From MEE Flashcards
Attachment
Generally, a security interest that is enforceable against the debtor is said to have “attached” to the collateral.
(i) value has been given by the secured party, (ii) the debtor has rights in the collateral, and (iii) the debtor has authenticated a security agreement that describes the collateral, or the secured party has possession or control of the collateral pursuant to a security agreement.
Inventory
goods, other than farm products, that are held for sale or lease.
“Inventory” includes not only goods, other than farm products, that are held for sale or lease, but also raw materials, works in process, or materials used or consumed in a business.
Perfection
Perfection of a security interest is generally necessary for the secured party to have rights in the collateral that are superior to any rights claimed by third parties
A secured party can perfect a security interest by (i) filing a financing statement; (ii) possessing the collateral; (iii) controlling the collateral; or (iv) perfecting automatically.
Buyer in ordinary course of business (BOCB)
subsequent buyer takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence
BOCB: (i) buys goods; (ii) in the ordinary course of business; (iii) from a merchant who is in the business of selling goods of that kind; (iv) in good faith; and (v) without knowledge that the sale violates the rights of another in the same goods
IF BUYER DOES NOT KNOW TERMS OF LOAN AGREEMENT, THEN IT IS IN GOOD FAITH AND WITHOUT KNOWLEDGE
This applies to consumers who may not have dealt with the seller before - like a person who wants to buy a bike from a bike seller is BOCB
PMSI in goods
exists when a secured party sold goods to the debtor, and the debtor incurs an obligation to pay the secured party all or part of the purchase price.
A PMSI in consumer goods is automatically perfected upon attachment.
Consumer goods
Consumer goods are those goods acquired primarily for personal, family, or household purposes
Consumer buyer
A buyer of collateral subject to a perfected security interest generally takes the collateral subject to that interest. However, a consumer buyer of consumer goods takes free of a security interest, even if perfected, unless prior to the purchase the secured party filed a financing statement covering the goods.
Garage sale rule
Consumer buyer (i) buys consumer goods for value; (ii) for his own personal, family, or household use; (iii) from a consumer seller; and (iv) without knowledge of the security interest.
Proceeds
Proceeds include whatever is acquired upon the sale of collateral. A security interest in collateral automatically attaches to identifiable proceeds. If the proceeds are identifiable cash proceeds (which includes checks) and the security interest in the original collateral is perfected, the perfected security interest in the proceeds continues indefinitely.
If the security interest in the original collateral is perfected, then a security interest in proceeds is temporarily perfected for 20 days from the time it attaches.
Proceeds include that which is acquired upon the sale, exchange, or other disposition of collateral. Here, the computer was acquired in exchange for a bike (an item of inventory), and is therefore deemed identifiable proceeds of the exchange. Accordingly, Bank’s security interest in the collateral automatically attached to the used computer.
Equipment
Equipment is anything that is not consumer goods, farm products, or inventory.
2 or more perfected secured parties
When there are two or more perfected secured parties with rights in the same collateral, the first to file or perfect its security interest has priority
PMSI priority in goods
A PMSI in goods other than inventory or livestock prevails over all other security interests in the collateral, even if they were previously perfected, if the security interest is perfected when the debtor receives possession of the collateral or within 20 days.
Perfected v. unperfected
If only one security interest is perfected and the other is not, then the perfected interest has priority over the unperfected one
PMSI v. consumer buyer
While a PMSI in consumer goods automatically perfects, that perfection does not guarantee priority in a dispute over the same collateral. A consumer buyer of consumer goods takes free of a security interest, even if perfected, unless prior to purchase, the secured party filed a financing statement covering the goods
Transfer to non-buyer
If collateral is transferred and the transferee of the collateral is not a buyer, the security interest generally continues in the collateral, unless the secured party has authorized its sale free of the security interest.
After-acquired property
A debtor may also give a security interest in future rights. Generally, this type of interest is created by including an “after-acquired property clause” in the security agreement. The security interest for after-acquired property attaches as soon as the debtor obtains an interest in the property.
PMSI in inventory
PMSI in inventory has priority only if: (i) the PMSI is perfected by the time the debtor receives possession of the collateral; and (ii) the purchase-money secured party sends an authenticated notification of the PMSI to the holder of any conflicting security interest before the debtor receives possession of the collateral.
Lease as security interest
A transaction in the form of a lease is treated as a security interest if the lessee must pay consideration to the lessor for the right to possess and use the goods for the term of the lease, the payment obligation cannot be terminated by the lessee, and the lessee has an option to become the owner of the goods upon completion of the lease agreement
Possession or control of goods
If the secured party has possession or control of the collateral pursuant to a security agreement, then a security agreement in the form of a record is not required; an oral agreement suffices.
Default
Upon default - secured party once in possession of collateral can dispose of the collateral at a sale, which may be public or private, in order to satisfy the obligor’s outstanding obligation.
Must conduct sale in a commercially reasonable manner
required to send an authenticated notification of disposition to, among others, the debtor. This notice must be given sufficiently far enough in advance of the disposition (e.g., at least 10 days) to allow the notified party to act on the notification
Perfected v. judicial lien
In a contest between a perfected security interest and a judicial lien, a judicial lien creditor takes the collateral subject to an existing perfected security interest but generally has priority over an unperfected security interest.
Security agreement
For the description of the collateral in the security agreement to be sufficient, it must reasonably identify the collateral. Super-generic descriptions of collateral are not sufficient, such as “all of debtor’s assets.”
Accounts
“Accounts” include the right to payment for goods sold, property licensed, or services rendered.
A type of collateral.
Judicial lien
A judicial lien creditor is a creditor who acquires a lien on the collateral by a judicial process, rather than by operation of law.
Same office rule
a perfected security interest in proceeds may continue indefinitely when: (i) the filed financing statement covers the original collateral, (ii) the proceeds are collateral in which a security interest may be perfected by filing in the same office as the financing statement, and (iii) the proceeds are not acquired with cash proceeds.
