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Secured Transaction - Essay Prep

Terms in this set (34)

Attachment
Is the process by which the Security Interest is created
Security Interest attaches when the following elements exist simultaneously
(1) the secured party gives value, (2) the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party, and (3) the debtor has authenticated a security agreement that sufficiently describes the collateral [this can be evidenced by taking possession or control]
[Attachment] Security Agreement
A written security agreement is necessary for the creation of a security interest unless the secured party has possession of the collateral. Where the secured party has possession, all that is needed is an agreement, which can be oral, that the secured party is to have a security interest
[Attachment] Sufficient Description
A description of collateral is sufficient if it reasonably identifies what is described, including by UCC type. A super generic description such as "all of the debtor's personal property" is not sufficient in a security agreement
[Attachment] After-Acquired Collateral
After-acquired collateral is collateral that the debtor acquires or comes into ownership of after the security agreement has been signed. A security agreement may provide for an interest in after-acquired collateral.
[Attachment] After-Acquired Collateral - Inventory/Accts Rec
A Security Interest in inventory or Accounts Receivable automatically creates a security interest in after acquired collateral
[Attachment] After-Acquired Collateral - Proceeds
A security interest in collateral automatically creates a security interest in identifiable proceeds from that collateral, through sale, lease, or otherwise
[Attachment] After-Acquired Collateral - Consumer Goods
Security Agreement's can't cover after-acquired consumer goods unless Debtor acquires rights in the goods within 10 days of Secured Party giving value
[Attachment] Categories of Collateral - Goods - Equipment
is a category of collateral, defined by the UCC as goods other than inventory, farm products, or consumer goods
[Attachment] Categories of Collateral - Goods - Consumer Goods
are those used or bought for use primarily for personal, family, or household purposes
[Attachment] Categories of Collateral - Goods - Inventory
is a category of collateral, defined by the UCC as goods (except for farm products) held for sale or lease, or to be furnished under a service K
[Attachment] Categories of Collateral - Accounts
are rights to payment of a monetary obligation
[Attachment] Fixtures
A fixture is (1) attached to real estate, (2) adapted to the use of real estate, and (3) intended to be a permanent attachment
[Attachment] Lease
A transaction creates a security interest, even if called a lease, if the consideration for the right to possession and use of the goods is an obligation for the term of the lease not subject to termination by the lessee, and the lessee has an option to purchase the goods for no (or nominal) additional consideration at the end of the lease. The substance of the transaction controls, not the label given to it by the parties.
[Attachment] PMSI
A security interest in goods is a purchase-money security interest (PMSI) if it pertains to goods that are purchase-money collateral. A security interest in goods is a PMSI to the extent the goods are given as collateral for an obligation the debtor incurred to purchase the goods and actually used to purchase the goods.
Perfection
Perfection is the process by which the secured party gives notice to the entire world of its security interest and is necessary for priority purposes. A security interest is perfected if it has attached and the requirements for perfection have been satisfied. A secured party perfects its security interest by filing or taking possession or control of the collateral
[Perfection] Filing a Financing Statement
Filing a financing statement with the secretary of state is the most common way to perfect a security interest.
[Perfection] Filing a Financing Statement - Fixture
The fixture filing must be made in the county office where land records are kept, describing the land involved
[Perfection] Automatic Perfection
A PMSI in consumer goods perfects automatically and permanently upon attachment without filing
[Perfection] Proceeds
A security interest in proceeds is automatically perfected for 20 days, after which a filing describing the proceeds must occur, unless the proceeds are identifiable cash.
Priority
The general rule regarding priority under Article 9 is "first-in-time, first-in-right."
Between two perfected security interests, the security interest that files or perfects first, and has continued without interruption, will prevail.
A perfected security interest will prevail over an unperfected security interest.
Between two unperfected, the first security interest to attach prevails.
