Secured Transactions

Essay outline

1. Determine this is a ST problem (SA or SI) 2. ID and classify the property at issue 3. Determine which parties have a claim of interest 4. At least one will be a SP with a SI For each SI, assess 1. attachment: has it attached, which collateral, when? 2. perfection: perfected? when? 5. find appropriate priority rule 6. apply priority rule and resolve the issue

Methods of Perfection

1. Filing a financing statement (names, collateral) 2. possession 3. control 4. automatic perfection

Priority steps

1. ID status of each claimant; and 2. apply appropriate priority rule

PMSI

1. Value was given to allow debtor to acquire the goods and 2. the goods or software acquired secured the loan

After collateral is sold or otherwise disposed of, the secured party has an automatically perfected security interest in the proceeds for __________ days.

20 days

PMSI in consumer goods

A PMSI in cnsumer goods (personal, family, household) is automatically prfected.

Automatic Perfection

A PMSI in consumer goods is automatically perfected upon attachment. Such perfection may extend indefinitely or be subject to a time limitation.

Comingled Goods

A comingled good is physically united with a collateral and their identity is lost. The SI does not continue but will attach to the larger product produced. ex. cookies , flour eggs

Length of perfection

A financing statement is generally effective for five years. It may be extended for another five if renewed within six months of expiration.

Rights to Payment

A right to payment is the right to be repaid money by a third party that the debotr then uses as a collateral for a loan. Four types: Impatient cow pushes adorable puppy Instrument, chattel paper, accounts, payment intangible ATTACK OUTLINE 1. Look for transaction in which a 3rd party 2. owes money to yourdebtor and 3. your debot uses that money as collateral for that loan

Security Interest

A security interest is generally an interest in personal property or fixtures that secures payment or performance to an obligation. The purpose of a SI is to 1) make the debt more easily collectible, 2) provide the secured party with a position superior to other creditors who might attempt to obtain the same collateral and 3( provide the secured party with rights to obtain the collateral if it is sold.

Disposition

After default, a secured party may sell, lease, license or dispose the collateral. All aspects of the collateral must be conducted in a commercially reasonable manner.

Accession

An accession is a good physically united with other goods so that the identity of the original good is not lost. Ex. car stereo If a collateral becomes an accession, the SI in the collateral is not lost.

Proceeds

Attachment: A security interest in collateral automatically attaches to proceeds if it is acquired upon sale, lease, exchange, or other disposition; what is collected on or distributed; rights arising out of collateral. Perfection: A SI in proceeds is initially perfected for 20 days then lapses, unless FS is amended. *Exception: Perfection is indefinite if they are identifiable cash proceeds

BOCB

Big octopus sees groovy walrus buys goods, ordinary course of business, seller of that kind of goods, good faith, without knowledge sale violates A buyer in the ordinary course of business takes free of a security interest created by the buyer's seller, even if the security interest is perfected and the buyer knows of its existence.

Collateral

Collateral is property subject to a security interest. GOODS: Consumer goods, farm products, inventory, equipment INTANGIBLE: ACCOUNTS, DEPOSIT Accts.

Default

Default is the failure of the obligor to make timely payments to the SP.

If the secured party does not file an amendment within four months, the secured party only retains a perfected security interest in collateral that was acquired prior to the name change. True or false

False

T/F The parties' characterization of the transaction is determinative of whether the transaction is a lease or a secured transaction.

False

TRUE OR FALSE A PMSI in inventory will take priority over all other security interests if the secured party perfects within 20 days of delivery to the debtor and the secured party sends an authenticated notification to other secured parties.

False

Priority: 2 PMSIs

First to file or perfect gets priority

Priority of PMSI

Generally, a PMSI has priority over a non-PMSI.

Attachment

Generally, a security interest that is enforceable has attached to the collateral. These three conditions must exist: (1) value has been given by the SP, (2) debtor has rights in the collateral and (3) SA with describes collateral OR possession/control.

What kinds of goods can be perfected by possession?

Goods, instruments, negotiable documents, money, tangible chattel paper

Transfer of Collateral to a Non-Buyer Rule Statement

If collateral is transferred and the transferee is not a buyer, the security interest generally continues in the collateral unless the SP has authorized its sale free of the SI.

Unperf SI v. Lien Creditor

Lien creditor

Do the description requirements for a financing statement have to be more stringent than the requirements for a security agreement?

No

Is chattel paper a type of good?

No

Consequences of default

Once default has occurred, a SP may (1) seek possession of the collateral and satsify the obligor's outstanding obligation by 1) selling collateral OR 2. retaining it in full or partial satisfaction A SP is entitled to tkae possession

Which of the following serves to provide notice of a security interest to establish a claim superior to others?

PERFECTION

Perfected SI v Lien Creditor

Perfected SI takes priority

Perfection

Perfection is necessary for the secured party to have rights in the collateral that are superior to any rights claimed by third parties. Perfection has no relevance to the secured party's rights against the debtor. A security interest is perfected upon attachment of that interest and compliance with one of the methods of perfection.

In order to avoid the "garage sale" exception, the holder of an automatically perfected security interest can take which of the following actions? A

Properly file a financing statement covering the goods before they are sold

Article 9 of the UCC generally does NOT govern security interests in which of the following types of property?

Real Estate

Priority: if neither are perfected

Then first in time, first in right gets priority

Attachment rule statement + PMSI

Under Article 9, for a security interest to be enforceable, the interest must attach. For attachment, the three conditions must be met: (i) value must given by the secured party, (ii) debtor has rights in the collateral; and (iii) debtor has authenticated a security agreement that describes the collateral.[go thru elements and list date security interest attached] Moreover, the party had a special kind of security interest called a purchase money security interest (PMSI). A PMSI is a security interest in goods that has priority over other security interests in the same goods. It arises when a creditor sellers goods to a debtor on credit and retains a security interest on those goods or the creditor advances funds, which are used to purchase the goods and creditor reserves a security interest on those goods.

Priority: two perfected security interests

When there are two or more sp with rights to the same collateral, the first to file or perfect has priority.

Consumer buyer (vs. PMSI SI) rule statement

While a PMSI in consumer goods automatically perfects, that perfection does not guarantee priority in a dispute over the same collateral. A consumer buyer of consumer goods takes free of a SI, even if perfected, unless prior to purchase, the secured party files a financing statement. In other words, the holder of a PMSI could lose a consumer buyer if she does not file a financing statement. A consumer buyer is a person who (i) buyers consumer goods for value, (ii) for own personal, family, household use, (iii) from a consumer seller, and (iv) without knowledge of the security interest. This is also known as the garage sale rule.

Perfection Rule Statement (PMSI)

While the retailer, as a secured party, has rights against the debtor, in order to have priority over third parties, a security interest must be perfected. A SI is perfected by (i) filing a financing statement, (ii) possessing the collateral, (iii) controlling the collateral, or (iv) perfecting automatically. A PMSI in consumer goods perfects automatically. In other words, a SI in a consumer good is perfected as soon as it attaches. A consumer good is a good that is acquired for personal, household and family purposes.

The "filed but unattached" security interest exception applies with regard to a contest between __________.

a judicial lien creditor and the holder of an unperfected security interest

Consumer buyer

black pink coordinates wiggles buys consumer goods, personal family household use, consumer seller, without knowledge of SI A consumer buyer of consumer goods takes free of a SI, unless the sp files a financing statement prior to purchase. AKA Garage sale exception

Priority: Perfected security interest v unperfected security interest

if only one SP is perfected and the other is not, then the perfected SI has priority over the unperfected one

When there are two unperfected security interests in the same collateral, the first security interest __________ has priority.

to attach or become effective