SECURED TRANSACTIONS MEE Flashcards
APPLICATION OF ARTICLE 9
Article 9 applies to all security interests in personal property or fixtures by contract [+ consignments & leases that are not true leasesI] [neither the term, “security agreement” nor awareness of its existence is required.]
UCC CLASSIFICATIONS CONSUMER GOODS:
UCC CLASSIFICATIONS CONSUMER GOODS: bought for use primarily for personal, family or household purposes.
UCC CLASSIFICATIONS INVENTORY:
goods, other than farm products, that are held by a person for sale or lease to be furnished under a contract of service; or raw materials, work in progress, or materials used or consumed in a business.
UCC CLASSIFICATIONS EQUIPMENT:
goods other than inventory, farm products, or consumer goods.
ATTACHMENT
In order to have a secured transaction, the security agreement must “attach” to the collateral. A mere agreement is insufficient.
REQUIREMENTS FOR ATTACHMENT
REQUIREMENTS: (1) VALUE must be given by the secured party to the debtor (loan); (2) The debtor must have RIGHTS in the collateral; and (3) There must be a BINDING SECURITY AGREEMENT [which requires the (AID)]: authentication; intent to create a security agreement; and a description of the collateral;
ATTACHMENT OF PROCEEDS
a security agreement automatically gives the right to receive proceeds unless the parties agreed otherwise [when a secured party has an interest in “inventory” & that inventory is sold, the security interest will attach to whatever was used to purchase the inventory]
PERFECTION
Perfection can occur: (1) By filing a financing statement [statement must be filed: (1) based on location of debtor & (2) under the correct name of the debtor; a “minor error” is acceptable; a “seriously misleading” error will render the statement improperly filed] (2) perfection can be automatic [PMSI in consumer goods] (3) By possession of the item or control [Deposit accounts must be perfected by control]
PRIORITY
When two secured parties each have a security interest in the same collateral: the first to file or perfect has priority. If no party perfects, then the first to attach has priority [a perfected security interest beats an unperfected security interest -even if it is an unperfected PMSI]
PRIORITY: SECURED PARTY VS. LIEN CREDITOR
As between a secured party and a lien creditor, priority belongs to the secured party, provided that it has perfected before the lien arises If the lien was unsecured or only perfected after the lien creditor served the writ, then the lien creditor would have priority
SALE TO A BUYER: BUYER IN THE ORDINARY COURSE OF BUSINESS
A buyer in the ordinary course of business: A buyer in the ordinary course of business (exception: farming) takes free of a security interest created by the buyer’s seller, even if the security interest is perfected & the buyer knows of its existence
A BUYER IS NOT IN THE ORDINARY COURSE OF BUSINESSS IF:
he knows that the sale is in violation of some term in the security agreement not waived by the secured party
if a buyer in the ordinary course of business sells the collateral to a 3rd person:
the collateral will “shelter” under the buyer, and the 3rd person will take the collateral free from the interest as well.
A buyer not in the ordinary course of business vs. a Perfect interest:
a buyer not in the ordinary course of business takes the collateral subject to a perfected security interest
A buyer not in the ordinary course of business vs. an Unperfected interest:
a buyer does not take subject to an unperfected interest in goods, tangible chattel paper, documents, or instruments if he gives value, and does not know about the interest
