Secured Transactions Flashcards
1
Q
Consumer goods
A
used or bought for use primarily for personal, family, or household purposes
2
Q
Equipment
A
Used or bought for use in business.
Default/catch-all category for goods
3
Q
Farm Products
A
Crops or livestock or supplies used or produced in farming operations or products of crops or livestock in their unmanufactured states (such as ginned cotton, wool-clip, maple syrup, milk and eggs) if they are in possession of a debtor engaged in farming operations
4
Q
Inventory
A
Held by a person who holds them for sale or to be furnished under service contracts; materials used or consumed in a business in a short period of time (raw materials)
5
Q
8 Types of Semi-Intangible and Intangible Property
A
(1) Instruments
(2) Documents
(3) Chattel paper
(4) Investment property
(5) Accounts
(6) Deposit Accounts
(7) Commercial tort claims
(8) General intangibles
6
Q
Instruments
A
Negotiable instruments and any other writing which evidences a right to payment of a monetary obligation, and which are in the ordinary course of business transferred by delivery with any necessary indorsement or assignment (does not include invested property)
Checks, drafts, promissory notes
7
Q
Documents
A
A document which in the regular course of business is treated as evidencing that the person in possession of it is entitled to receive, hold, and dispose of the documents and the goods it covers (e.g. bill of lading, warehouse receipts, etc).
8
Q
Chattel Paper
A
A record or records which evidence both a monetary obligation and a security interest in a lease of specific goods.
A “record” is information that stores in either a tangible medium (e.g. written on paper) or an intangible medium (e.g. electronically stored).
Chattel paper stored electronically= “electronic chattel paper”
9
Q
Investment Property
A
Includes items such as stocks, bonds, mutual funds, and brokerage accounts containing such items
10
Q
Accounts
A
A right to payment (not evidenced by an instrument or chattel paper)
(1) for property
(2) for services
(3) for a policy of insurance issued or to be issued
(4) for a secondary obligation incurred or to be incurred
(5) for energy provided or to be provided
(6) for the use or hire of a vessel
(7) arising out of the use of a credit card or
(8) as lottery winnings.
Health care insurance receivables are included.
11
Q
Deposit Accounts
A
An account maintained with a bank.
NOTE: Article 9 only applies to NONCONSUMER DEPOSIT ACCOUNTS and deposit accounts that are claimed as proceeds as other collateral.
12
Q
Commercial Tort Claims
A
A claim arising in tort w/r/t which
(1) the claimant is an organization (e.g. a partnership or corporation)
(2) the claimant is an individual and the claim arose in the claimant’s business or profession AND does not include damages for personal injury or the death of an individual
13
Q
General Intangibles
A
Any personal property not coming w/in the scope of the other definitions (e.g. software, patent and trademark rights, copyrights, goodwill).
A general intangible under which the account debtor’s principal obligation is a monetary obligation is a payment intangible.
14
Q
Scope of Article 9
A
Applies to
(1) ANY transaction regardless of its form, that creates a security interest in personal property or fixtures by contract
(2) an agricultural lien
(3) a SALE of accounts, chattel paper, payment intangibles, or promissory notes (unless the sale is for the purposes of collection only, or the sale is part of the sale of the business)
(4) certain consignments
(5) a secured sale disguised as a lease
15
Q
Retention of Title
A
if a seller and a buyer of goods agree that the seller will retain title to the goods after they are delivered until the buyer has paid for them, the agreement will be treated as seller’s retention of a security interest
16
Q
Typical Consignment
A
Consignor (i.e. the owner of the goods, such as a manufacturer or wholesaler) retains title to the goods and delivers them to the consignee (e.g. a retailer) for sale to the public.
If goods are not sold, consignee may return to consignor.
Where a creditor of a consignor would have difficulty distinguishing inventory that a consignee is selling on consignment from inventory that the consignee actually owns, Art. 9 considers the consignment to be a security interest, and requires the consignor to comply with the provisions of Article 9 and give notice to the consignee’s creditors.
17
Q
Leases and Article 9
A
True lease is not covered by Article 9.
A lease that is really a sale with a security interest is covered by Article 9 (disguised sale)
Relevant question: at the time that the parties entered into the transaction, was it reasonably likely that the “lessor” would get the item back when it still had meaningful economic value? If yes– true lease.
