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79 Cards in this Set
- Front
- Back
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Security Interests
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Arises when a party (debtor) uses certain property as collateral to secure repayment of funds to another party (secured party)
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Security interest characteristics
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debtor uses property as collateral to secure repayment of funds to secured party
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Article 9 of UCC applies to...
Contract |
Any transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract,
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Agricultural lines
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FILL IN
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Sales of accounts receivable, chattel paper, negotiable instrusments, promissory notes, and payment intangibles
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So you can sell these financial obligations and article 9 applies!
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Consignments
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transactions in which a person delivers goods to a merchant for purpose of sale (and merchant is neither an auctioneer nor generally known by his creditors to be substantially engaged in selling the goods of others)
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Certain lease-purchase agreements
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transaction in form of a lease that really creates a security interest
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Article 9 not applicable to...
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landlord's liens
a lien, other than an agricultural lien, given by statute or other rule of law for services or materials etc. |
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Types of Collateral
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Goods, tangible intangibles, intangible intangibles, and investment property
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Goods
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All things moveable at the time security interest attaches
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Subcategories of Goods
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Consumer goods - those used or bought for use primarily for personal, family, or household purposes
Inventory - goods, other than farm products, that: are leased by person as lessor; are held for sale or lease or to be furnished under a contract of service; furnished under a contract of service, or consist of raw materials, work in process, or materials used or consumed in business (includes timber to be cut) Farm Products - goods other than standing timber, with respect to which debtor is engaged in farming operation Equipment - catch-all category - goods other than the other three |
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Tangible Intangibles definition
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Certain intangibles, such as contractual obligations to hold or deliver goods or to pay money, and ownership in goods or business entities, are commonly reduced to tangible or written form; by transferring the writing, the intangibles are transferred
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Type of tangible intangibles
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Instruments - drafts and notes as defined in Article 3
Documents - documents of title that cover an interest in goods - usually warehouse receipts or bills of lading Chattel paper - record that evidences both a monetary obligation AND a security interest, or lease of, specific goods |
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Intangible Intangibles definition
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Many intangibles, such as monetary obligations or literary rights, while possible evidenced by writings, are treated as intangibles. Writings take on no commercial significance of their own
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Intangible intangibles types
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Accounts - rights to payment of a monetary obligation, whether or not earned by performance, generally for property that has been transferred or otherwise disposed of, for services, or arises out of the use of a credit card
Commercial tort claims - claim arising in torn where P is an org, or where P is an individual but the claim arose in the course of P's business and it doesn't include damages arising from personal injury or death General intangibles - name given to intangible collateral that fails to fit into any other category (payment intangibles, software) |
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Investment property
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includes certificated and uncertificated securities, securities accounts, and security entitlements, commodity contracts, and commodity accounts
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Proceeds (what does it cover? types?)
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collateral subject to a security interest may also be in the form of proceeds of disposition of other collateral
Proceeds includes: whatever is acquired upon sale, lease, license, or other disposition of collateral; whatever is collected on, or distributed on account of collateral; rights arising out of collateral; to the extent of the value of collateral, claims arising out of the loss, nonconformity, or interference with the use of, defects or infringement of rights in, or damage to, the collateral; OR to the extent of value of collateral and to extent payable to the debtor or secured party, insurance on the collateral Two kinds of proceeds: cash proceeds (money, checks, deposit accounts) and non-case proceeds (which include all other proceeds) |
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Security interest definition
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created by a written security agreement or by secured party's taking possession, deliver, or control of the collateral with the intent to secure a debt, plus attachment of the security interest to the collateral
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Security Agreement
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agreement that creates or provides for a security interest in certain collateral
Must explicitly state a granting clause, must contain a description of the collateral AND must be authenticated by the debtor (signing a written doc) |
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Possession/Pledge
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if you have possession of the collateral, you don't need a security agreement
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Control
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FILL IN
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Validity
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security agreement generally effective between parties, against purchasers of collateral, and against creditors
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Attachment definition
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process by which security interest is created - created by a contract between the debtor and the secured party.
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Attachment characteristics
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Secured party gives value
Debtor has rights in collateral Debtor has authenticated a written security agreement that sufficiently describes the collateral - super generic descriptions will not work |
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Security Agreement Provides Interest In...
