secured transactions Flashcards
1
Q
secured transaction
A
is a transaction intended to create a security interest in personal property or fixtures
2. generally involves a sale on credit or a loan in which the seller or the lender obtains a lien on some or all of the debtor’s property as security for payment
2
Q
what to look for in a secured transaction
A
- a credit transaction (sale on credit or a loan)
2. an agreement that creates a lien in favor of the creditor in the debtor’s personal property to secure the debt
3
Q
debtor
A
the person who owes payment or performance of the obligations secured
4
Q
secured party
A
a lender, seller, or other person in whose favor there is a security interest
5
Q
security agreement
A
the agreement between the debtor and the secured party that creates the security interest
6
Q
security interest
A
an interest in personal property of fixtures which secures payment or performance of an obligation
7
Q
collateral
A
the property subject to a security interest here
8
Q
purchase money security interest
A
- secured party sells debtor collateral on credit and retains a security interest
- an enabling loan, a loan to a debtor that enables the debtor to buy collateral
- the credit or loan proceeds must actually be used to acquire collateral
9
Q
security interest in nonconsumer goods does not lose its status as PMSI
A
- the purchase money obligation also secures an obligation that is not purchase money
- non purchase money collateral also secures the purchase money obligation or
- the purchase money has been renewed, refinances, consolidated or resrtuctured
10
Q
after acquired property clause
A
- a secured party often will want to obtain a security interest not only in debtor’s present property but also in property that the debtor will obtain in the future
- this is permissible, security agreements typically contain an after acquired property clause
11
Q
future advance clause
A
- secured party contemplates making future loans to the debtor and wants to secure these future advances in the present security agreement
- this is permissible becuase security agreements typically contain a future advance clause in which case the new security agreement is not needed when a future advance is made
12
Q
attachment
A
deals with those steps legally required to give the secured party a security interest in the collateral that is effective as against the debtor
13
Q
perfection in secured transactions
A
deals with those steps legally required to gie the secured party an interest in the collateral that is effective as against the world
14
Q
financing statement
A
document generally used to provide public notice of the security interest and so to perfect the security interest
15
Q
types of collateral: goods
A
- includes all things which are movable at the time the security interest attaches and include the unborn young of animals and growing crops
- also includes fixtures
- classes of goods:
consumer goods
equipment
farm products
inventory
16
Q
consumer goods
A
used or bought primarily for use primarily for personal family or household purposes
17
Q
equipment
A
used or bought for use primarily in business
18
Q
farm products
A
crops or livestock or supplies used or produced in farming operations or productd of crops or livestock in their unmanufactured states if they are in the possession of a debtor engaged in farming operations
19
Q
inventory
A
held by the person who holds them for sale or lease or to be furnished under service contracts, materials used or consumed in business
20
Q
instruments
A
negotiable instruments and any other writing which evidences a right to the payment of a monetary obligation and which are in the ordinary course of business transferred by delivery with any necessary endorsement or assignment but does not include investment property
21
Q
documents as semi-intangible and intangible property
A
a document which in the regular course of business is treated as evidencing that the person in possession of it is entitles to receive, hold, and dispose of the document and the goods it covers
22
Q
chattel paper
A
a record or records which evidence both a monetary obligation and a security interest in or a lease of specific goods.
