1. Chapter 27 Secured Transactions and E-Filing

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Secured Transactions
Secured transaction: A transaction in which a creditor makes a loan to a debtor in exchange for the debtor’s pledge of personal property as security
Collateral: The property in which a security interest is taken
Personal property
Tangible property – equipment, vehicles, furniture
Intangible property – securities, patents, trademarks
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Secured Transactions
Unsecured credit
Creditor takes no interest in the collateral
If debtor defaults, creditor must sue the debtor
Secured credit
Purchaser pledges the collateral
Creditor may recover the collateral in case of default
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Secured Transactions
Debtor: A person who has an ownership or other interest in the collateral and owes payment of a secured obligation
Secured Party: A person in whose favor a security interest is created or provided under a security agreement
Security Interest: An interest in the collateral, such as personal property or fixtures, which secures payment or performance of an obligation
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Secured Transactions
Security Agreement: An agreement that creates or provides for a security interest
Collateral: Property subject to security interest, including accounts and chattel paper that have been sold
Financing Statement: Record relating to initial financing statement
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6. Exhibit 27.2: Two-Party Secured Transaction
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7. Exhibit 27.3: Three-Party Secured Transaction
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8. Creating a Security Interest
Security agreement: A written document signed by a debtor that creates a security interest in personal property
To be valid, a security agreement must
Clearly describe the collateral
Contain the debtor’s promise to repay the creditor
Set forth the creditor’s rights upon the debtor’s default
Be signed by the debtor
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9. Creating a Security Interest
Attachment: A situation in which a creditor has an enforceable security interest against a debtor and can satisfy the debt out of the designated collateral
Debtor must have current or future legal right in or right to possession of collateral
Once rights of secured party attach to the collateral, the creditor has enforceable security interest in the property
Debt can be satisfied out of collateral, subject to priority rules
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10. Creating a Security Interest
Floating lien: A security interest in property that was not in the possession of the debtor when the security agreement was executed
Floating lien can attach to:
After-acquired property
Sales proceeds
Future advances
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11. Creating a Security Interest
After-acquired property: Property that a debtor acquires after a security agreement is executed
Sale proceeds: The resulting assets from the sale, exchange, or disposal of collateral subject to a security agreement
Future advances: Funds advanced to a debtor from a line of credit secured by collateral
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12. Perfecting a Security Interest
Perfection of a security interest: A process that establishes the right of a secured creditor against other creditors who claim an interest in the collateral
Methods
Perfection by filing a financing statement
Perfection by possession of collateral
Perfection by a purchase money security interest in consumer goods
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13. Perfecting a Security Interest
Perfection by filing a financing statement
Document filed by secured creditor with the appropriate government office
State law specifies where to file
May be done electronically
Gives constructive notice of security interest in personal property
Effective for five years from the filing date
Continuation Statement may be filed
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14. Case 27.1: Filing a Financing Statement under an Individual’s Name
Pankratz Implement Company v. Citizens National Bank
130 P.3d 57, Web 2006 Kan. Lexis 141 (2006)
Supreme Court of Kansas
Issue
Is Pankratz’s filing of the financing statement under the wrong first name of the debtor seriously misleading?
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15. Perfecting a Security Interest
Perfection by possession of the collateral: If a secured creditor has physical possession of the collateral, no financing statement has to be filed
Other potential creditors are put on notice of the creditor’s secured interest in the property
Perfection by a purchase money security interest in consumer goods: Creditor automatically obtains purchase money security interest when extending credit to consumer to purchase consumer goods
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16. Perfecting a Security Interest
Termination statement: A document filed by a secured party that ends a secured interest because the debt has been paid
Must be filed within
One month after the debt is paid, or
20 days after receipt of the debtor’s written demand
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Priority of Claims
Priority of claims: The order in which conflicting claims of creditors in the same collateral are solved
Secured claims have priority over unsecured claims
Competing unperfected security interests: first to attach has priority
Perfected claims have priority over unperfected claims
Competing perfected security interests: first to perfect has priority
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Priority of Claims
Buyer in the ordinary course of business: A person who in good faith and without knowledge of another’s ownership or security interest in goods buys the goods in the ordinary course of business from a person in the business of selling goods of that kind
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Default and Remedies
Default is constituted by
Failure to make scheduled payments when due
Bankruptcy of the debtor
Breach of the warranty of ownership as to the collateral
Other events defined by the parties in a security agreement
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Default and Remedies
Remedies for default:
Take possession of the collateral
Retention of collateral
Disposal of the goods
Written objection
Consumer goods
Disposition of collateral
Deficiency judgment
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Default and Remedies
Redemption rights
Relinquishing the security interest and proceeding to judgment on the underlying debt
Artisan’s lien: A statutory lien given to workers on personal property to which they furnish services or materials in the ordinary course of business
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