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After-acquired collateral (inventory and accounts receivable will always be this even if there is no explicit after-acquired property clause)
Future advances - security agreement may provide collateral secures future advances |
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Security Interest in Collateral
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automatically extends to identifiable proceeds of the collateral
will continue regardless of a sale, lease, or other disposition of collateral, UNLESS the secured party authorized disposition of the property free of the security interest or another article 9 exception applies |
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Purchase Money Security Interest
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Security interest in goods is a PSI if it pertains to goods that are purchase money collateral or in inventory that is or was incurred as a result of a purchase money obligation
Purchase money collateral - goods or software securing a purchase-money obligation that a debtor incurs to purchase the goods debtor incurs a purchase money obligation if the obligation is incurred: as price of collateral OR for value given to enable debtor to acquire rights in or use of the collateral if the value is used to do that |
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PMSI characteristics
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fill in
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Perfection def
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security interest if perfected if it has attached AND if all the requirements for perfection have been met
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Law Governing Pefection
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Where debtor is located
Where possessory security interest in collateral is located Where security interest in fixture FILL IN |
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Methods of Perfection
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Filing - usually with secretary of state OR county mortgage and deed records office when collateral consists of fixtures and timber to be cut
- file in the state where the DEBTOR is located! In state of registered if that's where he does business (?), at debtor's chief exec office if he's a non-registered org with more than one place of business, or WHAT? Possession Control Automatic perfection |
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Debtor's Location
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FILL IN
Did bank file in the right place? common question |
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Possession
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taking possession of collateral possible ONLY when collateral is tangible! negotiable docs, goods, instruments, cash, or tangible chattel paper
Perfection by possession not permitted for: If collateral is in possession of person other than debtor, to count as them possessing it, the person in possession authenticates a record acknowledging that it holds possession of the collateral for the secured party's benefit (but f it's cash, you really need to possess it) |
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Control
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taking conrol of collateral applies only to:
secured party has control of certificated secuirty in bearer form if the security is delivered to the secured party in registered form? if delivered to secured party and certificate is indorsed to or registered in the name of secured party Uncertficated security? if the security is delivered to the secured party or the issuer agrees that it will comply with instruction from the secured party |
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Control - letter of credit rights
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secured party has control of letter of credit rights to the extent of any right to payment or performance by the issuer if the issuer has consented to an assignment of proceeds of the letter of credit
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Control - deposit accounts
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Security interest in deposit accounts perfected ONLY by control!
1) secured party IS the bank with which deposit account is maintained 2) Debtor, secured party, and bank have agreed in an authenticated record that the bank will follow the secured party's instructions directing the deposition of the funds in the deposit account 3) the secured party becomes the bank's customer with respect to the deposit account |
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Control - Electronic Chattel Paper
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secured party has control of electronic chattel paper
FILL IN - not very important |
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Automatic perfection
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Permanent, temporary or purchase money security interests in consumer goods (not cars/trucks)
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Permanent
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FILL IN
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Temporary
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FILL IN
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Temporary
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Security interest attaches to any identifiable proceeds of collateral upon disposition of the collateral. A perfected SI in proceeds is provided by the code automatically when the security interest in th eoriginal collateral is perfected. Continues ONLY for 20 days after attachment!
Interest in certificated securities, negotiable docs, In a perfected possessory security interest...20 day thing |
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PMSI
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code provides what is equivalent to a limited, 20 day grace period: if financing statement filed within 20 days after debtor receives delivery of the collateral, perfection relates back to the date the security interest attached upon the debtor's receipt of the collateral
if security interst is perfected by one method and later prefected by another method without an intermediate period of being unperfected, the security interest is perfected continuously! |
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Financing Statements must include:
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Must include: name of debtor, name of secured party, description of collateral (specific listing or even with a super generic (all assets/all property) is okay!)
