Security Agreements and Security Interests Flashcards
What is a security agreement and what is required to create one?
Agreement that creates or provides for interest in personal property that secures payment or perfection of an obligation
Requires:
1) writing
2) contains a granting clause that says it’s creating a security interest
3) needs authentication by debtor
4) include description of colllateral
What is collateral?
Contractual security interest in personal property or fixtures that secures payment or performance (DEBT) - property that secures debt.
- ex: equipment, inventory, consumer goods, proceeds and accounts, instruments, chattel paper,
What is a security interest?
interest in real/personal property (this is personal property) that secures payment of an obligation
- limited to personal property and fixtures under UCC9 - not real property
- most common -
- equipment, stuff you use in business like farm equipment or office computers
- inventory - things you sell in business - like tires to build cars
- proceeds & accounts - proceeds from lending - it is personal property
what does the security interest give creditor (bank) power to do?
Go against the collateral if debtor defaults – AKA repossession/foreclosure
What is a fixture?
Something added to real property - the interest in fixtures is generally subordinate to a conflicting interest in the real estate
What is Attachment?
ATTACHMENT (under UCC) occurs when the debtor has agreed to RECEIVE VALUE (cash/credit) from secured party (bank/creditor) and obtained the rights to the secured property
What are the 3 requisites for attachment of security interests?
1) must be a security agreement (K to borrow)
2) value must be given
3) debtor must have the rights to collateral
* (ex. “own” or lease car - you “own” but you don’t have title)
- ex - purchasing a car - bank approves loan for you to purchase car that you possess or use, but you don’t have clear title until you paid off the loan – FL - there is a lien on title recorded with clerk’s office
What is a Purchase Money Security Interest (PMSI)?
It’s a security interest taken or retained by seller of collateral to secure all or part of it.
- ex. seller of car finances the purchase of car
- There is a nexus between loan and what you’re buying
OR
An interest taken by creditor who by making advancews or incurring obligation GIVES VALUE in order to enable debtor to acquire rights or use of collateral if such value is in fact so used
- Ex: if farm credit gives A 100K to purchase tractor, A will purchase tractor with it.
What’s so special about PMSIs?
They have super priority
What is the UCC9 definition of proceeds?
whatever is acquired upon the sale, lease, license, exchange or other disposition of collateral
- includes all rights arising out of collateral, too, like insurance payment for damage to collateral (the bank can get those insurance proceeds)
What are Commingled Proceeds?
Proceeds from disposition (like cash money) that are physically united with other money or goods in such a manner that the identity is lost in a product or mass
- security interest MAY attach to product or mass that results
When are commingled proceeds IDENTIFIABLE PROCEEDS?
(1) the proceeds are goods or
(2) if the proceeds are not goods (money) to the extent the secured party identifies proceeds by methods of tracing
- example with multiple farmer grains in commercial silos - farmer sold grain but not paying creditor, the creditor can trace the money in his bank account to determine what was sold
How do you perfect a security interest?
(1) Through recording/filing FINANCING STATEMENT
OR
(2) By POSSESSION
What must a financing statement include?
(1) full name of debtor
(2) secured party’s full name
(3) indicate the collateral - contains detailed info about the security interest in collateral used to secure debt
How is a Security Interest perfected through a filing statement in florida?
Document is filed with the secretary of state under the name of the DEBTOR
What is the purpose of perfecting the security interest through filing ?
it will notify other creditors that the secured party has PRIORITY INTEREST in the collateral
What kind of interests are perfected by possession?
negotiable documents, goods, instruments, money or tangible chattel paper (loan docs like on a car)
- negotiable documents - promissory notes can be sold, assigned, etc.
- instruments - financial instruments
In a financing statement, what does the description of collateral look like?
It must provide EITHER a description of collateral that reasonably identifies what is described
OR
indication that there is a lien that covers ALL ASSETS or personal property of a debtor
What happens if financing statement isn’t filed correctly?
The security interest is not perfected, which means creditor may not have priority
What is after-acquired property?
property that debtor acquires after signing a security agreement that becomes additional collateral for the debt
For what two purposes are security interests in after-acquired property used?
(1) subjecting additional property to creditor’s lien and
(2) removing doubts as to whether improvements, repairs, additions made since execution are included
* protects creditors
* ex - farmer borrows money from creditor to buy tractor. Creditor takes lien on all of farmer’s existing farm equipment and any farm equipment acquired after the execution fo the secuirty agreement. When farmer needs a loan to fix tractor and goes to second bank to get loan with the tractor as security - the after-acquired property clause gives the OG secured party priority.
Which has priority? PMSI or earlier filed security interest in after-acquired property?
PMSI - these have super priority over after-acquired property loan
(why? because you want people to still be able to get credit)
