Secured Transactions Flashcards
Article 9 - TX UCC
When must consignments comply with Article 9 of the UCC?
Must comply with Article 9 if:
1. Consigned goods are worth a total of $1,000.00 or more AND
2. The consigner did NOT use the goods for personal, family, or household purposes, AND
3. Potentially deceptive consignee:
(when in position to deceive)
• Consignee deals with goods of that kind under a name other than the consignor’s name,
• Consignee is NOT an actioner, and
• Consignee is NOT generally known by consignee’s creditors to be substantially engaged in selling consigned goods.
Lease – Purchase Agreements
Leases are not governed by Article 9, but when the lease is actually an installment sale, it is covered.
Evidence of secured transaction:
- Lease term is equal to or greater than remaining economic life of good, or
- Lessee owns property at end of lease term or
- Lessee has option to buy for nominal consideration at end of lease term
If the creditor wants to have rights to the goods superior to the claims of other creditors – must comply with Article 9.
Classification of Collateral – 2 main classifications (and subcategories):
- Goods:
• Consumer goods – personal, family, or household purposes
• Equipment – business purposes
• Inventory – consumed material, goods held for sale or lease, or raw material and work progress
• Farm products – in possession of farmer engaged in farming operations and in unmanufactured condition - Semi-Tangible and intangible collateral:
• Instruments – represent money (CD, promissory note, drafts, checks)
• Documents – written/electronic representation of goods (warehouse receipt, bill of lading)
• Chattel Paper – monetary obligations and security interests in or lease of goods
• Account – Accounts receivables, credit card receivables
• Deposit Accounts – checking and savings
• Investment property – stock, bonds, mutual funds
• Commercial tort claims – business tort claims that do not involve personal injury
• General Intangibles – copyrights, patents, license
Proceeds
Whatever is received upon the sale, exchange, collection or other disposition of collateral or proceeds.
• Automatically perfected for 20 days from the debtor’s receipt of the proceeds
• When perfection continues beyond 20 days:
1. Same office: Original security interest perfected by filing and a financing statement covering the proceeds would be field in the same office as the original collateral (i.e., inventory traded for equipment – perfection transfer to equipment because proceed and both are perfected by filing in secretary of state so no new filing needed)
2. Identifiable cash proceeds
3. Proceeds perfected within the 20 day period: The perfection could occur without further action on the creditor’s part or the creditor might need to take action to perfect beyond 20 days (i.e., File). When perfect – same priority as original collateral.
Attachment
3 elements: (VCR)
- Creditor gave VALUE
- CONTRACT – the security agreement
- Debtor has RIGHTS in collateral – debtor has rights in the collateral either though ownership, identification to a contract, or permission.
Method of proving the security agreement:
- Oral: If the collateral is in the creditor’s possession. Also known as PLEDGE.
- Authenticated record: Written or electronic that reasonably identifies the property.
- Control: Control of the collateral when nonconsumer deposit accounts, electronic chattel paper, or investment property. (CONTROL = the creditor has the right to sell or cash in the collateral without further action from the debtor.) Secured party with control will prevail over all others.
Is “all my consumer goods” a reasonable identifying description of the collateral in a security agreement?
• No – consumer goods and commercial tort claims may NOT be described by type alone. The description must be more specific.
Is “all my personal property” a reasonable identifying description of the collateral in a security agreement?
• No – super generic descriptions are not allowed in a security agreement. The description of the collateral must reasonably identify the property. It must be clear what property will be repossessed if the debtor defaults.
After Acquired Property (2 types)
• Inventory - floating lien.
• Consumer goods – but limited to 10 days after credit gives value.
For example: Loan company loaned Mr. Consumer $5,000 and made him sign a security agreement giving it a security interest in Consumer’s televisions “now owned or after-acquired”. This clause is only effective against TVs that are acquired by Mr. Consumer within 10 days after the loan.
• NOT valid for after acquired commercial tort claims
Perfection
• Process by which the creditor protects the security interest from most other claimants to the same collateral.
