Rule block Flashcards
(32 cards)
Secured transaction
UCC Article 9 applies to transactions where a security interest is created in personal property by K. Also applies to secured sales disguised as a lease, but not to “true leases.”
Key inquiry: when parties entered into the transaction, was it reasonably likely that the lessor would get the item back when it still had meaningful economic value?
Attachment
To have a valid security interest in collateral (personal property), the interest must attach to the collateral. Attachment sets the secured parties rights against the debtor.
Security interest is not enforceable against the debtor unless it has attached to the collateral. Three requirements for attachment:
i. Secured party gives value;
ii. Debtor has rights in collateral; (ownership)
iii. Debtor has authenticated (signed) a security agreement (or creditor has possession/control), that reasonably identifies the collateral.
Descriptions
Supergeneric descriptions do not reasonably identify the collateral. Commercial tort claims and Consumer Goods cannot be described by type alone. (debtor’s equipment is sufficient)
Future advance clause
Sec Agreement may provide that collateral will serve as security for the present obligation, but also for advances the creditor makes to debtor in future. No new Sec Agreement needed, but must be reserved in original Sec Agreement.
After-acquired Property Clause
A Sec Agreement may create a Collateral Interest in property to be acquired in the future. SI will attach to the property once debtor acquires interest in the collateral.
Exceptions to after-acquired property clause
- Consumer Goods
- Does not attach to consumer goods UNLESS goods acquired within 10 days of the creditor giving value. - Inventory.
- Implied when goods are rapidly depleted and replenished (accts & inventory) – No AAPC required. - Proceeds.
- Automatically attaches to identifiable proceeds of collateral, whether or not the sec agreement reserves interest in proceeds. No AAPC required.
Primary Use test
How is the Debtor primarily using the goods at the time the security interest attaches.
Goods - all thing moveable at time of attachment
- Consumer goods – Personal, family, household
- Equipment – goods that are not consumer goods, inventory, or farm products, Durable goods used by business, such as machinery - long term
- Farm products – produced in farming operation or in unmanufactured state, possessed by debtor engaged in farming operations (includes crops and animals)
- Inventory – held for sale or lease – short term & goods consumed by a business (fuel
Intangible/semi intangible
- Instruments – writing that evidences a right to payment (notes, drafts, cert. of deposit)
- Docs - writing that evidences a right to goods (bills of lading and warehouse receipts)
- Chattel paper – record that evidences a monetary obligation and security interest (Promissory note)
- Investment prop – Stocks & bonds, mutual funds, brokerage accounts
- Accounts - right to payment for goods/services not evidenced by writing (accounts receivable)
- Deposit accts – non-consumer acct maintained at a bank (savings account, passbook)
- Commercial tort claims
- General intangibles – catch all
Proceeds
whatever is received upon sale, exchange, collection, or other disposition of collateral or proceeds.Insurance payable by reason of loss or damage to the collateral is a proceed, unless it’s payable to someone other than debtor or secured party
Perfection
To acquire maximum priority in collateral over most 3Ps, security interest must be perfected. Perfection sets the creditors rights in the collateral and provides notice to 3P of interest.
5 methods of perfection:
(1) filing,
(2) taking possession of Collateral; (3) control;
(4) Automatic perfection; and
(5) temporary perfection.
Filing
A secured party can perfect by filing a financing statement. Needs:
(1) name and address of debtor/ Sec Party;
(3) description of collateral, and
(4) Debtor authorization (authorize in an authenticated record – AKA financing statement or SA – before or after it’s filed);
(5) if it covers real property collateral, a description of land, name of record owner and indication that it is to be filed in the real property records.
Debtors name
Minor errors in the debtor’s name will not invalidate, but seriously misleading errors which could not be discovered using the debtor’s correct name with the filing office’s standard search logic will.
Description of Collateral
Supergeneric descriptions, such as “all assets” are acceptable in financing statements. Financing statements don’t have to mention after acquired property so long as the SA includes this.
Place of filing
Filed with SOS where D’or is located
- Person – principal residence
- Org – where organized, PPOB, CEO
- Fixtures – county where the property is located.
Duration
5 years, but may be renewed by continuation statement filed in the last 6 months before lapse.
Termination
D sends authenticated demand to secured party, SP has 20 days to provide debtor with termination statement. If it converts consumers goods, must file within 30 days or earlier if they receive an authenticated demand by D.
PMSI in consumer goods
A PMSI has priority over other security interests in same goods if requirements are met and is perfected as soon as it attaches.
Can arise if:
(1) creditor sells goods to debtor on credit, retaining a SI in goods for purchase price; OR
(2) creditor advances debtor funds to buy the goods, and creditor takes a security interest in the goods.
Filing
Filing is not necessary in consumer goods bc it automatic perfection, but:
- PMSI in inventory or equipment must be filed to be valid.
- SI in cars can be perfected only by notating on certificate of title.
- A PMSI in fixtures has priority over an encumbrancer of the real estate ONLY IF PMSI holder files.
temporary perfection
Proceeds become unperfected after 20 days unless:
- Identifiable Cash proceeds
- Security interest in proceeds is perfected within 20-day period; or
- Same office rule: SI in the type of collateral constituting the proceeds is filed in same place as the FS for the original collateral and proceeds from cash proceeds of the collateral.
Possession
Perfected from moment of possession and continues so long as possession is retained.
Interests in general intangibles, nonconsumer deposit accounts, nonnegotiable docs, electronic chattel paper, cert of title goods, and account cannot be perfected by possession.
Control
Sec Party is bank where account is, putting deposit account in creditors name, or agreeing with bank and debtor that bank will follow creditors order without further consent by debtor.
SP must use reasonable care in storing and preserving the collateral but is entitled to reasonable expenses.
Security interest perfected by control has priority over a SI perfected by any other method.
Notice on Lien Certificate of title
Cars: – Must be done by government authority (DMV). But, if debtor is holding as inventory, then filling a financing statement is sufficient.
