Secured Transactions Flashcards
(6 cards)
In General
When does Article 9 of the UCC apply
Collateral: Tangible Collateral—Goods; Other Collateral
Leases
- Article 9 of the UCC applies to all kinds of K security interests in personal property and fixtures
Collateral
Classification of Goods
* Consumer goods
* Inventory
* Equipment
* Farm products
Other Collateral
* Chattel paper (monetary obligation & security interest in specific goods)
* Instruments (e.g., promissory notes, checks)
* Investment property (e.g., securities)
* Accounts (the right to payment for property sold or services rendered)
* Deposit accounts (e.g., checking or savings account)
* General intangibles
Leases
* Covered under Aritcle 9 when transaction is in substance a secured transaction
A deposit account can
When a lease can create a security interest: lease payments must be made for full term of lease and not subject to termination and lessee has option to become owner of goods for nominal consideration at conclusion of lease agreement
Attachment of Security Interest
Requirements; Authenticated Record
After-Acquired Property
Purchase-Money Security Interest
Requirements:
* Value is given
* The debtor has rights in the collateral and
* The debtor has (a) authenticated a security agreement that describes the collateral, or (b) the secured party has possession or control of the collateral
Authenticated Record
* The security agreement must:
* Be in a record
* Contain a description of the collateral (sufficient to reasonably identify the collateral) and
* Be authenticated by the debtor
After-acquired property: A security interest will attach to after-acquired collateral only if the agreement specifically includes after-acquired collateral
A PMSI arises where a creditor sells good to a debtor and/or advances funds to a debtor to buy goods
Perfection of Security Interests
Methods of Perfection
(1) Filing
The financing statement; Effective Date of Filing; Minor errors or omissions in the financing statement
(2) Possession
(3) Control
(4) Automatic Perfection
(5) Temporary Perfection
(6) Proceeds; Indefinite automatic perfection
Non-Article 9 Rules: Notation for Vehicles
Methods of Perfection
Perfection can occur by:
* Filing a financing statement
* Taking possession or control
* Automatic perfection (e.g., PMSI in consumer goods)
Filing
The financing statement must contain:
* (a) The debtor’s name
* Current driver’s license (most states)
* Name change: secured party has four months to amend
* (b) The secured party’s name and
* (c) A description of the collateral
* Can include super-generic description (need not mention that it covers after-acquired property or future advances)
Minor errors or omissions in the financing statement
* If error makes statement seriously misleading = statement NOT effective
Effective Date of Filing
* Effective upon delivery and tender of filing fee. Effective for five years. Continuation statement within six months before financing statement lapses
Possession — perfection exists only during period of possession
Control —exists only while secured party retains control
Automatic Perfection
* A PMSI in consumer goods
Temporary Perfection
* New value: If new value given under authenticated security agreement, security interest in securities & instruments perfected for 20 days
* Collateral delivered to debtor to sell/exchange, perfected for 20 days
* Debtor moves to another state, there is four-month grace period
* Collateral transferred to a person who takes the collateral subject to the securitiy interset, then one-year grace period
Proceeds
* If security interest in original collateral, then interest in proceeds temporarily perfected for 20 days. But perfection may continue indefinitely in some situations:
* Financing statement: Secured party amends financing statement to cover proceeds within 20 days or original financing statement broad enough to cover proceeds
* Identifiable cash proceeds
* Same-office rule: If (1) filed financing statement covers original collateral and (2) proceeds are collateral in which security interest may be perfected by filing in same office as financing statement, then perfected security interest in proceeds. But does NOT apply to proceeds acquired with cash proceeds. And 20-day period if original filing cases to be effective
Non-Article 9 Rules: Notation for Vehicles
* Statute requires security interest in vehicle be noted on certificate of title to perfect
Note: A deposit account can be perfected only by control
Priorities
Creditors: General Rules for Creditors; Exceptions regarding judicial-lien creditors
Transferees: Transferee (nonbuyer); Buyer vs. Unperfected SI; Buyer vs. Perected SI
Special Buyer Exceptions: BIOCB; Consumer Buyer
Other Secured Parties: Pefected vs. Perfected; Perfected vs. Unperfected; Unperfected vs. Unperfected
PMSI Priority Rules: PMSI vs. non-PMSI; PMSI in inventory/livestock; PMSI in other goods; PMSI vs. PMSI
Whether the transferee takes the collateral free from or subject to the security interest
CREDITORS
General Rule for Creditors
* Unsecured creditor — Security interests > unsecured creditor
* Judicial-lien creditor — Perfected security interests > judicial lien > unperfected security interest
* Exception—PMSI
