Secured Transactions Flashcards
Article 9 of the UCC
Priority: High
The UCC Article 9 governs any transaction, regardless of form, that creates a security interest, including interest in personal property, consignments, sale of accounts, chattel paper, and promisory notes.
Goods: all things that are movable when the security interests attaches.
- How the parties classify the transaction is immaterial. Substance over form.
Lease vs. Security Interest
Priority: High
A lease may actually be a security interest when the economic reality of the transaction is for the transfer of title of the goods after a period of time or quantity of payments. When there is a committment to make payments for a period of time, the following factors may turn a lease into a security interest:
1. term of lease is equal to the remaining economic life
2. leasee must lease for the remaining economic life and take ownership at end
3. leasee may release for the remaining economic life without additional consideration
4. leasee has the option to become the owner at the end of the term for no additional consideration
Types of Collateral: Accounts
Priority: High
An account is the right of payment of a montetary obligation in:
1. real property that has been sold or is to be sold, leased, or otherwise disposed
2. services rendered
3. insurance policy
4. secondary obligations incurred
5. energy provided
6. use or hire of a vessel
7. credit card debt
8. lottery winnings
Types of Collateral: Inventory
Priority: High
Inventory:
1. goods leased by a person as lessor
2. goods held by a person for sale/lease or to be given under a contract for service
3. goods given by a person under a contract or service
4. raw materials, work in progress, or other materials used or consumed in a business
- NOT farm products
- NOT goods being held for repair
Types of Collateral: Equipment
Priority: High
Equipment is all goods that are not considered inventory, farm products, or consumer goods.
Types of Collateral: Consumer Goods
Priority: High
Goods that are purchased primarily for personal, family, or household purposes.
Types of Collateral: Proceeds
Priority: High
Proceeds:
1. Anything acquired through the sale, lease or other disposition of collateral
2. anything collected/distributed on account of collateral
3. rights arising out of collateral
4. claims arising out of the loss, non-conformity, defect, or interference with the use of collateral
Attachment
Priority: High
An attachments secures the creditor’s rights in teh debtor’s collateral, making it valid and enforceable against the debtor and third parties. A attachment occurs when:
1. creditor extends value to the debtor
2. debtor had rights in the collateral to convey
3. One of the following
a. authenticated recorded/security agreement
b. collateral is in teh secured party’s possession
c. certificated security is in the registered form and delivered
d. secured party has control of certian types of collateral
Perfection
Priority: High
Perfection of a security interest gives notice of a creditor’s rights in teh collateral to the other parties who may have claims to the same, and usually determines priority for repayment. Perfection is obtained by filing a financing statement with the Secretary of State that identifies the collateral and the interest in it. However, a consumer purchase money security interest is automatically perfected without being filed.
Financing Statement
1. name of the debtor and secured party
2. collatoreral description
3. filed by an authorized person in an authenticated record
- A security interest cannot be perfected unless it is attached.
- Minor errors in the financing statement will not render it ineffective unless it is seriously misleading
Purchase Money Security Interest
Priority: High
Purchase money security interests are when the creditor extends value to the debotr for the purpose of enabling the debtor to acquire rights to the collateral.
PMSI in consumer goods enjoy automatic perfection and teh creditor does not need to file a financing statement to prefect his PMSI with respect to the debtor. For non-consumer goods, a financing staement must be filed before or within 20 days of the debtor obtaining delivery.
Sale of Collateral & Identified Proceeds
Priority: High
A security interest persists beyond a sale, lease, or other disposition of the collateral. The security interest is effective against purchasers of the collateral and can attach to any identifiable proceeds from the disposition of the collateral. However, interest in the proceeds become unperfected on the 21st day after attachment unless
1. proceeds are identifiable cash proceeds
2. security interest in the proceeds is prefected
3. the original security interest was prefected, the new intrest can be perfected, and proceeds are not acquired with cash proceeds.
Buyers in the Ordinary Course of Business
Priority: High
Buyers in the ordinary course of business take free of security interest created by the seller.
Buyer in the Ordinary Course of Business:
1. buys goods in good faith
2. without knowledge of the security interest
3. from a merchant in the business of selling goods of that kind
Priority of Security Interests
Priority: High
- A perfected PMSI priority over any other security interest. PMSI in consumer goods perfects automatically and in non-consumer goods must be filed to be perfected.
- A perfected security interest always has priority over an unperfected security interest in the same collateral.
- The first in time to attach/perfect will have priority over other security interests at the same level.
Priority of Lein Creditors
Priority: High
Judgement lein creditors may take priority over perfected security interest creditors if it is obtained before the security interest is perfected or to future advances secured more than 45 days after the lein unless the advance is made without knowledge of the lein.
Security interest creditors take priority over a judgement lein creditors if the security interest is ultimately attached and perfected and:
1. authenticated security agreement
2. posssession of the creditor
3. certificated and delivered security in registered form
4. secured party has control
Right to Take Possession of Collateral
Priority: High
A secured party may take possession of the collateral or render the equipment unusable and dispose (sell, lease, license, etc.) of collateral on the debtor’s premisis. A creditor does not need a judicial process unless it cannot proceed without breaching the peace.
