Chapter 34 Secured Transactions in Personal Property

1
Chapter 34Secured Transactions in Personal
Property

• Twomey, Business Law and the Regulatory
  Environment (14th Ed.)

2
Creation of Security Interests 34-1
Signed by Debtor
Intent to Create Security Interest
Writing
Description of Collateral
(Oral OK if Creditor in Possession)
Contemporaneous Exchange
Value
Creditor Previously Gave Loan
Debtors Interest in Collateral
3
Four Classes of Tangible Collateral 34-2
Consumer Goods
Equipment
Used or bought primarily for personal, family, or
household use
Used or bought primarily for business use
Inventory
Farm Products
Held by debtor primarily for sale or lease to
others or raw materials, work in progress, or
materials consumed in a business
Crops or livestock, or supplies used or produced
in farming
4
Perfection of Security Interests 34-3
PossessionCreditor Retains Possession of
Collateral PMSI in Consumer GoodsAutomatic
Perfection Motor VehiclesNotation in Title
Registration
Writing
Signed by Debtor
File Financing Statement
Description of Collateral
Address of Debtor
Address of Creditor
Depends on Type of Collateral
Where
Local vs. Central
Inventory
Fixtures
Farm
Consumers
Equipment
5
Priorities of Conflicting Interests 34-4
6
Priority Between Buyers and Secured Parties
34-5
7
Proceeds from Sale of Collateral 34-6
Upon debtors default, creditor may sell
collateral.
Private Sale
Public Sale
Lease to Third Party
First, to pay the expenses of the secured party
in connectionwith the default
Second, to pay the debtowed the secured party
Third, to pay debts owed other secured parties
Fourth, to pay any balance to debtor
8
Priority of Secured Interest under Article 9
Conflict
Priority
Secured Party vs. Secured Party
First to attach
Unsecured Party vs. Secured Party
Secured party
Perfected Secured Party vs. Secured Party
Perfected secured party
Party who is first to perfect
Perfected Secured Party vs. Perfected Secured
Party
Perfected Secured Party vs. Lienor
Party who filed (financing statement or lien
first) 9-307(2)
Exceptions
PMSI creditor if perfected before annexation or
within ten days after annexation (PMSI will have
priority even over prior perfected secured party
PMSI in Fixtures vs. Perfected Secured Party
PMSI is perfected within ten days after
delivery 9-301(1)(d)
PMSI in Equipment vs. Perfected Secured Party
PMSI in Inventory vs. Perfected Secured Party
PMSSI is perfected before delivery and if
perfected secured party given notice before
delivery 9-302(1)(d)
PMSI in Consumer Goods vs. Buyer
Buyer unless perfection is by filing
before purchase 9-302(1)(d)
Perfected Security Party vs. Buyer
Buyer in ordinary course wins even with knowledge
9-306(1)(d)
9
Priorities in Transfer of Collateral by State
Buyer vs. Secured Creditor
Buyer Not in Ordinary Course
Buyer in Ordinary Course
Unperfected Secured Creditor
Unperfected Secured Creditor
Perfected Secured Creditor
Perfected Secured Creditor
Buyer (Assuming no knowledge of security interest)
Buyer Has Priority
Creditor Has Priority (except consumer PMSI
creditor,buyer has priority)
10
Chapter 34 Summary

• A security interest is an interest in personal
  property or fixtures that secures payment or
  performance of an obligation. The property that
  is subject to the interest is called the
  collateral, and the party holding the interest is
  called the secured party. Attachment is the
  creation of a security interest. To secure
  protection against third parties claims to the
  collateral, the secured party must perfect the
  security interest.

11
Chapter 34 Summary 2

• Tangible collateral is divided into classes
  consumer goods, equipment, inventory, general
  intangibles, farm products, and fixtures. These
  classifications are based on the debtors
  intended use, not on the physical characteristics
  of the goods.

12
Chapter 34 Summary 3

• Perfection of a security interest is not required
  for its validity, but it does provide the
  creditor with certain superior rights and
  priorities over other types of creditors and
  creditors with an interest in the same
  collateral. Perfection can be obtained through
  possession filing automatically, as in the case
  of a PMSI in consumer goods or temporarily, when
  statutory protections are provided for creditors
  for limited periods of time.

13
Chapter 34 Summary 4

• Priority among creditors is determined according
  to their status. Unperfected, unsecured creditors
  simply wait to see if there will be sufficient
  assets remaining after priority creditors are
  paid. Secured creditors have the right to take
  the collateral on a priority basis. As between
  secured creditors, the first creditors interest
  to attach takes priority in the event the
  creditors hold security interests in the same
  collateral.

14
Chapter 34 Summary 5

• A perfected secured creditor takes priority over
  an unperfected secured creditor. Perfected
  secured creditors with interests in the same
  collateral take priority generally on a
  first-to-perfect basis. Exceptions include PMSI
  inventory creditors who file a financing
  statement before delivery and notify all existing
  creditors, and equipment creditors who perfect
  within ten days of attachment of their interests.

15
Chapter 34 Summary 6

• A buyer in the ordinary course of business always
  takes priority even over perfected secured
  creditors who have knowledge of the creditors
  interest. A buyer not in the ordinary course of
  business will lose out to a perfected secured
  creditor but will extinguish the rights of a
  secured creditor unless the buyer had knowledge
  of the security interest.

16
Chapter 34 Summary 7

• A buyer from a consumerdebtor takes free and
  clear of the debtors creditors perfected
  security interest unless the creditor has filed a
  financing statement and perfected beyond just the
  automatic PMSI consumer goods perfection.

17
Chapter 34 Summary 8

• Upon default, a secured party may repossess the
  collateral from the buyer if this can be done
  without a breach of the peace. If a breach of the
  peace might occur, the secured party must use
  court action to regain the collateral.

18
Chapter 34 Summary 9

• If the buyer has paid 60 percent or more of the
  cash price of the consumer goods, the seller must
  resell them within 90 days after repossession
  unless the buyer, after default, has waived this
  right in writing. Notice to the debtor of the
  sale of the collateral is usually required. A
  debtor may redeem the collateral prior to the
  time the secured party disposes of it or
  contracts to resell it.