Flashcards in Code III - Ch. 9 Security Interests Deck (138):
What is the scope of Chapter 9?
In general, applies to all kinds of contractual security interests in personal property, standing timber that constitutes goods, and fixtures.
What is a security interest?
A security interest is an interest in personal property or fixtures that secures payment or performance of an obligation.
Are outright sales of receivables considered a security interest?
Yes, outright sales of accounts, chattel paper, payment intangibles, and promissory notes are also treated as security interests and are covered by Chapter 9.
Are consignments considered a security interest?
In a typical consignment, the consignor retains title to goods and delivers them to the consignee. In cases where a creditor of the consigness would have difficulty distinguishing inventory that a consigness is selling on consignment from the inventory that the consignee actually owns, Chaper 9 consideres the assignment to be a security interest.
When must a consignor comply with Chapter 9 to protect its interest in consigned goods?
1. Consigned goods are worth a total of $1000 or more; 2. Consignor did not use the goods for personal, family or household purposes; and 3. The consignee is a person who deals in goods of that kind under a name other than the consignor's; is not an auctioneer; is not generally known by her creditors to be substantially engaged in selling the goods of others.
Are agricultural liens covered by Chapter 9?
Yes, Chapter 9 governs their perfection and priority, although they are created by state statute.
Can other agreements intened to have security effect be covered by Chapter 9?
Yes. 1. Lease-purchase agreements (rental obligation is not terminable by the lessee). 2. Retention of title.
What transactions does Chapter 9 not cover?
1. Transactions governed by state/federal law; 2. Most transactions involving interests or liens on land; 3. Statute statutory liens (other than agricultural liens) given for services or materials, such as mechanics' liens, except with respect to priorities in the personal property covered by the liens; 4. Assignments of claims for wages, salary, or other compensation of an employee to the extent such assignment is governed by special statute; 5. Payments due under certain mineral rights.
What are the two types of security interests?
1. Typical security interest (the creditor gives the debtor something of value in exchange for the debtor's giving the creditor an interest in the debtor's collateral) 2. Purchase Money Security Interest--creditor sells goods on credit; creditor advances funds that are used by debtor to purchase the goods.
What are two keey elements for a PMSI?
1. Credit was advanced or a loan was made for the purpose of enabling the debtor to acquire the collateral; and 2. The credit or loan proceeds were actually used to acquire the collateral.
How does a creditor acquire a PMSI in software?
If a creditor acquires a security interest that qualifies as a PMSI in a computer, the PMSI extends to any software that is also covered by the creditor's security interest if the software was purchased in a related transaction for use on the purchased computer.
What is the dual status rule?
A security interest does not lose its status as a PMSI if 1. Purchase money collateral also secures an obligation that is not a purchase money obligation; 2. Lloan is secured both by collateral to be purchased by debtor using loan proceeds + other collateral already owned; 3. Purchase money obligation has been renewed, refinanced, consolidated, or restructured.
What are the three types of collateral?
1. Proceeds; 2. Tangible collateral or goods; and 3. Intantigble/semi-intangible collateral.
What are tangible collateral or goods?
Includes 1. All things movable at the time the security interest attahced; and 2. Fixtures (if movable when fixture filing was made)
What are the four types of tangible collateral?
1. Consumer goods; 2. Farm products (if in possession/used by the farmer); 3. Inventory; 4. Equipment.
How does one determine the type of tangible collateral?
Depends on the primary use to which the debtor puts the collateral at the time the security interest attaches.
What are the eight types of semi-intangible collateral?
1. Instruments--pieces of papers that represent the right to be paid money; 2. Documents--pieces of papers that represent the right to receive goods; 3. Chattel paper--record showing a monetary obligation and a security interest in or a lease of specific goods, excluding the charter of vessels. 4. An account is any right to payment for goods/services/real property/use of a credit car that is not evidenced by an instrument or chattel paper. Does not include deposit accounts. 5. Deposit accounts, covers both nonconsumer and consumer deposit accounts; 6. Investment property such as stocks/bonds/mutual funds; 7. Tort claims (both consumer and commercial); 8. General intangibles--software, copyrights, goodwill.
What are proceeds?
Whatever is received upon the sale, lease, exchange, licesne, collection or other disposition of collateral or proceeds. 1. Money, checks, deposit accounts are cash proceeds. 2. All others are noncash proceeds.
