In General Flashcards
What is a security interest?
An interest in personal property or fixtures that secure payment or performance of an obligation.
What is an agreement under secured transactions?
What part of the transactions controls, substance or form of the transaction?
A consensual agreement that provides for the security interest;
The substance of the transaction controls, not the form of the transaction.
Who are the parties in a secured transactions?
Secured party -> the person in whose favor the SI is created under the security agreement (aka the lender in most cases)
Obligor -> the person who must pay (or otherwise perform) with respect to the obligation that is secured by the SI
Debtor -> the person who has interest, other than the SI or other lien in the collateral, such as its sole owner (the debtor is usually the obligor)
Can the obligor and the debtor be the same person?
The obligor and debtor can be two different parties if someone co-signs a loan with you for a car for instance. There would be two obligors (the two co-signors) but only one debtor (the person who actually has the interest in the car).
What is collateral property?
It’s the property subject to the SI.
What are the two types of tangible collateral?
Goods
-> anything that is moveable at time that the SI attaches; the debtor’s PRINCIPAL USE at the time the SI attaches determines the class of the goods.
Software
-> software embedded in goods is treated as part of goods in which it is embedded;
-> software not embedded in goods is treated as a general intangible
What are four specific classes of goods as tangible collateral?
Consumer goods -> goods acquired primarily for personal, family or household purposes
Farm products -> goods that are crops or livestock or products of crops or livestock, and supplies that are used or produced in farming
-> NOTE: this does not include farming equipment (e.g. tractors)
Inventory -> goods, other than farm products, held for sale or lease; are furnished under a service contract; or consist of raw materials; works in process, or materials used or consumed in a. business in a short period of time (e.g. fuel)
Equipment -> catchall class; consists of all other goods that are NOT consumer goods, farm products, or inventory
How are “other collateral” goods classified? Does it reference the debtor’s use?
Their classification is determined WITHOUT reference to the debtor’s use unlike the common four groups of collateral goods (consumer goods, farm products, inventory, and equipment)
What are common “other collateral” types? There are 9.
Chattel paper -> one or more records that evidence both (i) a monetary obligation and (ii) a security interest in specific goods or a lease of specific goods
Document -> a document of title, which confers on the holder ownership rights in goods held by a bailee (person who holds for a particular purpose the goods, but does not have ownership rights in them)
Instruments -> encompasses both negotiable (promissory notes and checks) and nonnegotiable (monetary obligations) instruments
-> NOTE: if you take an instrument and add a security interest into it then it becomes a chattel paper
Investment property -> includes both certificated and uncertificated securities, as well as securities accounts
Accounts -> the right to payment for property sold, leased, or licensed; OR services rendered or to be rendered
Commercial tort claims -> includes tort claims from an organization or individual that arises out of commercial business: excludes tort claims by an individual for personal injury or death
Deposit accounts -> savings, passbook, time, or demand account maintained with a bank
Letter-of-credit right -> a right to payment or performance under a letter of credit (it HAS to SAY “letter-of-credit”)
General intangibles -> a residual category for everything that doesn’t fit in the above categories; e.g., copyrights
What are eligible transactions under secured transactions?
General rule -> Art. 9 governs a transaction that creates a SI in personal property or a fixture
Consignments -> if subject to Art. 9, the consignor’s SI in the consigned goods is treated as a PMSI (purchase money security interest) in inventory
Agricultural liens -> unlike other liens, generally subject to Art. 9
What is a general transaction that normally doesn’t fall under secured transactions but can?
Leases -> covered under Art. 9 when the transaction, although in the form of a lease, is in substance a secured transaction
Real property transactions -> not generally subject to Art. 9; but can apply as a SI in a secured obligation (e.g. promissory note) even though the obligation is itself secured by a transaction or interest to which Article. 9 does not apply (e.g., a real property mortgage)
What is generally not a transaction that falls under secured transactions?
Liens -> generally not subject to Art. 9
Purchases -> generally, the sale of personal property is not subject to Art. 9
