Secured Transactions MEE Flashcards
Secured Transaction
transaction intended to create a security interest in personal property or fixtures
Debtor
debtor is the person owes payment or performance of the obligation secured
Secured Party (aka Creditor)
secured party is a lender, seller, ot other person whose favor there is a security interest
Security Agreement
agreement between the debtor and the secured party that creates the security interest
Security Interest
a security interest is an interest in personal property or fixtures that secures payment or performance of an obligation - when that contingency (default) occurs, the property interest springs to life and the creditor has rights in the debtor’s collateral
Collateral
collateral is the property subject to a security interest - property that the secured party can repossess upon default to ensure that the debt is paid
Purchase Money Security Interest (PMSI)
special type of security interest in goods
PSMI Arises in One of Two Ways
(1) the secured party sells the goods to the debtor on credit and retains a s security interest in the goods sold OR
(2) creditor loans the funds to the debtor to enable the debtor to buy specific collateral, those funds are used by the debtor to acquire the specific collateral and the creditor takes a security interest in that collateral - secures whatever portion of the purchase price still has to be paid
After Acquired Property Clause
permissible - a secured party will want to obtain a security interest not only in the debtors present property, but also in property that the debtor will obtain in the future
Future Advance Clause
permissible - a security party contemplates making future loans to the debtor and wants to secure these future advances in the present security agreement
Attachment
those steps legally required to give the secured party a secured interest in the collateral - once attached, it is effective against the debtor and the creditor has all of the rights of a secured creditor under Article 9
When is a creditor a secured creditor?
a creditor is not a secured creditor until attachment
Perfection
process of giving public notice of the security interest to the world
Financing Statement
document generally used to provide public notice of the security interest and so to perfect the interest
Goods
include all things which are movable at the time the security interest attaches - goods also include fixtures
Four Types of Goods (tangible collateral)
depends on how the debtor is using the collateral
(A) Consumer Goods
(B) Equipment
(C) Farm Products
(D) Inventory
Consumer Goods
goods used or bought primarily for personal, family, or household purposes
Equipment
goods that are used or bought for use in a business
Farm Products
crops or livestock or supplies used or produced in farming operations or products of crops or livestock in their unmanufactured states if they are in the possession of a debtor engaged in farming operations
Inventory
goods held for sale or lease, goods that are to be furnished under service contracts, and materials used or consumed in a business in a short period of time
Default Good Category
if the collateral is a good, and it doesn’t fit the definition of consumer goods, inventory, or farm products, it is classified as equipment
Intangible or Semi Intangible Collateral
depends on the nature of the collateral (rather than its use)
Intangible or Semi Intangible Collateral Categories
(A) instruments
(B) documents
(C) chattel paper
(D) investment property
(E) accounts
(F) deposit accounts
(G) commercial tort claims
(H) general intangibles
Intangible or Semi Intangible Collateral - Instruments
pieces of paper representing the right to be paid money, like promissory notes, drafts, and certificates of deposit
Intangible or Semi Intangible Collateral - documents
a document that represents the right to receive goods (bill of lading, warehouse receipt)
Intangible or Semi Intangible Collateral - chattel paper
a record or records which evidence both (i) monetary obligation and (ii) a security interest in or a lease of specific goods
Intangible or Semi Intangible Collateral - investment property
includes such items as stock, bonds, mutual funds, and brokerage accounts containing such items
Intangible or Semi Intangible Collateral - deposit accounts
an account maintained with a bank - Article 9 only applies to security interests in Non consumer deposits accounts and account monies that are claimed as proceeds of other collateral
Intangible or Semi Intangible Collateral - commercial tort claims
a tort claim where (i) the claimant is an organization or (ii) the claimant is an individual, the claim arose out of the claimant’s business or profession, and the claim does not include damages for personal injury or the death of an individual
Intangible or Semi Intangible Collateral - general intangibles
any personal property not coming within the scope of the other definitions, such as patent and trademark rights, copyrights, and goodwill
Article 9 Applies to - I.
a transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract
Article 9 Applies to - II.
a seller’s retention of title - 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 the seller’s retention of a security interest
Article 9 Applies to - III.
agricultural liens - that is, nonpossessory liens on farm products that are created by state statute in favor of persons providing goods, services, or rental to farmers
Article 9 Applies to - IV.
sales of accounts, chattel paper. payment intangibles, and promissory notes
Article 9 Applies to - V.
commercial consignments of goods - worth total of $1000 or more to persons who (1) deal in goods of that kind under a name other than the cosignors, (2) are not auctioneers, and (3) are not generally known by their creditors to be substantially engaged in selling the goods of others
Article 9 Applies to - VI.
