Secured Transactions Flashcards
A security interest is created upon ____, and ____ of the security interest creates priority.
Attachment, perfection
A security interest that is enforceable against the debtor is attaches to the collateral. Attachment requires:
(1) value given by the secured party to the debtor,
(2) debtor must have rights in the collateral, and
(3) the debtor authenticates a record describing the collateral (security agreement) or the secured party has possession or control of the collateral (valid security agreement)
Perfection creates superior rights in the collateral for secured party over third parties rights in that collateral: A security interest can be perfected by:
(i) filing a financing statement in the appropriate office that lists the parties and the collateral,
(ii) possession or control of the collateral, or
(iii) by automatic perfection
After-acquired property
General rule is that a security agreement can cover after acquired property and does not need to specifically reference it to be effective
Equipment is:
a catch-all category for goods and therefore is a good that is not a consumer good, inventory, or farm product
A PMSI exists when:
the secured party provides all or part of the funds to purchase the collateral that is being offered for security either through: (i) an advance of funds to purchase the collateral, or (ii) by extending credit to be debtor for the purchase price
PMSI will have priority over perfected security interests if:
Secured party files a financing statement in the appropriate office within 20 days of the possession of the collateral by the debtor
Article 9 of the UCC only applies to leases when:
the transaction, although in form a lease, is in economic reality or substance a secured transaction
Courts will consider: (i) rights to cancel, whether term extends over entire economic life, optional or mandatory requirement to renew or purchase for little value, and value exchanged over the lease
A perfected security interest will have priority over an unperfected security interest:
even if the unperfected security interest is a PMSI
A security agreement exists to create:
a security interest in collateral. It gives a creditor certain rights in collateral in exchange for value.
A party defaults on its security agreement when:
conditions included in the agreement occur or when it fails to make payments or perform under the agreement
On default, a secured party may demand payment or engage in self-help to repossess the collateral so long as:
It does not breach the peace.
A secured party breaches the peace when it engages in any behavior that could lead to violence
A secured party may also seek judicial action and foreclosure to enforce its interests in collateral
A secured party has an interest in any accounts granted by the debtor to another party if:
those accounts are payment toward the use of collateral secured by the original security agreement and the original debtor has defaulted or become insovlent
A PMSI in goods other than consumer goods (those bought or to be used for household, family, or personal use) are not:
automatically perfected.
Debtor’s means of protection:
(1) sale must be commercially reasonable,
(2) Debtor must receive written notification of the sale
What are the notice requirements of the secured party prior to disposition?
Must provide debtor, secondary obligor, any other secured party or lien holder with notice at least 10 days before the disposition unless an exception to notification applies.
Failure to meet these requirements: secured party may be liable for damages due to failure to notify
Exceptions to Notification
(1) collateral is perishable or threatens to decline speedily in value;
(2) collateral is of a type customarily sold on a recognized market;
(3) the person has waived his right in an authenticated writing
Lien Creditor and Secured Party
Priority belongs to the secured party, provided that it perfects before the lien arises
Description of Collateral in Security Agreement
It must reasonably identify the collateral and not be super generic, such as “all personal property”
Article 9 applies to all security interests:
in personal property or fixtures by contract, even if the agreement is not characterized as a security agreement
What are the FOUR classifications of goods?
Consumer goods: used primarily for personal, family, or household purposes
Inventory: goods, other than farm products, that are held by a person for sale or lease to be furnished under a contract of service
Equipment: goods, other than inventory, farm products, or consumer goods
Farm Products: crops, livestock, supplies produced in a farming operation
When to secured parties have a security interest in the same collateral:
The first to file or perfect has priority.
- If no party perfects, the first to ATTACH has priority
- A perfected security always beats an unperfected security interest
Buyer in the Ordinary Course (BOCB)
(1) buys goods (not farm products) by giving new value,
(2) in the ordinary course,
(3) from a seller in the business of selling goods of that kind,
(4) in good faith, and
(5) without actual knowledge that the sale violates another’s rights in the goods
*BOCB takes free of any SI in goods given by seller
Buyer Not in Ordinary Course
Generally takes collateral subject to any perfected interest, but not unperfected interest
Consumer to Consumer Goods (Garage Sale) Exception
(1) Buys consumer goods for value, (2) for his own personal, family, or household use, (3) from a consumer seller, and (4) without actual knowledge of the security interest
* Takes free of any SI in consumer goods UNLESS secured party has filed a financing statement covering the goods
Debtor’s Remedies if Secured Party Fails to Comply With Formalities
Damages, sale
Does a debtor have the right to redeem?
The debtor can redeem prior to the disposition of the collateral by paying everything due and owing to the creditor
