An “attached” enforceable security interest requires:
CAR
C - creditor must give CONSIDERATION
A - the debtor must AUTHENTICATE the security agreement either by: (1) giving the creditor possession (possessory security interest) no writing required; or (2) execute a security agreement which specifically describes the debtor and the collateral and gives the creditor a security interest in it
R - the debtor must have rights in the collateral
**these elements can occur at different times
Rules of priority for “attached” (but unperfected) security interest
- subsequent buyer without notice of the unperfected attached interest will prevail over the attached interest and get the property free and clear
- but attached creditor will prevail over a transfer without consideration (transferred via will or gift) and this interest remains on the property
How “attached” security interest is perfected:
- filing financing statement in the state’s central office
- giving possession to creditor (or control if its investment property)
- goods covered by doc of title - Notation on the security agreement
How “attached” security interest is perfected:
- filing financing statement
File financing statement in the state’s central office. Perfected interest stays on property even if debtor sells or transfers it
good for five years (exceptions - co-op shares are indefinite, 30 years for manufactured home)
exception here is the buyer of inventory in ordinary course of business would take the property free and clear even if perfected (ex- costco).
How “attached” security interest is perfected:
- Possession (for investment property - control)
Give creditor possession of the collateral. For investment property like bank accounts its by giving “control”
They get possession not title. Creates a bailment K - creditor must take reasonable care of it.
Risk of loss on debtor
How “attached” security interest is perfected:
- goods covered by doc of title - Notation on the security agreement
goods covered by doc of title - Notation on the security agreement
if no notation on the title, then the buyer will take free and clear
will also cover added “accessories” if notation indicates this wording. this will even prevail over purchase money security interests in the accessories
Financing statement does not need to:
Does not need to be signed by the debtor or state the amount of the debt
pre-filing ok if creditor has signed permission from debtor
also can state the collateral in general terms (“all inventory”). but note that the security agreement needs to describe the property with “particularity”
Perfected security interest exception -
buyers of inventory in the ordinary course of the sellers business take that inventory free of a perfected security interest in the inventory
Creditor’s security interest can attach to three different types of PIG personal property
P - commercial paper
I - intangible property
G - goods (but only FIFE-C - fixtures, inventory, farm product, equipment used in business, consumer goods - personal/household use)
Three arrangements used to avoid the filing requirement. Article 9 treats these arrangements as security agreements that must be perfected by filing a financing statement
- installment K where seller delivers goods to the buyer but holds title to these goods until debtor pays them off
- lease purchase agreement where there’s a right to purchase the property at the end for a nominal sum
- where seller just consigns the goods without transferring title and can be returned if not sold
A creditor’s purchase money security interest in CONSUMER GOODS is automatically perfected and there is no need for filing. There are exceptions to this rule -
- consumer’s motor vehicle in a non-title jurisdiction
- consumer fixtures attached to to the consumer’s home (windows, water heater). **for these creditor must file within 20 days after the goods become fixtures
Debtor’s Default- options for creditor
- judicial intervention
- self help - provided doesn’t breach the peace (no force, threats, use of police). if there is breach of peace then debtor has tort claim (trespass, assault). punitive available if egregious
Debtor’s Default- options for creditor if they choose “self help”
- keep collateral as satisfaction of debt - called strict foreclosure. cant be used if debtor has already paid off 60% of debt. debtor consents to full satisfaction if doesn’t object within 20 days
- sell repossessed goods - commercially reasonable, notice to debtor. debor gets surplus if there is any
- creditor can seek deficiency judgment but only if reasonable and notice
- A creditor’s purchase money security interest in CONSUMER GOODS is automatically perfected and there is no need for filing
- a buyer of consumer goods takes free of any security interest if no no notice, buys for value, and buys for personal, family or household use, and does so before any filings happened
- a buyer in the ordinary course of business takes free of any SI added by that seller.
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