Secured Transactions Flashcards
What are the three requirements for a security interest to be enforceable under UCC Article 9?
1) Value has been given, 2) the debtor had rights in the collateral, 3) the debtor authenticated a security agreement containing a description of the collateral.
Does the form of a transaction or its substance take precedence under the UCC?
The substance of a transaction controls, rather than its form or the label given to it by the parties.
What constitutes a ‘true lease’ under the UCC?
A transaction in the form of a lease creates a security interest if lease payments must be made for the full term and are not subject to termination, and the lessee has an option to become the owner for nominal additional consideration.
What is the distinction between inventory and equipment under the UCC?
If an item is not held for sale or lease, it is not inventory; it is equipment.
If an item is acquired upon the exchange of collateral, it is ‘proceeds’ of that collateral. A security interest in collateral extends to identifiable proceeds of that collateral.
What is the Shelter Principle in secured transactions?
A security interest continues after the sale of the collateral.
What are the criteria for a buyer in ordinary course of business (BIOCOB) to take free of a security interest?
1) Buys goods in good faith, 2) without knowledge of the violation of rights, 3) from a seller in the business of selling those goods, 4) in the ordinary course of the seller’s business.
What conditions allow a buyer of consumer goods to take free of a security interest?
1) Buys without knowledge of the security interest, 2) gives value, 3) buys for personal, family, or household use, 4) receives goods before the filing of any financing statement.
When is a security interest considered perfected under UCC Article 9?
When a financing statement is filed or there is possession of the collateral.
What is a purchase-money security interest (PMSI)?
A PMSI is when a seller retains a security interest in collateral to secure the buyer’s obligation to pay the remainder of the purchase price.
How does a perfected security interest compare to unperfected security interests?
A perfected security interest has superiority over unperfected security interests.
Can a creditor retain title to collateral without a perfected security interest?
No, a creditor does not have a priority claim over the collateral unless they have a perfected security interest.
What priority does a judgment lien have over security interests?
A judgment lien has priority over an unperfected security interest.
What is the order of application for proceeds when a secured party disposes of collateral?
1) Expenses of the disposition, 2) satisfaction of the obligation owed to the disposing secured party, 3) satisfaction of any obligation secured by a subordinate interest.
What happens to a debtor’s rights in collateral when a secured party disposes of it after default?
The debtor’s rights are transferred to any transferee for value, and the secured party’s interest in the collateral and any subordinate interest are discharged.
