Debate This: Security Interests Paul Barton owned a small property-management company, doing business as Brighton Homes. In October, Barton went on a spend

Debate This: Security Interests Paul Barton owned a small property-management company, doing business as Brighton Homes. In October, Barton went on a spending spree. First, he bought a Bose surround-sound system for his home from KDM Electronics. The next day, he purchased a Wilderness Systems kayak from Outdoor Outfitters, and the day after that he bought a new Toyota 4-Runner financed through Bridgeport Auto. Two weeks later, Barton purchased six new iMac computers for his office, also from KDM Electronics. Barton bought all of these items under installment sales contracts. Six months later, Barton’s property-management business was failing. He could not make the payments due on any of these purchases and thus defaulted on the loans. Using the information presented in the chapter, answer the following questions. 

For which of Barton’s purchases (the surround-sound system, the kayak, the 4-Runner, and the six iMacs) would the creditor need to file a financing statement to perfect its security interest?
Suppose that Barton’s contract for the office computers mentioned only the name, Brighton Homes. What would be the consequences if KDM Electronics filed a financing statement that listed only Brighton Homes as the debtor’s name?
Which of these purchases would qualify as a PMSI in consumer goods?
Suppose that after KDM Electronics repossesses the surround-sound system, it decides to keep the system rather than sell it. Can KDM do this under Article 9? Why or why not?

Note: It is a Discussion of no more than 2 pages. BUSINESS LAW Today
STANDARD EDITION
TEXT & SUMMARIZED CASES, 12e
Roger LeRoy Miller
Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Security Interests and Creditors’ Rights
Chapter 25

Chapter Outline
25-1 Creating and Perfecting a Security Interest
25-2 Scope of a Security Interest
25-3 Priorities, Rights, and Duties
25-4 Default
25-5 Other Laws Assisting Creditors

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Learning Objectives
What is required to create a security interest?
How can a security interest extend to a debtor’s newly acquired inventory?
If two parties have perfected security interests in the debtor’s collateral, which party has priority on default?
When is a creditor required to sell or otherwise dispose of the repossessed collateral?
What is a suretyship, and how does it differ from a guaranty?

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25-1 Creating and Perfecting a Security Interest (slide 1 of 3)
Secured Transaction: Any transaction in which the payment of a debt is guaranteed, or secured, by personal property owned by the debtor or in which the debtor has a legal interest.
Default: Failure to pay the debt as promised.
25-1a Definitions
A secured party is any creditor who has a security interest in the debtor’s collateral.
A debtor is a person who owes payment or other performance of a secured obligation.

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25-1 Creating and Perfecting a Security Interest (slide 2 of 3)
25-1a Definitions
A security interest is the interest in the collateral that secures payment or performance of an obligation.
A security agreement is an agreement that creates or provides for a security interest.
Collateral is the subject of the security interest.
A financing statement (UCC-1 form) is the instrument normally filed to give public notice to third parties of the secured party’s security interest.

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25-1b Requirements to Create a Security Interest (slide 1 of 2)
Unless the creditor has possession of the collateral, there must be a written or authenticated security agreement that clearly describes the collateral subject to the security interest and is signed or authenticated by the debtor.
The secured party must give something of value to the debtor.
The debtor must have “rights” in the collateral.

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25-1b Requirements to Create a Security Interest (slide 2 of 2)
Written or Authenticated Security Agreement
Authenticate: To sign, execute, or adopt any symbol on an electronic record that verifies the intent to adopt or accept the record.
Secured Party Must Give Value
Debtor Must Have Rights in the Collateral

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Exhibit 25-1 The Secured Transactions Relationship

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Case 25.1
Royal Jewelers Inc. v. Light (2015)
Under the circumstances, is it ethical for GRB to enforce its security interest in the ring to recover the unpaid amount of the price? Discuss.

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25-1b Perfecting a Security Interest (slide 1 of 2)
Perfection: The legal process by which secured parties protect themselves against the claims of third parties who may wish to have their debts satisfied out of the same collateral.
Perfection by Filing
The Debtor’s Name
Description of the Collateral
Where to File
Consequences of an Improper Filing

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25-1b Perfecting a Security Interest (slide 2 of 2)
Perfection without Filing
Perfection by Possession
Perfection by Attachment—The Purchase-Money Security Interest in Consumer Goods
Automatic Perfection
Exceptions to the Rule of Automatic Perfection
Perfection and the Classification of Collateral
Effective Time Duration of Perfection

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25-2 Scope of a Security Interest
25-2a Proceeds
Proceeds: Under Article 9 of the UCC, whatever is received when collateral is sold or disposed of in some other way.
25-2b After-Acquired Property
After-acquired property: Property that is acquired by the debtor after the execution of a security agreement.
25-2c Future Advances

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25-2d The Floating-Lien Concept

Floating lien: A security interest in proceeds, after-acquired property, or collateral subject to future advances by the secured party (or all three).
A Floating Lien in Inventory
A Floating Lien in a Shifting Stock of Goods

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25-3 Priorities, Rights, and Duties
25-3a General Rules of Priority
Perfected security interest vs. unsecured creditors and unperfected security interests.
Conflicting perfected security interests.
Conflicting unperfected security interests.

