Tests Flashcards
Scope of Article 9
- any transaction, regardless of its form, that creates a security interest in the personal property or fixtures by contract.
- an agricultural lien.
- a sale of accounts, chattel paper, payment intangibles, or promissory notes (unless the sale is for the purposes of collection only, or the sale is part of the sale of a business).
- certain consignments
- a secured sale disguised as a lease.
3 Requirements to Attachment
- Security Agreement
- Value has been given
- Debtor has rights in the collateral (aka it’s their property)
Attachment occurs when the last of the three elements are fulfilled.
Form of Written Security Agreements
The agreement must be evidenced by a record and must show an intent to create a security interest.
The agreement must be authenticated by the debtor. Usually, this means signed but any symbol that is made with the present intent to authenticate the record will work.
The agreement must contain a description that “reasonably identifies” the collateral. Normal vocab will work, as will any of the Article 9 categories. However, simply stating all of the debtors property or assets will not work.
Methods of Perfection
Automatic Perfection Possession of Collateral by Secured Party Perfection by Control Notation of Lien on Certificate of Title Filing a Financing Statement
Possession of Collateral by Secured Party
A secured party may perfect a security interest in most types of collateral simply by taking possession of the collateral. The perfection occurs the moment of possession without relation back to the time of attachment and occurs only so long as possession is retained. Obviously, this method does not apply to items you cannot take possession of (i.e. accounts, deposit accounts, general intangibles, etc.)
Perfection by Control
Security interests in investment property and electronic chattel paper may be perfected by control. Note, this is the only way to perfect control in nonconsumer deposit accounts.
Perfecting Control over Investment Property
A secured party has control over 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.
Perfecting Control over Electronic Chattel Paper
A party has control over electronic chattel paper when a system showing the transfer of interest in chattel paper reliably establishes the secured party as the assignees.
An example of a system that meets this standard is one in which the secured party has the authoritative copy of the records constituting the electronic chattel paper, that copy identifies the secured party as the assignee of records, and any other copy or amendments to the records are marked as such.
Perfecting Control over Nonconsumer Deposit Accounts
The bank in which a nonconsumer deposit account is maintained automatically has control over the deposit account.
If the secured party is not the bank with control over the account, it can obtain control by either (1) putting the deposit account in the secured parties name or (2) creating a control agreement (states that the bank in which the deposit account is maintained will follow the secured party’s order without further consent by the debtor).
Perfection by Notation of Lien on Title
The only way to perfect a security interest in an item covered by a certificate of title statute (e.g. cars, trucks, boats) is for the secured party to get the relevant governmental authority to note the secured party’s lien on the certificate of title.
The only exception is if the debtor is holding the car or truck as inventory, such as when they are a dealer.
Perfection by Filing a Financing Statement
The financing statement must include:
The debtor’s individual, corporate, or partnership name. If an individual, most jurisdictions require the name on the person’s unexpired drivers license. Any error in debtor name must not be seriously misleading.
Description that Reasonably Identifies the Collateral (unlike in the security agreement, this can include a broad statement like “all personal property.”
Secured Party’s Name (an error in name will not be seriously misleading but may lead to estoppel issues)
If the property is real property, the financing statement must indicate that it is to be filed with the real property records. It must also state the record owner if the property belongs to someone other than the debtor.
No signature is required on the financing statement but it must be authorized by the debtor (often this is done in the security agreement).
Additionally, the authenticated security agreement itself may be filed if it contains all the elements referenced above.
Where to File a Financing Statement
Usually it with the Secretary of State
If its real estate, it must be filed or recorded where the real estate records are filed in the county where the property is located. The same applies when the collateral is minerals, gas, etc. to be extracted from the land.
Where to file a Financing Statement when there are multiple states involved
File in the state where the debtor is located. If an individual, it’s her principal residence. If a corporation, its where the organization is organized. If unorganized business, file where they are conducting business. If they have multiple offices, file where their chief executive office is located.
What if the collateral moves
The secured party will become unperfected 1 year after the collateral moves unless it files a financing statement in the new jurisdiction before the 1 year period is up.
What if the debtor moves
The secured party will become unperfected 4 months after the debtor’s move unless it files a financing statement in the new jurisdiction before the 4 month period is up.
