Secured Transactions Flashcards
A seller-financed PMSI arises when
a secured party sells a debtor an item on credit and retains a security interest in the item sold
A financer-financed PMSI arises when
(1) a financer makes a loan to a debtor that enables the debtor to buy specific collateral; (2) financertakes a security interest in the specific collateral; and (3) the credit or loan proceeds must actually be used to acquire the collateral
The two main Article 9 categories of collateral are
“Goods” or “Semi-Tangible or Intangible Property”
Article 9 “goods” are
tangible, movable personal property.
The four types of Article 9 “goods” are
(1) Consumer goods
(2) equipment (default, catch all)
(3) farm products
(4) inventory
In classifying the collateral, look to
how the debtor is using the collateral.
Does the debtor use it as consumer goods, equipment, farm products, inventory, etc.
Consumer goods are
goods used or bought for use primarily for personal, family, household purposes
Equipment is
goods used or bought for use primarily in business. The default Article 9 category.
Farm products are
crops, livestock, or supplies produced in farming or products of crops, livestock, etc
Inventory is
goods (1) held by person holding them for sale or lease or to be furnished under service contracts;
(2) supplies used or consumed in a business in a short period of time (can even include office supplies)
The 8 types of semi-intangible/intangible property are
(1) Instruments; (2) Documents; (3) Chattel Paper; (4) Investment Property; (5) Accounts; (6) Deposit Accounts; (7) Commercial Tort Claims; (8) General Intangibles
Instruments are
Writings that show a right to payment, like checks, notes, prommissory notes
Documents are
A document that shows the person in possession is entitled to the goods it covers (bill of lading, warehouse receipt)
Chattel paper is
A record that contains a promise to pay plus a security interest
Investment property is
Stocks, bonds, mutual funds, brokerage accounts, etc.
Accounts are
A right to a payment for (1) goods, (2) services, (3) real property, (4) insurance, a few other things that don’t matter
Deposit accounts are
non-consumer bank accounts
Commercial tort claims are
(1) P is an organization (e.g. partnership or organization; or (2) P is an individual and the claim arose in P’s business or profession and does not include PI damages or death of an individual
General intangibles are
the semi-intangible/intangible catch all category, like IP rights or a payment obligation not falling within one of the other categories (a payment intangible)
An Article 9 security interest is created/attaches when there is a
(1) A security agreement
(2) the secured party gives value
(3) the debtor has rights in the collateral (no contingent property interests)
*in any order, attachment occuring at the moment the final requirement is met
A written security agreement requires
(1) a record showing an intent to create a security interest
(2) the agreement is “authenticated” (e.g. signed, even with a symbol) by the debtor
(3) the agreement describes (reasonably identifies) the collateral
A reasonable identification of collateral can
use normal vocabulary or the Article 9 types. It CANNOT be “all of debtor’s assets”, but CAN be “all of debtor’s chattel paper, all of debtor’s inventory”
A secured party gives value if it gives
consideration sufficient to support a contract, even past consideration. The debtor’s promise to pay always counts as value.
An oral security agreement can be valid if
the collateral is in the possession of the secured party. This is called a “pledge.”
After-acquired property clauses
are valid and allow the property secured to include after-acquired property w/o a new security agreement.
If there is not an explicit after-acquired property clause, generally the secured party’s interest only reaches collateral that the debtor
had rights in at the time the debtor SIGNED the agreement
An explicit after-acquired property clause does not apply where the after acquired property is
(1) consumer goods acquired by the debtor more than 10 days after the secured party GIVES VALUE; or (2) a commercial tort claim
An after-acquired property clause will be implied where
the collateral is a rapidly depleted and replenished resource (inventory or accounts).
Future advance clauses
are valid and allow the debt secured to include future advances by the same secured party without needing a new security agreement
Proceeds are
whatever is received upon the sale, exchange, collection, or other disposition of collateral or proceeds. Unless otherwise agreed, a security interest automatically gives the secured party a right to IDENTIFIABLE proceeds
To determine which part of comingled cash is identifiable
apply the “lowest intermediate balance” test. Look at the balance of the account starting at the time the proceeds are deposited and ending at the time you are applying the test. The lowest balance during that time period is the secured party’s indentifiable proceeds, max of the value of the cash proceeds originally deposited.
The five ways to perfect are
(1) Automatic perfection (PMSI in CONSUMER goods is perfected upon attachment)
(2) Possession of collateral by secured party
(3) Control
(4) Notation of lien on certificate of title (e.g, a personal automobile)
(5) Filing a financing statement
A purchase money interest in consumer goods is perfected upon
attachment.
EXCEPTION: Personal automobiles. Must note lien on certificate of title. For cars held as inventory, creditor must file financing statement.
Perfection by possession of the collateral by the secured party is effective when
the secured party takes possession (NOT at attachment) and continues only so long as possession is retained (e.g., tangible goods).
Perfection by control applies to the Article 9 categories of
(1) investment property
(2) electronic chattel paper
(3) nonconsumer deposit account (required to be control)
A security interest in a nonconsumer deposit account can only be perfected by
control.
Perfection by control as to nonconsumer deposit accounts is effective when (three options)
(1) the bank that maintains the account automatically has control over the deposit account; or
(2) putting the deposit account in the secured party’s name; or
(3) agreeing in an authenticated record with the debtor AND the bank that maintains the account that the bank will follow the secured party’s orders w/o further consent of the debtor
Perfection by control as to investment property is effective when
the secured party has taken the necessary steps to be able to sell the investment property w/o consent of the owner
A financing statement is commonlycalled a
Form UCC 1
A financing statement must include
(1) debtor’s name (individual, corporation, or partnership)
(2) description of collateral
(3) Secured party’s name (defect not fatal, but raises estoppel issues)
(4) Real property financing statements
(5) No signature required, though debtor must “authorize” the filing (see automatic authorization)
(6) Authenticated security agreement itself may be filed if it meets the above requirements