Can proceeds go through transformations and retain their character as proceeds?
Yes. Can change form and still be proceeds for purpose of the original collateral.
Are insurance payments and claims for damages proceeds?
If the collaterla is insured and money is received from the insurance company on account of loss or damage to the collateral, the money is a proceed of the collateral up to the value of the collateral. Also, any claims arising out of defects in the collateral are proceeds of the collateral up to the value of the collateral.
What are the three requisite elements for attachment?
1. Parties must have an agreement that the security interests attach; 2. Value must be given by the secured party; and 3. Debtor must have rights in the collateral.
What are the requirements for the parties' agreement?
The parties must agree to create the security interest (they must enter into a security agreement)
How can a security agreement be evidenced?
1. Authenticated security agreement--record authenticated by the debtor that describes the collateral and, if the collateral is timber to be cut, describes the land concerned. Authenticated if singed.marked electronically with the present intent to adopt/identify person. 2. Posession--security agreement may be evidenced by the creditor's possession of the collateral. 3. Control--if the collateral is a deposit account, electronic chattel paper, a life insurance policy, or investment prop.
What is sufficient to describe the collateral?
Sufficient if it reasonably identifies the collateral. May be specific/or more generic. However, a supergeneric interest in "all the debtor's personal property" is not sufficient.
What types of collateral cannot be described by type alone?
1. Tort claims; 2. Consumer goods; 3. Consumer securities accounts. Must be described more specifically.
What are rights and duties when a secured party has possession of the collateral for purposes of attachment or perfection?
1. Duty of reasonable care; 2. Right to reimbursement for expenses, including insurance; 3. Risk of loss in one debtor; 4. Accounting for profits--money received from the collateral must be given to debtor or applied against the secured obligation. 5. Right to repledge, but only on terms that do not imapir the debtor's right to redeem the collateral.
When can the security agreement be evidence by control?
If the collateral is a deposit account, electronic chattel paper, a life insurance policy, or investment property, the security agreement may be evidenced by control.
How does a secured party obtain control over a deposit account?
1. Bank in which a deposit account is maintained automatically has control over the deposit account. If the secured party is not the bank, it may obaint control by 1. Putting the deposit account in the secured party's name or 2. Agreeing in auth. Record with bank/debtor that the bank will comply with the secured party's orders regarding the desposit account.
How does a secured party obtain control over electronic chattel paper?
1. Secured party must have the authoritative copy of the record/records constituting the electronic chattel paper that identifies the secured party as the assignee of record on the chattel paper.
How does a secured party have control over an item of investment property?
When secured party has taken whatever steps necessary to be able to have the investment property sold without further action from the owner. 1. Stocks and bonds--a secured party has control if they are in possession of the stock or bond. 2. Securities account--if the owner the account contacts the securities intermediary hand notified that the intermediary is to comply with secured party's orders without further consent of owner.
What are the rights and duties of secured party in control?
A secured party in control must account for profits of the collateral. She may also repledge the collateral, provided that the repledge does not impair the debtor's right of redemption.
What are the duties of the secured party in control when there is no outstanding obligation?
The secured party must do the following within 10 days after demand by the debtor: 1. Secured party sends bank/intermediary an authenticated record releasing them form obligation to comply with secured party's orders; 2. If the secured party obtained control of a deposit account by putting the acocunt in its name, the secured party must pay the debtor the balance/transfer account to debtor's name; 3. If it is electronic chattel paper, the secured party must return authoritiative copy or instruct custodian that he no longer has to follow the securety party's orders.
What constitutes value for the purposes of the security agreement?
Value must be given by the secured party before a security agreement will be effective to create a security interest. A preexisting debt qualifies as value given if the security interest is intended as security for the preexisiting debt.
What qualifies as rights in the collateral?
Debtor must have rights in the collateral to create a security interest. An ownership interest in/right to obtain possession of the collateral qualifies.
May the three requirements--value, value; security agreement; and right of the collateral occur in any order?
Yes, but they must coexist before the security interest attaches.
Can a security interest attach to after-acquired property?
Yes, a valid security agreement may create a security interest in property to be acquired in the future that will attach to the property as soon as the debtor acquires an interest in the property.
Does the security interest attach to identifiable proceeds of collateral?
Yes. Whether or not the security agreement specifically provides for proceeds. Similarly, a security interest in inventory is replaced in the new items as the old items are sold.
What types of goods is an after-acquired property clause ineffective?
