Secured Transactions Outline PDF

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DEFINITIONS Basic Definitions Creditor: Person giving Debtor $$ Debtor: UCC 9-102 a person bound by a security agreement; owes creditor $$ Judgment Lien: judgment entered for collection of debt Lien Creditor: 9-102(52) A lien creditor is, inter alia: (1) person who obtains a judgment on the property involved OR a trustee in bankruptcy Security Interest: an interest in personal property or fixtures which secures payment or performance of an obligation.

Types of Collateral Collateral: UCC 9-102(12) property subject to a security interest [The property that can be repossessed if the debtor does not pay.] Consumer Goods: UCC 9-102(23) used or bought for use primarily personal, family, or household uses Deposit Account: UCC 9-102(29) Account maintained with a bank Equipment: UCC 9-102(33) goods other than inventory, farm products, or consumer goods [used or bought for use primarily in business] Inventory: UCC 9-102(48) goods, other than farm products [good held by a person who holds them for sale or lease] Goods: UCC 9-102(44) things that are movable

Attachment Attachment: UCC 9-203 a security interest attaches to collateral once it becomes enforceable against the debtor Authenticate: UCC 9-102(7) sign Description (reasonably identifiable): 9108(b) not super generic, can be 9-102 category Lease: Lessor gets property back at the end of the lease term and it still has meaningful economic value

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Security Agreement: UCC 9-102(74) The agreement between the debtor and the secured party that creates the security interest; a contract. Value (attachment): any consideration whatsoever

Perfection Certificate of title: UCC 9-102(10) provides for the security interest in question via another government record filed with a designated entity Control (deposit account): UCC 9-104 (Usually) Bank is both where the deposit account is located and the creditor Deposit account: UCC 9-102(29) a demand, time, savings, passbook, or similar account maintained with a bank. The term does not include investment property or accounts evidenced by an instrument. Error (name, seriously misleading): UCC 9-501 not the exact name on the driver’s license Financing Statement: UCC 9-102(39) a record or records composed of an initial financing statement and any filed record relating to the initial financing statement; must be included in all security interests, subject to some exceptions Filing Office: UCC 9-501 office designated for the filing or recording of a record of a mortgage Name [organization]: UCC 9-502 organization’s name on the public organic record Name [individual]: UCC 9-502 Name on Driver’s License Perfection: Enforceable against third parties Proceed: UCC 9-102(64) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral

- Cash Proceed: UCC 9-102(9) proceeds that are money, checks, deposit accounts, or the like Purchase Money Security Interest (PMSI): security interest in a piece of collateral that secures repayment of credit or loan used to acquire that collateral

Priority Priority: prevailing party Fixture: 9-102(41) goods that have become so related to particular real property that an interest in them arises under real property law. Fixture Filing: 9-102(40) the filing of a financing statement covering goods that are or are to become fixtures and satisfying

Section 9-502(a) and (b). The term includes the filing of a financing statement covering goods of a transmitting utility which are or are to become fixtures.

Enforcement Foreclosure: selling property to obtain value (squeezing) Proposal: 9-102(66) record authenticated by a secured party which includes the terms on which the secured party is willing to accept collateral in full or partial satisfaction of the obligation it secures pursuant to Sections 9620, 9-621, and 9-622. Repossession: taking possession of the property (grabbing)

SECURED TRANSACTIONS ~ATTACHMENT~ A security interest attaches if: 

Value has been given UCC 9-203(b)(1)



Debtor has rights in the collateral UCC 9-203(b)(2)



If there is ONE of the following: o

Debtor has Authenticated a Security Agreement 9-203(b)(3)(A) 

It is authenticated: signed in writing or with an electronic sound, symbol, or process 9-102(7)



By the Debtor 9-203 (B)(3)(A) [the point is to show intent to enter into this arrangement]



Provides a sufficient description of the collateral  Sufficient under 9-108(b) if it is “reasonably identifiable” (cannot be