- a record is information that is stored in either a tangible medium or an intangible medium
- chattel paper that is stored in an electronic medium also is called electronic chattel paper
23
Q
investment property
A
includes items such as stocks, bonds, mutual funds and brokerage accounts
24
Q
accounts
A
a right to payment not evidences by an instrument or chattel paper for
1. goods
2. services
3. real property
4. for a policy of insurance issued or to be issued
5. for a secondary obligation incurred or to be incurred
6. for energy provided ot to be provided
7. for the use or hire of a vessel
8. arising out of the use of a credit card
9. as lottery winnings
10 a contractual obligation arising from a loan of money is not an account it is a general intangible
25
deposit account
1. a demand time, savings, passbook or similar account maintained with a bank
2. not article 9 generally applies to deposit accounts as original collateral and deposit account that are claims as proceeds of other collateral
26
exception to the deposit account
article 9 does not apply to an assignment of a deposit account in a consumer transaction
27
commercial tort claims
1. a claim arising in tort with respect to which the claimant is an organization or where the claimant is an individual and the claim arose in the claimant's business or profession and does not include damages for personal injury or the death of an individual
28
general intangible
any personal property not coming within the scope of the other definitions
2, general intangalbe under which the account debtor principal's obligation is a monetary obligation is a payment intangible
29
article 9 applies to
1. any transaction regardless of its form, that a security interest in personal property or fixtures by contract-kind of a title retention contract
2. an agricultural lien
3. a sale of accounts, chattel paper, payment intangibles, or promissiry notes
4. most consignments
5. a secured sale disguised as a lease
30
article 9 consignments
1. the consigned goods are worth more than 1000
2. the consignor did not use the goods as consumer goods
3. th3 consignee deals in goods of the kind under a name other than the consignors
4. the consignee is not an auctioneer
5. the consignee is not generally known by her creditors to be substantially engaged in selling of goods of others
6. a consignor's interest in the consigned goods is considered to be a PMSI in inventory
31
an authenticated security agreement
1. unless the collateral is in the possession or control of the secured party pursuant to an agreement, a written (or electronically stored) security agreement is required
2. most often the debtor wants possession of the collateral so a writing is necessary
32
form of the security agreement
1. the agreement must be evidenced by a record and must show an intent to create a security interest/ there are no magic words which create a security interest. there must be language in the record which leads to the logical conclusion that the parties intended to create a security interest
2. the agreement must be authenticated by the debtor, it must be signed or marked electronically with the present intent to identify the authenticating person and adopt the agreement
3. the agreement must contain a description of the collateral and if the security interest covers timber to be cut, a description of the land concerned. it must reasonably identify the collateral
33
the secured party must be given value
1. the secured party extends credit to the debtor (secured party sells goods to the debtor on credit or the secured party loans the debtor money) and takes a security interest in the goods
2. in addition, a pre-existing debt is considered to be value given
34
the debtor must have rights in the collateral
1. an ownership interest in or the right to obtain possession of the collateral qualifies as rights in the collateral
2. the debtor also has rights in collateral where the property belongs to someone else who authoirzed the debtor to put it up as collateral
35
scope of the security interest
1. debt can be secured by future advances
2. property may include after acquired property
Exception: a security interest does not attach under an after acquired property clause to consumer goods unless the debtor acquires rights in them within 10 days after the secured party gives value AND an after acquired property clause is ineffective as to commercial tort claims
3. when talking inventory and account which turn over rapidly, and there is no after acquired clause, court usually presume it to be in there
3. property secured generally includes proceeds
36
property secured generally includes proceeds
1. proceeds includes whatever is received upon the exchange, sale, collection or other disposition of collateral or proceeds
2. unless otherwise agreed, a security agreement is presumed to give the secured party rights to proceeds
3. has to be identifiable proceeds
4. what if the proceeds are co-minlged with other money in an account proceed dollars are the last dollars to leave the account
5. once the proceed dollars are gone, they are gone, they do not come back in
6. the attachment of a secuirty interest in collateral also is an attachment of a security interest in a supporting obligation for that collateral
37
perfection of the security interest
1. deals primarily with rights as between the secured party and third parties
2. perfection is not necessary to create a valid, enforceably secuirty interest as between the debtor and the secured party
38
methods of perfection
1. automatic
2. possession
3. control
4. filing
5. if certificate of title act applies, note the lien on the title
39
automatic perfection
usually a security interest is perfected when it has attached and when some additional step is taken, however sometimes it is automatic
1. PMSI *** in consumer goods. ex D borrows from S to buy a new dining set, S obtains security interest in the set. this is automatic
2. assignment of certain account or payment intangibles that does not in conjunction with other assignments to the same assignee transfer a significant part of the outstanding accounts
3. a sale of payment intangible or a promissory note.
