Secured Transactions Flashcards
What is a PMSI?
When a security interest is created by the seller of the collateral to finance the purchase of that collateral, it is called a purchase money security interest (PMSI).
What is the “shelter principle?”
Under the “shelter principle,” once the buyer acquires goods free of the finance company’s security interest, any subsequent transfer of the goods by the buyer to someone else is also free of the security interest.
What are proceeds?
Proceeds include, inter alia, whatever is obtained on the sale of collateral
What is the buyer in the ordinary course of business rule?
A “buyer in ordinary course of business” (BIOCOB) takes free of a security interest created by its seller even if the security interest was perfected.
How can a credit contract be assigned?
assignment of a credit contract is valid when the party that must tender payment is aware payment is owed to a new party. Additionally, upon the giving of notice to the paying party, the paying party cannot tender payment to the original party to satisfy their debt.
How does a creditor have to proceed once a debtor has defaulted?
Upon default, a secured party may repossess collateral without notice to the debtor, so long as it does not breach the peace. Once the property is repossessed, the secured party must send proper notice to the debtor, any secondary obligor, other secured parties, and creditors prior to distribution (selling the collateral). Notice must be provided within a reasonable time prior to the sale of collateral; generally, 10 days or more prior to sale has been found reasonable.
What happens if a creditor fails to notify a debtor of property distribution?
Failure to properly notify may result in adverse consequences for the secured party: they may be estopped from seeking a deficiency against the debtor, the deficiency may be reduced, or they may be liable to suit on behalf of the debtor or other creditors with interest in the collateral for damages or even to enjoin the sale if it has not already occurred. In all other respects, the sale of collateral after default must be commercially reasonable.
When are generic terms appropriate?
Super-generic terms, like “all personal property” are acceptable in filing statements.
A security agreement must describe the collateral with sufficient specificity, and supergeneric terms like “all my personal property” will not suffice.
