Secured Transactions Flashcards
Debtor:
A person who owes payment or performance of the obligation secured
Secured party
A lender, seller, or other person in whose favor there is a security interest.
Security agreement:
Agreement b/t debtor and secured party that creates the security interest.
Security interest:
An interest in collateral which secures payment or performance of an obligation.
Collateral:
The property subject to a security interest
Two kinds of purchase money security interests (PMSI)
- Secured party sells debtor collateral on credit and retains a security interest.
- An enabling loan; a loan to a debtor that enables the debtor to buy collateral.
(Loan proceeds MUST ACTUALLY BE USED to acquire the collateral.)
After acquired property clause:
Where a secured party obtains security interest not only in debtor’s present property, buy also in property the debtor obtains in the future.
Future advance clause:
Secured party often contemplates making future loans to the debtor and wants to secure the future advances in the present security agreement. In these cases a new security agreement is not needed when a future advance is made.
Attachment:
Gives the secured party a security interest in the collateral that is effective as against the DEBTOR.
Financing statement:
Document generally used to provide PUBLIC NOTICE of the security interest, and so to perfect the interest.
Types of collateral: Goods:
All things which are movable at the time the security interest attaches.
Includes the unborn young of animals, growing crops, and fixtures.
Classification of goods: (Four types)
- Consumer goods
- Equipment
- Farm products
- Inventory
Consumer goods:
Used or bought for use primarily for personal, family, or household purposes.
Equipment:
Used or bought for the use primarily in business.
Farm Products: (2 categories)
- 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 possession of the debtor engaged in farming operations.
Inventory are goods held by: (3 types/ways)
a person who holds them for sale or lease,
or to be furnished under service contracts
OR materials used or consumed in business. (Like paper, paper clips, pens, etc.)
Eight types of semi-intangible and intangible property that can be used as collateral:
Acidic Dg
Accounts Commercial tort claims Instruments Documents Investment property Chattel paper
Deposit accounts
General intangibles
Instruments:
Negotiable instruments and any other writing which evidences a right to the payment of a monetary obligation, and which are in the ordinary course of business transferred by delivery with any necessary indorsement or assignment. (Not to include investment property)
Documents:
(e.g. bill of lading, warehouse receipt.)
A document that in the regular course of business is treated as evidencing that the person in possession of it is entitled to receive, hold, and dispose of the document and the goods it covers.
Chattel Paper a record which evidences:
both a monetary obligation and a security interest in or a lease of specific goods. (Such as a promissory note and written security agreement)
Investment property:
Items such as stocks, bonds, mutual funds, and brokerage accounts containing such items.
Accounts:
rights to payment for goods, services, etc.
e.g. accounts receivable
Ten Types of accounts: Right to payment for:
GC Shrivels
Goods
Credit card use
Services Health care receivables Real property Insurance policy issued Vessel, use or hire of Energy provided or to be provided Lottery winnings Secondary obligation incurred or to be incurred.
Deposit accounts:
A savings, passbook, or similar account maintained with a bank.
Art. 9 GENERALLY applies to deposit accounts as general collateral and deposit accounts claimed as proceeds of other collateral. ?????
Important exception to using deposit accounts as collateral:
Must be a business transaction.
Art. 9 does NOT apply to an assignment of a deposit account in a consumer transaction.
Commercial tort claims:
Tort claims filed by orgs and individuals that arose out of the orgs or person’s business.
What kind of commercial tort claims cannot be used as collateral?
Damages for personal injury or the death of an individual.
General intangibles:
Catch all.
Any personal property not coming w/i the scope of the other definitions. (e.g. software, patent, and TM rights, copyrights, goodwill).
A general intangible under which the account debtor’s principal obligation is a monetary obligation is:
a PAYMENT INTANGIBLE
How would you classify collateral: A promissory note:
Instrument
How would you classify collateral: Stock in GM
Investment property
How would you classify collateral: A receipt given to a farmer by a silo operator when the farmer stored her grain there
Document
How would you classify collateral: A written K in which a car buyer purchases on credit promises to pay the car dealership for the car and grants the dealership a security interest in the car
Chattel paper
How would you classify collateral: Big T sells tires on credit, what are its customers obligations?
