secured transactions

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Temporary Perfection: 20 day period for instruments, negotiable docs, certificated securities if new value is given under security agreement 20 days to possess or file. delivery of collateral to debtor for disposition 20 days to reperfect
***To have rights against third party:: security interest needs to give notice PERFECTION***
Types of Collateral:: certain rules vary depending on type. So make sure to classify correctly. 1st 4 ara tangible collateral goods. next 11 are intangible or semi-tangible. Last is proceeds (unique). Consumer goods, farm products, inventory, equipment, instruments, documents, accounts, deposit accounts, health insurance receivables, chattel paper, electronic chattel paper, letter of credit right, commercial tort claims, general intangibles, investment property, proceeds
Secured Party v. Secured Party:: Rule: first to FILE or perfect. note: filing CAN be before attachment (and therefore before perfection). BUT there are exceptions
Acceptance of Collateral in full (or part) satisfaction (strict foreclosure):: in nonconsumer goods cases: parties can agree to voluntary turnover in regurn for an agreed credit agst debt w/ debtor acknowledging remaining deficiency consumer goods: parties can agree to voluntary turnover in return for full satisfaction only: won't happen in these cases (realistically)
Secured Party v. Purchaser or other Transferree:: *generally, holder of perfected security interest in goods has rights superior to those of subsequent buyer. some exceptions/differences
PMSI Inventory.: NOTICE given to creditor to earlier perfected secured party. NO GRACE- must be perfected at time debtor gets possession
Notice!!! (+ Attachement) = Perfection of Security Interest: between Creditor and Others. 5 methods.: 1) filing. 2) possession. 3) control. 4) automatic perfection. 5) temporary perfection (grace periods
Exception to pror perfected interest (SP v. lien creditor): future advances. Judicial lien has priority over future advance that was perfected before lien arose but made more than 45 days after lien arose. unless future advance: 1) w/o knowledge of lien; OR 2) pursuant to commitment made w/o knowledge of lien lien creditor will prevail if becomes one before perfection
PMSI:: special type of security interests in goods. A person who holds a PMSI has priority over other security interests in same goods if certain rqrmts met.
Collection of rights of SP:: non-good collateral (i.e. accts) where agreed the SP is entitled to notify the acct debtor to make payment to her rather than debtor in default
What CANNOT be perfected by possession:: security interests in general intangibles, nonconsumer deposit accounts, nonnegotiable docs, electronic chattel paper, certificate of title goods and accounts
PMSI Equipment:: NO NOTICE. YES, GRACE period- can be perfected w/in 20 days after debtor gets possession. *note: conflicting PMSIs? SP who has PMSI in collateral as seller has priority over SP who has PMSI in same collateral as lender.
Possession: self-help (w/o breach of peace) OR replevin (sequestration): this is via sheriff SO need procedural due process (notice and fair hearing b/c public action)
Priority in Proceeds:: UCC divides into filing collateral and non-filing collateral. Generally under 1st to file or perfect rule, perfected security interest in proceeds will have same date of priority as the perfected security interest in the original collateral, as long as perfection of security interest extends beyond 20 day temp period (special rule for certain proceeds)
Parties agree to create the security interest as evidenced by:: 1) Creditor taking possession of collateral (reasonable care in storing and preserving) 2) OR security agreement. authenticated record (written or electronically stored). signed by debtor (or marked electronically). describing collateral. must reasonably ID the collateral. can be by category of collateral, so long as objectively determinable ("all my assets" not effective). OR control of certain types of collateral nonconsumer deposit accounts(bank automatically has control), electronic chattel paper, investment property
contents: consumer goods (mandatory no good faith exception): liability for deficiency judgment. phone # for redemption. phone # for add'l info
*to have rights against other parties-: must attach AND perfect.
