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A consensual lien on personal property.
- An agreement that provides for an Article 9 security interest.
- In MD, a security agreement need not say the words "security agreement" provided that the document has the intent to serve as a security agreement.
Person who gives the Article 9 lien.
The person to whom the lien is given.
Personal property subject to the lien.
The person who owes the obligation that is secured. Generally, the debtor is also the obligor.
Goods which are used or bought for personal/family/household purposes.
Crops, livestock or products of livestock. Debtor must be a farmer.
- Goods held for sale by debtor.
- Goods held for lease by the debtor.
- Goods that are rapidly consumed in the operation of the business.
Residual category of goods that are not consumer goods, farm products or inventory.
A right to payment arising out of the sale of goods or rendition of a service. An account exists whether the right to payment has been earned or not.
Article 3 negotiable instrument such as note or check.
A written lease of personal property, or documentation that is generated by a secured transaction.
Saving and checking accounts. Does not include a consumer account used for consumer purposes.
Documents of title, bills of lading, warehouse receipts.
Stocks, bonds, mutual funds.
Commercial Tort Claims.
- Tort claims which arise out of the operation of a business.
- Can be held by the business or an individual but not for personal injury.
Catch-all for non-goods. Copyrights, patents, goodwill.
- In order for a creditor to take a security interest, the security interest must attach to the property.
- Attachment gives special rights against the creditor.
- Creditor must give value, debtor must give rights to collateral, and it must satisfy the Article 9 SOF.
- The order of attachment is irrelevant.
The secured party must give value for the security interest. Different from consideration, and past consideration may serve as value.
The debtor must give rights in the collateral.
- Must satisfy the Article 9 Statute of Frauds.
- Debtor must authenticate a security agreement, which:
- (1) evidences the grant of the security interest
- (2) describes the collateral in a way to enable a third party to identify the collateral and
- (3) signed by the debtor.
Description of Collateral in Security Agreement
- Collateral cannot be described in a super-generic way, but may be described as all of a type of property.
- Commercial tort claims must be more specific describe the claim.
- Consumer goods must specifically describe the good.
- A security agreement may include an agreement that the security interest will attach to after-acquired property. Essential for goods which turn over like inventory or accounts, but can be used for all collateral.
- Cannot provide interest in after-acquired commercial tort claims.
- Can provide security interest in after-acquired consumer goods only if the after-acquired goods are acquired within 10 days of when the secured party gave value.
Future Advance Clause.
- Allows a creditor to give future advances to the debtor while maintaining priority.
- Eliminates the need for multiple security interests.
- A security interest will automatically attach to identifiable proceeds.
- Proceeds are anything that the debtor acquires as a consequence of the debtors right to collateral.
- A security interest also applies to proceeds of proceeds.
- Perfection is the process by which the creditor provides notice to the world that he has a security interest in the property and therefore secures his place in line.
- Perfection is a fourth element of the security interest, but the timing does not matter.
Financing Statement - Where to File.
- Maryland State Department of Assessment and Taxation.
- In MD, the date that the financing statement is properly presented to the state is the date of the financing statement - not the date that the state stamps and files it.
Financing Statement -The Correct State.
- A financing statement must be filed in the place where the debtor is located, regardless of the location of the collator.
- Individual: location of principal residence.
- Registered organization: location of registration/incorporation. Is not the nerve center.
- Unregistered organization: location where it does business. In the event of more than one location, state of the chief executive office.
Financing Statement Must Include...
Must have (1) debtors name, (2) secured partys name and (3) description of the collateral.
Financing Statement - Debtors name.
- Must use the debtors legal name either the name of the drivers license or the name on the articles registered in the state.
- Cannot use a fictitious name, trade name or an assumed name.
Financing Statement - Mistake in the debtors name.
- When seriously misleading, the financing statement does not perfect the security interest.
- If a search by the debtors name does not retrieve the financing statement, the financing statement is unperfected.
Financing Statement - Name changes.
- Generally, a new financing statement does not need to be filed to maintain perfection.
- For after-acquired property, a new financing statement must be filed within four months of a name change to remain perfected.
- A name change does not affect the attachment to the security interest.
Financing Statement - Mistake in the creditors name.
Generally, a mistake is not seriously misleading and does not affect perfection.
Listing of the collateral in a financing statement.
A super-generic term like all property is permitted in the financing statement, even if its not acceptable for the security agreement.
Financing Statement - Refiling Requirements.
Financing statements lapse after five years and are no longer effective to perfect the secured partys security interest. A secured party must file a continuation statement in a six month window prior to the lapse to maintain the security interest.
Financing Statement - When a debtor moves.
When a debtor changes location to a new state, the secured party has four months to re-file in the new state to maintain perfection.
Perfection by Lien Notation on Certificate of Title.
- To perfect a security interest on property which is subject to a certificate of title statute (generally, vehicles), the only way to perfect the security interest is to have the lien noted on the certificate of title.
- The only exception is for goods owned by a debtor in the business of selling the items, such as inventory in a car dealership.
Perfection by Possession.
- By holding possession of the property, the secured party gives the world notice of the security interest.
- Possession will not suffice to perfect the security interest when the collateral is (1) an account, (2) a commercial tort claim, (3) a general intangible or (4) a deposit account.
- Possession can be held by the secured creditor or a third party who authenticates a record stating that it has possession for the benefit of the secured creditor.
Perfection by Control.
- The only way to perfect a security interest in a deposit account is by taking control of the deposit account.
