Secured Transactions Mo Bar 2009

Front 1

definition - secured transaction

Back 1

creates security interest in personal property or fixtures

Front 2

definition - debtor

Back 2

owes payment or performance on secured obligation

Front 3

definition - secured party

Back 3

lender, seller, or other 3d party who has a security interest

Front 4

definition - security agreement

Back 4

creates security interest

Front 5

definition - security interest

Back 5

interest in personal property or fixtures that secures payment or performance of obligation

Front 6

definition - collateral

Back 6

property subject to security interest

Front 7

definition - purchase money security interest

Back 7

seller-financed PMSI -
secured party sells debtor collateral on credit and retains security interest

enabling loan -
laon to debtor enables him to buy specific collateral in which creditor takes security interest

Front 8

definition - after-acquired property clause

Back 8

allows secured party to take security interest in property debtor obtains in the future

Front 9

definition - future advance clause

Back 9

allows secured party to advance additional loans on the collateral secured

Front 10

definition - attachment

Back 10

process to make secured interest effective against the debtor

Front 11

definition - perfection

Back 11

process by which secured party makes interest effective as against the world

Front 12

definition - financing statement

Back 12

document needed to give notice of security interest and achieve perfection

Front 13

collateral - types

Back 13

goods -
tangible, movable, personal property (includes unborn young of animatls, growing crops, fixtures)

semi-intangible and intangible property

Front 14

goods - types (4)

Back 14

1. consumer goods -
used or bought for use primarily as personal, family, or household purposes

2. equipment -
used or bought for use primarily in business

3. farm products -
crops, livestock, or supplies used or produced in farming operations or products thereof in natural state

4. inventory -
held by person who holds them for sale or lease
OR materials used or consumed in business in short period of time

Front 15

semi-intangible and intangiable property - types (8)

Back 15

1. instruments -
negotiable instruments and other writing that show right to payment of monetary obligation

2. document -
shows right of holder to receive, hold, dispose of document and goods it covers

3. chattel paper -
promissory note (monetary obligation) + security interest

4. investment property -
stocks, bonds, mutual funds, brokerage accounts, etc

5. accounts receivable -
right to payment (goods, services)

6. deposit accounts -
account maintained with bank (must be nonconsumer account to be collateral)

7. commercial tort claim

8. general intangible -
K obligation arising from loan of money, intellectual property, etc.

Front 16

scope of article 9

Back 16

applies to:

1. any transaction creating security interest in personal property or fixtures by contract (e.g. dormant property interest in property of another);

2. agricultural liens;

3. sale of accounts, chattel paper, payment intangibles, or promissory notes (unless sale is for collection or sale is part of sale of a business);

4. certain consignments;

5. secured sale disguised as a lease (is it reasonably likely the lessor would get the item back when it still had economic value)

Front 17

attachment - requirements (3)

Back 17

attachment occurs the moment that the last of the three elements takes place

1. security agreement (written or electronically stored)

2. secured party has given value

3. debtor has rights in collateral

Front 18

attachment requirements - security agreeement

Back 18

IF ORAL (a pledge) -
you have to say something creating the security interest

IF WRITTEN - need:
1. record showing intent to create a security interest
2. agreement must be authenticated / signed /marked by debtor
3. agreement must reasonably identify the collateral
(description of land if timber to be cut) - can use article 9 categories

Front 19

attachment requirements - value

Back 19

definition is very liberal

any consideration sufficient to support simple contract

past consideration can be enough

Front 20

attachment requirements - debtor's rights in collateral

Back 20

if he doesn't own collateral, he can't grant contingent property interest in it

Front 21

scope of security interest

Back 21

can include future interests (additional loans)

after-acquired property

proceeds

supporting obligations / sureties

Front 22

after-acquired property

Back 22

IF there is no after-acquired property clause in the agreement, the secured party's interest only reaches the collateral the debtor had rights in at the time of agreement

UNLESS collateral is of a type that is rapidly depleted and replenished

AND even with a clause, the interest would not attach to consumer goods unless debtor acquires rights in them within 10 days after secured party gives value

AND clause is ineffective as to commercial tort claims

Front 23

definition - proceeds (and measure)

