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Secured Transactions Cheat Sheet (DRAFT) by

This is a draft cheat sheet. It is a work in progress and is not finished yet.

Defini­tions

Secured Transa­ction
involves a loan or purchase that is secured by collat­eral. The relati­onship typically involves two parties, a debtor and a creditor. The debtor gives the creditor a security interest in the debtor’s specific property (colla­teral) to assure that the debtor will perform (repay the loan, pay the purchase price).
Security Interest
A security interest is an interest in personal property or fixtures that secures payment or perfor­mance of an obliga­tion.

Parties

Secured Party
secured party is the person in whose favor a security interest is created under the security agreement
Obligor
obligor is a person who must pay (or otherwise perform) with respect to the obligation that is secured by a security interest in the collateral
Debtor
debtor is a person who has an interest, other than a security interest or other lien, in the collat­eral, such as the sole owner of the collateral

Collateral

Tangible "­Goo­ds"
anything that is “moveable at the time that a security interest attaches.”
Consumer Goods
goods acquired primarily for personal, family, or household purposes.
Farm Products
goods that are crops or livestock and include supplies that are used or produced in farming.
Inventory
goods, other than farm products, that are held for sale or lease; are furnished under a service contract; or consist of raw materials, works in process, or materials used or consumed in a business. This term usually refers to goods that are consumed in a business
Equipment
catchall class, consists of goods that are not consumer goods, farm products, or inventory. It usually refers to goods that are used or bought for use primarily in a business, such as employees’ desks or machinery used in manufa­ctu­ring.
Intangible Collateral
Nine classes of personal property
Accounts
the right to payment for goods sold, property licensed, or services rendered. Also included is a right to payment for the issuance of an insurance policy, the use of a credit or charge card, or winning a lottery
Deposit Accounts
a savings, passbook, time, or demand account maintained with a bank.
Instru­ments
Promissory notes, checks, and drafts governed by Article 3
Chattel Paper
A record with a monetary obligation and a security interest or lease
Payment Intang­ibles
"­catch all" of rights to payment
Documents
Documents of title
Investment Property
Certif­icated and uncert­ifi­cated securi­ties, such as stocks and bonds
Commercial Tort Claims
Claims possessed by an organi­zation or an individual that arose in the course of the organi­zation or indivi­dual’s business
Letter of Credit Rights
A right to payment or perfor­mance under a letter of credit
General Intang­ibles
residual category

Eligible Transa­ctions

General Rule
governs a transa­ction that creates, by agreement, a security interest in personal property or a fixture; lease, consig­nment, agricu­ltural lien, and even a purchase of personal property may be subject to Article 9.
Leases
Leases are covered under Article 9 when the transa­ction, although in the form of a lease, is in economic reality or substance a secured transa­ction. rule is: “A transa­ction in the form of a lease creates a security interest if lease payments must be made for the full term of the lease and are not subject to termin­ation and the lessee has an option to become the owner of the goods for nominal (a small amount of money) consid­eration at the conclusion of the lease agreem­ent.”

Attachment

Attachment
a security interest that is enforc­eable against the debtor with respect to the collateral is said to have “attached” to the collateral
 
Value has been given by the secured party
 
The debtor has rights in the collateral
 
The debtor has authen­ticated a security agreement that describes the collat­eral, or the secured party has possession or control of the collateral pursuant to a security agreement.

Perfection of Security Interest

Perfection
security interest is “perfe­cted” upon attachment of that interest and compliance with one of the methods of perfec­tion. Only needed for determ­ining a secured party's rights against third parties
Methods of Perfection
Filing a statement
 
Possession of the collateral
 
Control over the collateral
 
Automatic Perfection
 
Statute
Filing a financing statement
must contain debtor's name, name of secured party, collateral covered by the financing statement
--Error in the debtor's name
When a standard search of the filing office records under the debtor’s correct name would disclose the financing statement, the erroneous name does not make the financing statement seriously misleading and it will be valid.
Control over collateral
The security interest remains perfected only while the secured party retains control. tested)—A security interest in a deposit account can be perfected only by control.
Automatic Perfection
PMSI in consumer goods
Proceeds of Sale Collateral
If a security interest in collateral is perfected, and then the collateral is sold for cash proceeds (or checks or deposit account), the secured party will have a perfected security interest in the proceeds.
Timing of Perfection
A security interest is perfected upon (i) attachment of that interest and (ii) compliance with one of the methods of perfection (such as filing a financing statem­ent).
 