‘super generic’) o

o

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For example, a 9-102 category (equipment, inventory, consumer goods, or farm goods) 9-108(b)

Possession [doesn’t need written security agreement] 

A security interest attaches if the collateral is not a certificated security and is in the possession of the secured party under Section 9-313 pursuant to the debtor's security agreement (9-203(b)(3)(B))



Under 9-313(a), the collateral must be ONE of these in order to attach via possession:  Goods: something that is moveable 9-102(44)

 o

Money

Control [doesn’t need written security agreement]  

The collateral is a deposit account that the secured party has control over 9203(b)(3)(D) o A deposit account is a savings account maintained with a bank 9-102(29) The secured party has control if ONE of the following conditions is met:  It is the bank with which the deposit account is maintained 9104(a)(1)  Debtor, secured party, and bank have agreed in an authenticated record that the secured party will have access to deposit account 9-104(a)(2)  Secured party becomes bank’s customer with respect to the deposit account 9-104(a)(3)

RULE: § 9-203. ATTACHMENT AND ENFORCEABILITY OF SECURITY INTEREST (a) [Attachment.] A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral, unless an agreement expressly postpones the time of attachment. (b) [Enforceability.] Except as otherwise provided in subsections (c) through (i), a security interest is enforceable against the debtor and third parties with respect to the collateral only if: (1) value has been given; (2) the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and (3) one of the following conditions is met: (A) the debtor has authenticated a security agreement that provides a description of the collateral; (B) the collateral is not a certificated security and is in the possession of the secured party under Section 9-313 pursuant to the debtor's security agreement; (C) the collateral is a certificated security in registered form and the security certificate has been delivered to the secured party under Section 8-301 pursuant to the debtor's security agreement; or

(D) the collateral is deposit accounts, and the secured party has control under Section 9-104 pursuant to the debtor's security agreement. UCC 9-102(7): Definition of Authenticate: (A) to sign; or (B) with present intent to adopt or accept a record, to attach to or logically associate with the record an electronic sound, symbol, or process. UCC 9-108: 3

(a) [Sufficiency of description.] Except as otherwise provided in subsection (c), a description of personal or real property is sufficient, whether or not it is specific, if it reasonably identifies what is described. (b) [Examples of reasonable identification.] a description of collateral reasonably identifies the collateral if it identifies the collateral by: (1) specific listing; (2) category; (3) a type of collateral defined in [the Uniform Commercial Code]; (4) quantity; (5) computational or allocational formula or procedure; or (6) except as otherwise provided in subsection (c), any other method, if the identity of the collateral is objectively determinable.

(c) [Supergeneric description NOT sufficient.] A description of collateral as "all the debtor's assets" or "all the debtor's personal property" or using words of similar import does NOT reasonably identify the collateral.

Recharacterization APPLIES TO: Security Agreements masquerading as a lease At the time the transaction was entered into, was it reasonably likely that the lessor would receive the item back while it still has meaningful economic value? A. Yes: True lease: the lessor gets the property back at the end of the lease term and it still has meaningful economic value. B. No? Security Interest: buyer is the owner and the buyer will drain all of the economic value from the item

CHECKLIST: A “lease” creates a security interest when 1-203(b):  Lessee has to pay consideration to the lessor for the right to possess and the use of the goods is for the [entire] duration of the lease 

The lessee cannot terminate the lease



ONE of the following: o Original term of the lease is < or = economic life of the goods 1-203(b)(1) o Lessee must renew the lease for remaining economic life OR must become the owner 1-203(b)(2) o Lessee may renew the lease for little or no additional consideration 1-203(b) (3) o Lessee may become owner for little or no additional consideration 1-203(b) (4) If the lease is a security interest: it must meet the enforceability requirements in 9-203(b)

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RULE: UCC 1-203

(b) A transaction in the form of a lease creates a security interest if the consideration that the lessee is to pay the lessor for the right to possession and use of the goods is an obligation for the term of the lease and is not subject to termination by the lessee, and: (1) the original term of the lease is equal to or greater than the remaining economic life of the goods; (2) the lessee is bound to renew the lease for the remaining economic life of the goods or is bound to become the owner of the goods; (3) the lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement; OR (4) the lessee has an option to become the owner of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement.

