Secured Transactions Flashcards
How to Obtain a Security Interest
Debtor must sign a security agreement
Security Agreement
SA must be in writing
Signed by debtor
Identify collateral specifically
State that it is creating a security interest in favor of the secured party
Security Interest Attachment
Attached when ALL 3 things occur:
- Secured Party (lender) gives value (makes loan)
- Debtor has right in collateral or power to transfer rights in collateral (must be explicit if collateral is in after-acquired goods OTHER than inventory or accounts receivable)
- Debtor authenticated security agreement
Perfection (definition)
The process of giving notice to the world that you have a security interest in the collateral (like recording for mortgages/real property).
Various ways to perfect
- File a financing statement with Sec. of State in STATE where collateral located (most common)
- Taking possession of property (when collateral is tangible); can take possession of goods, instruments, money, or negotiable documents.
CANNOT perfect by possession with: accounts (unless bank is secured party and account is at the bank), letters of credit, etc.
- Must note security interest on a certificate of title for consumer goods/equipment.
Financing Statement
Public document that tells the world that a security interest is created
Must have:
Debtor’s name
Secured party’s name
Basic description of collateral “can say all assets of debtor”
If security agreement and financing statement include after-acquired property, date of perfection = date financing statement filed
Priority Exceptions
PMSI in goods (not livestock or inventory): PMSI wins if perfected at time debtor receives collateral or within 20 days of when debtor receives collateral.
PMSI in inventory/livestock: wins if perfected when debtor has possession and gives proper notice to conflicting security holders (notice must explain PMSI in inventory, describe collateral, and be given before debtor receives possession.
Deposit accounts: secured party with control prevails.
Investment property: secured party with control over investment property has priority over secured party w/out control.
Priority Rules for Inventory
4 part test:
- PMSI perfected when debtor gets possession of inventory
- PM-secured party sends notice to holder of conflicting security interests
- Holder of conflicting interest receives notification w/in 5 years before debtors gets possession of the inventory
- Notification says person has or expects to get PMSI in inventory.
Priority for Equipment
If the collateral is equipment, PMSI prevails over conflicting security interests if PMSI perfected w/in 20 days of debtor getting possession of the property.
Repossessing the Collateral
Upon default, secured party pay repossess collateral (but can’t breach peace, use force or threat, deceptive practices, etc.)
No judicial remedy needed, self-help; don’t have to give notice of repossession.
Can sell collateral in satisfaction of debt but must sell in commercially reasonable matter - notice to debtor, sufficient advertising, normal location/format, reasonable timeframe.
Debtor can redeem after repossession but before sale by paying off debt.
Goods
Items for personal, family, or household use
Equipment
Business purposes; goods bought for primary use in business
Includes gifts bought by non-profit or government agency
DEFAULT CATEGORY IF DOESN’T FIT ANYWHERE ELSE
Inventory
Goods held for sale or lease in ordinary course of business
Raw material and work in progress
Consumed materials
Farm Products
Chickens, cows, corn
2 requirements:
Must be in possession of the farmer engaged in farming operations, and
In an unmanufactured condition
Termination Statement