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Chapter 34 Secured Transactions in Personal Property

Chapter 34 Secured Transactions in Personal Property. Twomey, Business Law and the Regulatory Environment (14th Ed.). Creation of Security Interests [34-1]. Signed by Debtor. Intent to Create Security Interest. Writing. Description of Collateral. (Oral OK if Creditor in Possession).

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Chapter 34 Secured Transactions in Personal Property

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  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 Debtor’s Interest in Collateral Chapter 34

  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 Chapter 34

  4. Perfection of Security Interests [34-3] Possession—Creditor Retains Possession of Collateral PMSI in Consumer Goods—Automatic Perfection Motor Vehicles—Notation 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 Chapter 34

  5. Priorities of Conflicting Interests[34-4] Chapter 34

  6. Buyer in the Ordinary Course of Business Perfected Secured Party Unperfected Secured Party Buyer Buyer Buyer Not in the Ordinary Course Perfected PMSI Consumer Unperfected Creditor Buyer (Unless Creditor Filed) Buyer Priority Between Buyers and Secured Parties[34-5] Chapter 34

  7. Proceeds from Sale of Collateral [34-6] Upon debtor’s 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 Chapter 34

  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)] Chapter 34

  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) Chapter 34

  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. Chapter 34

  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 debtor’s intended use, not on the physical characteristics of the goods. Chapter 34

  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. Chapter 34

  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 creditor’s interest to attach takes priority in the event the creditors hold security interests in the same collateral. Chapter 34

  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. Chapter 34

  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 creditor’s 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. Chapter 34

  16. Chapter 34 Summary [7] A buyer from a consumer–debtor takes free and clear of the debtor’s creditor’s perfected security interest unless the creditor has filed a financing statement and perfected beyond just the automatic PMSI consumer goods perfection. Chapter 34

  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. Chapter 34

  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. Chapter 34

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