Secured Transactions Flashcards
What goods are inventory?
Inventory includes goods, other than farm products, that are held for sale, leased by a person, or raw materials used in the sale of a business.
It does not include items owned by another person held for repair services (ie, bailment).
What law governs security interests?
UCC Article 9
What is necessary to enforce a security interest?
A security interest is enforceable against the debtor once it has attached.
Attachment requires (i) the secured party gives value, (ii) the debtor has rights in the collateral, and (iii) a security agreement that is either written, authenticated by the debtor and identifies the collateral, OR allows the secured party to take possession or control of the collateral.
What is the effect of perfecting a security interest?
Perfection determines priority among parties with competing claims to the same collateral.
Perfection gives notice of the creditor’s rights in the collateral to other parties who may have claims to the same collateral, and determines which party has priority to the collateral.
What is required for perfection to occur?
The security interest must be attached and the secured party must either file a financing statement or take possession or control of the collateral. Certain types of collateral are perfected automatically upon attachment.
Does a security interest continue after the sale of collateral?
A buyer or transferee of collateral subject to a security interest generally takes subject to that interest, unless the secured party has authorized its sale free and clear of the security interest.
What are the 2 exceptions in which a buyer does not take subject to a security interest?
Buyer in the ordinary course of business and consumer-to-consumer sales (“garage sale” exception”
Who is a buyer in the ordinary course of business?
A BOCB is a person who (1) buys goods in good faith, (2) without knowledge that the sale violates the rights of another (3) in the ordinary course of business from (4) a merchant dealing in goods of that kind.
A buyer who has knowledge of a creditor’s security interest in a seller’s inventory, but does not know the terms of the agreement, will still be a BOCB.
What is a purchase money security interest, and what two types of PMSIs exist?
A PMSI is a security interest created when a secured party gives value by either advancing funds to the debtor to acquire specific collateral and then takes a security interest in that collateral, OR when the secured party sells goods on credit to the debtor.
A PMSI can be either a lender PMSI or seller PMSI.
How is a PMSI in consumer goods perfected?
A PMSI in consumer goods is automatically perfected.
What is a consumer good?
A consumer good is one acquired primarily for family, household, or personal use.
At what point are goods classified (inventory, consumer, etc) by Article 9 type?
Goods are classified based on the use by the debtor at the time the security interest is granted.
