Secured Transactions Flashcards
What kinds of transactions does article 9 appply to?
- Article 9 of the UCC applies to any transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract.
- the words security interst do not have to be specifically present.
- Also applies to lease agreements that are security interest rather than true leases. Typically occurs when the lease term covers the entire economic life of the goods or when the lessee has an option to purchase the goods for nominal consideration at the end of the lease.
What is a security agreement?
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
What is a security interest
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.
What is a purchase money security interest?
Two types:
1. The secured party sells the goods to the debtor on credit and retains a security interest in the goods sold
2. The creditor loans the funds to the debtor to enable the debtor to buy specific collateral, those specific funds are used by the debtor to
acquire the specific collateral, and the creditor takes a security interest in that collateral.
What is collateral
Collateral is the property subject to a security interest
After aquired property clause
- An after aquired property clause extends the secuity interest not only to the debtors present property, but also also to property that the debtor will obtain in the future without additional formalities.
- Even without an after-acquired property clause, a security interest will attach automatically to collateral of a type that’s rapidly depleted and replenished, such as accounts and inventory.
- A security interest will also automatically attach to identifiable proceeds
Future advance clause
Automatically secures future loans to the same collateral as the original secured loan without additional formalities.
what is attachment?
When the rights of the secured creditor become effective against the debtor
What is perfection
- When the rights of the secured creditor become effective against other creditors (gives notice to other creditors).
- Perfection cannot occur until attachment has occured
- There are six methods of perfection:
(1) filing a financing statement;
(2) taking possession of the collateral;
(3) control;
(4) automatic perfection;
(5) temporary perfection.
(6) notation on the certificate of title (automobiles only) - unperfected does not mean unsecured.
What are goods? and what are the four types of goods?
- Tangible movable personal property at the time the security interest attaches (including unborn animals and growing crops).
- The key question is how the debtor intends to use the collateral (original intent rule)
Four types of goods:
1. Consumer goods—goods used or bought primarily for personal, family, or household purposes.
2. Equipment—goods that are used or bought for use in a business. Also the default category for goods.
3. Farm products—crops or livestock or supplies used or produced in farming operations or products of crops or livestock in their unmanufactured states IF they are in the possession of a debtor engaged in farming operations.
4. 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
What are Intangible or Semi-Intangible Collateral? and what are the 8 types?
8 types depending on the nature of the collateral
1. Instruments—Pieces of paper representing the right to be paid money.
2. Documents—A writing that represents the right to receive goods.
3. 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. May be electronic.
4. Investment property—Includes items such as stocks, bonds, mutual funds, and brokerage accounts containing such items
5. Accounts—Includes a right to payment for property sold or services rendered. (accounts receiveable)
6. Deposit accounts—An account maintained with a bank. (art 9 only appplied to non-consumer desposit accounts)
7. Commercial tort claim — 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
8. General intangibles—anythis else such as such as patent and trademark rights, copyrights, and goodwill.
requirements of attachment
Three requirements. Can occur in any order.
1) Binding Security Agreement with AID: Authentication (signature), Intent, and a Description that reasonably idenfies the collateral. OR posession by the secured party.
* an agreement may be oral IF the collateral is in possession f the secured party, but this is often infeasible.
2) Consideration is given by the secured party
* Consideration is usually a loan, but even past consideration will suffice.
3) The debtor must have Rights in the collateral
* Need not be title, possession is sufficient.
What are proceeds?
- Proceeds include whatever is received upon the sale, exchange, collection, or other disposition of collateral or proceeds.
- Even insurance pay out for damage to collateral and claims arising from damage or loss of collateral are proceeds.
- Proceeds must be identifiable (traceable to the original collateral)
- comingled cash uses the lowest intermediate balance rule (cannot exceed original value of cash proceeds)
Perfection by filing a financing statement
A secured party may obtain perfection by filing a financing statement (either in writing or electronically)
Requires:
1) The debtor’s name and mailing address,
2) The secured party’s name and mailing address, and
3) A description of the collateral covered by the financing statement (may be generic)
4) Must be filed with state secretary of state office of debtor’s location UNLESS involving timber, minerals, or fixtures, in which case must be filed with county office where the item is located.
Issues:
* Use of the debtor’s trade name is insufficient.
* Financing statements are filed by the name of the debtor.
* Error is seriosuly misleading and will invalidate if it cannot be found in a filing office using a search with the correct name. Spelling errors usually seriously misleading. (unless caused by filing office error).
* Errors in secured party name are immaterial.
* In the event of a debtors name change, the financing statement is effective only against collateral acquired by the debtor before the name became insufficient and within 4 months after.
* Unlike with authenitcation, the collateral description may be generic.
* Description need not mention after aquired property if it is broad enough.
* If debtor moves, creditor must refile within 4 months
* Is collateral is transferred to a new owner in new state creditor must refile within 12 months
* Financing statement is valid for 5 years. Continuation statement must be filed within 6 months of end of statement.
perfection by the secured creditor taking possesion
- Most types of collateral are perfected upon posession by the secured creditor.
- This is the only way to perfect a security interest in money.
- Security interests in general intangibles, deposit accounts, nonnegotiable documents, electronic chattel paper, certificate of title goods, and accounts cannot be perfected by possession.
