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Secured transactions – how to handle
- Identify the creditors
- Identify the fight rules – perfected v. perfected OR first to file v. perfected
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Categories of Collateral –
- Goods
- Semi-intangible and intangible property (8 types)
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GOODS - tangible moveable personal property
- 1. Consumer goods
- 2. Equipment
- 3. Farm products
- 4. Inventory
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Consumer goods
Used or bought primarily in for personal, family, or household business
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Equipment
Used or bought for business
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Farm products
Things used or produced in farming
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Inventory
Held for sale or lease. Consumables in business are also inventory
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Two types of PMSI
Seller Financed and Third Party Financer Financed
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After acquired property clause
Creditor has interest in all future property
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Future advance clause
Creditor takes interest in current asset for all future advances
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Attachment
Security interest against the debtor
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Perfection
Security interest against the world
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Financing statement
Document used to file notice of security interest
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Elements of attachments and sub-elements
- Security agreement
- Value has been given
- Description of collateral
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Which to file to perfect? With who?
financing statement – secretary of state for collateral, with the county clerk for fixtures on real property
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Semi-intangible and intangible property How many types
(8)
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Semi-intangible and intangible property
- 1. Instruments – commercial paper
- 2. Documents – bills of lading
- 3. Chattel paper
- 4. Investment property – stocks, bonds, etc
- 5. Accounts
- 6. Deposit accounts ONLY BUSINESS
- 7. Commercial tort claims where Def. is a business
- 8. General Intangibles (Intellectual property)
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Chattel paper
Promissory note AND security agreement
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Deposit Accounts
Business only, not personal
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Accounts (9 types)
- 1. For goods
- 2. For services
- 3. For real property
- 4. Secondary obligations
- 5. Energy provided or to be provided
- 6. Policy of insurance
- 7. For use or hire of a vessel
- 8. Arising out of the use of a credit card
- 9. Lottery winnings
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Scope of Article 9
- 1. Any transaction that creates a security interest in personal property or fixtures by contract
- 2. An agricultural lien
- 3. Sale of accounts or intangibles
- 4. Certain consignments
- 5. A sale disguised as a lease
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Sale disguised as a lease
- 1. When the lessor becomes owner the end of the lease period for little or no consideration
- 2. The lessee is bound to purchase the goods at the end of the lease
- 3. The lease is for the entire economic period of item (with or without renewal)
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Attachment
- 1. Security agreement
- 2. Value has been given
- 3. Debtor has a right in collateral
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Form of security agreement
- 1. Intent to create a security interest – no magic language
- 2. Authenticated by the debtor
- 3. Description of collateral – general “all property not specific enough”
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Value
Secured party must have given value PAST VALUE OKAY
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Proceeds
Unless otherwise agreed, a security agreement automatically gives the secured party a right to IDENTIFIABLE proceeds
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Methods of perfection
- 1. Automatic
- 2. Possession
- 3. Control
- 4. Notation on title
- 5. Filing a financing statement
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Methods of perfection
- 1. Automatic perfection – PMSI on consumer goods, possession of collateral by secured party
- 2. Perfection by control – controlling investment property, non-consumer deposit accounts, chattel paper
- 3. Notation of lien on certificate of title
- 4. Filing a financing statement
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Financing statement contents
- 1. Debtor’s name
- 2. Description of collateral
- 3. Secured parties name
- 4. Real property related to financing statements
- 5. Ipso Facto authorization - No signature required, but debtor must authorize filing
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Ipso Facto Authorization filing
When the debtor automatically authorizes the financing statement if he authenticates a security agreement covering the same collateral
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Debtor Name
Index is ordered by debtor name. Use unexpired driver’s license in state of financing statement.
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Wrong name
If the name on financing statement is incorrect and not SERIOUSLY MISLEADING it is valid
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Filing office errors
Creditor is not liable for filing office errors that cause it to be seriously misleading
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Description of collateral
May not be general as to include all, but may be specific and include x, y, and z which together make up all
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Where to file for multistate transaction
Where debtor is located or principle residence, corporations when organized, or chief executive office.
