Secured Transactions Flashcards
Scope and Mechanics of Article 9
Article 9 of the UCC applies to ANY transaction intended to create a security interest in personal property or fixtures (not mortgages on real property).
A security interest gives a creditor the right to sell a debtor’s property in order to satisfy a debt.
personal property or fixtures secure the payment of a debt or insure performance of a contract obligation with the property serving as _______
collateral
three main parties to an Article 9 transaction:
Secured Party. The secured party is the creditor who possesses the benefit of the security interest
Debtor. The debtor is the party who has an ownership interest or other sufficient interest in the personal property securing the obligation.
Obligor. The obligor is the party held responsible for the underlying obligation (usually also the debtor, but could be a type of guarantor).
Collateral
Collateral refers to the property in which a security interest is created, and it extends to identifiable proceeds from the property that serves as collateral.
list four types of collateral
Goods. Goods are all things that are movable when a security interest attaches.
Consumer Goods. Consumer goods are goods that are used mainly for personal, family, or household purposes.
Inventory. Inventory includes goods that are kept by a person for sale or lease (does not include goods that are only being held for repair).
Accounts. A security interest in a debtor’s “accounts” covers any right to payment of a monetary obligation, whether or not earned by performance, for property that has been or is to be sold (i.e., accounts receivable). A secured party can collect directly from the person who owes the debtor if the debtor defaults.
Attachment
Attachment is essentially how a security interest is created. A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral unless an agreement expressly postpones the time of attachment.
A valid attachment requires that:
The secured party extends value to the debtor (almost any consideration will suffice);
The debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; AND
A UCC § 9-203(b)(3) condition is met.
- is usually satisfied by authentication of a security agreement or when the secured party takes possession or “control” (under UCC § 9-203(b)(3)(D)) of the collateral from the debtor.
Consignment
A consignment is a transaction in which a person delivers goods to a merchant for the purpose of sale in which:
(1) The merchant: (a) Deals in goods of that kind under a name other than the name of the person making delivery; (b) Is NOT an auctioneer; AND
(c) Is NOT generally known by its creditors to be substantially engaged in selling the goods of others.
(2) The aggregate value of the goods is $1,000 or more at the time of each delivery;
(3) The goods are NOT consumer goods immediately before delivery; AND
(4) The transaction does NOT create a security interest that secures an obligation.
Future Advances
A security agreement may provide that collateral secures future advances, whether or not the advances are mandatory, so long as the security agreement explicitly includes a future advances clause.
After-Acquired Property
After-acquired property clauses may be included in security agreements and are generally enforceable allowing the after-acquired property to be secured in favor of the secured party
(does not apply to consumer goods unless the debtor acquires rights in them within 10 days after the secured party gives value).
Specification Clauses
The parties may specifically define what constitutes a default. If left undefined, non-payment generally constitutes a default.
The parties may provide for the acceleration of payments upon the happening of a specified event (e.g., full balance becomes due if payment is 7 days late).
The parties may covenant certain things to each other regarding the collateral (e.g., the secured party may require the debtor to maintain insurance covering the collateral property).
