Secured Transactions (Nc Bar 2013)

Front 1

A secured transaction is:

Back 1

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

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Debtor

Back 2

Person who owes payment/performance of the obligation secure.

Front 3

Secured party

Back 3

Lender, seller or other person who has a security interest.

Front 4

Security agreement

Back 4

Agreement between debtor and secured party that creates the security interest.

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Security interest

Back 5

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

Front 6

Collateral

Back 6

Property subject to a security interest.

Front 7

Purchase money security interest (PMSI). 2 types:

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1) Secured party sells debtor collateral on credit and retains security interest in that item that was sold. (e.g. car lot)

2) Enabling loan enabling debtor to buy specific collateral and creditor takes security interest in that specific collateral (e.g. bank loan)

Front 8

After-acquired property clausee

Back 8

Common clause included in original security agreement giving secured party security interest in property debtor obtains in future.

Front 9

Future Advance Clause

Back 9

Secures future loans in the present security agreement.

Front 10

Attachment (definition)

Back 10

Steps legally required to give the secured party a security interest, under article 9, in the collateral that is effective as against the DEBTOR. Creditor is not secured until attachment.

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Pefection

Back 11

Steps legally required to give secured party an interest in the collateral that is effective as against the WORLD.

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Types of collateral goods (4)

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KEY: Look who is using goods and how.
1) Consumer goods (household)
2) Equipment (business)
3) Farm products (incl unborn), used by farmer
4) Inventory (held for sale/lease, used by business--overlap w/ "equipment")

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Types of semi-intangible and intangible property (8)

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1) Instruments (Negotiable intsruments, not including investment property)
2) Documents (Evidencing a person is entitled to those goods)
3) [Electronic?] Chattel paper (record evidencing monetary obligation + security interest in specific goods)
4) Investment property (stocks, bonds, etc.)
5) Accounts (right to payment not evidenced by an instrument or chattel paper)
6) Deposit account (Nonconsumer account with bank)
7) Commercial tort claims (not incl personal injury/death)
8) General intangibles (IP, "catch-all")

Front 14

Attachment elements per Art. 9

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1) Security Agreement (a) in writing (unless collateral in possession of secured party aka "pledge"), (b) with intent to create security interest, (c) authenticated by debtor, (d) reasonable identification of collateral (not " all property").
2) Value given (broad, even past consideration)
3) Debtor actually has rights in the collateral to give.

Front 15

Secured party's right to after-acquired property

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Usually requires an after-acquired clause, EXCEPT courts might assume intent if the collateral is a type that is rapidly depleted and replenished.
BUT even with a clause, no after-acquired attachment to
1) consumer goods after 10 days
2) commercial tort claims

Even without clause, IDENTIFIABLE proceeds from collateral sales included (apply "lowest intermediate balance" test but max=proceeds originally deposited)

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Attachment of a surety

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Attachment to a collateral (e.g. account receivable) with a surety automatically attaches to the surety.

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Perfection (5)

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Not needed for rights between secured party and debtor, just secured party and 3rd parties.

1) PMSI of *consumer* goods = automatically
2) Possession of collateral by the SECURED party instead of debtor = as long as possessed
3) Control (only way to perfect nonconsumer deposit accts) -- secured party's name on acct or "control agreement"
4) Notation of lien on certificate of title (only way for cars)
5) Filing a financing statement with Secretary of State (most common)--UCC-1 w/
a) debtor's name on driver's license, mistakes okay if not seriously misleading, filing officer's mistake doesn't affect secured party.
b) Identifiable description of collateral
c) secured party's name
d) authorization by debtor (auto if authenticated referring security agreement)
e) in state where debtor is located (resides/organized). 4 month grace period after debtor moves, 1 year grace period after collateral moves to new debtor & state.

Front 18

Continuation of a financing statement

Back 18

Each lasts for 5 years. Must be continued between 4.5 and 5 years, no earlier or later.

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Automatic perfection on proceeds

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Lasts for 20 days after perfection of collateral. Afterward, need new filing unless proceeds identifiable cash or "same office" rule for filing statement.

Front 20

Priority:

Secured v. Secured

Back 20

First to file OR perfect wins. Unaffected by knowledge of other's interest.

