Secured Transactions

Secured Transactions
UCC Title 9
Security Interest
• An interest in personal property or fixtures
that secures payment or performance of a
– Possessory – Secured party takes possession of
– Nonpossessory – Use Security Agreement.
Security Agreement
• The agreement of the debtor and creditor
that the creditor shall have a security
interest in designated collateral.
– In writing
– Signed by debtor
– Describe the collateral in reasonable detail
Types of Secured Transactions
Secured Credit Sale : Sales transaction in which
creditor is seller and takes a purchase money security
interest in item sold.
Secured Loan Transaction : No sale involved.
Creditor lends money and takes a security interest
in property owned by borrower/debtor
Types of Collateral
Goods: Consumer Goods / Inventory / Equipment
Negotiable Instruments: Commercial paper /
Investment securities / Documents of Title
Intangibles: Accounts receivable / Contract rights
• Point at which the security interest becomes
effective between debtor and creditor.
a. Secured party has a signed security agreement
describing the collateral possession of collateral pursuant
to an agreement with debtor.
b. Creditor has given value
c. Debtor has property rights in collateral
Perfection occurs by filing a financing statement with
the appropriate public official according to state law
Creditor takes possession of collateral
Financing Statement
• Varies according to state law.
• Generally Includes:
– Names and addresses or parties
– Description of collateral
– Signature of debtor
Perfected security interests take priority over
nonperfected interests.
Between perfected interests priority is determined by
time of perfection.
Between nonperfected interests priority is determined by
date of attachment.
Purchase Money Security Interest
• A security interest is a purchase money
security interest to the extent that it is
• A. Taken by the seller to secure all or part
of its price.
• B. Taken by a person who by making
advances gives value to enable the debtor to
acquire rights in or use of the collateral
Purchase Money Security Interest
Special Rules / UCC 9-312
• Noninventory Goods – Purchase money security
interest in noninventory goods takes priority from
date of attachment if perfected within ten days of
that date.
• Inventory Goods – Purchase money security in
inventory goods takes priority over conflicting
security interest in the same inventory if:
– Interest is perfected when debtor takes possession
– Notice is given to holders of conflicting interests before
debtor takes possession
A filed financing statement is effective for fine years
from the date of filing.
A continuation statement may be filed within six
months prior to the expiration of the five year period to
extend for an additional five years.
• Interstate change of location
• Original filing is valid until perfection
would have expired under the laws of the
first state or four months, whichever occurs
Rights Upon Default
• Upon Default Secured Party May:
• A. Take possession of collateral or notify account
debtor or obligor on instrument to make payment
to him.
• B. Sell collateral in a commercially reasonable
manner and apply proceeds to indebtedness.
– Return any surplus to debtor.
– Debtor is liable for any deficiency
Rights Upon Default
• Sale of Collateral:
– May be public or private sale
– Notice given to debtor and other holders of
security interests in the collateral
If debtor has paid sixty per cent of the cash price or
loan amount secured party must dispose of collateral
within 90 days or be subject to suit for losses caused
by delay.
Rights Upon Default
• At any time before the secured party has
disposed of the collateral or entered into a
contract for its disposition the debtor or any
other secured party may redeem the
collateral by tendering fulfillment of all
obligation secured by the collateral as well
as the expenses reasonably incurred by the
secured party.
Rights Upon Default
• Secured party may retain the collateral in
satisfaction of the obligation.
– Must send written notice to debtor and other
secured parties.
If secured party receives notice of objection in
writing within 21 day after notice is given the
secured party must dispose of the collateral