Secured Transactions Flashcards
What does Article 9 of the UCC apply to?
any transaction intended to create a security interest in personal property or fixtures.
What does a security interest do?
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 K obligation with the property or fixture serving as collateral.
3 main parties to a secured transaction
- secured party [creditor, possesses benefit of security interest]
- debtor [has ownership interest or other sufficient interest in collateral]
- obligor [party held responsible for underlying obligation; usually also debtor but can be a type of guarantor]
Collateral
the property in which a security interest is created - extends to identifiable proceeds from the property that serves as collateral
Types of collateral [broad categories]
- Goods [includes consumer goods, inventory, farm products, and equipment
- Tangible Intangibles [includes negotiable instruments, documents of title, and chattel paper]
- Intangible Intangibles [includes general intangibles and accounts]
Goods
All things movable at the time the security interest attaches. Generally includes fixtures and computer programs embedded in computers that are goods
Consumer Goods
Type of goods.
Goods used or bought primarily for personal, family, or household purposes
Inventory
Type of goods
Goods other than farm products that are held for sale or lease or to be furnished under a K of service.
Does not include goods that are only being held for repair.
Does include raw materials, work in process, or material used or consumed in business
Farm Products
Type of goods
Goods other than standing timber, with respect to which the debtor is engaged in a farming operation including crops, livestock, products of crops or livestock in their unmanufactured state, aquatic goods produced in aquacultural operations, and supplies used or produced in a farming operation
Equipment
Type of goods
Catch-all category - goods other than inventory, farm products, or consumer goods.
Usually refers to goods that are used or bought for use primarily in a business
[farming operations machinery; mechanic tools; delivery trucks]
What determines characterization of collateral?
Primary use by debtor
Tangible Intangibles
Certain intangibles, such as contractual obligations to hold or deliver goods or to pay money, and ownership in goods or business entities, are commonly reduced to tangible or written form - by transferring the writing, the intangibles are transferred.
Instruments
type of tangible intangible
Negotiable instruments or any writing that evidences a right to the payment of a monetary obligation but is not itself a security agreement or lease.
Writing must be of a type that in ordinary course of busines is transferred by delivery with any necessary endorsement or assignment
Documents
type of tangible intangible
Documents of title [bills of lading, dock receipts, warehouse receipts, delivery orders] and any other document which, in the regular course o business or financing is treated as adequately evidencing that the person in possession of it is entitled to receive, hold, and dispose of the document and the goods it covers
To be a document of title, document must purport to be issued by, or addressed to, a bailee and purport to cover goods in the bailee’s possession that are either identified or fungible portions of an identified mass
Chattel paper
type of tangible intangible
Record or records evidencing both a monetary obligation and a security interest in or a lease of specific goods
Intangible Intangibles
Many intangibles, such as monetary obligations or literary rights, while possibly evidenced by writings, are treated as intangibles. The writings take on no commercial significance of their own (not indispensable)
General intangibles
type of intangible intangible
Intangible collateral that fails to fit into any other category. Includes things in action, payment intangibles, and software
Accounts
type of intangible intangible
rights to payment of a monetary obligation, generally for property sold or to be sold, or for services rendered or to be rendered.
Security interest in debtor’s accounts covers any rights to such payments.
Secured party can collect directly from person who owes debtor is debtor defaults
Attachment
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:
- Secured party attaches value to collateral
- Debtor has rights in collateral or power to transfer rights in collateral to secured party and
- Debtor authenticates a security agreement or secured party takes possession or control of collateral
Requirements for authenticated security agreement
Reasonable description of collateral in writing.
Signature, thumbprint, initials, mechanical reproductions, etc are all adequate proof of authentication so long as debtor possessed intent to authenticate the writing
