Secured Transactions Flashcards
5 Inquiries for Secured Transaction Analysis
Remember: “SAPPD” **Come up w/ mneumonic
- Scope?
- Attach?
- Perfection?
- Priority?
- Default?
Scope of Article 9 of UCC
Governs any transaction that creates a security interest in personal property and fixtures.
Applies only voluntary collateralizations - not statutory or mechanics liens
Debtor
entity that owes payment or performance
Secured party/secured creditor
entity that has security interest
Needs a security agreement - contract/agreement between D and secured party that creates security interest
Security interest
interest in personal property or fixtures which secures payment of performance of obligation
2 Types of collateral
Tangible:
- consumer goods
- equipment
- inventory
- farm products
- fixtures
Intangible:
- patents, copyrights, trademarks
- stocks, bonds, mutual funds
- proceeds from a sale of collateral
- account
- promissory note
Collateral - consumer goods
goods used for personal or familial purposes
ie. dining room set, fridge, oven, car
Collateral - inventory
goods held for sale or lease
ie. Best Buy’s stock of stereos, Nordstroms spring clothing line
Collateral - equipment
Items used in business not categorized as inventory
ie. Macy’s cash register, Barber’s barber chair, Armani’s sewing machines, Ben and Jerry’s Ice cream machine
Collateral - fixtures
items annexed to real property
ie. lighting fixtures, sprinkler system, furnace
Collateral - account
Right of payment of monetary obligation for
- property that has been sold or is to be sold
- services rendered
- policy insurance issued
- secondary obligation incurred
- energy provided
- debt arising out of the use a credit card, OR
- winnings in a lottery
Collateral - Deposit accounts
A demand, time, savings, or similar account maintained with a bank.
DOES NOT include investment property
What does a creditor need to do to obtain a valid security interest in collateral?
They must ATTACH the collateral and PERFECT its interest
Attachment requirements
Remember “Attach the VCR”
- Value must be given to debtor by creditor “ie. money”
- Contract recording the security agreement/interest
- Rights in the collateral. Debtor must have right to give collateral away
What is perfection
Publicity device. Puts the world on record or constructive notice that the secured party exists.
How to Perfect a security interest
Two ways
- Creditor files a financing statement with the Secretary of State that identifies the collateral and his security interest in it
- Take possession or control of the collateral that is providing the security interest
Financing Statement requirements
Must contain
- name of debtor and secured party AND
- describe collateral covered by financing statement
Purchase Money Security Interests (PMSI’s)
Just like PMM in property
Creditor gives value (money) to debtor for the purpose of enabling debtor to acquire (purchase) rights in collateral. Creditor retains rights in collateral.
How do PMSI’s perfect?
PMSI in consumer goods - automatic perfection
PMSI in non consumer goods - perfection if financing statement is filed before or within 20 days after the debtor receives delivery of collateral
What happens to security interest when collateral is sold? (Perfection in regards to proceeds)
If secured party has perfected security interest in collateral, then automatically have perfected interest for 20 DAYS in proceeds Debtor received from sale of collateral
After 20 days, must take steps to perfect new interest, UNLESS:
- identifiable cash proceeds, OR
- original proceeds perfected under general filing rule, new proceeds may be perfected under the general rule, and proceeds are not acquired with cash proceeds
General Rule of priority
First in time, first in right.
Each claimant entitled to take in FULL BEFORE a subordinate claimant entitled to take.
REMEMBER:
- PMSI
- BIOC
- PAC
- Lien
- NOCB
- AUPC
- GUC
Buyer in Ordinary Course (BIOC)
Takes free of a security interest created by seller.
Reqts:
-buys goods in good faith
-for value
-without knowledge that sale violates rights of another party, AND
-in ordinary course from person in business of selling such goods
Perfected Attached Creidtor (PAC)
Creditor who attains perfection
Lien Creditor (Lien or LC)
General creditor who gets judicial lien on collateral
Non-Ordinary Course Buyer (NCOB)
Purchases collateral outside ordinary stream of commerce (ie. buying stereo from florist) - takes collateral subject to perfected security interests, but takes free from un perfected interests if no knowlege
Attached Unperfected Creditor (AUPC)
Creditor who attaches but never perfects, or tries to perfect but fails
General Unsecured Creditor (GUC)
lender that fails to take collateral
What happens if debtor defaults?
Secured party can take possession of collateral or dispose of collateral to fulfill debt
Self Help Repossession
Creditor allowed to repossess collateral w/out judicial process so long as creditor does not “breach the peace” (conduct likely to cause violence)
What constitutes as “breach of the peace?”
Physical presence of Debtor plus verbal objection generally enough to constitute breach of peace
- If collateral in D’s home, creditor may not enter w/o voluntary and contemporaneous consent
- If collateral outside home, creditor may take if no objection by D
Repossession by judicial action
Secured party can go to court to get a judicial writ, ordering sheriff to obtain possession and deliver it to the secured party
Secured Party’s right to dispose of collateral
After default, secured party may sell, lease, license, or otherwise dispose of any or all of the collateral in its present condition or in any commercially reasonable manner
Debtor liable for deficiency if proceeds are not sufficient to satisfy debt owed
Notice of disposition
Secured party that disposes of collateral MUST send an authenticated notification of disposition to the debtor and any secondary obligor.
-Liable for damages for failing to provide notice
Disposition of Collateral: Foreclosure sale
Effect:
- transfers all of debtor’s rights in collateral to transferee
- discharges security interest, AND
- discharges subordinate security interests (senior interests still attached)
Commercially Reasonable Standard for sales of collateral
Commercially reasonable in manner, time, place, and other terms if made:
- in usual manner in any recognized market
- at current price in any market at time of sale
- in conformity with reasonable commercial practices among dealers in similar property
Debtor’s Right of Redemption
Prior to foreclosure or sale of collateral, debtor has right to to re obtain collateral. In order to redeem, debtor must:
- tendor amount owed, AND
- pay reasonable expenses and attorney’s fees
Debtor’s right to damages
If secured party fails to comply with applicable rules concerning secured transactions, they are liable to debtor for actual damages for the amount of any loss
Irrespective of actual damages, may also recover statutory damages of $500
Fixtures
Goods that have become attached to real property that an interest in them arises under real property law
-IE. built in appliances, central air, elevators, etc.)
Perfection in fixtures
Fixture filing - file in office where mortgage on real estate would be filed.
Same req’ts as financing statement plus reasonable identification of real estate and name of owner
Fixture priority
Security interest in fixtures BEATS real estate interest arising AFTER perfection of fixture security interest
Security interest in fixtures LOSES to real estate interest BEFORE fixture was perfected
