General; Types of Collateral Flashcards
What is a security interest?
A creditor’s interest in collateral used to secure repayment of funds
It arises when a debtor uses property as collateral.
Who is the Debtor in a secured transaction?
The party that borrows funds and gives collateral
In a secured transaction, the debtor is the individual or entity that owes money.
What is a secured transaction?
A transaction where collateral is used to secure a loan
The secured party can take possession of the collateral if the debtor defaults.
What does UCC Article 9 apply to?
Transactions creating a security interest in personal property or fixtures
It includes various forms of security interests by contract.
What is the significance of the substance of a transaction under UCC Article 9?
The substance controls over the label given by the parties
This means the actual nature of the transaction dictates its treatment under the law.
What are the elements that determine if a lease is treated as a secured transaction?
- Lease term not subject to early termination by lessee
- Lease term for economic life of goods or purchase option at nominal consideration
This distinction helps determine legal treatment under UCC Article 9.
What types of accounts are governed by UCC Article 9?
- Accounts receivable
- Chattel paper
- Negotiable instruments
- Payment intangibles
These categories illustrate the broad scope of UCC Article 9.
What types of interests does UCC Article 9 NOT apply to?
- Landlord’s liens
- Interests in real property
This limitation is crucial for understanding the scope of Article 9.
What are the broad types of collateral under UCC Article 9?
- Goods
- Tangible intangibles
- Intangible intangibles
- Investment property
Each type has distinct rules for enforcement and perfection.
What defines ‘Goods’ under UCC Article 9?
All things movable at the time the security interest attaches
This includes fixtures and certain embedded computer programs.
What are consumer goods?
Goods used or bought primarily for personal, family, or household purposes
This classification is important for determining the type of security interest.
What is considered ‘Inventory’ under UCC Article 9?
Goods held for sale or lease, or to be furnished under a contract of service
This includes raw materials and work in process.
What are ‘Farm Products’ according to UCC Article 9?
Goods related to farming operations, including crops and livestock
This definition helps distinguish agricultural goods from other types.
What is a Purchase-Money Security Interest (PMSI)?
A security interest in goods that secures a purchase-money obligation
This occurs when the obligation is incurred to purchase the goods.
What are the two steps required to create a security interest?
- A written security agreement or possession of collateral
- Attachment of the security interest to the collateral
Both steps are necessary for legal enforceability.
What is required for a security agreement to be valid?
- Must be in writing
- Must be authenticated by the debtor
- Must contain a granting clause and description of collateral
These elements ensure clarity and enforceability of the security interest.
What are proceeds in the context of a security interest?
Items derived from the disposition of collateral, including cash and noncash items
Proceeds can be crucial for understanding the value of the collateral.
Fill in the blank: A security interest must be ______ to be enforceable.
[in writing and authenticated by the debtor]
True or False: A debtor can create a PMSI if the purchase money is used for something other than the collateral.
False
The debtor must use the actual purchase money directly for the acquisition.
