Secured Transactions

Front 1

Secured Party vs. Purchaser (Buyer or Lessee)

Back 1

- general rule: secured party prevails

- if debtor has permission to sell, purchaser prevails

- if secured party unperfected, purchaser wins IF:
(1) buyer gives value
(2) buyer receives delivery AND
(3) buyer has no knowledge of security interest

- PMSI exception-- if perfected within 20 days after debtor receives collateral

Front 2

Buyer's in the Ordinary Course of Business

Back 2

Can prevail even over a perfected creditor if:

(a) good faith -> honesty in fact, reasonable commercial standards
(b) without knowledge of a security interest violation
(c) purchase of goods that are not farm products
(d) ordinary purchase (seller must be in the business of selling goods of the kind)
(e) security interest created by seller
(f) creditor not perfected by possession

Front 3

Scope of Article 9

Back 3

(1) collateralized transaction: security interest in personal property or fixtures

(2) sales of receivables: accounts, chattel paper, payment intangibles, promissory notes

(3) consignments ($100K value, not household goods)

(4) agricultural liens (farm products)

(5) lease-purchase agreements (installment sale contracts)

Front 4

Exclusions from Article 9

Back 4

(1) rights governed by federal law
(2) real property (except fixtures)
(3) tort claims (except commercial tort claims)
(4) deposit accounts in comsumer transactions
(5) statutory liens (landlord's lien, mechanic's lien)
(6) wage assignments

Front 5

Classifications of Goods

Back 5

(1) consumer goods- personal, family or household purposes
(2) equipment- business purposes
(3) inventory:
(a) held for sale/lease in ordinary course of business
(b) raw material and work in progress
(c) consumed materials
(4) Farm Products:
(a) in possesion of farmer
(b) unmanufactured condition

Front 6

Classification of Semi-tangible and Intangible Collateral

Back 6

(1) instruments (represent money)
(2) documents (written representation of goods)
(3) chattel paper (money obligation + security interest)
(4) account (right to payment for goods sold or services rendered not evidenced by instrument)
(5) deposit accounts (checking savings)
(6) investment property (stocks, bonds)
(7) commercial tort claims (unfair competition)
(8) general intangibles (intellectual property, goodwill)

Front 7

Proceeds

Back 7

- what is received upon sale, exchange collection or other disposition of collateral

proceeds may include cash

Front 8

pledge

Back 8

- collateral in creditor's possession
- security agreement may be oral
- creditor has duty to take reasonable care of collateral

Front 9

specificity of description of collateral in security agreement

Back 9

description may be by category or type, quantity, computational formula or any objectively determinable method

consumer goods & commercial tort claims may not be described by type alone -> must be more specific

Front 10

After Acquired Property

Back 10

- debtor can agree that new acquisitions of property will serve as additional collateral for old loan

- floating lien, common with inventory

- attachemnt doesn't occur until the new inventory is purchased because before then debtor has no rights in the collateral

- consumer good exception - 10 days limitation

- commercial tort claim exception

Front 11

Perfection by Possession

Back 11

- almost all collateral may be perfected by possession

- exceptions:
accounts, deposit accounts, nonnegotiable documents, electronic documents, electronic chattel paper, general intangibles

- loss of possession= loss of perfection

20 days exception for instruments, negotiable docs

Front 12

Termination Statement

Back 12

Required for consumer goods
- creditor must file within 20 days of debtor's written demand; or
- within 1 month after no outstanding secured obligation even without debtor's demand)

nonconsumer goods= only upon debtor's request
- creditor must provide termination statement within 20 days
- debtor has responsibility of filing

Front 13

Filing of Financing Statement UCC-1

Back 13

almost all collateral may be perfected by filing. Exceptions: depost accounts, money

Financing Statement requirements: names and addresses of debtor and creditor, debtor's authorization in authorized records, description of collateral or land (timber, fixtures)

debtor name change- 4 months to refile under new name

filed with secretary of state office in Austin, or county where RE located

effective for 5 years... can file continuation within 6 months of lapse

Front 14

Automatic Permanent Perfection

Back 14

(1) PMSI in consumer goods * only for consumer goods that are not either certificate of title items or fixtures

