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Secured Transactions - Coggle Diagram

- - - - among unperfected security interests, the first security interest to attach will prevail
      - between perfected and unperfected security interest, the perfected interest will prevail
      - between to perfected security interests, the security interest w/ the earliest time of filing or perfection, which has continued w/o interruption, will prevail
        
        special rule for instruments of chattel paper
        
        when the collateral is an instrument or chattel paper, the secured party who perfects by taking possession will have priority over the secured party who perfects by filing
  - - - there are several exceptions to this rule:
        
        The secured party authorizes the sale free of the security interest
        
        The buyer is a buyer in the ordinary course of business (BIOCOB)
        
        tp determine whether buyer is BIOCOB - look at the business of the seller/debtor - a BIOCOB is a person who:
        
        buys in good-faith;
        
        w/o knowledge that the sale violates the rights of another person in the goods;
        
        in the ordinary course of business; and
        
        from a person in the business of selling goods of that kind
- - - - arises when a party (debtor) uses certain property as collateral to secure repayment of funds to another party (secured party)
  - - - NOTE: substance over form - mere label will not override a substantive security interest
    - - look for these elements to determine that a lease, in form, is treated instead as a secured transaction, in substance:
        
        the lease term in not subject to termination early by the lessee; AND
        
        the lease term is for the economic life of the goods, OR the lessee has a purchase option at the end of the lease term for zero or nominal consideration
    - - landlord's liens; AND
      - an interest in or lien on real property - including lease or rents thereunder
        
        Mortgage - RP rules
  - - - the Code provides for certain broad types of collateral and then breaks each down into more specific categories - broad types of collateral include:
        
        Goods;
        
        includes all things that are movable at the time the security interest attatches
        
        this generally includes fixtures and computer programs embedded in goods in computer
        
        Broken down into four categories:
        
        consumer goods
        
        goods used or bought primarily for personal, family, or household purposes
        
        Inventory
        
        goods, other than farm products, that are held for sale or lease or to be furnished under a K of service
        
        inventory also consists of raw materials, work in process, or materials used or consumed in business
        
        Farm products
        
        generally - goods other than standing timber, with respect to which the debtor is engaged in a farming operation
        
        including crops, livestock, products of corps or livestock in their unmanufactured state, aquatic goods produced in aquaculture operations, and supplies used or produced in farm operations
        
        Equipment
        
        A catch-all category, defined merely as goods “other than inventory, farm products, or consumer goods”
        
        term usually refers to goods that are used or bought for use primarily in a business
        
        Tandible intangibles;
        
        certain intangibles, such as contractual obligations to hold or deliver goods or to pay money, and ownership in goods or business entities
        
        instruments
        
        under UCC 9, means negotiable instruments, i.e. drafts and notes as defined in Art. 3, or any writing the evidences a right to the payment of money
        
        Documents
        
        documents of title which include bills of lading, dock receipts, warehouse receipts, delivery orders, and any other document that the person in possession of it is entitled to receive, hold, and dispose of the document and goods covered
        
        Chattel paper
        
        is a record or records evidencing both a monetary obligation and a security interest in or a lease of specific goods
        
        electronic chattel paper is chattel paper that is stored in an electronic medium instead of in tangible form
        
        Intangible intangibles; and
        
        many intangibles, such as monetary obligations literary rights, while possibly evidenced by writings, are treated as intangibles, these writings take on no commercial significance of their own
        
        include
        
        general intangibles
        
        intangible collateral that fails to fit into any other category - it includes things (choses) in action - payment intangibles, and software
        
        accounts
        
        are rights to payment of a monetary obligation, generally for property sold or to be sold, or for services rendered or to be rendered
        
        Investment property
        
        includes certificated and uncertificated securities, securities accounts, and entitlements, as defined in art 8
  - - - a written security agreement or possession
      - attatchment
    - - in writing and authenticated (signed) by the debtor
        
        EXC:
        
        Possession - no need for writing if they have possession w/ intent to create a security interest
      - "granting" clause
        
        the clause granting the security to creditor after default
      - description of the collateral
      - security interests are is generally binding and effective between the parties, against purchasers of the collateral, against creditors
  - - - goods securing a PM obligation that a debtor incurs to purchase the goods are called PM collateral
      - a debtor incurs a PM obligation if the obligation is incurred
        
        as all or part of the price of the collateral; or
        
        for value given to enable the debtor to acquire rights in or the use of the collateral, if the value is in fact so used
      - THUS, to qualify as PMSI - the security interest must be in goods that are given as collateral for an obligation the debtor incurred for the purchase of the goods, and actually used to purchase the goods
- - - - NOTE: perfection is the process by which the secured party gives notice to the world of its security interest, which is key to determining
      - A security interest is perfected if has attached, and if all of the requirements for perfection have been met
        