a secured sale disguised as a lease - that is, leases that are intended to serve as security arrangements and a lease where the rental obligation is not terminable by the lesee and either (1) the lease term is equal to or greater than the remaining economic life of the goods, (2) the lesee is bound to purchase the goods at the end of the lease or to renew the lease for the remaining economic life of the goods, or (3) at the end of the lease, the lesee has an option to purchase the goods or renew the lease for the remaining economic life of the goods for no or nominal consideration
Attachment
rights against the debtor are established by attachment
Perfection
rights against third parties are established by perfection
Requisites for Attachment
a security interest is not enforceable unless it has attached - must coexist:
parties must agree to create the security interest as evidenced by (1) the creditor taking possession of the collateral, (2) an authenticated security agreement, or (3) the creditor taking control of nonconsumer deposit accounts, electronic chattel, and investment property AND
value must be given by the secured party AND the debtor must have rights in the collateral
Form of the Authenticated Security Agreement - evidence by a record
the agreement must be evidenced by a record (that is, written or electronically stored information) and must show an intent to create a security interest
Form of the Authenticated Security Agreement - agreement must be authenticated
must be authenticated by the debtor - it is signed by the debtor - any symbol, including an electronic symbol, that is made with the present intent to authenticate the record will work
Form of the Authenticated Security Agreement - Description of Collateral
the agreement must contain a description of the collateral - must reasonably identify the collateral - can be described broadly by category or type or specifically
Description of Collateral - Consumer Goods, Consumer Securities Accounts, and Commercial Tort Claims
cannot be described by type alone; a more specific description is needed
Value Must be Given
the secured party needs to give value to create the security interest - any consideration is sufficient to support a simple contract is value - even past consideration will suffice as value, as long as the security interest is intended as security for the past consideration
Rights and Duties of Secured Party in Possession
secured party in possession must use reasonable care in storing and preserving the collateral but is entitled to reimbursement for reasonable expenses in caring for the collateral - risk of loss of property in the secured party’s possession is on the debtor to the extent of any insurance deficiency
Secured Party in Possession or Control - Increased Value
the secured party in possession or control may hold an increase in value of, or profits from, the collateral as additional security, but money so received must be given to the debtor or applied against the secured obligation
Two Keys to Attachment
(1) all three requirements for attachment must be present
(2) there must be an authenticated security agreement or the creditor must take possession or control of the collateral
Scope of the Security Interest - After Acquired Property - Without Express Agreement Provision
without an explicit after acquired property clause in the agreement, the secured party’s security interest only reaches collateral that the debtor had rights in at the time the debtor signed the agreement
Scope of the Security Interest - After Acquired Property - With Express Provision
if the security agreement has an explicit after acquired property clause, the security interest will attach to the property as soon as the debtor acquires an interest in the collateral
Scope of the Security Interest - After Acquired Property - Exceptions
even without an after acquired property clause, a security interest will attach automatically to
(i) collateral of a type that’s rapidly depleted and replenished, such accounts and inventory and
(ii) identifiable proceeds of collateral, even without an after acquired property clause
Scope of Security Interest - After Acquired Property - Consumer Goods and Commercial Tort Claims
(i) after acquired property clause does not apply to consumer goods unless the debtor acquires rights in the goods within 10 days after the creditor gives value
(ii) an after acquired property clause does not apply to any commercial tort claims
Scope of Security Interest - Proceeds
security interest in collateral automatically attaches to identifiable proceeds of the collateral
Scope of Security Interest - What are proceeds
include whatever is received upon the sale, exchange, collection, or other disposition of collateral or proceeds
insurance payable by reason of loss or damage to the collateral is a proceed, unless it is payable to someone other than the debtor or secured party
Scope of Security Interest - Proceeds Must be Identifiable
the proceeds can be traced back to the original collateral
Scope of Security Interest - Commingled Cash Proceeds
the identifiable proceeds can be traced using the lowest intermediate balance rule
Scope of Security Interest - Commingled Cash Proceeds - Intermediate Balance Rule Applies
look at the bank account starting at the time the proceeds are deposited and ending at the time of applying the rule - the lowest balance during that time period is the secured party’s identifiable proceeds
Scope of Security Interest - Supporting Obligations
attachment of a security interest in accounts, chattel paper, documents, general intangibles, instruments, and investment property automatically extends to a supporting obligation for that collateral
Perfection of Security Interest
to acquire maximum priority in the collateral over most third parties, the secured party must perfect
5 Methods of Perfection
(1) filing
(2) taking possession of the collateral
(3) control
(4) automatic perfection
(5) temporary perfection
Perfection Timing
not enforceable until it attaches to the collateral - if all steps for perfection are taken before the security interest has attached, perfection will occur upon attachment
Attachment
establishes the secured parties rights in the collateral as against the debtor
