Secured Transactions Flashcards
what are the basic steps of secured transactions?
Identify parties
Attach?
Perfect?
Priorities
What is Collateral
Collateral is the property subject to the security interest which is often consumer goods.
When does UCC Article 9 apply?
UCC Article 9 applies to all security interest in personal property or fixtures by contract. and to leases that are not true leases.
What are the different types of Collateral?
“Consumer goods” -goods acquired primarily for personal, family, or household purposes
“Accounts” -include the right to payment for goods sold, property licensed, or services rendered.
“Inventory” -includes not only goods, other than farm products, that are held for sale or lease but also raw materials, works in process, or materials used or consumed in a business.
The catchall “equipment” class of goods, includes goods or machinery used in the business.
“Farm Products” are goods that are crops or livestock and include supplies that are used or produced in farming.
What is attachment?
Under article 9, for a security interest to be enforceable against a debtor, the interest must attach to the collateral.
AID
what are the 3 conditions that must be met for attachment?
(i) value must be given by the secured party;
(ii) the debtor has rights in the collateral; and
(iii) there must be a binding agreement that is authenticated, intent to create the agreement and a description of the collateral.
When does a security interest for after-acquired property attach?
As soon as the debtor obtains an interest in the property.
When is a security agreement not required
When the secured party has possession or control of the collateral pursuant to a security agreement,, oral agreements are okay.
identifiable proceeds
A security interest in collateral automatically attaches to identifiable proceeds. Proceeds include that which is acquired upon the sale, exchange, or other disposition of collateral.
What is perfection?
Perfection of an attached security interest is generally necessary for the secured party to have superior rights over third parties that have security interests in the same collateral.
In what ways can PERFECTION occur?
- by filing a financial statement where the debtor is located
- automatic (i.e. purchase money securtiy interest in consumer goods)
- by posssesion or control of the item *
4 . perfection as to proceeds.
*deposit accounts must be perfected by control
How can a secured party perfect its interest in collateral?
by
(i) filing a financing statement;
(ii) possessing the collateral;
(iii) controlling the collateral; or
(iv) perfecting automatically.
What must be contained in a Financial Statement?
must contain the following information:
i) The debtor’s name;
ii) The **name of the secured party **or a representative of the secured party; and
iii) The collateral covered by the financing statement.
what is a PSMI
a security interest in goods that has priority over other security interests in the same goods.
When is a PSMI created?
when a creditor sells goods to a debtor on credit and retains a security interest in those goods, or the creditor advances funds, which are then used to purchase the goods and the creditor reserves a security interest in those goods. (like a car sale.
When is a security interest perfected?
its perfected upon attachment of that interest and compliance with one of the methods of perfection.
How is Priority determined?
When there are two or more perfected secured parties with rights in the same collateral, the first to file the financing statement or perfect has priority. If only one security interest is perfected, and the other is not, then **the perfected interest takes priority **over the unperfected one.
A perfected security interest beats an
unperfected one—even if one has an
unperfected PMSI!
Security Interest vs . Judicial Lien Creditor
In a contest between a perfected security interest and a judicial lien, a judicial lien creditor takes the collateral subject to an existing perfected security interest but generally has priority over an unperfected security interest.
general creditor vs. perfected creditor
A general creditor will lose to a perfected creditor
Buyer of an attached item
Buyer of an attached but not perfected security interest will take free and clear of the security interest if they
1. pay value,
2. received delivery, and
3. did not know of the security interest
Who is a Judicial Lien Creditor
judicial lien creditor is a creditor who acquires a lien on the collateral by a judicial process.
What is a Buyer in the ordinary course of business?
A buyer in the ordinary course of business (BOCB) takes free of a security interest created by the seller.
- a buyer is not a buyer in the ordinary course of
business if he knows that the sale is in violation of
some term in the security agreement not waived by the
secured party - 3rd parties are sheltered by the BOCB
What generally happens with a BOCB of a collateral subject to a perfected security interest.
They generally take the collateral subject to the that interest unless the secured party has authorized its sale free of the security interest.
How do secured parties attach to proceeds?
A security agreement automatically gives the right to receive proceeds unless the parties agreed otherwise.
(So, if a secured party has an interest in “inventory” and the
inventory is sold, the security interest will attach to whatever was used to buy the
inventory—cash, chattel paper, etc.)
