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51 Cards in this Set

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Definition of a Secured Transaction
Transaction intended to create a security interest in personal property or fixtures.

Elements to look for:
1) Credit transaction -- sale on credit or a loan
2) Agreement that creates a lien in favor of the creditor in the debtor’s personal property to secure the debt
Definition of Security Interest
Dormant or contingent Interest in debtor’s personal property or fixtures that secures payment or performance

When DEFAULT occurs, the interest springs to life and creditor has rights to collateral
Two kinds of Purchase Money Security Interest
1) Seller-Financed -- Secured party sells debtor collateral on credit and retains security interest in sold items

2) Financer Financed -- enabling loan allows debtor to buy specific collateral – Creditor takes security interest in the collateral
After-acquired property clause
Creditor takes interest in property debtor has now AND property debtor has in the future
Future Advance Clause
Agreement to make future loans to debtor securing them in the present security agreement
Definition of Attachment
Step at which creditor becomes secured – provision in the contract giving dormant interest

Effective as against the debtor
Definition of Perfection
Steps required to give the secured party an interest in the collateral that is effective as against the world

Process of giving public notice of the lien
Financing Statement
Document giving public notice of security interest

Used to perfect an interest
Two major types of Collateral
1) Goods

2) Semi-tangible and Tangible property
Collateral -- 4 categories of goods
1) Consumer Goods -- used or bought for personal, family or household use

2) Equipment -- used in business

3) Farm Products -- Crops, livestock, supplies

4) Inventory -- held by owner for sale or lease
Collateral -- Categories of Intangible and semi-intangible property
Learn these, dammit! There's 8 of them
Tips for classifying goods as collateral
Look at how the item is being used by the debtor

Creditor’s actions are irrelevant
Scope of Article 9
Applies to:
Any transaction creating a security interest in fixtures or personal property by contract
Applies regardless of the wording of the parties as long as it creates a contingent interest in the property of another – Art. 9 applies
Leases under Article 9
Leases are NOT covered by Art. 9
“Leases” that are actually sales w/ security interests ARE covered by Art. 9

Relevant question:
At the time the parties entered into the transaction, was it reasonably likely that the “lessor” would get the item back when it still had meaningful economic value?
Three Elements required for attachment
1)Security Agreement
2) Value given by Secured Party
3) Debtor has rights in the collateral
Possession of collateral under a security agreement
1) If secured party in possession of collateral: no need for a writing.

2) If debtor in possession of collateral: Need written security agreement, contract or record
Written security agreement must: A) Show intent to create a security interest; B) Be authenticated by the debtor; C) Description of the collateral
Three factors defining the scope of security interests
1) Debt Secured May include future advances (agreement that collateral covers present and/or future loans)

2) Property may include property acquired by debtor in the future (eg. inventory)

3) Property Secured generally includes proceeds (whatever is received from sale, exchange or other disposition of collateral) Must be identifiable
Identifying cash proceeds from specific collateral (security of proceeds)
Lowest intermediate balance test:
1) Look to the bank account starting at the time the proceeds are deposited and ending at the time the test is applied
2) The lowest balance during that time is the secured party’s identifiable proceeds
Methods of Perfection
1) Automatic Perfection
2) Possession
3) Control
4) Notation of lien on certificate of title
5) Filing of notice (most common)
Automatic Possession
PMSI in CONSUMER GOODS -- Perfection is instantaneous with attachment
Perfection by POSSESSION
Secured party’s taking possession of collateral puts world on notice

Generally only applies to tangible goods
Perfection by CONTROL
Security interest in investment property and electronic chattel paper may be perfected by control
Perfection by Notation of Lien on certificate of title
The ONLY way to perfect a SI in automobile if for lien to be noted on the certificate of title
Perfection by FILING NOTICE
Secured party files notice of security interest in public records.
Proper filing puts potential competing creditors on record notice of interest.

What is filed:
1) Security Agreement
2) Financing Statement
Required contents of a Financing Statement
1) Debtors Name and Address
2) Creditor's name and address
3) Description of Collateral
Consequences of errors in financing statement
Errors that are seriously misleading make filing ineffective

Secured creditors not responsible for errors made by filing office
Perfected interest in proceeds
If perfected interest in collateral – you have a perfected interest in proceeds for 20 days after the exchange.

