Secured Transactions Flashcards
Security Interest
Arises when the debtor uses property as collateral to secure repayment of funds to another party.
UCC 9 applies to any transaction, regardless of form, that creates a security interest in personal property or fixtures by K; Leases; sales of accoutns receivable, chattel paper, negotiable instruments, promissory notes, and payments intangibles; consignments, and certain lease-purchase agreements.
Types of Collateral - Goods
All things that are movable at the time the SI attaches.
1) consumer goods - used or bought for use primary for personal, family or household
2) Inventory - products leased by person, held for sale or lease under K of service, furnished under K of service, consist of raw materials or mats used or consumed in business.
3) farm products - goods used in acquacultural or supplies used or produced in farming operation.
4) equipment - catchall category - goods other than inventory.
5) PROCEEDS OF THE DISPOSITION OF OTHER COLLATERAL
Collateral - Fixtures
goods that become erlated to particular real estate than an interest in those good arises under real property law.
Accession
Goods physically united with other goods in such a manner that the identity of the original goods is not lost. Goods attached to other goods.
A SI in an accession is subordinate to a SI in the whole that is perfected by complaince w/requirements of a certificate of title statute
Commingled Goods
Goods that are physically united with other goods in such a way that their identity is lost in a product or mass. Term includes goods whose identity is lost through manufacturing or production and through said mixing, they can’t be distinguished.
An SI does not exist per se in commingled goods, but attaches to the the product that results. Multipel SI will rank equallyin proportion to the value of the collateral at the time it became commingled.
Tangible Intangibles
If intanbile reduced to written form - like K obligations
1) instruments - drafts and notes defined in Article 3, or writing evidences right to payment of $
2) documents - of title or orders for delivery of good
3) Chattel paper - record or records evidencing both a monetary obligation & security interest in, or a lease of, specific goods (electronic: keep image & denote original, and show somethig is a copy)
Intangible Intangles
All kinds of things - writings take on no commercial significance of their own. Accounts, tort claims,
1) general intangibles and intangible collateral that fails to fit into any other category
2) accounts - right to payment of money obligation. Generally for prop transfered/disposed of.
Collateral - Proceeds
Cash proceeds, noncash proceeds, anything you get that is traceable from the colllateral.
Security Agreement - Defined
created by a written SA or by the secured party’s taking possession, delivery, or control of the collateral with the intent to secure a debt, plus attachment of the SI to be collateral.
It is an agreement that provides for a SI in certain collateral.
Valid against the parties, purchasers of the collateral, and against creditors. If party has physical possession, oral SA is enforceable.
Security agreement requires:
1) A granting clause - state that it is a SI. Does not need to be formal and can be found in another document. FS can be a SA if it contains a granting clause.
2) Describes the collateral - must reasonably identify what is described.
3) Authentication - either a signing or written document. define signature, with present intent of authenticating person to identify the person and adopt or accept a record.
Attachment - Defined
Process by which the SI is created. It is creaed by a K between the debtor and the SP. Once SI has attached, the SP has all enforcement rights provided by Art 9, including right to reposses the collateral upon the debtor’s default.
SI Attaches When
1) The SP gives value
2) The debotr has rights in the collateral and the power to transfer rights in the collateral to a SP
3) Debtor has authenticated a Security Agreement that sufficiently describes the collateral.
Sufficient Description in SA
Must reasonably identify what is described.
1) not okay by type if consumer goods in consumer transaction - needs more specific description.
2) no super generic
After-Acquired Property
1) Property that comes into ownership after sign of SA.
2) Inventory and acounts receivable - SA specifying an interest in inventory will create interest in after-acquired collateral, regardless there is no explicit clause.
3) Consumer goods - SA can’t provide that it covers after acquired consumer goods.
4) future advances - indicates that collateral secures future debt. No additioanl SA required.
SI in Proceeds
A SA in collatral automatically extends to identifiable proceeds of the collateral.
