Editor’s note: Section 4 of PL 14-34 enacted a new chapter 10 entitled The Secured Transactions Act. The word “The” has been removed as unnecessary and to comport with standard code formatting.
SUBCHAPTER I
General Provisions
SECTIONS
§ 1001. Purpose; construction; authority; title.
§ 1002. Definitions.
§ 1003. Scope.
§ 1004. Security interest.
§ 1005. Secured obligation.
§ 1006. Collateral description.
§ 1007. Effectiveness of security agreement.
§ 1008. Collateral in secured party’s possession or control.
§ 1009. Assignment.
§ 1010. Restriction on sale or assignment.
§ 1011. Attachment of security interest to collateral.
Editor’s note: PL 14-34 § 5 created this subchapter as subchapter 1. This subchapter is redesignated subchapter I for format consistency.
(1) The purpose of this Act is to promote commerce through a unified set of rules on personal property as security, consignments, the sale and assignment of accounts and chattel paper, and on leasing of goods. This Act shall be liberally construed to effectuate its purpose.
(2) If there is a conflict between a provision of this Act and a provision of any other law enacted by the Congress of the Federated States of Micronesia, this Act shall govern unless the other law specifically cites or amends the conflicting provision of this Act.
(3) This Act is adopted pursuant to the power of the Congress to regulate interstate commerce, banking, and bankruptcy under article IX, section 2(g) of the Constitution of the Federated States of Micronesia.
(4) This chapter may be cited as “The Secured Transactions Act”.
Source: PL 14-34 § 6.
Cross-reference: The statutory provisions on the FSM Congress are found in title 3 of this code. The provisions of the Constitution are found in Part I of this code.
(1) “Account” means any right to payment for goods sold or leased or for services rendered which is not evidenced by an instrument or chattel paper.
(2) “Account debtor” means the person who is obligated on an account, chattel paper, or other intangible property.
(3) “Assignee” means a person who takes an assignment.
(4) “Assignment” means the transfer from one person to another, in whole or in part, of any right in an account, chattel paper, document, instrument, or other right to payment.
(5) “Assignor” means the person who makes an assignment.
(6) “Buyer in the ordinary course of business” means a person who buys goods from a person in the business of selling goods of that kind, if the buyer buys in good faith and without actual knowledge that the sale violates the rights of another person in the goods.
(7) “Chattel paper” means a record that creates a debt and a security interest in, or a lease of, goods.
(8) “Collateral” means the property subject to a security interest, and may include personal property, including tangible and intangible property, of any nature, farm products, fixtures, timber to be cut, and minerals to be extracted. The term includes collateral that arises in the future and collateral located in or outside of the Federated States of Micronesia. The term includes goods subject to consignment. The term includes accounts and chattel paper that have been sold, leased goods, and proceeds of collateral.
(9) “Consignment” means a transaction, regardless of the form or terminology used in the agreement, in which a person (the consignor) delivers goods for the purpose of sale to a merchant (the consignee) who deals in goods of that kind under a name other than that of the consignor and who is not an auctioneer. The term excludes transactions involving goods that are consumer goods of the consignor.
(10) “Consumer goods” means goods used primarily for personal, family, or household purposes.
(11) “Debtor” means the person who owes payment or other performance of the secured obligation, whether or not the person owns or has rights in the collateral, and includes the seller of accounts or chattel paper, and the lessee or consignee of goods.
(12) “Department” means the Department of Economic Affairs of the Federated States of Micronesia.
(13) “Deposit account” means a demand, time, savings, or similar account maintained with an institution licensed under any law. The term does not include investment property or accounts evidenced by chattel paper or an instrument.
(14) “Document” means a document of title or a receipt, such as a bill of lading or warehouse receipt, issued by a person in the business of transporting or storing goods.
(15) “Equipment” means goods that are not farm products, inventory, or consumer goods.
(16) “Farm products” means goods of a debtor engaged in farming, other than standing timber, which are:
(a) crops grown, growing, or to be grown;
(b) aquatic goods produced in aquacultural operations;
(c) livestock, including the unborn;
(d) supplies used or produced in a farming operation; or
(e) products of crops or livestock in their unmanufactured state.
(17) “Filing office” means the secured transactions filing office established in subchapter 4 of this chapter.
(18) “Fixture” means goods that are fixed to real property, or are intended to become fixed to real property, in a manner that causes a property right to arise in the goods under the prevailing law. Readily removable factory machines, office machines, and domestic appliances are not fixtures.
(19) “Goods” means all things that are movable when a security interest attaches. The term includes fixtures, timber to be cut and removed for sale, and farm products. The term does not include accounts or chattel paper, money, documents, or instruments.
(20) “Guarantee” means a secondary obligation that consists of an obligation to pay, or an issuer’s obligation to pay under a letter of credit, and that supports the payment on an account, chattel paper, document, instrument, or other intangible property.
(21) “Instrument” means a writing that evidences a right to the payment of money, that is not itself a security agreement or lease, and that is of a type which is in the ordinary course of business transferred by delivery with any necessary endorsement or assignment. The term includes a certificated security.