• ELEMENTS:
1. Attachment (value, contract, debtor rights to collateral)
2. Act of perfection:
• Possession of collateral by creditor
• Filing of financing statement by creditor
• Automatic permanent perfection
• Automatic temporary perfection
• Control
• Notation of security interest on certificate of title
Perfection by Possession
Almost all collateral may be perfected by possession EXCEPTIONS: • Accounts • Deposit accounts • Nonnegotiable documents • Electronic documents • Electronic chattel paper • General intangibles
• If the creditor no longer has possession of the collateral, perfection is lost
Perfection by filing a financial statement
Almost all collateral may be perfected by filing
EXCEPTIONS:
• Deposit accounts
• Money
Financing statement requirements:
- Names of debtor and creditor
- Address of debtor and creditor
- Debtor’s authorization in AN authenticated record
- Description of the collateral
- Description of the land if the collateral is timber, minerals fixtures, or crops
Financing Statement – Debtor’s authorization
- Authorization cannot be oral
- (i.e.: debtor signs security agreement but not financing statement – okay because underlying security agreement signed)
- Can be authorized after filing.
Financing Statement – Description of the collateral
- The description may be broader terms than the security agreement such as “all assets”
- After-acquired property covered by the security agreement that fits within the description is automatically included
Change in the Debtor’s Name from what is reflected on the Financing Statement:
- Collateral debtor has at the time of the name change – perfection continues
- Collateral debtor obtains within 4 months of the name change – perfection continues
- Collateral debtor obtains after 4 months of name change – perfection ends UNLESS under new name, filing made, within 4 month period
Where to file the financing statement in Texas:
- Generally = Secretary of State Office in Austin
* Fixtures, minerals, and timber to be cut = county where mortgage on real estate would be filed
Once filed, how long a financing statement is effective for:
- 5 years from the date of filing
- EXCEPTION: A recorded real property mortgage covering fixtures continues until the mortgage s released or satisfied
• Continuation Statement: extend beyond 5 years – file a continuation statement within 6 months prior to the expiration date and before the 5 years expires
Termination Statement
Consumer Goods – Required:
• The CREDITOR must file a termination statement in a timely manner that is the earlier of:
• (1) within 20 days after the debtor’s written demand; or
• (2) within 1 month after there is no outstanding secured obligation or commitment to make advances, even without a demand from the debtor
Non-consumer goods – only upon the debtor’s request
• Creditor must provide the debtor with a termination statement within 20 days of written demand. Debtor incurs cost and responsibility of filing termination statement
Automatic Permanent Perfection
- Purchase money security interest in consumer goods
- Assignment of insignificant amount of debtor’s accounts
- Sale of promissory notes
Automatic Temporary Perfection
- Proceeds – automatically perfected for 20 days from debtor’s receipt of proceeds
- New value for instruments, negotiable documents, and certified securities – creditor automatically perfected for 20 days ( a grace period to prefect using normal methods) from time of attachment if the creditor gave new value
- Delivery of instruments, negotiable document, or certified security to debtor for 20 days for a certain purpose – i.e., give creditor back notes to collect payments owed – if don’t regain possession before expiration of 20 days, perfection is lost
Perfection by Control
Applies to investment property – stocks and bonds
CONTROL = the creditor has the right to sell or cash in the collateral without further action from the debtor. Secured party with control has priority over all other creditors not in control.
If a deposit account – security party has control if the secured part is the bank in which the deposit account is maintained. Secured party with control prevails over all other parties.
Perfection by a Notation on Certificate of Tile
Type of items this type of perfection covers:
• Cars
• Boats
• Manufactured housing
Applies if collateral consumer goods or equipment (i.e., give bank your car as collateral for a loan. To perfect the bank needs to note its security interest directly on your car’s certificate of title)
NOT when car dealer sells car – then collateral is inventor which perfection is obtained by filing or possession.
What State’s version of the UCC is used to determine whether a creditor is perfected?
Generally – State where the debtor located
1. Individual = principal residence
2. Registered Organization = Law of state where it organized
Exceptions:
Where creditor must following law of collateral location
1. Security interests perfected by possession
2. Fixtures
3. Timber
4. Agricultural liens = law of state where farm product covered by lien is located
Certificate of title items = law of state which issued most recent certificate of title
Deposit Accounts = law of state in which bank has its chief executive office
Debtor or collateral changes state where located:
General Rule = if debtor moves, perfection continues for 4 months
Perfection by possession = perfection continues as long as perfected under new state’s law
Certificate of title items = Perfection continues for as long as it would have under the original certificate of tile