18
Q
Creation of An Article 9 Security Interest (Attachment)
3 Requirements
A
(1) Security Agreement
(2) The secured party must have given value
(3) the debtor must have rights in the collateral
19
Q
Security Agreement
A
Unless the collateral is in the possession or control of the secured party, pursuant to an agreement, a written (or electronically stored) security agreement is required.
*Most often the debtor wants possession of the collateral, so a writing is necessary
20
Q
Possession
A
If the collateral is in the possession of the secured party pursuant to an ORAL security agreement, the “security agreement” requirement is satisfied.
This is called a “pledge.”
21
Q
Control
A
If collateral is a non-consumer deposit account, electronic chattel paper, or investment property, the security agreement may be evidenced by control.
The method by which control may be obtained depends on the type of collateral involved.
22
Q
Form of the Security Agreement (When Written)
3 Requirements
A
(1) Agreement must be evidenced by a record (written or ESI) and must SHOW AN INTENT TO CREATE A SECURITY INTEREST
(2) Agreement must be AUTHENTICATED by the debtor , usually signed, but any symbol made with present intent to authenticate record works
(3) Agreement must contain A DESCRIPTION OF THE COLLATERAL that must REASONABLY IDENTIFY the collateral (if timber, a description of the land concerned)
23
Q
Reasonably Identify
A
(1) Normal vocabulary works
(2) Article 9 categories work
(3) Supergeneric descriptions INVALID
24
Q
The Secured Party Must Have Given Value
A
Any consideration sufficient to support a simple contract is enough.
Even past consideration is enough.
The debtor ALWAYS gives value, because the debtor, at a minimum, promises to pay
Real question: did the SECURED PARTY give value
25
The Debtor Must Have Rights in the Collateral
The debtor must have rights in the collateral b/c the debtor cannot grant a contingent property interest in property it does not own
26
Scope of the Security Interest
1. Debt secured may include future advances
2. Property secured may include after-acquired property
3. Property secured generally includes proceeds
4. The attachment of a security interest in collateral also is an attachment of a security interest in a supporting obligation for that collateral
27
After-Acquired Property General Rule
W/o an explicit after-acquired property clause in the security agreement, the secured party's security interest only reaches collateral that the debtor had rights in at the time the debtor signed the security agreement
28
After-Acquired Property Exception # 1
Inventory or Accounts
Even when there is not an explicit after-acquired property clause, the courts will often imply an after-acquired property clause when the collateral is of a type that is rapidly depleted and replenished (e.g. inventory or accounts)
Courts assume that the parties must have meant to cover after-acquired property, or that the security interest will reach nothing.
29
After-Acquired Property Exception # 2
Consumer Goods
A security interest does not attach under an after-acquired property clause to CONSUMER GOODS unless the debtor acquires rights in them within 10 DAYS after the secured party gives value
30
After-Acquired Property Exception # 3
Commercial Tort Claims
An after-acquired property clause is ineffective as to commercial tort claims
31
Proceeds
Includes whatever is received upon the sale, exchange, collection, or other disposition of collateral or proceeds
Unless otherwise agreed, a security interest automatically gives the secured party a right to identifiable proceeds
"Identifiable" means that the secured creditor can prove that the proceeds can be traced to creditor's original collateral
32
"Proceeds" and Insurance
If collateral is insured and money is received from the insurance company on account of loss or damage to the collateral, the money is a proceed of the collateral (up to the value of the collateral) unless it is payable to someone other than the debtor or the secured party claiming it.
Any claims arising out of the loss of, defects in, or damage to collateral are proceeds of the collateral (up to the value of the collateral)
33
To Determine Which Part of a Commingled Mass of Cash if Identifiable
Apply the lowest intermediate balance test.
Look at the balance in a commingled bank account starting at the time the bank proceeds are deposited and ending at the time you are applying the test.
Lowest balance during that time period= secured party's identifiable proceeds (but cannot exceed value of cash proceeds originally deposited)
34
Supporting Obligation
Guarantee/surety
Promise to pay the debt of another
35
5 Methods of Perfection
(1) automatic perfection
(2) possession of collateral by secured party
(3) perfection by control
(4) notation of a lien on certificate of title
(5) filing a financing statement
36
Automatic Perfection
in certain situations, a security interest is automatically perfected upon attachment.
