Secured Transaction Outline | McCullough | Spring 2010
Types of Liens:
· Judicial– created by judgment/Levy/Execution lien
· Statutory – created by statute
o Tax Lien
o Mechanic’s Lien
o Landlord’s Lien
o Attorney’s Lien
· Consensual – created by Contract/Consensual Lien
o A legal right held by a creditor arising form a contractual transaction that creates a security interest in another’s personal property or fixture to secure a debt or duty that lasts until the debt or duty the it secures is paid.
Step-by-Step Process:
Attachment of a security interest to make it enforceable against the Debtor
Perfection of the security interest to make it enforceable against other parties.
Priority of parties fighting over particular property or collateral
The Road Map:
1. Advantages of a Secured Transaction
2. Indentifying property of interest or at issue
personal property of value to secure the debt
3. Classifying this property
· Affects:
o Collateral Description in Transaction Documents.
§ Security Agreement
§ Financing Statement
o Method of Perfection.
§ Filing
§ Possession
§ Control
§ Notation on Certificate of Title
o Law Governing Perfection (aka where to file)
o Rights and Obligations of Third Parties
§ Priority Rules
§ Anti-Assignment Rules
o And sometimes Enforcement Rights & Affect Attachment.
Rule: classify from the Debtor’s perspective (how it is used)
Types of Collateral – (definitions 9-102)
Tangible:
o Consumer goods
o Equipment
o Farm products
o Inventory
Quasi – Tangible:
Money
Chattel Paper (electnic or hrd cpy)
Doc. Of Title (electnic or hrd cpy)
Instrument(hrd cpy)
Cert. of Security
Intangible:
An Account
Comm Tort Claim
Invest. Property
Deposit Acct
Financial Asset
Letter of Crdit Right
4. Determine whether Article 9 applies to the Collateral. (ie Scope) (9-109)
1- Consensual Security Interests (see above Attachment)
2- By Operation of Law
1- Conditional Sales K (1-201(A)(35)
Ex. Seller sells piano but retains title to piano until fully paid by buyer. Seller only retains a S.I. in the piano after sale, SI arises by Operation of Law under UCC 2-401(1)
Red Flag – Retaining Title
2- Leases
Ex. Lessor leases a car for monthly payment(retains title), and Customer gets possession & use of car
Types:
True lease – Governed by UCC Art 2A, or
A security device (aka. Sale) disguised as a “lease” – Art 9 governs
TEST – 1-203(a)& (b)
Whether the documents as written is a Lease or Security Device is FACT driven & requires a case-by-case review
Part 1 – The Consideration ($) to be paid to lease the property is an obligation for the term of the lease (ex. 5 year lease-pay for 60 months) AND the lessee must pay the consideration even id the lessee gives the property back (lessee may not terminate the payments).
if yes, then Part 2.
If no, Court will still look at the facts of the case & provisions of lease to determine if the transaction might still be a Security Device.
Part 2 – Find one of the following provisions is present in the Lease,
Term of Lease > Economic Life of Goods, or
Lessee is bound to renew the lease for the rest of the Economic Life of the Goods or is Bound to become the owner of Goods, or
Lessee has option to renew Lease for Rest of Economic Life of Goods for little to no additional $’s, or
Lessee has option to Buy Goods for little to no additional $’s
Then lease is really like a Credit Sale /Security Device
3- Consignments
Consignor is commingling its property with Consignee’s property. Ostensible Ownership Problem for Consignee’s Creditors (Bank).
Types:
True Consignment not governed by Art 9 (bailment)
True Consignment as defined by Art 9
9-109(a)(4) as defined by 9-102(a)(20)
tiable Documents of Title
§ Control – Applies to:
· Deposit Accounts
· Investment Property
· Letter-of-Credit Rights
· Electronic Chattel Paper
· Electronic Documents of Title
· 2- Value Given, (set date) AND
o Defined 1-204
§ Binding commitment to Extension of Credit
§ Extending immediate available credit whether drawn upon or not
§ Getting a SI for an old, pre-existing claim
§ Commitment to Lend
§ Any consideration sufficient to support a simple Contract
o Future Advances (9-204 (c) )
§ = Any new loan or other extension of credit after authentication of the security agreement
§ GR: in order for future advances to be secured, the security agreement must have a future advance clause
3- D has right in the collateral (date can be trickier to determin)
o Debtor must either have rights in the collateral OR the power to convey such rights to the secured party
o GR: if debt has only limited rights in the collateral, then security interest will attach only to those limited rights – 9-203 comment 6
o Exceptions –
§ 2-403(1)(b) – Voidable Title
· Person with voidable title, gives good title to a good faith purchaser for value.
· But – goods must have been initially transferred to the person with voidable title under a “transaction of purchase.”
§ 2-403(2) – Merchant power to transfer
· Any entrusting by entruster of possession of goods to a Merchant
· Who deals in goods of that kind
· Gives the merchant the power to transfer
· All the Entruster’s rights to the goods
· To a buyer in the ordinary course of business (1-201(b)(9))
o WHEN Debtor’s gets rights depends on the language of SA
· when marked/identified per UCC 2-501(b)
· when received/ delivered
