Secured Transactions Flashcards
What is attachment?
Generally, a security interest that is enforceable against the debtor is said to have “attached” to the collateral. Attachment requires that: (i) value has been given by the secured party, (ii) the debtor has rights in the collateral, and (iii) the debtor has authenticated a security agreement that describes the collateral, or the secured party has possession or control of the collateral pursuant to a security agreement. Inventory includes goods, other than farm products, that are held for sale or lease.
When may a security interest be perfected?
Perfection of a security interest is generally necessary for the secured party to have rights in the collateral that are superior to any rights claimed by third parties. A security interest in goods can be perfected by filing a financing statement. Here, the finance company perfected its interest in the inventory by properly filing a financing statement.
Does a buyer of collateral subject to a perfected security interest take the collateral subject to that interest?
Yes, so long as they are not a BOCB or a consumer buyer of consumer goods.
What is a Buyer in the Ordinary Course of Business (BOCB)?
A BOCB is a person who: (i) buys goods; (ii) in the ordinary course of business; (iii) from a merchant who is in the business of selling goods of that kind; (iv) in good faith; and (v) without knowledge that the sale violates the rights of another in the same goods. In order to qualify as a buyer, the purchaser must give new value, which in addition to paying cash for the goods includes purchasing the goods on credit.
A BOCB takes the collateral free of the security interest
What is a Purchase Money Security Interest?
A PMSI in goods exists when a secured party sold goods to the debtor, and the debtor incurs an obligation to pay the secured party all or part of the purchase price. A PMSI in consumer goods is automatically perfected upon attachment. Consumer goods are those goods acquired primarily for personal, family, or household purposes.
What is a consumer buyer of consumer goods?
Think: garage sale rule
A consumer buyer is a person who: (i) buys consumer goods for value; (ii) for his own personal, family, or household use; (iii) from a consumer seller; and (iv) without knowledge of the security interest.
A consumer buyer of consumer goods takes free of a security interest, even if perfected, unless prior to the purchase the secured party filed a financing statement covering the goods.
What do proceeds include?
Proceeds include whatever is acquired upon the sale of collateral. A security interest in collateral automatically attaches to identifiable proceeds. If the proceeds are identifiable cash proceeds (which includes checks) and the security interest in the original collateral is perfected, the perfected security interest in the proceeds continues indefinitely.
Who takes priority when there are two or more perfected secured parties with rights in the same collateral?
When there are two or more perfected secured parties with rights in the same collateral, the first to file or perfect its security interest has priority. If both security interests are perfected, then priority dates from the time of filing or perfection, whichever occurs first.
How does being a PMSI change priority?
A PMSI in goods other than inventory or livestock prevails over all other security interests in the collateral, even if they were previously perfected, if the security interest is perfected when the debtor receives possession of the collateral or within 20 days.
When may a lease be categorized as a secured transaction?
The transaction may be categorized as a secured transaction 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 one of four conditions is also met, including when the lessee has an option to become the owner of the goods, for no additional consideration or nominal additional consideration, upon completion of the lease agreement.
Who is given priority if one security interest is perfected while the other is not?
If only one security interest is perfected and the other is not, then the perfected interest has priority over the unperfected one.
What happens if the collateral is gifted?
If collateral is transferred and the transferee of the collateral is not a buyer, the security interest generally continues in the collateral, unless the secured party has authorized its sale free of the security interest.
Identifiable Porceeds
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.
If the security interest in the original collateral is perfected, then a security interest in proceeds is temporarily perfected for 20 days from the time it attaches. Here, Bank’s security interest in the used computer as proceeds was automatically perfected for 20 days after it was acquired on March 15. Under the same office rule, a perfected security interest in proceeds may continue indefinitely when: (i) the filed financing statement covers the original collateral, (ii) the proceeds are collateral in which a security interest may be perfected by filing in the same office as the financing statement, and (iii) the proceeds are not acquired with cash proceeds.
PMSI priority
While, generally, a PMSI has priority over other security interests in the same goods, a PMSI in inventory has priority only if: (i) the PMSI is perfected by the time the debtor receives possession of the collateral; and (ii) the purchase-money secured party sends an authenticated notification of the PMSI to the holder of any conflicting security interest before the debtor receives possession of the collateral.