Most common: a PMSI in CONSUMER GOODS is automatically perfected upon attachment
37
Possession of Collateral by Secured Party
Take possession of collateral.
Security interest perfected from moment of possession w/o relation back to time of attachment.
Continues only so long as possession is retained.
Impossible with items you can't take possession of (accounts, deposit accounts, general intangibles).
Most often, not very practical.
38
Perfection by Control
Security interests in investment property and electronic chattel paper MAY be perfected by control
Security interests in NONCONSUMER DEPOSIT ACCOUNTS can only be perfected by control
39
Perfection by Control: Investment Property
A secured party has control of an item of investment property when the secured party has taken whatever steps are necessary to be able to have the investment property sold without further action from the owner
40
Perfection by Control: Electronic Chattel Paper
A party has control over electronic chattel paper when a system showing the transfer of interest in chattel paper RELIABLY ESTABLISHESthe secured party as the assignee.
Ex: a system where secured party has the authoritative copy of the records constituting the electronic chattel paper, that party identifies the secured party as the assignee of record and any other copy of or amendments to the record are marked
41
Perfection by Control: Nonconsumer Deposit Accounts
(1) the bank in which a nonconsumer deposit account is maintained automatically has control over the deposit account
(2) if the secured party is not such a bank, it can obtain control over the deposit account by either
- putting the deposit account in the secured party's name or
- agreeing in an authenticated record that the bank in which the deposit account in maintained that the bank with follow the secured party's order without future consent by the debtor
42
Notation of Lien on the Certificate of Title
ONLY way to perfect a security interest in an item covered by a certificate of title statute is for the secured party to get the relevant governmental authority to note the secured party's lien on the certificate of title
43
Notation of Lien on Certificate of Title: EXCEPTION
If the debtor is holding the car or the truck as inventory (ie debtor is a dealer) then a secured party must perfect by filing a financing statement against inventory
Noting its lien on the certificate of title will not work
44
Filing a Financing Statement: Notice Filing
AKA Form UCC 1
Financing statement is premised on concept of "notice filing."Notice must indicate merely that a person MAY have a security interest in the collateral indicated.
Further inquiry from the parties concerned will be necessary to disclose complete state of affairs
45
Contents of Financing Statement
(1) Debtor's name
(2) Description of collateral
(3) Secured party's name
(4) Real-property related financing statements
(5) No signature required, though debtor must authorize filing
(6) Authenticated security agreement itself may be filed
46
Contents of Financing Statement: Debtor's Name
Financing statements are indexed by the debtor's name
If debtor is an individual: individual's name
If debtor is a corporation: corporate name
If debtor is a partnership: partnership name
Individual: unexpired drivers license of state where financing statement is to be filed. If not, their "name." NOT trade name
47
Name Errors on Financing Statement
As long as error is not seriously misleading, financing statement is effective
Check whether a search under the debtor's correct name using the filing officer's standard search logic would retrieve the erroneous filing statement.
If it does--> not seriously misleading
If it does not--> seriously mislead
48
Name Errors on Financing Statement: Filing Office Errors
Filing Effective
secured creditors are not responsible for filing office errors
49
Debtor's Name Change
If debtor so changes its name that a filed financing statement becomes seriously misleading, the financing statement is effective to perfect a security interest in collateral acquired by the debtor before or within 4 months after the change.
NOT effective to perfect a security interest in collateral acquired by the debtor more than 4 months after the change unless an amended financing statement is filed within 4 months
50
Contents of Financing Statement: Description of Collateral
"Reasonably identifies" collateral
Normal vocab okay
Art. 9 categories okay
Supergeneric descriptions okay
51
Contents of Financing Statement: Secured Party's Name
Error in the name of the secured party will NOT be seriously misleading
(Though, in an appropriate case, this type of error may give rise to an estoppel in favor of a particular holder of a conflicting claim to the collateral)
52
Contents of Real-Property-Related Financing Statements
Must also indicate that it is to be filed in the REAL PROPERTY RECORDS (s that the filing officer see that its gets to the right place), provided a DESCRIPTION OF THE REAL PROPERTY to which the collateral is related (must "rxbly identify" the real estate) and name the record owner if the property belongs to someone other than the debtor
53
No Signature Required, Though Debtor Must Authorize Filing
Authorization may be in any signed writing
In addition, debtor automatically authorizes the financing statement if she authenticates a security agreement-- covering the same collateral (ipso facto authorization)
54
Authenticated Security Agreement Itself May be Filed
If it is filed, it must contained all of the elements discussed above (debtor's name, description of collateral, secured party's name, debtor authorization of filing, extra requirements for real-property related financing statements).
