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Chapter 22 Secured Transactions

Chapter 22 Secured Transactions . Learning Objectives. What is a security interest? Who is a secured party? What is a security agreement? What is a financing statement? What three requirements are required for a security interest under Article 9?

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Chapter 22 Secured Transactions

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  1. Chapter 22Secured Transactions

  2. Learning Objectives • What is a security interest? Who is a secured party? What is a security agreement? What is a financing statement? • What three requirements are required for a security interest under Article 9? • What is the most common method of perfecting security interest? • What rights does secured creditor have on the debtor’s default?

  3. Terminology • Secured Party: creditor who has a security interest in debtor’s collateral. • Debtor: person who owes payment of a secured obligation. • Security Interest: interest in the collateral that secures the performance. • Security Agreement: agreement that creates or provides for a security interest. • Collateral: subject of the security interest. • Financing Statement: normally filed with public notice to third parties.

  4. Creating and Perfecting A Security Interest • Creating a Security Interest • Collateral in possession of Creditor or there must be a written agreement describing the collateral signed by Debtor. • Creditor must give something of value to Debtor. • Debtor must have “rights” in collateral. • Once these requirements are met Creditor’s rights “ATTACH” to the collateral, giving Creditor enforceable security interest.

  5. Collateral • Collateral is generally divided into two categories: tangible and intangible. • Tangible: Consumer goods, equipment, farm products, inventory, accessions. • Intangible:Chattel Paper, Instruments, Accounts, Deposit Accounts, General Intangibles.

  6. Perfecting a Security Interest • Perfection is the legal process by which the secured party protects herself from third party claims against the same collateral. • Perfection by Filing a Financing Statement • Perfection Without Filing • Collateral is in the possession of the Secured Party • Purchase Money Security Interest (financing)

  7. Scope of Security Interest • Security Interest in Proceeds: whatever received when collateral sold or disposed of. • After-Acquired Property • Security Agreement may provide for a security interest in property acquired after execution of security agreement.

  8. Scope of Security Interest • Future Advances • Continuing line of credit • Subject to security interest • Floating Liens • Security interest in proceeds in after-acquired property, or • Collateral subject to future advances.

  9. Priorities • General Rule is that a secured party’s interest has priority over the following: • Unsecured creditor • Unperfected secured party • Subsequent lien creditor • Trustee in bankruptcy • Buyers who do not purchase collateral in the course of Seller’s business.

  10. Priorities • Buyers of the Collateral • Conflicts with Perfected Secured Party • Buyers in the Ordinary Course of Business • Buyers not in the Ordinary Course of Business of Consumer Goods • Buyers of Chattel Paper • Buyers of Instruments, documents or securities • Buyers of Farm Products • Generally, Buyers in the ordinary course of business take goods free from security interest.

  11. Priorities • Creditors or Secured Parties • Conflicting Perfected Security Interests • First to Perfect has Priority. • Conflicting Unperfected Security Interests • First to Attach has Priority. • Conflicting Perfected Security Interests in Commingled or Processed Goods

  12. Rights and Duties • Information Requests • Release, Assignment and Amendment • Secured party can release all or part of the interest. • Secured party can assign all or part of the interest. • Parties can agree to amend the financing statement. • Termination • When Debtor has fully paid the debt, secured party must release security interest and file a termination statement.

  13. Default • Not defined by Article 9. Defined in the security agreement. • If Debtor in default, Secured Party can: • Relinquish a security interest and use any judicial proceeding on the underlying debt (execution and levy). • Take peaceful or judicial possession of the collateral.

  14. Default • Disposition of Collateral • Retention of Collateral by Secured Party (unless PMSI and debtor paid 60% or more) • Notice Required • If objection, then Secured Party must sell property. • Disposition Procedures • Commercially reasonable manner • Public sale with notice • Distribution of Proceeds • Expenses balance of debt junior liens then balance to secured party.

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