Chapter 30 - Secured Transactions

Purchase-money security interest (PMSI)

A PMSI in consumer goods is created when a seller or lender agrees to extend credit to a buyer for part or all of the purchase price of the goods in a sales transaction. PMSI in consumer goods is perfected automatically at the time it is created.

Effective Time Duration of Perfection

A financing statement is effective for five years from the date of filing. If a continuation statement is filed within 6 months prior to the expiration date, the effectiveness of the original statement is continued for another 5 years.

Buyers in the ordinary course of business

A person who buys "in the ordinary course of business" takes the goods free from any security interest created by the seller even if the security interest is perfected and the buyer knows of its existence.

Perfection without Filing

-Perfection by possession: when the collateral is transferred into the possession of the secured party. -Perfection by attachment: these security interests are automatically perfected at the time of their creation.

A creditor has two main concerns if the debtor defaults:

1. Can the debt be satisfied through the possession and usually sale of the collateral? 2. Will the creditor have priority over any other creditors or buyers who may have rights in the same collateral?

Three requirements must be met for a creditor to have an enforceable security interest:

1. Unless the creditor has possession of the collateral, there must be a written or authenticated security agreement that clearly describes the collateral subject to the security interest and is signed or authenticated by the debtor. 2. The secured party must give the debtor something of value. 3. The debtor must have rights in the collateral.

Common security interests that are perfected on attachment

1. purchase-money security interest in consumer goods 2. an assignment of a beneficial interest in a estate of a deceased person.

Once default has occurred and the secured party has obtained possession of the collateral, the secured party can:

1. retain the collateral in full or partial satisfaction of the debt 2. Sell, lease, license, or otherwise dispose of the collateral in any commercially reasonable manner and apply the proceeds toward satisfaction of the debt.

Floating Lien

A security agreement that provides for a security interest in proceeds, in after-acquired property, or in collateral subject to future advances by the secured party. Arise in the financing of inventories and shifting stock of goods.

Security Agreement

An agreement that creates or provides for a security interest

After-acquired Property

Property that the debtor acquired after the execution of the security agreement.

Perfection by Filing

The most common means of perfection is by filing a financing statement with the office of the appropriate government official. A financing statement gives public notice to third parties of the secured party's security interest.

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

Secured Party

any creditor who has a security interest in the debtor's collateral

Debtor

the party who owes payment or other performance of a secured obligation

Proceeds

cash or property received when collateral is sold or disposed of in some other way

Attachment

gives the creditor an enforceable security interest in the collateral

Financing Statement

instrument normally filed to give public notice to third parties of the secured party's security interest

Authentication

means to sign, execute, or adopt any symbol on an electronic record that verifies that the person signing has the intent to adopt or accept the record.

Cross-Collateralization

occurs when an asset that is not the subject of a loan is used to collateralize that loan

Collateral

subject of the security interest

Security Interest

the interest in the collateral that secures payment or performance of an obligation

Secured Transaction

whenever the payment of a debt is guaranteed, or secured, by personal property owned or held by the debtor