55
Where to File a Financing Statement: General Rule
Except as otherwise specifically provided in a state's Art. 9, the financing statement is ordinarily filed with the Secretary of State
56
Where to File a Financing Statement: Real-Estate Related Transactions
Filing must be made in the office where a mortgage on the real estate would be filed or recorded where the collateral is timber to be cut or as-extracted collateral, or where the financing statement is filed as a fixture filing and the collateral is goods which are or are to become fixtures.
Usually filed in the real estate records of the county where the real property is located.
57
Multiple State Transactions: General Rule
FILE IN THE STATE WHERE THE DEBTOR IS LOCATED
Debtor= individual--> principal residence
Debtor=registered organization--> in state where registered org is organized
(corp, limited partnership, LLC, etc)
Debtor=unregistered org--> place of biz, if only one. If more than one, then at its chief executive officers
(general partnership, incl. limited liability partnership)
58
Where to File Financing Statements: if Debtor Moves
Secured party will become unperfected 4 MONTHS after the debtor's move unless it files a new financing statement before that 4 MONTH period is up
59
Where to File a Financing Statement: If Collateral Moves
Secured party will become unperfected 1 YEAR after collateral moves unless it files a financing statement in the new jurisdiction before that 1 YEAR period is up
60
Where to File a Financing Statement: Farm Products
When farm products are located in a state, an agricultural lien on those farm products should be perfected in that state
61
A Financing Statement is Effective
For 5 YEARS from the date of filing
Can be extended by filing a CONTINUATION STATEMENT
-To be effective, must be filed in the last 6 months of the 5-year "life" of the financing statement
62
When there is no outstanding obligation on the part of the debtor & no commitment on the part of the secured party to make further advances...
upon receiving an AUTHENTICATED demand by the debtor, must within 20 days provide the debtor with a termination statement
If financing statement covers CONSUMER GOODS, within1 month after there is no outstanding obligation or within 20 days of receiving an authenticated demand from debtor termination statement must be filed ($500 penalty for secured party)
63
Perfection as to Proceeds
If a secured party as a perfected security interest in collateral, a secured party automatically has a perfected security interest in whatever proceeds the debtor receives in exchange for that collateral for 20 days
64
To Remain Perfected in Proceeds Beyond 20 Days, the Secured Party Must Take New Action to Perfect Its Interest UNLESS
(1) proceeds are identifiable cash proceeds
OR
(2) Same office rule: security interest in the original collateral was perfected by filing a financing statement, a security interest in the type of collateral constituting proceeds would be perfected by filing in the same place as the financing statement for the original collateral, and the proceeds were not purchased with cash proceeds of the collateral.
65
What is a Buyer in the Ordinary Course?
A buyer in the ordinary course means a person who buys goods in good faith without knowledge that the sale violates the rights of another person (usually the secured party) in the goods and in the ordinary course from a person in the business of selling goods of that kind.
66
Secured Transaction
A transaction intended to create a security interest in personal property or fixtures
Generally: a sale on credit or a loan in which the seller or the lender obtains a lien on some or all of the debtor's property as a security for payment
67
Sale on Credit
Sale where the buyer does not pay full purchase price at the time of sale
68
Indicators for a Secured Transaction
(1) a credit transaction (sale on credit or a loan)
and
(2) an agreement that creates a lien in favor of the creditor in the debtor's personal property to secure the debt
69
Debtor
The person who owes payment or performance of the obligation secured
(person who owes the $)
70
Secured Party
A lender, seller, or other person in whose favor there is a security interest
Creditor with a special set of collection rights
71
Security Agreement
The agreement between the debtor and the secured party that creates the security interest
72
Security Interest
An interest in personal property or fixtures which secures payment or performance of an obligation.