Unless there is consent, a SP’s interest in the collateral will continue regardless if SP can go after proceeds. SO
end up with interest in collateral AND in proceeds
PMSI - Generally
A SI in goods is a PMSI if it pertains to goods that are purchase-money collateral. A debtor incurs a Purchase Money obligation if the obligation is incurred:
1) as all or part of the price of the collateral OR
2) for value given to enable the debtor to acquire rights in, or the use of, the collateral, if the value is in fact so used.
The SI must be in goods that are given as collateral for an obligation the debtor incurred for the pruchase fo the goods and actually used to puchase the goods.
Perfection - Generally
A SI is perfected if it has attached and if all the requiements for perfection have been met. if requirements have been met before attachment, then upon attachment, the SI is perfected.
attachment PLUS filing, possession, OR control, OR automatic possession.
Perfection - Filing
Filing a FS in a public office: Sec of State, or office of county clerk where the land is to which collateral is attached is located.
Law governing perfection is where debtor is located
Filing not required if SI is in property subject to another law such as certificate of title statute (cars)
Location of Debtor
1) Debtor’s principal residence if individual
2) if debtor is registered organization, where it is registered
3) if non-registered organization, then place of business. If more than one, then primary office.
Perfection by Posession
Taking possesion of collateral is possible only when collateral is tangible. If such collateral is in possessino of a person other than a debtor, then can’t perfect. But it can be in a signed writing saying holding on debtor’s behafl.
If holding collateral - must use reasonable care in its custody and preservation. Reasonable expenses can add to the debt.
Perfection by control
Applies only to:
1) investment securities: a) certificated security in bearer form: actual possession b) certificated security in registered form (stock): indorsed & delivered c) uncertificated security: 3 way contract between all parties.
2) letter of credit - have to get bank issuer consent
3) deposit accounts a) if bank is the SP, has control already b) 3 way agreement where bank does what SP says c) sign over accoutn direclty
4) electronic chattel paper: a) SP has control of electronic chattel paper if can determine how created, stored, & assigned to ensure original, encrypted & can tell if copy.
Automatic Permanent Perfection
1) PMSI in consumer goods. Automatic as soon as SI attaches and is permanent, excludes vehicle and fixtures.
2) An assignment or grant in security in accounts (that isn’t a big part of the whole)
3) SI in an investment property created by a broker
Automatic Temproary Perfection
A Si is perfected in proceeds is covered by code automatically when the Si in the original collateral is perfected, unless the SA provides otherwise.
Continues for only 20 days after attachment unless:
a) filed FS covers original collateral, the proceeds are collateral in which a SI may be perfected by filing in the office in wihch the fs has been filed & proceeds are not acquired w/cash proceeds
2) the proceeds are identifable cash proceeds; OR
3) the SI proceeds is otherwise perfected when the Si attaches to the proceeds within 20 days therafter.
PMSI and Perfection
Perfection generally takes place at the moment of filing of possession. Code provides a 20 day grace period where if the FS is filed within 20 days after debtor receives delivery of collateral, perfection relates back to date SI attached upon debtor’s receipt of the collateral.
PMSI going to beat lien creditors if perfect within 20 days after get equipment.
PMSI going to be other SP if perfected within 20 days. Temp perfection lasts for those 20 days.
FS Requirements
Name of Debtor
name of the SP or SP’s representative
Description of the collateral covered - can be super generic or reasonably identify described. just put on notice.
FS must be authorized by debtor, signing a SA presumes authorization.
FS for Fixtures
Defined: goods that are related to property that an interest inthem passes under real estate law. Fixtures are attached to real estate, adapted to use of the real estate, and intended to be a permanent attachment to the real estate.
Must:
Contain all info required in a FS by 9-502(a)
indicate it covers fixutres
indicate that it is to be filed in real property records
Provide description of real property to which the fixture is related AND if debtor does not have an interest of record in real prop, provide name of record owner.