4. a security interest created by the assignment of health care insuarnce receivable to the provider of the health care goods or services
5. securty in investment property
6. supporting obligations
7. temporary automatic perfection
40
casual and isolated tests and perfection
no need to file if no one would think of filing
| 2. basically the courts look at the profession of the person who has to file
41
percentage test and perfection
1. is this a significant percentage of the account?
2. disregard professional status of the assignee and only consider what percentage of the total accounts of the assignor was assigned and whether that percentage constitutes a significant part of the whole
42
possession of collateral by secured party
1. a secured party may perfect a security interest in most types of collateral simply by taking possession of the collateral
2. the security interest is perfected from the moment of possession without relation back to the time of attachment
3. generally the perfection continues so long as possession is retained
43
exception to the possession of collateral by secured party
1. a secured party may make available to the debtor on a temporary basis an instrument, negotiable document, certificates security or goods not covered by a negotiable document that are in possession of the bailee and will remain perfected for 20 days after which time the secured party will become unperfected unless it again takes possession or files a financing statement
2. a security interest in accounts certificates of title goods, deposit accounts nonnegotiable instruments electronic chattel paper, and general intangibles cannot be perfected by possession
3. most often possession by the secured party is not very practical
44
perfection by control
1. security interest in investment property, non-consumer deposit accounts and electronic chattel paper may be perfected by control
2. investment property: basiaclly a secured party has control of an item of investment property when the secured party has taken whatever steps are necessary to be able to have the invest. proper. sold without further action from the owner
45
certificated securities and perfection by control
1. if the security is represented by a certificate the secured party who wants to perfect by control must take possession of the certificate.
2. if the certificate is not in bearer form, it also must be endorsed to the secured party
46
uncertificated security and perfection by control
1. if the security is not represented by a certificate, the secured party who wants to perfect by control must have the owner notify the issuer to either
1. re-register the stock in the name of the secured party or
2. agree to follow the secured party's instructions without further consent by the owner
47
securities accounts and perfection by control
1. persons often instruct brokers or mutual fund companies to purchase stocks, bonds, or mutual funds shares on their behalf and to hold them in a securities account
2. a secutiy interest in this acocunt may be perfected by control by having the owner of the account contact the broker and instruct the intermediary that the secured party has the owner's rights in the account or that the intermediary should comply with the secured parties orders without further consent
48
non-consumer deposit account and perfection by control
* ** 1. the bank in which a nonconsumer deposit account is maintained automatically has control over the deposit account
2. if the secured party is not such a bank, it can obtain control over the account by either putting the account in the third parties name or agreeing in authenticated record with the debtor and the bank in which the deposit account is maintained b that the bank will follow the secured parties orders
49
electronic chattel paper and perfection by control
control if:
1. a single authoritative copy of the record exists and
2. this authoritative copy identifies the secured party as the assignee of the record or records and
3. the authoritative copy is communicated and maintained by the secured party ors its designated custodian
50
notion of lien on certificate of title and perfection
the only way to perfect a securty interest in a motor vehicle required to be titled under state law is by noting the lien on the certificate of title unless the debtor is holding the motor vehicle as inventory for sale or lease
51
filing a financing statement and perfection
a security interest may be perfected by filing as to all kinds of collateral except deposit accounts and money (if lien on equipment, can sell the equipments and then have a lien on the proceeds which are cash)
1. notice filing: simply enough information to put people on notice that they need to find out more information on the deal
52
contents of financial statement and perfection
1. debtor's name
2. description of collateral
3. secured party's name
4. real property related financing statements
5. no signature required though debtor must authorize the filing
6. authenticated security agreement itself may be filed
53
debtors name on financial statement
1. if individual: give the name of the individual, generally driver;s license name,
2. if corporation: use the name stated to be the debtors name on the state filed document
3. partnership: the partnership name should be given not the individual names of the partners
54
debtor name change
1. if the name changes so as to be seriously misleading, the financial statement is effective to perfect a security interest in collateral acquired by the debtor before or within 4 months after the change
2. it is not effective to perfect a security interest in collateral acquired by the debtor more than 4 months after the change
55
secured party's name
1. because searches are not conducted under the secured party's name, an error in the name here will not be seriously misleading
56
description of the collateral
1. inventory is ok, as long as it is reasonable
| 2. super generic is okay for financing but not for security agreement, (all assets)
57
real property related financing statements
