Secured Transactions Flashcards
What are the two steps a creditor must take under Article 9 to gain full protection of secured transactions law?
- Attach a security interest to the collateral.
- Perfect the security interest.
What does attachment give the secured party?
Attachment gives the secured party rights in the collateral as against the debtor.
What does perfection provide for the secured party?
Perfection gives public notice of the secured party’s rights in the collateral and establishes their rights as against everyone else.
Why is it important to identify the collateral in secured transactions?
Different categories of collateral can affect perfection issues.
What are the four types of goods?
- Consumer goods
- Farm products
- Inventory
- Equipment
What defines consumer goods?
Goods used or bought primarily for personal, family, or household purposes.
What are farm products?
Crops, livestock, and farm supplies in possession of a debtor-farmer.
What constitutes inventory?
- Goods held for sale or lease.
- Materials used or consumed in a business in a short period of time.
What is equipment in the context of secured transactions?
Goods that are used or bought for use in a business.
What are intangible and semi-intangible collateral classified by?
They are classified based on the nature of the collateral.
What are common types of intangible collateral?
- Instruments (promissory notes, checks)
- Accounts (accounts receivable)
- Deposit accounts (bank accounts)
- General intangibles (patents, trademarks)
What establishes the secured party’s rights to the collateral?
Attachment.
What evidence indicates that attachment has occurred?
- Agreement to create the security interest.
- Secured party gave value.
- Debtor has rights in the collateral.
What is a security agreement?
A written agreement that certain personal property will serve as collateral to ensure fulfillment of an obligation.
What are the two less common ways for a security interest to attach without a security agreement?
- Possession
- Control
What are the requirements for a valid security agreement?
- Must show intent to create a security interest.
- Must be signed by the debtor.
- Must describe the collateral.
What does perfection establish for the secured party?
Perfection establishes the secured party’s rights to the collateral as against third parties.
What are the five methods of perfection?
- Filing a financing statement
- Automatic perfection
- Possession
- Control
- Notation on a certificate of title
What must a financing statement include regarding the debtor’s name?
The name must match the individual debtor’s unexpired driver’s license or the registered name of a business.
What is the general order of priority in secured transactions?
- Buyer in the ordinary course of business
- Holder in due course
- Possessory lienholder
- PMSI if timely perfected
- Perfected security interests and judicial liens
What is a purchase money security interest (PMSI)?
A special type of security interest that gets higher than usual priority.
What are the two types of PMSIs?
- Seller-financed PMSI
- Financer-financed PMSI
What is the first step a secured party must take upon default?
Confirm the default.
What is self-help repossession?
The secured party can take possession of collateral if they can do so without a breach of the peace.
What must a secured party do before selling collateral?
Provide the debtor with written notice within a reasonable time before the sale.
What is the order of proceeds from the sale of collateral?
- Repay costs of repossession/sale
- Pay the debt of the foreclosing party
- Pay off debt of creditors with lower priority
- Any leftover money goes to the debtor.