typical secured transactions scenario: *typically, debtor buys something from creditor/secured party, does not pay immediately, to ensure payment, creditor takes security interest in specific personal property- the collateral, allowing creditor to take property if debtor fails to fulfill credit obligation
General Intangibles.: anything else. this is a "catchall" category for non-goods. copyrights, goodwill, patents. lawyers collection of signatures of SCt justices. blueprints and inventions
Automatic perfection: 1) PMSI in CONSUMER GOODS (equipment, inventory NOT automatic). motor vehicles: only by notation on vehicles cert of title. 2) Assignment of accts, health care insurance receivables or payment intangibles.. 2) Sale of payment intangibles or PNs . 4) Security interest in investment property if debtor is broker or intermediary debtor purchased through intermediary and has not yet paid broker to broker transactions
PMSI grace period (and SP v. Lien Creditor): SP who attaches (usually by security agreement) a PMSI in collateral before judicial lien creditor acquires an interest in collateral will have priority over the judicial lien creditor if files w/in 20 days after debtor receives collateral
Accounts:: right to payment w/ no writing OR insufficient writing to be an instrument or chattel paper*** includes CC debt. ex: accounts receivable
SP v. HIDC:: HIDC (of negotiable instrument) takes free of personal defenses and claims!
Security interests and proceeds: Security interest generally continues in proceeds! Attaches automatically! ex: C has security interest in some property of D and D sells it for an instrument, C would have a security interest in the instrument- as proceeds.
Consumer purchaser to consumer purchaser:: purchaser prevails (i.e. takes claim of secured party) UNLESS FILING (automatic perfection is ineffective) ex: C buys stereo from S, S retains security interest, C sells to N (consumer to consumer): N wins. put another way: Priority over PMSI in consumer goods UNLESS knows of security interest or a financing stmt has been filed. BUT Business purchaser: SP prevails. Say in ex. above C sells to a Resale Shop, automatic perfection is effective!
Purchaser of chattel paper (with possession): takes priority over non-possessory SP as proceeds of inventory. ex: on July 15 you sold inventory on credit, retaining security interest. 2 docs signed by purchaser: 1) acknowledgment of debt + 2) security agreement = chattel paper. Sell these docs to a lender, who has priority? LENDER has priority over prior SP if has possession. Also has priority in proceeds of chattel paper if either 1) would have had priority under the general priority rules OR 2) proceeds are the specific goods covered by the CP or cash proceeds of the specific goods
Special rule for certain proceeds of non-filing collateral:: SP has priority in proceeds of non-filing collateral (cash, CP, non-consumer deposit accounts, negotiable docs, instruments, and invst proceeds) if: has priority in original collateral security interest in proceeds perfected proceeds are cash proceeds or proceeds of same type as original collateral
Possession and Disposition by SP (NONJUDICIAL FORECLOSURE):: SP has right to either 1) sue on debt itself or 2) take possession of collateral (even w/o judicial process), sell it by public or pvt sale, then sue to collect deficiency. Must be commercially reasonable, and notice requirements
Buyer/lessee in ordinary course of business:: takes free of nonpossessory perfected security interest in goods UNLESS buyer knows that sale/lease violation of security interest. ex: GE sells 1000 refrigerators to K Dept Store, retains security interest to get full payment. You purchase one from K. K goes bankrupt. YOU PREVAIL. BIOC
Value given by the secured party: Preexisting debt is deemed value if the security interest is intended as security for the preexisting debt. attachment will not occur by gift
Noncompliance: Liability: for damages for loss caused by failure to comply
Instruments:: notes, drafts, certificate of deposit. transferred by endorsement + delivery i.e. promissory note. negotiable and non-negotiable
Electronic Chattel paper:: CP evidenced by info stored in electronic medium
Investment Property:: certificated securities held by you in paper form. uncertficated securities held by you in computerized form. securities account (intermediary holding shares)
Possession: (*note: possession can simultaneously satisfy rqrmts for attachment AND perfection)
Where is financing stmt filed?: location of DEBTOR determines "where" and "whose law" govern. General rule: central filing w/ secretary of state. local filing for real estate related collateral (i.e. fixtures, timber to be cut, minerals). registered orgs: state where organized. individual: state of individual's principal residence. org w/ one place of business: that state. org w/ more than one place of business: state were chief exec offices are. Good for 5 years.
