Secured Transactions
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Secured Transactions - Marcador
Secured Transactions - Detalles
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| What is a a good | Tangible movable personal movable property |
| Consumer good | Goods that are used or bought for use primarily for personal, family, or household purposes |
| Farm Products | Goods, other than standing timber, in which debtor is engaged in a farming operation (raising, cultivating, fattening, grazing or other farming operation) and which are (a) crops growing, grown, or to be grown (b) livestock, born or unborn (c) supplies used up or produced in farming operations or (d) products of crops or livestock in their unmanufactured states Ceases to be farming products when the debtor ceases to be engaged in farming operations (raising, cultivating, fattening, grazing or other farming operation) with them Even if debtor is engaged in farming operations the product loses its farm product status if it goes under a manufacturing state unless the process is so closely connected with farming such as pasteurizing milk or boiling SAP to produce syrup or sugar that they would not constitute manufacturing on the other hand extensive canning operations are not farming products anymore and then become inventory normally (case where the cows were sold and the person was no longer engaged in farming operations so it was inventory) |
| Inventory | Goods other than farm products which are (a) leased by a persons or lessor (b) held for sale or lease (c) are furnished by a person under contract of service (d) consist of raw materials, WIP, or materials used or consumed in a business (office supplies) |
| Equipment | Goods other than consumer goods, farm products, or inventory (machinery even if you sell when becomes obsolete or worn) |
| General Rules for Goods | Classes of goods are mutually exclusive and the principle use (majority) to which the property is put is determinative of what the good is and if no principal use (equal) then it is equipment by default (artwork case) The determination of what the good is what the purpose for which the debtor intended to use the goods at the time of the creation of the security interest irrespective of any changes later (tractor case) Secured party has a right to rely on debtor’s representation as long as no obvious indication that they are false secured party has a duty to keep collateral safe |
| Quasi Intangibles | Physical form is valuable for what they represent not the tangible form itself |
| Instrument | Negotiable instrument or any other writing that evidences a right of payment of a monetary fund (check or note) |
| Document | Document of title or a receipt (formal commercial document that proves or confers ownership of goods or property i.e., a bill of lading or warehouse receipt) |
| Chattel Paper | Record of a debt obligation with a security interest in a tangible item. Ex: Sale-on-credit of a machine (such as a dishwasher), where the transaction includes the promise to pay along with the right of the seller/creditor to seize and to sell the item being financed in the case of default or motor vehicle financing; there is a physical item connected to the paper surrounding this kind of transaction. (instrument with a tangible item connected) • Tangible chattel paper – evidenced by information in tangible form • Electronic chattel paper – evidenced by electronic medium |
| Deposit Account | Demand, time, savings, passbook, or account with a bank but not an investment account (does not include consumer bank accounts) |
| Commercial tort claim | Claim arising in tort where the claimant is an organization or the claimant is an individual and the claim arose in the course of the claimant’s business or profession but does not include personal injury |
| Intangibles | No material form |
| Accounts | Right to payment of a monetary obligation from the sale or lease of goods or rendering of services, ex. Ex: lease payments, monthly payments for a gym membership, winning in lottery |
| General Intangibles | Any personal property other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, letters of credit, money, oil/gas/minerals (Water permit was a general intangible – lake region v Crystall Pure, Taxi Medallion is a general Intangible, or other intellectual property) • Software - computer program and supporting info provided in connection with a transaction relating to the program, not including a computer program that is a good • Payment intangibles - general intangible under which the account debtor’s principal obligation is monetary (patent license agreement, loan agreement not evidenced by an instrument) • Other intangible |
| Investment property | Security or commodities account |
| Security | Fungible, negotiable financial instrument that represents some type of financial value, usually in the form of a stock, bond, or option, an obligation of an issuer or a share, participation or interest in an enterprise • Uncertified – not represented by a certificate o If want to transfer an uncertified certificate security you must register the purchaser as the owner • Certificated – represented by a certificate o Bearer form – security not registered in the issuing corporations books and is payable to the person possessing the stock or bond – person bearing the form has ownership o Registered from – security whose owner is kept on file with the issuer • If transferring a security that is certificated and registered must indorse and deliver the certificate to the transferee o If transferring a certificated security, requires both the endorsement and delivery of the certificate by its holder to the transferee but no registration of a stock transfer on the stock transfer books of the corporation is necessary o Delivery of a certificated security occurs when the purchaser acquires possession of the security certificate or another person, other than a securities intermediary, either acquires possession of the certification on behalf/or securities intermediary acting on behalf of the purchaser acquires possession of the security certificate, only if the certificate is in registered form and is registered in the name of the purchaser |