Must also be authorized by debtor (security agreement IS authorization whether it says so or not!) |
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Special Rules for Fixtures
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fixtures are goods so related to real property that an interest in them passes under real property law
Goods must be:attached to land or building, appropriated to the use or purpose of that part of the realty it has been connected to AND regarded as an irremovable part of the real property |
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Fixture filings
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if you have a fixture you must file a fixture filing if you want to prevail against other creditors
Must: 1) contain al info required in a financing statment 2) indicate that it covers fixtures 3) indicate it is to be recorded in real property records 4) describe real property to which fixture is related 5) provide name of record owner If you don't have all this stuff, filing statement will be ineffective and will not perfect |
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Acceptance and Effectiveness of Financing statement
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FILL IN
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Effectiveness Despite Correct Rejection
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Failure to correctly provide debtor's name? you're done, per se UNLESS the search using that name discloses a financing statement for the right person - then it's not seroiusly misleading
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Time of Filing
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FILL IN
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Changes that can Affect the Effectiveness of Financing Statement
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what if debtor changes his name? we have to fix it! the original financing statement will only be effective to perfect secuirty interests in collateral gotten between 4 months - also if you want additional collateral, use that 4 month window to FIX it
Debtor's change of address - 4 month grace period for move to a new state - if you do, then you will be continuously perfected - but if you don't, you become unperfected in EVERYTHING in the last four months |
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Period of effectiveness of filed financing statement
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FILL IN
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Rules Regarding Priority
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FILL
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First in time, first in right
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unperfected? whoever attaches first
perfected will win over an unperfected security interest if both are perfected, secuirty interest with earliest time of filing or perfection, whichever is earlier, which has continued without interruption, will prevail |
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Second in time, first in right
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Perfected PMSI in goods will prevai over a conflicting security interest if PMSI is perfected when debtor receives possession of collateral OR within 20 days thereafter
BUT if collateral is inventory, PMS party has to take additional steps to acquire priority - must notified secured party in a signed writing ..? Also, PMSI must be perfected when debtor receives pssession of inventory - no 20 day grace period! |
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Contests with lien creditors
Possessory LIen Special rules for PMSI |
lien creditor - creditor that has acquired an interst in the peroperty by attachment, lvey, or the like
Possessory lien - ? PMSI - if PMSI is perfected within 20 days after debtor receives delivery of collateral, PMSI will take priority over a lien creditor whose rights arise between the time the security interest attaches and the time of filing |
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Priority by control
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FILL
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accessions
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FILL
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commingled goods
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fill
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goods covered by cert of title
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fill
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security interests arising under article 2 or 2a
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fill
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Buyers v. Secured parties
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Consent, buyer in ordianry course, buyer of consumer goods, buyer of farm products, buyer of chattel paper, buyer of an instrument, buyer who takes delivery
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Buyer in ordinary course
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fill
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buyer of consumer goods
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Consumer to consumer or garage sale exception - buyer of consumer goods takes free of security interest even if perfected IF
buyer pays for value, without knowledge of security interest, primarily for buyer's personal, family, or household purposes, and before the filing of financing statement covering the goods Remember that PMSI in consumer goods can be perfected without filing a financing statement |
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buyer of farm products
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fill
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Buyer of Chattel Paper
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buyer of chattel paper has priority over a security interest in the chattel paper that is claied merely as proceeds of inventory subject to a security interest IF
1) byer buys in good faith in ordinary course of business 2) buyer gives value and takes possession/control of chattel paper AND 3) chattel paper does not indicate it has been assigned to another party if buyer buys a car and relies on clean Ohio cert of title, out of state creditor |
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buyer of intrument
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fill
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buyer who takes delivery
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fill
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Special rules for fixtures
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FILL
Construction-Mortgage Exception |
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Default def
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occurs whenever debtor fails to tender an obligation when due - missing a payment!
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Default of physical collateral
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upon defualt, secured party may reduce a claim to judgment, foreclose, or otherwise enforce the claim by any available judicial procedure
can only take back the tangible collateral if you can do so without breach of the peace! No acts that would lead to violence - if you can't, action for replevin |
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Retail installment sales act
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secured party in a consumer transaction cannot take possession of the collateral upon default by debtor UNLESS the default is less than 25% of the sume of the time balance on the day the reatail installment contract was executed and the down payment recited in such contract (does not apply to motor vehicles, manufactured or mobile homes)
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Default of intangible collateral
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You may notify person obligated on collateral to make payment for secured party (you pay me now instead of the debtor)
- notification MUST be authenticated by secured party or debtor AND reasonbaly identify rights assigned |
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Debtor's right to redeem
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debtor has right to redeem collateral by tendering to secured party the amount of obligation, including interest, together with reaosnable expenses and attorneys fees caused by the default (unless debtor has agreed otherwise in writing after default)
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Retail installment sales act
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if collateral is consumer goods and RISA applies, secured party shall, within 5 business days after taking possession, send to debtor a notice setting forht circumstances constituting the default and the amount by itemization that the debtor is required to apy to cure the default
4 things list! |
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Disposition of collateral after default
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after default and repossession, secured party may sell, or othwerise dispose of any or all of collateral in its present condition, or following any method, manner, time, place, and otehr terms
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other things
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FILL
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things i missed
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FILL
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Notification
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before disposing of collateral, secured party must send to debtor and any secondary obligor an authenticated notification of disposition
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Timing
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a notice of disposition sent after default and at least 10 days before earliest time of disposition is deemed to be sent within a reasonable time
5 things you need to include |
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RSIA
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if collateral is consumer goods falling within scope of RSIA a secured party may only dispose of collateral by public sale
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