Back 23

includes WHATEVER is received upon sale, exchange, collection, or other disposition of collateral or proceeds

UNLESS provision otherwise, security interest automatically gives secured party right to identifiable (creditor can prove item being claimed came from original collateral) proceeds

IF proceeds have since commingled with non-proceeds as cash in an account - use LOWEST INTERMEDIATE BALANCE TEST - the lowest balance during period between deposit of proceeds and your application of the test is the new amount of proceeds (but you can't claim more than amount of proceeds that went in)

Front 24

methods of perfection

Back 24

you only need ONE (in addition to attachment)

1. automatic perfection

2. possession of collateral by secured party

3. perfection by "control"

4. notation of lien on certificate of title

5. filing a financing statement

Front 25

automatic perfection

Back 25

PMSI in consumer goods is automatically perfected upon attachment...

Front 26

perfection by possession of collateral secured party

Back 26

secured party may perfect a security interest in most types of collateral by taking possession of the collateral

(continues only so long as possession is retained)

impossible IF - items you can't take possession of

Front 27

perfection by control

Back 27

investment paper -
control if secured party takes whatever steps necessary to be able to have the investment property sold w/o fruther action from owner

nonconsumer deposit accounts (control is the only way to perfect) -
bank with account has control
another party can get control by either (1) putting deposit account in secured party's name OR (2) agreeing in authenticated record with debtor and deposit bank that bank will follow secured party's orders w/o consent by debtor

electronic chattel paper -
need single, authoritative copy of the record that identifies secured party as assignee of record and is communited or maintained by secured party

Front 28

perfection - notation of lien on certificate of title

Back 28

only way to perfect security interest in an automobile

gov't has to note secured party's lien on the certificate fo title

UNLESS the debtor is holding the automobile as inventory - then the secured party MUST perfect by filing a financing statement against inventory (dealer exception)

Front 29

perfection - filing a financing statement

Back 29

financing statement = form UCC 1

notice filing - only need to indicate that some person MIGHT have a security interest

NEED:
1. debtor's name
(so it can be found in an index - errors cannot be seriously misleading)
2. description of collateral
(reasonably identify it - can say "all property" - unlike in security agreement)
3. secured party's name
4. IF real property related financing statements - need description of realty and indicate that it will be filed in property records
5. authorization (OR authorization of security agreement covering the collateral)

authenticated agreement itself can be filed if it contains the above elements

Front 30

debtor's name change - effect on financing statement

Back 30

financing statement is effective to perfect interests in collateral for four months

if you acquire collateral after four months after the change, you need to amend

(only matters if you have after-acquired property)

Front 31

where to file financing statement - MO

Back 31

MO - Secretary of State

Front 32

where to file financing statement - collateral connected to land

Back 32

IF collateral is timber to be cut, as-extracted collateral, or fixtures - file where mortgage on real estate would be filed/recorded (MO - real estate records of county where property is located)

Front 33

where to file financing statement - multiple state transaction

Back 33

file where debtor is located

if an individual - at her principal state of residence

if a registered organization, where the registered organization is organized

if an unregistered organization, debtor is located at his place of business (if only one) or at chief executive office (if more than one)

Front 34

filing financing statement if debtor moves

Back 34

if secured party has filed, that statement is good for four months, must file a financing statement in new jurisdiction w/i four months

Front 35

filing financing statement if collateral moves

Back 35

if secured party has filed, that statement is good for one year, must file a financing statement in new jurisdiction w/i one year

Front 36

where to file financing statement - agricultural lien

Back 36

where farm products are located

Front 37

financing statement - term

Back 37

effective for five years from date of filing

can be extended by filing continuation statement - form UCC 3 - (must be filed in last six months of five year period)

Front 38

fiiling - termination statement

Back 38

IF neither debtor nor secured party have obligations/commitments -

debtor can make authenticated demand and
secured party must provide termination statement within 20 days

IF consumer goods are involved, secured party must file termination statement within 20 days of demand OR within one month after there is no outstanding obligation (liable for $500 + loss to debtor if he does not)