Ineffective as to consumer goods other than accession, when, given as additional security, unless the debtor acquires rights in the goods within 10 days after the creditor gives value. Also, an after-acquired property clause is ineffective as to tort claims and judgments.
Can a secured party secure future loans in the present security agreement?
Yes, this is a line of credit arrangement. If the security agreement contains a future advance clause, a new security agreement is not needed when a future loan is made.
What are the five methods of perfection of a security interest?
1. Filing; 2. Taking possession of the collateral; 3. Control; 4. Automatic perfection and 5. Temporary perfection. Pefection can only be completed once the security interest has attached. However, a party can complete perfection steps ahead of time so the security interest will become perfected at the time that it attaches.
How is a security interest perfected by filing?
A security interest may be perfected by filing in all collateral except deposit accounts and money (unless they are proceeds of other collateral). 1. Chapter 9 simply requires notice filing; it does not require that a copy or abstract of the security agreement be filed.
How is "notice filing" accomplished?
Notice is given by filing a financial statement; which contains 1. Name and mailing address of the debtor; 2. Name and mailing address of the secured party; 3. An indication of the collateral covered by the financing statement; 4. If it covers real property collateral, a description of the real property to whcih the collateral is related.
How are financing statements indexed?
1. Indexed under the debtor's name--statement must not contain any seriously misleading errors. Under safe harbor provision, incorrect name is not seriously misleading if the financing statements would be discovered in a filing office search under the debtor's correct name. Errors in the secured party's name will not make the statement seriously misleading.
How long is a financing statement effective after a debtor changes its name?
1. If a debtor changes its name after a financing statement has been filed and the new name is seriously misleading, the financing statement is effective only against collateral acquired by the debtor before the name change and within four months after the change. 2. Secured party need not refile, but he must file an amendment to the original financing statement using the debtor's new name to perfect as ecurity interest in collateral acquired after the four month period.
Is a financing statement without mailing addresses effective?
Yes, as long as it is accepted by the filing office, it is effective despite the lack of address.
How may collateral be indicated on a financing statement?
Sufficiently indicate if specific or more general description; unlike the security agreement, the financing agreement may indicate that it covers all assets or all personal property as collateral. Note: a titled motor vehicle not held as inventory for sale or lease is sufficiently descrived with year/make/VIN.
Ho may real property related collateral be indicated on a financing statement?
If the financing statement covers collateral related to real property (fixtures) the property to which the collateral is related must also be described, although generally a full legal description is not required. Must be sufficient to cause the mortgage to be effective against third persons.
Must a debtor authorize the filing of a financing statement?
For a financing statement to be effective, the debtor must authorize it in an authenticated record. May be authorized after it is filed. Debtor automatically authroizes the financing statement if she authenticates the financing statement or authenticates a security agreement covering the same collateral as the fiancning statement. Ag. lien financing statement is effective even if not authorized by the debtor.
Does the financing statement need to mention the after-acquired property in order to perfect a security interest?
No, as long as the desciption in the financing statement is broad enough to cover the after-acquired property.
May the authenticated security interest be filed instead of the financing statement?
Yes, may be filed as the financing statement, as long as it complies with the requirements of the financing statement. A recorded real property mortgage listing all the fixtures is effective as a financing statement for purhasing a security interest in the fixtures. Note: unclear whether an authenticated financing statement can be used in lieu of an authenticated security agreement. Maybe.
Where does a financing statement need to be filed?
If Louisiana law governs the perfection of the security interest, the financing statement may be filed with the clerk of court of any parish. 1. Unless the collateral is a titled motor vehicle not held as inventory for sale or lease, needs to be with office of motor vehicles. 2. Title boats valued in excess of 2500 not held for inventory or lease and transferred after July 1, 2008 need to be filed with dept of wildlife and fisheries.
How long is a financing statement effective?
1. Effective for five years; a public finance transaction is effective for a period of 30 years.
When may a continuation statement be filed?
1. Continuation statements may be filed during the last six months of the effective period of a prior filing in the same office, and will continue the effectiveness of the filing for five more years. Only the secured party needs to authorize it.
Is a secured party obligated to terminate a financing statement?
No. 1. Exception--if there is no outstanding obligation of the debtor/debtor did not authoize the filing of the initial financing statement, the secured party on demand of the debtor within 20 days, must file a termination statement or provide one to the debtor. 2. In the case of consumer goods, the secured party must file the termination statement in the filing office where the financing statement was originally filed within one month after there is no obligation or commitment.