Accounts
How would you classify collateral: A hospital has patients who come in for treatment sign paperwork authorizing the hospital to seek payment from their health insurance coverage provider:
Accounts (Health care receivable.)
How would you classify collateral: The checking account you have at your bank
Deposit account - but not for consumer transactions.
How would you classify collateral: Patent and TM rights, copyrights, goodwill, a tax refund claim, a liquor license, a commercial clamming license, a right to return of a security deposit held by a landlord
General intangibles.
How would you classify collateral: A right to sue a corp for wooing away trusted employees
Commercial tort claim
How would you classify collateral: A claim arising in tort that has BEEN SETTLED and reduced to a CONTRACTUAL OBLIGATION TO PAY
General intangible.
But why?
How would you classify collateral: A computer program when imbedded in goods:
A part of the goods
Article 9 applies to what kinds of transactions? 4.5
At ASCS
- Any transaction, regardless of its form, that creates a security interest in personal property or fixtures by K (no magic words are needed)
- Agricultural liens
- Sale of accounts, chattel paper, payment intangibles, or promissory notes.
- Most consignments
- Secured sales disguised as a leases
Art. 9 applies to commercial consignments of goods worth a total of $1,000 or more to persons who:
(4 factors) Cg D A Ngk
- Didn’t use the goods as consumer goods.
- Deals in goods of the kind under a name other than under the consignor’s name
- is not an auctioneer, and
- is not generally known by her creditors to be substantially engaged in selling the goods of others.
Under Art 9 a consignor’s interest in the consigned goods is considered to be:
a PMSI in inventory.
Three requirements for attachment: AVR
- An AGREEMENT to create a security interest.
- VALUE given by the secured party; AND
- DEBTOR HAS RIGHTS IN THE COLLATERAL
Perfection:
Maximizes the secured party’s rights in the collateral as AGAINST THIRD PARTIES.
Two requirements for perfection:
(The second element has 5 options)
F PCAT
- Attachment
- One of the following:
- -FILING (in the proper place) a FINANCING STATEMENT describing the collateral
- -POSSESSION
- -CONTROL
- -AUTOMATIC perfection (e.g. of a PMSI of consumer goods)
- -TEMPORARY perfection (e.g. of a security interest in the proceeds received from the sale of collateral.)
Form of a security agreement: (3 requirements) It must:
IAD
- Written record must show the intent to create a security interest.
- Authenticated by the debtor (signed or marked electronically w/ the present intent to identify the authenticating person)
- Describe the collateral
Description of the collateral: Sec. Agreement must:
‘reasonably identify’ collateral
Collateral may generally be described by type (e.g. all of debtor’s inventory) EXCEPT: 3
Commercial tort claims, consumer goods, and consumer securities accounts must be described more specifically.
Determining whether a debtor has rights in the collateral:
An ownership interest or the right to obtain possession qualifies. The debtor ALSO has rights in collateral where the property belongs to someone else who has authorized the debtor to put it up as collateral.
Exception to after acquired property clause in regards to consumer goods. SI does not attach to consumer goods unless debtor acquires rights to them within:
10 days AFTER the secured party gives value.
Any consumer good acquired later than that, is not attached.
Proceeds include:
whatever is received upon the sale, exchange, collection, or other disposition of collateral.
UNLESS OTHERWISE AGREED, A SECURITY AGREEMENT GIVES SECURED PARTY A RIGHT TO PROCEEDS
Effective methods of perfection: Filing is effective for all classes of collateral except: 2
deposit accounts and money.
Effective methods of perfection: Possession
IF YOU CAN HOLD IT IN YOUR HANDS, THEN YOU CAN PERFECT BY POSSESSION.
Effective for ALL CLASSES of collateral EXCEPT:
gen. intangibles, accounts, non-consumer deposit accounts, non-neogtiable documents, and electronic chattel paper.
5 methods of perfecting: APT CF
- Automatic
- Possession
- Control
- Filing
- Temporary
Automatic perfection happens in seven situations:
Only important one is the first one.
P AS A SiSoT
- PMSI in consumer goods.***
- Assignment of certain accts or payment intangibles.
- Sale of a payment intangible or promissory note.
- SI created by assignment of health care insurance
- Certain security interests in investment property.
- Supporting obligations
- Temporary automatic perfection.
