Secured Transactions Flashcards
secured transaction
A transaction intended to create a security interest in personal property or fixtures. It generally involves a sale on credit.
2 elements of a secured transaction: 1) a credit transaction and 2) an agreement that creates a lien in the debtor’s personal property.
debtor
person who owed payment of the obligation
secured creditor
lender in whose favor there is a security interest
security agreement
The contract between the debtor and the secured creditor that creates the security interest.
security interest
An interest in personal property or fixtures which secures payment of an obligation. It is a contingent property interest in the debtor’s collateral that the debtor grants to the creditor. When the contingency (the default) occurs, the property interest springs to life and the creditor has rights in the debtor’s collateral.
collateral
Property subject to a security interest and that the secured party can repossess upon default to insure that the debt is paid.
2 types of PMSI (purchase money security interest)
seller financed and financer financed
seller-financed PMSI
Secured party 1) sells debtor collateral AND 2) retains a security interest in the item sold
financer-financed PMSI
An enabling loan to a debtor that 1) enables the debtor to buy specific collateral AND 2) the creditor takes a security interest in the specific collateral AND 3) the credit or loan proceeds MUST ACTUALLY BE USED to acquire the collateral.
Types of collateral
goods, and semi-intangible & intangible property
4 types of goods as collateral
- Consumer goods: (used or bought primarily for personal, family, or household purposes
- Equipment: (used or bought for use primarily in business) DEFAULT CATEGORY
- Farm products: products in possession of a debtor engaged in farming operations
- Inventory: Materials used or consumed by a business in a short period of time OR held by a person who holds them for sale or lease or to be furnished under service Ks
8 types of semi-intangible and intangible property
- Instruments: notes, checks, drafts
- documents
- chattel paper
- Investment property: stocks, bonds, mutual funds, brokerage accounts containing such items
- Accounts (accounts receivable): A right to payment for goods sold or services rendered
- Deposit accounts: bank accounts
- commercial tort claims
- General intangibles (everything else) DEFAULT
3 requirements for attachment
- Form of the security agreement
- Secured party must have given value
- Debtor must have rights in the collateral
Form of the security AGR required for attachment
a. A record AND an intent to create a security interest
b. Authenticated by the debtor
c. A description of the collateral which must “reasonably identify the collateral.” (normal vocab works, and Art 9 categories work.)
5 methods of perfection
- Automatic perfection (PMSI for consumer goods)
- Possession of collateral by secured party
- Perfection by control (security interests in nonconsumer deposit accounts CAN ONLY BE PERFECTED by control)
- Notation of lien on certificate of title (cars/trucks)
- Filing a financing statement (form UCC-1)
3 methods of perfection by control for nonconsumer bank accounts
- Bank has control over the deposit account
- Putting the deposit account in the secured party’s name
- Agreeing in an authenticated record w/t eh debtor and the bank that the bank will follow the secured party’s orders w/o further consent by the debtor
Requirements for filing a financing statement
- Notice indicating that a person MAY have a security interest in the collateral
- Contents of financing statement: debtor’s name, description of collateral, secured party’s name, any real property interest (must also be filed w/real prop records), no signature required but debtor must authorize the filing,
Where to file financing statement (UCC1)
- Secretary of State’s office
- with county recorder if real prop involved
- if multiple states, then
a. Debtor/principal residence
b. organization/where organized
c. partnership/chief executive office
Priority rules - secured v secured
- 1st to file or perfect wins (whichever occurs first)
- Between 2 unperfected, 1st to attach wins
- special rule - PMSI in goods not inventory or livestock (usually equipment) - PSMI has priority over a conflicting security interest in the same goods/proceeds IF PMSI is perfected at the time debtor receives possession of the collateral or within 20 days thereafter.
- special rule - PMSI v PMSI - seller-financed PMSI wins over financer-financed PMSI
- Other special priority - Control/time obtaining control/putting dep acct in own name/bank
Priority rules - secured v unsecured
secured wins over unsecured
Priority rules - secured v buyer
- General rule: sec int rides w/collateral
- Authorized sale exception: If sale is authorized by the secured party free of sec int, buyer takes from of sec int.
- Unauthorized sale: Buyer in the ordinary course of business takes free of a sec int created by the seller EVEN THOUGH the sec int is perfected and EVEN THOUGH the buyer knows if its existence
- Buyers not in the ordinary course of business take subject to perfected sec inst
- Special rule for consumer to consumer sales: Buyer takes free of sec int EVEN THOUGH perfected if he buys w/o knowledge of the sec int UNLESS secured party has filed a financing statement covering such goods. Must be consumer goods that Buyer must buy for value.
Priority rules - secured v judgment lien holders
Unperfected sec int v JLH = JLH wins
perfected sec int v JLH = perfected sec int wins
Special rule: PMSI v lien creditor - PMSI wins over lien creditor
Priority rules - secured v statutory lien claimants
statutory lien claimant wins over secured