What happens if no termination statement is filed and the original obligation is satisfied?
The filing remains effective for the whole five years. Look for situations where original debt is reapid and the same debtor/creditor embark on another debt; credito will not need to make a new filing to perfect.
What security interests in collateral cannot be perfected by pledge?
A security interest in accounts; certificate of title goods; deposit account; nonnegotiable documents; electronic chattel paper, or general intantibles cannot be perfected by possession.
What does the time when perfection by possession occurs depend on?
Depends on whether the secured party has actual possession of the collateral, or whether the collateral is in the hands of a bailee. 1. Actual possession--security interest is perfected from the moment of possession. 2. In bailee's possession--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.
When can a security interest be perfected by control?
Security interests in investment property, nonconsumer deposit accounts, and electronic chattel paper may be perfected by control.
When is does the security interest automatically perfect?
1. A PMSI in consumer goods is perfected as soon as it attaches. Only automatically attaches if it is consumer goods. A PMSI in equipment of inventory must be filed in order to be valid. 2. Small scale assignments of accounts or payment intangibles; 3. Sales of payment intangibles or promissory notes; Investment property (three times)
When does a security interest in investment property automatically perfect?
1. Debtor is a securities intermediary (borrows money from a bank and grants the bank a security interest in securities identified on a list provided to the bank on a daily basis); 2. Debtor purchased the asset through a securities intermediary and has not paid the price, intermediary has automatically perfected security interest; 3. One who deals in securities purchases a certificated security from another such dealer under an agreement calling fro delivery against payment the person delivering the asset has an automatically perfected security interest in the security to secure payment on the price.
When does a security interest enjoy temporary perfection in proceeds?
A security interest in proceeds from original collateral is continuously perfected for 20 days from the debtor's receipt of the proceeds. Unperfected on 21st day unless statutory requirements are complied with.
When does a security interest in instruments, negotiable documents, and certificated securities enjoy temproary perfection?
1. If there is new value given under an authetnicated security agreement, the secured party obtains a 20-day perfection period from the time of attachement. 2. If the collateral is in possession of the bailee, and the creditor makes the instrument available on a temporary basis (for sale, exchange or presentation), perfection continues for 20 days, after which time the creditor must reperfect by filing or takining possession.
When does a security interest in interstate shipments enjoy temporary perfection?
When collateral or the debtor moves from one state to another, and the location of the collateral or debtor determines which state's law governs perfection, a security interest in the collateral that was perfected in the original state will be temporarily perfected in the new state.
When does the temporary perfection period in proceeds continue beyond twenty days?
1. Same office rule-- The security interest in the original collateral was perfected by filing a financing statement; 2. A security interest in the type of collateral constituting the proceeds would be filed in the same place as the financing statement for the original collateral; AND 3. The proceeds were not purchased with cash proceeds fo the collateral; OR The proceeds are identifiable cash proceeds; OR the security interest in the proceeds is perfected within the 20 day period.
What is the priority between unperfected secured parties?
If several security interests in the same collateral are unperfected, the first to attach has priority. '
What is the priority between perfected and unperfected secured parties?
A perfected security interest prevails over an unperfected security interest in the same collateral, even if the perfected party takes with knowledge of the unperfected security interest.
What is priority between perfected secured parties?
General rule is the first to either file or perfect. Thus, if both parties perfected by filing, the first to file will have priority.
What is the special priority rule for investment property?
Generally, the first to file or perfect rule governs priority questions regarding investment property. However, a security interest perfected by control has priority over a security interest perfected by any other method.
What is the priority for PMSI?
PMSIs enjoy a superpriority--they are superior to prior perfeced security interests in the same goods if certain conditions are met.
What is the priority of a PMSI in inventory?
A PMSI in inventory has priority over a conflicting security interest in the inventory itself, proceeds that are chattel paper, proceeds that are instruments; and any identifiable cash proceeds that are received on or before delivery to a buyer if: 1. PMSI in inventory is perfected at the time the debtor gets possession; 2. Any secured party who has filed her security interest in the same inventory receives an authenticated naotification of the PMSI before the debtor receives possession of the inventory--effective for five years.
What is the priority when a consignor has a PMSI in the inventory?
