Secured Transactions - Topic 13-15 - Part Iv: Protecting The Sec Int - Perfection Part 2

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.1. Assgn 13: Perfection by Possession & Perfection on Instruments

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.2. What is the rule re: attachment by possession

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1- The collateral is not a certificated sec and
2- is in the possession of the sp
3- under 9-313
4- pursuant to the debtor's sec agreement
Therefore for certain coll, the sec int is both created and perfected by taking possession.

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.3. Types of goods that can be perfected by possession under 9-313

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1- tangible negotiable docs
2- goods
3- instruments
4- money
5- tangible chattel paper

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.4. Possession re: agents

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Possession by an agent is allowed if
1- the agent is an agent of the sp
2- for the purposes of possession on behalf of the sp and
3- agent is not also an agent of the debtor or closely connected to debtor

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.5. What test determines whether the SP has possession?

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Possession by the SP gives notice if it effectively deprives the debtor of dominion and control.

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.6. When does perfection occur via possession and when does it stop?

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occurs no earlier than the time sp takes possession and
continues only while the sp retains possession
perfection lapses upon loss of possession

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.7. How does possession being regain effect perfection?

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Perfection is regained when possession to sp is restored
but now perfection dates only from the time coll was restored

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.8. How is possession effected if police levy coll

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its not. possession is deemed to be continuous

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.9. Can accounts be possessed by perfection?

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No cuz not tangible so there is nothing to possess.
Only way to perfect int in accnts is to file a fs

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10. Which coll can be perfected by filling?

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1- chattel paper
2- negotiable docs
3- instruments
4- investment prop

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11. What are method(s) to perfect tangible chattel paper? Ex:

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Ex: lease
By possession or filing fs

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12. What are method(s) to perfect goods?

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By possession or filing fs

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13. Instrument ex:

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Warehouse receipts
Instrument is a negotiable instrument
An instrument is a note if its a promise

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14. What is the rule re: method of perfection by possession when the coll is possessed by a third person who is not the sp, debtor or lessee?

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Allowed when:
1- the person in possession authenticates a record acknowledging that it holds possession of the coll for the sp's benefit; or
2- the person takes possession of the coll after having authenticated a record acknowledging that it will hold possession of coll for the sp's benefit.

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15. How does attachment and perfection work with instrument (credit extended and new notes sent) aapc?

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- Attachment: AAPC: SI attaches when debtor acquires rts in the coll
- Perfection: w/out filing or possession, it is perfected for a temp 20 days from the time it attaches if it arises for new value given (bank has to have possession of notes by 20 days or perfection lapses)

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16. New value means

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i- money
ii- money's worth in prop, services, or new credit, or
iii- release by a transferee of an int in prop previously transferred to the transferee

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17. Assgn 14: The PMSI & Automatic Perfection: The PMSI in consumer goods

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18. Importance of the PMSI

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- automatic perfection
- priority rules

(have to have a sec int; can't be an unsecured creditor)

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19. Reqs for automatic perfection:

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1- PMSI
2- Consumer Goods

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20. Are PMSI's limited to certain kinds of coll?

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Only consumer goods and software can be PMSI

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21. What is req to have a PMSI in goods?

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1- If goods, they must be purchase-money coll
2- To be purchase-money coll, they must secure a purchase-money obligation

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22. A purchase-money obligation must meet either of two alternative tests:

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a) Seller's PMSI
b) Lender's PMSI

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23. Seller's PMSI test

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the obligor has incurred the obligation as part of the purchase price of the goods

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24. Lender's PMSI test

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the credit is extended to enable the debtor to acquire rts in or use of the coll and it is so used
-an obligation for value given to enable the debtor to acquire rts in ....

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25. For a pmsi, can the debtor acquire rts in coll b4 the loan was made?

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Arguable cuz then the loan didn't enable the debtor to acquire rts in it.
A sec int doesn't qualify as a pmsi if a debtor acquires prop on unsec credit and subsequently creates the sec int to secure the purchase price.

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26. What is the rule of timing btwn re: when acquisition of coll and the secured obligation of PMSI

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The loan transaxn is closely allied to the purchase transaxn that it is sufficient.
Requires a close nexus btwn the acquisition of coll and the secured obligation

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27. Assgn 15: Perfection by Control: Investment Property and Deposit Accnts & Goods Covered by Certificate of Title

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28. Coll that allows perfection by control

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1- Chattel paper (electronic)
2- Deposit Accounts
3- Investment Prop

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29. Def control for investment prop - certificated sec

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A purchaser has control of a certificated sec in registered form if the certificated sec is
(1) delivered to the purchaser and:
(a) the certificate is indorsed to the purchaser or in blank by an effective indorsement; or
(b) the certificate in registered form is registered in the name of the sp.

