Secured Transactions Flashcards
1
Q
Secured Transactions
- Secured Transaction - Definition
A
- Transaction intended to create a security interest in personal property or fixtures.
- Lender obtains a lien on some or all of debtor’s property as security for payment.
2
Q
Secured Transactions
- Purchase Money Security Interest
A
- Seller financed purchase - seller retains security interest
- Enabling loan - A loan for specific collateral in which lender takes a security interest.
3
Q
Secured Transactions
- Categories of goods
A
- Consumer goods - Goods bought or used primarily for personal, family, or household purposes
- Equipment - Used or bought primarily for business
- Farm Products - Crops, livestock, supplies used or produced primarily in farming operations or products in unmanufactured state.
- Inventory - Held by a person for sale or lease or to be furnished under service contracts; material used or consumed in business.
4
Q
Secured Transactions
- Types of Intangible property
A
- Instruments - represent the right to be paid
- Documents - represent the right to receive goods
- chattel paper - records evidencing both
- monetary obligation
- security interest in or a lease of goods - Accounts - right to payment
- Deposit accounts - bank accounts
- Investment property - stocks
- commercial tort claims - not personal injury
- general intangibles
5
Q
Secured Transactions
- Attachment - Significance
- Attachment - Elements
A
- Security interest is not enforceable unless it has attached.
- Elements
1. Agreement to create interest by
a. Creditor taking possession of collateral.
b. Debtor authenticating secutity agreement
c. Creditor taking control of certain collateral.
2. Secured party must give value for the interest.
3. Debtor must have rights in the collateral (ownership)
4. Agreement must reasonably identify specifically or by category, so it is objectively determinable
6
Q
Secured Transactions
- Security agreement requirements
A
- Must be in writing signed by the debtor
- Must show intent to create a security interest
- Must contain a description of the collateral
7
Q
Secured Transactions
- Proceeds
A
- Proceeds - Whatever is received from sale, exchange, or other disposition of collateral or proceeds.
- A security interest automatically gives the secured a right to identifiable proceeds, unless otherwise agreed.
8
Q
Secured Transactions
- Identifiable Proceeds
A
- Things that secured can prove came from its collateral.
- Commingling - Look at account balance when deposited and at time applying test. Lowest balance during period is amount identifiable.
9
Q
Secured Transactions
- Methods of perfection
A
- Automatic Perfection - PMSI in consumer goods
- Taking possession - Cannot possess an intangible.
- Taking control - Non-consumer deposit accounts can only be perfected by taking control.
- Notation on lien on certificate of title
- Filing a financing statement
10
Q
Secured Transactions
- Priority
- Perfected secured creditor v. Perfected secured creditor
- General Rule
A
- First to file or perfect, whichever comes first.
11
Q
Secured Transactions
- Priority
Unperfected Secured Creditor v. Unperfected Secured Creditor
A
- First to attach has priority.
12
Q
Secured Transactions
- Priority
- Perfected Secured Creditor v. Unperfected Secured Creditor
- General Rule
A
- General rule - Perfected Secured creditor wins
13
Q
Secured Transactions
- Special Rules related to PMSI
-
A
- PMSI has priority over a security interest in the same goods or proceeds if the PMSI is perfected at the time debtor takes possession of the collateral or within 20 days thereafter. Does not apply to inventory or livestock.
- PMSI in inventory or livestock takes priority if:
a. Perfects before debtor takes possession and
b. Notify holders of filed security interests in the collateral before debtor takes possession. - Seller PMSI has priority over financier PMSI
14
Q
Secured Transactions
- Perfected Secured party v. Buyer of collateral
- General
- Two ways to detach
A
- General Rule - When a buyer buys an item with a security interest attached it stays attached.
- Detachment
1. Authorized Sales - May be express or implied through parties conduct.
2. Unauthorized Sales - A buyer in the ordinary course of business takes free of a security interest created by his seller.
15
Q
Secured Transactions
- Perfected Secured party v. Buyer of collateral
- Buyer in ordinary course
A
- One who buys goods:
a. In good faith
b. Without knowledge that the sale violates the rights of another in the goods (One can know that a security interest exists, just not that rights violated)
c. In the ordinary course form one in the business of selling goods of that kind.
16
Q
Secured Transactions
- Buyer not in ordinary course
A
- General rule - Takes subject to perfected security interests and free from unperfected security interests; unless buyer knows of the security interest.
17
Q
Secured Transactions
- Consumer to Consumer Sales
A
- A buyer of goods from consumer to consumer, takes free of security interests, even perfected, unless the secured party has filed a financing statement covering such goods.
- Requirements
a. Buys without knowledge of the interest.
b. Gives value
c. Must be consumer goods in both parties hands.
18
Q
Secured Transactions
- Priority
- Secured Creditor v. Judgment Lien holder
A
- General - Judgment lien takes priority over unperfected security interests.
- Perfected security interests take priority over judgment lien if perfected before judgment levied.
- PMSI - 20 day grace period to perfect. After debtor takes possession, have 20 days to file and will be beat a lien filed during that period.
19
Q
Secured Transaction
- Repossession
A
- Upon default, secured party is entitled to repossess if it can be done without breach of peace.
- Breach of Peace - Any conduct by the secured party which has the potential to lead to violence.
- Replevin - Judicial process available to get Sheriff assistance.
20
Q
Secured Transaction
- Resale of collateral
A
- All aspect of the sale must be commercially reasonable.