A consignor's interest in the consigned goods is considered to be a PMSI in inventory--consingor can acquire PMSI superpriority in consigned goods if she complies with PMSI inventory guidelines.
What is the priority of a PMSI in goods other than inventory and livestock?
A PMSI in goods other than inventory or livestock has priority over conflicting security interests in the same goods and their indentifiable proceeds only if the interest is perfected before or within 20 days after the debtor receives possession of the goods. No requirement that the secured party notify other holders of security interests.
What is the priority of a PMSI in software?
PMSI in software and identifiable proceeds has same priority in the security interest in the computer in which the software is used.
What happens if more than one party has PMSI superpriority in the collateral?
1. 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. 2. Otherwise, the first secured party to file or perfect prevails.
When do purchasers of chattel paper have priority over other security interests?
1. 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 (or takes control of the electronic chattel paper), the purchaser will have priority over: 1. A security interest in chattel paper that arises merely as proceeds of inventory; 2. Any other security interest in the chattel paper, so long as the chattel paper purchaser acquired its interest without knowledge that its purchase violated the rights of the secured party.
When does a chattel paper purpchaser also have priority in the proceeds of chattel?
A chattel paper purchaser also has priority in the proceeds of the chattel paper if either (1) she would have had priority under the general priority rules; 2. The proceeds are the specific goods covered by the chattel paper or cash proceeds of the specific goods.
When does a purchaser of an instrument have priority over a perfected security interest in the instrument?
A purchaser 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 purchaser violates the rights of the secured party. (unlike chattel paper, no need for new value/in the ordinary course of business)
How does Chaper 9 determine the priority of security interest in proceeds?
Collateral is divided into filing collateral/nonfiling collateral. 1. Filing collateral--collateral in which a secured party would normally achieve priority by filing a financing statement. 2. Nonfiling collateral--collateral in which a secured party would normally achieve priority by possession or control, rather than filing.
What is the general rule for priority of security interest in proceeds?
1. Generally, 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 extends beyond the 20-day period of temporary perfection.
What is the special rule for certain proceeds of nonfiling collateral?
A secured party has priority in the proceeds of non-filing collateral if 1. She has priority in the original collateral; 2. Her security interest in the proceeds is perfected; 3. Proceeds are cash proceeds/proceeds of the same type as the original collateral.
What is the special rule for perfection of filing collateral as proceeds of non-filing collateral?
If a security interest in original collateral that is non-filing collateral is perfected by a method other than filing, and the proceeds of the original collateral are filing collateral, the first secured party to file a financing statement has priority in the proceeds.
What is the general rule for security interests in fixtures?
Generally, in a contest between a holder of a security interest in a fixture and a holder of an inerest in the immovable to which the fixture is attached, the first party to file a fixture filing or record its real property interest prevails.
What are the requirements for a fixture filing?
A party with a security interest in a fixture must perfect by making a fixture filing before the collateral becomes a fixture. In addition to usual filing requirements for a financing statement, it must contain a description of the real property to which the fixture is attached. All financing statements, even though containing real property collateral, are filed in the UCC records.
What is the exception to the general rule for security interests in fixtures?
1. PMSI--if the secured party makes a fixture filing before the goods become fixtures will prevail over a real property interest in the same fixtures that was record prior to affixiation. (Does not apply to a consturction mortgage if records before the goods became fixtures/goods became fixtures before the completion of construction)
When is a fixture filing not requied?
If the collateral is readily removable, is it not a component party under Louisiana law and therefore not a true fixture. It can be eprfected in any manner before affixiation, and will prevail over a real property interest if: 1. The collateral is a readily removable office or factory machine; 2. Collateral is a readily removable equipment that is not primarily used or leased for use in the operation of real property.
Does a security interest in fixtures prevail over later-acquired liens?
Yes, a security interest perfected in any manner authorized by Chapter 9 will prevail over a later-acquired lien on the real property.
When else will a security interest in fixtures prevail over a real property interest?
If the real property encumbrancer/owner consents in an authenticated record to the security interest or disclaims its interest.
What priority rules apply to accessions?
Generally, the rules for priority apply to accessions. However, if the accession becomes part of a whole that is subject to a security interest perfected by notation on a certificate of title, the security interest in the whole has priority over the security interest in the accession. (e.g., a motion in a car)
What is the effect of priority on the fixture or acession interest?
When the security interest holder in the fixture/accession has priority over all interests inr eal property, the hodler may, upon default, require the debtor to remove the fixture or accession from the real property or goods.
