Applicability and Scope of UCC Article 9

Question 1

Security interest

Answer 1

A security interest is an interest in personal property or fixtures securing payment or performance of an obligation. Black’s Law Dictionary.

Question 2

Debtor

Answer 2

Party who owes payment or performance of the obligation secured

Question 3

Secured party

Answer 3

”Creditor”, lender, seller, or other person in whose favor there is a security interest

Question 4

Collateral

Answer 4

Property subject to a security interest. Includes:

1. proceeds to which a security interest attaches
2. accounts, chattel paper, payment intangibles, and promissory notes that have been sold
3. goods that are the subject of a consignment
   UCC § 9-102(a)(12)

Question 5

Purchase money security interest

Answer 5

A security interest that is created when a buyer uses the lender’s money to make the purchase and immediately gives the lender security by using the purchased property as collateral (UCC § 9-103)

Question 6

PMSI methods of creation

Answer 6

A PMSI can arise in one of two ways:

1. It can be taken or retained by the seller of the collateral to secure all or a part of its price, or
2. It can be taken by a person who is making advances or incurring an obligation who gives value to enable the debtor
   to acquire rights in or the use of the collateral if that value is in fact so used

Question 7

Substance over form controls

Answer 7

• title to collateral is immaterial
• lease as a security interest

Question 8

Applicability and scope of UCC article 9

Answer 8

• UCC Article 9 governs any transaction that creates a security interest
• substance over form controls

Question 9

Lease as a security interest

Answer 9

Lease deemed security interest if:

A commitment to make payments for a term exists and
the lessee’s obligation to pay is not subject to termination by the lessee and either:

1. The original term is equal to or greater than the remaining economic life of the goods,
2. Lessee must renew the lease for the remaining economic life of the goods,
3. Lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration, or
4. Lessee has the option to become the owner of the goods for no additional consideration

Question 10

Exceptions to UCC Article 9

Answer 10

UCC Article 9 does not apply to:

1. Transactions preempted by federal law or expressly governed by foreign or other state law
2. Most real property transactions involving interests or liens on land, i.e., does not apply to mortgages on real property
3. Assignment of tort claims (except with respect to commercial tort claims, proceeds, and priority in proceeds from tort claims)
4. Assignment of claims for wages

Question 11

Chattel paper

Answer 11

A record or records that evidence both a monetary obligation and a security interest in:

• specific goods,
• specific goods and software used in the goods,
• specific goods and a license of software used in the goods,
• a lease of specific goods, or
• a lease of specific goods and license of software used in the goods

UCC § 9-102