secured transactions Flashcards
how to start each essay-what article 9 covers
Article 9 of the UCC governs any transaction regardless of its form the creates a security interest. This includes a security interest in both tangible and intangible property
types of tangible collateral
Fixtures
computer software
consumer goods
equipment
Inventory
Farm products (NOT farm equipment)
Types of intangible collateral
Accounts receivable
Deposit accounts (bank accounts)
Investments
Chattel paper
What is required to create a security interest
Attachment
What is required for the security interest to attach to an item of collateral
- Value - money loaned
- Rights- debtor must have rights/own in the collateral
- Security interest - security agreement
what does a security agreement need to include
AID
A- authentication- signed or electronically signed
I- intent
D- description of collateral- must be specific
“all cars” is ok but not “all assets”
What is perfection
Once you have a security interest attached, the rights are established. Perfection determines when the secured party will have priority over 3rd parties
What must you do to perfect
- File a FINANCING STATEMENT or
- Automatic perfection in PMSI- consumer goods
- take POSSESSION
- take CONTROL - of bank accounts
what is a PMSI
purchase money security interest- exists only for two types of collateral- GOODS (including fixtures) and computer software.
typically occurs when debtor buys consumer good on credit.
Automatically perfected on attachment
what if a consumer buys a stereo or item from a store and that item has a secured credit attached to it?
A buyer in the ordinary course of business takes the item free of a security interest. A BOCB is a person who:
- Buys goods in the ordinary course of business in good faith
- from a merchant who is IN THE BUSINESS OF SELLING GOODS OF THAT KIND
3.THE BUYER HAS NO KNOWLEDGE THAT THE SALE VIOLATES THE RIGHTS OF ANOTHER IN THE SAME GOODS>
IT does not matter if the security interest was perfected or not.
If a buyer in the ordinary course of business takes an item free of a security interest under the BOCB exception and then SELLS it to a 3rd party, does an interest pass along to the 3rd party?
No. That buyer takes free of a security interest also
what is the garage sale rule
A consumer buyer will take an item free of security interest even if perfected if the consumer buyer is
1) buying consumer goods for value
2) for own personal use
3) from a non- merchant/”consumer” seller/ordinary person not in business of selling those items
4) w/o knowledge of the security interest
What is the exception to the garage sale rule
If before purchase the secured party filed a financing statement cover the consumer goods (even though they were PMSI and automatically perfected) then the consumer buyer can NOT buy them free of the security interest.
If something is a LEASE- is it a security interest and when does it qualify as a security interest
Think RENT TO OWN
A transaction in the form of a lease is treated as a security interest if the lessee must pay consideration to the lessor for the right to possess and use the goods for the term of the lease,
the payment obligation cannot be terminated by the lessee
and the lessee has an option to become the owner of the goods upon completion of the lease agreement.
Here, what the parties refer to as a lease is equivalent to a secured sale transaction because Decorator will have purchased the vacuum after making the “lease” payments.
When you see goods SOLD of any kind- remember….
PMSI
PMSI has automatic perfection and takes priority over other security interests in the same goods