When does a perfected security interest in crops have priorty?
Has a priority over a conflicting interest in the real property, regardless of the tme fo filing or perfection.
What is the interest of priority between an unperfected secured party versus a buyer?
1. A buyer of collateral (or a lessee of goods) takes free of a security interest covering the collateral if she both gives value and receives delivery of the collateral before the security interest in perfected. 2. If the collateral in intangible, there is no delivery requirement.
What are the exceptions to the buyer taking free of an unperfected security interest?
1. Buyers of receivables--are treated as creations of security interests in the receivables being sold, and therefore, the purchaser is not considered a buyer. 2. If a secured party attaches a PMSI in the debtor's colalteral BEFORE the buyer or lessee without knowledge pays value and receives delivery, the secured party will have priority over the buyer or lessee if she files within 20 days after the debtor receives the collateral.
What is the interest of priority between a perfected secured party and a buyer?
1. Generally, a perfected security interest in goods is good against subsequent buyers. 1. If the secured party consents to a sale/lease of the transfer free of the security interest, the interest will take free. 2. Buyer in the ordinary course of business from a seller engaged in selling goods of that kidn will take free of a nonpossessory perfected security interest even if the buyer knows of it. Also applies to lessee of goods and nonexclusive licensees of general intangibles in OCB.
What three elements must exist for a buyer in the OCB to take free of the security interest?
1. Seller must be in the business of selling goods of the kind; 2. Security interest must have been created by the buyer's seller; if the security interest was created by someone else, the BIOC rule does not apply. 3. Knowledge does not matter unless the buyer knows that the sale violates the security agreement.
What happens if a consumer good to which a PMSI has attached is sold to another consumer?
The buyer of the consumer goods takes free of the security interest if he buys for value and before a financing statement covering the goods has been filed.
What happens if a creditor makes a future advance?
Generally, the time of perfection of the future advance relates back to the time of perfection of the original advance. However, a buyer not in the ordinary course of business can gain priority over a secured party who make a future advance on the collateral. Such a buyer has priority over a future advance made 1. after the secured party learned of the purchase; 2. More than 45 days after the purchase.
What is the exception to the future advance rule?
Even if a secured party makes an advance after it learned of the purchase or more than 45 days after the purchase, if the future advance was made pursuant to a commitment without knowledge of the purchase and before expiration of the 45-day period, the future advance has priority.
What is the order of priority for a secured party versus a holder in due course?
A holder in due course of a negotiable instrument takes priority over any security interest in the negotiable instrument.
What is the order of priority for a secured party versus a transferee of money or deposit account funds?
If a debtor transfers money or deposit account funds to a person, that person takes free of any security interest in the money or funds, unless the transferee acts in collusion with the debtor in violating the rights of the secured party.
What is the order of priority for an unsecured party versus a lien creditor?
A lien creditor prevails over the holder of a security interest in collateral if the lien creditor becomes such before the security interest is perfected. 1. A lien creditor includes a trustee in bankruptcy. 2. A secured party who attaches a PMSI in the debtor's collateral before a lien creditor acquires an interest in the collateral will have priority over the lien creditor if it files within 20 days after the debtor recevies the collateral.
What is the order of priority for a perfected secured party versus a lien creditor?
A prior perfected security interest in the collateral has priority over a judicial lien creditor's interest in the same collateral.
When will a prior filed security interest have priority over a lien creditor?
If a seucred party files a security interest but does not attach before a lien creditor's interest arises, the secured party has priority over the lien creditor so long as the secured party: 1. Evidences its security agreement with an authenticated security agreement, possession, or control; and 2. eventually attaches and perfects its security interest.
When does a lien creditor's interest have priority?
A lien creditor's interest can gain priority over certain future advances that would otherwise have priority under the general rule. The lien creditor will have priority if the future advance was made more than 45 days after the lien arose, unless the future advance was made 1. without knowledge of the lien; or 2. pursuant to a commitment made without knowledge of the lien.
What priority do possessory liens arising by operation of law have over secured interests?
Chapter 9 provides that possessory liens arising out of operation of law have priority over any security interests in the collateral as long as the goods or services were provided in the ordinary course of business and the collateral reamins in the lienholder's possession, unless the lien is created by a statute that provides otherwise.
What is the order of priorities in a nutshell?
