Rule block Flashcards
Secured transaction
UCC Article 9 applies to transactions where a security interest is created in personal property by K. Also applies to secured sales disguised as a lease, but not to “true leases.”
Key inquiry: when parties entered into the transaction, was it reasonably likely that the lessor would get the item back when it still had meaningful economic value?
Attachment
To have a valid security interest in collateral (personal property), the interest must attach to the collateral. Attachment sets the secured parties rights against the debtor.
Security interest is not enforceable against the debtor unless it has attached to the collateral. Three requirements for attachment:
i. Secured party gives value;
ii. Debtor has rights in collateral; (ownership)
iii. Debtor has authenticated (signed) a security agreement (or creditor has possession/control), that reasonably identifies the collateral.
Descriptions
Supergeneric descriptions do not reasonably identify the collateral. Commercial tort claims and Consumer Goods cannot be described by type alone. (debtor’s equipment is sufficient)
Future advance clause
Sec Agreement may provide that collateral will serve as security for the present obligation, but also for advances the creditor makes to debtor in future. No new Sec Agreement needed, but must be reserved in original Sec Agreement.
After-acquired Property Clause
A Sec Agreement may create a Collateral Interest in property to be acquired in the future. SI will attach to the property once debtor acquires interest in the collateral.
Exceptions to after-acquired property clause
- Consumer Goods
- Does not attach to consumer goods UNLESS goods acquired within 10 days of the creditor giving value. - Inventory.
- Implied when goods are rapidly depleted and replenished (accts & inventory) – No AAPC required. - Proceeds.
- Automatically attaches to identifiable proceeds of collateral, whether or not the sec agreement reserves interest in proceeds. No AAPC required.
Primary Use test
How is the Debtor primarily using the goods at the time the security interest attaches.
Goods - all thing moveable at time of attachment
- Consumer goods – Personal, family, household
- Equipment – goods that are not consumer goods, inventory, or farm products, Durable goods used by business, such as machinery - long term
- Farm products – produced in farming operation or in unmanufactured state, possessed by debtor engaged in farming operations (includes crops and animals)
- Inventory – held for sale or lease – short term & goods consumed by a business (fuel
Intangible/semi intangible
- Instruments – writing that evidences a right to payment (notes, drafts, cert. of deposit)
- Docs - writing that evidences a right to goods (bills of lading and warehouse receipts)
- Chattel paper – record that evidences a monetary obligation and security interest (Promissory note)
- Investment prop – Stocks & bonds, mutual funds, brokerage accounts
- Accounts - right to payment for goods/services not evidenced by writing (accounts receivable)
- Deposit accts – non-consumer acct maintained at a bank (savings account, passbook)
- Commercial tort claims
- General intangibles – catch all
Proceeds
whatever is received upon sale, exchange, collection, or other disposition of collateral or proceeds.Insurance payable by reason of loss or damage to the collateral is a proceed, unless it’s payable to someone other than debtor or secured party
Perfection
To acquire maximum priority in collateral over most 3Ps, security interest must be perfected. Perfection sets the creditors rights in the collateral and provides notice to 3P of interest.
5 methods of perfection:
(1) filing,
(2) taking possession of Collateral; (3) control;
(4) Automatic perfection; and
(5) temporary perfection.
Filing
A secured party can perfect by filing a financing statement. Needs:
(1) name and address of debtor/ Sec Party;
(3) description of collateral, and
(4) Debtor authorization (authorize in an authenticated record – AKA financing statement or SA – before or after it’s filed);
(5) if it covers real property collateral, a description of land, name of record owner and indication that it is to be filed in the real property records.
Debtors name
Minor errors in the debtor’s name will not invalidate, but seriously misleading errors which could not be discovered using the debtor’s correct name with the filing office’s standard search logic will.
Description of Collateral
Supergeneric descriptions, such as “all assets” are acceptable in financing statements. Financing statements don’t have to mention after acquired property so long as the SA includes this.
