Creation & Enforcement of Security Interest Flashcards
To which transactions does article 9 UCC apply?
All consensual security interest in personalty (goods) and fixtures
How can a creditor attach?
Value
A contract
Rights in the collateral
Once attached how does a creditor attain perfection?
By putting the world on record notice of its existence (fighting)
Protection means publicity and this itself protects
When more than one creditor has a stake in the same collateral, what are the rules of priority?
Generally, first in time first and right.
The first to perfect usually takes first and the second to perfect take second.
If a debtor defaults on the debt obligation what happens?
The lender has statutory and judicial remedies and article 9.
For the purposes of collateral what counts as consumer goods?
Items used for personal or familial purposes, such as a home dining room set, a blender, oven, refrigerator, car.
For the purposes of assessing collateral, what counts as equipment?
Item is used in business.
For the purposes of assessing collateral, what counts as inventory?
Good held for sale or lease (e.g. clothing stock in a warehouse).
For the purposes of assessing collateral, what counts as farm products?
Crops, livestock and supplies used in farming operations.
For the purposes of assessing collateral, what counts as fixtures?
Items are next to Realty, such as light fixtures, sprinkler systems, furnaces.
What are the different types of interest?
INSTRUMENTS (pieces of paper that represent the right to be paid money, such as promissory notes draft certificates of deposit).
DOCUMENTS (Representing the right to receive goods, such as bills of lading).
CHATTEL PAPERS (A record evidence in both mandatory obligation under security interest)
Once a creditor attaches, what does that mean?
That their security interest is enforcible.
To attach you require what?
- VALUE given by creditor
- A CONTRACT — parties must (i) agree to it; and (ii) evidence the security agreement
OR
Possession by creditor
OR
If Debtor in possession, you need a WRITING authenticated by them, which reasonably identifies the collateral.
AND
- Debtor must have RIGHTS in the collateral.
Are after-acquired collateral clauses enforcible?
Yes
But NOT for consumer goods or commercial tort contracts
How come a credit to attain perfection?
- Either by properly attaching and then taking POSSESSION of the collateral.
- Automatic perfection for PMSIs in CONSUMER GOODS
- File FINANCING STATEMENT in public record.
What are the requirements when it comes to filing a financing statement (notice)?
Must provide enough information for third-party to make follow-up enquiries
Must contain creditors name and address
Must contain debtors name and address
Description of the collateral (generic ok)
If the financing statement contains a mistake in the debtor’s name and or address what is the result?
Minor errors will not invalidate the financing statement, but must not contain any seriously misleading errors, meaning it must be discoverable in a search of the debtor.
Where do you file the financing statement?
In a state where the debtor is located (individuals = state of resident; organisation = state under his laws it is organised)
For which type of collateral do you need to file locally, in the county where the Realty is located, rather then the location of the debtor?
For timber, minerals, or fixtures
For how long is the financing statement effective?
Five years
To continue the effectiveness of a financing statement what must be credited to?
File a continuation statement six months before the lapse of the financing statement with the authority of the secured party (you don’t need debtors consent)
