Secured Transactions Flashcards
What is the UCC section that applies to secured transactions?
Article 9
What is the scope of UCC Article 9?
Applies to consensual security interests in personalty and fixtures
What is attachment of a security interest?
How is it done?
Definition
- Making the security interest enforceable
Process
-
Value
- Creditor must give value
-
Contract
- Transaction must be recorded in security agreement
-
Rights
- Debtor must have rights in the collateral
What is perfection of a security interest?
How is it done?
Definition
- Protecting the secured party from competing creditors
Process
- Possession of collateral
- Automatic perfection of PMSI in consumer goods
- Filing UCC-1 financing statement
What do you apply when the collateral is:
- Real estate
- Personalty or fixtures
Real estate
- Law of mortgages
Personalty or fixtures
- UCC Article 9
What does it mean for Article 9 to apply to consensual security interests in personalty or fixtures?
Article 9 does not apply to statutory or mechanic’s liens, as those are not consensual
Under UCC Article 9, what are the different categories of collateral?
How do you determine the category?
Categories
- Tangible collateral
- Consumer goods
- Equipment
- Inventory
- Farm products
- Fixtures
- Intangible or semi-intangible collateral
- E.g., patents, stocks, proceeds from sale of collateral, accounts, promissory notes, drafts, etc.
Determination
- Look at the primary use in the hands of the debtor
What satisfies the contract requirement for attachment?
- Debtor in possession of collateral:
- Security agreement (i.e., record)
- Creditor in possession of collateral
- Nothing more
What needs to be included in the security agreement?
- Authentication (i.e., debtor’s signature or electronic mark)
- Reasonable identification of collateral
What needs to be included in a UCC-1 financing statement?
- Debtor’s name and address
- Creditor’s name and address
- Generic description of collateral
- Sufficient to allow for follow-up inquiries
In what form must a UCC-1 financing statement be filed?
UCC Article 9 does not require a particular medium, but encourages electronic filing
Where must a UCC-1 financing statement be filed?
- If collateral is timber, minerals, or fixtures:
- Secretary of state where realty is located
- Otherwise:
- Secretary of state where the debtor is located
In Virginia, file with State Corporation Commission (SCC) in Richmond
For purposes of filing a UCC-1 financing statement, where is the debtor located if:
- An individual
- An organization
Individual
- State of principal residence
Organization
- State of organization
When there are competing claims to collateral, what are the different types of creditors in order of their priority?
-
BIOC
- Buyer in the ordinary course
- Someone who purchases the collateral from a merchant’s inventory.
-
PAC
- Perfected attached creditor
- Article 9 creditor who succeeds in attaining perfection
-
LC
- Lien creditor
- General unsecured creditor who goes to court to get a judicial lien on the collateral
-
NOC
- Non-ordinary course buyer
- Someone who purchases the collateral outside the ordinary stream of commerce
-
AUP
- Attached unperfected creditor
- Article 9 creditor who creates an enforceable security interest, i.e., it attaches, but either never bothers to perfect or tries to perfect but botches the effort, perhaps by filing in the wrong place.
-
GUC
- General unsecured creditor
- The lender who never bothered to take collateral.
Who does the attached unperfected creditor (AUP) have priority over, and who is it subordinate to?
Priority over
- Debtor
- Subsequent AUP
- GUC
Subordinate to
- Prior AUP
- NOC
- LC
- PAC
- BIOC
Who does the perfected attached creditor (PAC) have priority over, and who is it subordinate to?
Priority over
- Everyone except:
- Prior PAC
- BIOC
- Certain PMSI holders, provided that:
- PAC is AACF, and
- If collateral is equipment
- PMSI holder files 20 days after debtor takes possession of equipment
- If collateral is inventory
- PMSI holder files before debtor takes possession of inventory
- PMSI holder notifies AACF before debtor takes possession of inventory
Why does BIOC always beat PAC?
To promose commerce and honor the buyer’s expectations
What is default?
Where is it defined?
Default is when the debtor breaches the contract
It is defined in the security agreement, not in UCC Article 9