Secured Transactions (fuck me) Flashcards
What is a secured transaction?
Agreement between debtor and creditor that debtor’s PERSONAL PROPERTY will serve as collateral for a loan.
What are the four big buckets of secured transactions?
How do they fit together?
Attachment: is a secured interest created?
Perfection: did you provide notice?
Priority: who wins and loses the fight over property?
Enforcement: rights and duties of secured party
IF attached –> enforcement rights
IF attached AND perfected –> good standing in priority dispute
What are the six steps to approaching a priority question?
1) Determine this is a secured transaction problem. (“SECURITY AGREEMENT”/”SECURITY INTEREST”)
2) ID and classify the property (look at CALL of question)
3) Determine which parties have a CLAIM
4) For each security interest:
- -has security interest ATTACHED? to which collateral? when?
- -has secured party PERFECTED its security interest? when?
5) find appropriate priority RULE
6) APPLY priority rule and resolve dispute
What’s the difference between an obligor and a debtor?
Obligor is the one who has to pay/perform; debtor is OWNER of collateral
Very often the same person
What is the effect of the labels parties use in creating a secured transaction?
NADA! even if they call it something else, if the substance is a secured transaction, that’s what it is, regardless of label
Sales of which type of collateral are treated like secured transactions?
Chattel Paper
Promissory Notes
Accounts
Payment Intangibles
(cruel poodles poking needles at peaceful iguanas)
What are the main general categories of collateral?
Goods
Rights to payment
documents (of title)
investment property (stocks and bonds)
deposit accounts (bank accounts)
commercial tort claims
letter of credit rights
general intangibles
What are the subcategories of collateral classified as “goods”?
Consumer goods
farm products
Inventory
Equipment
What are the subcategories of collateral classified as “rights to payment”?
Instrument (promissory note, check)
Chattel paper (record with monetary obligation + security interest/lease)
Accounts
Payment intangible (right to be repaid a loan of money that isn’t instrument or chattel paper)
What is required for a security to attach?
VALUE (loan) given by secured party
Debtor must have RIGHTS (property interest) in collateral
SECURITY AGREEMENT (either authenticated or possession/control)
For the value requirement of attachment, does there need to be new value given?
What re: binding commitment to extend credit?
NO! not like consideration
Lines of credit count as value
What is required of a security agreement so that the secured interest can attach?
Authenticated
Describe collateral
must reasonably identify collateral
What alternatives exist to an authenticated record to create attachment?
Possession pursuant to agreement (if you can hold in your hands)
control pursuant to agreement (if you can’t hold in hands)
NEEDS AGREEMENT PIECE
What is required for property acquired after attachment to be part of the collateral that the creditor has an interest in?
MUST have an AFTER-ACQUIRED PROPERTY CLAUSE.
Otherwise, only have interest in collateral existing AT TIME OF EXECUTION
–UNLESS INVENTORY OR ACCOUNTS: then implied
What’s the difference between accessions and commingled goods?
What is the effect of both?
Accession = when goods physically united with other goods DO NOT LOSE their identity (e.g., stereo in car)
–Look to TERMS OF AGREEMENT to decide if lender who has interest in car gets interest in stereo
Commingled goods = goods physically united with other goods such that their identity IS LOST (e.g., flour into cookies)
–Security interest doesn’t continue in original goods, but attaches to LARGER PRODUCT (interest in portion of cookies)
What happens when collateral is sold, leased, licensed, exchanged, or otherwise disposed of?
The security interest attaches to PROCEEDS AUTOMATICALLY, regardless of agreement’s absent language.
What is a purchase money security interest (PMSI)?
only applies to GOODS or SOFTWARE
value given allows debtor to ACQUIRE goods/software; and
goods/software acquired SECURE the loan
What’s the Dual-Status rule?
For NON CONSUMER GOODS TRANSACTIONS (e.g., business transactions only): PARTIAL PMSIs are allowed
What is the difference between attachment and perfection?
Attachment is step ONE; it’s about debtor’s and creditor’s relationship.
Perfection is step TWO (attachment required first); it’s about creditor and anyone else who claims an interest in the collateral
What are the six methods of perfection, once attached?
Filing (most common)
Possession
Control
Alternate perfection systems (see state law)
Perfection under a state’s certificate of title law (cars/motorcycles)
Automatic perfection
What is required for perfection by filing?
Where do I file?
Can I always perfect by filing?
File financing statement in CENTRAL FILING OFFICE of APPROPRIATE STATE
Appropriate state = debtor’s location
- -corporation –> state of incorporation
- -biz not registered –> state where it operates
- -individuals –> principal residence
Wrong state = NO PERFECTION
ESSENTIAL info:
name of DEBTOR
name of SECURED PARTY
DESCRIPTION of collateral
Required NONESSENTIAL info:
addresses for both debtor and secured party, and
indication of whether debtor is individual or organization
DEBTOR MUST AUTHORIZE FINANCING STATEMENT
FILING NOT ALLOWED FOR DEPOSIT ACCOUNTS OR CARS
In order to perfect via filing, what name must be used for the debtor?
CORRECT LEGAL NAME
majority rule for individual: use active DRIVER’S LICENSE/ID. if none, use legal name
minority rule: ID is safe harbor, but legal names are okay too often
What result if collateral is described in:
Security agreement but not in financing statement?
Not in security agreement but in financing statement?
In both security agreement and financing statement?
SA but NO FS = attached, NOT perfected
NO SA but FS = NOT attached; NOT perfected
BOTH = ATTACHED & PERFECTED
How long does a financing statement last?
Lapses five years after date of filing, unless continued
What is the only way to perfect a security interest in money?
Possession!
What is the only way to perfect a security interest in deposit accounts and letter of credit rights?
CONTROL
How does one perfect an interest in a car?
CERTIFICATE OF TITLE STATUTE –> NOTE interest ON TITLE
UNLESS inventory: then not necessary
When does an interest automatically perfect?
PSMI in CONSUMER GOODS
What happens if a debtor changes his name from the one on a filing statement that properly perfected the interest?
Four month window to amend
If failure to amend:
Property acquired after that window is not perfected, everything else remains perfected
What happens if a debtor moves after a filing statement that properly perfected the interest?
If collateral is transferred to a new debtor?
Debtor moves: four months to refile
Transferred to new debtor out of state: one year to refile
When can a secured party, perfected by possession, give the property back to debtor without losing perfection?
If INSTRUMENT, NEGOTIABLE DOC, CERTIFICATED SECURITY, OR GOODS STORED WITH BAILEE:
sell it
exchange it
enforce debtor’s rights in it
then TWENTY DAYS