Attachment Requirements
(i) an agreement to create a security interest evidenced by possession, by the debtor’s authentication of the security agreement, or by control
(ii) value given by the secured party
(iii) debtor has a rights in the collateral
Perfection - Automatic Perfection - PMSI in Consumer Goods
most common situation, in which a security interest is automatically perfected upon attachment, is a PSMI in consumer goods
Perfection - Automatic Perfection - PMSI In Consumer Goods - Limitations
(i) a security interest in motor vehicles can be perfected only on the vehicles certificate of title
(ii) PMSI in fixtures will have priority over an encumbrance of the real estate only if the PMSI holder files a fixture filing
Perfection - Perfection by Taking Possession (Pledge)
security interest in most types of collateral can be perfected simply by taking possession of the collateral
Perfection - Perfection by Taking Possession - Timing
where the secured party takes actual possession of the collateral, the security interest is perfected from the moment of possession and continues as long as possession is retained
Perfection - Perfection by Taking Possession - Collateral in Hands of Bailee
where the collateral is in the hands of the bailee, the secured party is deemed to be in possession from the moment the bailee authenticates a record acknowledging that it is holding the collateral for the secured party’s benefit
Perfection - Perfection by Taking Possession - Collateral that is not applicable
security interests in general intangibles, deposit accounts, nonnegotiable documents, electronic chattel paper, certificate of title goods, and accounts cannot be perfected by possession
Perfection - Perfection by Control - Applicable Property
security interests in investment property, Non consumer deposit accounts, and electronic chattel paper may be perfected by control
Perfection by Control - Methods of Obtaining Control - Nonconsumer Deposit Accounts in Bank
the bank in which a nonconsumer deposit account is maintained automatically has control over the deposit account
Perfection by Control - Methods of Obtaining Control - Nonconsumer Deposit Accounts - Secured Party is not a Bank
if the secured party is not such a bank, it may obtain control over a nonconsumer deposit account by either:
(i) putting the deposit account in the secured party’s name OR
(ii) agreeing in an authenticated record with the debtor and the bank in which the deposit account is maintained that the bank will comply with the secured party’s orders regarding the deposit account without requiring debtor’s consent
Perfection by Control - Methods of Obtaining 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
Perfection by Control - Methods of Obtaining Control - Electronic Chattel Paper
a party has control over electronic chattel paper when a system put in place to show the transfer of interests in chattel paper reliably establishes the secured party as the asignee
Perfection for Motor Vehicles
security interests in motor vehicles required to be titled can only be perfected by notation on the certificate of title issued by the state - any other method wont work
Perfection for Motor Vehicles - Exception - Dealers
security interests created by dealers n vehicles held in inventory for sale or lease are perfected by filing a financing statement under the ordinary Code rules even if a certificate of title covering the vehicle is outstanding
Perfection by Filing - Records to be Filed
a secured party may obtain perfection by filing (either in writing or electronically) a financing statement
Perfection by Filing - Financing Statement
Must contain:
(i) debtors name and mailing address
(ii) secured party’s name and mailing address
(iii) a description of the collateral covered by the financing statement
Perfection by Filing - Applicable and Nonapplicable Collateral
a security interest may be perfected by filing as to all kinds collateral except deposit accounts and money
Perfection by Filing - Debtor’s Name Index
are indexed under the debtor’s name
Perfection by Filing - Debtor is Individual with Good Driver’s License
in most states, if the debtor is an individual with an unexpired driver’s license issued by the state where the financing statement is to be filed, the debtor’s name on the financing statement must match the license
Perfection by Filing - Debtor is Individual without Good Driver’s License
if the debtor does not have a valid drivers license, then the financing statement may include the debtor’s individual name or the debtor’s personal name and surname
Perfection by Filing - Debtor is Registered Organization
if the debtor is a registered organization the debtors name must match its most recent public organic record
Perfection by Filing - Effect of Error in Debtor’s Name
minor errors in the debtor’s name wont invalidate a financing statement, but seriously misleading errors will
Perfection by Filing - Not Seriously Misleading
a financing statement is not seriously misleading if it would be discovered in a filing office search under the debtor’s correct name, using the filing office’s standard search logic
Perfection by Filing - Errors by Filing Office
the failure of the filing office to correctly index a financing statement does not impact its effectiveness
Perfection by Filing - Debtors Name Change
if the debtor’s name as indicated on a filed financing statement becomes insufficient and thus seriously misleading the financing statement is effective only against the collateral acquired by the debtor before the name became insufficient and within 4 months after
Perfection by Filing - Description of Collateral
the description of collateral in a financing statement is sufficient if it reasonably identifies the collateral, which can be broadly by category or type or specifically
Financing Statement versus Authenticated Security Agreement
unlike the requirements for an authenticated security agreement, a financing statement may contain a supergeneric description of the collateral, such as “all assets”
Perfection by Filing - Financing Statement - After Acquired Property