- Control is obtained by (1) changing the name on the account from the debtors name to the secured partys name, or (2) having the debtor agree in an authenticated record to follow the secured partys instructions.
- If the deposit account is a bank account with the secured creditor, control is automatic.
Automatic perfection means that once the security interest attaches, the security interest automatically perfects with no additional steps.
Automatic Perfection. Purchase money security interest (PMSI).
- A seller or a lender with the enabling loan automatically perfects a loan for a consumer good.
- In MD, A statuory lien in PMSI will trump the PMSI security interest.
Automatic Perfection. Proceeds.
- The proceeds from the sale of collateral which are identifiable and traceable to the collateral automatically perfects for 20 days.
- If the secured creditor would file the new security interest in the same office as the collateral, the security interest perfects automatically beyond 20 days.
- If the secured creditor would need to file the new security interest in another office, the security interest must be filed by day 21.
- When intervening cash proceeds, a new security interest must be filed by day 21.
When there is a dispute between parties over collateral, identify the parties rights to the collateral and compare.
Priority - Between Perfected Secured Parties.
The first party to file or perfect has priority in the collateral.
Priority Between a Secured Party and Unsecured Parties.
The secured creditor has priority.
Priority Between a Perfected Secured Party and an Unperfected Security Party.
The perfected secured party has priority.
Priority Between Two Unsecured Parties.
The first party to attach has priority.
Priority between A Perfected Secured Party and a PMSI holder.
A perfected PMSI holder will have priority in the consumer goods over a perfected secured party.
Priority between Secured Party v. Buyer.
- A secured priority with priority can repossess from the buyer of the collateral.
- If the buyer has priority, then the secured creditors security interest is dead. Priority is established through one of three exceptions.
Buyer in the ordinary course.
- A buyer in the ordinary course of business will take the collateral free of a security interest when the buyer (1) purchases goods and (2) buys from someone in the business of selling the type of goods which are bought.
- The buyer cannot buy with knowledge that the sale violates the security interest. Construed narrowly, as the buyer can know of the security interest.
Authorization by the Secured Party.
A secured party which authorizes the sale free and clear of the security interest loses priority to the buyer.
Yard Sale Exception.
- Consumer goods in the possession of the seller which are sold as consumer goods to a buyer will pass free of the security interest when the buyer does not know of the security interest.
- This exception only applies to automatic perfection of PMSI, and the secured partys filing of a financing statement for the consumer good will maintain perfection.
Priority against an Unperfected Secured Creditor.
A buyer who buys without knowledge of the unperfected security interest will take free of the security interest.
Priority against a Secured Party v. Judicial Lien Creditor.
- Generally, a secured party with a perfected security interest which comes into existence prior to the judicial lien creditor has priority over the judicial lien creditor.
- A secured party who has satisfied the statute of frauds but has not yet given value when the judicial lien comes into existence will still have priority over the collateral later.
- When a debtor enters default, the rights of the secured party kick in.
- Default is defined under the common law as non-payment of the debt, but may also be defined in the agreement.
- Upon default, the secured creditor is entitled to repossess the collateral.
- A clause in a security agreement which provides the secured party to declare default if the secured party feels uneasy about repayment.
- The secured party must act in good faith, and burden of proof is on the debtor to show bad faith.
- Article 9 entitles the secured creditor and its agents to take the collateral, provided that there is no breach of the breach.
- Consent gained by show of force is improper.
- The objection by the debtor is a breach of the peace.
- The duty not to breach the peace is non-delegable, and the secured creditor is vicariously liable for the acts of the repo man.
- When the secured creditor cannot engage in self-help repossession without breaching the peace, it can seek a writ of replevin to have the sheriff repossess the property.
- Creditor must post a bond and use an attorney, and the debtor has a due process right as to the event of default and security interest.
Creditor's Rights upon Repossession.
- Once the secured party has possession of the collateral, it may dispose of it in any commercially reasonable manner.
- There is a rebuttable presumption that a sale held less than 10 days from the repossession is commercially unreasonable.
Sale of Collateral.
- The secured creditor may sell the collateral by public or private sale, provided that every aspect of the sale is commercially reasonable.
- The secured creditor must provide the debtor pre-sale notification, notifying the debtor about (1) whether it is a private or public sale, (2) location of a public sale or the date after which a private sale will take place.
- The creditor must also notify other secured parties who have filed a security interest or noted the lien on the certificate of title.
Partial Strict Foreclosure.
- Creditor can take the collateral in partial satisfaction of the debt when the debt consents to the action via authenticated writing.
- For consumer transactions, partial strict foreclosure is not allowed and any attempts are void.
Full Strict Foreclosure.
- Creditor takes the collateral in full satisfaction of the debtors obligation.
- A creditor must sell consumer goods for which the debtor has paid 60% of the obligation on the debt.
Right of Redemption.
A debtor may regain the collateral if, prior to the final disposition of the collateral or contract to sell the collateral, he pays the secured obligation in its entirety along with attorneys fees and the costs of repossession.
A debtor can recover damages that result from violations of Art 9. A debtor may also seek an injunction for a breach of the security agreement.
Rebuttable presumption approach.
- In a sale which is commercially unreasonable, the value of the collateral is presumed to be equal to the amount of the debtors obligation.
- Burden to prove commercial unreasonableness is on the debtor.
- The burden is on the secured party to prove what it would have received in a commercially reasonable sale.
A debtor can obtain a deficiency judgment from the debtor for any remaining debt owed after the disposition of the collateral.
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