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MGMT 212
Secured Transaction (Ch. 29)
30
Management
Undergraduate 2
06/30/2009

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Term
Security Interest
Definition
An interest in personal property or fixtures which secures payment or performance of an obligation.
Term
Secured Party
Definition
A lender or seller who obtains a security interest in personal property.
Term
Debtor
Definition
The party owing the obligation to pay money or otherwise perform.
Term
Security Agreement
Definition
An agreement which creates or provides for a security interest in personal property.
Term
Collateral
Definition
Personal property that is subject to a security interest.
Term
3 Requirements for Attachment of the Security Interest
Definition
1.) Written Agreement providing for the security interest: signed by debtor, contains description of collateral, writing not necessary if Secured Party possesses the collateral. 2.) The Secured Party must give Value (loan, credit). 3.) Debtor must have Rights in the Collateral.
Term
Purchase-Money Security Interest (PMSI)
Definition
A security interest in specific collateral taken by the seller of the collateral or a creditor, who advances funds or incurs an obligation, enabling the Debtor to acquire the collateral. // Created when a person buys goods primarily for personal purposes, and the seller or lender agrees to extend credit for part or all of the purchase price of the goods.
Term
Perfecting a Security Interest
Definition
Perfection: the legal process by which Secured Parties protect themselves against the claims of third parties who may wish to have their debts satisfied out of the same collateral.
Term
Perfection without Filing (2 Types)
Definition
1.) Perfection by Possession: The Secured Party can perfect a security interest by taking physical possession of tangible or semi-intangible collateral. For most collateral, perfection by possession is impractical. 2.) PMSI in consumer goods: Perfected at time of credit sale.
Term
Perfection with Filing
Definition
Filing of a financing statement with the appropriate public office gives constructive notice of the secured interest to other creditors of the Debtor. Contents of the Filing Statement: a.) signature of debtor, b.) names and addresses of the Debtor and the Secured Party, c.) statement specifically indicating the type of collateral or describing the collateral. The financing statement is filed under the Debtor's name. Where to file: a.) central filing with a state official; b.) local filling with official of county; c.) combination of local filing for consumer and/or farm goods and central for other types. // Effective time of perfection: The filing of a financing statement is effective for 5 years. Renewal of perfection must be filed within six months of expiration of prior filing.
Term
Proceeds Clause (Scope of a Security Interest)
Definition
A Secured Party hasa an interest in the proceeds received from the sale, exchange, or other disposition of the collateral. // This Clause is only necessary if inventory is being used as collateral.
Term
After-Acquired Property Clause (Scope of Security Interest)
Definition
A security agreement may cover inventory that is purchased by the Debtor after the execution of the security agreement. // Original inventory is sold, new inventory becomes collateral.
Term
Future Advances Clause (Scope of Security Interest)
Definition
A security agreement may cover advances to be made by a Secured Party in the future. // Starting business, take $1 mill loan (with equal collateral). Creditor pays in installments even though $1 mill collateral already present.
Term
Floating Lien Concept (Three Clauses)
Definition
The Secured Party will have security interest in the proceeds of the sale or disposition of the collateral and specified after-acquired property of the Debtor and that the same collateral will cover future advances to be made by the Secured Party. // 1.) Proceeds Clause. 2.) After-acquired Property Clause. 3.) Future Advances Clause.
Term
Secured v. Unsecured Parties
Definition
Secured Party whose security interest has attached to the collateral has priority over Unsecured Creditors.
Term
Secured Party v. Lien Creditor
Definition
A Secured Party whose security interest has attached to the collateral and been perfected prevails over a Lien Creditor who has acquired a lien on the same property. If the security interest hasn't been perfected, he doesn't prevail over a Lien Creditor. // A Secured Party who has a PMSI AND FILES A FINANCING STATEMENT (not normally required for PMSI) within 10 days after the Debtor receives possession of the collateral prevails over a Lien Creditor whose rights arose after the Secured Party's interest attached to the collateral, but before perfection.