General notes: o Unless collateral is possessed or controlled by debtor, security agreement must be in writing o After-acquired property: The secured creditor wants to have a security interest in the property that the debtor offered initially in the security agreement AND will own in the future. 9-204 o “debtor hereby grants to creditor a security interest in the debtor’s equipment now owned and after acquired.”  EXCEPTION: Courts will imply the after acquired property clause if the collateral is of the type that is rapidly depleted and replenished (i.e. inventory) 9-204 (a) [After-acquired collateral.] a security agreement may create or provide for a security interest in after-acquired collateral.

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~ PERFECTION ~ o This is the process of giving public notice of the security interest to the world. Not necessary to create an enforceable security interest (attachment does that) o However, a security interest is unlikely to become effective against a Third Party unless it is perfected Five Methods of Perfection: 1. Financing Statement 2. Possession 3. Control 4. Automatic (PMSI) 5. Certificate of Title

UCC-1 FINANCING STATEMENT A security interest is perfected if it has attached and all of the applicable requirements for perfection have been satisfied. 9-308 Generally, a financing statement must be filed to perfect a security interest. 9-502

To be sufficient, a financing statement must: 

Provides the name of the debtor  Registered organization: organization’s name on the public organic record 9-503(a)(1)  A trade name is insufficient 9-503(c)  Individual: name of the individual which is indicated on the driver’s license 9-503(a)(4) If the name does not match those documents exactly, there might be a “seriously misleading” error  Errors: are not “seriously misleading.” if searching using the “[correct name]” in the filing office’s standard search logic reveals the financing statement 9-506(c) In the event a name change is needed because the financing statement is no longer sufficient under 9-503(a) because the name of the debtor is seriously misleading under 9-506…  The financing statement will remain effective for collateral acquired before or 4 months after the financing statement becomes seriously misleading 9507(c)(1)  BUT After 4 months it no longer effective as to after-acquired collateral 9507(c)(2)

 Provides the name of the secured party (Creditor) o

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Less stringent requirements than debtor’s name: just needs to include trade name or something sufficient to be able to contact the creditor; mistakes =/= seriously misleading



Indicates the collateral covered 9-504 o

Description pursuant to 9-108 (same as in 9-203) can be general, broad—as long as the security agreement is more specific

o

Collateral use changes 9-507(a)



No effect on financing statement effectiveness

If the collateral moves to a new state with a new debtor, the financing statement will need to be moved to the new jurisdiction within one year, or the security interest will no longer be perfected collateral 9-316(a)(3)



Filed in the government office in the state the debtor is located in 9-301(1) If the debtor moves, financing statement will need to be moved to the new jurisdiction within four months, or the security interest will no longer be enforceable as to afteracquired collateral 9-316(a)(2)



Duration: 5 years 9-515(a) o Expires on the date of a lapse, and ceases to be perfected and is deemed never to have been perfected, except if it is otherwise perfected 9-515(c) o UNLESS a continuation is filed before the lapse (only within 6 months of the lapse) 9-515(c)

MAINTAINING PERFECTION WITH A FINANCING STATEMENT Usually: effective for 5 years after its filed, followed by a continuation statement within 6 months of expiration Debtor Changes Use of Collateral: Nothing, original is still effective Debtor Changes Name: 4 months Debtor Moves: 4 months, must file in new State Collateral Moves to a New Debtor: 1 year after to file a new one in the new jurisdiction

RULES UCC 9-310: When Filing is required to perfect security interest (a) [General rule: perfection by filing.] Except as otherwise provided in subsection (b) and Section 9-312(b), a financing statement must be filed to perfect all security interests (b) [Exceptions: filing not necessary.] The filing of a financing statement is NOT necessary to perfect a security interest: (2) that is perfected under Section 9-309 when it attaches; (3) in property subject to a statute, regulation, or treaty described in Section 9311(a); (6) in collateral in the secured party's possession under Section 9-313; (8) in deposit accounts, electronic chattel paper, investment property, or letter-ofcredit rights which is perfected by control under Section 9-314; (9) in proceeds which is perfected under Section 9-315; or

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(10) that is perfected under Section 9-316.