[Priority] PMSI & Goods
A perfected PMSI in goods will prevail over a conflicting security interest if the PMSI is perfected when the debtor receives possession of the collateral or within 20 days thereafter.
In other words, the holder of a PMSI will have a second-in-time, first-in-right priority.
[Priority] PMSI & Inventory
When the collateral is inventory, to prevail the PMSI must be perfected when Debtor receives possession of the inventory, and must notify the secured party, in an authenticated record, that it is obtaining a PMSI in Debtor's collateral
[Priority] PMSI & Fixtures
A PMSI may be second in time, but first in right, if the PMSI is for a fixture and a fixture filing is completed.
[Priority] Lien Creditors v. Secured Parties
The first-in-time, first-in-right rule also applies to priority contests between lien creditors and secured parties.
A secured party will have priority over a lien creditor if the secured party perfects before the lien creditor's interest arises.
An unperfected security interest is subordinate to a judicial lien in the same asset.
[Priority] Accessions
The first-in-time, first-in-right rule also applies to accessions, i.e., goods physically united with other goods but the identity of the original goods isn't lost.
If there are multiple security interests, each ranks equally in proportion to the value of the collateral at the time it became commingled goods
[Priority] Buyers of Collateral v. Secured Parties - Sale of Collateral - BIOCB
Generally, a security interest continues after the sale of collateral.
However, there is an exception for a buyer in the ordinary course of business.
A BIOCB is someone who obtains the collateral in good faith, without knowledge that the sale violates the rights of another person, in the ordinary course, from a seller who is in business of selling that type of goods.
Under the shelter principle, a subsequent transfer by a buyer in the ordinary course of business is also free of the security interest.
[Priority] Buyers of Collateral v. Secured Parties - Sale of Collateral - consumer-to-consumer transaction
Where the sale qualifies as a consumer-to-consumer transaction, the buyer takes free of a security interest (even if perfected).
This exception applies only when a person buys goods from a person who used or bought the goods for use primarily for personal, family, or household use without knowledge of the security interest; for value; primarily for the buyer's personal, family, or household purposes; and before the filing of a financing statement covering the goods.
Default
Default occurs when a debtor fails to tender an obligation when due
Default - Tangible Collateral
Upon default, a secured party may repossess tangible collateral if it can be done without a breach of the peace. Actions likely to lead to violence or entering a private home are considered a breach of the peace.
Default - Accounts Receivable, Instruments, or Chattel Paper
If the collateral consists of accounts receivable, instruments, or chattel paper, the secured party may, upon the debtor's default, notify the person obligated on the collateral to make payment to the secured party.
The notification must: (1) be authenticated by the secured party or the debtor; and (2) reasonably identify the rights assigned.
Once notified, the account debtor may discharge its obligation only by paying the Secured Party and not by paying the Debtor.
[Default] Sale of Collateral
After default and repossession, a secured party may sell, license, or otherwise dispose of any or all of the collateral in its present condition, or following any commercially reasonable preparation or processing.
Before disposing of collateral, the secured party must send to the debtor and any secondary obligor a reasonable authenticated notification of disposition.
This requirement does not apply to collateral that is perishable, that may decline quickly in value, or that is of a type customarily sold on a recognized market.
[Default] Order of Distribution of Proceeds
(1) All reasonable expenses, including attorneys' fees, incurred by the SP in disposing
(2) Outstanding amounts due to the SP that foreclosed on and sold the collateral
(3) Subordinate SIs or liens on the collateral if they sent an authenticated demand before disposal
(4) Any surplus goes to Debtor; if all debts are not covered by the sales, the SPs can obtain a deficiency judgment
[Default] Commercially Unreasonable Disposition
If the sale is commercially unreasonable, the deficiency can be reduced.
In non-consumer transaction, rebuttable presumption is the amount is reduced to $0, so long as debtor doesn't owe deficiency.
SP can rebut by showing the collateral is worth less than the outstanding amount of the debt
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