MEE Secured Transaction Flashcards
What is Attachment and what does it require?
- a security agreement is created - by:
- (A) creditor taking possession of collateral;
- (B) creditor taking control of nonconsumer deposit accounts, electronic chattel paper, and investment property; OR
- (C) an authenticated security agreement (oral or written)
- Written, req. (1) record showing intent to create security interest, (2) authentication (typically debtor’s signature); & (3) description of collateral (cannot be too general; “all of d’s assets”)
- Oral, REQ creditor in possession of collateral → called a PLEDGE
- creditor must give value [any consideration, even PAST is okay]; AND
- debtor must have rights in collateral
Attachment is the terminology used to signal a security interest was created; attachment occurs regardless of the order the above occur in → whenever the 3rd requirement is complete, the security interest attaches
How can a creditor perfect a security interest? (5 methods)
- filing, in the proper public office, a financing statement authorized by debtor in an authenticated record; OR
- taking possession of the collateral [i.e., pledge; is hard b/c most debtors need possession of the collateral];
- control [may include investment property, nonconsumer deposit accounts WHICH CAN ONLY BE PERFECTED THIS WAY, and electronic chattel paper];
- automatic perfection [PMSI in consumer goods]; and
- temporary perfection
When is a PMSI created?
When a secured party (1) sells the goods to the debtor on credit AND (2) takes a security interest in the goods sold; [seller-financed PMSI]
OR
When a creditor (1) loans debtor funds to enable them to buy specific collateral, (2) those funds are used by debtor for that purpose, and (3) creditor takes a security interest in the collateral [financer-financed PMSI]
What is the general rule for “priority” of security interests?
UCC Article 9 Categories - Tangible Collateral
- consumer goods - used/bought primarily for persona, family, or household purposes
- equipment - “default category”; goods used/bought for use in a business; and if goods ≠ consumer, farm products, or inventory, then = equipment
- farm products - crops, livestock, supplies used OR produced in farming operations OR products of crops or livestock in their unmanufactured states (e.g.s, ginned cotton, wool-clip, maple syrup, etc.) if they are in the possession of a debtor engaged in farming operations
- inventory - goods held for sale or lease, goods that are to be furnished under service contracts, and materials used or consumed in a business in a short period of time
*Categorization depends on how the collateral is USED
UCC Article 9 Categories – Intangible or Semi-Intangible Collateral
- instruments - pieces of paper representing the right to be paid money (promissory notes, drafts of checks, certificates of deposit)
- documents - doc representing right to receive goods (bill of lading, warehouse receipt)
-
chattel paper - a record(s) which evidence both (1) a monetary obligation AND (2) a security interest in OR lease of specific goods
- “record” information stored in either a tangible medium (on paper) or intangible medium (electronically stored - aka electronic chattel paper)
- investment property - stocks, bonds, mutual funds, brokerage accounts containing such items
- accounts - includes (1) a right to payment (that ≠ evidenced by chattel paper or instrument) (2) for property sold OR services rendered (i.e., “accounts receivable”)
- deposit accounts - a non-consumer account maintained with a bank (i.e., business account or account monies claimed as proceeds of other collateral, not personal account)
-
commercial tort claim - tort claim where (1) claimant = organization (e.g., partnership, corp.) OR claimant = individual; (2) claim arose out of claimant’s business or profession; AND (3) claim ≠ include damages for personal injury or the death of an individual
- includes noncommercial tort claims that are claimed as proceeds of other collateral
-
General intangibles - any personal property not w/in scope of other categories; includes patents, TMs, (C)s, goodwill
- Subcategory - payment intangible - a general intangible under which the account debtor’s principal obligation is a monetary obligation
*Categorization depends on the NATURE of the collateral (rather than use)
Requirements for a proper “filing” re: perfection?
filing must include
(1) debtor’s name and mailing address,
(2) secured party’s name and mailing address, AND
(3) a description of the collateral
3 Methods of Obtaining Control re: Perfection of Nonconsumer Deposit Accounts
- Whichever bank maintains nonconsumer deposit account automatically has control;
- if secured party is not such a bank, it may nevertheless obtain control by either:
- putting the deposit account in the secured party’s name OR
- agreeing in an authenticated record with debtor and bank where deposit account is maintained that bank will comply with secured party’s order regarding the deposit account w/o requiring debtor’s consent
Special Rules re: Perfection for Motor Vehicles & Dealer Exception
Security interests in cars required to be titled can ONLY be perfected by notation on the certificate of title issued by the state
BUT, security interest created by dealers in cars held in inventory for sale or lease are perfected by filing a financing statement under the ordinary Code rules even if a certificate of title covering the vehicle is outstanding
“Garage Sale” Rule
IF
- a buyer of consumer goods
- resells that good
- to another consumer
- for value, THEN
- that consumer takes free of the security interest he ≠ know about
- provided purchase is made before any financing statement covering the goods has been filed
i.e., party with security interest CANNOT rely on auto-perfection of PMSI-consumer goods; if want to prevent above scenario, have to file anyway
What is a “buyer in the ordinary course of business” (BIOC)?
a BIOC buys goods in the ordinary course of business from a seller engaged in the business of selling those goods
→ AND BIOC can take goods free of non-possessory security interests created by that seller UNLESS they know the sale violates a security agreement
Perfection re: motor vehicle title
If state has a statute requiring that perfection of security interests in motor vehicles be by notation of the security interest on the title, perfection can only be satisfied by this method.
Article 9 states that other perfection methods, like filing, are ineffective to perfect the property subject to this statute
(Def.) Accessions:
Good that are physically united with other goods in such a manner that the identity of the original goods is not lost.
Priority re: accessions + special rule for motor vehicle title statutes
General priority rules apply to accessions, BUT if accession becomes part of a whole that is subject to a security interest perfected in compliance with req’s of a motor vehicle title statute, security interest in the whole has PRIORITY over security interest in the accession
policy goal → enable a secured party to rely upon certificate of title without having the check the UCC files to determine whether any components of the collateral (i.e., accessions) may be encumbered)
What does a financing statement require?
- debtor’s name & mailing address;
- secured party’s name & mailing address; AND
- indication of collateral covered by financing statement
