Collateral Flashcards by Alejandro orizola

Security Interest - Concept

A property interest created by agreement or operation of law to secure performance of an obligation

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Security Interest - UCC art 9 Purpose

Reduce creditor risk in case of default of payment
By securing obligation with collateral

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Collateral - Concept

Property pledged as security against interest

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Collateral - Types of Property (2)

1) Tangibles
2) Intangible

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Collateral - Importance of distinction btwn tangible/intangible (3)

1) Method of perfection
2) Filing requirements (when apply)
3) Priority for creditors

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SI -Tangible Property - Rules regarding use

Primary use in debtor’s hands set as of date of attachment
Primary use controls, independent of later use : i.e. Horse
If later use modification, duty of report

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SI - Tangible Property - Types (5) + 1

1) Inventory
2) Equipment
3) Consumer Goods
4) Farming products
5) Manufactured home + Proceeds

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SI -Tangible Property - Inventory - Concept

Goods for sale or lease in ordinary course of business

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SI -Tangible Property - Inventory - Includes/Excludes

Includes: raw material, work in progress, materials used or consumed
Excludes: farm products

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SI - Tangible Property - Equipment - Concept

Goods used or bought for use in the productive capacity of business

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SI- Tangible Property - Equipment - Includes/Excludes

Includes: machinery, manufacture, equipment, furniture, office computer and equipment
Excludes: farm products and consumer goods

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SI -Tangible Property - Consumer Goods - Concept

Goods used or bought for non-business purposes, but for personal, family or household purposes
Have no amount limit as collateral
Need of more detailed description
i.e.: house furniture, personal computer, TV

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SI -Tangible Property - Farming Products

Include: Crops, livestock and supplies (i.e. fertilizers)
Exclude: Farm machinery (is equipment)

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SI -Tangible Property - Manufactured Home

Fixed dwelling structure over 320 sq/f with plumbing, heating, AC, electrical system, etc.

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Intangible Property - Types (11) + 1

1) Instrument: negotiable or other (i.e. promissory note)
2) Document of title
3) Chattel Paper
4) Account
5) Deposit Account
6) Investment property
7) Commercial tort claim
8) Letter of credit
9) Insurance Policy proceeds
10) Financing Lease of personal property
11) Gral - “residual” + Proceeds thereof

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SI -Intangible Property - Instruments - Gral / scope, use as E, perfection(gral)

For negotiable instruments and other written instruments: i.e. promissory note
As evidence of right to receive payment
SI perfected with possession

SI -Intangible Property - Instruments - Transfer

Delivery + proper endorsement

SI perfection with possession

SI -Intangible Property - Document of title - gral/ concept, traditional use

Written description/ID/declaration of good authorizing the holder to receive/hold/dispose goods it covers
In regular business use as E of person being entitled to receive goods held by others.
i.e.: warehouse receipt

SI - Intangible Property - Chattel Papers - Concept

Written document (single record) showing both a monetary obligation and a SI in specific secured goods/software.

SI -Intangible Property - Chattel Papers - Gral / transfer, usual use,

Can be sold with SA (security agreement) itself along with the interest in the collateral
Can be electronic, intangible or material
Usually used in consumer transaction when consumer buys goods in credit by signing a promissory note and seller retaining SI in the goods

SI -Intangible Property - Account

Unsecured right to payment of a money obligation (as reflection of balance owed by debtor to creditor)
i.e. account receivable, credit card balance

SI- Intangible Property - Deposit Account

Any bank account other than consumer’s checking account
i.e. bank demand, time savings, passbook account

SI -Intangible Property - Investment Property

Under art 8 UCC
i.e.: Certificated/uncertificated securities, commodity accounts, commodity accounts to buy or sell in the future

SI - Intangible Property - Commercial Tort Claim

Tort claim where the claimant is an organization OR an i_ndividual and the claim comes in the course of the business or profession of the claimant_
Does NOT include damages arising out of personal injury to or the death of an individual.
Needs for more detailed description

SI -Intangible Property - Letter of Credit / concept, form

- Right to receive payment under UCC art 5 letter of credit, usually to secure payment in international transaction once a good is delivered - In the form of a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount.

SI - Intangible Property - Policy Insurance / when and when not

- As "proceeds" when insurance claim is based upon _destruction or involuntary conversion of secured collateral_ - Not in relation to original policy, when creditor interest varies from the one of original beneficiary

SI -Intangible Property - Financing Lease of personal property

- When term of lease is \> than expected asset life - The lease transfer title then to debtor - Requires filing for perfection

SI -Intangible Property - Gral or "Residual" or "catch-all"

- To include copyrights, software, trademark, patents, franchise rights, software, royalties

SI- Proceeds - Gral / source, content, [SI after sale??}

- Of both tangible and intangibles UNLESS otherwise provided by SA - Include whatever is received by the debtor upon the sale/exchange/other disposition of primary collateral - "whatever": can be $ or property **[- SI continues with collateral once attached/perfected???]**

SI - Proceeds - Relation with SI ("automatic SI")

- SI from SA continues with collateral once attached/perfected - "Automatic SI" for 20 days after attachment/perfection. - After 20 days: SI survives only in: 1) Cash traceable by creditor 2) Non-cash when new FS filed with particular identification of these new non-cash proceeds.

Collateral Description - Gral / standard for detail and burden, difference SAvsFS, grl categories

- "_Reasonable detail_" for creditor to ID (is his burden) - SA less liberal than FS (SA require at least specify _use_ by debtor) - Gral categories accepted: "all collateral", "all personal property"

Collateral Description - Special rules (2)

- No gral description allowed for consumer goods and commercial tort claim - For crops/timber/minerals need to include address and description of the property where they are located

Secured Transactions - Purchase Money Security Interest (PMSI) - Gral/ special relation, creditor's dual position, burden of proof, exclusion

- _Special nexus btwn collateral and obligation_, because collateral itself secures the repayment of its puchase price owed to creditor - Creditor can have "dual status", when PMSI on only 1 of mx collateral assets (as PMSI and gral creditor) - Burden of proof: party claiming interest - Bank loan for working capital doesn't qualify bc is not associated w/specific good (as a general loan)

Secured Trans - PMSI - Creation Methods (2)

1) Collateral Sale 2) Loan to acquire specific collateral

Secured Trans - PMSI - Creation Methods - Collateral Sale

Creditor sells good to debtor who takes a paper receivable (i.e. account) securing the payment with the same good

Secured Trans - PMSI - Creation Methods - Loan to acquire collateral

Creditor loans $ to debtor to buy specific collateral

Secured Trans - PMSI - Advantages (4)

1) Unlike non-PMSI it can affect household goods sold to debtor 2) For consumer goods it allows for perfection by mere attachment 3) Provides a 20-day grace period from reception to file when interest on non-inventory (equipment) goods 4) For inventory goods it has super priority

Secured Trans - PMSI - Advantage - Super priority on Inventory - Requirement

_Notice_ to other SI creditors w/claims over same inventory - Prevents previous creditors to claim collateral on "After-acquired" clause