Front 39

perfection and proceeds

Back 39

IF you have a perfected security interest in collateral, you have an automatic perfected security interest in proceeds of that collateral for 20 days

to extend - must take NEW ACTION to perfect UNLESS

proceeds are identifiable cash proceeds

OR security in original collateral was perfected by filing financing statement, security interest in proceeds-collateral would be filed itn eh same place, and the proceeds were not purchased with cash procees of the collateral (same office rule)

Front 40

change in use of collateral

Back 40

DOES NOT affect financing statement

Front 41

perfected secured party v. perfected secured party

Back 41

first to file or perfect, has priority

doesn't matter whether they know about each others' interests

Front 42

nonperfected v. nonperfected

Back 42

first to attach has priority

Front 43

perfected v. nonperfected

Back 43

perfected wins

Front 44

PMSI in goods other than inventory or livestock v. other security interest in same goods

Back 44

PMSI wins IF perfected at the time the debtor received possession of the collateral OR within 20 days thereafter

Front 45

PMSI in inventory or livestock v. other security interest in same goods

Back 45

PMSI has priority IF, before debtor receives possession of the inventory or livestock, the secured party perfects AND sends authenticated notification to holders of previously filed ocnflicting security interests int eh collateral

notification is effective for deliveries of the same type of collateral for five years

Front 46

seller-financed PMSI v. enabling loan PMSI

Back 46

seller PMSI has priority

Front 47

priority and investment property

Back 47

1. security interest perfected by control has priority over security interest perfected by any other method

2. IF conflicting security interests were perfected by ocntrol, they rank chronologically

3. security interest granted to debtor's intermediary has priority over security intrest granted by debtor to another secured party

4. except as above, first to file or perfect rule governs

Front 48

priority and deposit accounts

Back 48

1. security interest perfected by control has priority over security interest perfected via proceeds

2. IF conflicting interests each were perfected by control, they rank according to the time of obtaining control

3. bank that has control b/c it maintains the deposit account has priority over all other secured parties with control EXCEPT secured party who has obtained control by putting deposit account in its own name has priority over all other secured parties with control

Front 49

transfer of deposit account funds

Back 49

IF debtor transfers money or deposit account funds, transferee takes free of security interest UNLESS he acted in collusion with debtor in violating rights of secured party

Front 50

priority and purchasers of chattel paper

Back 50

priority over

1. security interest in chattel paper that arises as proceeds of inventory

2. any other security interest in chattel paper IF purchaser did not know the purchase violated rights of secured party

Front 51

secured party v. buyer of collateral (in authorized sale)

Back 51

IF sale is authorized (in writing) free of security interest by secured party -
buyer takes free fo security interest

Front 52

secured party v. buyer of collateral (in unauthorized sale - buyer in the ordinary course))

Back 52

buyer in ordinary course of business takes free of security interest even if security interest is perfected and even if buyer knows of its existence

Front 53

buyer in the ordinary course

Back 53

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

(you can know there's a security interest, only a problem if you know the sale violates rights of secured creditor)

Front 54

secured party v. buyer of collateral (in unauthorized sale - buyer not in the ordinary course))

Back 54

buyers NOT in the ordinary course of business take subject to perfected security interests and free of unperfected security interests (and unperfected agricultural liens) UNLESS they know fo the security interest

Front 55

secured party v. buyer of collateral (consumer to consumer sales)

Back 55

buyer takes free of a security interest even though it is perfected

IF he buys without knowledge of the security interest, for value, and for his own domestic purposes

UNLESS before purchase secured party has filed financing statement covering such goods

garage sale exception

Front 56

secured party v. judgment lien holder

Back 56

unperfected security interest is subordinate to the rights of a person who becomes a lien creditor before the security interest is perfected (lien must levy to be lien creditor)

OR secured party obtained a security agreement and filed a financing statement before the judgment lien holder got its lien (e.g. no attachment yet)

Front 57

PMSI v. lien creditor

Back 57

IF PMSI secured party takes w/i 20 days after debtor receives possession fot he collateral, he takes priority over the rights of a lien creditor which arises between the time the interest attaches and the time of filing

Front 58

future advances v. lien creditor

Back 58

priority over lien creditor IF

future advance is made
1. without knowledge of the lien, OR
2. within 45 days of the lien ariing, OR
3. pursuant to commitment entered into without knowledge of the lien

