Secured Transactions

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Secured Transaction

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A transaction intended to create a SI in personal property or fixtures by K; farm liens, sale of accounts, chattel paper, payment intangibles, or promissory notes

It generally involves a sale on credit or a loan in which the seller/lender obtains a lien on some or all of debtor's property as security for payment

Look for --> a credit transaction and an agreement that creates a lien in favor of creditor no D's property to secure debt

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Security Interest

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A SI is an interest in personal property or a fixture which secures payment or performance of an obligation. The interest granted is contingent, triggered by nonpayment, and when nonpayment occurs the property interest springs to life and the creditor has rights in the debtor's collateral

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Attachment

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Is the legal steps legally required to give SP a SI in the collateral that is effective against the debtor. Once an SI attaches, it is effective and the creditor has all rights of SC under A9. A creditor IS NOT a secured creditor until attachment

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Perfection

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Is the process that gives the SP an interest in the collateral that is effective against the world. Perfection can be done through filing a FS, control, possession, or automatically (PMSI), or by certificate of title

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Security Agreement

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The agreement between debtor and SP that creates the SI

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Financing Statement

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Document generally used to provide public notice of the SI, and to perfect the SI

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After-acquired clause
Future-advance clause

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A SP often will want to obtain a SI in not only in debtor's personal property, but in property debtor later acquires. Permissible.

a SP often contemplates making future loans to debtor and wants to secure future advances in present SA. Permissible.

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Classification of Collateral
Goods

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All things movable at the time SI attaches, and includes unborn animals and crops, and fixtures

Classification; (1) consumer goods, (2) equipment, (3) farm products, or (4) inventory

In classifying collateral, look to see how debtor uses it

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Goods

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Consumer goods - used or bought for primarily personal family or household purposes

Equipment - used or bought for business ("Catch-all" category)

Farm products

Inventory - held by a person who holds them for lease; materials used or consumed in biz in short period of time

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Semi-Intangible & Intangible Property

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Instruments - negotiable instruments (rights to payment)

Chattel Paper - a record or records which evidence monetary obligations

Investment property - stocks, bonds, mutual funds

Accounts - a right to payment

Deposit accounts - acct maintained w/ bank

Commercial Tort claims
General Intangibles - patents, etc

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Attachment
[SAVR)

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(1) SECURITY AGREEMENT (unless collateral is in possession or control) [automatically gives SP rights to proceeds]
(2) VALUE must be given
(3) debtor has RIGHTS in collateral

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Form of Security Agreement
[RISD]

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1. must be evidenced by a RECORD and show INTENT to create a SI

2. SIGNED by debtor

3. DESCRIPTION of collateral

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Given Value & Rights in Collateral

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- any consideration is sufficient, even past consideration. Debtor always gives value b/c the debtor, at a minimum, promise to pay. So question is whether SP gave value

- D cannot grant a SI in property that he does not own

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Perfection

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Deals w/ rights as between SP and 3rd parties

Perfection IS NOT necessary to create a valid, enforceable SI

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Methods of Perfection

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1. Automatic - PMSI in consumer goods

2. Possession of the collateral - perfected from moment of possession

3. Control - investment property and electronic chattel paper. Nonconsumer bank accounts can only be perfected by control. The bank in which the account is held automatically has control over the deposit account

AND, the only way to perfect a SI in an automobile is for the SP to note its lien on the certificate of title

Filing a FINANCING STATEMENT

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Filing a FS

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Filed with SOS. A FS must contain name of parties, address of parties and description of collateral, and signature (unless SA signed)

Name: sufficient if found with normal search logic. If a name is seriously misleading, then the FS is valid for up to 4 months

Description: reasonably identify

Effectiveness: a FS is effective for 5 years from filing - it can be extended by filing a continuation statement, which must be filed between 4.5 and 5 years

Proceeds - a SI in identifiable proceeds is perfected for 20 days from the debtor's receipt of the proceeds

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Priority

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Generally, a SP wins against an USP. As between 2 SPs, the first to file OR perfect prevails, unless the other party has perfected by a superior method

USP vs. USP - first to attach
SP vs. JLH - Whoever perfects/levies first

Statutory Lien Holder vs. SP - statutory wins

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Perfected SP vs. Perfected SP
Special Rules

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PMSI in equipment ---> a PMSI in equipment has priority over a conflicting Si in the same goods or its proceeds if the PMSI is perfected at the time the debtor received possession of the collateral or w/in 20 days

Deposit accounts ---> (1) A SI perfected by control wins over a perfected SI in proceeds; (2) if conflicting interests perfected by control, rank according to time took control; (3) a SP who put account in own name has priority over all other SPs w/ control

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Buyer of Collateral

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Buyer takes subject to SI and SI in proceeds. EXCEPTION --> garage sale rule, a consumer who buys from a consumer takes goods free from SI unless the SP perfected by filing.

BIOC takes collateral free of SI in GOOD FAITH [you can know there is a SI] and SELLER IS IN BUSINESS OF SELLING GOODS of that kind.

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PMSI

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A PMSI is an interest taken by the seller of the collateral to secure all or part of the purchase price, or one taken by the lender who advances funds for the purpose of purchasing the collateral, provide the funds are in fact so used. PMSI may enjoy a priority over other interests.

PMSI in goods automatically perfected

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Rights upon Default

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Upon default, a SP can reposses collateral using self-help (w/o breaching the peace), or by judicial process, and sell the collateral.

A valid sale must be commercially reasonable, with notice to debtor. Debtor has right of redemption even after default.

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Strict Foreclosure

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Strict foreclosure - the SP proposes retaining the collateral in full or partial satisfaction of debt.

A SP wishing to do so MUST send proposal to any other SPs and debtor. If ANY SP objects, you cannot keep collateral you must sell it.

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Fixtures

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Goods that have become so related to RP that an interest arises under RP.

A fixture filing must be made in SOS office where mortgage is.

Generally, a prior property interest that is properly recorded has priority over SI that subsequently arises. HOWEVER, a PMSI SP takes priority over an earlier interest if perfected via fixture filing before goods become fixtures or w/in 20 days

Constructio mortgage will always win