*for security interest to be effective-: must attach.
Deposit Accounts:: accts maintained w/ a bank. savings accts, passbook accts, etc. (applies to nonconsumer and consumer deposit accounts)
Health Insurance Receivables:: right to payment, under insurance, for health care goods or services provided
Attachment (Creation) of Security Interest: between Debtor and Creditor (Secured Party). 3 requirements: 1: ) create security interest via possession, security agreement or control. 2) value given by SP. 3) debtor must have rights in collateral
Letter of Credit Right:: right to payment under a letter of credit. excludes right to draw on letter of credit
***To have rights against debtor:: security interest needs to ATTACH****
Collection and Enforcement by SP:: generally, SP gets rights as against debtor and any other obligated to make payment
Inventory:: goods held for sale or lease OR used short term business use short term: i.e. wrapping paper, string held by business for sale: i.e. refrigerator at sears held by business for lease: i.e. autos at hertz
Investment property:: SP w/ control (or w/ possession) prevails over SP who filed- even if control was later and SP knew of prior perfected (filed) security interest
Future advances:: this is present collateral for future loan. No attachment until secured party gives value
**note: timing.: security interest cannot be perfected before it attaches to collateral. ex: if creditor has filed but has not yet given value to debtor, perfection is not complete until attachment is complete (i.e. when value is given)
Filing:: Financing statement! must be authorized by debtor in writing, or by authenticated record. Authority is kept by secured party. Contains: Names: of debtor required signature of debtor NOT required. rade name of debtor OK. Addresses: if financing stmt is accepted by filing office w/o address, still effective. Description of collateral
Control:: 1) Deposit accounts: bank agrees it will act on SPs instructions (vs debtor's). EXCLUSIVE method of perfection for deposit accounts. 2) Letter of credit rights: issuer consents. 3) Investment property: certificated security, uncertificated security, security accounts
***So: look for: attachment PLUS notice = PERFECTION***
Debtor must have rights in collateral: **Note: after-acquired property clause OK. Future collateral for a present loan. NO attachment until debtor acquires an interest. Generally, must be in agreement BUT security interest attaches immediately to proceeds from disposition of collateral . m Exceptions: Does not apply to CONSUMER GOODS unless debtor acquires rights in goods w/in 10 days after creditor gives value ex: Feb 1 C buys stereo on credit form S. Gives security agreement in "all after acquired property" to secure stereo purchase. CAN claim Feb 2 purchase of refrigerator but NOT Feb 12 purchase of stove.
