MEE Secured Transactions
Examples of super generic description of collateral
"all of the debtor's assets" "all of the debtor's personal property" These do NOT reasonably identify for attachment purposes.
M has a security interest in D's car. If D sells his car for cash, M's security interest will attach to ___________. If D then uses the cash to buy a new car, M's security interest will attach to ____________.
- the cash because the cash is the proceeds of the car sale. - the new car
(2) Rights
- the debtor must have rights in the collateral - attachment will not occur until there are rights to the collateral - the security interest attaches ONLY to the rights the debtor has in the collateral - for after-acquired property, attachment will not occur until the debtor obtains rights in the collateral (i.e. after the loan is signed)
How should a financing statement be described?
- the same way as a security agreement - BUT, it CAN have a super-generic description, unlike the SA
(1) Value
- value must be given by the secured party - given by providing consideration. No new consideration needed - a binding commitment to extend credit is value - a security agreement may provide that the collateral source secures future advances, and that can be the value
Types of Goods
1. Consumer Goods 2. Equipment 3. Farm Products 4. Inventory
The six methods of perfection
1. Filing 2. Possession 3. Control 4. Alternate Perfection Systems 5. State's certificate of title alw 6. Automatic perfection (temp or perm)
Categories of collateral
1. Goods 2. Right to payment 3. Documents 4. Investment property 5. Deposit Accounts 6. Commercial Tort Claims 7. Letter of Credit Rights 9. General intangibles
Essential information for filing:
1. Name of the debtor 2. Name of the secured party 3. Description of the colalteral
There are three requirements for attachment:
1. Value 2. Rights 3. Security Agreement
What's the appropriate state to file?
1. corporation - state of inc 2. unregistered business - state in which it operates 3. business in multiple states - where the Chief Executive Office is located 4. individuals - principal residence
Right to payment
1. instrument 2. chattel paper 3. accounts 4. payment intangible
Financing statement
1. written notice 2. filed with the county recorder 3. by a creditor 4. for the purchase of personal property ****establishes the creditor's interest in the personal property, which is security for the debt
How long does a financing statement last?
5 years from filing date unless continued File a continuation statement within 6 months before that 5 year date comes
SA w/out financing statement:
Attached, not perfected
Deposit Accounts
Bank accounts
Investment property
Certificated and uncertificated securities, such as stocks and bonds.
What types of collateral are always treated like secured transactions?
Chattel Paper Promissory Notes Accounts Payment intangibles **plus some consignments If you see someone buying any of these, treat them as if they are a secured party taking a security interest in the collateral.
What name should be used on the financing statement?
Correct legal name - see government ID or name on articles of incorporation *errors in the name are almost always considered to be SERIOUSLY MISLEADING unless a search would uncover the same wrong name
Farm products
Crops, livestock, supplies used or produced in farming operations. Ex: eggs, vegetables, animal feed, fertilizer. Note: NOT farming equipment!!
D signs a valid security agreement granting F security interest in 25 of D's "delivery trucks" and "any accessories now or hereafter installed." What is the effect of this description?
F's security interest in the truck will also attach to accessions to the truck (tires, radios, etc).
Perfection by filing
File a financing statement in the central filing office of the appropriate state. Applicable to perfect security interests in all collateral EXCEPT deposit accounts, money, cars, letters of credit.
The dual-status rule
For non consumer-goods transactions, partial PMSI are permitted. Note: the UCC does not specify a rule for consumer goods transactions, so ourts can either apply this rule or simply conclude that there is no PMSI!
Consumer goods
Goods acquired primarily for personal, family, or household purposes. Ex: electronics, furniture, boats, and home appliances.
Seller PMSI
Goods bought on credit
Accessions
Goods that are physically united with other goods in such a manner that the identity of the original goods is not lost Collateral is not lost
Attachment rule for proceeds
If a security interest attaches to the original collateral, it also attaches to the proceeds automatically whether or not the security interest states that it covers proceeds.
Attachment by possession
If you can hold it in your hands, a creditor can attach it by possession. :) Ex: consumer goods, equipment, farm products, chattel paper, documents, instruments, money
What if any of the required information is missing?
It is not perfected. ALL essential information must be there.
What if a filing office refuses the financing statement, or improperly indexes it, but was not justified in doing so? Wht
It is treated as having been filed + still perfected. Exception: it will be ineffective against a purchaser or secured party who gave value in reasonable reliance upon the absence of the record from the files!
What if a financing statement is FILED + ACCEPTED, but is missing essential info?
It's still not perfected.
B lends D money to help him buy a new car and takes a security interest in the car that D bought using the funds. What is this?
Lender PMSI
Security interests in real-property related collateral
Needs all req'd information PLUS: 1. financing statement must indicate that a security agreement covers THIS collateral 2. it must NOTE that it is to be filed in the LOCAL real property records (county) 3. describe the real property to which the collateral relates 4. name the record owner of the real property if not debtor
Does a debtor have to sign a financing statement?
