Secured Transactions

Front 1

PMSI

Back 1

Where creditor sells the good to the debtor on credit, retaining a security interest in the goods, or creditor advances funds used to purchase goods.

Front 2

Collateral

Back 2

Property Subject to Security Interest

Front 3

Categories of Collateral

Back 3

1. Consumer Goods: used or bought for family purposes
2. Farm Products in the hands of a farmer
3. Inventory: Goods held or lease or used short term
4. Equipment Goods used in business LONG TERM
5. Instruments or a promissory note (neg. or non-neg.)
6. Documents (W receipt, lading, delivery order)
7. Accounts
8. Deposit Accounts
9. Health Care Insurance Receivables
10. Chattel Paper
11. Electronic Chattel Paper
12. Letter of credit
13. Commercial Tort Claims
14. General Intangibles
15. Investment property
16. Proceeds

Front 4

Primary Use test

Back 4

Use it to determine if product is business or consumer good. What is it primarily used for?

Front 5

Original Use test?

Back 5

Was the product first bought for use at home and then you took it to the office? If so, apply original use test to determine is consumer goods or viceversa.

Front 6

Embedded test for Software

Back 6

Means so firmly affixed thereto as to be considered part thereof. If so, a software is part of the computer, if not then general intangible.

Front 7

Farmer Brown's nuts

Back 7

1. Farm products if in his hands
2. He processes them, then inventory

Only category that can change in own person's hands.

Front 8

Instruments

Back 8

Art. 3 UCC or a promissory note (even if non-negotiable, if it is of a type used in the regular course of business) which is transferred by indorsement plus delivery.

Front 9

Documents

Back 9

Art. 7, UCC

1. Warehouse receipts
2. Bills of lading: receipts by common carriers
c. Delivery order: commodity

Front 10

Accounts

Back 10

Right to payment with no writing (oral), or insufficient writing to be an instrument or chattel paper. It excludes deposit accounts, health care insurance receivables and investment property. It includes credit card debts.

Front 11

Deposit Accounts

Back 11

Accounts maintained with a bank, It excludes instruments and consumer transactions.

Front 12

Health care insurance receivables

Back 12

Another form of collateral, right to payment under insurance, for health care goods or services provided.

Front 13

Chattel paper

Back 13

Writing(s) evidencing an (1) obligation and (2) security interest.

Front 14

Electronic Chattel Paper

Back 14

Chattel paper evidenced by information stored in an electronic medium

Front 15

Letter of credit right

Back 15

Right to payment under a letter of credit. It excludes the right to draw on a letter of credit.

Front 16

Commercial tort claims

Back 16

Tort claims filed by a business (exc. personal injuries). Requires specificity, and there can be no "after-acquired tort clauses."

Front 17

General Intangibles

Back 17

Anything else catchall.
i.e. Liquor license, taxi medallion, goodwill.

Front 18

Investment Property

Back 18

1. Cert. securities held by you in paper form

2. Uncertified securities held by you in computer form

3. Securities account (intermediary holding Edward's Jones)

Front 19

Proceeds

Back 19

Whatever is acquired upon disposition of collateral. It is collateral that has changed in form. Usually one of four things:
1. Account
2. Instrument
3. Chattel Paper
4. Cash

Proceeds include multigenerational proceeds. (farmer sells sheep and gets tractor)

Security interest generally continue in proceeds.

Front 20

Debtor and Creditor

Back 20

Debtor: A person having an interest in the collateral

Secured Party: the party to which the interest is transferred (inc. co-signor)

Front 21

How do you create a security interest?

Back 21

1. Possession, or
2. Security Agreement
i. In Writing (auth. record)
ii. Signed by debtor
iii. Describing Colateral
iv. Control

Front 22

How does it attach?

Back 22

1. Secured party must give value
a. Not by gift
b. Preexisting debt is value

2. Debtor must have rights in the collateral, (gotta own it!)

Front 23

What is a floating lien?

Back 23

After acquired property clause is OK. This is future collateral for a present loan. There will be no attachment until the debtor acquired an interest in the property.

i.e. when store gets a security interest in inventory, floating liens allows attachment even if chairs come or go.

EXCEPTIONS:
A. 10 DAY LIMIT ON CONSUMER GOODS

B. COMMERCIAL TORTS CLAIMS

Front 24

Future advance clauses

Back 24

This is present collateral for a future loan. There iwll be no attachment until the secured party gives value.

Front 25

How do you PERFECT?

Back 25

1. Most common method is FILING
2. POSSESSION
3. CONTROL
4. AUTOMATIC
5. TEMPORARY

Front 26

What is filed?

Back 26

The financing statement: must be authorized by the debtor in writing, or by authenticated record. This authority is kept by the secured party. An authenticated security agreement will do.

Front 27

What's contained in the financing statement?

Back 27

1. Names: name of debtor required, debtor sign. not required, trade name of debtor insufficient.

2. Addresses: If no, still effective.

3. Description of collateral: supergeneric ok (not for sec. agreement). Test: not seriously misleading. Enough if you can find it using office's search logic.

Front 28

Where is the filing of the financing statement?

