General principles

Question 1

Security interests

Answer 1

Security interests arise when a debtor uses certain property as collateral to secure repayment of funds to the “secured party” (loaner)

If debtor defaults, creditor can take possession of collateral and apply it to the balance owed

A security interest is the CREDITOR’s interest in the property

Question 2

When does UCC 9 apply?

Answer 2

Any transaction of any form that creates a security interest in PERSONAL PROPERTY or FIXTURES by CONTRACT (so anything other than land 0- that’s a mortgage);
(substance controls, not label)

Leases, if economic substance of the lease is a financed purchase and not a true lease;
(typical elements: term not subject to early termination by lessee, AND lease term is for the full life of the goods or lessee has 0/nominal cost purchase option at the end)

Article 9 NOT applicable to:

• landlord’s liens
• interest in or lien on real property, inc lease/rents

Question 3

Types of collateral

Answer 3

Rules about enforcement and perfection often depend on the category of collateral. 4 broad types:

• Goods
• tangible intangibles
• intangible intangibles
• investment property

Question 4

Goods

Answer 4

Goods are all things movable at the time the interest attaches. generally includes fixtures and computer programs
Subcategories:
- Consumer goods: used or bought primarily for personal/family/household purposes
- Inventory: goods (other than farm products) held for sale/lease/contract of service, or raw mats, WIPs
- Farm products: goods other than standing timber, w/r/t which debtor is engaged in farming. Crops,
livestock, products of either in unmanufactured state, supplies used/produced in farming
- Equipment: catchall for goods not any of the above. usually goods bought for use in a business -
machinery, tools, delivery trucks

PRIMARY USE determines categorization

Question 5

Tangible intangibles

Answer 5

Legally significant pieces of paper - writings that, when transferred, also transfer intangible
- Instruments: negotiable ones. drafts/notes, writings that evidence right to PAYMENT. think checks
- documents: documents of TITLE. bills of lading, dock receipts, warehouse receipts, delivery orders.
anything that evidences person in possession is entitled to receive covered GOODS. must be issued by
bailee and govern goods in bailee’s possession (like warehouse)
- chattel paper: evidences both monetary obligation and security interest. e.g. car dealership uses
repayment deal on sold car (itself a secured transaction) to secure loan from bank

Question 6

Intangible intangibles

Answer 6

Intangibles WITHOUT transferrable writings. e.g. web domains, IP rights, rights to sue

• General intangibles: broad catchall for all above. Liquor license, cause of action, literary rights…
• Accounts: rights to payment of a monetary obligation, usually for property sold or services rendered

Question 7

Investment property

Answer 7

Certificated and uncertificated securities, securities accounts, and entitlements

Question 8

Proceeds

Answer 8

Collateral can also be in form of proceeds obtained from disposition of other collateral - e.g. store puts inventory as collateral, then sells that inventory. the proceeds of sale remain collateral
Two kinds:
- cash: money, checks, deposit accounts, etc
- noncash: everything else

Question 9

Security intersest

Answer 9

Two steps required:

• WRITTEN security agreement OR ACTUAL POSSESSION with intent to secure;
• ATTACHMENT of the interest to the collateral

Question 10

Security agreement

Answer 10

Must:

• be in writing and authenticated by the DEBTOR;
• contain a GRANTING clause i.e. state that it creates a security interest; and
• contain DESCRIPTION OF COLLATERAL

When secured party has actual possession, all that is needed is an agreement, which can be oral. Often called “pledges”

Generally binding b/t parties, against purchasers of collateral, and against creditors