when realty interest involved then the financing statement must describe the realty and reasonably identify it (not a full legal description) and must indicate that it is to be filed in the real property records
58
where to file a financing statement
1. generally: filed with the Secretary of State unless provided otherwise in article 9
2. must be made in the office where a mortgage on the real estate would be filed or recorded where the collateral is as extracted minerals or timber to be cut or where the financing statement is filed as a fixture filing as the collateral is goods which are to become fixtures
59
multiple state transactions and filing financing statement
1. general rule: you file in the state where the debtor is located
2. when it is a registers organization, file in the state where organized
3. if unregistered: look to see where the business is located, if more than one place, the chief executive office
4. what is the debtor moves? secured party remains perfected for 4 months after the move but then you have to refile in the new state
5. when agricultural: file where the farm products are located
60
how long is the financing statement effective?
5 years from date of filing and can be extended by a continuation statement
61
what if there is no outstanding obligation of the debtor and no commitment on the part of the secured party to make further advances?
the secured party, upon receiving an authenticated demand by the debtor, must within 20 days provide the debtor with a termination statement to the effect that the secured party no longer claims a security interest under the financing statement
62
perfection as to proceeds
1. if a secured party has a perfected secuirty interest in collateral, a secured party automatically has a perfected security interest in whatever proceeds the debtor receives in exchange for that collateral for 20 days.
2. to remain perfected in those proceeds beyond 20 days, the secured party must taje new action to perfect its interest unless
a) the proceeds are identifiable cash proceeds or
b) the same office rule: the security interest in the original collateral was perfected by filing, a security interest in the type of collateral constituting proceeds would be filed in the same place as the financing statement for the original collateral and the proceeds were not purchased with cash proceeds of the collateral
63
***Priority
1. two parties fighting over the same collateral
2. generally: the first to file or perfect, whichever occurs first has priority
3. pure race statute
4. what if no one files or perfects: the first to attach
64
PMSI in goods other than inventory or livestock
(usually equipment) a PMSI in such goods has priority over a conflicting sec. interest in the same goods or its proceeds if the PMSI is perfected at the time the debtor received possession of the collateral or within 20 days thereafter
65
PMSI in inventory or livestock
has prioirty over conflicting security interest in the same inventory or livestock as well as proceeds that are chattel paper, instruments and identificale cash proceeds, if the debtor receives possession of the inventory or livestock the secured party 1. perfects and 2) sends an authenticated notification to holders of previously filed conflicting security interests in the collateral
BUT with inventory the holder of the security interest must recieve the notice within 5 years befoer the debtor receives possession of the inventor
WITH livestock: must recieve notice within 6 months before the debtor receives possession of the livestock
66
conflicting PMSI
a secured party who has a PMSI as a seller has priority over secured party who has a PMSI in the same collateral as the lender
67
special priority rules for investment property
1. perfected by control has priority over perfection by any other method
2. in conflicting sec. interests each were perfected by control, they rank according to the time of obtaining control
3. a sec. interest granted to a debtor's intermediary has priority over a sec. interest granted by the debtor to another secured party (unless the intermediary agrees otherwise)
4. except as in 1-3 above, the first to file or perfect governs
68
special priority rules for deposited accounts
1. perfection by control beats out any other way
2. if conflicting interest each were perfected by control, they rank according to time
3. a secured party who has obtained control by putting deposit account in its name has priority over all other secured parties with control
4. a bank has control because it maintains the deposit account has priority over all other secured parties with control except a secured party who has obtained control by putting the deposit account in his name
Note: a bank with which a deposit account is maintained may exercise any right of recoupment or set off against a secured party that holds a sec. interest in the deposit account
BUT if the account was put in own name os secured party, the bank does not have the set off rights
AND if the debtor transfers money out of the deposit account the transferee takes free of a security interest in the finds unless they act in collusion with the debtor in violating the rights of the secured party
69
purchaser of chattel paper
if a purchaser of chattel paper in good faith gives new value and takes possession in the ordinary course of business, the purchaser will have priority over:
1. a security interest in chattel paper that arises merely as proceeds of inventory as long as the chattel paper does not indicate that it has been assigned to anyone other than the purchaser and
2. any other security interest in the chattel aper as long as the chattel paper purchaser acquired its interest without knowledge that its purchase violated the rights of the secured party
NOte: any notation on the chattel paper is sufficient to give knowledge
70
purchaser of instruments
has priority over a perfected security interest in the instrument if the purchaser gives value and takes possession of the instrument in good faith and without knowledge that the purchase violates the rights of the secured party
71
authorized sales:
1. if the sale is authorized, the buyer takes free of the security interest.