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How long to file when debtor moves?
4 months
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How long to file when property moves
1 year
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Continuation statement
In order to keep original perfection date, continuation must be filed between 4.5 and 5 years or it resets perfection to new date and could change priority.
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Proceeds
- When a Secured creditor has a perfected security interest in collateral, they have an interest in any new collateral exchanged for original for 20 days and must take action unless
- 1. Proceeds are identifiable cash proceeds
- 2. New perfection would be filed in the same office as original perfection (Sec. of State v. Index)
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Change in use of collateral
Does not change perfection if for example inventory becomes equipment
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Debt paid, what happens
Debtor can request termination
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Secure Party V. Secure Party
General Rule – first to file has priority
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Special rules – PMSI = Automatically perfected over other secured creditors, not other PMSI if goods
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Neither perfected – Secured v. Secured
The one who attached first
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PMSI Perfection
Automatically if debtor received possession of collateral in 20 days
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PMSI takes over –
Everyone else, except those with control
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Livestock PMSI
PMSI takes over others if perfects and sends notice to holders of previous conflicting security interests.
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Other creditor – livestock PMSI
Other creditor must be notified 5 years prior to debtor receiving the property
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Seller PMSI v. Finance PMSI
Seller will have priority over financer
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Control
Control has priority over a security perfected by any other method (filing or automatic)
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Control v. Control conflicting interest
Whoever took control first
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Deposit account security priority (ranked from highest to lowest)
- 1. Controller put the account in their own name
- 2. Bank that has control by way of maintaining the account
- 3. The order in which they gained control
- 4. Priority over security interest perfected via proceeds
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Purchasers of Chattel paper and other instruments
Good faith purchasers which give value and without knowledge of rights takes priority
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Secured Party v. Buyer of Collateral
General Rule - When you buy goods with a security interest the interest stays with the property
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Implicit authorization of sales
No implicit authorization, only for ordinary sales of inventory
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Authorization by acquiescence
When there has been no objection in the past from creditor, it is assumed to be okay to sell
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Buyer in Ordinary Course
- 1. A buyer who buys goods in GOOD FAITH
- 2. WITHOUT knowledge sale violates rights of another, and
- 3. the seller is in the business of selling goods of that kind
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Buyer not in the Ordinary Course
- 1. They take subject to perfected security interests, and
- 2. they take free from unperfected security interests and agricultural liens
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Consumer to consumer sale – secured interests
- Unless financing statement is filed, consumer buying for household use takes free of all others.
- MUST BE GOODS TO BOTH BUYER AND SELLER
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Secured Party v. Judgment Lien
Whoever files or levies first
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PMSI v. Lien
If secured party files within 20 days they get priority
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Future Advance v. Lien
Creditor has priority if the advance was made without knowledge of the lien OR within 45 days of lien arising OR Pursuant to enter commitment entered into without knowledge of the lien
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Statutory Party v. Statutory Lien Claims
Statutory lien beats even PMSI
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Foreclosure – foreclosing party may keep if
All other parties don’t object within 20 days
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Resale of collateral – purchaser
Purchaser takes free of foreclosure’s lien and all subordinate, but subject to all superior security interests
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Reasonable notification of the foreclosure sale
10 days – must give time and place for PUBLIC sale, private sale notice after
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COMMERCIALLY REASONABLE SALE
Every aspect of the sale must be commercially reasonable – you can’t sell original masterpieces in little town of 25 people.
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Secured party buy collateral
May buy at any public sale, but in private sale must be in recognized market with widely distributed price quotations
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Acceleration of loan
Assume.
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Redemption
Right to redeem ends when item is sold
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Construction mortgage takes priority over
Subsequent PMSI, even if filed within 20 days
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