To remain perfected beyond those 20 days, secured party must take new action UNLESS:
1) Proceeds are identifiable cash
2) Security in original collateral perfected by financing statement and financing statement for proceeds would be filed in the same place
Perfection -- Debtor's change in the use of collateral
If debtor changes use of collateral (eg. from equipment to inventory) the filed financing statement remains effective to perfect
Definition of Priority
Priority determines who gets paid first out of proceeds of Collateral sale if and when debtor defaults.
Rules of Priority -- Perfected Secured Party vs. Perfected secured party
First to file OR perfect has priority, which ever of those is first

Knowledge of other interests is irrelevant

Only applies when both are perfected
Rules of Priority -- Unperfected Creditor v. Unperfected Creditor
First to attach wins
Rules of Priority -- Perfected Creditor vs. Unperfected Creditor
Perfected creditor always wins
Special Rules of Priority -- PMSI in goods other than inventory or livestock
Has priority over conflicting interest in same goods if interest is perfected at the time debtor received possession of collateral or within 20 days

If requirements are not met – back to general rule
Special Rules of Priority -- PMSI Seller Financed vs. PMSI Financer Financed
Seller PMSI wins.
Special Rules of Priority -- Investment Property
Interest perfected by control has priority over interest perfected by any other method
Special Rules of Priority -- Deposit Accounts
Control is the only method of perfection

Security interest over bank account has priority over interest in proceeds deposited into the account
Priority -- Secured Creditor v. Buyer of Collateral
• If sale is authorized (express or implied) by secured party (free of the SI) -- Buyer takes with no SI attached

Unauthorized Sale -- Good Faith Buyer in the ordinary course of business takes free of SI created by its seller
Consumer to Consumer sales
Buyer takes free of SI if:
1) Buys without knowledge of SI
2) Pays value
3) And if purchased for personal, family or household purposes

UNLESS:
Secured party files financing statement covering the goods PRIOR to the purchase
Priority -- Secured Party v. judgment lien holder
If SP perfects before the lien took effect, SP wins
Priority -- Ultimate Rankings
Higher ranking = Higher priority
Same Ranking = First in time has priority

1) Buyer in ordinary course of business
2) Perfected Secured Creditor
3) Lien creditor
4) Non-ordinary course buyer
5) Unperfected secured party
6) General Unsecured Creditor
Definition of Default
Breach by debtor. Defined by Security Agreement

Triggers rights of Secured Party to proceed against collateral
Default -- Creditor's Options
1) Self Help Repossession (can't be made over debtor's protest)
2) Possession by Judicial Action
3) Strict Forclosure
4) Sale
5) Action For Deficiency Judgment
Default -- Possession by Judicial Action
Secured party may also go to court for judicial writ ordering sheriff to obtain possession of collateral and deliver it to secured party.
Default -- Strict Foreclosure
Occurs when secured party lawfully retains collateral in full satisfaction of debt (and debt, in turn, is canceled).

Process:
1) Written notice to debtor
2) Consumer Goods -- notice to 2nd obligors
3) Non-Consumer goods -- Notice to other secured parties

Any objection prevents foreclosure
Default -- Sale
Secured party may sell collateral and apply sale proceeds to debt.

Can choose whether sale will be public (i.e., public auction) or private.

Requirements:
1) Must be commericially reasonable
2) Notice must be sent
Default -- Action for Delinquency Judgment
If sale of collateral not enough to satisfy outstanding collateral secured party can proceed against debtor for deficiency judgment.
Default -- Debtor's limited right of redemtpion
To redeem, debtor must pay amount owed on missed payments PLUS interest and reasonable expenses (attorney’s fees).
Definition of Fixtures
Goods so related to particular real property than interest in them arises under real property law
Perfection of Fixtures
Must make a “fixture filing” -- Identifies real estate -- Name of the owner
Fixtures -- Creditor's rights on default
Right to take collateral, regardless of impact on property
Fixtures -- Priority
Perfected Secured Parties prevail over subsequent purchasers of real estate.

Prior real estate interests prevail over Perfected secured interests IF they are properly recorded.

Exception:
PMSI prevails if perfected by fixture filing before goods become fixtures or within 20 days thereafter