Secured Transactions Flashcards
Seller Financed PMSI
secured party sells debtor collateral on credit
AND retains security interest in item sold
Financer Financed PMSI
party loans money to debtor for the specific purchase of collateral and debtor does purchase the collateral and creditor takes security interest
Goods Definition
tangible moveable personal property
Consumer Goods
goods used or bought for use primarily for personal or family use
Equipment
catch-all
goods used or bought for use in business
Farm Product
crops or livestock used or produced in farming
OR
products in their unmanufactured state if they are in debtor’s possession engaged in farming operations
Inventory
goods held by the debtor for ssale or lease
OR material used or consumed in a business in short period of time such as raw materials or consumables
Accounts
right to payment for property sold or services rendered
Deposit Account
account maintained with a bank
Consignments
wholesaler maintains title to the goods and delivers them to retailer. if goods not sold then can return them to the wholesaler
Secured Sale Disguised as Lease
Leases are outside the scope of article 9
Lease = at time of transaction, anticipate the collateral will still have economic value
Sale = Buyer is the owner and will drain all economic value from it
test: at the time was it reasoanbly likley the lessor would get the item back when it still had meaningful economic value
Overview: Attachment Requirements
- Security Agreement (See sub factors)
- Value Given (any consideration sufficient to support K, including past consideration)
- Right in Collateral
Security Agreement General Rule
unless the collateral is in possession or control of creditor, we need written security agreement
Security Agreement Writing Requirement
- Intent to create security interest and language generally expressing intent
- Authenticate (Signature)
- Describe - reasonably identify
Future Advances
no need for new security agreement; future advancement based in same collateral
After Acquired Property
without an explicit after-acquired property clause in the security agreement, it only reaches the collateral debtor had rights in at the time of entering into the transaction
EXCEPT if inventory or accouts
Proceeds
includes whatever is received upon sale, exchange, collection, or other disposition of collateral or proceeds
Rights to Proceeds
unless otherwise agreed, security interest auto gives secured party a right to identifiable proceeds.
Identifiable Proceeds
identifiable means the secured creditor can prove that proceeds can be traced back tot he creditor’s original collateral
Lowest Intermediate Balance Test
(1) starting at time the initial proceeds are deposited
(2) end at time of test application
the lowest balance during the time period is secured party’s identifiable proceeds, but CAN’T exceed the value of the cash proceeds originally deposited
List the Methods of Perfection
- Automatic Perfection
- Possession
- Control
- Notation on Certificate of Title
- Financing Statement
Automatic Perfection
PMSIs in consumer goods are automatically perfected upon attachment
Possession
Perfected when creditor obtains possession as long as they retain possession.
* cash can only be perfected by possession
* cannot perfect an intangible with this
Control
consumer deposit accounts only perfected upon control
1. Bank account with secured party’s name on it
2. Bank account in control (automatic)
3. Control Agreement - K with creditor debtor and bank
Notation of Lien on Certificate of Title
only way to perfect cars and trucks.
get the right government authority to note the secured party’s lien on the certificate
UNLESS it’s a car dealership exception, then it must be financiang sttatements
Financing Statement (where)
File notice with secretary of state (unless real estate, then file in real estate records) where debtor is located (principal residence or if corporation then place of business or chief executive office)
Contents of the Filing Statement
- Debtor Name
- Description of Collateral
- Creditor’s Name
- Authorization
- If real property then: filed in real property records, description of the land, and property owner name
Note: No signature requirement but need authorization to file by the debtor
if real property then 3 factors (filed in real property records, description of the land, and property owner name)
Filing Statement: Debtor Name Rule
for individual, name if debtor has unexpired drivers license, financing statement must indicate name as indicated on license
trade names by themselves not sufficient
Financing Statement: Debtor Name Test
financing statement error is effective it it’s not seriously misleading
Seriously Misleading Test
mistakes in debtors name are seriously misleading if (1) search under debtor correct name using office standard search logic would retrieve erroneous financing statement. if it does, then not seriously misleading; if it doesn’t then it is seriously misleading
Debtor Name Change
if debtor changes their name such that the financing statement becomes misleading, then financing statement still effective to perfect security interst in collateral acquired before/within 4 months after the change
old financing statement still works to perfect any collateral owned as of time of name change and for another 4 months. but if worried about after acquired property then need to amend
Description of Collateral in Financing Statement
must reasonably identify, but super generic agreements are totally fine
don’t need to mention after acquired property to perfect security interest as long as the description is broad enough to cover
Financing Statement: Creditor’s Name
error here is irrelevant
Financing statement: Real property
financing statement must indicate that (1) it’s to be filed in real property records (2) provide description re property related (3) name record property owner if someone other than debtor signed
Perfecting Proceeds
if identifiable, automatic perfection for 20 days, but will be unperfected on day 21 unless (1) identifiable cash OR (2) same office rule
