Law of Commercial Transactions Final

PMSI (Purchase Money Security Interest)
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PMSI (Purchase Money Security Interest)
A special type of security interest that is created when the money is lent to purchase the good itself (either directly by creditor or 3rd party), and a security interest is retained in the good.
attatchment
gives the creditor an enforceable security interest.
-3 Requirements
1) unless the creditor is in possession of the collateral, there must be a written or authenticated security agreement that clearly describes the collateral.
2) the secured party must give the debtor something of value.
3) the debtor must have rights in the collateral.
perfection
the legal process by which secured parties protect themselves against the claims of third parties who may wish to have their debts satisfied out of the same collateral
Perfection without filing
2 situations

1) Possession- pledge collateral as security for debt, transfer the collateral to the creditors possession, and the creditor would return the collateral when the debt is paid.

2) PMSI in consumer goods- Goods bought primarily for personal, family, or household purposes.
*Perfect automatically, don't have to file
Priority
*DONT care about unsecured creditors in article 9*
-Perfected security interests trump unperfected security interests.
-If multiple perfected secured parties then first to perfect.
If multiple unperfected secured parties then first to attach.
Exceptions to general priority rules
-Buyer in the ordinary course of business
-PMSI in equipment
-PMSI in inventory
buyer in the ordinary course of business
Buyer who, in good faith, buys goods from a party in the business of selling such goods.
*Takes the goods free from any security interest created by the seller, even if it is perfected and they are aware of its existence.
PMSI in equipment
Can prefect a PMSI if you file a financing statement before the debtor takes possession or within 20 days of attachment.
-Will have priority over other perfected secured creditors even if perfect after.
-PMSI that is not in consumer goods must still be perfected [not automatic]
PMSI in inventory
To perfect a PMSI in inventory you must give written notice to senior perfected creditors before the debtor takes possession of the new inventory.
Proceeds from sale of collateral
1) reasonable selling expenses incurred by the secured party who held the sale.
2) Balance owed to the seizing secured creditor.
3) Junior secured creditors in order of priority.
4) Remainder to debtor

*Senior secured creditors interest is sold with the asset*
Chapter 7 Bankruptcy (Liquidation)Can be: -Voluntary: Order for relief is automatic -Involuntary: Order for relief is not automaticPreferencesA debtor is not permitted to transfer property or to make a payment that favors or gives preferences to one creditor over the others.preferential paymentsInsolvent debtor transfers property to satisfy a preexisting debt, within 90 days before the filing of the bankruptcy petition.Preferences to Insiders(close relationship/family to debtor) Trustee can recover property transferred within 1 year of filing for bankruptcy. -2 years if fraudulentUnsecured Creditor PriorityEach Level must be paid before moving on. Each creditor within a certain level paid proportionately if not enough. 1) Domestic support obligations 2) Administrative expenses 3) Employment items 4) Taxes (Fed. & State) 5) General unsecured creditorsClaims that cant be discharged-Entities can never get a discharge, only individuals -Taxes -Student Loans -Domestic Support obligations -Anything debtor lied aboutChapter 11 BankruptcyReorganization; most commonly used by corporate debtors.Chapter 13 BankruptcyIndividuals repayment plan -Used commonly if make to much money to file for chapter 7.Chapter 9 Bankruptcymunicipal debt adjustmentChapter 12 BankruptcyA form of bankruptcy that lets family farmers and fishing businesses create a plan for debt repayment that allows them to keep their operations running