BLAW Secured Transactions
Scope of a Security Interest
A security agreement that provides for a security interest in proceeds, after-acquired property, or collateral subject to future advances
Exception to Rules of Priority
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 A buyer in the ordinary course will have priority even if a previously perfected security interest exists to the goods
3) Requirement to Attach
DEBTOR has RIGHTS in the collateral does not have to be ownership can be lease title NOT required
Rights and Duties of Debtors and Creditors
Information Requests - secured party can furnish a copy of the financing statement Release - secured party can release all or part of any collateral described in the financing statement (terminating security interest) Assignment - secured party can assign security to third party Amendment - to filing (debtor and secured party agree)
After-Acquired Property
Need to previously agree on property the debtor acquired AFTER the execution of the security agreement usually "after-acquired" clause - generally debtor buys new inventory to replace old inventory, so security agreement has clause that gives secured party a security interest in the collateral
Attachment
Once the 3 requirements are met: Creditor's rights are said to attach to collateral Attachment gives the creditor an enforceable security in the collateral
Perfection on Attachment (without filing)
PMSI (purchase money security interest) created when a seller or lender agrees to extend credit to a buyer for part or all of the purchase price of the HOUSEHOLD/CONSUMER GOODS ex. if you buy big screen TV and you have a Walmart credit card - automatically have PMSI in that TV provided you purchase it for HOUSEHOLD use perfected: time of sale of goods no filing
Exceptions to Filing:
Perfection by Possession: Pledge Perfection on Attachment: PMSI
Perfection (without filing)
Pledged goods (no written contract anyway); perfection upon possession PMSI in consumer goods - "perfected on attachment"; security interest automatically perfected at time of their creation
Future Advances
Previously agreed upon line of credit creditor wants to lend money in the future that will be secured by the same collateral as debtor puts up for first loan
Disposition of Collateral
Retention of Collateral by Secured Party unless consumer goods and buyer has paid 60% secured party must give notice to buyer Sell, Lease, license or dispose of collateral (can't keep excess)
2) Requirement to Attach
Secured CREDITOR has to give DEBTOR something of value ex. goods (value) bought on credit card
Financing Statement
UCC-1 form instrument filed to give public notice to third parties of the secured party's interest
Security Agreement
agreement that creates or provides for a security interest
Secured Party
any CREDITOR who has a security interest in the debtor's collateral ex. seller or lender or cosigner
Default
any breach of the terms of the security agreement can constitute default can be failure to maintain does not have to be failure to pay
Proceeds
cash or property received when collateral is sold or disposed of in some other way a security interest in the collateral gives the secured party a security interest in the proceeds acquired from the sale of that collateral A security interest in proceeds perfects automatically (do not need to previously agree on it)
Judicial Remedies
creditor can give up security interest and sue to get judment
How to Become a Secured Creditor
creditor must "attach" a security interest in collateral of debtor
Noncash Proceeds: Deficiency Judgment
difference between sale and what is actually owed by debtor
Perfection (by filing)
filing is most common form of perfecting security agreement itself can be filed (UCC 1) NO TRADE NAMES must be filed under name of debtor/where debtor lives
Perfection by Possession (without filing)
if collateral is in possession of the collateral, do not need to be in writing pledge
Creditor concerns
if debtor defaults can the debt be satisfied through possession and sale of collateral? will the creditor have priority over any other creditors or buyers who may have the same rights?
Security Interest
interest in the collateral personal property, fixtures or account
Remedy: Repossession of Collateral (Self Help)
on the debtor's default, a secured party can take possession of the collateral covered by the security agreement uncommon because cannot trespass (usually cannot without court order)
1) Requirement to Attach
oral agreement and possession of collateral or WRITTEN AGREEMENT must be signed by DEBTOR ex. application for credit card has to have written agreement UNLESS possession of collateral (pledge) - pawn shop
Debtor
owes payment or other performance of a secured obligation
Why is it important to become a secured creditor?
puts you ahead of time in line for getting paid first in time first in line Perfected vs. Secured- perfected Attached vs. unsecured - attached wins
Perfection
secured parties (creditors) protect themselves against the claims of third parties who may wish to have their debts satisfied out of the same collateral first in line
Floating Lien Concept
security interest continues in the collateral or proceeds even if the collateral is sold, exchanged, or disposed of in some other way creditor is not interested in specific pieces of inventory
Collateral
subject of the security interest
Improper Filing
unperfected; don't get any further than attached debtor's name is incorrect collateral not sufficiently described
Termination Statement
when debtor has fully paid the debt, if the secured party perfected the security interest by filing, the debtor is entitled to have a termination statement filed Consumer debts - must file within ONE MONTH 10 days - written, informational requests
Secured Transaction
whenever the payment of DEBT is guaranteed (or secured) by personal property owned or held by the debtor