Secured Transactions Flashcards
Reqs for a SI to be enforceable
Under Article 9, for a security interest to be enforceable against a debtor, the **interest must attach to the collateral. **
Attachment
For a secured party to have enforceable rights in collateral, the secured party’s security interest must have attached to the collateral.
The security interest can attach to collateral that the debtor acquires in the future.
For attachment to occur, three conditions must coexist:
VRSAoP
Very Real Surprise or Present
(i) value has been given by the secured party;
(ii) the debtor has rights in the collateral; and
(iii) either 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.
==> If the secured party has possession or control of the collateral pursuant to a security agreement, then a security agreement in the form of a record is not required; an oral agreement suffices.
Perfection
in order to have priority over a third party, perfection of its security interest is necessary
Buyer of Collateral & BOCB
A buyer of collateral subject to a perfected security interest **generally takes the collateral subject to that interest, **unless the secured party has authorized its sale free of the security interest.
**A buyer in the ordinary course of business (BOCB) takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. **
==> If a buyer obtains goods under the BOCB, the **buyer may, in turn, sell the goods to a second buyer who also takes the goods free of that security interest. **
BOCB Requirements
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.
Tangible Collateral
Inventory includes **goods that are held for sale or lease. **
Consumer goods—goods acquired primarily for** personal, family, or household purposes**
Farm products—**goods that are crops or livestock or products of crops or livestock, and supplies **that are used or produced in farming
Equipment, a catchall class, consists of goods that are not consumer goods, farm products, or inventory ==> typically goods that are used primarily in a business
Software—software embedded in goods is treated as part of goods in which it is embedded; software not embedded in goods is treated as a general intangible
Security Interest in Proceeds
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.
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. **
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.
Judicial Lien Creditor v other interests
A judicial lien creditor takes the property subject to a perfected security interest
But generally has priority over an unperfected security interest.
PMSI v other interests
**Def = **
arises 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
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.
How to Perfect
- Filing a financing statement (must contain the debtor’s name, the name of the secured party, and the collateral covered by the financing statement)
- Possessing collateral
- Controlling collateral
- and automatic perfection
PMSI Requirements
PMSI in goods—exists when:
(a) A secured party gave value to the debtor and the **debtor used the value to incur an obligation ** that enabled the debtor to acquire goods;
or
(b) A secured party sold goods to the debtor, and the debtor incurred an obligation to pay
the secured party all or part of the purchase price
PMSI in software—exists only when the debtor acquired his interest in software in an integrated transaction in which the debtor also acquired an interest in goods (e.g., a computer), and the debtor acquired that interest in the software for the principal purpose of using the software in the goods
Garage Sale/ Consumer Buyer Rule
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.
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.
How to attach
For attachment, three conditions must be met:
(i) value must be given by the secured party;
(ii) the debtor had rights in the collateral; and
(iii) the **debtor authenticated a security agreement that describes the collateral **(or the secured party has possession or control of the collateral pursuant to a security agreement).
