Secured Trans - Mee - Barbri - July 2015

Front 1

Definition of a Secured Transaction

Back 1

A transaction intended to create a security interest in personal property or fixtures.

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

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Things to look for in a secured transaction

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1) A credit transaction (sale on credit or loan) and

2) An agreement that creates a lien in favor of the creditor in the debtor's personal property to secure the debt.

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Debtor

Back 3

Person who owes payment or performance of the obligation secured

Front 4

Secured Party

Back 4

Lender, seller, or other person in whose favor there is a secured interest

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Security Agreement

Back 5

Unless collateral in possession/control, a WRITTEN SA is required.

Requirements: (1) record showing intent to create SI; (2) authentication by D; (3) description of collateral ("reasonably identify")

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Security Interest

Back 6

Interest in personal property or fixtures which secures payment or performance of an obligation.

It's a CONTINGENT property interest that springs to life upon default.

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Collateral

Back 7

Property subject to a security interest

Front 8

Purchase Money Security Interest (2 kinds)

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(1) Secured party sells debtor collateral on credit and retains SI in the item sold

(2) Enabling loan so debtor may buy specific collateral and creditor takes a security interest in the specific collateral

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For a PMSI to exist, must the credit or loan proceeds actually be used to acquire the collateral?

Back 9

Um, yes. Obviously.

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Security Interest in Non-Consumer Goods

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Does not lose its status as PMSI if:
1) Purchase money obligation also secures an obligation that is not purchase money;
2) Non-Purchase money collateral also secures the purchase money obligation; or
3) the purchase money obligation has been renewed, refinanced, consolidated or restructured

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After-acquired property clause

Back 11

SP will often want to obtain SI not only in D's present property, but also in property D will obtain in future.

WITHOUT CLAUSE, SP's SI only reaches collateral that D has rights in AT TIME D SIGNED SA.

BUT, the exception where collateral is rapidly depleted and replenished.

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Future Advance clause

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SP contemplates making future loans to D and wants to secure these future advances in present SA.

Permissible.

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Attachment

Back 13

Requirements:

(1) Security agreement (or possession/control)

(2) SP gave VALUE

(3) D must have rights in collateral

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Financing Statement

Back 14

Document generally used to provide public notice of the security interest, and so to perfect the security interest.

MOST COMMON WAY TO PERFECT.

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3 Categories of Collateral

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1. Goods
2. Semi-Intangible and Intangible property

3. Proceeds

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4 types of Goods Collateral

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1. Consumer Goods
2. Equipment
3. Farm Products
4. Inventory

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Consumer Goods as Collateral

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Used or bought for use primarily for personal, family or household purposes

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Equipment

Back 18

Used or bought for use primarily in business

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Farm products

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Crops or livestock or supplies used or produced in farming operations or products of crops or livestock in their unmanufactured states (such as ginned cotton, wool-clip, maple syrup, milk and eggs) if they are in possession of a debtor engaged in farming operations. ALWAYS LOOK TO USE AND DEBTOR

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Inventory

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Held by a person who holds them for sale or lease or to be furnished under service contracts; materials used or consumed in a business.
This includes materials used or consumed in a short period of time- pencils used by sears = inventory. Computer= equipment. Pencils, papers = inventory.

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Guitar purchased by Harry Homebody as a Chanukah present for his son Marvin

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Consumer goods

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Guitar purchased by Sterling Studly, a professional rock musician, to be used on tour

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Equpiment

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Milk in hands of farmer

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Farm Products

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Milk in hands of grocery story (or a restaurant)

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inventory

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Milk in the hands of the grocery store's customer who is buying for his family's consumption

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Consumer goods

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Automobiles held by a local car rental agency

Back 26

Inventory

Front 27

Pencils and other stationary supplies used by Sears or some other large retailer in its credit offices

Back 27

inventory

Front 28

8 Types of Semi-intangible and intangible property

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1. Instruments
2. Documents
3. Chattel paper
4. Investment Property
5. Accounts
6. Deposit Accounts
7. Commercial tort claims
8. General intangibles

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Instruments

Back 29

Negotiable instruments and any other writing which evidences a right to the payment of a monetary obligation, and which are in the ordinary course of business transferred by delivery with any necessary indorsement or assignment.

Not investment property.

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Documents

Back 30

Document in regular course of business evidencing possessor's right to receive, hold, and dispose of the document and the goods it covers

Ex. Bill of Lading, Warehouse Receipt

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Chattel paper

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Record or records which evidence both a monetary obligation and a security interest in or a lease of specific goods.
Record = info stored in either
1. A tangible medium (e.g. written on paper)
2. Intangible medium (electronically stored) - also called electronic chattel paper

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Investment Property

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- stocks
- bonds
- mutual funds
- brokerage accounts containing such items

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Accounts

Back 33

Right to payment [not evidenced by an instrument or chattel paper] for
1. goods
2. services
3. real property
4. a policy of insurance issued or to be issued
5. for a secondary obligation incurred or to be incurred
6. energy provided or to be provided
7. for use or hire of a vessel
8. arising out of the use of a credit card, or
9. as lottery winnings
Healthcare insurance receivables are included

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Deposit Accounts

Back 34

Only non-consumer deposit accounts.