A contingent property interest in the debtor's collateral that the debtor grants to the creditor. When the contingency, which is default, occurs, the property interest springs to life and the creditor has rights in the collateral
73
Collateral
Property subject to a security interest
Property that the secured party can repossess upon default to ensure that the debt is paid
74
Purchase Money Security Interest
(a) secured party sells debtor collateral on credit and retains a security interest in the item sold (seller-financed PMSI)
(b) an enabling loan: a loan to a debtor for the purpose of enabling the debtor to buy specific collateral, and the creditor takes a security interest in the specific collateral (financer-financed PMSI)
75
After-Acquired Property Clause
A security interest not only in the debtor's present property, but also in property the debtor will obtain in the future
76
Future Advance Clause
Future loans to the debtor made by the secured party.
Security agreements typically contain a future advance clause, in which case a new security agreement is NOT needed when a future advance is made
77
Attachment
those steps legally required to give secured party a security interest in the collateral that is effective AS AGAINST THE DEBTOR.
Once a security interest attaches, it is effective against the debtor and the creditor has all of the rights of a secured creditor under Article 9.
A creditor is not a secured creditor until attachment!
78
Perfection
Deals with those steps legally required to give the secured party an interest in the collateral that is effective AS AGAINST THE WORLD.
The process of giving public notice of the security interest to the world.
79
Financing Statement
Document generally used to provide public notice of the security interest, and so as to perfect the security interest
80
Types of Collateral
1. Goods (tangible, movable, personal)
| 2. Semi-tangible and intangible property (8 types)
81
Goods
All things which are movable eat the time the security interest attaches, and include the unborn young of animals and growing crops. Also includes fixtures.
Tangible, personal, movable property
82
4 Classifications of Goods
(1) consumer goods
(2) equipment
(3) farm products
(4) inventory
*look to see how the DEBTOR is using the collateral. What is the collateral in the hands of the debtor?
83
Priority: Investment Property
(1) security interest perfected by CONTROL has priority over security interest perfected by any other method (filing or automatic)
(2) if conflicting security interests, each perfected by control, they rank according to time of obtaining control
(3) security interest granted to debtor's intermediary has priority over security interest granted by debtor to another secured party (unless intermediary agrees)
(4) except as provided above, the first to file or perfect rule governs priority questions
84
Priority: Deposit Accounts
(1) a security interest perfected by control has priority over a security interest perfected via proceeds
(2) if conflicting interests were each perfected by control, they rank according to time of obtaining control
(3) a secured party who has obtained control by putting the deposit account in its own name has priority over all secured parties with control
(4) a bank that has control because it maintains the deposit account has priority except over (3)
85
Default
Right of secured party to proceed against collateral normally triggered by default.
Typically grounds of default are specified in the security agreement. In the absence of such a specification, default has been restricted to failure to perform or pay the obligation when due.
1. Look for late or missed payments
2. Look for a possible waiver by the secured party of late or missed payments
86
Self-Help Repossession
After default, the secured party is entitled to take possession of the collateral w/o judicial process if this can be done w/o breach of the peace.
when a secured party breaches the peace, he loses the authorization to repossess, may be sued for conversion, and possibly assault, battery, trespass, etc. and is liable for actual and frequently punitive damages
87
What Constitutes a "Breach of the Peace"?
Any conduct by the secured party that has the potential to lead to violence is a breach of the peace.
Generally, PHYSICAL PRESENCE by the debtor plus VERBAL OBJECTION is enough to create a breach of the peace.
Unauthorized entry into home is likely a breach of the peace. Less likely for commercial spaces.
Need consent at the time of entry.
88
If Self-Help is Unavailable
the secured party can use judicial process (e.g. replevin) to get goods
89
Self-Help and Equipment
W/o removal, the secured party may also make equipment unusable and dispose of it on the debtor's property if she can do so without a breach of the peace.
Directed toward the problem of heavy, bulky equipment that is not easily movable.
90
Self-Help in Accounts
If the debtor defaults and the collateral is accounts, the secured creditor can notify (in a signed writing) the persons owing money to the debtor (ie the account debtors) to make payment to the secured party rather than to the debtor.