1. Buyers in the ordinary course of business; 2. Holders in due course; 3. Transferees of funds from deposit accounts; 4. Certain purchasers of chattel paper or instruments who have possession or control; 5. Possessory lienholders; 6. PMSIs; 7. Perfeted security interests and liens that have attached to the collateral; 8. Purchashers of collateral who buy for value and receive delivery; 9. Unperfected security interests; 10. The debtor.
What determines when default has occurred?
Secuirty agreement will usually provide that upon certain events the secured party may exercise default remedies.
What is the secured party's right to take possession after default?
After default a secured party can only take possession of the collateral: 1. After the debtor has abandoned it or if the debtor has surrendered the collateral to the secured party; 2. With he debtor's consent; 3. Pursuant to judicial process; 4. Other cases expressly provided for in Louisiana law.
What are the collection rights of the secured party after default?
With non goods collateral, such as accounts and instruments, the secured party can notify the person owing money to the debtor to make payment fo the secured party, rather than the debtor. Account debtor may request proof.
Can a secured party take possession by judicial process?
Yes, the secured party may always take possession by sequestration of the collateral pursuant to judicial process.
How may a secured party dispose of collateral after default?
Disposition may be by means of nonjudicial sale; and by one or more contracts.
What is the general test for the validity of the sale of collateral?
The general test is commercial reasonableness of the method, manner, time, place and terms. A sale is made in a commercially reasonable manner if it conforms with reasonable commercial standard among dealers of the kind of goods sold/done in the usual manner in a recognized market. Mere fact that a better price might have been obtained does NOT make it unreasonable.
What constitutes notice in the event of default and sale?
Reasonable notice that is authenticated by the secured party must be given to the debtor and any sureties on the debt. After default, the debtor may in an authenticated agreement waive the right to notice of the sale. 1. Same notice must be given to any other secured parties (except for consumer goods).
When is notice timely for the purposes of the nonjudicial sale of collateral?
Notice must be sent within a reasonable time before the sale. 1. Nonconsumer transaction--notice is deemed to be sent within a reasonable time if it is sent 10 days or more before the time of sale. 2. In a consumer transaction, notice is reasonable if it is sent 21 days or more before the time of sale.
What must the notice state for a nonjudicial sale for collateral other than consumer goods?
1. A description of the debtor and the secured party; 2. A description of the collateral; 3. The method of sale; 4. A statement that debtor is entitled to an accounting/charge of performing the accouning; 5. The time and place of public sale/time after whcih a private sale will be made. If the notice contains all five, it is per se sufficient. If it lacks any element, its sufficieny will be a question of fact.
What must the notice state for a nonjudicial sale of consumer goods?
In a sale of consumer goods, the notice must contain all of the information for nonconsumer goods PLUS 1. Description of the recipient's liability for a deficiency; 2. A telephone number so recipient can discover the cost of redeeming the collateral; and 3. Telephone/mailing address to get additional info about the sale.
When must the secured party send an explanation of deficiency or surplus?
If the debtor is a consumer, after the sale the secured party must send the debtor an explnation of the calculation of any debt still owed.
Can the secured party purchase the collateral at a public sale/private sale?
1. Yes, SP can purchase at public sale. 2. SP may purchase at a private sale if the collateral is of a type customarily sold in a recognized market/or if SP is required by statute to purchase the collateral.
What is the effect of the sale on the secured transaction?
1. Absent bad faith, purchaser of the collteral takes all of the debtor's rights in the collateral. 2. Sale also discharges the security interest under which the sale is being made and all subordinate security interests and liens. 3. Purchaser is still subject to superior security interests.
What is the order of proceeds from the sale of collateral?
1. Expenses of repossession/sale; 2. Satisfaction of the debt; 3. Satisfaction of subordinate third-party security interest debts and interests of consignors; 4. Any surplus to the debtor.
What happens if there is a deficiency after the sale fo the collateral?
1. SP can recover the deficiency from the debtor. 2. If SP sold at a significantly lower price to a related party, the deficiency will be calculated according to what the acocunt would have been if a disinterested party had purchased the collateral.
When may the SP keep the collateral to fully or partially satisfy the debt?
1. Debtor consents to the strict foreclosure; 2. Secured party sends an authenticated notice of intent to keep the collateral in satisfaction of the debt; 3. None of the notified parties objects within 20 days after notice is sent. These requirements cannot be waived, even after default.