2. authorization can be express or implied
72
unauthorized sale
generally a buyer in the ordinary course of business other than a person buying farm products from a person engaged in farming operations takes free of a security interest created by his seller even though the security interest is perfected and even though the buyer knows of its existence
73
what is a buyer in the ordinary course of business?
look at the seller. ask
1 does the seller usually sell this stuff and
2. does the seller usually sell this stuff in this manner
if yes to both, buyer in the ordinary course
74
buyers not in the ordinary course of business
1. take subject to perfected security interests.
2. they take free from the unperfected security interests and unperfected agricultural liens unless they know of the security interest
3. note: a buyer not in the ordinary course can gain priority over a previously perfected secured party who makes a future advance on collateral after the buyer purchases the collateral. such a buyer has priority over a future advance made: after the secured party learned of the purchase or more than 45 days after purchase
75
***special rule: consumer to consumer sales
1. in the case of consumer goods, a buyer takes free of a security interest even though it is perfected if he buys without knowledge of the security interest for value and for his own personal family, or household purposes unless prior to the purchase the secured party has filed a financing a financing statement covering such goods
2. note: the goods must be consumer goods in the hands of both the buyer and the seller
76
special rule: buyer not in the ordinary course v. PSMI
1. PMSI grace period
2. if the secured party files with respect to a purchase money security interest within 20 days after the debtor receives possession of the collateral, he takes priority over the rights of a buyer in the ordinary course which arises between the time the security interest attaches and the time of filing
77
secured party v. judicial lien creditor
1. an unperfected security interest is subordinate to the rights of a person who becomes a lien creditor before the security interest is perfected.
2. if the security interest is perfected before the person becomes a lien creditor, the security interest has priority
78
lien creditor: article 9 definition
1. a creditor who has acquired a lien of the property involved by attachment levy or the like
2. not clear definition of when
3. the lien has to attach to the collateral
4. ook at the time of the perfection and the time of the levy: if the security interest is perfected before the sheriff levies, the security interest has priority
79
special rule: PMSI v. Lien Creditor
if the secured party files with respect to a PMSI within 20days after the debtor gets possession, he takes prioirty over the rights of a lien creditor which arises between the time the security interest attaches and the time of filing
80
secured party v. statutory lien claimant
1. statutory lien beats out the bank...usually a mechanics lien
81
default
1. the right of the secured party to proceed against collateral is normally triggered by default
2. article 9 doesnt define default
3. usually: look for a late or missed payment or look for a possible waiver by the secured of late or missed payments
82
self help repossession
1. after default the secured party is entitled to take possession of the collateral without judicial process if this can be done without a breach of the peace
2. when a secured party breaches the peace, he loses the authorization to repossess, may be sued for conversion and is liable for actual and frequently punitive damages
3. code doesnt define breach of peace: but generally if it is likely to lead to violence, it is probably a breach
4. also likely a breach if taken over the debtor's objection, constructive force can qualify too (such as someone in police officer uniform present)
5. if self help is unavailable the secured party can use the judicial process (replevin) to get the goods
83
retention of collateral (strict foreclosure)
after default and repossession, the secured party may propose retaining the collateral in full or partial satisfaction of the debt
1. with consumer goods, has to be in full satisfaction, but non-commercial goods, can be partial satisfaction
2. send proposal to any other secured party that you know of. If a notified party object, the collateral must be disposed of by sale