Term
When More than One Party is Secured (General Rule)
Definition
A Secured Party whose interest has attached and been perfected prevails over those who have not perfected their security interests. If two or more parties have perfected security interests in the same collateral, the first in time to perfect has priority. If two or more parties have unperfected security interests in the same collateral, the party whose security interest first attached has priority.
Term
Secured Party v. Buyer
Definition
Generally, a security interest in collateral is continuous even when the collateral is sold, unless the Secured Party has authorized that sale. BIOCBs and Buyers of Consumer Goods from Consumers are exceptions.
Term
Buyers in the Ordinary Course of Business (BIOCB) (Exception to Secured Party's continuous interest in collateral)
Definition
A BIOCB is a person who, in good faith and w/o knowledge that the sale is in violation of the security interest of a 3rd party in the goods, buys the goods from a person who is in the business of selling goods of that kind. A BIOCB will take the goods free from any security interest attached to those goods, even if the interest is perfected and the BIOCB knows of its existence.
Term
Buyers of Consumer Goods from Consumers (Exception to Secured Party's Continuous Interest in Collateral)
Definition
A buyer of consumer goods from Debtor takes free of the PMSI if: a.) the buyer does not have knowledge of the security interest; b.) gives value; and c.) purchases the goods for personal use; UNLESS d.) the Secured Party properly filed a financing statement.
Term
Rights and Duties of Debtors and Creditors
Definition
1.) When filing a financing statement, a creditor can ask for a copy. 2.) A prospective creditor can ask for info on possible financing statements of a person they are considering lending to. 3.) A secured party can release collateral and end his security interest, or assign the interest to another. 4.) Any amendments to a financing statement must be signed by both parties. 5.) A debtor can ask about the amount of his debt as of a specified date. 6.) When a debt is paid, the secured party must send to the debtor or file a termination statement.
Term
Default (3 things)
Definition
1.) Failure of Debtor to meet scheduled payments. 2.) Bankruptcy of Debtor. 3.) Breach of warranty of good title with regard to equipment or warranty that the equipment is free of liens, encumbrances, or other security interests.
Term
Basic Remedies to Default
Definition
A Secured Party can do either or both: 1.) Take possession of the collateral and retain or sell it. 2.) Relinquish security interest and sue the Debtor, obtain a judgment, and have the judgment enforced by execution and levy. // Option 2 is usually chosen if the collateral isn't worth the debt any longer.
Term
Secured Party's Right to Take Possession
Definition
The Secured Party must do so without breach of peace, and cannot enter the Debtor's residence without permission.
Term
Retention of Collateral (Disposing of Collateral)
Definition
If the creditor wants to retain the collateral, he must give written notice to the Debtor and other secured parties from whom the Secured party has received written notice of a claim of an interest in the collateral. If Secured Party receives written objection within 21 days, he must dispose of the collateral.
Term
Consumer Goods (Disposing of Collateral)
Definition
A Secured Party who has a PMSI in consumer goods may not retain the goods if more than 60% of the loan has been paid by the Debtor, unless the Debtor signed a written statement renouncing the right to demand the sale of the goods.
Term
Disposition Procedures (Disposing of Collateral)
Definition
A Secured Party may dispose of the collateral by sale, lease, or any other commercially reasonable means. Notice must be given to the Debtor and other secured parties.
Term
Proceeds from Disposition (Disposing of Collateral)
Definition
The order of distribution of proceeds: 1.) Expenses of sale, possessing, holding, and preparing for sale, including attorney's fees. 2.) Satisfaction of debt. 3.) Subordinate security interest holders who gave written notification. 4.) Usually, the Debtor is entitled to any surplus.
Term
Deficiency Judgment (Disposition of Collateral)
Definition
If, after proper disposition of collateral, the entire debt isn't collected, the Secured Party can sue in court.
Term
Redemption Rights (Disposing of Collateral)
Definition
Debtor can redeem the collateral by satisfying the debt.
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