Secured Transactions Flashcards
DEFINITION OF SECURED TRANSACTION
A secured transaction is a transaction intended to create a security interest in personal property or fixtures.
-> It generally involves a sale on credit or a loan in which the seller or the lender obtains a lien on some or all of the debtor’s property as security for payment.
To spot a secured transaction, look for:
(1) a credit transaction (a sale on credit or a loan) and
(2) an agreement that creates a lien in favor of the creditor in the debtor’s personal property to secure the debt.
Debtor
The debtor is the person who owes payment or performance of the obligation secure
Secured Party
The secured party (also called the “creditor”) is a lender, seller, or other person in whose favor there is a security interest (here, First Bank).
Security Agreement
The security agreement is the agreement between the debtor (Hilda) and the secured party (First Bank) that creates the security interest.
Security Interest
- A security interest is an interest in personal property or fixtures that secures payment or performance of an obligation.
- It’s a contingent property interest in the debtor’s collateral that the debtor grants to the creditor.
- When that contingency (which is default) occurs, the property interest springs to life and the creditor has rights in the debtor’s collateral.
Collateral
- Collateral is the property subject to a security interest
- It is property that the secured party can repossess upon default to ensure that the debt is pai
A PMSI can arise in two ways:
(1) Seller-Financed PMSI: The secured party sells the goods to the debtor on credit an
retains a security interest in the goods sold, or
(2) Financier-Financed PMSI: The creditor loans the funds to the debtor to enable the debtor to buy specific collateral, those funds are used by the debtor to acquire the specific collateral, and the creditor takes a security interest in that collateral. The PMSI secures whatever portion of the purchase price still has to be paid.
After-Acquired Property Clause: Security agreement
A secured party often will want to obtain a security interest not only in debtor’s present property, but also in property that the debtor will obtain in the future.
-> This is permissible
Future Advance Clause
- A secured party often contemplates making future loans to the debtor and wants to secure these future advances in the present security agreement.
-> This is permissible. - Security agreements typically contain a future advance clause (as in the hypo above), in which case a new security agreement is not needed when a future advance is made.
Attachment
- Attachment deals with those steps legally required to give the secured party a security interest in the collateral that is effective as against the debtor.
- Once a security interest attaches, it is effective against the debtor and the creditor has all of the rights of a secured creditor under Article 9.
- A creditor is not a secured creditor until attachment
Perfection
- Perfection deals with those steps legally required to give the secured party an interest in the collateral that is effective as against the world.
- In general, perfection is the process of giving public notice of the security interest to the world.
Financing Statement
Document generally used to provide public notice of the security interest, and so to perfect the security interest.
TYPES OF COLLATERAL (high level)
- Goods
- Intangible or Semi-Intangible Collateral
“Goods” include ____
all things which are movable at the time the security interest attaches (including unborn animals and growing crops).
-> Goods also include fixtures (discussed below).
The category into which the good is placed depends on _____
how the debtor is using the collateral.
Category of goods:
- Consumer goods: goods used or bought primarily for personal, family, or household purposes
- Equipment—goods that are used or bought for use in a business. (+fallback category)
- Farm products—crops or livestock or supplies used or produced in farming operations 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 the possession of a debtor engaged in farming operations
- Inventory—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
The category into which intangible or semi-intangible collateral is placed depends on _____
the nature of the collateral (rather than its use)
Intangible or Semi-Intangible Collateral - Categories
- Instruments—Pieces of paper representing the right to be paid money, like promissory notes, drafts (for example, checks), and certificates of deposit
- Documents—A document that represents the right to receive goods (for example, a bill of lading, a warehouse receipt)
- Chattel paper—A record or records which evidence both (1) a monetary obligation, and (2) a security interest in or a lease of specific goods. A “record” is information that is stored in either a tangible medium (for example, written on paper), or an intangible medium (for example, electronically stored).
- Investment property—Includes items such as stocks, bonds, mutual funds, and brokerage accounts containing such items
- Accounts—Includes a right to payment (that is not evidenced by an instrument or chattel paper) for property sold or services rendered.
-> Note: A contractual obligation arising from a loan of money is not an account—it is a general intangible (see below). - Deposit accounts—An account maintained with a bank.
-> Note: In general, Article 9 only applies to security interests in non-consumer deposit accounts and account monies that are claimed as
proceeds of other collateral. - Commercial tort claims—A tort claim where (1) the claimant is an organization (for example, a partnership or corporation), or (2) the claimant is an individual, the claim arose out of the claimant’s business or profession, and the claim does not include damages for personal injury or the death of an individual (note that Article 9 also applies to noncommercial tort claims that are claimed as proceeds of other collateral)
- General intangibles—Any personal property not coming within the scope of the other definitions, such as patent and trademark rights, copyrights, and goodwill. A general intangible under which
the account debtor’s principal obligation is a monetary obligation is a payment intangible.
Instruments
Pieces of paper representing the right to be paid money, like promissory notes, drafts (for example, checks), and certificates of deposit
Documents
A document that represents the right to receive goods (for example, a bill of lading, a warehouse receipt)
Chattel paper
A record or records which evidence both (1) a monetary obligation, and (2) a security interest in or a lease of specific goods. A “record” is information that is stored in either a tangible medium (for example, written on paper), or an intangible medium (for example, electronically stored).
Investment property
Includes items such as stocks, bonds, mutual funds, and brokerage accounts containing such items
Accounts
Includes a right to payment (that is not evidenced by an instrument or chattel paper) for property sold or services rendered.