Upon notification, the account debtor must pay the secured creditor rather than the debtor. Payment to the debtor WILL NOT discharge the obligation
91
Retention of Collateral (Strict Foreclosure)
After default and repossession, the secured party may propose retaining the collateral in full or partial satisfaction of the debt.
1. SP must send its proposal to any other SP from whom the foreclosing party has received notice of a claim to the collateral, and any other SP who has perfected a security interest in the collateral by filing a financing statement or noting its security interest on the certificate of title. If notified party objects in 20 days, sale.
2. A SP wishing to retain the collateral also must obtain the debtor's consent. The debtor consents by either:
- agreeing in an authenticated record after default or
- in the case of a full strict foreclosure, failing to make an authenticated objection within 20 days after the secured party sent notice (a debtor cannot consent to a partial disclosure in this manner).
92
Resale of Collateral
After default, the secured party may sell, lease, license, or otherwise dispose of the collateral in its condition when repossessed or after reasonable preparation, the sale may either be public (auction) or private, and may be by one or more contracts.
The sale discharges the security interest under which the sale is being made and all subordinate security interests. The purchaser, however, is still subject to superior security interests.
93
Resale of Collateral: Reasonable Notification
Reasonable notice that is authenticated by the SP (the notice cannot be oral) must be given to the debtor and any sureties on the debt, AND (except in the case of consumer goods), to any other SPs who hav notified the SP of their interests, and any SPs who have perfected by filing a filing statement or making a notation on a certificate of title.
Notice is not necessary when the collateral is perishable or threatened to decline rapidly in value, or is of a kind ordinarily sold in a recognized market (e.g. stock)
94
Resale of Collateral: Reasonable Notification Waiver
The debtor or the surety may, after default, in an authenticated agreement, waive the right to notice
95
Resale of Collateral: Reasonable Notification Timeliness
Notice must be sent within a reasonable time before the sale (a question of fact)
In nonconsumer transactions, notice is deemed to be sent within a reasonable time if it is sent 10 days or more before the time of sale
96
Resale of Collateral: Reasonable Notification Content
Content of the notice depends on the type of sale of the type of collateral
(1) Statute provides "safe harbor" notice forms
(2) For a public sale, notice of the time and place of the sale is required
(3) for a private sale, notice of the time after which the sale will occur must be given
(4) Extra information is required for consumer goods
97
Resale of Collateral: Commercially Reasonable Sale
Every aspect of the sale (including the method, manner, time, place, and terms) must be commercially reasonable
98
Resale of Collateral: Secured Party Buying Collateral
Secured party may buy at any public sale, but may buy at a private sale only if the collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations
99
Resale of Collateral: Compliance withe Resale Requirements
Where secured party properly repossesses and resells collateral and proceeds of sale are less than debt, secured party receives a deficiency judgment. Just like any other judgement plaintiff wins in court. Unsecured judgment secured party can use to try and collect against debtor's non-exempt assets.
Is sale results in surplus, surplus goes to debtor
100
Resale of Collateral: Proceeds of Sale
$ from a foreclosure sale goes first to repay the costs of the repossession and sale, then to pay off the debt of the foreclosing creditor, and then to pay off creditors with lower priority than the foreclosing creditor. If money is left over, debtor gets surplus.
Creditors with higher priority than the foreclosing creditor receive no money from the sale, because they do not lose their liens.
101
Resale of Collateral: Explanation of Deficiency or Surplus
If debtor is a consumer, after the sale, the secured creditor must send the debtor an explanation of the calculation of any debt still owed (the deficiency) or any money the debtor will receive (the surplus)
102
Resale of Collateral: Failure to Comply with Resale Requirements
A SP is liable for the actual damages caused by failure to follow ANY of the Code's rules
If collateral is consumer goods and SP violates Code rules, debtor is entitled to minimum 10% cash price of goods + amount = all interest charges to be paid over the life of the loan
If SP fails to conduct a commercially reasonable sale, rebuttable presumption that sale proceeds= amount of debt (no deficiency)
103
Debtor's Right to Redeem
Any time before the SP has resold the collateral or has entered into a contract for its disposition, or the obligation has been discharged by SP's retention of collateral, debtor may redeem its collateral.
To do so, debtor must tender fulfillment of ALL obligations secured by collateral.
Look out for acceleration clause!