Back 28

Central filing with sec. of state.

Local filing for real estate related collateral (timber, fixtures, minerals).

Front 29

How long is the financing good for?

Back 29

1. Five years
2. All subsequent filings are amendments.

Front 30

How do you perfect by possession?

Back 30

1. Accounts, deposit accounts, elect. chattel paper, letter of credit rights, general intangibles CANNOT be perfected by possession. Filing or control is necessary.

2. Sec. party owes a duty of reasonable care. Debtor must cough up reasonable expenses.

Front 31

How do you perfect by control?

Back 31

1. Deposit accounts (control is exclusive method of perfection)
2. Letter of credit rights: control occurs when issuer consents in writing to assignment of proceeds.
3. Investment property

Front 32

How do you gain control over investment property?

Back 32

1. Certificated security: bearer, secured party needs possession, registered, needs possession + endorsement.

2. Uncert. security: Secured party must be registered as owner, or owner acknowledges he is holding for sec. party, or issuer agrees he will comply with the secured party's instructions.
3. Security Accounts: Sec. party must be entitlement holder, or intermediary agrees it will comply with orders.

Front 33

What is automatic perfection?

Back 33

Perfected when attach, no need to file
1. PMSI
2. Assignment of accounts, health care ins. receivables or payment intangibles
3. Sale of payment intangibles or prom. notes
4. Sec. interest in investment property
5. Temporary perfection

Front 34

What are the grace periods for automatic perfection?

Back 34

1. 4 Months: goods and debtor move to diff. state; organizatin changes its name.

2. 20 Days: for proceeds; for instruments, negotiable documents and cert. securities.

Front 35

PERFECTION: Secured party v. Lien creditor

Back 35

Key is perfection (20-day grace for PMSI)

Secured party v. Lien creditor: If secured party PERFECTED, wins, didn't perfect he looses.

Trustee in bankruptcy is lien creditor too, so he looses over a sec. party

Front 36

PERFECTION: Perfected Sec. Party v. Purchaser (buyer of goods)`

Back 36

1. Consumer purchaser vs. Consumer purchaser: Purchaser prevails unless perfected secured party filed.

2. Business purchaser: Secured party prevails (automatic perfection is effective).

3. BIOC, purchaser from a business -Purchaser wins even if filing by secured party. (BIOC=Public Policy)

4. Holder in due course: takes free of personal defenses and calims even over earlier perf. sec. interest.

5. Future advances: ???
5.

Front 37

PERFECTION: Secured party v. Secured party

Back 37

First to file or perfect.

Exceptions:
1. PMSI in inventory, chattel paper and proceeds. Will prevail over earlier SP if:
a. Notice
b. No grace must be perfected before debtor gets possession.

2. PMSI in Equipment (and proceeds)
a. Grace can be perfected before or within 20 days after debtor gets possession
b. No notice

3. Purchaser of chattel paper with possession, takes priority over non-possessory sec. party as proceeds of inventory.

Front 38

Investment property

Back 38

Sec. party with control OR possession prevails over sec. party who filed, even if the control was later, and the sec. party knew of the prior perfected sec. interest.

Front 39

Fixtures

Back 39

Are personal property transformed into real estate.

First to file prevails.

Exception PMSH sec. party who makes fixture filing within 20 days will prevail over prior real estate filing.

Exception to exception: A construction mortgagee prevails so long as recorded before the goods became fixtures, and goods became fixtures before the completion of construction.

Front 40

Accession

Back 40

Added value to personal property

The general rules of first to file or perfect with PMSI superpriority apply.
Exception: If accesion became party of whole asset subject to certificate of title law (autos) the security interest in the whole has priority over the sec. interest in the accession.

Front 41

Rights upon default

Back 41

1. Secured party gets rights as against debtor

2. Collection right of secured party: non goods collateral sec. party is entitled to notify the account debtor to make payment to her rather than the debtor in default.

Equity of redemption CANNOT be waived.

Front 42

What does a creditor want if debtor defaults? W/O judicial intervention

Back 42

1. Possession
a. Self-help, no breach of peace
b. Replevin: go to the Sheriff and the sheriff can use force.

2. Disposition
a. Commercial reasonableness
b. Form of notification
a. Two whom
b. Contents (consumer goods, nonconsumer goods)

Front 43

Non-compliance

Back 43

1. Liability for damages for loss caused by failure to comply (plus $500 for each case of non compliance)

2. If consumer goods: 10% of purchase price, and all interest charges to be paid over the life of the loan

Front 44

Acceptance of collateral in full or partial satisfaction (strict foreclosure)

Back 44

1. In non-consumer goods cases, parties can agree to voluntary turnover in return for an agree credit the debt with the debtor acknowledging remaining deficiency.

2. In consumer goods cases, parties can agree to voluntary turnover in return for full satisfaction only.

Front 45

Application of proceeds of sale

Back 45

1. Expenses of retaking, holding, preparing and dispossing of collateral inc. atty's fees.

2. Satisfactin of obligation secured by security interest.

2. Satisfaction of obligation secured by subordinate security interest if secured party received demand.

4. Debtor or trustee