Article 9 of the UCC applicability Flashcards
Article 9 applicability and scope.
Article 9 of the UCC applies to any transactions intended to create a security interest in personal property or fixtures (Not mortgages or real property).
A security interest gives a a creditor the right to sell a debtor’s party in order to satisfy a debt.
Define the the different types of collateral
- Goods
- Consumer Goods
- Inventory
- Equipment:
- Farm Products
- Accounts.
Define Goods for the purpose of Art. 9 UCC
Goods are all things that are moveable when a security interest attaches.
Define Consumer goods for the purpose of Art.9 of the UCC
Consumer goods are goods that are used (bought) mainly for personal, family or household purposes.
Define Inventory for the purpose of Article 9 of the UCC
Inventory includes goods that are kept by a person for a sale or a lease to be furnished under a contract of service; or raw material, work in process or materials used or consumed in a business. (Not farm products)
Define Equipment for the purpose of Article 9 of the UCC.
Goods other than inventory, farm products or consumer goods. (computers in a business)
Define Farm product
Crops, livestock, supplies produced in a farming operation or products or crops or livestock in their unmanufactured state in possession of debtor who is engaged in a farming operation.
What is attachment
Attachment is when a security interest in created. Once a security interest attaches, it becomes enforceable.
What is required for a valid attachments
- value must be given by the secured party to the debtors (e.g a loan )
- the debtor must have rights in collaterals and
- there must be a binding security agreement which requires (AID ) authentication, intent to create a security agreement and a description of the collateral.
Can the Security agreement cover after-acquired property?
General rule is that a security agreement can cover after-acquired property and does not need to specifically reference it to be effective. (does not apply to consumer goods)
What is perfection
Once a security interest attaches, it is enforceable. Perfection of the interest only enhances the secured party’s rights to the property serving as collateral.
What are the different types in which a security can be perfected
Perfection can occur by filing a financial statement. It can be automatic in some cases (PMSI in consumer goods)
Or, an interest can be perfected by possession or control.
If the Security Interest does not attach, then it CANNOT be attached no matter what a creditor does.
Financial filing statement
Primary method of perfection. The filing of a financing statement or the security agreement with the state by an authorized party. Minor errors will not invalidate .
What should a filing statement contain.
- Debtor’s name
- Secured Party’s name
- Adequate description of the collateral.
- Filing fee.
Would taking possession be a valid perfection.
Yes, A secured party may perfect a security interest in negotiable douments, goods instrument or money by taking mere possession of such items.
What is automatic perfection
The following security interest are perfected automatically when they attach:
- Purchase -money security interest in consumer goods.
And
- An assignment of accounts that does not transfer a significant part of the assignor’s outstanding accounts.
Priority of Perfected vs. Unperfected
Generally, a perfected security interest has priority over a conflicting unperfected security interest in the same collateral
Priority of multiple perfected creditors.
Between multiple perfected creditors, the first to file obtains priority.
Some collateral is not subject to state filing system or cannot be filed. In these instances, the first to perfect obtain priority.
Generally, knowledge of a prior unperfected interest will not prevent a potential secured party from filing first to obtain priority.
Priority of lien creditors
Same status as perfected secured creditors. If a party becomes a lien creditor before a secured party perfects, the lien creditor will enjoy priority.
Exception to priority : A buyer in the ordinary course of business.
What is the security interest ?
A buyer in the ordinary course of business generally takes free of any security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence.
Shelter rule apply.
Consumer to goods exception
A buyer not in the ordinary course of business takes it free of a security interest even though it’s perfected, if he buys without knowledge of the security interest, for value and for his own personal, family or house hold purposes, unless prior to the purchase the secured party has filed a financing statement covering the goods.
The goods must be consumer goods both when the seller has them and buyer buys them for this to apply.
Purchase-money security interest priority
Generally a PMIs have priority over prior perfected security interest .
What is a PMSI
Purchase money security interest
It’s either a
1 a security interest held by a seller of collateral to secure payment of all or part of the price OR
2 a security interest of a person that gives a value to a debtor so that the debtor may acquire right I. The use of collateral.
Unperfected PMSI priority?
An unperfected PMSI in inventory will not have have priority over perfected security interest in same collateral.
A PMSI in non inventory collateral has priority over a conflicting security interest in the same collateral if the PMSI is perfected at the time the debtor receives possession of the collateral of the PMSI is perfected at the time the debtor receives possession of the collateral or within 20 days thereafter