financing statement need not mention after acquired property to perfect a security interest in such property if the description in the financing statement is broad enough to cover the after acquired property
Perfection by Filing - Financing Statement - Secured Party’s Name
an error in the secured party’s name will not make the financing statement seriously misleading
Perfection by Filing - Financing Statement - Real Property Related Collateral
financing statements that cover real property related collateral (timber to be cut, minerals, fixtures) must also contain:
(1) a description of the related real property
(2) the name of the record owner (if not debtor)
(3) an indication that is to be filed in the real property records
Perfection by Filing - Financing Statement - Debtor Must Authorize Filing
for filing statement to be effective, the debtor must authorize the filing in any signed writing either before or after it is filed - additionally, the debtor automatically authorizes the financing statement if the debtor authenticates the financing statement or authenticates a security agreement covering the same collateral as the financing statement
Perfection by Filing - Financing Statement - Authenticated Agreement Itself May Be Filed
authenticated security agreement itself may be filed as the financing statement if the parties so desire - if its filed, it must contain all of the elements
Perfection by Filing - Financing Statement - Effect of Missing Address
in a financing statement that doesnt contain the debtor’s and/or secured party’s mailing address is accepted by the filing office, the financing statement is effective despite the lack of the addresses
Perfection by Filing - Financing Statement - Place of Filing
file centrally - filing must be done centrally in the office of the secretary of state
Perfection by Filing - Financing Statement - Exception to File Centrally
if the collateral is timber to be cut or minerals, or if the collateral is or is to become a fixture and the filing is a fixture filing, filing is in the county where a mortgage on real estate is filed (locally)
Perfection - Which State’s Laws Govern - General Rule
the law of the state where the debtor is located generally governs perfection of the security interest - the secured party must generally file the financing statement in that state
Perfection - Location of Debtor - Individual
if the debtor is an individual, they are located in the state of their principal residence
Perfection - Location of Debtor - Registered Organization
if the debtor is a registered organization, the debtor is located in the state under whose laws it is organized
Perfection - Location of Debtor - Unregistered Organization
if the debtor is an unregistered organization, it is located at its place of business if it only has one place of business or at its chief executive office if it has more than one place of business
Perfection - Which State’s Law Governs - Fixtures and Timber to be Cut
the perfection of possessory security interests, as well as security interests in fixtures and timber to be cut, is governed by the law of the state in which the collateral is located
Perfection - Which State’s Law Governs - Goods Covered by Certificate of Title
if goods are covered by a certificate of title, the law of the state issuing the most recent certificate of title governs perfection
Perfection - Which State’s Law Governs - Deposit Accounts
if the collateral is a deposit account, unless the debtors agreements with the bank provide otherwise, the law of the state in which the bank has its cheif executive office governs perfection
Perfection - Which State’s Law Governs - Investment Property Certificated Security
if the collateral is certified security, the law of the state where the certificated security is located governs perfection
Perfection - Which State’s Law Governs - Investment Property Uncertificated Security
if the collateral is an uncertificated security, unless the debtors agreements with the issuer provide otherwise, the law of the state where the issuer was organized governs perfection
Perfection - Which State’s Law Governs - Investment Property Securities Account
if the collateral is a securities account, unless the debtor’s agreements with the securities intermediary provide otherwise, the law of the state where the securities intermediary’s chief executive office is located governs
Perfection - Which State’s Law Governs - Investment Property Exception
if a security interest in investment property is perfected by filing, or if its automatically perfected by a securities intermediary, the law of the state where the debtor is located governs perfection
Movement of Debtor or Collateral From One Statement or Another - Relocation of Debtor Where Perfection is Governed by Debtor’s Location
if the perfection of a security interest is governed by the law of the state in which the debtor is located, and the debtor moves from one state to another, the security interest generally will become unperfected 4 months after the debtor move unless the secured party files a financing statement in the new jurisdiction before that 4 month period is up
Movement of the Debtor or Collateral from One State to Another - Debtor in Different State and Perfection is Governed by Debtor’s Location
if collateral is transferred to a new owner who is located in a different state, the security interest will become unperfected one year after the collateral moves unless the secured creditor files a financing statement in the new jurisdiction before that one year period is up
Movement of the Debtor or Collateral from One State to Another - Other Collateral - Collateral in Which Security Interest is Perfected by Possession
if a perfected security interest in collateral is a possessory security interest - and the collateral is moved from one state to another, the security interest will remain perfected without any future action as long as the security interest is also perfected by possession under the laws of the new state
Movement of Debtor or Collateral from One State to Another - Certificate of Title Property
if a vehicle is moved from one state to another and is covered by a certificate of title issued by the new state, a security interest in the vehicle that was properly perfected in the original state lasts as long as it would have if the vehicle had not been covered by the new certificate of title