(2) assignement of insignificant amount of debtor's accounts

(3) sale of promissory notes

Front 15

Elements of Attachment

Back 15

(1) creditor gave value
(2) contract -> the security agreement
(3) debtor has rights in collateral

* no attachment untill ALL 3 elements satisfied

** possession, authentication & control

Front 16

automatic temporary perfection

Back 16

(1) proceeds= automatically perfected for 20 days after receipt
(2) new value for instruments, negotiable docs and certificated securities -> 20 day grace period to perfect using normal methods
(3) delivery of instrument, negotiable document or certificated security to debtor for 20 days for certain purposes: sale, exchange, presentment of collateral

Front 17

control

Back 17

- investment property
- non consumer deposit accounts
- electronic documents
- electronic chattel paper

- creditor has the right to sell or cash in the collateral without further action from the debtor
(delivered in bearer form or properly indorsed)

Front 18

notation on certificate of title

Back 18

items covered: motor vehicles, boats, manufactured housing

perfection if collateral consumer goods or equipment= notation of security interest on certificate of title

perfection if collateral inventory= file or take possession

Front 19

Perfection

Back 19

- establishes secured party's rights in collateral as against 3rd parties

ATTACHMENT AND one of the following:
- filing a financing statement
- taking possession
- taking control
- automatic perfection
- temporary perfection

Front 20

special rules for proceeds

Back 20

- general rule: perfection continues for 20 days

- perfection continues beyond 20 days IF:

(a) the financing statementfor the proceeds would be filed in the same office as the original collateral (same office rule)
(b) identifiable cash proceeds (cash rule)
(c) proceeds are perfected within 20 day period

Front 21

secured creditor vs. unsecured/general creditor

Back 21

secured creditor prevails

perfected status of secured creditor is irrelevant

Front 22

priority between 2 unperfected secured parties

Back 22

the 1st to attach has priority

Front 23

priority between unperfected and perfected secured parties

Back 23

perfected creditor prevails

temporal order is irrelevant

Front 24

priority between perfected secured parties

Back 24

Generally they rank in priority according to time of filing OR perfection

Front 25

2 secured perfected creditors- if one creditor has PMSI in inventory/ livestock

Back 25

PMSI creditor prevails IF:
(1) prefected @ time debtor receives possession of the inventory, and
(2) proper notice to Holders of conflicting security interests. Notice must:
- explain creditor is obtaining PMSI
- describe collateral
- be give before debtor receives possession of inventory

* notice effective for 5 years

Front 26

2 secured perfected creditors- 1 creditor has PMSI in goods or equipment (not inventory or livestock)

Back 26

PMSI creditor has priority over conflicting security interests in the same goods or their proceeds if the interest is perfected when the debtor receives possession or within 20 days of when the debtor received possession

Front 27

2 secured perfected creditors of investment property

Back 27

secured party who has control over investment property has priority over a secured party who does not have control (eg a secured party who perfected by filing)

Front 28

2 secured perfected creditors of a Deposit Account

Back 28

secured party with control wins

Front 29

PMSI's and perfection

Back 29

PMSI consumer goods -> automatically perfected

PMSI equipment perfected (usually by filing) anytime within 20 days after debtor gets possession of collateral

PMSI inventory -> must be perfected by time debter gets possession of collateral (no 20 days grace period) AND written notice must be given to others with security interest in same

Front 30

secured party vs. donee

Back 30

debtor makes a gift of collateral to donee, the collateral remains subject to the security interest in the donee's hands

Front 31

fixtures- secured party vs. holder of real proeprty mortgage

Back 31

fixture: a good which is not completely integrated into the real estate that an interest in it arises under real estate law

- can be removed, but damage will occur to realty

- secured party may win if:
--perfected before real estate interest recorded AND
--perfected with a fixture filing

-PMSI Exception, PMSI creditor can prevail if:
--perfected by fixture filing
--perfected within 20 days of good becoming a fixture
--competing real estate interest is not a construction mortgage

Front 32

repossession

Back 32

1. upon default, creditor may preossess
2. no judicial process needed- self help remedy
3. creditor need not give debtor notice
4. limitation on repo- no breach of peace
- no violence or threat of violence
- no breaking or entering
- no constructive force
- some trickery is allowed

after repo, creditor can resell collateral or strict foreclosure- keep collateral and call it even