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secured transactions
| Term | Definition |
|---|---|
| tangible collateral--goods | consumer goods, farm products, inventory, equipment |
| consumer goods | purchased for personal, family, or household use |
| farm products | corps or livestock owned by a farmer |
| equipment | goods for use primarily in a business (e.g. machinery, office furniture) |
| inventory | goods (other than farm products) held for sale or lease, or used/consumed in a business |
| other collateral--non-goods | account, negotiable instrument, chattel paper, deposit accounts, documents, investment property, tort claims, general intangibles |
| account | right to payment for property sold, leased, licensed, etc. or services rendered |
| negotiable instrument | commercial paper such as a promissory note or check |
| chattel paper | a record evidencing a security interest or lease |
| deposit accounts | savings and checking accounts |
| documents | document of title, bills of lading, warehouse receipt |
| investment property | stocks, bonds, mutual funds |
| tort claims of a business | collateral non-good |
| general intangibles | copyrights, patents, software not embedded within a good |
| attachment (creation) | (1) secured party gives value (2) debtor has rights in the collateral(an ownership interest or right to possession) (3) satisfies Article 9 of SoF: authenticated security agreement or secured party obtains possession/control |
| authenticated security agreement under Article 9 SoF | (1) words showing a grant of a security interest (2) description of the collateral that reasonably identifies it (3) authenticated by signing or with intent, mark or adopt the record |
| after-acquired property clause | may be in a security agreement, creates a security interest not only in the current collateral but also collateral the debtor acquires in the future, attaches as soon as debtor acquires an interest in the new collateral |
| exception to after-acquired property clause | cannot be used within a business' tort claim or consumer goods, unless the goods were acquired within 10 days after the secured party gave value |
| future advance clause | may be in a security agreement, provides that the collateral will secure any future advances (additional loans) given by the secured party |
| proceeds | a security interest automatically attaches to identifiable proceeds; proceeds are anything given in exchange for the collateral as a result of the debtor's rights in the collateral |
| what is necessary to pursue a remedy upon default of a security interest in collateral | attachment and perfection |
| perfection | perfection of a SI is generally necessary for the SP to have rights in the collateral that are superior to any rights claimed by third parties; four methods to gain perfection: filing, possession, control, or automatic perfection |
| perfection by filing | filing a financing statement with the secretary of state where the debtor or real property is located will perfect a security interest |
| possession | can function as both attachment and perfection |
| perfection by possession | allowed for a good, document, negotiable instrument, money, or tangible chattel paper |
| perfection by possession not sufficient for | an account, deposit account, general intangible, or tort claim |
| perfection by control | allowed for a deposit account or letter of credit rights; cannot require debtor's cooperation for access; if secured party holding a deposit account is a bank, control is automatic |
| required contents for filing | (1) debtor's name (2) secured party's name (3) type of collateral |
| mistakes in filing | mistake in debtor's name that is seriously misleading will make perfection ineffective unless a standard index search would nonetheless disclose the financing statement; a mistake in the secured party's name will not affect perfection |
| name change in filing | a secured party must file an amendment within 4 months after a name change by a debtor, otherwise any collateral acquired after four months will not be covered by the financing statement |
| location change in filing | if the debtor relocates to another state, the secured party must file in the new state within four months or the interest will become unperfected after four months |
| expiration of filing | a filing will expire after 5 years unless extended by a continuation statement filed within 6 months of expiration; an expired filing renders the security interest unperfected |
| exception to perfection by filing | items with certificates of title (e.g. vehicles) that are not classified as inventory cannot be perfected by filing, instead, the lien must be noted on the certificate of title |
| automatic perfection | PMSI in consumer goods; sale of a payment intangible or promissory note; and casual, small assignment of account or payment intangibles |
| PMSI | must file to perfect, unless PMSI is in a consumer good; may occur in two ways: (1) when a creditor sells goods to the debtor on credit and reserves a security interest or (2) advances the funds used to purchase the goods and reserves a security interest |
| temporary automatic perfection | (1) proceeds --if a SI in inventory is perfected, a SI in its proceeds continues for 20 days (2) new value--if the SP advances new value to a SI in negotiable documents, instruments, or certificated securities, it continues for 20 days |
| how to continue perfection beyond 20 days for proceeds | (1) pursuant to financing statement--the original financing statement is enough to encompass the proceeds or the SP amends the statement to cover the proceeds within the 20-day period (2) identifiable cash proceeds (3) same office for filing |
| priorities | general rule: "first in time, first in right" a buyer of collateral subject to a perfected SI general takes the collateral subject to that interest 2 exceptions: (1) buyer in ordinary course of business (BOCB) and (2) PMSI |
