Business Law 4510 Chapter 20 Notes Security Interests in Personal Property 1 I II Secured transaction when payment of a debt is guaranteed or secured by personal property owned by the debtor Secured party any creditor who has a security interest in the debtor s collateral The Terminology of Secured Transactions a b c Debtor person who owes payment or other performance of a secured obligation d e f g Creating a Security Interest a Security interest interest in collateral that secures payment or performance of an obligation Security agreement an agreement that creates or provides for a security interest Collateral subject of the security interest Financing statement UCC 1 form instrument filled to give public notice to third parties of secured parties interest Creditor has two concerns if debtor defaults fails to pay debt as promised i Can the debt be satisfied through possession sale of collateral ii Will creditor have priority over any other creditors or buyers who may have rights in same collateral b Concerns met with creation and perfection of a security interest which is done with three requirements i Either 1 Collateral must be in possession of secured party in accordance with agreement 2 Must be a written or authenticated security agreement describing collateral subject to security interest and signed or authenticated by debtor ii Secured party must give something of value to debtor iii Debtor must have rights in collateral c Once requirements met creditor s rights attach to collateral i Attachment gives creditor an enforceable security interest in collateral d Written or Authenticated Security Agreement i When collateral is not in possession of secured party security agreement must describe collateral 1 Must be written or authenticated a Authentication to sign execute or adopt any symbol on an electronic record that verifies the person signing has the intent to adopt or accept the record i If authenticated only debtor signature required to create security interest e Secured Party Must Give Value f Debtor Must Have Rights in the Collateral i Secured party must give debtor something of value usually in form of loan or promise to sell on credit i Debtor must have some ownership interest in or right to obtain possession of that collateral 1 Can be present or future interest debtor does not need to have a title III Perfecting a Security Interest a Perfection legal process by which secured parties protect themselves against the claims of third parties who may wish to have debts satisfied out of the same collateral b How a security interest is perfected depends on type of collateral i Tangible collateral can be seen felt touched 1 Consumer goods a Attachment for purchase money security interests b c Filing or compliance with certificate of title statue for boats and vehicles Filing or possession for other consumer goods Equipment filing or rarely possession by secured party Farm products filing or rarely possession by secured party Inventory filing or rarely possession by secured party 2 3 4 5 Accessions personal property attached installed or fixed so that it becomes part of the goods filing or rarely possession by secured party ii Intangible collateral consists of or generates rights 1 Chattel paper any writing evidencing a debt secured by personal property filing or possession or control by secured party Instruments filing or possession attachment for promissory notes 2 3 Accounts filing 4 Deposit accounts control 5 General intangibles filing only except for sale of a payment intangible by attachment c Perfection by Filing 2 i Most common means of perfection is by filing a financing statement gives public notice to third parties 1 Can also file the security agreement 2 Filing is communication of statement to the office paying the fee and acceptance by the officer Communication filing can be accomplished electronically a b Once filed indexed by debtor name c Can be filed before a security agreement is made or attached ii The Debtor s Name 1 Specific Types of Debtors Corporations must file by the name of the debtor indicated on the public record Trustees must disclose they are a trustee with respect to property held in trust a b c Others must disclose the individual or organizational name of the debtor a Providing only a debtor s trade name or fake name is not sufficient for perfection 2 Trade Names iii Description of the Collateral 1 Collateral must be described in both financing statement and security agreement a Security agreement must be specific while financing statement can be more general iv Where to File 1 2 Filed centrally in the appropriate state office in the office of the secretary of state Filing in the county is only necessary for a b c Timber to be cut Fixtures Collateral to be extracted oil coal gas minerals 3 Appropriate state office determined by debtors location Individual debtors state of principal residence a b Organization registered in the state state registered in c Other state where business is located or where manages business operations affairs v Consequences of an Improper Filing 1 Renders security interest unperfected 2 Corona Fruits Veggies Inc v Frozsun Foods Inc a b Issue does a creditor fail to perfect a security interest if a financing statement lists a debtor s name incorrectly Yes when an error renders the document seriously misleading to other creditors the effectiveness of the statement is undercut d Perfection without Filing i Perfection by Possession ii Perfection by Attachment 1 Security agreement still enforceable if collateral is transferred to secured party if not in writing 1 13 types that occur when security interest is limited number automatically perfected at creation a Common with i Purchase money security interest PMSI in consumer goods items bought primarily for personal family or household purposes 1 Created when a person buys goods and seller or lender agrees to extend credit for part or all of the purchase price of the goods ii Assignment of beneficial interest in a decedent s estate 2 Automatic Perfection For PMSI happens at time of a credit sale 3 Exceptions to the Rule of Automatic Perfection a a Certain types of security interests that are subject to other federal or state laws may require additional steps to be perfected e Effective Time Duration of Perfection b PMSIs in non consumer goods i Financing statement effective for five years from date of filing 1 Continuation statement filed within 6 months prior to