Chapter 35: Secured Transactions in Personal Property

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• Chapter 35 Secured Transactions in Personal
  Property

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Definitions

• A security interest is an interest in personal
  property or fixtures that secures payment or
  performance of an obligation.
• The property that is subject to the interest is
  called the collateral, and the party holding the
  interest is called the secured party.
• Attachment is the creation of a security
  interest.
• To secure protection against third parties
  claims to the collateral, the secured party must
  perfect the security interest.

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Creation of Security Interests
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Classes of Collateral

• Tangible collateral is divided into classes
  (based on the debtors intended use, not on
  physical characteristics)
• consumer goods,
• equipment,
• inventory,
• general intangibles,
• farm products, and
• fixtures.

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Classes of Tangible Collateral
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Perfection

• Perfection of a security interest is not required
  for its validity, but it does provide the
  creditor with certain superior rights and
  priorities over creditors with an interest in the
  same collateral.
• Perfection can be obtained through possession
  filing automatically, as in the case of a PMSI
  in consumer goods or temporarily, when statutory
  protections are provided for creditors for
  limited periods of time.

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Perfection of Security Interests
Possession -- Creditor Retains Possession of
Collateral PMSI in Consumer Goods -- Automatic
Perfection Motor Vehicles -- Notation in Title
Registration
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Priority Among Creditors

• Unperfected, unsecured creditors have the lowest
  priority and are paid only if sufficient assets
  remain after priority creditors are paid.
• Secured creditors have the right to take the
  collateral on a priority basis, based on whose
  interest was the first to attach.
• A perfected secured creditor takes priority over
  an unperfected secured creditor.

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Priority Among Creditors

• Multiple perfected secured creditors with
  interests in the same collateral take priority
  generally on a first-to-perfect basis.
• Exceptions include PMSI inventory creditors who
  file a financing statement before delivery and
  notify all existing creditors, and equipment
  creditors who perfect within ten days of
  attachment of their interests.

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Priorities of Conflicting Interests
Neither -- equal
Secured
One whose interestattached first
Perfected Secured
One who perfected first
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Proceeds When Creditor Sells Collateral
When secured party repossesses collateral
securing a debt, he may dispose of it by
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Priorities When Debtor Sells Collateral

• A buyer in the ordinary course of business always
  takes priority even over perfected secured
  creditors.
• A buyer not in the ordinary course of business
  will lose out to a perfected secured creditor but
  will extinguish the rights of an unperfected
  secured creditor (unless the buyer had knowledge
  of the security interest).

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Creditors Right to Repossess

• Upon default, a secured party may repossess the
  collateral from the buyer if this can be done
  without a breach of the peace.
• If a breach of the peace might occur, the secured
  party must use court action to regain the
  collateral.

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Creditors Duty in Sale of Collateral

• If the buyer has paid 60 percent or more of the
  cash price of the consumer goods, the seller must
  resell them within 90 days after repossession
  unless the buyer, after default, has waived this
  right in writing.
• Notice to the debtor of the sale of the
  collateral is usually required.
• A debtor may redeem the collateral prior to the
  time the secured party disposes of it or
  contracts to resell it.

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Priorities When Debtor Sells Collateral
When a debtor sells the collateral securing a
debt, who has priority in the collateral the
buyer or the creditor?
What kind of buyer?