(22) “Inventory” means goods held for sale or lease, or goods that are raw materials, work in process, or materials used or consumed in a business.
(23) “Investment property” means a security other than a certificated security.
(24) “Lease of goods for a period greater than one year” means:
(a) a lease of goods for a stated duration of more than one year;
(b) a lease of goods for an indefinite term;
(c) a lease of goods for an initial term of one year or less if the lessee, with the consent of the lessor, retains uninterrupted or substantially uninterrupted possession of the leased goods for more than one year after the lessee first acquired possession of the goods, but the lease does not become a lease for a term of more than one year until the lessee’s possession extends beyond one year; or
(d) a lease of goods for a term of one year or less where the lease provides that it is renewable for a period that may exceed one year.
(25) “Lessee in the ordinary course of business” means a person who, in good faith and without actual knowledge that the lease is in violation of the ownership rights or security interest or leasehold interest of a third party in the goods, leases from a person in the business of selling or leasing goods of that kind.
(26) “Lien holder” means:
(a) a person who obtains a right in a secured party’s collateral, or a right to seize a secured party’s collateral, by order of a court or by order of any authority under prevailing law, or by the authority of an administrator in an insolvency proceeding; or
(b) any other person who obtains a right in a secured party’s collateral by operation of law, except a person with a right of retention.
(27) “Motor vehicle” means an automobile or truck, except that, this term does not include a vehicle held as inventory of a debtor.
(28) “Notice” means a record filed or presented for filing in the filing office. The term includes amendments, continuation statements, and termination statements that are filed or presented for filing. An “initial notice” is the notice to which an amendment, continuation statement, termination statement, or correction statement may relate.
(29) “Obligor” means a person that, with respect to an obligation secured by a security interest on the collateral,
(a) owes payment or other performance of the obligation,
(b) has provided property other than the collateral to secure payment or other performance of the obligation, or
(c) is otherwise accountable, in whole or in part, for payment or performance of the obligation.
(30) “Other intangible property” means any movable property other than goods, accounts, chattel paper, documents, instruments, and money.
(31) “Person” means an individual, a corporation whether for profit or not for profit, a partnership or joint venture, a trust and all national, state and municipal governments of the Federated States of Micronesia.
(32) “Proceeds” means
(a) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral;
(b) whatever is collected on, or distributed with respect to, collateral;
(c) rights arising out of collateral;
(d) to the extent of the value of collateral, claims arising out of the loss or nonconformity of, defects in, or damage to the collateral;
(e) to the extent of the value of collateral and to the extent payable to the debtor or the secured party, insurance payable by reason of the loss or nonconformity of, defects in, or damage to the collateral.
(33) “Cash proceeds” means proceeds that are money, checks, funds on deposit in banks, and the like.
(34) “Purchase” means to take collateral as a buyer, a donee, a person receiving a security interest such as a secured party, consignor, lessor, or mortgagee, or by any other voluntary transaction creating an interest in property. A person who takes by purchase is a “purchaser”.
(35) “Purchase money security interest”. A security interest is a purchase money security interest to the extent that it is:
(a) taken or retained by the seller of goods to secure all or part of its price; or
(b) taken by a person other than the seller who gives value to enable the debtor to acquire rights in or the use of goods, if such value is in fact so used.
(36) “Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form. The term includes a photocopy, facsimile copy, and electronic mail.
(37) “Secondary obligor” means an obligor to the extent that:
(a) the obligor’s obligation is secondary; or
(b) the obligor has a right of recourse with respect to an obligation secured by collateral against the debtor, another obligor, or property of either.
(38) “Secured party” means a lender, seller or other person in whose favor a security interest is created under a security agreement, including a person to whom accounts or chattel paper have been sold, and a lessor of goods. The term includes a consignor of goods.
(39) “Security” shall be given the same meaning set forth in section 801 of title 33 of this code.
(40) “Security agreement” means an agreement that creates or provides for a security interest.
(41) “Security interest” means a property right in collateral that secures performance of an obligation.
(42) “Unless otherwise agreed” means unless the secured party and the debtor agree otherwise.
(43) “Value” A person gives value for rights if the person acquires the rights
(a) in return for a binding commitment to give credit, whether or not drawn upon; or
(b) as security for or satisfaction of a pre-existing claim, in whole or in part; or
(c) by accepting delivery pursuant to a pre-existing contract for purchase; or
(d) in return for anything given in exchange, or for any promise.
(a) all transactions where the effect is to secure an obligation with collateral, including pledge, conditional sale, chattel mortgage, and assignment;
(b) the sale of accounts and chattel paper;
(c) consignments;
(d) the lease of goods for a period greater than one year; and
(e) the interest of a lien holder in collateral.
(2) This chapter applies without regard to the form of an agreement or the terminology used in an agreement, and whether ownership of the collateral is held by the secured party or the debtor. The retention of title by a seller of goods has no effect other than the taking of a security interest in the goods.
