Secured Transactions

Chapter 30Secured TransactionsCopyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.30-2Secured Transactions: DefinitionsSecured Interest: Interest in personal property/fixtures that secures payment/performance of obligationSecured Party: Person/party that holds interest in secured propertyDebtor: Person/party that has obligation to secured partySecurity Agreement: Agreement in which debtor gives secured interest to secured partyCollateral: Property that is subject to security interest30-3Collateral Under UCCGoods (Consumer goods, farm products, inventory, equipment, fixtures, and accessories)Indispensable Paper (Documents of title, negotiable instruments, investment property, and chattel paper)Intangibles (Accounts, goodwill, literary rights)Proceeds30-4Creation (Attachment) of Security Interest Requires:Written Agreement: Agreement that describes collateral and is signed by debtorValue: Item of value given from creditor to debtorDebtor Rights in Collateral: Rights of debtor over collateral“Purchase-Money” Security Interest(Definition): Interest formed when debtor uses borrowed money (e.g., buying on credit) from secured party to buy collateral30-5“Perfected” Security Interest(Definition): Security interest in which creditor has legally protected his/her claim to collateral30-630-7Methods of PerfectionPerfection By Filing: Perfection of interest by filing financing statement with state agencyPlace and Duration of Filing: Generally, financial statement for consumer goods must be filed with secretary of state or county clerk; statement valid for five (5) yearsPerfection By Possession: Perfection of interest by holding collateral of debtor until loan is paid in fullAutomatic Perfection: Perfection that automatically occurs when retailer sells a consumer goodPerfection of Movable Collateral: Collateral that moves to another state must be “re-perfected” after four (4) monthsPerfection of Security Interests in Automobiles and Boats:Note interest on certificate of title30-830-9Scope of Security InterestAfter-Acquired Property: Creditor has security interest in property acquired by debtor after security agreement made, if clause to this effect included in agreementProceeds: Creditor automatically has rights to proceeds from sale of collateral for ten (10) daysTermination Statement (Definition):An amendment to a financing statement stating debtor has no further obligation to secured party30-1030-11Priority Disputes Occur when two corporations/individuals claim rights to same collateral:Secured Versus Unsecured: Secured interest prevailsSecured Versus Secured: Individual who perfected his/her interest first prevails“Purchase Money Security Interest” (PMSI) Conflicts: If party with perfected purchase money security interest disputes another party, PMSI party will almost always have right to collateral, regardless of when agreement perfected30-12Priority Disputes (Continued) Secured Party Versus Buyer: If debtor sells his collateral, creditor may dispute with buyer over collateralBuyer in “Ordinary Course of Business”: If person buys collateral in ordinary course of business without realizing that it is collateral, he/she has right to goodBuyers of Consumer Goods: If consumer does not know product secured, buyer’s new product is free from security interestBuyers of Chattel Paper and Instruments: If buyer purchases chattel paper and instruments, he/she is free from security interest30-13Default Occurs when debtor fails to fulfill his/her loan; remedies include:Taking possession of collateral: If debtor defaults on loan, secured party can take possession of collateralDisposition of Collateral: Creditor may sell, lease, or transfer collateralRetention of Collateral: Creditor may choose to keep collateral as payment of debtProceeding to Judgment: Secured party may sue debtor for entire amount of debt, instead of dealing with collateral