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25-3b Exceptions to the General Priority Rules

Buyers in the Ordinary Course of Business
A person who in good faith, and without knowledge that the sale violates the rights of another in the goods, buys goods business of selling goods of that kind.
PMSI in Inventory
Buyers of the Collateral

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25-3c Rights and Duties of Debtors and Creditors
The UCC imposes some rights and duties that are applicable unless the security agreement states otherwise.
Information Requests
Release, Assignment, and Amendment
Confirmation or Accounting Request by Debtor
Termination Statement

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25-4 Default
25-4a What Constitutes Default
25-4b Basic Remedies
Repossession of the Collateral—The Self-Help Remedy
Judicial Remedies
Execution: Implementation of a court’s decree or judgment
Levy: The legal process of obtaining funds through the seizure and sale of nonexempt property, usually done after a writ of execution has been issued.

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25-4c Disposition of Collateral
(slide 1 of 3)
Retain collateral in full or partial satisfaction of debt
Sell, lease, license, or dispose of the collateral
Retention of Collateral by the Secured Party
Notice Requirements
Objections
Consumer Goods

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25-4c Disposition of Collateral
(slide 2 of 3)
Disposition Procedures
Notice Requirement
Commercially Reasonable Manner
Distribution of Proceeds from the Disposition
Reasonable expenses incurred by the secured parties
Balance of debt owed to secured party
Other lienholders who have made written demands
Any surplus from proceeds goes to debtor

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25-4c Disposition of Collateral
(slide 3 of 3)
Noncash Proceeds
Deficiency Judgment
A judgment against a debtor for the amount of a debt remaining unpaid after the collateral has been repossessed and sold.
Redemption Rights

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25-5 Other Laws Assisting Creditors
25-5a Liens
Mechanic’s Lien: Nonpossessory, filed lien on an owner’s real estate for labor, services, or materials furnished for making improvements.
Artisan’s Lien: Possessory lien held by party who has made improvements and added value to personal property of another party as security for payment for services.
Lienholder Must Retain Possession
Foreclosure on Personal Property

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25-5a Liens
Judicial Liens
When a debt is past due, a creditor can bring a legal action against the debtor to collect the debt.
Writ of Attachment
A court order to seize a debtor’s nonexempt property prior to a court’s final determination of a creditor’s rights to the property.
Writ of Execution
A court order directing the sheriff to seize (levy) and sell a debtor’s nonexempt real or personal property to satisfy a court’s judgment in the creditor’s favor.

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25-5b Garnishment
Garnishment: A legal process whereby a creditor collects a debt by seizing property of the debtor that is in the hands of a third party.
Case Example 21.15 Tinsley v. SunTrust Bank (2016)
Procedures
Limitations

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25-5c Creditors’ Composition Agreements

Creditors’ composition agreement: A contract between a debtor and his or her creditors in which the creditors agree to discharge the debts on the debtor’s payment of a sum less than the amount actually owed.

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25-5d Suretyship and Guaranty
(slide 1 of 2)
Surety: A third party who promises to be responsible for a debtor’s obligation under a suretyship arrangement.
Guaranty
Case Example 21.17 HSBC Realty Credit Corp. (USA) v. O’Neill (2014)
Actions That Release the Surety and Guarantor
Material modification
Surrender of property
Payment or tender of payment

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Exhibit 25-3 Suretyship and Guaranty Relationships

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25-5d Suretyship and Guaranty
(slide 2 of 2)
Defenses of the Surety and the Guarantor
Rights of the Surety and the Guarantor
The Right of Subrogation
The right of a party to stand in the place of another, giving the substituted party the same legal rights that the original party had.
The Right of Reimbursement
The right of a party to be repaid for costs, expenses, or losses incurred on behalf of another.
The Right of Contribution
The right of a co-surety who pays more than his or her proportionate share on a debtor’s default to recover the excess paid from other co-sureties.

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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