Secured Transactions Flashcards
How must one describe collateral in the security agreement?
It may be described broadly by category type (e.g. “equipment”) or specifically (e.g. by serial number)
However, consumer goods, consumer securities accounts, and commercial tort claims cannot be described by type alone; a more specific description is needed
A generic description of collateral such as “all of the debtor’s assets” is not a sufficient description
What is attachment?
It establishes a secured party’s rights in the collateral as against the debtor
What are the requirements for attachment?
(1) An agreement to create a security interest evidenced by:
- possession,
- the debtors authentication of the security agreement, or
- control
(2) Value given by the secured party; and
(3) Debtor has rights in collateral
What is perfection?
(1) Attachment, and
(2) One of the following:
- Filing (in the proper place) of a financial statement describing the collateral,
- Taking possession of the collateral;
- Taking control of the collateral;
- Automatic perfection (e.g. of a PMSI of consumer goods); or
- Temporary perfection (e.g. of a security interest in proceeds received from the sale of collateral)
What are the methods of perfection?
Filing - effective for all classes of collateral except deposit accounts and money
Possession - effective for all classes of collateral except general intangibles, accounts, nonconsumer deposit accounts, electronic chattel paper, and nonnegotiable documents, although it is impractical for some classes of collateral (e.g. if secured party takes debtor’s equipment or inventory, it will be difficult for debtor to run his business)
- Perfected upon the moment of possession and continues as long as possession is retained
Automatic - effective only as to PMSI’s in consumer goods, small scale assignments of accounts, sales of payment intangibles and promissory notes, beneficial interests in a decedent’s estate, and certain investment property transactions
Temporary - effective for 20 days (and possibly longer) for proceeds; 20 days when a secured party gives new value under a security agreement where collateral is a negotiable document, instrument, or certificated security; 20 days where a secured party makes available a negotiable document, instrument, certificated security, or goods in possession of a bailee on a temporary basis (e.g. for debtor to present for payment or to sell); four months where debtor moves from one state to another if debtor’s location governs perfection
Control - effective only for nonconsumer deposit accounts, electronic chattel paper, and investment property
If filing a financing statement, what must the financing statement contain?
Debtor’s name and mailing address,
Secured party’s name and mailing address,
An indication of the collateral covered by the financing statement, and
If for real-property related collateral (minerals, timer, fixtures, etc.), a description of the related real property, the name of the owner of the property, and an indication that it is to be filed in the real property records
- Must be filed in the local real property records - in the county where a mortgage or real estate is filed
Must be filed “centrally”; in the secretary of state’s office
How long is perfection by filing effective?
Five years
After, a continuation statement may be filed, which is good for an additional five years
- Cannot be filed any earlier than six months prior to the expiration of the original filing
- Authorization by debtor is not required to file a continuation statement
How do you continue to perfect a security interest in proceeds beyond the temporary 20 days?
The security interest in the original collateral was perfected by filing a financing statement, a security interest in the type of collateral constituting the proceed would be filed in the same place as the financing statements for the original collateral, and the proceeds were not purchased with cash proceeds of the collateral (“same office rule”);
The proceeds are identifiable cash proceeds (“cash proceeds rule”), or
The security interest in the proceeds is perfected within the 20-day period
What happens if the steps for perfection occur before attachment?
Perfection will occur upon attachment
When do different classes of collateral become perfected by a PMSI?
A PMSI in consumer goods is automatically perfected
A PMSI in equipment can be perfected (usually by filing) anytime within 20 days after the debtor gets possession of the collateral
A PMSI in inventory must be perfected (usually by filing) by the time the debtor gets possession
- There is no 20 day grace period
- Others with a security interest in the inventory must be given written notice
When is a PMSI perfected?
Perfected at the time the debtor gets possession of the inventory
Filing for inventory must take place before the inventory is delivered to the debtor); and
Any secured party who has perfected his security interest in the same inventory receives written notification of the PMSI before debtor receives possession of inventory, and the notification states that the purchase money party has or expects to take a PMSI in inventory of the debtor described by kind or type
What is the dual status rule?
A security interest in nonconsumer goods does not lose its status as a PMSI if:
- (1) the purchase money collateral also secures an obligation that it not a purchase money obligation;
- (2) nonpurchase money collateral also secures the purchase money obligation; or
- (3) the purchase money obligation has been renewed, refinanced, consolidated, or restructured
Does not apply to consumer good transactions
What are the three types of collateral?
Tangible collateral or goods
Intangible or semi-intangible collateral
Proceeds
What are tangible collateral or goods?
Consumer goods - goods bought or used for personal, family, or household purposes
Inventory - goods held for sale or lease and goods consumed by a business
Farm products - goods (including crops and animals) used or produced in farming that are in the possession of or used by a farmer; and
Equipment - goods that are not consumer goods, inventory, or farm products (e.g. durable goods used by a business, such as machinery)
The categorization depends on the primary use of the property by the debtor
What are intangible or semi-intangible collateral?
Instruments - notes, drafts, and certificates of deposit
Documents - bills of lading and warehouse receipts
Chattel paper - records (i.e. written or electronically stored information) evidencing both a monetary obligation and a security interest in or lease of goods, such as a promissory note and written security agreement
Accounts - rights to payment for goods, services, etc., such as accounts receivable
Deposit accounts - savings accounts, passbook accounts, etc. (note that Article 9 only applies to nonconsumer deposit accounts and consumer deposit accounts that are claimed as proceeds of other collateral)
Investment property - stocks, bonds, mutual funds, brokerage accounts, etc.
Commercial tort claims - tort claims filed by organizations and tort claims filed by individuals that arose out of the individuals’ business and do not involve personal injury (only applies to commercial tort claims and noncommercial claims that are claimed as proceeds of other collateral)
General intangibles - intangibles not fitting the definitions of other types of intangibles, such as copyrights and goodwill (general intangibles in which the principal obligation of one of the parties is the payment of money is a payment intangible)