104
Acceleration Clause
Gives the creditor the option to declare the entire loan balance due when there is ANY default
105
Fixture
Goods that have become so related to the particular real property that an interest in them arises under real property law.
Personal property attached to real estate with intent that it become a permanent part of the real estate is a fixture.
Distinctive aspect: interests in it may arise under Code and law of real estate.
No security interest in ordinary building materials incorporated into improvement on land.
106
Fixtures: Perfection
"Fixture filing" must be made in the office where a mortgage on the real estate would be filed.
In addition to usual requirements fora financing statement, fixture filing statement must reasonably identify the real estate and must show the same of the owner (if the debtor does not have an interest of record in the real estate)
107
Fixtures: Rights on Default
Fixtures may be repossessed even if it renders the property uninhabitable.
108
When Fixture Filing Unnecessary
An SP need not fixture file as to readily removable
(1) factor or office machines or
(2) equipment that is not primarily used or leased for use in the operation of the real estate or
(3) replacements of domestic appliances which are consumer goods
Any method of perfection before such goods become fixtures entitles the SP to priority
An SP need not perfect at all to have priority if the encumbrancer or owner of the real estate in an authenticated record consented to the security interest or has disclaimed an interest in the gods as fixtures, or if the debtor has a right to remove the goods as against the real estate claimant
109
Accessions: Definition
Goods that are physically united with other goods in such a manner that the identity of the original goods is not lost (e.g. the tires on a car)
110
Accessions: Perfection
If a security interest is perfected when the collateral becomes an accession, the security interest remains perfected in the collateral
111
Accessions: Priority
General Rule
As a general rule, rules for priority (e.g. first to file or perfect, special PMSI rule) apply to accessions
112
Accessions: Priority
Special Priority Rule
A security interest in an accession is subordinate to a security interest in the whole which is perfected by compliance with the requirements of the certificate of title statute
113
Accessions: Removal and Reimbursement for Physical Injury to the Whole
A SP may remove an accession from other goods if the security interest in the accession has priority over the claims of every person having an interest in teh whole.
The SP removing the accession is responsible for the cost of repair of any physical injury to the whole or to other goods.
A person entitled to reimbursement may refuse permission to remove until the SP give adequate assurance for the performance of the obligation to reimburse
114
Change in Use of Collateral
If debtor changes use of collateral (e.g. equipment to inventory), the filed financing statement (w/ the description of "equipment") remains effective as to perfect the security interest.
The secured creditor has no duty to monitor the collateral or to amend the financing statement even if it knows the description is seriously misleading.
115
Fixtures Priority
Secured Party v. Subsequent Real Estate Interest
General Rule
A security interest in fixtures has priority over any real estate interest that arises subsequent to the perfection of the security interest by fixture filing
116
Fixtures Priority
Secured Party v. Prior Real Estate Interest
General Rule
A prior real estate interest that is properly recorded has priority over a security interest that subsequently arises
117
Fixtures Priority
Secured Party v. Prior Real Estate Interest
EXCEPTION
A PMSI takes priority over an earlier in time realty interest if it is perfected by a fixture filing before the goods become fixtures or within 20 days thereafter
118
Fixtures Priority
Secured Party v. Prior Real Estate Interest
Construction Mortgage
A construction mortgage takes priority over a subsequent PMSI in fixtures even if the security interest is perfected by fixture filing within 20 days of affixation
119
Priority
Secured Party v. Secured Party
General Rule: Perfected Secured Creditors
As between 2 perfected secured creditors, the first to file or perfect, whichever occurs first, has priority
120
Priority
Secured Party v. Secured Party
Unperfected Secured Creditors
As between 2 unperfected secured creditors, the first to attach has priority
121
Priority
Perfected Secured Creditor v. Unperfected Secured Creditor
As between a perfected secured creditor and an unperfected secured creditor, the perfected secured creditor has priority
122
Priority
PMSIs in goods other than Inventory or Livestock
A PMSI in such goods has priority over a conflicting security interest in the same goods or its identifiable proceeds if the PMSI is perfected at the time the debtor received possession of the collateral or within 20 days thereafter
123
Priority
Purchaser of Chattel Paper
If purchaser of chattel paper in good faith gives new value and takes possession in the ordinary course of business (or control if electronic), the purchaser will have priority over:
(1) a security interest in chattel paper that arises merely as proceeds of inventory (as long as the chattel paper does not indicate that it has been assigned to anyone other than the purchaser
(2) any other security interest in the chattel paper, as long as the purchaser assigned its interest without knowledge that its purpose would violate the rights of the secured party
124
Priority
Secured Party v. Buyer of the Collateral
Authorized Sale
If sale is authorized by the secured party free of the security interest, the buyer takes free of the security interest.
