Secured Transactions 1
Secured Transactions General Approach Step 1: For each party claiming an interest in the collateral (property), determine whether the secured interest has “attached” to the collateral in collateral in question. 1a1a- Tangible? Goods (consumer goods, farm products, equipment, inentory) in entory) 1b1b- !ntangible? "ccounts, #eposit "ccounts Step 2: For each party claiming an interest, determine whether the secured interest has been “perfected”. “perfected”. Step 3: !f there is more than one party claiming an interest in the collateral, determine who has priority. priority. Step 4A: $oo% 4A: $oo% out for leases (special rule) Step 4B: & 4B: & & consignments (they hae special rules) Step 5: #efault 5: #efault and enforcement
Goods
i!hts to "ay#ent
$ther Types of %ollateral
'onsumer goodspersonalfamilyhousehold purposes
!nstruments*romissory !nstruments*romissory notes, 'hec%s, #rafts
#ocument of title +wnership rights in goods held by bailee. Bills of lading or Warehouse receipts
Farm products crops, liestoc%, 'hattel paper onetary supplies usedproduced in farming. obligation and security interest or (not equipment) a lease
!nestment property toc%s bonds
!nentorygoods held for salelease, under serice /, raw materials, materials used in business
"ccounts 0ight to payment of a monetary obligation for goods sold, leased, licensed or serices rendered. Ex- Accounts receivable, Right to be paid under insurance, Amounts owed on credit cards.
aings accounts 1an% account
2quipmentmachinery, deliery 2quipmentmachinery, ans, office equipment, farm equipment
*ayment intangible 'atch-all category
'ommercial tort claims
$etter-of-credit rights right to payment or performance General intangibles 1lueprints copyright trademar% software
oses S mell A mazing) Value R ights ights Security Agmt STEP STE P 1 Attach Att achmen mentt (V iolet R Value given by secured party •
◦
•
Debtor has rights in collateral ◦ ◦ ◦
•
same consideration as for a K/binding commitment to extend credit After-acquired collateral (that debtor acquires in the future) roceeds from collateral!automatic collateral!automatic attachment Accession ("hysically united goods)
Debtor authenticate Security Agreement ◦
#ecord (tangible medium)$ authenticated by debtor$ debtor$ non-su"er-generic descri"tion of collateral
Secured Transactions % ◦ •
&#
I !" SE#$RIT% A&R'T alternatives Possession)control Possession)control o* the collateral Possession+ consumer goods$ equi"ment$ farm "roducts$ chattel "a"er$ tangible docs$ certificated securities$ instruments$ money ▪
• • • •
▪
Reasonable care ,eep collateral identi*iable Relin-uish collateral postobligation #harge debtor *or reasonable e.penses (storage)maintaining collateral/
#ontrol (via oral or unauthenticated security agreement/ •
in'estment "ro"erty$ de"osit accounts$ letter-of-credit rights$ electronic chattel "a"er$ electronic documents e"osit accounts control if Secured party+0an 2here account is maintained "R 0an3 secured party 4 debtor 2ritten agmt to *ollo2 secured party5s instructions "R Secured party becomes ban5s customer 2) respect to deposit acct6 ◦
▪ ▪ ▪
▪
*S+ (urchase *oney Security +nterest)- goods/soft,are alue gi'en allo,s debtor to acquire good/ser'ice .oods/soft,are acquired secure the loan ender *S+ (bank lends money to Mike to buy a new car, car, takes security interest in the car) alue actually used to acquire the goods ender ta0es security interest in the goods to secure the goods Seller *S+ (goods bought on credit) Dealer sells Mike Mike a car for $10k $10k on credit, credit, takes security security • •
▪
• •
▪
interest in car
STEP 7 PERE#TI"! ile *inancing statement (88e.cept deposit account, money, or leer-of-credit rights, cars**) •
◦ ◦
ames (debtor/secured "arty)$ "arty)$ descri"tion of collateralcollateral- can be 2su"er-generic3 2su"er-generic3 4ffecti'e on date of filing$ ▪
◦ ◦
asts 5 years$ need to file continuation statement ,/in 6 months before 5yrs is u"7
Authorization by debtor (authenticated security agmt for exam"le) 2Seriously misleading name3- 8ails to accurately contain debtor9s name :nless searching filing office records ,ould disclose financing statement ;;#eal "ro"erty/fixtures- filed in county ,here real "ro"erty is located