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Commercial Tort claims

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Claim arising in tort with respect to which the claimant is

1. an organization; OR
2. individual and the claim arose in the claimant's business or profession and does not include damages for personal injury or death of an individual

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General intangibles

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Any personal property not coming within the scope of the other definitions (e.g. software, patent and trademark rights, copyrights, goodwill).

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Payment intangible

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A general intangible which the account debtor's principal obligation

Front 38

A promissory Note

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instrument

Front 39

Stock in GM

Back 39

Investment property

Front 40

a receipt given to a farmer by a silo operator when the farmer stored her grain there

Back 40

document

Front 41

a written contract in which a car buyer purchasing on credit promises to pay the car dealership for the car and grants the dealership a security interest in the car

Back 41

Chattel paper

Front 42

Big T sells tires on credit. What are its customers' obligations?

Back 42

accounts

Front 43

a hospital has patients who come in for treatment sign paperwork authorizing the hospital to seek payment from their health insurance coverage provider Can the hospital use the monies due from the various health plans as collateral?

Back 43

Yes, account healthcare insurance receivable

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Credit card company issues millions of credit cards to cardholders, who use them in transactions with merchants. Merchants send the resulting paperwork to credit card company for reimbursement (minus certain fees). Can Credit Card Company use these credit card transactions as collateral?

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Yes, Accounts

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The checking account that you have at your bank

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deposit account

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Patent and trademark rights, copyrights, goodwill, a tax refund claim, a liquor license, a commercial clamming license, a righ tot the return of a security deposit held by a landlord.

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general intangibles

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A right to sue a corporation for wooing away a trusted employee

Back 47

commercial tort claim

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A claim arising in tort that has been settled and reduced to a contractual obligation to pay

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General intangible- payment intangible

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A computer program

Back 49

if it's embedded in the goods, it's part of the goods. Sold separately, generally intangible.

Front 50

Article 9 applies to (5 areas)

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1) Any transaction that creates a security interest in person property or fixtures by contract
2) An agricultural lien
3) A sale of accounts, chattel paper, payment intangibles, or promissory notes
4) Most consignments
5) Secured sale disguised as a lease

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Consignments Elements

Back 51

i) over $1000
ii) consigner did not use the goods as consumer goods
iii) consignee deals in goods of the kind under a name other than the consignor's
iv) the consignee is not an auctioneer, and
v) consignee is generally known by her creditors to be substantially engaged in selling the goods of others.

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Secured sale disguised as lease

Back 52

Art. 9 applies if:
i) at end of lease period, the lessee becomes the owner of the machine for little or no consideration (e.g. option to purchase for $1); or
ii) lessee is bound to purchase the goods at the end of the lease or to renew the lease for the remaining economic life of the goods; or
3) the lease is for the entire economic life of leased goods, with or without renewal

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Authenticated Security Agreement

Back 53

Written or electronically stored

Front 54

Is an authenticated security agreement necessary?

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Yes, unless the collateral is already in the possession or control of the secured party pursuant to an agreement.

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Attachment v. Perfection

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Attachment: Creates SI and gives that SP's SI power against the D

Perfection: Gives SP's SI effect against the world

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Proceeds

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Wheat is received upon sale, exchange, collection, or other disposition of collateral.

Absent SA otherwise, SI AUTOMATICALLY gives SP right to identifiable proceeds.

PERFECTION: SP automatically has perfected SI for twenty days

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Automatic Perfection

Back 57

No possession or filing required.

SI automatically perfected in consumer goods upon attachment.

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Perfection by Possession

Back 58

SP may perfect SI in most types of collateral simply by taking possession of it.

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Lowest Intermediate Balance Test

Back 59

Test for identifiable proceeds.

To determine what pat of commingled cash is identifiable proceeds, the lowest balance during time period is the SP's identifiable proceeds (not exceeding value of cash proceeds originally deposited)

Front 60

Financing Statement Requirements

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(1) D's name, individual, corporate, or partnership (must not be seriously misleading)

(2) Description of collateral. Test: "Reasonably identify" Real Property: Must reasonably identify and indicate filed in real property records

Front 61

Financing Statement's "Seriously Misleading" Test for D's Name

Back 61

D's name on FS is "seriously misleading" (FS not effective) if the filing office's standard search logic does not retrieve the erroneous FS when proper name entered.

If D changes name, FS remains effective for 4 months before/after change.

Front 62

Perfection by Control

Back 62

SI in investment property and electronic chattel paper may be perfected by control.

SI in non-consumer deposit accounts ONLY perfected by control.

Front 63

Perfection via Control in Non-Consumer Bank Accounts

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(1) Bank in which account maintained automatically has control

(2) If SP not such a bank, may obtain control by either (a) putting account in SP's name or (b) agreeing in authenticated record with D an bank that maintains account that bank will follow SP's ordered without further consent from debtor.

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Notation of Lien on Certificate of Title

Back 64

Only way to perfect SI in cars.

EXCEPTION: When D holding cars as inventory (FS in that case)

Front 65

Where to file FS?