secured party owes duty of reasonable care (possession): debtor must reimburse for reasonable expenses
Scope of Art 9:: contractual security interests; sale of accounts, chattel paper, payment intangibles, and PNs; commercial consignments; agricultural liens. Does NOT apply to transfers of interests in land
Fixtures:: personal property becomes real estate by affixation.. generally, 1st to file or record prevails (fixture filing- usually in local real estate office). exception: PMSI SP who makes fixture filing w/in 20 days prevail over prior real estate filing. exception to exception: construction mortgagee prevails so long as recorded before goods became fixture and goods became fixtures before completion of construction
Temporary Perfection (20 days for proceeds (from original collateral) (also, PMSI in equipment): becomes unperfected on 21st day after debtors receipt of the proceeds unless the statutory rqrmts are complied with. what are the requirements? security interest in original collateral was perfected by filing a financing stmt, a security interest in type of collateral constituting proceeds would be filed in the same place as the financing stmt for the original collateral, & proceeds not purchased w/ cash proceeds of collateral proceeds are identifiable cash proceeds security interest in proceeds perfected w/in 20 day period
Application of proceeds of sale:: expenses of retaking holding preparing and disposing of collateral (incl attorneys fees). satisfaction of obligation secured by security interest. satisfaction of obligation secured by subordinate security interest if SP received demand. Debtor or trustee
Commercial Tort claims:: tort claims filed by a business that arose out of business (excluding personal injuries). Requires specificity, and there can be no "after acquired tort clauses"
Exceptions to first to file rule:: PMSI in inventory. PMSI in equipment and purchaser of chattel paper
contents: nonconsumer goods.: describe debtor and SP collateral. method of disposition. time and place of disposition
Documents:: 3 type: 1) warehouse receipts. 2) bill of lading. 3) delivery order
Proceeds:: whatever is acquired on disposition (sale, exchange, collection) of collateral (collateral that has changed in form). CHANGE in same persons hands. Usually, changed from inventory into one of these four things. 1) account. 2) instrument. 3) chattel paper. 4) cash. Proceeds include multigenerational proceeds
Future advances:: generally, time of perfection relates back to time of perfection of originally advance. however, buyer NOT in ordinary course can gain priority over a SP who makes future advance on collateral after buyer purchases collateral. Buyer has priority over future advance made after secured party learned of purchase OR more than 45 days after purchase. Ex: B buys painting from C, not knowing that D has perfected security interest in C's equipment (including painting). If D advances $$ based on future advance clause, B takes free of security interest to extent new loan given 45 days after sale, and depending on whether D knows of sale
Farm products:: goods (including crops and animals) used or produced in farming, in possession of farmer. includes livestock, products of livestock (eggs) ex: corn, sheep (note: tractor does NOT count)
Description of collateral:: supergeneric "all assets" OK (unlike security agreement): test is: is it seriously misleading?? does not have to include after-acquired clause "equipment" will include after-acquired equipment
Bankruptcy note:: voidable preference. SP does not take priority over trustee if security interest for antecedent debt gigen w/in 90 days of decl of bankruptcy
Security Interest:: right to keep or sell collateral if debtor defaults on his obligation on the creditor. PMSI is a special type of security interest
Problems concerning goods: Primary use test: i.e. if TV used 5/7 at home (consumer goods), 2/7 in office as equipment = primary use (so consumer goods). Original use test: i.e. purchase tv for home, move to office (equipment). this is CONSUMER GOODS
Chattel Paper:: writings evidencing: 1) obligation and 2) security interest ex: buy something at sears if it says "I promise to pay Sears $100"= negotiable instrument BUT if have something like: "I owe you $25 for the tie and you have security interest in the tie." = chattel paper
Temporary perfection (4 mo grace periods): four months goods and debtor move to different stat. organization changes its name (not a new legal entity)
Accessions:: personal property added to chattel. general rule of 1st to file 1st to perfect. exception: if accession (i.e. motor) became part of whole asset subject to cert of title law (autos), security interest in whole car has priority over security interest in accession
Disposition: commercially reasonable: fair price? sufficient advertising? people contacted? form of notification. to whom: unless perishable or threatens to decline rapidly or of kind ordinarily sold in recognized mkt, SP must give authenticated notice to debtor and 2ary obligor others from which SP has received notice of a claim
Noncompliance liability If consumer goods:: 10% of purchase price AND all interest charges to be paid over life of loan
Prioirities: **Art 9 allocation of priority among conflicting interests in same collateral. Ex: one creditor has PMSI in collateral and another creditor has prior perfected security interest in same collateral by virtue of an after acquired property clause- if debtor defaults, who has priority?
Consumer Goods: goods used or bought for family purposes. ex: refrigerator for someone's fam
Secured Party v. Lien Creditor:: *key is PERFECTION (perfect before lien creditor, you win) prior perfected security interest has priority
Equipment:: goods used in business long term. if not inventory, equipment ex: refrigerator at mcdonalds

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