Front 21

Priority:

PMSI (not inventory or livestock) v. Other security interest in collateral or proceeds

Back 21

PMSI wins if it is perfected within 20 days of debtor receiving collateral.

Front 22

Priority:

PMSI in inventory or livestock v. all other security interests

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PMSI wins if it
1) perfects AND
2) sends authenticated notification to previously filed conflicting security interests in collateral. Notification received within 5 years.

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Priority:

2 sellers who have loaned money for same collateral

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The seller+financier wins over the mere financier.

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Priority:

Investment property

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1) perfected by control
2) time of perfection by control
3) debtor's intermediary has priority over another secured party

Front 25

Priority:

Deposit Accounts

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1) Perfected by control wins over perfected via proceeds
2) Time of perfection by control
3) Control by name on account wins over all others
4) Maintaining bank has priority over all except named party.

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Priority:

Purchaser of chattel paper

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Wins over party secured via proceeds of inventory
Wins over any secured party the purchaser was not aware of.

Front 27

Priority:

Purchaser of instruments

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Priority over perfected security interest if purchaser gives value and takes in good faith + w/o knowledge of other security.

Front 28

Priority:

*Perfected* Secured party v. buyer of collateral

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Generally: item remains secured against buyer.

UNLESS:
1) Sale authorized by secured party (implicit in ordinary inventory sales)
2) Buyer in ordinary course of business (not liquidation, not craigslist) in good faith without knowledge of secured interest. EXCEPTION: farm products.
3) Consumer to consumer in good faith, no knowledge, and no filing statement by secured party.

Front 29

Priority:

Secured party v. judgment lien holders

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Unperfected: judgment lien holder wins
Perfected before Sheriff levies: secured party wins

Front 30

Priority:

PMSI v. Lien Creditor

Back 30

PMSI has 20 day grace period after attachment to file and win over lien creditor.

Front 31

Priority:

Future Advances v. Lien Creditor

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Future advance by secured creditor wins if made
1) without knowledge of the lien OR
2) within 45 days of the lien arising OR
3) pursuant to a commitment entered into without knowledge of the lien

Front 32

Priority:

Secured party v. Statutory lien

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Statutory lien (e.g. repairmen) win over perfected interest

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Default

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Not specifically defined in Article 9
Look in agreement
Look for missed/late payments
Look for waiver by secured party

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Self-help reposession

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Must be done without "breach of the peace"
i.e. any conduct with potential to lead to violence.
Physical presence + verbal objection -> breach of peace
Any entry into home probably a breach of peace even authorized in K, commercial property, less so.

Front 35

Secured party keeping collateral after default

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Must notify other secured parties. Any objection within 20 days --> sale.
Must gain debtors consents via authenticated record or no objection in 20 days after notice.

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Secured party selling collateral

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Higher secured interest remains attached but discharges subordinate security interests.
Sale must be "commercially reasonable", but may be public or private.
Must *reasonably (within 10 days and incl time & place of sale) notify* debtor and other secured parties who have notified or perfected their interests UNLESS collateral is perishable or sold in a market (stock).
Secured party may only buy if public sale or if it is product of recognized market (stock).
If sale price < remaining debt, secured party gets "deficiency judgement" for remaining UNLESS sale or notice was unreasonable (then it is presumed equal to remaining debt).

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Accelerating clauses

Back 37

Most agreements have them, can require debtor to tender entire balance when obligation is not fufilled.

Front 38

Fixtures definition

Back 38

Goods so related to the RP that interest arises in them under RP law e.g. A/C unit, built-in appliances, elevator.

Not included: building materials (bricks, lumber, shingles).

Front 39

Perfecting fixtures

Back 39

Make "fixture filing" where mortgage for the RP would be filed incl identify RP + name of RP owner.

Secured party can always repossess, even a heater in middle of winter.

Perfected fixture wins over subsequent RP recorded interest, loses against prior RP interest. EXCEPT PMSI that is perfected within 20 days of goods becoming fixtures. EXCEPT construction mortgage.

Fixture filing unnecessary for readily removable equipment.

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Accession

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Goods physically united with other goods e.g. engine in a car.

General rules apply for accession to remain perfected in the collateral EXCEPT subordinate to perfection of the whole via certificate-of-title statute.

Responsible for cost in removing accession.