Movement of Debtor or Collateral from One State to Another - Certificate of Title Property - Exception
if a vehicle subject to a perfected security interest in one state is moved to a new state and is covered by a certificate of title issued by the new state, the security interest in the original state is perfected as against a purchaser for value of the vehicle only until the earlier of:
(i) time when the security interest would have become unperfected in the original state if the vehicle had not been covered by the new cert or
(ii) 4 months after the vehicle is covered by the new certificate of title
Movement of the Debtor or Collateral from One State to Another - Exception - Clean Certificate of Title Issued in New State
if the certificate of title issued in the new state does not note the secured party’s interest in the vehicle, the following parties have priority over the secured party:
(i) a buyer of the vehicle who is not in the business of selling vehicles who purchases for value and receives delivery of the vehicle without knowledge of the interest and
(ii) a secured party who perfects a security interest in the vehicle without knowledge of the other security interest after the clean certificate of title is issued in the new state
Movement of the Debtor or Collateral from One State to Another - Deposit Accounts, Uncertificated Securities, and Securities Accounts
if the bank, issuer, or securities intermediary moves to a new state, perfection of an interest in the deposit account, uncerttificated security, or securities account continues until the earlier of:
(i) the time when the security interest would have become unperfected in the original state if the bank, issuer, or securities intermediary had not moved to the new state or
(ii) 4 months after the bank, issuer, or securities intermediary moves to the new state
Continuation Statements
a financing statement is valid for 5 years - continuation is good for an additional 5 years - can only be filed within 6 months before the lapse of the filed statement
Termination Statements
a secured party is not obligated to terminate a financing statement - if there is no outstanding obligation of the debtor and no commitment on the party of the secured party to make further advances, or if the debtor didn’t authorize the filing of the initial financing statement, the secured party must, on demand of the debtor, within 20 days file a termination statement or provide one to the debtor
Termination Statement - Timing for Consumer Goods
the secured party must file the termination statement within 1 month after there is no obligation or commitment, or if the debtor demands it, within 20 days of the demand
Temporary Perfection
if a secured party has perfected, the secured party automatically has perfected in any proceeds of the collateral for 20 days after receipt of the proceeds - continues beyond 20 days if:
(i) proceeds are identifiable cash proceeds
(ii) original collateral was perfected by filing a financing statement, a security interest in the type of collateral constituting the proceeds would be filed in the same place as the finiancing statement for the original collateral, and the proceeds were not purchased with cash proceeds of the collateral OR
(iii) the security interest in the proceeds is perfected within the 20 day period
Temporary Perfection for Instruments, Negotiable Documents, and Certified Securities - New Value
where new value is given under an authenticated security agreement for instruments, negotiable documents, and certified securities, perfection is valid for 20 days after attachment neither filing nor possesion is necessary
Temporary Perfection for Instruments, Negotiable Documents, and Certified Securities - Delivery of Collateral to Debtor for Disposition
where the creditor who has perfected their interest by possession delivers instruments, negotiable documents, certified securities or goods in the possession of a bailee to the debtor for disposition, perfection is valid for 20 days, after which creditor must reperfect or lose the perfection
Change in Use of Collateral
if the debtor changes it use of the collateral, the filed financing statement remains effective to perfect the security interest - secured creditor has no duty to monitor the collateral or amend the financing statement
Secured Party versus Secured Party
when there are conflicting perfected security interests in the same collateral, priority goes to whichever party was the first to either file or perfect - whichever is earlier - provided that there is no period thereafter when there is neither filing nor perfection
Priority Between Unperfected Secured Parties
when two unperfected security interests conflict, the first to attach has priority
Priority Between Unperfected and Perfected Secured Parties
a perfected security interest generally prevails over an unperfected security interest
PMSI Superpriority
PMSI enjoys a superpriority - theyre superior to prior perfected security interests in the same collateral if certain conditions are met
PMSI in Goods Other Than Inventory and Livestock
PMSI in goods other than inventory and livestock has priority over conflicting security interests in the same goods or their proceeds if the interest is perfected before or within 20 days after the debtor receives possession of the goods
PMSI Inventory in Livestock
PMSI in inventory collateral has priority over a conflicting security interest in the same inventory or proceeds of the inventory that are chattel paper, instruments, or cash if:
(i) it is perfected at the time the debtor gets possession of the inventory and
(ii) any secured party who has filed their interest in the same inventory receives 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 - good for 5 years
Cosigner Has PMSI Inventory
under Article 9, a cosigners interest in the cosigned goods is considered to be a PMSI in inventory - a cosigner can acquire PMSI super priority in the cosigned goods if the cosigner complies with the above requirements for gaining PMSI superiority in inventory
Conflicting PMSI
