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Flashcards in Secured Transactions Deck (41)

Secured Transaction definition

A business agreement, plus a security interest in equipment, inventory or consumer goods. If borrow doesn't repay, lender can grab personal property and sell it to create value and pay off the debt.


Fivestep analysis for Secured Transaction

(1) Determine type of collateral
(2) Attachment
(3) Perfect
(4) Priority
(5) Enforcement


Tangible collateral

(1) consumer goods
(2) inventory
(3) farm products
(4) equipment (anything that is not one of the above categories)


Intangible collateral

(1) Instruments
(2) Documents
(3) Chattel Paper
(4) Accounts
(5) Deposit Accounts (commercial only)
(6) Investment property
(7) Commercial tort claims
(8) General intangibles


Attachment versus perfection

Attachment - rights against debtor
Perfection - rights against third parties


How do you show attachment?


(1) AGREE to create a security interest, evidenced by:
-security agreement describing collateral with debtor authentication
-creditor taking control
(2) VALUE given by secured party
(3) DEBTOR'S RIGHTS in collateral


How do you describe collateral in an agreement?

broad categories OK but supergeneric (ie all the debtor's assets) is not sufficient


Method for creditor obtaining control over: Nonconsumer deposit account

Bank automatically has control. If not a bank, then
(1) Put deposit account in SPs name, or
(2) bank and debtor agree that bank will follow SPs orders


Method for creditor obtaining control over: Chattel Paper

hold the tangible paper or for eletronic version have it state the SP as an assignee


Method for creditor obtaining control over: Investment Property Certificated Securities

Take possession of certificate.

IF certificate is in registered form, then (1) take possession AND (2) indorse to secured party


Method for creditor obtaining control over: Investment property securities accounts

have owner of account instruct securities intermediatry:
(1) SP has same rights in the account
(2) intermediatry can comply with SPs orders without owner's further consent


Duty to exercise when holding collateral

Reasonable care. Risk of loss on debtor (even if in hands of secured party).


When does after acquired property attach?

(1) If there is an after-acquired property clause in agreement
(2) inventory attaches AUTOMATICALLY


Does after acquired property attachment apply to consumer goods?

NO - unless debtor acquires rights in the goods within 10 days after creditor gives value


What does perfection do?

Acquire maximum priortiy in collateral over third parties


What are the five methods of perfection?

(1) Filing of financing statement
(2) Possession of collateral
(3) Control
(4) Auto perfection (PMSI)
(5) Temporary perfection


Elements to perfect by filing

File a FINANCING STATEMENT, which states:
(1) Debtor's name/add (make sure not seriously misleading)
(2) SP's name/add
(3) Identify colateral
(4) and if real property description of the real property


Financing statement vs. security agreement

Financing statement - can have supergeneric indications "all assets." Also does not need to metnion afer-acquired collateral if mentioned in security agreement

Security agreement - CANNOT have supergeneric indications of collateral. Also MUST Mention after-acquired collateral.


How long does perfection by filing last?

5 years


Purchase Money Security Interest (PMSI) definition

SI that secures payment of whatever portion of a loan actually used to purchase the collateral


Elements to perfect by auto perfection

ONLY applies to PMSIs in consumer goods


Elements to temporary perfection

ONLY lasts 20 days for proceeds


Credit seller PMSI

Seller extends credit to buyer


Lender PMSI

Advances money to buyer to buy goods


When does attachment occur in PMSI?

Not until debtor receives possession


Priority: Two unperfected secured parties

First to attach wins


Priority: Unperfected and perfected

Perfected prevails


Priority: Perfected secured parties

First to file or perfection (attachment doesn't matter)


Priority: Two or more perfected parties over investment property and one has control

Party with control prevails over all other parties regardless of when and how they perfected


Priority: PMSI in Inventory (or consignment)

HAS SUPERPRIORITY over all other perfected parties, if
(1) perfected at time debtor gets possession
(2) Sends written notice to any other party who has an interest before debtor receives possession of the inventory


Priority: PMSI in Equipment

HAS SUPERPRIORITY over all other perfected parties, if
(1) perfected before or within 20 days of debtor receiving possession.


Priority: PMSI in consumer goods

HAS SUPERPRIORITY over all other perfected parties, if
(1) AUTO PERFECTS - don't need to do anything.


Priority: Chattel Papers and Instruments

(1) buys in good faith
(2) gives new value
(3) takes possession
(4) doesn't know it violated rights of other secured party


Priority: Unperfected secured party and buyer/lessee from debtor

buyer/lessee prevails as long as they didn't know of the security interest, gives value and receives delivery of the collateral


Priority: Perfected secured party and buyer/lessee from debtor

secured party prevails, unless
(1) secured party consents to buyer taking it free of security interest
(2) BIOCOB (unless they knew of security interest)
(3) consumer purchaser from consumer (unless knows)


Priority: Unperfected Secured Party vs. Judicial Lien creditor

JLC previals before security interest perfected


Priority: Perfected Secured Party vs. Judicial Lien Creditor

PRIOR perfected security interest has priority over JLC


Remember the order of priorities (from most priority to least)

(1) BIOCOB who doesn't know of other security interests
(2) PMSI
(3) Perfected security interest and Judicial liens
(4) Purchaser without notice of unperfected security interest
(5) Unperfected security interest
(6) Debtor


What laws govern perfection?

Law of the state where debtor located


Remedies when debtor defauls

(1) Repossess - doens't require notice but requires no breach of peace

(2) Sell it - creditor must send notice to debtor. Look at sufficiency of advertising, limited markets, clearning or repair, public auction

(3) Strict Foreclosure - SI keeps collateral to satisfy debts. Give notice that SP keeping it and notify other creditors who have an interest in it, get assent from debtor (automatically assents by failure after 20 days).


Who is a BIOCOB?

a person that buys goods in good faith
without knowledge of other's rights in the goods
of goods from
a person who deals in good of the kind