The authorization may be express or implied by acquiescence by the type of sale or the seller's conduct
Ex: implied authorization for inventory sold to an ordinary consumer (sale not prohibited)
125
Priority
Secured Party v. Buyer of the Collateral
Unauthorized Sale: General Rule
A buyer in the ordinary course of business (other than a person buying farm products from a person engaged in farming operations) takes free of a security interest created by his seller, even though the security interest is perfected and even though the buyer knows of its existence
126
Priority
Secured Party v. Buyer of the Collateral
Unauthorized Sale: Buyers Not in the Ordinary Course of Business
Takes subject to perfected security interests. Take free from unperfected security interests (& unperfected agricultural liens) unless they know of the security interest
127
Priority
Secured Party v. Buyer of the Collateral
Consumer to Consumer Sales
In the case of consumer goods, a buyer takes free of a security interest even though it is perfected if he buys without knowledge of the security interest, for value, and for his own personal, family, or household purchases, unless prior to the purchase the secured party has filed a financing statement covering such goods
*Must be consumer goods in the hands of the buyer
128
Priority
Secured Party v. Judgment Lien Holders
An unperfected security interest is subordinate to the rights of a person who becomes a lien creditor before the security interest is perfected.
If security interest is perfected before the person becomes a lien creditor, the security interest has priority.
129
Lien Creditor Defined
Art. 9: a creditor who has acquired a lien on the property involved by attachment, levy, or the like. A lien obtained by judicial proceedings must attach to the collateral.
An unsecured creditor who has obtained a judgment and has levied on that judgment is a lien creditor.
130
Priority
Secured Party v. Judgment Lien Holder
Secured party has priority
(1) if the secured party perfected before the judgment holder got its lien
OR
(2) if the secured party obtained a security agreement and filed a financing statement before the judgment holder got its lien
131
Priority
PMSI v. Lien Creditor
If the secured party files w/r/t PMSI within 20 days after the debtor receives possession of the collateral, he takes priority over the rights of a lien creditor which arises between the time the security interest attaches and the time of the filing
132
Priority
Future Advances
A security agreement can secure present and future advances if the security agreement contains a future advance clause.
A future advance by a secured creditor has priority over a lien creditor if made
(1) without knowledge of the lien OR
(2) within 45 days of the lien arising OR
(3) pursuant to a commitment entered into without knowledge of the lien
133
Priority
Secured Party v. Statutory Lien Claimants
Statutory lien beats even a perfected security interest
134
Priority
Secured Party v. Buyer of the Collateral
General Rule
If you buy something with a security interest on it, the security interest stays on it.
There are a few exceptions
135
Priority
PMSIs in Inventory of Livestock
A PMSI in inventory or livestock has priority over a conflicting security interest in the same inventory or livestock ( as well as proceeds that are chattel paper, instruments, and identifiable cash proceeds) if, before the debtor receives possession of the inventory or livestock, the secured party (1) perfects and (2) sends an authenticated notification to the holders of previously filed conflicting security interests in the collateral.
The holder of the conflicting security interest must receive this notice within 5 years before the debtor receives possession of the inventory (i.e. the notification is effective for deliveries of the same type of collateral for 5 years)
136
Priority
Consignor's Interest in Consigned Goods
Considered to be a PMSI in inventory.
Therefore, a consigner can acquire PMSI superpriority in consigned goods if she complies with the above requirements for gaining PMSI superpriority in inventory
137
Priority
Conflicting PMSIs
The Code says that a seller-financed PMSI has priority over a financer-financed PMSI
138
Priority
Purchaser of Instruments
A purchaser of an instrument has priority over a perfected security interest in the instrument if the purchaser gives value and takes possession of the instrument in good faith and without knowledge that the purchaser violates the right of the secured party.