▪ ◦
•
Possession o* collateral (tangible stu**/ ◦
•
*oney$ *oney$ goods$ instruments$ negotiable docs$ tangible chattel "a"er
#ontrol o* collateral ◦
Deposit accounts ▪ ▪ ▪
◦ ◦ ◦ ◦
•
+n'estment "ro"erty etter-of-credit etter-of-credit rights 4lectronic chattel "a"er 4lectronic docs
Automatic per*ection (usually in P'SI in consumer goods/ <:T &T ?A#S- usually certificate of title statute Temporary Automatic Per*ection (collateral/debtor "ost-"erfection fuc0-u"s) ◦
•
s customer ,ith res"ect to the de"osit account7
Secured Transactions @ ◦ ◦
I* secured party *ails to *i. (see belo2/3 security interest no longer per*ected3 lose priority6 Debtor legal name change (i* 9seriously misleading:/ ▪
Sec7 arty has -*onth ,indo, to disco'er change$ file an amendment to financing statement ?ollateral acquired after month ,indo, not co'ered by financing statement
• •
◦
Ex: !1" #ank security interest interest in onstruction or%&s existin'!after acuired eui%ment, %erfected %erfected by st financin' statement listin' onstruction or%, com%uter 1 bulldo*er+ bulldo*er+ !1" name chan'e harlie onstruction -nc+ .!1" backhoe+ 10!1" / nd bulldo*er+ bulldo*er+ o amended fi nancin' statement+ erfected" before before name chan'e" om%uter 1 st bulldo*er+ 2!in months"backhoe+ ot %erfected3/nd bulldo*er (outside month window)+ ▪ ▪
▪
Debtor moves out o* state erfected sec7 +nterest stays "erfected for months after debtor mo'es (unless fin7 Stat7 a"ses earlier) Secured "arty must re-file in ne, state ,/ month ,indo, to stay cont7 "erfected7 #ollateral moves out o* state +f still o,ned by debtor$ no refiling needed7 +f collateral transferred to ne, debtor (out of state)$ secured "arty has 1 yr to file fin7 Statement ,/ ne, debtor9s name7
•
• ▪
• •
888E.ceptions to temporary automatic per*ection (possession instrument3 negotiable doc3 certi*icated security3 goods/ secured party can give collateral bac to debtor; Sell$ exchange or enforce debtor9s rights in the collateral7 Secured "arty "erfected for %B days7 Secured "arty needs to • • •
◦ ◦
•
8ile financing statement &# #e"ossess collateral ,/in %B day "d to stay "erfected7
<4C& %B ACS "erfection la"ses unless (s"ecial rules for "roceeds) ◦ ◦
Secured "arty amends statement #ash proceeds rule (per*ection continues *orever as long as identi*iable/ ▪ ▪
◦
+f ?ollateral sold/licensed/dis"osed .enerates cash "roceeds
Same o**ice rule (inventory into something else3 lie accounts3 but !"T #AS
8inancing statement co'ers original collateral ?ollateral!"roceeds filed in the same office as original fin7 Statement roceeds not acquired ,/ cash "roceeds
STEP = PRI"RITIES 1. ID Sta Statu tuss of of each each cla claim iman antt 2. Appl Apply y app appro ropr pria iate te rule rule •
Security interest v6 security interest Per*ected v6 per*ected+ first to file or "erfect Per*ected v6 unper*ected+ "erfected ,ins $nper*ected v6 $nper*ected+ first to attach or become effecti'e Security interest v6 lien creditor Per*ected v6 >ien creditor!"erfected ,ins $nper*ected v6 lien creditor+ lien creditor ,ins generally but ◦ ◦ ◦
•
◦ ◦
▪
4iled but unattached unattached security interest interest exce%tion3 un"erfected "arty ,ins ebtor authenticated security agreement listing coll ateral 8inancing statement filed • •
Secured Transactions ◦
Security interest v6 statutory lien!statutory usually ,ins so long as ▪ ▪
•
4ffecti'eness of lien de"ends on lien-holder9s "ossession of goods ien secures "ayment/"erformance of obligation for ser'ices/materials in ordinary course of business (ie mechanic9s lien)
Priority over uture advances Secured v6 secured+ first to file/"erfect Secured v6 lien creditor+ it de"ends
◦ ◦
▪ ▪
Secured ,ins if ad'ance ,/in 5 days of lien arising ien creditor ,ins after 5 days unless ad'ance made ,/out 0no,ledge of the lien &#
• •
•
ad'ance made "ursuant to commitment entered into ,/out 0no,ledge of lien
Secured parties v6 buyers (per*ected security interest/ &eneral rule-
◦
◦
▪
• • •
▪
#onsumer to consumer buyer v6 secured parties (9&arageSale:/ (buyer 2ins i* belo2 is true/; • • • •