| Uncertified security | Not represented by a certificate o If want to transfer an uncertified certificate security you must register the purchaser as the owner |
| Certificated Security | Represented by a certificate o Bearer form – security not registered in the issuing corporations books and is payable to the person possessing the stock or bond – person bearing the form has ownership o Registered from – security whose owner is kept on file with the issuer • If transferring a security that is certificated and registered must indorse and deliver the certificate to the transferee o If transferring a certificated security, requires both the endorsement and delivery of the certificate by its holder to the transferee but no registration of a stock transfer on the stock transfer books of the corporation is necessary o Delivery of a certificated security occurs when the purchaser acquires possession of the security certificate or another person, other than a securities intermediary, either acquires possession of the certification on behalf/or securities intermediary acting on behalf of the purchaser acquires possession of the security certificate, only if the certificate is in registered form and is registered in the name of the purchaser |
| Securities entitlement | Rights and property interest of an entitlement holder (a person identified in the records of a securities intermediary as the person having a security entitlement) with respect to a financial asset |
| Entitlement holder | A person identified in the records of a securities intermediary (clearing corporation or broker that maintains securities accounts for others) as the person having a security entitlement (rights and property interest of an entitlement holder) |
| Securities account | Account (taken as a single unit) to which a financial asset is or may be credited in accordance with an agreement under which the person maintaining the account undertakes to treat the person for whom the account is maintained as entitled to exercise the rights that comprise the financial assets |
| Record | Information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form (cannot be oral – unless stored or human memory) |
| Negotiable instrument | An unconditional promise or order to pay a fixed sum of money with or without interest |
| Securities intermediary | – clearing corporation or broker that maintains securities accounts for others |
| Issuer | With respect to an obligation on or a defense to a security an issuer includes a person that 1) places or authorizes the placing of its name on a security certificate, other than as authenticating trustee, registrar, transfer agent, or the like, to evidence a share, participation, or other interest in its property or in an enterprise, or to evidence its duty to perform an obligation represented by the certificate; 2) creates a share, participation, or other interest in its property or in an enterprise, or undertakes an obligation, that is an uncertificated security; 3) directly or indirectly creates a fractional interest in its rights or property, if the fractional interest is represented by a security certificate; o (4) becomes responsible for, or in place of, another person described as an issuer in this section. • (b) With respect to an obligation on or defense to a security, a guarantor is an issuer to the extent of its guaranty, whether or not its obligation is noted on a security certificate. • (c) With respect to a registration of a transfer, issuer means a person on whose behalf transfer books are maintained. |
| What happens upon attachment | Once attach creditor is able to enforce against debtor unless there is an express agreement postponing the time |
| For attachment to occur what must happen | O There must be a pledge (possession of the collateral) or security agreement (an agreement which is a bargain by the parties, by language, inference, course of performance, or dealing or trade that creates or provides for a security interest which is an agreement in personal property or fixtures which secures payment or performance of an obligation) Pledge is when you have an oral promise to loan 5000 and you take possession of an item that will secure the payment o Lender gives value Gives value if the person acquires them in return for a binding commitment to extend credit, as a security for a pre-existing claim, or by accepting delivery under pre-existing contrct for purchase, or for any consideration (consideration) o The debtor must have rights in the collateral Not defined – thief cannot give good title but if have legal possession you can (Osterman v Pawn brokers) Jerke Construction v Home Federal (bulldozer case) – only had naked possession so didn’t have rights in because didn’t do anything that would show ownership or didn’t own it so they didn’t have rights in the property |
| What is a security agreement | An agreement which is a bargain by the parties, by language, inference, course of performance, or dealing or trade that creates or provides for a security interest which is an agreement in personal property or fixtures which secures payment or performance of an obligation |
