Secured Transactions Flashcards
Accession
An accession is when a good is united with other goods and the identity of the original goods is not lost
Comingled Goods
Comingled goods are goods that are physically united with other goods to the point their identity is lost. An existing security interest is transferred to the resulting product or mass.
Proceeds
Proceeds are whatever results when collateral is sold, leased, or disposed of. A security interest will automatically attach to identifiable proceeds.
When proceeds are used to purchase new collateral a security interest in proceeds is temporarily perfected for 20 days from the time it attaches in which time the secured party must amend the financing statement.
Proceeds in the form of cash will remain perfected indefinitely as long as they are identifiable.
Attachment Intro
Florida’s adoption of Article 9 governs transactions, regardless of form, that create a security interest in collateral. Secured transactions must be consensual and involve personal property or fixtures.
Security Agreement
The security agreement is a contract that creates a security interest and must reasonably describe the collateral, must be authenticated by the debtor, and cannot be super generic.
Future advances clause provides that a creditor may advance future loans after the date of the Security Agreement.
After-acquired property clause allows debtor to encumber property that is not owned at the time of the Secured Transaction.
Attachment
For a security interest to be enforceable against the debtor, it must attach to the collateral.
In order for a security interest to attach: the creditor must give value, the debtor must have rights in the collateral, and there must either be an authenticated security agreement, or the creditor must have possession or control of the collateral.
Deposit Account Attachment / Perfection
Control is the only way to perfect a secured interest in a deposit account. A secured party has control if the secured party is the bank where the deposit account is maintained or there is an authenticated record granting the secured party control.
Collateral
Collateral is property subject to a security interest that secures payment of a debt.
Goods are anything moveable at the time a security interest attaches and include: Consumer goods (used for personal, family, household purposes), Inventory (goods held for sale or lease and materials used or consumed in business), Farm products (crops, livestock, supplies used or produced in farming), and Equipment which are any goods not in other three categories.
Rights to payment can be used as collateral and include: negotiable instruments (notes and drafts), chattel paper (monetary obligation + a security interest), payment intangibles (accounts, deposit accounts) and documents (bill of lading, warehouse receipts).
Deposit accounts include a savings, passbook, time, or demand account maintained with a bank.
Accounts include rights to payment for goods sold or services rendered.
Consignment
A consignment occurs when a person (consignor) delivers goods to a merchant (consignee) in order for the goods to be sold.
For a valid consignment, the merchant must deal in goods of that kind, not operate under the name of the consignor, not be generally known by its creditors to be substantially engaged in selling goods of others, not be an auctioneer, and the goods must not be consumer goods and must have a value of at least $1000.
If valid, a consignor’s security interest in the goods is treated as a purchase-money security interest (PMSI) in inventory.
Default
If the debtor defaults, the secured party can obtain a judgment or repossess the collateral by using the judicial process or by using self-help measures. Self-help measures cannot breach the peace.
Disposition of Collateral
After the secured party repossess the collateral, they can dispose of the collateral in any commercially reasonable manner.
Generally, this is done through a public or private sale. Notice of the sale must be sent to the debtor and any other secured creditors.
A disposition is commercially reasonable if it is sold in the usual manner in a recognized market, sold at the price current in that market, or in conformity with commercial practices among dealers in that type of collateral.
A debtor has a right to redeem until the collateral is foreclosed or sold by tendering the full amount owed plus attorney’s fees.
Fixture
Real estate fixtures (property permanently attached to real property) require a fixture filing in the county where the property is located, contain the names of both parties, and include a description of the real property.
Priority
Generally, a mortgage interest will beat an Article 9 interest unless the fixture filing occurred first or there is a PMSI in a fixture.
A PMSI has priority over a real property interest if the debtor has an interest of record in the real property or is in possession of the real property AND the security interest is perfected by filing a fixture filing within 20 days after the goods become fixtures.
Perfection
Once attachment occurs the secured party will want to perfect to protect its interest. Perfection occurs by filing a financing statement, possession, control, or it can be automatic in consumer goods.
The financing statement must include the names of both parties, and a description of the collateral (super generic is acceptable). A financing statement gives notice of the security interest.
Minor errors in a financing statement do not affect perfection unless they are seriously misleading.
Financing statements are effective for 5 years from the date of filing. A continuation statement must be filed within 6 months prior to expiration or the security interest becomes unperfected.
Perfection: Name Change
If the debtor changes his name or moves out of state the secured party has a 4-month window to amend the financing statement. If the secured party fails to amend any collateral acquired after the 4-month window is not covered by the financing statement.
Car Perfection
In order to perfect a security interest in a vehicle, the security interest must be noted on the certificate of title and comply with Florida’s certificate of title statute.
In Florida, a bare notation identifying a lien on the certificate of title does not perfect a security
interest. Florida requires a sworn notice of the lien on the vehicle to be filed with the DMV.
The notice must include the date, name and address of both the registered owner and lienholder, a description of the vehicle, and the vehicle identification number.
Purchase Money Security Interest
A purchase money security interest (PMSI) applies to collateral that is goods or software.
A lender PMSI is when a lender loans money to a debtor so the debtor can acquire the goods. The value must be actually used to acquire the goods and the security interest is in the same goods.
A seller PMSI is when goods are bought on credit.
A PMSI is automatically perfected at the time of attachment for consumer goods.
**a seller PMSI will have priority over a lender PMSI
