MANGMT 3540 1st Edition Lecture 20Outline of Last Lecture I. Rules of IndorsementsII. Holder in Due CourseIII. Defenses Against a holder in due courseOutline of Current Lecture IV. General Terms Relevant to Article Nine of the UCCV. Types of Collateral Governed Under Article 9 of UCCVI. Creating a Security Interest by Attachment VII. Perfecting a Security Interest VIII. Financing Statements- Public Notice of Security Interest IX. Floating Liens-A security Agreement in:X. Priorities to CollateralXI. Rights and Duties of Parties upon Default XII. Effect of Disposition of Collateral at a Repossession SaleXIII. Termination StatementCurrent LectureI. General Terms Relevant to Article Nine of the UCCA. Security InterestThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.1. Interest in personal property or fixture which secures payment or performance of an obligation- formerly called chattel mortgages B. Fixtures1. Personal property permanently attached to real estateC. Collateral1. Property subject to a security interestD. Debtor1. Party owing money or an obligation secured by the security interestE. Secured party1. Person who holds (owns) security interestF. Financing statement1. Notice of security interest filed with a government officeG. Lien1. Right to sell property on default2. Examples: mortgage, some judgments and security interestsII. Types of Collateral Governed Under Article 9 of UCCA. Goods:1. Things tangible and movable or fixture: (Article 9 adds fixtures to Article2 definition) E.g. a bookB. Quasi Tangibles1. Paper (instruments) which in themselves evidence a right (e.g. negotiable instruments) ex. A checkC. Intangibles1. Property with no aspect of physical existence1. Accounts receivable2. Goodwill of businessD. Art. 9 – When Inapplicable1. Article 9 regulating security interests does NOT apply to real estate OR to the process of obtaining perfection of security interests in motor vehiclesIII. Creating a Security Interest by Attachment A. Attachment defined1. Attachment is the moment in time when a security agreement becomesenforceable against a specific piece of collateralB. Three requirements for attachment1. A valid written security agreement or possession of the collateral:1. Written Security agreementa. With language transferring a security interest in collateral b. Signed by the debtor: andc. Containing a description of collateral sufficient to identify it2. An oral security agreement is enforceable if the secured party takes of the collateral2. The secured party gives value1. Value: past or present consideration3. Debtor has rights in the collateral1. Ownership or permission from the owner to pledge the collateral4. Once these three requirements are met, the security agreement has now attached to the collateralIV. Perfecting a Security Interest A. Perfection defined1. Perfection is the process to make the security interest enforceable against third parties (parties other than the secured party and the debtor) who take a later interest in the collateralB. Three ways to perfect a security interest1. By possession1. Common law pledge2. Pawn shop2. By attachment of security interest- if the holder has a purchase money security interest (PMSI) in consumer goods, other than motor vehicles or fixtures 1. PMSI: secured party provides the money or credit to purchase collateral2. Consumer goods: purchased for non-business use3. By filing a financing statement (effective 5 years)—typical way to perfectin business transactionsV. Financing Statements- Public Notice of Security Interest A. Contents1. Name and address of the debtor2. Name and address of the secured party3. Description of collateral (type of collateral enough-puts public on notice)B. When financing statements required1. Required method of perfecting for most business transaction: must file if no possession of collateral and no PMSI in consumer goods.C. Where to file1. Generally, the secretary of state officeVI. Floating Liens-A security Agreement in:A. Proceeds1. Whatever is received by the debtor in exchange for transferred collateral 2. Example: cashB. Future Advances1. Loans (advances) to be made by a secured party in the future, that is some time after the promissory note is signed (collateral is security for line of credit)C. After-acquired property1. Property of a type similar to the collateral acquired by the debtor after the signing of the security agreement2. Example: inventoryVII. Priorities to CollateralA. Five types of secured or other parties in order of priority:1. Buyer of goods in the ordinary course of business takes free of security interests in seller’s inventory2. Secondhand purchaser of consumer goods – Takes free of security interest perfected by attachment: garage sale3. Purchase Money Security Interest – the holder of a non-inventory PMSI,if perfected within 20 days of attachment, has priority over other liens –its priority date relates back to time of attachment to receive priority under #4 below.4. First to Perfect or Become Lien Creditor1. Perfection of a security interest in any of the three ways: – possession, attachment or filing.2. Lien Creditora. Someone with a judgment and an execution lien →Trustee in Bankruptcy5. First to attach if no one perfectedVIII. Rights and Duties of Parties upon Default A. Ignore the security interest1. A secured party may obtain a judgment based upon the amount owed rather than repossessing the collateral B. Repossession1. A secured party may take possession of collateral covered by a security agreement2. No breach of peace is allowed in repossessing collateral.C. Repossession Sale1. A secured party may dispose of collateral and apply the proceeds to the obligation.D. Retaining Collateral1. A secured party may sometimes keep the collateral as satisfaction (payment in full) of the obligation. This requires notice, a right to redeem the collateral and proper protection of consumersIX. Effect of Disposition of Collateral at a Repossession SaleA. Transfer of Good Title1. A purchaser at a valid repossession sale takes title free of ownership claims of the debtor and SPB. Order of distribution of proceeds1. Expenses of the repossession sale (possessing, holding and preparing for sale; attorney fees)2. Satisfaction of debt of 1st lienholder.3. Subordinate (lower priority) SI holders who gave written notification. (2nd lien, 3rd lien,