| What must a security agreement in writing have | 1) an agreement 2) authenticated - signed or symbol with intent to adopt 3) in writing 4) Reasonably identifies the collateral - 3rd party must be able to identify - numerous similar items need serial number of collateral - Cannot construe what is identified from perfection docs - specific UCC definitions work - even if don't mean to grant but do with words, courts will say you did - burden is on one alleging security agreement to show there is one - if ambiguous it is construed by state laws - mistaken date makes unreasonable to identify |
| Authenticate | Sign or with present intent to adopt or accept a record, to attach to, or logically associated with the record an electronic sound, symbol, or process. SOF =>Authenticate a SA that provides a description of the collateral |
| Send | In connection with a record or notification – means to deposit in the mail, deliver for transmission, or transmit by any other USUAL means of communication, with postage or cost of transmission provided for, addressed to any address reasonable under the circumstances [or to cause the record or notification to be received within the time that if would have been received if properly sent under (A)] |
| Scripophily | Hobby of collecting old stock and bond certificates including some that are worthless as securities that may have value as collectibles |
| After Acquired Clause | Provides that you get goods acquired after the security agreement that are in the same category listed or the goods are rapidly exchanged (inventory) some courts grant you it o Can also get the proceeds if your after acquired item is sold but the creditor must be able to identify them If the proceeds are comingled with other funds cannot reasonably identify but law tells us that you can get the lowest intermediate value • Look at balance when the goods went into the account and then look at balance now and you get the lowest value that the account was at in between the dates Cannot get consumer goods acquired more than 10 days after the secured parry gives value |
| PMSI requirements | O Security agreement o Attachment o Secure the transaction with goods purchased o Use the money for all or part of the purchase o Money must enable you to make the purchase PMSI: requires a close nexus between the acquisition of collateral and the secured obligation. If the debtor acquires property but it was not secured, and then creates the security interest, not a PMSI. North Platte Bank v. Production Credit (bought cows months before got money) • No PMSI because already had ownership so didn’t enable him to make the purchase General Electric v. Spartan (Mercedes cars bought prior to money) • Course of dealing and performance was such that they purchased on credit and got the funds a few days later which was different then the cow case because it wasn’t months so it did enable them to get the goods because they would not have been able to without the agreement |
| PMSI in consumer goods | Automatically perfects |
| What must you have to perfect | Attachment |
| Where to file for perfection | • Must file in the state capital required and normally in the secretary of state office of debtors location unless it is real property/fixtures then county level where you would file |
| When does filing not work | Deposit account or money |
| Debtors location for filing is | If an individual, where that person’s principal residence is If an organization, and only has one place of business, then where that business is located If an organization, and more than one place of business, then where its CEO office is located If a registered organization that is organized under the law of a state then it is located in that state • A registered organization means an organization formed or organized under the law of a single State or the United States by filing a public organic record is located in that State. If the place of business is located outside the US then located in the place • If they are located somewhere where they care about secured transactions then they are located there (Canada does except for Quebec) • BUT! If a (person) debtor lives somewhere, or an (organization) debtor is located somewhere – in some jurisdiction – where they do not recognize secured transactions, [i.e., Part 1 does not apply], then ignore all that information about where a debtor lives/domiciled, and say, DISTRICT OF COLUMBIA Where a person ceases to exist, have a residence, or have a business, they still continue to be located in the jx that they began with |
| When can filing office refuse to accept | Not tendered in the medium of communication allowed Filing fee not paid Filing office unable to index • Unable to accept foreign symbols Filing office must say why it is refusing |
| Crucial parts to filing financing statement that must be showed to accept | 1) name of debtor - if individual then unexpired DL if expired then name (not defined) - don't need name on birth certificate - if registered org then name of most recent public organic record - if debtor has no name then provide names of partners, officers, associates, members, and others comprising the debtor 2) name of creditor 3) indicate collateral - if doesn't show up with regular search logics then it does not indicate - Minor errors are probably okay unless they make the financing statement seriously misleading – wrong dates, wrong names, unable to find names in record, etc. - Allows a narrower description than attachment so all personal property of debtor is probably ok |