(3) Notwithstanding subsection (1) of this section, this chapter does not apply to:
(a) the transfer of an interest in real property, except as provided with respect to fixtures, crops, timber to be cut, or minerals to be extracted;
(b) the transfer of a claim for compensation of an employee;
(c) a sale of accounts or chattel paper as part of a sale of a business out of which they arose;
(d) an assignment of accounts, chattel paper, or instruments for the purpose of collection only;
(e) an assignment of a right to payment under a contract to an assignee that is also obligated to perform under the contract;
(f) the transfer of an interest in a flagged vessel subject to the maritime and admiralty law of the Federated States of Micronesia;
(g) the transfer of an interest in investment property.
Source: PL 14-34 § 8.
Cross-reference: The statutory provisions on Admiralty and Maritime are found in title 19 of this code.
(1) Any person may give a security interest in collateral, and any person may take a security interest in collateral.
(2) Notwithstanding subsection (1) of this section, no security interest other than a purchase money security interest may be given or taken in consumer goods.
(3) A security interest may not be deemed invalid because the debtor has the right to use, possess, sell, exchange, commingle, or otherwise dispose of the collateral.
(1) A description of collateral is sufficient if it reasonably identifies what is described.
(2) A description of collateral may be expressed in general terms, except that a motor vehicle may be described generally or by serial number.
(3) A description such as “all assets” or “all movable property” of the debtor is sufficient, except with respect to a security interest in consumer goods of a debtor.
(1) A security agreement must be in the form of a writing signed by the debtor and the secured party, provided that the agreement may be signed in counterparts.
(2) A security agreement may be found in multiple writings when read together.
(3) A security agreement is effective according to its terms between the parties, against purchasers of the collateral, and against creditors and lien holders, except as otherwise provided in this chapter.
(1) A secured party shall use reasonable care in the custody and preservation of collateral in the secured party’s possession. In the case of chattel paper or an instrument, reasonable care includes taking necessary steps to preserve rights against prior parties unless otherwise agreed.
(2) Unless otherwise agreed, if collateral is in the secured party’s possession:
(a) reasonable expenses shall be charged to the debtor and secured by the collateral, including the cost of any insurance, and the payment of taxes or fees associated with the collateral;
(b) the risk of accidental loss or damage is born by the debtor to the extent of a deficiency in any insurance coverage;
(c) the secured party may hold as additional security any increases received from the collateral except money, and shall apply money to reduce the secured obligation unless the money is remitted to the debtor;
(d) the secured party shall keep the collateral identifiable, but fungible collateral may be commingled; and
(e) the secured party may use or operate the collateral:
(i) for the purpose of preserving the collateral or its value;
(ii) as permitted by an order of a court having competent jurisdiction; or
(iii) in the manner and to the extent agreed by the debtor.
(3) A secured party having possession or control of collateral:
(a) may hold as additional security any proceeds, except money or funds, received from the collateral; and
(b) shall apply money or funds received from the collateral to reduce the secured obligation, unless remitted to the debtor.
(4) This section does not apply to a buyer of accounts, chattel paper, or other intangible property.
(1) A person may assign all or part of the person’s rights in accounts, chattel paper, instruments, or other intangible property.
(2) An assignment under this section may be a specific or general assignment.
(3) An assignment may include accounts, chattel paper, instruments, or other intangible property that have not been created at the time of the assignment.
(4) The assignee is subject to all the terms of the agreement between the account debtor and assignor.
(5) No communication to the account debtor shall be required for attachment, perfection or enforcement of a security interest arising from an assignment, except as provided in this section.
(6) If an account debtor is given information about an assignment, the information shall be in writing, shall identify the rights assigned, and shall be signed by the assignor or the assignee, but need not disclose any of the terms or conditions of the assignment.
(7) After being informed of an assignment of a right to payment, the account debtor shall perform the obligation by paying the assignee, and not the assignor. However, if requested by the account debtor, the assignee shall furnish timely and sufficient evidence of the assignment, and unless the assignee complies, the account debtor may perform the obligation by paying the assignor.
(8) Unless an account debtor has made an enforceable agreement not to assert defenses or claims, the rights of an assignee are subject to:
(a) all terms of the agreement between the account debtor and assignor and any defense or claim in recoupment arising from the transaction that gave rise to the contract; and
(b) any other defense or claim of the account debtor against the assignor which accrues before
the account debtor receives a notification of the assignment authenticated by the assignor or the assignee;
Provided, however, that the claim of an account debtor against an assignor may be asserted against an assignee only to reduce the amount the account debtor owes.
An agreement between a secured party and a debtor is unenforceable if it prohibits or restricts the sale or assignment of an account, lease, or chattel paper.
(1) A security interest attaches to collateral and becomes enforceable against the debtor and third parties with respect to the collateral only if:
(a) the debtor has signed a security agreement that provides a description of the collateral;
(b) value has been given by the secured party to the debtor; and
(c) the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party.
(2) Unless otherwise agreed, the attachment of a security interest in collateral gives the secured party the right to a security interest in proceeds as provided in this chapter.
(3) Goods shall be determined to be equipment, inventory, farm products, or consumer goods at the time that a security interest attaches to the goods.