Secured Transactions Flashcards
Attachment Elements
- SP gives value to Debtor4
- Debtor has rights in collateral; and
- Either
(i) Authentication of SA; OR
(ii) possession or control of collateral
What is attachment?
The method by which a security interest becomes enforceable against collateral.
Requirements of Security Agreement
- In writing;
- Reasonable description of collateral;
- Authenticated by Debtor
What is perfection
The process that stakes a party’s claim in collateral, so the secured party might have priority over another.
Methods of perfection
- Filing Financing Statement
- Possession/Control
- Automatic
- Alternate Systems
- State Certificate of Title
Financing Statement Requirements
- Debtor name
- SP name
- Description of collateral (super generic alright)
Categories of collateral
- Goods
- Rights to Payment
- “Other”
Categories of Goods
- Consumer Goods
- Inventory
- Equipment
- Farm Products
- Other Goods
Definitions of
- Consumer Goods
- Inventory
- Equipment
CG: Acquired for personal, family or household purposes
Inventory:
- Non-farm-product goods held for sale/lease or furnished under service contract
- raw materials
- works in progress
Equipment: Goods that don’t fit into other definition (e.g., machinery, delivery vans, office equipment, farming equipment)
Most common automatic perfection
PMSI in CONSUMER goods
Attachment for proceeds
If SI attaches to original collateral, it automatically attaches to identifiable proceeds whether or not SA states it covers proceeds
Perfection in proceeds - General Rule
SI in proceeds initially perfected for 20 days
Perfection in proceeds beyond 20-day rule
Lapses unless:
- Filing statement amended or has broad language to cover
- Identifiable cash proceeds
- Same Office Rule
Same office rule for perfection of proceeds
- Financing statement covers original collateral
- Proceeds are collateral which can be filed in same office as original FS
- Proceeds not acquired with CASH
Priority - SI vs SI
(Non-PMSI)
- Perfected vs Perfected
- Perfected vs Unperfected
- Unperfected vs Unperfected
- P v P: First in time to file or perfect
- P v unP: P
- UnP v UnP: First to attach or become effective
Priority - SI v Lien Creditors
- P SI v Lien Creditor
- UnP SI v Lien Creditor
- Perfected
- Lien*
*Subject to filed but unattached exception
Buyer in the Ordinary Course of Business Exception (vs Perfected SI)
BIOCB takes free of SI created by B’s seller if:
- B buys goods from Merchant
- In ordinary course of M’s business
- Acting in good faith w/o knowledge sale violates rights of others
- Seller engaged in business of selling these goods (not pawnbroker)
- SI created by seller Merchant
Garage Sale (Consumer to Consumer) Exception (vs Perfected)
Buyer
1. buys CG
- From consumer seller
- For personal/family/household use
- For value
- Without notice of the security interests
- Financing statement covering collateral not filed at the time of the transaction.
When garage sale exception typically applies
PMSI in consumer goods (since they’re auto-perfected upon attachment without financing statement)
Buyer vs Unperfected SI
Takes subject unless
- Gives value
- Receives delivery
- Without knowledge of preexisting interest
*Can also use Garage Sale or BOCB exceptions
PMSI in Non-Inventory
Default rules but PMSIs have 20 day grace period to perfect from when Debtor possesses collateral
PMSI in Inventory
Priority if PMSI perfected at the time Debtor receives possession and notice provided to prior creditors
Proceeds of disposition
- Reasonable expenses for collection & enforcement
- Debt to foreclosing SP
- Subordinate SIs, provided party makes formal demand prior to distribution
- Surplus to debtor
*Senior SIs survive the sale
Article 9 and leases
Article 9 does not apply to a true lease but does apply if the economic reality of the transaction is that it’s a secured transaction
Test for whether a lease is really a secured transaction
- “Lessee” obligated to pay full obligation under lease, whether or not terminated early (ie can’t be terminated early); and ONE OF
2a. Nothing of value is returned to the lessor (e.g., lease term longer than remaining economic life of goods)
2b. Lessee bound to renew lease for remaining economic life of goods; OR
2c. Lessee has option to renew lease for remaiing economic life or become owner for no/nominal consideration