| Amendments can | • Amend the debtors location (within 4 months of moving) • Change the collateral • Change name of debtor (within 4 months of name change) • transfer to another person who thereby becomes the debtor who lives in another state (within 1 year of transfer) • For mergers and acquisitions • If collateral moves states, you don’t need to amend, it is only when debtor moves but a good SA will state that collateral cannot move without consent of secured creditor |
| Continuation statement | Enables perfection to continue. If not filed the financing statement and perfection lapses after 5 years • Must file every 5 years and have a 6 month window prior to the 5 years lapsing to file • If don’t file it becomes unperfected unless it is perfected in another manner • If lapses, the filing office must maintain a record of the information provided in a filed financing statement for at least 1 year after the effectiveness of the financing statement has lapsed and this information must be retrievable o A record is all of the documents altogether which relate to the initial financing statement |
| Termination statement | For consumer goods a secured party SHALL cause the secured party of record for a financing statement to file a termination statement for the financing statement if the financing statement covers consumer goods and there is no obligation secured by the collateral covered by the financing statement and no commitment to make an advance or incur an obligation or otherwise give value; or if the debtor did not authorize the filing of the initial financing statement within 1 month after there is no obligation secured by the collateral covered by the financing statement or within 20 days after the secured party receives an authenticated demand from a debtor |
| Fraudulent filings | Criminal charges but still show up |
| Authentication required to file financing statement | • Debtor just has to authorize filing financing statement and can do so by o Signing something o Having an article in the security agreement saying they authorize or o Authorizing the security agreement which authorizes the same collateral which has to be done for attachment anyways o No need to sign the financing statement |
| Perfection by possession | • No filing statement needed when allowed to be perfected by possession, such as goods in possession of a bailee, documents, certificated securities, instruments, deposit accounts, and collateral in the secured party’s possession. And this can be effective on delivery and by a person other than debtor with authenticated acknowledgement that holds possession of the collateral for the secured party’s benefit. o If you give the perfected item away and get it back the date of perfection only goes back to the date of the return and if you don’t get it back it is no longer perfected at all o Can file and then give to maintain possession o Possession is not interrupted when the police seize an item o No perfection by possession of photocopies • If money, possession is the only way to perfect |
| Perfection by control | Only way for accounts but can do for investments also and electronic documents |
| Control for deposit account | O If the secured party is the bank with which the deposit account is maintained or o Authenticated agreement that the bank will comply with instructions by the secured party to direct funds in the deposit account without consent by the debtor or o the secured party becomes the bank’s customer with respect to the deposit account |
| Control for investment | O for securities intermediary it is automatic o a purchaser has control of a certificated security in bearer form, if it is delivered to the purchaser o if in registered form, if the certificated security is delivered is indorsed to the purchaser or in blank or registered in the name of the purchaser o For others, authenticated agreement that the securities intermediary will honor instructions from the secured party concerning a securities account, or securities entitlements, or delivered to the purchaser |
| Perfection of proceeds | • If you have perfected security interest in proceeds then you automatically perfect for 20 days then must file unless it is cash then you are good or the same office rule applies which states o If security interest in collateral financing is in same office as where you would file the proceeds then it is still perfected unless cash acquired the new item (so if they exchange inventory for equipment you are good but if they exchange inventory for cash and then buy equipment then you must file) |
| Perfection of things with title (cars and trucks) | • Need a lien on car that is given to you by a government entity o Exception is when the car, truck, or other titled is inventory then you must file a financing statement |
| Secured vs. Secured Priority | First to file or perfect wins in secured vs. secured (knowledge of the other party does not matter) unless PMSI |
| Perfected vs unperfected priority | Perfected wins |
| PMSI in goods other than livestock and inventory vs perfected | O Priority over all if perfect at time or within 20 days after debtor gets property |
| PMSI in inventory vs perfected | O PMSI wins if Perfected at time debtor gets inventory Creditor sends authenticated notice to the other creditors stating they are or have taken a security interest in the goods and this must be repeated every 5 years to maintain priority |