No
What if a secured party files in the wrong location?
No perfection!
"all my consumer goods" Does this meet the description requirement?
No, because under the consumer goods exception, it needs to be described with more particularity.
E borrows $10 from S and also lends S her copy of Finding Nemo to watch over the weekend. Has S attached?
No. S has no security interest in the movie because S's possession of the movie is not pursuant to a security agreement,.
Does a financing statement need to mention proceeds or after-acquired property?
Nope
Financing statement w/out SA:
Not perfected, not attached
F gives B a loan to buy a new piece of equipment, taking a security interest in the equipment to secure the loan. This is a _________. Later, F extends a second loan to B secured by the same piece of equipment. What is F's interest in the second loan?
PMSI Non-PMSI for the second
After-acquired property clause
Property acquired after the security interest attaches Because a security interest only attaches to the collateral described in the agreement, a creditor that wants to have a security interest in property acquired by the debtor AFTER the agreement is authenticated must include an after-acquired property clause
(3) Security agreement
RAD 1. record - not necessarily on paper, but retrievable 2. authenticated - signed by the debtor to be bound 3. description - of the collateral, reasonably identifying it. **note: the security interest will only attach to the collateral that is DESCRIBED IN THE SA (unless the lender has possession/control of the additional collateral).
D sells C a car for $10,000 on credit. C signs a security agreement granting D a security interest in the car. This is a ___________
Seller PMSI
Things that ARE and ARE NOT sufficient descriptions:
Sufficient: "All the debtor's inventory" "Celtrac Tractor Serial No. 5" "Your Maza" Insufficient: "my favorite" "some of"
Payment intangible
The "catch-all" of rights to payment
B lends D money to help him buy a new car and takes a security interest in the car that D bought using the funds. Instead, D spends the money to pay bills and uses his next paycheck to buy the car. PMSI or not?
The bank does NOT have PMSI on the car because the loan extended by the bank did not go to help D buy the collateral - the car.
Perfection
The process that stakes the secured party's claim, so that the secured party might have PRIORITY over a later party.
What happens if a party fails to authorize before filing a financing statement?
The secured party can be liable for actual or statutory damages.
What if there is no authenticated record that describes the collateral?
The secured party's possession or control of the collateral pursuant to a SA agreement can also be sufficient
What if there is no after-acquired property clause, but there was property acquired later?
The security interest attaches only to the collateral that existed at the time that the security agreement was executed
Purchase Money Security Interest (PMSI)
The value given allows the debtor to acquire the goods, and the goods acquire secure the loan.
When will errors in a financing statement affect perfection?
When they are seriously misleading. If so, NOT perfected!
If D trades his car for a luxury watch, will M's security interest continue?
Yes, because it is the proceeds of the car
S sells goods to B, but the contract provides that the S retains title to the goods until the purchase price is paid in full. Is this is a S.T.?
Yes, in substance.
A is a paper manufacturer who gets a loan from a bank and pledges its inventory, equipment, and accounts as collateral for the loan. Is this a secured transaction?
Yes. A has an obligation to pay its loan back to the bank, which is supported by the bank's property interest in the collateral.
B has a security interest in all of A's inventory. That inventory includes paper held for sale. If A sells paper to a law school on credit, and the law school promises to pay for the paper later, will B's security interest attach?
Yes. B's security interest in inventory will attach to the right to payment -likely on account- because the right to payment is proceeds.
E borrows $10 from S and they orally agree that S can hold onto E's copy of Finding Neo until the loan is repaid. Has S attached?
Yes. S has possession of the collateral pursuant to an oral agreement.
A has a security interest in flour. B has a security interest in eggs. They are mixed together with other ingredients to make cookies. What happens to A and B's security interests?
You cannot separate the eggs and flour after making them into cookies. Those security interests will not continue, but A and B will have a proportional interest in the cookies -- i.e., the product/mass that resulted.
Chattel paper
a record (either paper or electronic) with two parts: 1. a monetary obligation, and 2. a security interest or lease
Letter of credit rights
a right to payment or performance under a letter of credit
A gets a loan from a bank and pledges as collateral its rights to be paid for the goods it sells on credit. This is...
account, bc it is a right to be repaid for goods sold.
Required but NON-ESSENTIAL info:
addresses of the parties + an indication of whether the debtor is an individual or organization
"all of the debtor's existing and after-acquired collateral" "all of the collateral now owned or hereafter acquired" Are examples of
after-acquired property clause
You have a security interest in a car stereo that becomes installed in a car. The stereo is now _______________ to the car
an accession
A landscaper gets a loan from bank and grants bank a security interest in her right to receive payment from clients for landscaping work. This is....
an account, because it is a right to be repaid for services rendered.
agricultural lien
an interest in farm products that secures payment or performance of an obligation for: 1. goods or services furnished with respect to farming operations, or 2. rent on real property in connection with a farming operation
A security interest is
an interest in personal property or fixtures that secures payment or performance of an obligation. In other words, a creditor's right to use collateral to recover a debt.