3. must also have the debtors consent to keep it by agreeing in an authenticates record after default or in full strict foreclosure, failure to object
84
resale of collateral
1. can sell or lease in its condition when repossessed or after reasonable preparation
2. the sale may be either public (auction) or private and may be by one or more contracts
3. the sale discharges the security interest under which the sale is being made and all subordinate security interests
4. the purchaser however, is still subject to superior security interests
85
resale of collateral: reasonable notification
1. has to be authenticates by the secured party the notcie cannot be oral
2. must be given basiaclly to anyone with a surety or security interest and the debtor
3. do not have to give notice if the repo was for something perishable or is there is a fixed price for the item
4. the debtor may after default waive the right to notice in an authenticated agreement
86
notice of resale: time
1. must be within a reasonable time before the sale
| 2. in non-consumer: 10 days before sale
87
commercial reasonablility for resale
every aspect of the sale must be commercially reasonable
88
secured party buying the collateral
1. at a public sale, can sell it to yourself
| 2. generally you cant do it at a private sale
89
failure to comply with resale requirements
1. there is a rebuttable presumption that the value of the collateral equals the amount of the debt
2. usually you lose the right to the deficiency
3. if collateral is consumer goods: the debtor is entitled to 10% of cash price and interest to be paid over the life of the loan
90
statutory right to redemption:
tender all amounts due and owing, usually an acceleration clause
91
fixtures article 9 def
personalty attaches to real estate with the intent that it become a permanent part of the real estate is a fixture. the distinctive aspect of a fixture is that interests in it may arise both under the code and under real property
2. no security interest can exist in ordinary building materials incorporated into a improvement on the land
92
perfection of fixture
1. file with the secretary of state
| 2. file a fixture filing: necessary to obtain priority over some real estate interests
93
fixture filing
1. made in the office where a mortgage would be filed
2. has to id the real estate
3. has to id the owner of the real estate
94
rights on default
1. can repossess and the economic impact is irrelevant though they have to pay for damages
95
priority: secured party v subsequent real estate interest
1. a sec interest in fixtures has priority over any real estate interest that arise subsequently to the perfection of the sec. interest by fixture filing
96
priority: secured party v prior real estate interest
1. a prior real estate interest that is properly recorded has priority over a security interest that subsequently arises
2. EXCEPTION: a PMSI takes priority over an earlier in time realty interest if it is perfected by a fixture filing before the goods become fixtures or within 20 days thereafter
3. but note: a construction mortgage takes priority over PMSI even if perfected by a filing within 20 days
97
when is a fixture filing unnecessary
1. fixture readily removable
2. factory or office machines
3. any method of perfection works there
4. dont have to perfect if owner of real estate consents or has disclaimed interest
98
accesion
1. goods that are physically united with other goods in such a manner that the identity of the original goods is not lost
99
perfection accesion
if a security interest is perfected when the collateral becomes an accesion, the security interest is perfected when the collateral becomes an accession
100
general rule as to priority of accesion
first to file, first to perfect, special PMSI rules
101
special priority rule accession
a security interest in an accession is subordinate to a security interest in the whole which is perfected by compliance with the requirements of a certificate of title statute
102
removal and reimbursement for physical injury to the whole
1. a secured party may remove an accession from the other goods if the security interest in the accession has priority over the claims of every person having an interest in the whole
2. if damage the whole, have to pay for damages
3. a person entitled to reimbursement may refuse permission to remove until the secured party gives adequate assurance for the performance of the obligation to reimburse