| Consignor vs perfected | O Consignor is viewed as being a PMSI in inventory so just have to follow those steps o PMSI wins if Perfected at time debtor gets inventory Creditor sends authenticated notice to the other creditors stating they are or have taken a security interest in the goods and this must be repeated every 5 years to maintain priority |
| Enforcement against unauthorized buyer general rule | • General rule – if you buy something with security interest you take it home with a security interest and if original buyer defaults the creditor can take it from you |
| Exception to third party buyer rule authorization | 1) Authorized sale exception • Express authorization – says in the security agreement that you can sell Free of • Implied authorization – Sale of inventory to ordinary customer in course of business and also if the debtor has made multiple sales and the creditor has knowledge of these sales but has not done anything about it they have acquiesced to it and impliedly authorized it |
| If unathorized sale buyer must in order to take free of | 1) Buy in good faith 2) Buy in ordinary course of business o Buyer in ordinary course – buys goods in good faith and without knowledge that the sale to you violates the rights of a secured creditor in the goods, buys without knowing violates rights, buys from someone that sells in that type of goods ordinarily (cannot be in ordinary course if you know it violates rights but you can be if you know has a security agreement you just cant know that the purchase violates the creditors rights) 3) Doesn’t know violating secured creditors rights but can know of the security interest just cannot know violating the rights 4) Security interest was made by your seller o So buyer in the ordinary course of business takes free of security interest created by seller even if buyer knows security interest and even if knows perfected |
| Buyer not in ordinary course of business | • Take subject to perfected security interest and take free of unperfected security interest unless you know of the security interest then you take subject to unperfected security interest too |
| Consumer to consumer sale rule | • Consumer buys goods from consumer then buyer will take free even if perfected o if he buys without knowledge of the security interest o if he buys for value and o buys for own personal or family uses o unless secured party files a financing statement |
| Default | • Default triggers your security interest remedies |
| What must you do if debtor defaults | • Secured party is not OBLIGATED to do anything under default, least of all to repossess, but it can repossess tangible collateral. [When there is nothing tangible of the collateral, no way for the secured party to get possession of it]. But if there is perfection already by possession or control, nothing else to do really. |
| What can creditor do under default | O File judicial action with writ of replevin telling Sherrif to go get the property – costs money and takes time o Self help repossession |
| Self Help | O secured party may use self-help to repossess (i.e., without judicial process) ONLY if you can effectuate it PEACEFULLY (i.e., WITHOUT RISK to bystanders, the debtor, etc). You may not “breach the peace” to do so. o If breach peach you can be liable for actual damages, conversion, etc. Breach of peace is fact specific • But normally any conduct that can lead to potential violence is breach of peace • Physical presence of debtor/or representation of debtor with objection is normally breach of peace • Can park behind a car and not let them leave if no threats or violence • No threats, fraud, intimidation, trickery, or subterfuge allowed • Majority of courts find that unauthorized entries into the debtor’s residence, garage are breaches of the peace but as you move further away from residence into the yard, driveway, and street you may be allowed to o Can repossess from driveway or street if no other factors present it is not breach of peace o Even if you get police involvement it can still be breaking the peace if force is used o Damages to goods contained in item repossessed (vehicle) =>creditor could be liable |
| Once repossess you can | Strict foreclosure - keep the collateral, so long as debtor does not object (debtor consents if they do not object after they are sent notice) and any other creditor with a lien on the item does not object but if they do you have to sell it Sell the collateral, lease collateral, license or otherwise dispose – can do in condition it is in or new condition – when you do foreclosure sale it discharges the security interest and all subordinate liens but senior liens will still be on property |
| When sell collateral | O Give reasonable notice which is authenticated by secured party to (or if party waives you are good) normally 10 days notice Debtor Other secured parties that filed a financing statement or you know about unless consumer goods Any guarantors o Commercial sale must be commercially reasonable Every aspect of sale must be commercially reasonable |
| Priority of payments if sell collateral | - cost - foreclosing creditor - other lower creditors (junior creditors) - debtor |
| If sale is unreasonable | • Liable for any damages caused • Penalty for consumer goods – 10% of cash price of goods plus interest charges paid over the life of the loan • Might lose your deficiency judgment – presume sale proceeds equal amount of debt if you did the sale right |
| Can debtor get property back before sale | Any time before sale debtor has a right to redeem • Pay the creditor everything, including interest, that they are owed before the sale |
| What happens to superior creditors | Their security interest still attaches |