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Sec Trans Outline MEE/UBE
Sec Trans Outline MEE/UBE
Step 1: For each party claiming an interest in the collateral (property), determine
whether the secured interest has attached to the collateral in question.
1a- Tangible? Goods (consumer goods, farm products, equipment, inventory)
1b- Intangible? Accounts, Deposit Accounts
Step 2: For each party claiming an interest, determine whether the secured interest has
been perfected.
Step 3: If there is more than one party claiming an interest in the collateral, determine
who has priority.
Step 4A: Look out for leases (special rule)
Step 4B: consignments (they have special rules)
Step 5: Default and enforcement
STEP 1 Attachment (Violet Roses Smell Amazing) Value Rights Security Agmt
Value given by secured party
same consideration as for a K/binding commitment to extend credit
Debtor has rights in collateral
After-acquired collateral (that debtor acquires in the future)
Proceeds from collateral=automatic attachment
Accession (physically united goods)
Debtor authenticate Security Agreement
Record (tangible medium), authenticated by debtor, non-super-generic description of collateral
Secured Transactions 2
OR
IF NO SECURITY AGRMT alternatives- Possession/control of the collateral
Possession= consumer goods, equipment, farm products, chattel paper, tangible docs,
certificated securities, instruments, money
Reasonable care
Keep collateral identifiable
Relinquish collateral post-obligation
Charge debtor for reasonable expenses (storage/maintaining collateral)
Control (via oral or unauthenticated security agreement)
investment property, deposit accounts, letter-of-credit rights, electronic chattel paper, electronic
documents
Deposit accounts control if:
Secured party=Bank where account is maintained OR
Bank, secured party & debtor written agmt to follow secured party's instructions OR
Secured party becomes bank's customer w/ respect to deposit acct.
PMSI (Purchase Money Security Interest)- goods/software
Value given allows debtor to acquire good/service
Goods/software acquired secure the loan
Lender PMSI (bank lends money to Mike to buy a new car, takes security interest in the car)
Value actually used to acquire the goods
Lender takes security interest in the goods to secure the goods
Seller PMSI (goods bought on credit) Dealer sells Mike a car for $10k on credit, takes security
interest in car
STEP 2 PERFECTION
File financing statement (**except- deposit account, money, or letter-of-credit rights, cars**)
Names (debtor/secured party), description of collateral- can be super-generic
Effective on date of filing,
Lasts 5 years, need to file continuation statement w/in 6 months before 5yrs is up.
Authorization by debtor (authenticated security agmt for example)
Seriously misleading name- Fails to accurately contain debtor's name
Unless searching filing office records would disclose financing statement
**Real property/fixtures- filed in county where real property is located
Possession of collateral (tangible stuff)
Money, goods, instruments, negotiable docs, tangible chattel paper
Control of collateral
Deposit accounts
Bank that maintains deposit acct is secured party;
The bank, secured party, and debtor agreed in writing to follow the instructions of the secured party; or
The secured party becomes the banks customer with respect to the deposit account.
Investment property
Letter-of-credit rights
Electronic chattel paper
Electronic docs
Automatic perfection (usually in PMSI in consumer goods)
BUT NOT CARS- usually certificate of title statute
Temporary Automatic Perfection (collateral/debtor post-perfection fuck-ups)
Secured Transactions 3
If secured party fails to fix (see below), security interest no longer perfected, lose priority.
Debtor legal name change (if seriously misleading)
Sec. Party has 4-Month window to discover change, file an amendment to financing statement
Collateral acquired after 4 month window not covered by financing statement
Before name change, w/in 4 month window- stays perfected by original fin. Statement
Ex: 3/1- Bank security interest in Construction Corp's existing/after acquired equipment, perfected by
financing statement listing Construction Corp, computer & 1st bulldozer. 4/1- name change Charlie
Construction Inc. 5/1- backhoe. 10/1- 2nd bulldozer. No amended financing statement.
Perfected- before name change- Computer 1st bulldozer. W/in 4 months-backhoe.
Not perfected=2nd bulldozer (outside 4month window).
Debtor moves out of state
Perfected sec. Interest stays perfected for 4 months after debtor moves (unless fin. Stat.