Front 59

secured party v. statutory lien claimants

Back 59

statutory liens beat even perfected security interest

Front 60

default

Back 60

grounds are usually specified in the security agreement

OR restricted to perform or pay obligation when it is due

Front 61

self-help repossession

Back 61

after breach, secured party entitled to self-help if it can be done w/o breach of the peace

Front 62

definition - breach fo the peace

Back 62

any conduct by secured party that has potential to lead to violence

physical presence by debtor (or representative) plus verbal objection is enough to create a breach of the peace

Front 63

retention of collateral / strict foreclosure

Back 63

after default and repossession, secured party may propose retaining collateral in full or partial satisfaction of the debt

MUST notify other secured parties - if objection w/i 20 days, the collateral must be disposed of by sale

secured party wishing to retain collateral also needs debtor's consent by either authenticated record (after default) OR failing to make authenticated objection w/i 20 days

Front 64

resale of collateral by secured party - effect

Back 64

after default, sale can be iether public or private - discharged security interest and all subordinate security interests but NOT superior security interests

Front 65

resale of collateral by secured party - requirements

Back 65

(authenticated) reasonable notification to debtor and sureties on debt and other secured parties (unless goods are perishable or declining rapidly in value)

commercially reasonable sale

Front 66

resale of collateral - requirements - notice

Back 66

debtor can (after default) waive right to notice

timeliness - notice must be sent within a reasonable time (nonconsumer transactions - 10 days or more)

content of notice -
for public sale - notice of time and place
for private sale - notice of time after which sale will occur

more information required for consumer goods

Front 67

resale of collateral - secured party purchase

Back 67

secured party...

...can buy at public sale

...can buy at private sale only if collateral is of a type usually sold in a recognized market or is subject to widely distributed price quotes

Front 68

resale proceeds

Back 68

if deficiency - secured party can get deficiency judgment

if surplus, it goes to the owner

Front 69

failure to comply with resale requirements - effect

Back 69

rebuttable presumption that sale proceeds equal the amount of the debt

Front 70

debtor's right to redeem

Back 70

debtor can redeem collateral anytime before secured party has sold or entered K for sale

debtor must tender fulfillment of ALL obligations secured by collateral

Front 71

definition - fixture

Back 71

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

personalty attached to real estate with intent that it become a permanent part fo the real estate

Front 72

fixture perfection

Back 72

to perfect, must make fixture filing in office where mortgage would be filed

must reasonably identify real estate and show name of owner (if debtor does not have interest of record in the real estate)

Front 73

fixture rights on default

Back 73

can repossess - no regard for habitability

Front 74

secured party in fixtures v. subsequent real estate interest

Back 74

security interest in fixtures has priority over any real estate interest that arises subsequent to perfection of security interest by fixture filing

Front 75

secured party (fixtures) v. prior real estate interest

Back 75

GENERALLY - prior real estate interest, properly recorded, has priority

BUT PMSI interest takes priority IF it is perfected by fixture filing before the goods become fixtures OR w/i 20 days

Front 76

construction mortgage v. PMSI fixtures

Back 76

construction mortgage takes priority over subsequent PMSI in fixtures even if security interest is perfected by fixture filing w/i 20 days of affixation

Front 77

fixture filing unnecessary

Back 77

not needed for readily removable...

1. factory or office machines
2. equipment that is not primarily used or leased for use in operation of the real estate
3. replacements of domestic appliances that are consumer goods

ANY method of perfection before such goods become fixtures entitles secured party to pirority

Front 78

accession - definition

Back 78

goods that are physically united with other goods in such a manner that identity of original goods is not lost

Front 79

accession perfection

Back 79

IF security interest is perfected when collateral becomes an accession, security interest remains perfected in collateral

Front 80

accession priority

Back 80

general rules apply

BUT security interest in accession is subordinate to security interest in whole that is perfected by compliance with requirements of a certificate-of-title statute

Front 81

removal of accession and reimbursement

Back 81

IF security interest in accession has priority over the claims of every person with an interest in the whole...

secured party can remove accession

BUT is responsible for cost of repair or injury to the whole

person entitled to such reimbursement may demand assurances ahead of time