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30. Delivery of a certificated sec to a purchaser occurs when:

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- the purchaser acquires possession of the sec certificate or
- when a third party takes possession on its behalf or acknowledges that it holds the certificate for the sp

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31. A stnd case of "control" req

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both the SP's taking possession and
either the certificate being indorsed to the SP or the certificate being registered in the SP's name

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32. The concept of obtaining control

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Obtaining 'control' means that the purchaser has taken w/e steps are necessary, given the manner in which the securities are held, to place itself in a position where it can have the securities sold, w/out further axn by the owner.

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33. Just cuz the SP has control (in the position to sell the securities w/out further axn by the owner) does not mean

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it has the rt to do so.
The SP will have that rt only upon the debtor's default and only in accordance with the rules set out in Part 6 of Art 9.
-If the debtor pays off the debt, the SP will be obliged to relinquish control.

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34. Investment prop: sec entitlement. How does one acquire a sec entitlement?

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A person acquires a sec entitlement if a securities intermediary: (1) indicates by the book entry that a financial asset has been credited to the person's sec accnt.

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35. How does a purchaser have control of a sec entitlement?

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the purchaser becomes the entitlement holder

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36. For a sec entitlement, can an agreement btwn debtor and sp constitute control?

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- This alone won't constitute "control." Instead, what is required is a thee-party control agreement.

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37. For a sec entitlement, how does a purchaser have control?

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A purchaser has control of a sec entitlement if:
(2) the securities intermediary has agreed that it will comply w/ entitlement orders originated by the purchaser w/out further consent by the entitlement holder.
- A securities intermediary may not enter into an agreement of the kind described above w/out the consent of the entitlement holder.

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38. The control of a sec entitlement comports with the general concept of control. Explain.

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The lender will obtain a "control agreement" - a three party agreement among the debtor, broker, and sp - under which the broker will agree to follow the sp's instructions concerning disposition of the entitlement held in the accnt w/out the debtor's having any further say in the matter.
Many brokers have stnd form agreements.

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39. How can a SP have control of a securities account?

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A sp having control of all sec entitlements carried in a securities account has control over the securities accnt.
Thus, must transfer entitlements into accn that sp holds with a broker or
enter into a three party control agreement covering all entitlements now or thereafter credited to debtor's accnt with the broker

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40. Will the debtor's having the rt to execute orders on his accnt prejudice the SP's control?

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-No. A purchaser (S) who has satisfied the reqs has control even if the entitlement holder retains the rt to make substitutions for the sec entitlement, to originate instructions or entitlement orders to the securities intermediary, or otherwise deal with the sec entitlement.
-Control agreement must impose limits on what debtor can do (trade limit to certain kinds of stock, prohibit cash distributions or limit them, notification to SP of any trades executed by an instrument).

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41. What method of perfection is allowed for deposit account?

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Exclusive method: perfect by control

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42. How does one take control of a deposit accnt?

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3 methods:
1- Being There: If the deposit accnt is maintained w/ SP, then SP has control.
2- A three-party agreement among debtor, SP, and depositary bank under which depositary bank agrees to follow SP's instructions w/out further consent of the debtor.
3- Customer: SP becomes the depositary bank's "customer" w/ respect to the deposit accnt.

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43. Is a broker obligated to follow bank's instructions?

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Yes. This is just what the control agreement obligates the broker to do.
As we've seen, the concept of "control" just means that the SP is in a position to dispose of the coll w/out the further consent of the debtor.

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44. How does a sp perfect its sec int in a car?

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A person may perfect a sec int in a car that is the subj of a first or subsequent sale only by
recording the sec int on the certificate of title.

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45. Is taking a possession of car a way to perfect sec int?

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No.

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46. Is taking a possession of a certificate of title a way to perfect sec int?

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Depends on state law.
In TX, no. In TX req notation on certificate of title.

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47. Can a sp rely on automatic perfection where it has a PMSI in a car which qualifies as a consumer good?

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No.

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48. How do u perfect a new car?

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Perfection is accomplished by notation of the sec int on the certificate of title.
For a new title, that act is performed by the DMV.
A delay in making that notation means that there is a gap during which the sec int is not perfected.

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49. How does a sp perfect a sec int in cars which are the debtor's inventory?

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There is an exception that includes cars that are inventory as perfected sec int.

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50. How does a sp perfect a sec int in the debtor's cars held for lease?

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SP may perfect only by complying with the certificate of title statutes.