•
0uyer v6 unper*ected security interest &eneral rule
◦
▪ ▪ ▪
•
P'SI Priority Rules P'SI v6 >ien creditor ◦
▪
◦
+f "urchase money secured "arty "erfects ,/in %B days of debtor "ossession of collateral$ then *S+ "riority o'er lien7
P'SI v6 Security Interests P'SI superpriority over goods that are !"T I!VE!T"R%
▪
• •
▪
P'SI superpriority *or Inventory • •
▪
+f "urchase money secured "arty "erfects ,/in %B days of debtor recei'ing goods7 +f not ,/in %B days$ then first in time to file or "erfect7 Secured "arty "erfects before in'entory deli'ered to debtor Authenticated notification notification of *S+ sent to other secured "arties7
P'SI superpriority in Proceeds • •
Su"er "riority extends to in'entory turned into "roceeds Su"er-"riority extends to cash do,n-"ayments for in'entory
Secured Transactions 5 ▪
P'SI v6 P'SI •
◦
Seller ,ins o'er lender7 &r use first to file/"erfect rule7
i.ture Priority Rules .enerally- a""ly regular "riority rules i.tures v6 Real Property Interest+ fixtures ,in if
▪ ▪
•
Secured "arty files fixture filing before real "ro"erty interest is recorded i.ture *iling- financing statement filed in local real "ro" records7 ◦
▪
i.ture P'SI Rule+ fixture *S+ ,ins if • •
debtor has interest of record in the real "ro"erty or is in "ossession of the real "ro" A security interest "erfected by fixture filing before the goods become become fixtures &# ,/in %B days after the goods become fixtures7 ◦ ◦
▪
#onstruction 'ortgage E.ception to P'SI i.tures Rule+ constr7 *tg ,ins if • •
#ecorded before goods become fixtures A the goods become fixtures before the construction is com"lete
STEP ?A >EASES .enerally- Article G doesn9t a""ly to a true lease$ but ,ill a""ly if 2economic reality3 of transaction is actually a secured transactions •
0right>ine Test (I* met3 lease is a secured transaction3 need to *ile)per*ect interest in goods/ (I* not met3 courts loo at *acts o* the case/ 2essee3 obligated to "ay full obligation under the lease$ ,hether or not they terminate lease early A 1 of the belo, outcomes is "resent
◦
▪ ▪ ▪
&riginal lease term H remaining economic life of goods essee bound to rene2 lease *or economic li*e o* goods essee has option to become o2ner o* goods or option to rene2 lease for remaining economic life of goods for no additional or for nominal consideration
STEP ?0 #"!SI&!'E!TS (P'SI in Inventory Rules Apply/ ?onsignment! consignor o,ns goods$ but gi'es o,nershi" to consignee for the "ur"ose of allo,ing consignee to sell the goods7 ?onsignor!secured "arty$ needs to "erfect interest ?onsignor deli'ers goods to merchant$ ,ho deals in goods of the 0ind$ for the merchant to sell *erchant isn9t generally 0no,n by its creditors to be substantially engaged in business of selling goods of others7 alue of goods H I1BBB "er deli'ery .oods are not consumer goods immediately before the deli'ery 4xam"le S"ecialty deli'ers % s"ea0ers$ I%0 each to .iant ,ho 0ee"s them on dis"lay$ dis"lay$ sells them on behalf of S"ecialty$ S"ecialty$ ,ho hold title until they are sold7 .iant isn9t generally 0no, by its creditors to be substantially engaged in business of selling selling goods of others7 S"ecialty!consignor= S"ecialty!consignor= secured "arty has *S+ in .iant9s in'entory7 in'entory7 .iant!consignee • •
• •
Secured Transactions 6
STEP @ DEA$>T 4 E!"R#E'E!T efault- not defined in Art7 G$ refer to sec7 Agmt and K la,7 la,7 En*orcement A6 Repossession o* &oods)"ther #ollateral #e"le'in (Dudicial "rocess) Self-hel" as long as no breach of the "eace • •
◦ ◦ ◦ ◦
secured "arty brings officer to re"ossession ,ithout Dudicial authorization authorization re"ossession agent brea0s into debtor9s home/garage/commits criminal act some "hysical confrontations dece"tion/tric0ery
06 Disposition o* #ollateral #ommercially reasonable standard •
◦
after secured "arty ta0es "ossession of collateral after default$ it may sell$ license$ or other,ise dis"ose of the collateral7 Sold in the usual manner in at mar0et= Sold at the "rice current in that mar0et ("rice alone is not determinati'e) &# other,ise in conformity ,/ comm7 #eas7 ractice among dealer in that ty"e of collateral7
▪ ▪ ▪
•
Details o* disposition ◦
