Secured Transactions Flashcards
Collateral Categories: Equipment
Goods that are not consumer goods, farm products, or inventory
Collateral Categories: Consumer goods
Goods used for or bought for household, personal, or family use.
Collateral Categories: Inventory
goods held for sale or lease, goods furnished under a contract of service, supplies used in manufacturing, materials consumed in a business and work in progress
Collateral Categories: Farm Products
crops, livestock, unmanufactured products of livestock (e.g., eggs), and supplies used or produced in farming operations and either in the possession of or used by a farmer.
When does a PMSI arise?
PMSI arises where the creditor (i) sells goods to the debtor on credit and reserves a security interest in those goods, or (ii) advances the funds used to purchase goods and reserves a security interest in those goods
When does a PMSI have priority over conflicting security interests in the same collateral?
If the PMSI is perfected before or within 20 days of the debtor gaining possession of the goods (goods being the collateral the PMSI is in). Note: special rules for PMSI in inventory—need to give notice to other parties
When does a PMSI have priority over conflicting security interests in INVENTORY
A PMSI in inventory has priority over a conflicting security interest in the inventory if: (i) The PMSI in inventory is perfected at the time the debtor gets possession of the inventory (the filing must take place before the inventory is delivered to the debtor); and (ii) Any secured party who has filed her security interest in the same inventory receives an authenticated notification of the PMSI before the debtor receives possession of the 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.
A description that describes the collateral as “all of debtor’s assets” is sufficient for what purpose?
To identify collateral in a financial statement BUT NOT in a security agreement
What security interests can be perfected by filing?
All security interests besides deposit accounts and money.
What security interests can be perfected by possession?
Any tangible collateral. Includes negotiable interests if they are tangible.
What security interests can be perfected by control?
only security interests in investment property, nonconsumer deposit accounts, and electronic chattel paper
What security interests can be perfected automatically?
Only PMSI’s in consumer goods.
What is the garage sale rule?
It is an exception to the superpriority of the PMSI in consumer goods. Normally a PMSI in consumer goods perfects automatically. However, when the debtor is a consumer, and sells the collateral to another consumer who takes it for value and without notice of the security interest, the second consumer has priority unless the creditor files a financial statement. So while a PMSI automatically perfects, it will lose priority over the garage sale purchaser unless the creditor perfects tradititionally by filing.
What is required for a security interest to be effective between the parties?
Attachment
Which UCC article governs secured transactions?
Article 9
Which transactions does article 9 apply to?
- Contractual security interests
- Sales of accounts, chattel paper, payment intangibles and promissory notes
- Commercial consignment of goods worth a total of $1000 or more.
- Agricultural liens
- Leases intended to serve as security interests
- seller’s retention of title in delivered goods.
What does article 9 specifically not cover?
does not apply to most transfers of interests in land
A security interest in nonconsumer goods does not lose its status as PSMI if
- interest is also secured for by prop that was not purchased with the loan money
- collateral secures advances
- PSMI is refinanced
3 types of collateral
tangible collateral
intangible collateral
proceeds
4 types of tangible collateral
Consumer goods: goods for personal, family, or household use
inventory: goods held for sale or lease and good consumed by a business
Farm products: goods used or produced in farming that are in the possession of or used by a farmer
equipment: goods that are not the others.
Intangible Collateral 8 types
instruments documents Chattel paper (records evidencing botha monetary obligation and a security interest in goods accounts (rights to payments) Deposit accounts (article 9 applies only to nonconsumer accounts investment propety commercial tort claims general intangibles
Proceeds
whatever is received upon sale, exchange or other disposition of collateral or proceeds. Include 2nd gen proceeds. includes insurance payable by loss of collateral unless paid to someone other than the debtor or secured party
Attachment generally
security interest is not enforceable unless it has attached.
Requisites for attachment
Must co-exist
- parties agree to create a security interest
- value must be given by the secured party AND
- Debtor must have rights in the collateral
Agreement to create security interest must be evidenced by
- creditor taking possession of the collateral
- debtor’s authentication of a security agreement describing the collateral or
- creditor taking control of certain types of collateral.
Description of collateral in authenticated security agreement
can be described braodly by category (equipment) or specifically. Supergeneric description not enough “all of debtors assets”
Creditor can obtain control over 3 types of collateral in order to attach the security interest
- non-consumer deposit accounts
- electronic chattel paper
- investment property
Methods of obtaining control: Non-consumer deposit accounts
Bank that houses the accounts automatically has control.
If the secured party is not a bank it can obtain control by either
1. putting account in secured pary’s name
or
2. entering into an authenticated record with debtor and bank that bank will comply with secured aprty’s orders.
Methods of obtaining control: Electronic chattel paper
Party is in control when a system is put in place to show the transfer of interests in chattel paper reliably established the secured party as the assignee.
methods of obtaining control: Investment property
Certificated security in bearer form = take possession.
Certificated secrity in registered form = possession and indorsement
Securities account = owner instructs intermediary party that secured party has the same rights in account and they must comply with secured partys orders.
Rights and duties of secured party in possession or control
In possession: Must use reasonable care in storing and preserving the collatearl. Entiteld to reimbursement for reasonable expenses in caring for collateral. Risk of loss on debtors
In possession or control: secured party may hold any increase in value of or profits from the collarteral as additional security. Must be applied against the secured obligation.
After-Acquired Property
Security agreement may create a SI in property to be acquired in the future. Will attach as soon as debtor acquires property
Exception to after-acquired property
does not apply to consumer goods unless the debtor acquires rights in the goods within 10 days after the creditor gives value.
Does not apply to commercial tort claims
Future Advances
a Security agreement may provide that the collateral will serve as security for future advances
Why perfect a SI?
to establish maximum priority in the collateral over third parties.
What is the effect if a party takes steps to perfect before attachment?
The interest will perfect upon attachment. you cannot perfect an interest that is not attached.
Perfection By Filing: financing statement contents
- debtor’s name and mailing address
- Secured party’s name and mailing address
- if the collateral is real property related —> description of the real property, name of the record owner and indication that it is to be filed in the real prop records