Secured Transactions Flashcards
Inventory PMSI
Filing must be made prior to debtor receiving possession, and secured party must notify all conflicting security interests prior to debtor receiving possession
Lender’s PMSI
Secured party gives value to the debtor to enable the debtor to acquire rights in the goods/software, and the value was so used.
Garage Sale Rule
A buyer of consumer goods for value, for his own personal, family, or household use from a consumer seller and without knowledge of the security interest buys free and clear of a perfected security interest unless a financing statement has been filed.
Buyer vs. perfected
Takes free and clear of a perfected security interest created by the seller if:
1) Buys goods, not including farm products
2) From a merchant in the business of selling goods of that kind
3) in good faith and
4) w/o actual knowledge that the sale violates the rights of another in those goods.
Bankruptcy Effect on Collateral
Under the bankruptcy code, the trustee may avoid any transfer of property of the debtor if the trustee can establish all of the following:
(i) the pre-bankruptcy transfer was to or for the benefit of a creditor;
(ii) the transfer was made on account of an antecedent debt;
(iii) the debtor was insolvent at the time of the transfer; (iv) the transfer was made within 90 days of the filing of the bankruptcy petition; and
(v) the transfer has the effect of increasing the amount that a transferee would receive in a Chapter 7 case.
-Exception when the transfer is intended as a contemporaneous exchange for new value.
Enforceable Security Agreement
1) Record
2) Describes Collateral
3) Authenticated by debtor (including by way of an email moniker)
After-Acquired Clause
Required for security interest to attach on collateral purchased by debtor, other than inventory, after entry into the security agreement. Inventory is automatic.
Proceeds (broadly defined) are also automatically covered.
Indefinite Automatic Perfection
PMSI in consumer goods
Additional information required for real property-related collateral
1) Indication that this collateral is covered
2) Indication that it is to be filed in the real property records
3) Description of the real property
4) Name of a record owner if the debtor does not have an interest of record
Changed Legal Name
4 months to correct, or property purchase after the 4-month period won’t be covered.
Consignments treated as a purchase-money security interest in consigned inventory
1) Delivered to a merchant who deals in goods of that kind for the merchant to sell
2) Merchant not known by its creditors to be substantially engaged in selling goods for others
3) Value of the goods in excess of $1,000
4) Goods were not treated as consumer goods immediately prior to delivery
Temporary Automatic Perfection
1) Perfected collateral is given to debtor for resale (lasts for 20 days)
2) Debtor or collateral moves to another state (lasts for 4 months)
3) Collateral is exchanged or gives rise to proceeds (lasts for 20 days, but indefinite for identifiable cash proceeds)
Seller’s PMSI
Secured party sells the goods to the debtor and the debtor incurs an obligation to pay the secured party all or part of the purchase price.
Buyer vs. unperfected
Buyer takes free and clear if:
1) Buyer gives value
2) receives collateral and
3) buys without knowledge of the interest
Same-office rule
Proceeds that are not cash are perfected indefinitely if:
1) Filed financing statement covers the original collateral;
2) Proceeds are collateral in which a security interest may be perfected by filing in the same office;
3) Proceeds are not acquired with cash proceeds
Advances
If done within 45 days, covered by the attachment of the security agreement. Covered thereafter if the advance is made without knowledge
Collateral that can be perfected with possession
1) Goods
2) Instruments
3) Negotiable Instruments
4) Tangible Chattel Paper
Attachment requirements
1) Value has been given
2) Debtor has rights in the collateral
3) Debtor has authenticated a security agreement with a description of the collateral OR the secured party has possession or control pursuant to the security agreement
Security interest “attaches” in after-acquired property when the property is acquired, not when the interest was initially given.
Self-Help
Cannot breach the peace.
Unperfected vs. Unperfected
Priority determined by first to attach
Priority of unperfected secured vs. judicial lien creditor
Judicial lien has priority. If judicial lien acquired after attachment, the creditor must not have knowledge of the security interest at the time the lien attaches.
Consequences of non-compliance of secured parties in disposing of collateral
- Statutory minimum for consumer goods of the credit service charge, plus 10% of the principal amount, plus 10% of the cash price.
- Rebuttable presumption that the secured party is not entitled to collect deficiencies; absolute bar in consumer transactions.
Standard for commercially reasonable disposition
- Sold in the usual manner on a recognized market
- At the price current in any recognized market at the time of the disposition; or
- otherwise in conformity with reasonable commercial practice among dealers of that type of property
Must provide timely notice to debtor, other secured parties and any other stakeholder the secured party has received notice of a claim from.
Kinds of Intangibles
- Accounts Receivable
- Deposit Accounts
- Commercial tort claims
- General intangibles (including IP)
