INTRO TO SECURED TRANSACTIONS AND TYPES OF GOODS Flashcards
Collateral
Intro to Secured Transaction and Types of Goods – Terminology
Collateral: the property subject to a security interest or agricultural lien.
Debtor
Intro to Secured Transaction and Types of Goods – Terminology
Debtor: a person having an interest, other than a security interest or other lien, in the collateral, whether or not the person is an obligor.
Obligor
Intro to Secured Transaction and Types of Goods – Terminology
Obligor: a person that, with respect to an obligation secured by a security interest in or an agricultural lien on the collateral, owes payment or other performance of the obligation.
Secured Party
Intro to Secured Transaction and Types of Goods – Terminology
Secured Party: a person in whose favor a security interest is created or provided for under a security agreement, whether or not any obligation to be secured is outstanding.
Security Agreement
Intro to Secured Transaction and Types of Goods – Terminology
Security Agreement: an agreement that creates or provides for a security interest
Scope of Article 9
Intro to Secured Transaction and Types of Goods – Terminology
Applies to a transaction, regardless of its form, that creates a security interests in personal property or fixtures by contract
Types of Collateral
Intro to Secured Transaction and Types of Goods – Terminology
Goods, Instruments, Documents, Chattel Papers, Deposit Accounts, Commercial Tort Claims, “Intangibles,” Investment Property
Types of Goods
Intro to Secured Transaction and Types of Goods – Terminology
Consumer Goods, Farm Products, Inventory, Equipment
Definition of Goods
Intro to Secured Transaction and Types of Goods – Terminology
All things that are movable when a security interest attaches, including:
- Fixtures
- Standing timber that is to be cut and removed under a conveyance or contract for sale
- The unborn young of animals
- Crops grown, growing, or to be grown, even if the crops are produced on trees, vines, or bushes
- Manufactured homes
- Computer programs under certain conditions
Definition of Consumer Goods
Intro to Secured Transaction and Types of Goods – Terminology
Goods that are used or bought for use primarily for personal, family, or household purposes
Definition of Farm Products
Intro to Secured Transaction and Types of Goods – Terminology
Goods, other than standing timber, with which the debtor is engaged in a farming operation and which are:
- Crops grown, growing, or to be grown, including: crops produced on trees, vines and bushes; and aquatic goods produced in aquacultural operations
- Livestock, born or unborn
- Supplies used or produced in a farming operation or
- Products of crops or livestock in their unmanufactured states
Definition of Farming Operation
Intro to Secured Transaction and Types of Goods – Terminology
Raising, cultivating, propagating, fattening, grazing, or any other farming, livestock, or aquacultural operation
Definition of Inventory
Intro to Secured Transaction and Types of Goods – Terminology
Goods, other than farm products, which
- Are leased by a person as lessor;
- Are held by a person for sale or lease or to be furnished under a contract of service;
- Are furnished by a person under a contract of service; or
- Consist of raw materials, work in process, or materials used or consumed in a business
Definition of Equipment
Intro to Secured Transaction and Types of Goods – Terminology
Goods other than inventory, farm products, or consumer goods (catchall category)
Distinguishing between when goods are inventory or equipment with businesses
Intro to Secured Transaction and Types of Goods – Terminology
Goods used in a business are equipment if they have fixed assets or have as identifiable units a relatively long period of use. They are inventory, even though not held for sale or lease, if they are used up or consumed in a short period of time in producing a product or providing a service.
