Struggling with Secured Transactions Forum

[CLSGumbo]

Can anyone help? Is memorizing Tancious's guide enough?

[Findedeux]

I've noticed his outline appears wrong in some areas.

What I did was spend 30 minutes a day for about two weeks on that stupid subject.

I could only handle it in small quantities.

Hopefully if they test it, it will be fairly simple like buyer in the ordinary course or garage sale exception.

[CLSGumbo]

whats the difference between having the security interest in writing and the filing statement?

[Findedeux]

If by filing agreement you mean financing statement, then the financing statement is one of the ways to establish perfection.

But the security agreement, which is one of the steps for attachment (which comes before perfection) needs to be authenticated.

The security agreement needs to be in a record (not necessarily a writing) describe the collateral sufficiently, and be authenticated (signed) by the debtor.

The security agreement doesn't necessarily have to be in authenticated (or in writing) if you have possession or control pursuant to an oral security agreement.

[CLSGumbo]

ahh thank you!

sorry for what may be another basic question, but how does a PMSI perfect within 20 days after the debtor receives collateral, I thought PMSI's automatically perfected?

[max_p]

A PMSI only perfects automatically for consumer goods.

[CLSGumbo]

My bar notes say that a security interest gets created when there’s:

1) written security agreement OR possession (with oral agreement)

AND

2) attachment

But attachment also requires there be an authenticated security agreement by a debtor. So does that mean that possession without any authenticated agreement by debtor will not attach and therefore there is no valid security interest?

[OMLS48]

No.

You have a valid security agreement when there's attachment AND steps towards perfection.

There are the three steps for a valid security interest
1. the secured party gives value
2. the debtor has rights in the collateral and
3. The debtor has authenticated a security agreement that sufficiently describes the collateral.

You can have an oral security agreement if you have possession (meaning the secured party) of the collateral, and you don't need a signed writing at all, just need an agreement. it's like the exception to the rule, considering that because you have possession, you less likely to need the protection of a security agreement because you have the actual collateral in your hands.

That would satisfy that aspect. If you have possession, that makes for automatic perfection, and no financing statement is necessary.

Taking possession of the collateral is possible only if the collateral is tangible, obviously, but it's another way to perfect that doesn't involve filing a financing statement. You can also have what's known as control that is more often seen in the context of accounts and securities if i'm not mistaken.

[CLSGumbo]

What would be the point in the secured party having possession of tangible goods? The debtor can’t sell them then? Or is it that the goods are acting as collateral for something else, i.e. a money debt the debtor owes to the secured party?

Thanks for taking the time to explain! Maybe I’ll finally understand this topic....

[OMLS48]

You're right on. Secured transactions' focus is really on the collateral. Embarrassingly enough, it took me about 3 months of class time for that to really click.

When the secured party lends me, let's say, $1,000. He is going to want me to put up my pocket watch as collateral, right? So I hand over the watch, and we orally agree to the exchange. I have rights in the collateral (as i always have), value is given (because the secured party gave me the loan) and we have an oral agreement. If we decide that I want to hold onto my pocket watch, we would have to have a authenticated security agreement.

there are situations where the collateral is the actual thing that is being loaned to the debtor, which obviously wouldn't work to have perfection by possession, because the debtor for whatever reason needs to have possession to utilize it, like inventory for example. This would require a financing statement, but also, consider that a PMSI in consumer goods perfects automatically, so there' that caveat too.

The secured transaction allows ultimately, for the secured party to sell my collateral as a means of recouping its losses if i fail to pay back the loan. the secured transaction allows them to do that.

As a disclaimer, Don't mean to come off patronizing at all in my explanations. Hope this helps!

[CLSGumbo]

No dude (or dudette) your explanations are incredibly helpful and not patronizing at all. I’m trying to learn this after taking nothing related since contracts 1L.

Are pawnshops basically all secured transactions via possession then?

[OMLS48]

Initially I would think so, but there might be particular oversight,

From UNM Law Website:

"Pawn transactions are a special type of secured transaction. As such, pawn transactions have their own set of regulations apart from the UCC. They are regulated by the Pawnbrokers Act, §56-12-1 et seq."

[Allux]

I am little bit confused, a PMSI in equipments, do they have priority over all other previously perfected interest if they are perfected within 20 says? or just those interests arise within the 20 day period??

[OMLS48]

PMSI gives you super priority. you're perfected and have priority over previous secured parties so long as you follow the requisite steps laid out by the UCC.

A PMSI primes (wins over) preexisting security interests if:
i. The loan enabled the debtor to acquire the collateral
ii. The security interest is perfected within 20 days
iii. The collateral is something other than inventory or livestock (there are additional requirements for inventory and livestock)

You get your ticket into PMSI world when you there's attachment, right? so you're perfected and have priority over all previous parties at that point. But, the code says that if you don't further perfect by filing, you're going to lose that status, so go file a Financing statement.

A situation you'll have a lot (or one ive seen in a lot of essay questions) is that in the time between the attachment and the 20 days runs, a judgment creditor comes in and tries to assert the lien before the secured party further perfects by filing. This is actually sort of confusing to me personally(considering that the PMSI was first in time, so i don't see the issue), but all i know is that PMSIs prime judgment liens, and the date of perfection relates back to the original attachment date, not the date that the secured party further perfects.

So you're perfected and have priority not only against those prior(because of your super priority), but those after if they themselves aren't a PMSI holder. Regardless, if you didnt have a PMSI, just a run of the mill perfected security interest, you would still have priority over secured parties that came after you (once again, so long as they're not a PMSI holder).

Here's an example from my old class outline:

In 1999, D bought a tractor for his farm and other farm equipment but had to get a big loan from the bank for the stuff and to keep the farm going. They granted a SI in all the crops and equipment on the farm and all after-acquired crops and equipment. In 2015, the bank still had a SI in all the stuff. However, D wanted to expand the farm and buy a new expensive grain machine. D got a loan from Financer in order to buy the machine and granted a SI in the grain machine. The Code favors the PMSI in the grain machine. If it were not for the priming rule, farmer could never expand and get the grain machine. If the priming rule did not exist, Financer would never have loaned the money because Bank had a preexisting SI.

[DogDay90]

Honestly, you should just memorize the VERY basics of secured transactions and put those down on the essay. You'll get most of the points and not waste an ungodly amount of time trying to cram in an incredibly complex topic with only a small chance that it will appear on the exam and a guaranteed chance that it will take time away from studying more important topics (i.e., those on both essay and MC). I took the UBE last summer and left the entire secured transactions essay blank (not deliberately, I screwed up the timing). I was still in something like the 95th percentile of UBE takers. So, if I can do that without writing a word on an entire essay, you'll be golden grabbing 60% of the available points on that same essay...Just my two cents.