtures and accessions?