Obligor definition
The person who owes money
Debtor definition
The person who owns (or has rights in) the collateral
Secured creditor definition
The person money is owed money to, in whose favor there is a security interest
Security agreement definition
An agreement between debtor and secured party that creates the security interest – has to have language that creates security interest
Security agreement is just a contract where the debtor grants SI to the creditor
Security Interest definition
Security interest – interest in personal property or fixtures which secures payment or performance of an obligation
It is a contingent property interest in the debtor’s collateral that the debtor grants to the creditor. When the contingency (default) occurs, then that contingent property interest springs to life and the creditor has rights in the property
Collateral definition
Collateral is the property subject to a security interest – property creditor can repossess at default to ensure the debt is paid
Two ways to have a PMSI
(1) when you have a seller and they’re selling the debtor collateral on credit AND you see that seller taking a security interest in the item sold (have to have both things) – a seller-financed PMSI (seller effectively is providing the financing for the debtor to buy that item)
(2) – three requirements with this type of PMSI: loan to the debtor that enables the debtor to buy specific collateral AND the creditor takes a security interest in that specific collateral AND the credit/loan proceeds must actually be used to purchase the collateral. If you have all three, it’s a financer-financed PMSI. Some third party lender is providing the debtor with the money to buy an item, taking a security interest in that item, and the debtor is using that money to buy the item.
Scope of Article 9
Applies to several things: any transaction, regardless of form, that creates a security interest in personal property or fixtures by contract; agricultural liens; a sale of accounts, chattel paper, payment intangibles, or promissory notes (unless the sale is for the purposes of collection only or part of the sale of a business); certain consignments; secured sales that are disguised as leases.
Test for identifying the type of collateral
The test for classifying the collateral: look to see how the debtor is using the collateral. What is it in the hands of the debtor? Debtor-focused test
Definition of goods
tangible, moveable, personal property.
Types of goods
consumer goods, equipment, farm products, or inventory
Consumer goods definition
Consumer goods – goods used or bought for use primarily for personal, family, or household purposes.
Equipment definition
Equipment – good used or bought for use primarily in business. Technically, equipment is our default or catchall category of goods. If you look at the statutes, the definition is not what was just said. What it says is anything that doesn’t fit the other three categories. I’m just trying to help you out – what wouldn’t fit in other categories? Goods used primarily for business
Farm product definition
Farm product – crops, or livestock, or supplies used or produced in farming operations, or products of crops or livestock in their unmanufactured states IF they’re in the possession of a debtor engaged in the practice of farming operations.
Inventory definition
Inventory – a good held by a person who holds them for sale or lease. Also includes goods that are furnished under service contracts. Also includes materials used or consumed in a business in a short period of time. Main part is a good held by the debtor for sale or lease.
Non-good categories
Instruments Documents Chattel Paper Investment Property Accounts Deposit Accounts Commercial Tort Claims General Intangibles
Instrument definition
Instruments – negotiable instrument (things like checks, notes, drafts)
Documents definition
Documents – document which in the regular course of business is treated as evidencing that the person in possession of it is entitled to receive, hold, and dispose of the document and the goods that it covers – best example is a warehouse receipt or a bill of lading – special documents give the person possessing it the right to possess the goods. Not any old piece of paper.
Chattel Paper definition
Chattel Paper – record or records which evidence both a monetary obligation and a security interest in or a lease of specific goods. When you take two things – monetary obligation and security interest or lease of specific goods and put them together. Promissory note, monetary obligation and security interest all in one. If stored in electronic medium – electronic chattel paper.
Investment Property definition
Investment property – includes items such as stocks, bonds, mutual funds, brokerage accounts which would contain such items.
Account definition
Account – a right to payment for property sold or services rendered. Not a bank account, it’s an account receivable.
Deposit Account Definition
Deposit accounts – this is what Article 9 calls a bank account. An account maintained with a bank. Only applies to non-consumer deposit accounts and accounts that are claimed as proceeds of other collateral. Think like a business bank account.
Commercial Tort Claim definition
Commercial tort claim – this is a claim arising in tort with respect to which the claimant is an organization OR when the plaintiff is an individual and that claim arose in the claimants business or profession and doesn’t include damages for injury or death
General Intangible definition
General intangible – any personal property that doesn’t come within the scope of the other definitions. This is the catchall for intangibles. Best example is intellectual property-type stuff (patents, copyrights, trademarks, licenses).