if more than one party has PMSI superpriority, the following rules apply:
(i) a secured party who has a PMSI in collateral as a seller has priority over a secured party who has a PMSI in the same collateral as a lender
(ii) otherwise, the first secured party to file or perfect prevails
Special Priority Rules for Conflicting Security Interests in Investment Property
a security interest perfected by control has priority over a security interest perfected by any other method - for conflicting interest perfected by control, they rank according to the time of obtaining control
Special Priority Rules for Conflicting Security Interests in Deposit Accounts
perfected by control has priority over a conflicting security interest that is perfected by another method
if there are conflicting ones by control, they rank according to the time of obtaining control, subject to exceptions
Special Priority Rules for Conflicting Security Interests in Deposits Accounts Exceptions
(a) a secured party who has obtained control by putting the deposit account in the party’s name has priority over all other secured parties with control and
(b) a bank that has control because it maintains the deposit account has priority over all secured partys who has obtained control by putting the account in their name
Purchasers of Chattel Paper and Instruments - Chattel Paper Purchasers
if a purchaser of chattel paper in good faith gives new value and takes possession of the chattel paper in the ordinary course of business, the purchaser has priority over:
(i) a security interest in chattel paper that arises merely as proceeds of inventory, as long as the chattel paper doesnt indicate that it has been assigned to anyone other than the purchaser, and
(ii) any other security interest in the chattel paper, as long s the chattel paper purchaser acquired their interest without knowledge that its purchase violated the rights of the secured party
Purchasers of Chattel Paper and Instruments - Priority of Proceeds
a chattel paper purchaser also has priority in the proceeds of the chattel paper if either (1) the purchaser would have had priority under the general priority rules or
(2) the proceeds are the specific goods covered by the chattel paper or cash proceeds of the specific goods
Purchasers of Chattel Paper Instruments - Instrument Purchasers
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 purchase violates the rights of the secured party
Filing Collateral
collateral in which a secured party would normally achieve priority by filing a financing statement
Non Filing Collateral
collateral in which a secured party would normally achieve priority by possession or control, rather than filing
Priority in Proceeds - General Rule
a perfected security interest in proceeds will have the same date of priority as the perfected security interest in the original collateral, as long as the perfection of the security interest in the proceeds extends beyond the 20 day temporary perfection period
Priority in Proceeds - Special Rule for Certain Proceeds of Non-Filing Collateral
a secured party has priority in the proceeds of non-filing collateral if:
(1) the secured party has priority in the original collateral, (2) their security interest in the proceeds is perfected, and (3) the proceeds are cash proceeds or proceeds of the same type as the original collateral - if proceeds are proceeds, all intervening proceeds must be cash proceeds, proceeds of the same type as the original collateral or accounts relating to the collateral
Special Rule for Certain Proceeds of Non-Filing Collateral - Exception
if a security interest in the original collateral is nonfiling collateral is perfected by a method other than filing, and the proceeds of the original collateral are fling collateral, the first secured party to file in a financing statement covering the proceeds has priority in the proceeds
Secured Party versus Buyer or Other Transferee
when a buyer or a lessee buys or leases something with a security interest on it, the security interest stays on the item
Secured Party versus Buyer or Other Transferee - Authorized Sales
if the sale or lease of the collateral is authorized by the secured party free of the security interest, the transferee takes free of the security interest - the authorization may be express or it may be implied
Secured Party versus Buyer or Other Transferee - Unauthorized Sales
a buyer in the ordinary course of business takes free of a nonpossessory security interest in the goods created by the buyers seller, even though the security interest is perfected and even though the buyer knows of the security interest
Secured Party versus Buyer or Other Transferee - Unauthorized Sales
a buyer in the ordinary course of business takes free of a nonpossessory security interest in the goods created by the buyers seller, even though the security interest is perfected and even though the buyer knows of the security interest
also applies to lessees of goods
Buyer in the Ordinary Course of Business
one who buys goods (1) in good faith, (2) without knowledge that the sale violates the rights of another person in the goods and (3) in the ordinary course of business of selling goods of the kind purchased
Buyers not in the Ordinary Course of Business
buyers or lessees not in the ordinary course of business:
(i) take subject to perfected security interests and
(ii) take free from unperfected security interests unless they know of the security interests when they give value or take delivery
Buyers not in the Ordinary Course of Business Exception - Future Advances
a buyer or lessee not in the ordinary course of business has priority over future advances or commitments to make future advances made by a secured party either after the secured party learns of the purchase or lease or more than 45 days after the purchase or lease
Buyers not in the Ordinary Course of Business Exception - PMSI Grace Period
if a secured party attaches a PMSI in the debtor’s collateral before the buyer or lessee without knowledge pays value and receives delivery, the secured party will have priority over the buyer or lessee if the secured party files within 20 days after the debtor receives the collateral
Unauthorized Sales - Consumer to Consumer Sales
