Secured Transactions Flashcards
What is the key principle regarding Article 9 and security interests?
Article 9 applies to all security interests in personal property or fixtures by contract, regardless of the terminology used.
This includes lease agreements that are not true leases, they function as security interests.
Define consumer goods.
Goods that are bought for use primarily for personal, family, or household purposes.
Example: A computer used by a consumer.
What constitutes inventory?
Goods, other than farm products, that are held for sale or lease to be furnished under a contract of service; or raw materials, work in process, or materials used or consumed in a business.
Example: Computers sold by a computer store.
What are examples of equipment?
Goods used in a business that are not inventory, farm products, or consumer goods.
Example: A computer used in a business.
What are farm products?
Crops, livestock, and supplies produced in a farming operation or products of crops or livestock in their unmanufactured state in possession of debtor who is engaged in a farming operation.
What are the three criteria for attachment to occur?
Requirements of attachment:
1) Value must be given by the secured party to the debtor (e.g., a loan);
2) Debtor must have rights in the collateral
3) There must be a binding security agreement (which requires mnemonic AID: authentication, intent to create a security agreement, and a description of the collateral)
What is the general rule regarding after-acquired property?
The general rule is that a security agreement can cover after-acquired property and does not need to specifically reference it to be effective.
What methods of perfection should one be familiar with?
Perfection can occur by:
- Filing a financing statement;
- Automatic perfection in some cases (e.g., a PMSI in consumer goods);
- Perfection by possession or control
These are the most commonly tested methods.
How is priority determined when two secured parties have a security interest in the same collateral?
The first to file or perfect has priority; if no party perfects, the first to attach has priority.
Know that a perfected security interest beats an unperfected one, even if one has an unperfected PSMI.
What happens when a debtor sells collateral subject to a security interest?
A buyer in the ordinary course of business generally does not take the collateral subject to the security interest.
Conversely, a buyer not in the ordinary course typically does.
What is the consumer to consumer goods exception?
A buyer not in the ordinary course takes free of a security interest if they buy without knowledge of it, for value, and for personal use.
This applies unless the secured party has filed a financing statement.
What is the general rule regarding secured parties and lien creditors?
Priority belongs to the secured party if it perfects before the lien arises.
If the interest was unsecured or perfected after the lien arose, the lien creditor has priority.
What can a secured creditor do if a default occurs?
The lender can demand payment or use self-help to reclaim the goods, as long as it does not breach the peace.
Breach of peace can occur if repossession is contested by the debtor.
What must be examined to determine if a lender has breached the peace?
- Location of repossession
- Debtor’s objection
- Use of trickery
Some courts consider any objection, even slight, as a breach.
What happens during the resale of collateral?
The secured party may sell the collateral in a commercially reasonable way, discharging the security interest but the debtor remains liable for any deficiency.
Senior liens remain on the collateral.