* Advances—
* Statutory or common-law lien creditor — Possessory lien that secures payment for goods or services furnished in ordinary course of business (e.g., mechanic’s lien) > any security interest
Exceptions regarding judicial-lien creditors:
* PMSI takes priority if perfected within 20 days after debtor gets possession
* Unperfected security interest has priority if only reason unperfected is that secured party has yet to give value
* Security interest that secures advance is subordinate to lien creditor when advance made more than 45 days after lien arose, unless advance made without knowledge
TRANSFEREES
General rules:
* Transferee (non-buyer) vs. secured party with a security interest: Takes subject to security interest interest
* Buyer vs. Unperfected SI: Takes free if (1) gives value, (2) receives delivery, and (3) wihtout knowledge
* Buyer vs. Perfected SI: Takes subject to security interest
Special Buyer Exceptions
* BIOCB: Takes free of SI if he (1) buys goods, (2) in the ordinary course, (3) from a seller in business of selling goods of that kind, (4) in good faith, and (4) without knowledge
- Consumer Buyer: Takes free of SI if he (1) buys consumer goods for value, (2) for personal/family use, (3) from consumer seller, and (4) without knowledge
Other Secured Parties
* Perfected vs. Perfected — First to file or perfect wins
* Perfected vs. Unperfected — Perfected wins
* Unperfected vs. Unperfected — First to attach wins
PMSI Priority Rules
* PMSI > non-PMSI
* PMSI in inventory/livestock vs. any security interest: Must perfect before debtor gets possession
* PMSI in other goods vs. any security interst: Priority if perfected within 20 days of debtor’s possession
* PMSI vs. PMSI: First to file/perfect; seller-PMSI > lender-PMSI
Note:
Note: PMSI in inventory/livestock must notify holder of conflicting security interst
Note: “value not yet given” exception apples only if BEFORE lien was created, secured party filed financing statement and debtor authenticated security agreement (OR requirements otherwise satisfied)
Construction Mortgage: takes priority over subsequent security interest in a fixture, including PMSI in fixture if recorded before goods become fixtures
Purchaser of chattel paper — Gives new value and has possession/control of collateral, purchases it in good faith in ordainry course of business, and does not indicate assignment to identified assignee in chattel paper | Priority over security interest
Future advances — Buyer of goods secures advance amde (1) after securd party acquires knowledge of purchase or (2) 45 days after purchase — whicever is earlier | Takes free of security interest
Transferee of money funds — Note: a debtor is not treated as a transferee | Takes free of securitiy interests
“Clean” certificate of title — Buyer withouit knowledge of prior security interest not noted on title |Takes free of securitiy itnerest
Fixtures
Other Rules; Accessions
Fixtures
* SI in fixtures > interst in real property if security interset is perfected by fixture filing before real property interest recorded
Accessions and Commingled Goods
* Accessions are good physically united with other goods such that idnetiify of original goods is not lost
* Commingled goods are goods that are physically united with other goods such that identity is lost. Security interest may attach to resulting product or mass
Steps that a secured creditor takes to foreclose on its collateral; default; resale
Disposition of Collateral; Notice of Disposition; Application of Proceeds
Transferee’s Rights
Special Rules for Consumer Goods Transactions
- Default: Lender can demand payment, use judicial process (e.g., replevin), or use self-help to reclaim goods so long as it does not breach the peace
- Resale: Secured party may sell/dispose of collateral in a commercially reasonable way. Debtor liable for any deficiency
Disposition of Collateral
* Sale must be commercially reasonable
* At least 10 days before disposition, secured party must notify debtor, secondary obligor, other secured party or lienholder who has securitiny interst perfected by filing, and any party who has notified secured party
* Secured party must apply proceeds in following order: Reasonable disposition expenses –> Secured obligation –> Subordinate security interests –> Debtor
Transferee’s Rights
* Collateral remains subject to senior security intersts
Acceptance of Collateral
* Secured party may accept collatearl in full/partial satisfication of debt in lieu of disposing of the collateral when debtor consents or does not to porposal within 20 days
* But in consumer transactions, secured party can accept collateral only in full satisfaction of debt. And no strict foreclosure is permitted if (1) the consumer goods are in the secured party’s possession and (2) the debtor has paid at least 60% of cash price (in case of PMSI) or at least 60% of obligation (in case of non-PMSI)
Redemption of Collateral
* Debtor can redeem after default by paying entire obligation and expenses incurred. Right can bbe waived except in consumer goods transaction
Remedies for Secured Party’s Failure to Comply
*
Deemed commercially reasonable if recognized market, price current, or in conformity with reasonble commercial practices