How can a debtor consent to a strict foreclosure?
1. Agreeing to the strict foreclosure in an authenticated record after default; 2. In the case of a full strict foreclosure, failing to make an autneticated objection within 20 days after secured party sent notice to the debtor.
Who does the SP have to send an authenticated notice of intent to keep the collateral in satisfaction of the debt to?
1. Debtor; 2. Any other secured party from whom the foreclosing aprty has received notie of a claim to the collateral; 3. Any other securing party who has perfected a security interest in the collateral by filing or making a notation on a certificate of title.
What is the consumer goods sixty percent rule?
In consumer goods cases where the debtor has paid at least 60% of the cash price in the case of a PMSI or 60% of the loan in other ccases, the SP must seel the collateral within 90 days after repossession unless, after default, she gets an authenticated agreement from debtor waiving this time requirement.
How long does the debtor have the right to redeem collateral?
Until the SP has sold the collateral, a debtor may after default redeem the collateral by aying all obligations + expenses incurred in repossession. If collateral has been seized in a judicial proceeding, a redemption may occur at any time before the judicial sale.
What is the SP's liability for failure to comply with Ch. 9 default rules?
1. A person is liable for actual damages in the amount of any loss caused by a failure to comply with Chapter 9. 2. Punitive damages may not be recovered.
May a debtor recover damages for loss of surplus?
Yes, a debtor whose deficiency is eliminated mayr ecover damages for the loss of any surplus.
What is the secured party's burden of proof on chapter 9 compliance?
A secured party need not prove compliance with Chapter 9 requirements unless the debtor or a secondary obligor pleads such noncompliance. If this happens, the SP proves the burden of proving that he was in compliance with Ch. 9. If SP does not meet this burden, then the debtor's liability is limited to an amount by which the sum of the S.O., expense, and attorneys fees exceed the greater of the proceeds of the collection or the amount of proceeds that would have been realized had the noncomplying secured party proceeded under Chapter 9.
What are the other rights of the secured party on default?
1. SP may bring judicial action for the amounts due. 2. Executory process.
What are the requirements for a foreclosures via executory process?
1. Need both a written security agreement with confession of judgment an an instrument evidencing the secured obligation.
Are the rights and remedies under Ch 9 cumulative?
All rights and remedies are cumulative; SP can pursue any remedy until the debt obligation is paid in full; however, the creditor is entitled to only one satisfaction.
Which state's law governs perfection?
1. General rule is that the law of the state where the debtor is located governed perfection of the security interest. If debtor is individual, she is located in state of principal residence; if registered organizaion, state under which it is incorporated; unregistered organization, located at tis place of business.
What are exceptions to the general rule concerning which state law governs perfection?
1. Fixtures and timber to be cut: govered by the law of the state in which collateral is located; 2. Collateral mortgage note: governed by LA law; 3. Goods covered by certificate of title: law of the state issuing most recent certificate of title; 4. Deposit accounts: local law of the bank's jurisdiction; 5. Investment property--if the collateral is a certificated security, law of the state where located governs perfection. Securities account--law of the state where the securities intermediary's CEO is located. (unless perfected by filed, then state of debtor); 6. Agricultural liens--state in which the farm produce covered by lien is located.
What is the general rule for movement of debtor or collateral?
1. 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 SI will remain perfected for fours months or until perfection in the first state lapses, which happens first. If the collateral is transffered to a new debtor in a different state, the SI will remain perfected until one year or until lapse in first state, whichever happens first.
What are the exceptions to general rule for movement of debtor or collateral?
1. SI perfected by possession--the SI will remain perfected without any further action as long as also perfected under the laws of the new state. 2. Certificate of title property--if a vehivle is moved from one state to another, any security interest that would be proeprtly perfected in the original state lasts as long as it would have had the vehicle not been covered by a new cert. of title.
What happens if a vehicle is purchased for value after moving to a new state?
SI in the original state is perfected as against a purchaser for value only until the earlier of: 1. Time when SI would have become unperfected in the original state if the vheicle has not been covered; or 2. Fours months after the vehicle is covered by the new certification of title.
What happens if a clean certificate of title is issued in a new state?
It is does not note the SP's interest in the vehicle, the following parties have priority over the SP: 1. Buyer (not a dealer) who purchases for value and without knowledge of the SI; 2. SP who perfects without knowledge of the the other SI after the clean certitifcate of title is issued in the new state.