Secured Transactions Flashcards
Secured Transaction definition
A business agreement, plus a security interest in equipment, inventory or consumer goods. If borrow doesn’t repay, lender can grab personal property and sell it to create value and pay off the debt.
Fivestep analysis for Secured Transaction
(1) Determine type of collateral
(2) Attachment
(3) Perfect
(4) Priority
(5) Enforcement
Tangible collateral
(1) consumer goods
(2) inventory
(3) farm products
(4) equipment (anything that is not one of the above categories)
Intangible collateral
(1) Instruments
(2) Documents
(3) Chattel Paper
(4) Accounts
(5) Deposit Accounts (commercial only)
(6) Investment property
(7) Commercial tort claims
(8) General intangibles
Attachment versus perfection
Attachment - rights against debtor
Perfection - rights against third parties
How do you show attachment?
ALL THREE MUST BE PRESENT FOR ATTACHMENT:
(1) AGREE to create a security interest, evidenced by:
- security agreement describing collateral with debtor authentication
- creditor taking control
(2) VALUE given by secured party
(3) DEBTOR’S RIGHTS in collateral
How do you describe collateral in an agreement?
broad categories OK but supergeneric (ie all the debtor’s assets) is not sufficient
Method for creditor obtaining control over: Nonconsumer deposit account
Bank automatically has control. If not a bank, then
(1) Put deposit account in SPs name, or
(2) bank and debtor agree that bank will follow SPs orders
Method for creditor obtaining control over: Chattel Paper
hold the tangible paper or for eletronic version have it state the SP as an assignee
Method for creditor obtaining control over: Investment Property Certificated Securities
Take possession of certificate.
IF certificate is in registered form, then (1) take possession AND (2) indorse to secured party
Method for creditor obtaining control over: Investment property securities accounts
have owner of account instruct securities intermediatry:
(1) SP has same rights in the account
(2) intermediatry can comply with SPs orders without owner’s further consent
Duty to exercise when holding collateral
Reasonable care. Risk of loss on debtor (even if in hands of secured party).
When does after acquired property attach?
(1) If there is an after-acquired property clause in agreement
(2) inventory attaches AUTOMATICALLY
Does after acquired property attachment apply to consumer goods?
NO - unless debtor acquires rights in the goods within 10 days after creditor gives value
What does perfection do?
Acquire maximum priortiy in collateral over third parties
What are the five methods of perfection?
(1) Filing of financing statement
(2) Possession of collateral
(3) Control
(4) Auto perfection (PMSI)
(5) Temporary perfection
Elements to perfect by filing
File a FINANCING STATEMENT, which states:
(1) Debtor’s name/add (make sure not seriously misleading)
(2) SP’s name/add
(3) Identify colateral
(4) and if real property description of the real property
Financing statement vs. security agreement
Financing statement - can have supergeneric indications “all assets.” Also does not need to metnion afer-acquired collateral if mentioned in security agreement
Security agreement - CANNOT have supergeneric indications of collateral. Also MUST Mention after-acquired collateral.
How long does perfection by filing last?
5 years
Purchase Money Security Interest (PMSI) definition
SI that secures payment of whatever portion of a loan actually used to purchase the collateral
Elements to perfect by auto perfection
ONLY applies to PMSIs in consumer goods
Elements to temporary perfection
ONLY lasts 20 days for proceeds
Credit seller PMSI
Seller extends credit to buyer
Lender PMSI
Advances money to buyer to buy goods
When does attachment occur in PMSI?
Not until debtor receives possession
Priority: Two unperfected secured parties
First to attach wins
Priority: Unperfected and perfected
Perfected prevails
Priority: Perfected secured parties
First to file or perfection (attachment doesn’t matter)
Priority: Two or more perfected parties over investment property and one has control
Party with control prevails over all other parties regardless of when and how they perfected
Priority: PMSI in Inventory (or consignment)
HAS SUPERPRIORITY over all other perfected parties, if
(1) perfected at time debtor gets possession
(2) Sends written notice to any other party who has an interest before debtor receives possession of the inventory
Priority: PMSI in Equipment
HAS SUPERPRIORITY over all other perfected parties, if
(1) perfected before or within 20 days of debtor receiving possession.
Priority: PMSI in consumer goods
HAS SUPERPRIORITY over all other perfected parties, if
(1) AUTO PERFECTS - don’t need to do anything.
Priority: Chattel Papers and Instruments
(1) buys in good faith
(2) gives new value
(3) takes possession
(4) doesn’t know it violated rights of other secured party
Priority: Unperfected secured party and buyer/lessee from debtor
buyer/lessee prevails as long as they didn’t know of the security interest, gives value and receives delivery of the collateral
Priority: Perfected secured party and buyer/lessee from debtor
secured party prevails, unless
(1) secured party consents to buyer taking it free of security interest
(2) BIOCOB (unless they knew of security interest)
(3) consumer purchaser from consumer (unless knows)
Priority: Unperfected Secured Party vs. Judicial Lien creditor
JLC previals before security interest perfected
Priority: Perfected Secured Party vs. Judicial Lien Creditor
PRIOR perfected security interest has priority over JLC
Remember the order of priorities (from most priority to least)
(1) BIOCOB who doesn’t know of other security interests
(2) PMSI
(3) Perfected security interest and Judicial liens
(4) Purchaser without notice of unperfected security interest
(5) Unperfected security interest
(6) Debtor
What laws govern perfection?
Law of the state where debtor located
Remedies when debtor defauls
(1) Repossess - doens’t require notice but requires no breach of peace
(2) Sell it - creditor must send notice to debtor. Look at sufficiency of advertising, limited markets, clearning or repair, public auction
(3) Strict Foreclosure - SI keeps collateral to satisfy debts. Give notice that SP keeping it and notify other creditors who have an interest in it, get assent from debtor (automatically assents by failure after 20 days).
Who is a BIOCOB?
a person that buys goods in good faith
without knowledge of other’s rights in the goods
of goods from
a person who deals in good of the kind