UCC 9-502: Contents of a Financing Statement (a) [Sufficiency of financing statement.] Subject to subsection (b), a financing statement is sufficient only if it: (1) provides the name of the debtor; (2) provides the name of the secured party or a representative of the secured party; AND (3) indicates the collateral covered by the financing statement. (d) [Filing before security agreement or attachment.] A financing statement may be filed before a security agreement is made or a security interest otherwise attaches.

UCC 9-503: Name of the Debtor and Secured Party (a) [Sufficiency of debtor's name.] A financing statement sufficiently provides the name of the debtor: (1) if the debtor is a registered organization, , only if the financing statement provides the name that is stated to be the registered organization’s name on the public organic record of most recently filed with or issued or enacted by the registered organization’s jurisdiction of organization which purports to state, amend, or restate the registered organization’s name (4) if the debtor is an individual to whom this State has issued a [driver’s license] that has not expired, only if the financing statement provides the name of the individual which is indicated on the [driver’s license]; (c) [Debtor’s trade name insufficient] A financing statement that provides only the debtor's trade name does not sufficiently provide the name of the debtor.

UCC 9-504: Indication of Collateral A financing statement sufficiently indicates the collateral that it covers if the financing statement provides: (1) a description of the collateral pursuant to Section 9-108; or (2) an indication that the financing statement covers all assets or all personal property.

UCC 9-506: Effect of Errors or Omissions (a) [Minor errors and omissions.] A financing statement substantially satisfying the requirements of this part is effective, even if it has minor errors or omissions, unless the errors or omissions make the financing statement seriously misleading. (b) [Financing statement seriously misleading.] Except as otherwise provided in subsection (c), a financing statement that fails sufficiently to provide the name of the debtor in accordance with Section 9-503(a) is seriously misleading. (c) [Financing statement not seriously misleading.] If a search of the records of the filing office under the debtor's correct name, using the filing office's standard search logic, if any, would disclose a financing statement that fails sufficiently to provide the name of the debtor in accordance with Section 9-503(a), the name provided does not make the financing statement seriously misleading.

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*TEST: Search under the debtor's correct (the name on the DL) name using the filing office's standard search logic. Whatever results that come up are not "seriously misleading."

UCC 9-507: Effect of Certain Events on Effectiveness of Financing Statement. (a) [Disposition.] A filed financing statement remains effective with respect to collateral that is sold, exchanged, leased, licensed, or otherwise disposed of and in which a security interest or agricultural lien continues, even if the secured party knows of or consents to the disposition. (b) [Information becoming seriously misleading.] Except as otherwise provided in subsection (c), a financing statement is not rendered ineffective if, after the financing statement is filed, the information provided in the financing statement becomes seriously misleading under Section 9-506. (c) [Change in debtor’s name.] If the name that a filed financing statement provides for a debtor becomes insufficient as the name of the debtor under Section 9-503(a) so that the financing statement becomes seriously misleading under Section 9-506: (1) the financing statement is effective to perfect a security interest in collateral acquired by the debtor before, or within four months after, the filed financing statement becomes seriously misleading; and (2) the financing statement is not effective to perfect a security interest in collateral acquired by the debtor more than four months after the filed financing statement becomes seriously misleading, unless an amendment to the financing statement which renders the financing statement not seriously misleading is filed within four months after the financing statement became seriously misleading. UCC 9-316 Effect of change in governing law (a) [General rule: effect on perfection of change in governing law.] A security interest perfected pursuant to the law of the jurisdiction designated in Section 9-301(1) or 9-305(...