Priorities

General Creditor (unsec­ured)
A secured party will always prevail over a general creditor with respect to the debtor’s collat­eral.
Judicial Lien Creditor
A perfected security interest has priority over a judicial lien creditor, but the judicial lien creditor had priority over an unperf­ected security interest.
Transf­erree (persons who obtain full title to the goods as a result of a transfer of the collateral from the debtor.)
the security interest continues in the collateral unless the secured party authorized the transfer free of the security interest
 
buyer, other than a secured party, of collateral that is goods, tangible chattel paper, tangible documents or a security certif­icate takes free of an unperf­ected security interest in collateral if the buyer gives value, receives delivery of collat­eral, without knowledge of the existing security interest
 
A buyer of collateral subject to a perfected security interest generally takes the collateral subject to that interest, unless the secured party has authorized its sale free of the security interest.
 
A buyer in the ordinary course of business (BOCB) takes the goods free of a security interest that the seller gave to the creditor in the goods, even if the security interest is perfected and the buyer knows of its existence.
Buyers in the Ordinary Course of Business
Buys goods in the ordinary course of business from a merchant who is in the business of selling goods of that kind in good faith and without knowledge that the sale violates the rights of another in the same goods.
Consumer Buyers
A consumer buyer of consumer goods takes free of a security interest, even if perfected, unless prior to the purchase, the secured party filed a financing statement covering the goods.
 
Buys consumer goods for value for his own personal, family, or household use from a soncumer seller and without knowledge of the security interest
 
If the party holding the PMSI in consumer goods does in fact file, then his security interest will be good even against a consumer buyer.

Priority Among Secured Parties

Perfected security interest versus perfected security interest
the first to party to either file a financial statement or perfect has priority.
Perfected security interest versus unperf­ected security interest
the perfected interest takes over the unperf­ected one
PMSI (Purchase Money Security Interest) Rules
Preference is generally given to a PMSI over a non-PMSI security interest
PMSI in inventory or livestock
prevails over all other security interests in the same collat­eral, even if they were previously perfected, if (i) the PMSI is perfected by the time the debtor receives possession of the collat­eral, and (ii) the purcha­se-­money secured party sends an authen­ticated notifi­cation of the PMSI to the holder of any confli­cting security interest before the debtor receives possession of the collat­eral.
PMSI v. PMSI
the first to party to either file a financial statement or perfect has priority
Proceeds from a PMSI in goods
priority of a PMSI in goods generally extends to the identi­fiable proceeds of the original collat­eral, but only as to proceeds in which the security interest is perfected when the debtor receives possession of the collateral or within 20 days thereafter
Constr­uction Mortgage
has priority over a subsequent security interest in a fixture, including a PMSI in a fixture. The constr­uction mortgage must be recorded before the goods become fixtures, and it covers only goods that become fixtures before completion of the constr­uction.
Proceeds of Sale Collateral
the basic rules (e.g., first-­to-­fil­e-o­r-p­erfect) govern priority if there are confli­cting security interests and at least one of those interests is claimed as proceeds

Default

Default
the failure of the obligor to make timely payments to the secured party
Secured party may
Seek possession of the collateral and sell it or retain it; initiate judicial action; pursue another Cours of action that debtor and obligor have agreed
Security Agreement Covering Fixtures
When a secured party’s security interest has priority over owners and indivi­duals who encumber real property, that secured party may remove the fixture from the real property. With respect to an owner or encumb­rancer who is not the debtor, the secured party is liable for the cost of repairing any physical object damaged by the removal but not for any reduction in the value of the real property due to the removal.
Possession of Collateral
secured party is not required to give notice of default, nor is he required to give notice of his intent to take possession of the collateral
Dispos­ition of Collateral
a secured party may sell, lease, license, or otherwise dispose of all or any of the collat­eral. Within limits, the secured party may keep the collateral (strict forecl­osure) in full or partial satisf­action of the obliga­tion.
Commer­cially Reasonable Standard for Dispos­ition
In the usual manner on a recognized market, At the price current in any recognized market at the time of the dispos­ition, Otherwise in conformity with reasonable commercial practices
Price
mere fact that a higher price could have been obtained by disposing of the collateral in a different manner or at a different time does not establish that the dispos­ition was not commer­cially reasonable
Types of Dispos­ition
public or private
Notice of Dispos­ition
A secured party is generally required to send an authen­ticated notifi­cation of dispos­ition. The notifi­cation is required to be reasonable as to its content, the manner in which it is sent, and its timeliness (at least 10 days.
Cash proceeds
A secured party must apply, or pay over for applic­ation, cash proceeds of a dispos­ition in the following order: reasonable expenses for collec­tion, satisf­action of security interest, satisf­action of subord­inate interests, remainder to debtor
Surplus
If, after the required payments and applic­ations of proceeds have been made, there is a surplus, the secured party generally must pay the surplus to the debtor.
Deficiency
If, after the required payments and applic­ations of proceeds have been made, there is a defici­ency, then the obligor generally is liable for the defici­ency.