Errors in FS
If file in wrong place: then unperfected
If FS contains minor errors, it will still be effective unless the errors make the FS seriously misleading. Error on debtor name are deemed to be seriously misleadign if not perfected. BUT:
standard search logic exception: if a search of records under correct name would disclose a FS that fails sufficiently to provide the name of the debtor, the FS is not seriously misleading.
types of seriously misleading changes to FS
Proceeds - if collateral sold and proceeds recovered, need to update
Name changes - if changes and seriously misleading, FS only effective to perfect SI in collateraly within 4 months of name change, unless amended FS filed.
Move of debtor - 4 month grave period.
Length of FS effectiveness
5 years after date of filing.
Must file continuation tatment within last 6 months before expiration. if no file, then FS will lapse and it becomes inefective and SI now unperfected.
Contunation statements can be filed repeatedly.
Priorities
First in time - first in right.
1) Unperfected SI: first SI to attach will prevail
2) Perfected over unperfected
3) If two perfected SI - the SI with the earliest time of filing or perfection, whichever earlier, which has continued without interuption will prevaiol.
4) if collateral on instrument or chattel paper, perfect by taking possession. Possession trumps earlier filing.
5) Perfected PMSI prevails over conflicting SI.
Rules of PMSI Perfection
“Second in time - first in right” status. If a PMSI is perfected within 20 days after the debtor receives the collateral, the PMSI will take priority over an intervening lien creditor whose rights arise between the time the SI attaches and the time of the filing.
If collateral is inventory, PMSP has to take additional steps to get priority:
1) Before begining of 20 day period, the PMSI must notify the prior SP holding the conflicting SI & describing the inventory, and holder must recceive an authenticated notification within five years BEFORE debtor takes possession.
2) no 20 day grace period
Lien Creditor
A creditor that has acquired interest in the property by attachment, levy, or the like; an assignee for the benefit of creditors; a trustee in bankruptucy; or a receiver in equity.
First-in-time, first in right applies to priority contests between lien creditors and SP.
Buyer v SP
Generally SI survives sale of collateral. Exceptions:
1) SI doesn’t continue if SP authories the sale free of SI
2) Buyer in ordinary course of business rule - party buys in good faith w/out knowledge violates rights of another personin goods, and buys in the ordinary course from a person in the business of selling goods of tha kind (think Best buy)
3) Sale qualifies as consumer-to-consumer ‘garage sale’ exeception. Held goods as conusmer goods, pays value, w/out knowledge, for own consumer use, and BEFORE FS IS FILED.
4) Buyer of chattel paper priority over SI in proceeds of inventory subject to SI if a) good faith buy, b) good value & takes possession c) does not say on paper belongs to someone else
SP vs everyone else in fixtures
The Creditor with a SI in the fixture will want priority over creditor who holds mortgage. Therefore, must file fixture filing. Rule: first in time, first in right. If mortgage recorded first, it wins.
But can be a PMSI in fixture. - must file within 20 days of becoming a fixture, and file a fixture filing.
Default Generally
Occurs when debtor fails to tender an obligation when due. SP may reduce claim to judgment, foreclose, or otherwise enfoce claim. Can reposses if can do so w/out breach of peace. If not, replevin action.
If collateral is accounts receivable or the like, SP can notify person obligated on collateral to make payment to SP
Right to Redeem
Right to redeem by tendering to the SP the amount of the obligation, including interest, together with reasonable expenses and attorney’s fees caused by default.
Can waive this right AFTER default, not before.
Disposing of Repossed Collateral
Must be commercially reasonable, including method, time, place, and other terms. private or public sale. Must notify debtor and any secondary obligor of disposition. If no notice, then commercially unreasonable.
Cash proceeds distribution
1) Reasonable expenses of collection & enforcement or retaking, holding, preparing for dispostion, processing, disposing of colalter, & reasonable att. fees
2) costs of sale always paid first
3) satisfaction of obligations secured by the SI under which the collection,enforcement or disposition is made and
4) the satisfcation of obligatiosn secured by any subordiante SI in, or other subordinate lien on the collateral, if the SP has received an authenticated demand before disposal.
Define deficiency.
Failure to sell in commercially reasonable manner
Apply rebuttable prsumption rule. Presume it would ahve happened. But can bring cause of action.
