Secured Transactions Flashcards
Secured Transactions - General Rule
Article 9 of the UCC governs security interests and provides the rules for their priority.
Attachment
Attachment gives the creditor rights against the debtor in the collateral. There are three requirements for attachment of a security interest: the parties must have a security agreement that the security interest attach; value must be given by the secured party; and the debtor must have rights in the collateral.
Perfection
A secured party must also perfect its security interest. A creditor can perfect its security interest in goods by: filing, in a proper public office, a financing statement that is authorized by the debtor in an authenticated record or by taking possession.
PMSI - Consumer Goods
A PMSI in consumer goods is automatically perfected upon attachment. A PMSI is created when a creditor advances credit or provides funds to make a purchase possible and takes a security interest in the goods purchased. A consumer good is a good that is used or bought primarily for personal, family, or household purposes. Goods that are not consumer goods, inventory, or farm products are equipment. Courts are split, and can classify a good by its original use or its final use.
PMSI - Generally
A PMSI arises when a creditor sells the goods to the debtor on credit, retaining a security interest in the goods for all or part of the purchase price. A PMSI (not inventory or livestock) will take priority over conflicting security interests in the same collateral and its proceeds, if the interest is perfected when debtor takes possession of the collateral or within 20 days.
Priority - Generally
Between two competing perfected security interests, the first secured party to file or perfect has priority.
Accessions
Accessions are goods that are physically united with other goods in such a manner that the identity of the original goods is not lost.
After-Acquired Property Clause
Security interest attaches when debtor obtains interest in collateral. An after-acquired collateral clause will allow a secured party to take an interest in goods that the debtor obtains after the signing of the security agreement.
Accessions - Whole v. Accesssion priority
A security interest in the whole perfected under an applicable certificate of title statute has priority over security in the accession.
Sale of Collateral - BIOCOB
As a general rule, a security interest continues notwithstanding the sale of collateral. However, a buyer in the ordinary course of business takes free of a security interest created by its seller even if the security interest was perfected, this occurs when, buyer bought in good faith, bought in the ordinary course of business from a person in the business of selling goods of the kind, and bought without knowledge that the sale violated rights of third party. The shelter rule states, if a party takes the property free of security interest, then any subsequent transfer is also free of the security interest.
Sale of Collateral - Consumer to Consumer
As a general rule, a security interest continues notwithstanding the sale of the collateral. However, when there is a consumer to consumer sale, if: seller used it for personal, family, or household purposes, buyer does not have knowledge of the security interest, buyer gives value, buyer intends to use it for personal, family, or household purposes, and sale was before the filing of a financing statement covering the goods.
Proceeds
Proceeds are whatever is received upon the sale, lease, collection, or other disposition of collateral. This includes any collateral that has changed form. When collateral is disposed of, a secured party automatically obtains a security interest in identifiable proceeds of the collateral. A perfected security interest in proceeds will become unperfected on the 21st day, unless the proceeds are cash proceeds. Cash equals money or checks.
