Secured Transactions Flashcards
Secured transaction
Transaction intended to create security interest in personal property or fixtures
Generally, involves sale on credit or loan in which seller obtains lien on some or all of debtor’s property as security for payment
What law governs
Art 9 of Uniform Code
Scope of Art 9
Even without express words, seller’s retention of title, agricultural liens, sales of accounts, chattel paper, payment intangibles, and notes, commercial consignment of goods, and secured sale disguised as lease
Debtor
Person who owes payment or performance of obligation secured
Creditor
Secured party: lender, seller, or other person in whose favor there is SI
Unsecured creditor: person who money is owed to where no SI
Security agreement
K b/w debtor and secured party that creates SI
SI
Interest in personal property or fixtures that secures payment or performance
Default
Event causing SI to spring to life
Collateral
Property subject to SI
PMSI and types
Special subtype of SI in goods
1. Seller-financed: (a) secured party sells collateral on credit, and (b) retains SI in collateral
2. Financer-financed: (a) loan to purchase specific collateral, (b) loan used to acquire, and (c) creditor takes SI in collateral
After-acquired
Grant of SI in property obtained in future
Future advance
Grant of security agreement securing future loans with same collateral
Attachment (define)
Steps necessary to create SI effective against debtor
Perfection (define)
Steps necessary and legally required to create SI effective against world (generally, means notice)
Financing statement
Document used to convey notice of SI
Types of collateral
Classification is important b/c many Art. 9 provisions make legal distinctions based on type
Either goods, or intangible OR semi-intangible
Goods categories
Tangible, movable personal property based on how collateral used by debtor
Consumer goods, equipment, farm products, or inventory
Consumer goods
Used or bought for use for primarily personal, family, or household purposes
Equipment
Good used or bought for use in business
Catch-all category if nothing else works
Farm products
Crops, livestocks, or supplies used or produced in farming operations, OR products of crops or livestock in unmanufactured states if in possession of debtor engaged in farming operations
Inventory
Goods held for sale or lease, goods to be furnished under service contracts, and materials used or consumed in business in short time
Intangible or semi-intangible category
Category depends on nature of collateral rather than its use
Types include instruments, documents, chattel paper, investment property, accounts, deposit accounts, commercial tort claims, general intangibles
Instrument
Checks, promissory notes, or drafts
Documents
Represent rights to receive goods
Chattel paper
Record(s) which evidence both monetary obligation, and security interest in lease of specific goods
Investment property
Stocks or bonds
Accounts
Rights to payment for property sold or services rendered
Deposit accounts
Non-consumer bank deposit accounts and accounts that are claimed as proceeds of other collateral
Commercial tort claims
Type of tort lawsuit
General intangibles
Any personal property not coming w/i scope of other definitions such as patent and trademark rights, copyrights, and goodwill
Default category, best example is intellectual rights
Attachment reqs
To create SI
1. Security agreement
2. Value given, and
3. Debtor has rights in collateral
Security agreement
- Record showing intent to create SI,
- Agreement authenticated by debtor, usually meaning signed with any intent to sign, and
- Description of collateral that reasonably identifies it
Agreement evidenced by
- Creditor taking possession of collateral
- Authenticated document, or
- Creditor taking control of non-consumer deposit accounts, chattel paper, and investment property
Value
Must be given and any consideration sufficient to support simple K = value
Every debtor gives through promise to pay, so real Q is whether creditor gives
Rights in collateral
Debtor must have rights in collateral which requires ownership or possessory rights
Scope of SI
Includes future advances and after-acquired property
W/O express intent for after-acquired, SI only reaches collateral that debtor had rights to at time of signing unless interest in inventory and/or accounts
Methods of perfection
Secured party must perfect; this is done by attachment PLUS
1. Filing
2. Taking possession
3. Automatic perfection for PMSI
4. Control
5. Temporary perfection
Automatic perfection
PMSI in consumer goods, not otherwise covered by title statute, like car/trucks, is perfected once it attaches
Note, fixtures require fixture filing to obtain priority over interest in real property to which affixed
Possession
SI in most types of collateral can be perfected simply by taking possession but this only applies to items that can be possessed (tangibles)
Perfection only occurs during time of possession
Control
SIs in investment property, non-consumer deposit accounts, and chattel paper
Can only be perfected via control includes non-consumer deposit accounts, electronic chattel paper, and money
To control: (a) maintaining account by bank, (b) account in secured’s name, (c) account from bank to creditor if fails
Notation on car’s certificate of title
Only way to perfect car is notation on certificate of title issued by state
Exception: SIs created by car dealers held in inventory are perfected by filing
Filing
Secured party may obtain by filing financial statement, which must contain debtor’s name and address, secured’s name and address, and description of collateral
Contents of financing statement
Debtor’s name, description of collateral, after-acquired property, real property-related statements, authorization of filing statement, and authenticated security agreement
Debtor’s name is driver’s license name and how indexed; effect of error is fine if not seriously misleading
Place of security agreement filing
With Secretary of State unless real estate, timber, minerals, and fixtures then county where mortgage is
Temporary perfection
SIs in proceeds from original collateral is perfected automatically for 20 days
If past 20 days, imperfect unless filing statement covers original, identifiable cash proceeds, SIs that would be perfected in same place; proceeds not purchased with cash
Priorities
Determines which creditor is first in line to get paid of multiple for same collateral
This depends on type of collateral involved and types of parties involved
Perfected vs perfected
First to file or perfect; knowledge of prior unperfected does not matter
Perfected vs unperfected
Perfected SI prevails
Unperfected vs unperfected
First to attach has priority
Secured creditor vs unsecured
Secured wins
Be on look out for agreement that has given no value or rights in collateral
Priority in PMSIs
Give superpriority subject to conditions
- PMSI in inventory
- PMSI in goods other than livestock or inventory
- Conflicting PMSIs
PMSI in inventory and livestock
If
1. Instruments, chattel paper, IDed cash, inventory or cash proceeds
2. Perfected at time debtor gets possession
3. Authenticated notice to other holders, and
4. Notice received within 5 years of debtor getting possession
PMSI in goods other than inventory and livestock
If perfected w/i 20 days after debtor receives possession of collateral
B/W conflicting PMSIs
Secured party who has PMSI as seller of collateral, OR first secured party to file or perfect
Investment property
Control beats other methods of perfection and earlier beats later
Deposit accounts
If control, takes super priority
Best: co-owner
Second: maintain account
Worst: control agreement
Secured party against buyer or other transferee
When buyer/lessee buys or leases something with SI on it, security stays UNLESS
1. Authorized sale
2. Buyer in ordinary course (good faith, no notice) from seller of those goods
3. Buyers not in ordinary course if unperfected
4. Consumer-to-consumer (no knowledge, without financing statement)
Secured party vs judicial lien creditor or holder of possessory lien
Judgment lien holder wins IF arose before perfected
PMSI exception
For PMSI, if secured party files w/i 20 days after debtor receives collateral, secured party has priority over judicial lien arising b/w attachment and filing
Fixtures and its perfection
Goods permanently attached to real property
Requires separate filing
When SI has priority over all interests in real property, holder can remove upon default but if debtor not owner, must reimburse for cost to repair
Priority of fixtures
- Secured party vs subsequent real estate interest: SI in fixtures over real estate interest
- Secured party vs prior real estate: first in time unless SI is in PMSI
- Construction mortgage vs everyone else: construction wins
Accessions
Collateral that does not lose identity when physically united with other goods
E.g., hard drive, GPS, tires
Accession priorities
General priority rules apply UNLESS SI in accession is subordinate to SI interest in whole and perfected by compliance with title statute
