Secured Transactions Flashcards
What is a PMSI? 3 Main Elements?
Purchase Money Security Interest
(1) A PMSI exists when a seller loans a borrower the money to purchase items, and the seller obtains a security interest in those items.
(2) PMSIs receive higher priority
(3) Perfection for a PMSI used to purchase consumer goods happen automatically upon attachment.
What needs to happen for a seller and secured interest holder to have rights against another claimant in a security interest of a debtor?
To have rights against other claimants, the security interest must be perfected.
How are rights against the debtor established?
Established via attachment
What are the requirements of attachment?
(1) Agreement to the security interest which can happen via (i) a valid security agreement, (ii) possession, or (iii) control.
(2) Creditor provides value
(3) The debtor has rights in the collateral (ownership as an example).
What are the primary ways secured interests in goods can be perfected?
(1) Possession
(2) Control
(3) Filing of a finance statement
(4) Automatic perfection (PMSI)
What is the purpose of attachment?
Attachment establishes the secured party’s interest against the borrower.
What is the purpose of attachment?
Establishes the secured party’s interest in the collateral against other claimants (not the borrower).
Who has higher priority between 2 claimants that are both perfected?
The party that either perfected or filed the security agreement first has higher priority.
Who has higher priority between 2 claimants that are both NOT perfected?
The party who attached first has higher priority.
Who has higher priority between 2 claimants, on who has perfected, and one who has not perfected?
The perfected party wins.
What is PMSI super priority?
In most circumstances, the PMSI security interest has priority over most other claimant’s interest.
What are accessions?
Physical items that are connect, joined, or otherwise united with other items, but the still can be separated and used independently.
A good example is tires on an airplane. They can be removed and used on another plane or vehicle.
If there is a security interest in an accession and a security interest in a larger item into which the accession is installed, which security interest has priority?
Generally, the security interest in the larger item has priority of the security interest in the accession.
What effect does a consumer to consumer sale have on a security interest in the goods sold?
The buyer may take the goods free of any security interest if certain conditions are met.
What conditions are needed for one to take the goods free of a security under the consumer to consumer sale doctrine?
(1) The buyer did not know that there was a security interest
(2) The buyer paid value for the goods
(3) The buyer bought the goods for their own personal use / purpose
(4) The buyer bought before any financing statement was filed.
What are the required elements of attachment?
(1) Agreement (security agreement, possession, or control)
(2) Borrower paid value
(3) Borrower has rights in the secured item.
What are the required elements of perfection?
(1) Attachment
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(2) One of the following: possession, control, filing of the financing statement (most common), PMSI automatic perfection
There is also an option for “temporary” perfection.
What is a BIOC?
Buyer in the ordinary course of business.
Purchasers that buy goods in their ordinary course of business (a boat dealership buying a boat for example) takes secured items free of the security interest if certain conditions are met.