Back 65

SoS (county office for real estate)

Multiple state transactions: file where D is located

- Individual: Principal residence

- Registered Organization: Where it was organized

- General Partnership: Place of business

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If D moves, for SP to remain protected...

Back 66

SP must file FS in new jurisdiction within 4 months

Front 67

If collateral transferred to new D in different state, for SP to remain perfected. . .

Back 67

SP must file FS in new jurisdiction within 1 year

Front 68

Continuation Statement

Back 68

FS is effective for 5 years from date of filing.

CS must be filed within last 6 months of 5-year life to be effective.

Front 69

Termination Statement

Back 69

When no outstanding obligation by D and no commitment of SP for further advances, SP must provide termination statement to D within 20 days of receiving authenticated demand by D

Front 70

Secured Party v. Secured Party

Back 70

First to file or perfect, whichever occurs first, has priority.

Front 71

Unperfected SP v. Unperfected SP

Back 71

First to attach has priority.

Front 72

PMSI Priority in Goods OTHER than Inventory/Livestock

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Has priority over conflicting SI in same goods or their proceeds if PMSI is perfected at time D received possession of collateral or within 20 days.

Front 73

PMSI Priority in Inventory/Livestock

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Has priority over conflicting SI in same inventory/livestock (as well as proceeds that are chattel paper, instruments, and identifiable cash proceeds) if, before D received possession, SP (1) perfects and (2) sends authenticated notification to holders of previously filed conflicting SI in the collateral.

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Conflicting PMSI Priority

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Seller PMSI > Financer PMSI

Front 75

SP v. Buyer of Collateral Priority

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If sale authorized by SP, buyer takes free.

If sale NOT authorized - buyer in ordinary course of business takes free of SI created by his seller even though SI is perfected and even though buyer knows of its existence.

Not in ordinary course of business: Buyer takes subject to perfected SI

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Buyer in Ordinary Course of Business (BIOCOB)

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Person who buys goods in good faith, without knowledge that sale violates rights of another person in goods, and in the ordinary course from a person in business of selling goods of that kind.

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Consumer to Consumer Sales Priority

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Buyer takes free of SI even though it is perfected if buys without knowledge of the SI, for value, and for his own personal, family, or household purposes, unless prior to purchase SP has filed FS covering such goods.

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SP v. Judgment Lien Holder's Priority

Back 78

Unperfected SI is subordinate to rights of lien creditor.

Perfected SI before lien creditor has priority.

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SP v. Statutory Lien Claimants

Back 79

Statutory liens have priority over SP's SI in almost every state.

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Default

Back 80

Absent specification in SA, default restricted to failure to perform or pay the obligation when it is due.

Example: Late/Missed Payments

NOTE: Look for waiver by SP of late/missed payments.

Front 81

Self-Help Repossession

Back 81

SP entitled to take possession of collateral without judicial process if this can be done without "breach of the peace"

Alternative: Judicial process ("replevin")

Front 82

Breach of the Peace

Back 82

Any conduct by the SP that has the potential to lead to violence

D's physical presence + verbal objection is enough to create breach of the peace.

Front 83

Retention of Collateral (Strict Foreclosure)

Back 83

After default/repossession, SP may propose retaining collateral in full/partial satisfaction of debt.

Must send proposal to any other SP who gave notice of claim or filed FS or noted SI on certificate of title. Objection by these within 20 days => must dispose by sale

D must also consent via authenticated record.

Front 84

Resale of Collateral

Back 84

SP may sell, lease, license, or otherwise dispose

Sale may be public or private

Sale discharges SI under which sale is made and all subordinate SI

Purchase still subject to superior SI

- Reasonable notification required

- Every aspect of sale must be "commercially reasonable"

- SP right to deficiency

- D's right to deficiency: If SP fails to conduct commercially reasonable sale

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Right to Redeem

Back 85

Before sale/contract for collateral's disposition, D may redeem collateral by fulfilling all obligations secured by collateral.

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Fixtures

Back 86

Goods that have become so related to particular real property that an interest in them arises under real property law.

Front 87

Fixture Filing

Back 87

Required to perfect SI in fixtures.

Made in office where mortgage on real estate would be filed.

Must identify real estate + show name of owner

Front 88

SP v. Subsequent Real Estate Interest Priority in Fixtures

Back 88

SI in fixtures has priority over an real estate interest that arises subsequent to perfection of SI by fixture filing.

Front 89

SP v. Prior Real Estate Interest Priority in Fixtures

Back 89

Prior real estate interest that is properly recorded has priority over SI that subsequently arises.

EXCEPTION: PMSI takes priority if perfected by fixture filing before the goods become fixtures or within 20 days thereafter

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Accessions

Back 90

Goods physically united with other goods in such manner that identity of the original goods is not lost.

Front 91

General Ranking of Priorities

Back 91

(1) BIOCOB

(2) Holders in Due Course

(3) Transferee of Funds from Deposit Accounts

(4) Certain Possessors (of chattel paper, instrument in possessor's control, possessory lien holders, Art. 2 claimants with possession)

(5) PMSI