MEE Secured Transactions rule statements Flashcards
Article 9 applies to
Article 9 applies to all security interests in personal property or fixtures by contract. Article 9 also applies to lease agreements that are not true leases (but instead, security interests).
Note: The words “security agreement” do not have to be specifically stated for one to exist.
What are 4 main classifications of goods?
equipment, inventory, consumer goods, and farm products.
Consumer goods:
Consumer goods: goods that are bought for use primarily for personal, family, or household
purposes (e.g., a computer in the hands of a consumer)
Inventory:
goods, other than farm products, that are held by a person for sale or lease to be furnished under a contract of service; or raw materials, work in process, or materials used or consumed in a business (e.g., computers sold by a computer store)
Equipment:
Equipment: goods, other than inventory, farm products, or consumer goods (e.g., a computer used in a business).
Farm products:
Farm products: crops, livestock, supplies produced in a farming operation or products of crops or livestock in their unmanufactured state in possession of debtor who is engaged in a farming operation.
Requirements of attachment of a Security Interest:
(1) value must be given by the secured party to the debtor (e.g., a loan);
(2) the debtor must have rights in the collateral; and
(3) there must be a binding security agreement which requires (mnemonic=AID): authentication, intent to create a security agreement, and a description of the collateral
a binding security agreement which requires (mnemonic=AID):
Authentication,
Intent to create a security agreement, and a Description of the collateral
After-acquired property:
the general rule is that a security agreement can cover after-acquired property and does not need to specifically reference it to be effective.
A buyer in the ordinary course of business:
A buyer in the ordinary course of business generally takes free of any security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence.
(Note that the buyer is not in the ordinary course of business if he knows that the sale is in violation of a term in the security agreement.)
A buyer NOT in the ordinary course of business: takes collateral ?
perfected SI?
unperfected SI?
A buyer not in the ordinary course of business takes collateral subject to a perfected interest.
Generally, he does not take subject to an unperfected interest if he gives value and does not know about the interest.
Consumer to consumer goods (garage sale) exception:
A buyer not in the ordinary course of business takes free of a security interest even though perfected, if
(1) he buys without knowledge of the security interest;
(2)for value; and
for his own personal, family, or household purposes unless, prior to the purchase, the secured party has filed a financing statement covering the goods. The goods must be consumer goods both when the seller has them and when the buyer buys them for this to apply.
When a lien creditor is involved:
SP v. Lien creditor priority
The general rule is that, as between a secured party and a lien creditor, priority belongs to the secured party, as long as it perfects before the lien arises. If the interest was unsecured or only perfected after the lien creditor served the writ, then the lien creditor has priority.
Default:
if a default occurs, the lender can demand payment or use self-help to reclaim the goods so long as it does not breach the peace.
Breach of peace: There are several factors to examine to determine if the lender has breached the peace, including:
whether the repossession took place at the debtor’s premises and
whether the debtor objected.
Some courts also look at whether trickery was used. Some courts say that any objection (even if slight and even if only verbal) amounts to a breach of the peace