Attachment by possession or control must be pursuant to....
an oral or unauthenticated security agreement.
For a secured party to have an valid interest in the collateral, it must first...
attach.
SA and financing statement:
attached AND perfected
Fixtures
attached to real property in such a way that an interest arises in them under property law. Ex: a chandelier AFTER it is installed in the home. Rule: if you're not going to take it with you when you move, it's most likely a fixture
general intangibles
catchall category of collateral not otherwise covered; includes software, goodwill, literary rights, and interests in patents, trademarks, blueprints, and copyrights.
An article 9 secured transaction K is used as collateral for a different loan, that would qualify as...
chattel paper
Landlord leases property to lessee. Landlord gives the lender a security interest in the landlord's rights under the lease. This collateral is....
chattel paper, bc it is a right to be paid under a lease
A gets a loan from a bank and pledges as collateral its rights to be paid for the goods it sells on credit. But, A provides that the store retains a security interest in the goods until the buyer repays the purchase price. This is....
chattel paper, because the contract includes a right to repayment PLUS a security interest (i.e. collateral)
Commercial tort claims
claims processed by an organization or an individual that arose in the course of the organization or individual's business. NOT claims for personal injury or death!
Documents
documents of title that generally give the holder ownership rights in goods held by a bailee. Ex: bills of lading or warehouse receipts (someone is holding the goods and there is a document/receipt/bill that represents the ownership rights to the goods)
Exception to the description requirement:
for consumer goods and commercial tort claims, the collateral must be described with particularity.
Inventory
goods that are not farm products that are held for sale or lease (i.e., items on a shelf at Target). Also includes goods that are furnished under a service K, raw materials, works in progress, or materials used or consumed in business. Ex: items on store shelf Ex: plumber installs a new pipe that they had in their possession while working, and later charges you for it (service K) Ex: highlighters, pens, paper at a school for employees (materials used or consumed in business)
Commingled goods
goods that are physically united with other goods in such a way that their identity is lost in a product or mass Security interest in the original goods will not continue, but will attach to the larger product or mass that results!
Equipment
goods that don't fit into any other definition above. Ex: machinery, delivery vans, office equipment, farm equipment.
UCC Article 9
governs transactions, regardless of form, that create a security interest in personal property or fixtures. must be a consensual agreement "regardless of form" = the substance of the transaction, not the label the parties use.
Lender PMSI
he lender loans money to the debtor so that the debtor can acquire the goods. the value is actually used to acquire the goods the lender takes a security interest in those same goods to secure the loan
The secured party must keep the collateral _____________
identifiable
Attachment by control
if you CANNOT hold it in your hands, a creditor might still be able to attach! Think: Electronic chattel paper, investment property, letter of credit rights, deposit accounts.
A business loans money to many parties and holds numerous promissory notes that represent borrowers' obligations to repay. If the business then uses those promissory notes as collateral for a loan, the notes are classified as...
instrument
When is it PRESUMED that the description includes after-acquired property?
inventory and accounts Ex: grocery store
What makes Article 9 different from the sale of goods in contracts?
it acts to facilitate PUBLIC NOTICE that these sales have happened.
Attachment
links a debt to.a particular piece of collateral the process by which a security interest becomes enforceable against the debtor with respect to the collateral
A business loans money to many parties, but the borrowers' obligations were NOT represented by promissory notes. The business has no security interests in the borrowers' property to secure these obligations. if business uses these rights to payment as collateral from a loan from lender, then the collateral is....
payment intangible, bc it doesn't meet the definition of accounts, chattel paper, or instrument.
Instrument
promissory notes, checks, drafts governed by UCC Article 3
The secured party must act with ________________ with respect to the collateral
reasonable care
The secured party may charge the debtor for _____________
reasonable expenses for storing and maining the collateral.
What effect does recording a mortgage have on a financing statement?
recording a mortgage in local real property records can satisfy the financing requirement if it contains everything but the NOTE.
the secured party must _______________ the collateral once the obligation has been satisfied
relinquish
Accounts
right to payment of a monetary obligation for property that is sold, leased, licensed, or for services rendered ***includes: - a company's accounts receivable - the right to be paid under insurance policies - amounts owing on credit cards! ***does NOT include $$$ money
What if the debtor authenticates a security agreement?
that authentication is good for the financing statement as well
To properly classify collateral, look to....
the debtor's principal use at the time that the security interest is created.
Proceeds
whatever results when collateral is sold, leased, licensed, exchanged, or otherwise disposed of.
Must a financing statement be authorized?
yes. the debtor must authorize it in an authenticated record