Sale can be either "ublic or "ri'ate +f "ri'ate$ the collateral "rice has to be fixed (by CS4 for ex7) or subDect to ,idely-distributed standard "rice quotes7 ?ommercially reasonable timing under the circumstances7 ▪
◦
•
Authenticated notice re-uirement ◦
FhoJ- ebtor$ secondary obligors$ other secured "arties$ other "arties ,ho ga'e secured "arty notice of a claim or interest in the collateral7
◦
FhenJ ▪ ▪
◦
.enerally commercially reasonable time to notified "arty to act7 ;;on-consumer transactions- 1B days before dis"osition sale
Fhat must be in the noticeJ ▪ ▪ ▪ ▪ ▪
Secured "arty and debtor9s names escri"tion of collateral Lo,/,hen/,here collateral to dis"osed of Statement that debtor is entitled to accounting for un"aid indebtedness ;;?onsumer goods additional requirements escribe any liability for deficiency hone M that debtor can call to get additional info$ including I to "ay to redeem collateral
• •
◦
;;4xce"tions ,here notice &T #4N:+#4 "erishable collateral/threatens collateral/threatens to decline decline quic0ly in 'alue collateral sold on recognized mar0et notice ,ai'ed after default
▪ ▪ ▪
•
#ash Proceeds o* a Disposition ◦ ◦ ◦
#easonable ex"enses for collection and enforcement ay off debt to the foreclosing secured "arty ay subordinate security interests "ro'ided the subordinated "arty ma0es a formal demand "rior to
Secured Transactions O
◦
distribution of the "roceeds Any sur"lus ,ill return to debtor ;;Senior security interests sur'i'e the sale7 ;;+f there9s not enough money to satisfy the debt$ secured "arty can see0 a deficiency Dudgment against the obligor for the remaining amount7
▪ ▪
•
Strict oreclosure Acceptance o* #ollateral ◦
The secured "arty may exce"t the collateral in full satisfaction or "artial satisfaction of the debt so long as certain conditions are met ull Satis*action ebtor must consent after default to the acce"tance in an authenticated record &# Acce"tance by silent "ermitted if the debtor doesn9t obDect to the secured "arties "ro"osal to acce"t the collateral ,ithin 7 days after the "ro"osal sent7 reuirements ents for consumer 'oods 'oods transactions: transactions: ;; 7dditional reuirem 5ecured %arty can only acce%t the collateral in full satisfaction ***60% rule: If the debtor has paid back 60% or more of the debt or the value of the collateral vendor, vendor, goods must be sold, NO A!"#AN! "!$I##!&' ****&ebtor can (aive the 60% rule after default in an authenticated record) Partial Satis*action ebtors must consent after default to the acce"tance in an authenticated record7 ?onsent by silence as not "ermitted7 Acce"tance in "artial satisfaction not allo,ed in consumer transactions Redemption rights The debtor secondary obligor or other secured "arty may redeem the collateral by "aying the entire secure obligations and ex"enses including attorneys fees incurred in re"ossessing and "re"aring the collateral collateral for sale7 #edem"tion must occur before the secured "arty has sold the collateral or exce"ted the collateral in satisfaction of the debt7 The debtor cannot ,ai'e her right to redem"tion before default7
▪
• •
•
◦ ◦
▪
▪
• • •
▪
•
•
•
◦
Special en*orcement rules ▪
i.tures +f a secured "arty has "riority$ "riority$ the secured "arty may remo'e the fixture from the real estate7 iable for the cost of re"airing damage to the real estate$ but not diminution in 'alue resulting from the remo'al7 Accessions Secured "arty ,ith "riority in the accession is allo,ed to remo'e the accession from the other goods7 Rights to payment (Accounts$ chattel "a"er$ instruments$ "ayment intangibles) Secured "arty can ste" into debtor9s shoes to collect amounts o,ing to debtor by @ rd "arties (account debtors)7 Remedies *or secured party5s *ailure to comply InBunctive relie*; if failure is ongoing$ debtor or another "arty can as0 court to halt im"ro"er enforcement acti'ity$ acti'ity$ Actual damages; debtor/secured "arty can be com"ensated for loss resulting from secured "arty9s 'iolations7 'iolations7 Statutory damages; #laiming de*iciency Budgment #ommercial transactions #onsumer transactions •
◦
▪
•
▪
•
▪
•
•
• •
◦ ◦
Secured Transactions P •
#onversion