        if the requirements are met before attachment, then upon attachment the security interest is perfected (order doesn't matter)
    - - filing;
      - possession
      - control; or
      - automatic perfection
  - - - usually in the Secretary of State's Office; or
      - in limited circumstances (when collateral consists of fixtures), in the Office of the County Clerk (land records) in the county where land to which the collateral is attached
    - - RULE: the law governing perfection of a security interest is the law of the jx where the debtor is located
        
        a debtor who is an individual is located at teh individual's principal residence
        
        a debtor that is a non-registered organization is deemed to be located at its place of business - if debtor has more than one place of business, it is located at its chief executive office
        
        a debtor that is a registered org is deemed to be located in its state of organization
        
        a registered org is one as to which a state must maintain a public record showing the orgs to have been organized
    - - the code adopts the statement of notice filing, which essentially requires
      - A FS must include:
        
        name of the debtor
        
        name of the secured party or the secured party's representative; AND
        
        a description of the collateral covered by the financing statement
        
        a FS sufficiently desscribes the collateral it covers if it provides
        
        a description of the collateral that reasonably identifies what is described; or
        
        an indication that the financing statement covers all assets of all personal propert
      - A FS must be authorized by the debtor
        
        a security agreement is authorization for the financing statement
      - Special Rules for Fixtures
        
        fixtures are foods so related to RP that an interest in them passes under real estate law
        
        In addition to the requirements of a financing statement mentioned above, a fixture filing MUST ALSO:
        
        indicate that it covers fixtures;
        
        indicate that it is to be filed in the real property records;
        
        provides a description of the RP to which the fixture is related; AND
        
        provide the RP owner's name, if different than the Art 9 debtor
      - Effectiveness of Financing Statements
        
        if a financing statement is filed in the wrong place, does not include the required information, or is not authorized by the debtor, it is ineffective
        
        an ineffective financing statement does not perfect a security interest
        
        A financing statement containing minor errors will still be effective, unless the errors make the financing statement does not perfect a security interest
        
        failure to sufficiently provide the name of the debtor is seriously misleading
        
        Standard Search Logic Exception: if a search of the records of the financing office under the debtor's correct name, using the office's state
      - Timing of Filing
        
        a financing statement may be filed before a security agreement is made or a security interest otherwise attaches
        
        important to priority
      - Changes that Can affect the Effectiveness of a Financing Statement
        
        four occurrences that requires amending the
        
        Proceeds
        
        Automatic Perfection for Proceeds Continues only 20 days after attachment - UNLESS:
        
        a filed financing statement covers the original collateral, the proceeds are collateral in which a security interest may be perfected by filing in the office in which the financing statement has been filed, and the proceeds are not acquired with cash proceeds
        
        the proceeds are identifiable cash proceeds; or
        
        the security interest in proceeds is otherwise perfected when the security interest attaches to the proceeds or within 20 days thereafter
        
        a perfected security interest in proceeds is provided by the code automatically when the security interest in teh original collateral is perfected, unless the securit agreement specifically provides that proceeds ar not
        
        Name Changes
        
        if a debtor changes its name, resulting in a financing statements that is seriously misleading, the financing statement will only be effective to perfect security interests in collateral acquired within four months of the name change
        
        UNLESS
        
        an amendment to the financing statement correcting this is filed w/in FOUR MONTHS of the name change
        
        Debtor Moves
        
        5 Year Rule
  - - - investment securities;
      - letter-of-credit rights
      - deposit accounts
      - electronic chattel paper
  - - - PMSI in consumer goods - effective permanently
- - - - breach of peace is not defined under the code - the courts have held that an act that is likely to lead to violence will be considered to breach the peace
      - if secured party cannot obtain the collateral w/o breach of peace - the secured party will be required to bring an action for replevin
- - - - the secured party gives value
      - the debtor has rights in the collateral; AND
      - the debtor has authenticated a security agreement that sufficiently describes the collateral
        
        a collateral description is sufficient if it reasonably identifies what is described
        
        a description of collateral by UCC type (inventory etc.) is sufficient
        
        UNLESS, a the collateral is consumer goods and the transaction is a consumer transaction
        
        supergeneric description is not sufficient in a security agreement
    - - is property obtained after the security agreement is created
        
        RULE: a security interest will attach to after-acquired collateral if the agreement specifically says it includes after-acquired collateral
        
        excs:
        
        a security agreement specifying an interest in inventory or accounts receivable will create an interest in after-acquired collateral, notwithstanding the fact that there is no explicit AA property clause
        
        a security agreement cannot provide that it cover AA consumer goods, unless the debtor acquires rights in the consumer goods within 10 days of the secured party giving value
    - - a security agreement may also provide that the collateral secures future advances
    - - a security interest in collateral automatically extends to identifiable proceeds of the collateral
    - - a secured party may end up with both a security interest in the original collateral and the identifiable proceeds of the collateral