21
Q
Secured Transactions
- UnPerfected Secured party v. Buyer of collateral
- General
- Two ways to detach
A
- General Rule - Person who buys or leases collateral from the debtor has superior interest to an unperfected security interest in the collateral if:
a. he buys or leases without knowledge of the security interest,
b. gives value, and
c. receives delivery. - Exception
- If a secured party attaches a PMSI in debtor’s collateral before the buyer or lessee, the secured will have priority if files within 20 days after debtor receives collateral.
22
Q
Secured Transactions
- Perfection of Assignment of accounts
A
- A security interest in assignment of accounts may be automatically perfected if, the assignment does not transfer a significant part of the assignor’s outstanding accounts to the secured party.
23
Q
Secured Transactions
- Perfection by control
- Non-consumer deposit accounts
A
- Non-consumer deposit accounts can only be perfected by control.
24
Q
Secured Transactions
- Perfection by control
- Investment property
A
- Secured party has control of investment property when secured party is able to have property sold without further action by the owner.
25
Secured Transactions
- Perfection by control
- Non Consumer deposit accounts
- Obtaining control
- Bank maintaining deposit account automatically has control
- If not a bank, can obtain control by either:
1. Putting account in secure party's name, or
2. Agreement in authenticated record with debtor and bank that bank will follow secured party's order without further consent by debtor.
26
Secured Transactions
- Notice of lien on title
- Automobile
- The only way to perfect a security interest in an auto is to note the lien on title.
- Exception
- If auto is inventory, must file statement.
27
Secured Transactions
- Filing
- Seriously misleading name
- If a search under the debtor's name, using the filing office standard search, would retrieve the erroneous filing, the error is not seriously misleading. If it does not retrieve, it is.
28
Secured Transactions
- Filing
- Name change
- If debtor changes name, the financing statement is effective to perfect collator acquired by debtor before or within 4 months after the change.
- If secured wishes to secure after acquired property, should file new statement under new name.
29
Secured Transactions
- Filing
- Place of filing
- Debtor is individual, file in place of principal residence.
- Debtor is company - If organized file in place of organization.
- If unorganized, file in state of principal place of business.
30
Secured Transactions
| - Perfection as to proceeds
- If secured has a perfected interest in collateral, automatically has perfected interest in proceeds received in exchange for 20 days.
- Exceptions - Perfected beyond 20 days if:
1. proceeds are identifiable cash proceeds.
2. Same office rule - interest in collateral perfected by filing, the financing statement for the proceeds would be filed in same office, and proceeds not purchased with cash proceeds of the collateral (debtor trades out goods for goods).
31
Secured Transactions
- Priority
- Deposit Accounts
- A security interest perfected by control has priority over an interest perfected by way of proceeds.
- If two have control, time of obtaining control.
32
Secured Transactions
| - Buyer in ordinary course Issue
- A buyer in ordinary course takes free of interest created by its seller.
- Consumer purchases boat with bank lien, sells to dealer, which sells to Bob (a consumer).
- Lein stays attached with dealer, dealer sells boat as inventory (normally authorized transaction), Bob takes subject to lien, lien was not created by his seller (dealer).
33
Secured Transactions
- Fixtures
- Definition
- Goods that have become so related to particular real property that an interest in them arises under property law.
- Personal property attached to real estate with the intent that is become a permanent part of the real estate.
34
Secured Transactions
- Fixtures
- Perfection
- To perfect an interest in fixtures, a fixture filing must be made in real estate records in addition to filing financing statement.
35
Secured Transactions
- Fixtures
- Priority
- Secured fixture interest has priority over subsequent real estate interest.
- Secured fixture interest is junior to prior real estate interest, unless:
- PMSI is perfected by a fixture filing before the goods become fixtures or within 20 days thereafter
36
Secured Transactions
| - Construction mortgage
- Nobody beats a construction mortgage.
37
Secured Transactions
- Accessions
- Certificate of Title property
- Perfection
- If an accession becomes part of a whole that is subject to a security interest perfected in compliance with a certificate of title statute, the security interest in the whole has priority over the security interest.
- If general rules apply, same as a fixture, PMSI can take priority, filed later.
38
Secured Transactions
| - Perfection
- form of notice that creditor has security interest and rights superior to third parties
- Priority -
39
Secured Transactions
- Sale of receivables
- Consignment goods
- Receivables handled under Article 9
- must comply even though purchaser of accounts, chattel paper, promissory notes
- A consignor must comply with article 9 and protect interest in items put with inventory for consignment
1. If goods worth $1000 or more
2. consignor did not use goods for personal or household purposes
3. consignee (seller) is not
- person who deals in goods in that kind under another name
- is not an auctioneer
- is not generally known by creditors to be engaged in selling goods for others
- Owner must protect his interest or the goods are comingled and subject to the consignees creditors w/o notice.
40
Secured transactions
| - Possessor rights and duties
- Use reasonable care in storing and preserving
- Right to reasonable expenses in preservation including cost of insurance
- Risk of loss is on debtor to extent of coverage deficiency
- May hold increase in value except money.
- The secured party may repledge (use as collateral for secured's debt)
41
Secured Transactions
| Filing and Authorization
- The debtor must authorize the financing statement.
- Authenticated security agreement may be filed as the financing statement.
- Effective for five years
42
Secured Transactions
| Purchaser of chattel paper/instruments
- If purchaser in good faith gives new value, and takes possession in ordinary course of business; priority over
a. a security interest that arose merely as proceeds of inventory; paper must not indicate that it has been assigned
b. Any other security interest if acquired w/o knowledge of rights of secured party.
43
Secured Transactions
| Sale
- Sale either public or private, must be commercially reasonable
- Comm. reas. if in usual manner in market or at market price in market at time of sale.
- Notice - Must give reasonable notice in writing, also to any sureties on debt
- Presumed reasonable if w/n 10 days