a buyer takes free of a security interest even though its perfected if the buyer buys (1) without knowledge of the security interest, (2) for value, (3) for the buyers own personal, family, or household purposes, and (4) before a financing statement covering the goods has been filed - goods must be consumer goods in the hands of both the buyer and seller
Secured Party v Holder in Due Course or the Like
a holder in due course of negotiable instrument has priority over a security interest in the negotiable instrument
Secured Party versus Judicial Lien Creditor or Holder of Possessory Lien
a judicial creditor prevails over the holder of a security interest in collateral if the lien creditor becomes such before the security interest is perfected - a prior perfected security interest has priority over a judicial lien
Judicial Lien Creditor
person who has acquired a lien on the collateral through judicial attachment, levy, or the like, or bankruptcy trustee
Secured Party v Judicial Lien Creditor or Holder or Possessory Lien - Prior Filed Security Interest May Also Have Priority
the secured party will also have priority if the secured party obtained a security agreement and filed the financing statement before the judicial lien arose, as long as the secured party eventually attaches and perfects
Secured Party v Judicial Lien Creditor Holder or Possessory Lien - PMSI Grace Period Exception
if the secured party files a financing statement with respect to a PMSI within 20 days after the debtor receives the collateral, the secured party will have priority over a judicial lien arising between the time the security interest attaches and the time of filing
Secured Party v Judicial Lien Creditor Holder or Possessory Lien - Exception Future Advances
for a perfected future advance to gain priority over a subsequent judicial lien, the future advance must be made (1) without knowledge of the lien, (2) within 45 days of the lien arising or (3) pursuant to a commitment entered into without knowledge of the lien
Secured Party v Judicial Lien Creditor Holder or Possessory Lien - Secured Party versus Possessory Lien Holder
a possessory lien imposed by other state law in favor of those who supply goods or services has priority over a security interest as long as the goods or services were provided in the ordinary course of business and the collateral remains in the lien holder’s possession
Secured Party vs Article 2 Claimant
if article 2 grants a buyer or seller possessory security interest in goods, the article 2 claimant has priority over an article 9 secured party as long as the article 2 claimant retains possession of the goods
Priorities Hierarchy
excluding investment property and nonconsumer deposit accounts, in which the party with control generally has priority, the ranking as follows: pg 47-48
Default
security agreement usually will define the default to include events such as failure to pay or maintain insurance - if the security agreement lacks such a provision, default is generally construed as a failure to pay or perform
Self-Help Repossession
after default, the secured party is entitled to take possession of the collateral without judicial process if it can be done without a breach of the peace
Self Help Repossession - Loss of Authorization
when a secured party breaches the peace, the secured party loses the authorization to repossess, may be sued for conversion, and is liable for actual damages
Breach of the Peace
any conduct by the secured party that has the potential to leas to violence - physical presence by the debtor plus verbal objection by the debtor is enough to create a breach of peace
Breach of the Peace - Breaking and Entering Can be a Breach
breaking and entering a residence is probably a breach - the breaking and entering of a commercial property is less likely to be a breach - simple trespass is not breach
Repossession - Judicial Process
if self-help is unavailable, the secured party can use judicial process to get the goods
Rendering Equipment Unusable
without removal, the secured party may also make equipment unusable and dispose of it on the debtors property if the secured party can do so without a breach of the peace
Self-Help in Accounts
if the debtor defaults and the collateral is an account, the secured party can notify the person owing money to the debtor to make the payment to the secured party, rather than the debtor - payment to the debtor will not discharge the obligation
Strict Foreclosure - General Rule
the secured party may make full or partial strict foreclosure if the secured party does the following:
(i) the secured party must sent its proposal to retain the collateral to (1) any other secured party from whom the foreclosing party has received notice of a claim to the collateral and (2) any other secured party who has perfected a security interest in the collateral by filing a financing statement or noting its security interest on a certificate of title - if notified objects in 20 days the collateral must be disposed of by sale
(ii) the secured party must obtain the debtor’s consent - consents by either (a) agreeing in an authenticated record after default or (b) in case of a full strict foreclosure, failing to make an authenticated objection within 20 days after the secured party sends notice
Strict Foreclosure Exceptions - No Partial Strict Foreclosure in Consumer Transactions
in a consumer transaction, a secured party may not keep the collateral in part satisfaction of the debt and seek a deficiency judgment - the secured party may keep the collateral only in full satisfaction of the debt
Strict Foreclosure Exceptions - Consumer Goods 60% Rule
if the debtor has paid 60% of the cash price on a PMSI in consumer goods, or 60% of the loan on a non PMSI in consumer goods, the secured party must dispose of the collateral within 90 days after repossession
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 - sale discharges the security interest under which the sale is being made and all subordinate security interests
Resale of Collateral - Reasonable Notification Required