| buyer in ordinary course of business (BOCB) | (1) a purchase of goods from a seller by giving new value (via cash or on credit) ;(2) during the ordinary course of seller's business; and (3) in good faith, (4) without actual knowledge that sale would be a violation |
| secured party v. judicial lien creditor | SP has priority if perfected before judicial lien levied; if unperfected, SP will have priority only if the reason was that value had not yet been given |
| perfected secured party v. authorized buyer | authorized buyer takes priority if SP authorized sale (express or implied) |
| perfected secured party v. BOCB | BOCB has priority |
| perfected secured party v. non BOCB | perfected SP will take priority, but a buyer not in the OCB will take priority over a future advance given after the purchase |
| perfected secured party v. garage sale buyer | garage sale buyer takes priority, where buyer purchases consumer goods for value for personal use from another consumer without knowledge of SI; however a PMSI in consumer goods will have priority if a financing statement was filed |
| unperfected secured party v. buyer | buyer has priority if purchased without knowledge of the SI |
| secured party v. secured party | rule: first to file or perfect |
| perfect SP v. unperfected SP | perfected SP has priority |
| perfected SP v. perfected SP | depends on what kind of perfect SP (PMSI, PMSI seller/lender, PMSI in fixtures, perfection by control, perfection by other method) |
| PMSI v. non-PMSI | PMSI has priority *for equipment---if perfected within 20 days of possession **for inventory---if perfected by the time debtor gets possession + notice |
| PMSI seller v. PMSI lender | PMSI seller has priority |
| PMSI in fixtures v. real estate lender | PSMI in fixtures has priority if perfected by a fixture filing within 20 days |
| perfection by control v. perfection by other method | perfection by control has priority |
| unperfected v. unperfected | first to attach has priority |
| secured party v. unsecured party (general creditor) | secured party has priority |
| if default not defined in security agreement | will occur on nonpayment |
| rights upon default | SP has right (1) to take possession and/or (2) may sell, lease, or otherwise dispose of the collateral in a commercially reasonable manner |
| waiver of a SP's rights on default | may be waived if SP ignores debtor's default |
| whether notice to debtor of default or intent to repossess required | not required, unless there is an agreement that says SP must do so |
| how SP can recover property | self-help repossession or judicial process |
| self-help repossession | allowed if it can be done without a breach of peace |
| breach of peace | established if debtor objects, debtor's consent is obtained by force or threat, or there is a trespass of debtor's residence or garage (beyond a simple trespass to access debtor's property) |
| debtor's remedies for breach of peace | damages for conversion, commission of any torts, and possibly punitive damages |
| judicial process | replevin after payment of a bond, notice, and hearing |
| commercially reasonable manner | in the usual manner in a recognized market at the recognized current price or consistent with reasonable commercial practice for that property |
| written notice for sale or disposable of property | must be sent in a reasonable manner and with reasonable advance notice to debtor (or if non-consumer goods must also notify the other SPs or lien holders) |
| contents of written notice | (1) description of the debtor, secured party, collateral (2) whether public sale (and where/when) or private sale (when) (3) statement that debtor is entitled to an accounting |
| contents of written notice for consumer goods | all normal requirements + must describe deficiency liability and provide a number debtor can call to get the redemption amount or more information about the sale |
| effect of a sale/disposal of property | discharges the SI and all subordinate SIs |
| debtor's remedies for sale/disposal | if a violation, can seek injunctive relief to stop sale/disposition; if the sale was not commercially reasonable, then rebuttable presumption the sales proceeds from a non-consumer transaction are equal to the amount of debt |
| when SP cannot keep the property (strict foreclosure) | not allowed for consumer goods 60 percent or more paid for without a written waiver |
| when SP keeps property in full satisfaction of debt | must notify debtor and other SPs; allowed if no one objects within 20 days; if a party objects, the property must be sold |
| when SP keeps property in partial satisfaction of debt | not allowed with a consumer transaction; must notify debtor, secondary obligor, and other secured parties; allowed if no one objects w/i 20 days; if a party object, must sell |
| debtor's right to redeem | generally debtor has right to redeem by paying debt including reasonable expenses and attorney's fees as a result of repossession or preparing for a sale |
| waiver of debtor's right to redeem | can occur only through an authenticated agreement after default; any attempt to create a waiver in the security agreement is void |
| time limit for debtor's right to redeem | the right to redeem expires upon resale, contract for sale or discharge by retention |
| acceleration clauses for SI allowed? | they are allowed; to redeem, debtor might be required to tender full payment |
| deficiency judgment - non-consumer goods | if proceeds from a sale do not satisfy the debt, the SP may recover the remaining debt from the debtor; any surplus must be paid to the debtor |
| deficiency judgment - consumer goods | the SP must send written notice to debtor explaining how the deficiency or surplus was calculated or she will be liable for any loss plus $500 |
| debtor's remedies for violation of rules regarding default | may bar a deficiency judgment under the absolute bar rule b/c it is assumed the proceeds cover the debt |
Created by:
mrynna
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