Identifiable Cash Rule
proceeds not cash
same office rule
if collateral was perfected by filing, proceeds can be perfected by filing in the same place as original inventory AND not purchased with cash
Priority: perfected secured vs. perfected secured
First to file or first to perfect, whichever happens first — NOTE: PMSIs in consumer goods perfect automatically so pretty unbeatable
Perfected Secured vs. Unperfected secured
Perfected Wins
Unperfected Secured v. Unperfected Secured
first to attach wins
PMSI in goods other than inventory or livestock
Jump to the front of the line if the PMSI was perfected immediately or within 20 days after debtor received possession
PMSI in goods in Inventory or livestock
Jump to the front of the line if you perfect and send authenticated notice to other holder previously holding interest. Notice received within 5 years before debtor gets possession [NOTE: consignment is a PMSI in inventory]
Seller Financed vs. Financer Financed
Seller wins
Investment Property
Perfected by control beats all the others — debtor intermediary beats others — otherwise first to file win
Deposit Accounts
Secured party obtain control by account name wins over all other secured parties with control (transferee takes free the funds unless acting in collusion with debtor)
Secured Creditor vs. Buyer
The secured party wins unless: authorized sale exception (inventory sold to ordinary consumer or acquiescence) or BIOC Exception (takes free of security interest created by his seller)
Authorized Sale Exception
Express (consumers)
Implied: if (1) inventory sold to an ordinary consumer (consumer buys inventory, not a liquidation sale buying inventory) (2) acquiescence
Buyer in the Ordinary Course of Business
takes free of security interest created by his seller
BIOC buys in good faith without knowledge it vioaltes the rights of another (but allowed to know of the encumbrance generally)
BIOC if the seller is in the business of selling goods of the kind
if the person selling you the thing isn’t the same person who was the original debtor you do not take free
Buyers not in the ordinary course
take the property subject to the perfected security interest BUT take free of unperfected security interests unless they know of the security interest
Consumer to Consumer Sale (Garage Sale Rule)
buyer takes free of a security intersts if:
(1) no knowledge of existing security interest
(2) for value
(3) for personal/family household purposes
(4) unless prior to the purchase, the secured party has filed the financing statement
PMSI v. Lien
if secured party files PMSI within 20 days of receiving possession, he takes priority over lien creditor arising between attachment and filing
secured party vs. statutory lien claimant
statutory lien holder wins if they maintain possession of the collateral - even over a perfected security interest
Default
rights of creditor to proceed against collateral triggered by default
generally construed as a failure to pay or as a failure to maintain insurance.
Upon default, creditor is
entitlted to self-help and may take possession if it can be done without a breach of the peace
breach of the peace
any conduct with potential to lead to violence (physical presence and a verbal objection amounts to breach)
Effect of Breaching the Peace
creditor loses authorizatio to reposesses and can be liable for conversion (actual and punitive damages)
Default - Equipment Rule
secured party can make equipment unusable and leave it on debtor property without breaching the peace (psychopath pulling out ignition wires ok)
Default - Account Rule
credit can notify persons owing money to original debtor to make payment to original creditor instead. upon this notice, paying the debtor will not satisfy the obligation - MUST pay the original creditor
Strict Foreclosure
allowed to keep the property instead of foreclosing it as long as you:
(1) notify anyone else w a lien in it
(2) get all their consent
(3) get debtor consent
and if anyone objects within 20 days, you can’t keep it
Partial strict Foreclosure
keeping the collateral and taking some money off your debt instead of it being completely satisfied
Fixtures Defined
goods permanently attached to real property
so related to real property that interest in them arises
Perfect a Fixture
file a fixture filing with the mortgage on real estate would be filed
Don’t need a fixture filing if
readily removeable collateral (1) office or factory machines (2) equipment not primarily uesd or leased for use in oepration of real esatate (3) replacvement of domestic appliances
any method of perfection okay
don’t need to perfect fixtures if
(1) owner or real esttate has consented to interest or disclaimed intereset in proeprty as fixtures through authenticated record
OR
(2) the debtor has a right to remove the goods as against real estate claimant
Upon Default re fixtures
the holder can remove the fixtures from the property but if debtor doesn’t own the property then the creditor must reimburse the owners for cost to repair damage due to removal, but not any diminution in value
Accessions definition
goods physically united with other goods in such a manner that the identity of the original goods are not lost (i.e. tires on the car)
Accession Special Priority Rule
security interest in accession is subordinate to security interest in the whole, i.e. like the car, which is perfected by comliance with certificate of titlte statute
Accession removal
can remove is security interest in the accession has priority over the claim of EVERY SINGLE PERSON having an interest in the whole
Financing Statement Timing (effective date and movements)
- 4 months after debtor moves before it becomes unperfected
- if collateral moved across state lines to a new owner, then unperfected for a year
financing statement is effective for 5 years and can file a continuation statement in the last 6 months of the statement’s life
Financing Statement Termination
after paying off the loan, demand creditor files a termination statement within 20 days of demand OR 1 month of the lien ending