Lapses earlier)
Secured party must re-file in new state w/ 4 month window to stay cont. perfected.
Collateral moves out of state
If still owned by debtor, no refiling needed.
If collateral transferred to new debtor (out of state), secured party has 1 yr to file fin.
Statement w/ new debtor's name.
***Exceptions to temporary automatic perfection (possession- instrument, negotiable doc,
certificated security, goods)- secured party can give collateral back to debtor:
Sell, exchange or enforce debtor's rights in the collateral.
Secured party perfected for 20 days.
Secured party needs to:
File financing statement OR
Repossess collateral w/in 20 day pd to stay perfected.
BEYOND 20 DAYS perfection lapses unless (special rules for proceeds):
Secured party amends statement
Cash proceeds rule (perfection continues forever as long as identifiable)
If Collateral sold/licensed/disposed
Generates cash proceeds
Same office rule (inventory into something else, like accounts, but NOT CASH)
Financing statement covers original collateral
Collateral=proceeds filed in the same office as original fin. Statement
Proceeds not acquired w/ cash proceeds
STEP 3 PRIORITIES
1. ID Status of each claimant
2. Apply appropriate rule
PMSI v. PMSI
Seller wins over lender. Or use first to file/perfect rule.
Fixture Priority Rules
Generally- apply regular priority rules
Fixtures v. Real Property Interest= fixtures win if:
Secured party files fixture filing before real property interest is recorded
Fixture filing- financing statement filed in local real prop records.
Fixture PMSI Rule= fixture PMSI wins if
debtor has interest of record in the real property or is in possession of the real prop
AND security interest perfected by fixture filing
before the goods become fixtures OR
w/in 20 days after the goods become fixtures.
Construction Mortgage Exception to PMSI Fixtures Rule= constr. Mtg wins if:
Recorded before goods become fixtures
AND the goods become fixtures before the construction is complete
STEP 4A LEASES
Generally- Article 9 doesn't apply to a true lease, but will apply if economic reality of transaction is
actually a secured transactions
Bright-Line Test (If met, lease is a secured transaction, need to file/perfect interest in
goods) (If not met, courts look at facts of the case)
Lessee obligated to pay full obligation under the lease, whether or not they terminate
lease early AND 1 of the below outcomes is present:
Original lease term remaining economic life of goods
Lessee bound to renew lease for economic life of goods
Lessee has option to become owner of goods or option to renew lease for remaining economic
life of goods for no additional or for nominal consideration
Enforcement
A. Repossession of Goods/Other Collateral
Replevin (judicial process)
Self-help as long as no breach of the peace
secured party brings officer to repossession without judicial authorization
repossession agent breaks into debtor's home/garage/commits criminal act
some physical confrontations
deception/trickery
B. Disposition of Collateral
Commercially reasonable standard
after secured party takes possession of collateral after default, it may sell, license, or otherwise
dispose of the collateral.
Sold in the usual manner in at market;
Sold at the price current in that market (price alone is not determinative)
OR otherwise in conformity w/ comm. Reas. Practice among dealer in that type of collateral.
Details of disposition
Sale can be either public or private
If private, the collateral price has to be fixed (by NYSE for ex.) or subject to widely-distributed
standard price quotes.
Commercially reasonable timing under the circumstances.
Authenticated notice requirement
Who?- Debtor, secondary obligors, other secured parties, other parties who gave secured party notice of a
claim or interest in the collateral.
When?
Generally commercially reasonable time to notified party to act.
**Non-consumer transactions- 10 days+ before disposition sale
What must be in the notice?
Secured party and debtor's names
Description of collateral
How/when/where collateral to disposed of
Statement that debtor is entitled to accounting for unpaid indebtedness
**Consumer goods additional requirements:
Describe any liability for deficiency
Phone # that debtor can call to get additional info, including $ to pay to redeem collateral
**Exceptions where notice NOT REQUIRED
perishable collateral/threatens to decline quickly in value
collateral sold on recognized market
notice waived after default
Cash Proceeds of a Disposition
Reasonable expenses for collection and enforcement
Pay off debt to the foreclosing secured party
Pay subordinate security interests provided the subordinated party makes a formal demand prior to
Secured Transactions 7
Conversion