reasonable notice that is authenticated by the secured party must be given (1) to the debtor and any sureties on the debt, and (except in the case of consumer goods) (2) to any other secured parties who have notified the secured party of their interests and (3) to any secured parties who have perfected by filing a financing statement or making a notation on a certificate of title
Resale of Collateral - Timeliness
the notice must be sent within a reasonable time before the sale - in a nonconsumer transaction, notice is deemed to be sent within a reasonable time if its sent 10 days or more before the sale
Resale of Collateral - Contents of Notice
for a public sale, notice of the time and place of sale is required - for a private sale, notice of the time after which the sale will occur must be given and the notice must also described the parties and the collateral
Resale of Collateral - Sale Must be Commercially Reasonable
every aspect of the sale must be commerically reasonable
Commercially Reasonable Factors
(a) sufficiency of the advertising
(b) if the collateral had limited market, whether people in that market were contacted
(c) whether the collateral needed cleaning or repair and
(d) if the sale was by public auction, the convivence of the time and place
Resale of Collateral - Secured Party May Buy Collateral
the secured party may buy the collateral at any public sale but may buy at a private sale only if the collateral is a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations
Resale of Collateral - Proceeds of the Sale
the money from a foreclosure sale goes first to repay the costs of repossession and sale, then to pay off the debt of the foreclosing creditor, and then to pay off the debt of creditors with lower priority then the foreclosing creditor
Resale of Collateral - Secured Party’s Right to Deficiency Judgement
secured party may recover any deficiency from the debtor
Resale of Collateral - Explanation of Deficiency Surplus
if the debtor is a consumer, then after the sale, the secured creditor must send the debtor an explanation of the calculation of any debt still owed
Resale of Collateral - Failure to Comply with Code Rules - Actual Damages
a secured party is liable for the actual damages caused by failure to follow any of the codes rules
Resale of Collateral - Failure to Comply with Code Rules - Minimum Recovery for Consumer Goods
if the collateral is consumer goods and the secured creditor violates the Code rules on default, the debtor is entitled to a minimum of 10% of the cash price of the goods plus an amount equal to all the interest charges to be paid over the life of the loan
Resale of Collateral - Failure to Comply with Code Rules - Possible Loss of Deficiency Judgment
there is a rebuttable presumption that the sale proceeds equal the amount of debt - the secured party presumptively losses any deficiency
Debtor’s Right to Redeem
any time before the secured party has resold the collateral or has entered into a contract for its disposition, or the obligation has been discharged by the secured party’s retention of the collateral, the debtor may redeem - the debtor must tender fulfillment of all obligations secured by the collateral plus additional reasonable expenses
Fixture
goods that have become so related to real property that an interest in them arises under real property
Fixture Perfection
a fixture filing must be made in the office where a mortgage on the real estate would be filed - a fixture filing statement must reasonably identify the real estate and must show the name of the owner
Fixture Rights on Default
when the security interest in the fixture has priority over all interest in the property, the holder of the interest in the fixture may upon default remove the fixture from the real property - creditor must reimburse the owner of the property for the cost to repair damage to the property cause by removal, but not for diminution in value
Fixture Priority - Secured Party v Subsequent Real Estate
a security interest in fixtures has priority over any real estate interest that is recorded subsequent to the perfection of the security interest by fixture filing
Fixture Priority - Secured Party v Prior Real Estate Interest
a prior real estate interest that is properly recorded has priority over a secured interest that subsequently arises
Fixture Priority - Secured Party v Prior Real Estate Interest Exception PMSI
a PMSI takes priority over an earlier in time realty interest if its perfected by a fixture filing before the goods become fixtures or within 20 days thereafter
Fixture Priority - Secured Party v Prior Real Estate Interest Construction Mortgages
construction mortgage takes priority over a subsequent PMSI in fixtures, even if the interest is perfected by a fixture filing within 20 days
Fixture Priority - Fixture Filing Unnecessary - Readily Removable Collateral
a secured party need not fixture file as to readily removable (1) factory or office machines, (2) equipment that is not primarily used or leased for use in the operation of the real estate, (3) replacements of domestic appliances which are consumer goods - any method of perfection before such goods become fixtures entitles the secured party to priority
Fixture Priority - Fixture Filing Unnecessary - Consent, Disclaimer, or Right to Remove
a secured party need not perfect at all to have priority (1) if the encumberancer or owner of the real estate has, in an autehtnicated record, consented to the security interest or has disclaimed an interest in the goods as fixtures, or (2) if the debtor has a right to remove the goods against the real estate claimant
Accession
goods that are physically united with other goods in such a manner that the identity of the original good is not lost
Accession Perfection
if a secured interest is perfected when the collateral becomes an accession, the security interest remains perfected in the collateral
Accession - Special Priority Rule Vehicles
a security interest in an accession is subordinate to a security interest in the whole which is perfected by compliance with the requirements of certificate of title statute
Accession Removal and Reimbursement for Physical Injury to the Whole
a secured party may remove an accession from other goods if the secured interest in the accession has priority over the claims of every person having interest in the whole
