ST rule statements Flashcards
What is an “attached” security interest
A security interest that is enforceable against the debtor is said to have attached to that collateral
Requirements for attachment
Attachment requires that value has been given by the secured party, the debtor has rights in the collateral, and the debtor has authenticated a security agreement that describes the collateral (or the secured party has possession or control of the collateral pursuant to the security agreement)
What is inventory
Inventory includes goods, other than farm products, that are held for sale or lease
Effect of perfection
Perfection of a security interest is generally necessary for the secured party to have rights in the collateral that are superior to any rights claimed by third parties
How can a security interest in goods be perfected
A security interest in goods can be perfected by filing a financing statement
A buyer of collateral and the earlier security interest
A buyer of collateral subject to a perfected security interest generally takes the collateral subject to that interest
buyer in the ordinary course of business
A buyer in the ordinary course of business takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence
BOCB requirements
A buyer in the ordinary course of business is a person who buys goods in the ordinary course of business, from a merchant who is in the business of selling goods of that kind, in good faith, and without knowledge that the sale violates the rights of another in the same goods.
Who qualifies as a buyer
In order to qualify as a buyer, the purchaser must give new value, which in addition to paying cash for the goods includes purchasing the goods on credit
what if a BOCB sells to another buyer
If a buyer obtains goods under the BOCB exception free of the security interest in the goods created by the buyer’s seller, the buyer may, in turn, sell the goods to a second buyer who also takes free from that security interest. That second buyer need not qualify as a BOCB
PMSI in goods
A PMSI in goods exists when a secured party sold goods to the debtor, and the debtor incurs an obligation to pay the secured party all or part of the purchase price.
When is a PMSI in consumer goods perfected
A PMSI in consumer goods is automatically perfected upon attachment
What are consumer goods
Consumer goods are those goods acquired primarily for personal, family, or house hold purposes
Consumer buyer of consumer goods and prior security interests
A consumer buyer of consumer goods takes free of a security interest, even if perfected, unless prior to the purchase the secured party filed a financing statement covering the goods.
Who is a consumer buyer
A consumer buyer is a person who buys consumer goods for value, for his own personal, family, or household use, from a consumer seller without knowledge of the security interest
When does a security interest in collateral attach
A security interest in collateral automatically attaches to identifiable proceeds.
What is equipment?
Equipment is anything that is not consumer goods, farm products, or inventory
Can a security interest attach to collateral the debtor acquires in the future?
A security interest can attach to colateral that a debtor acquires in the future
Priority when there are two more more perfected secured parties with rights to the same collateral
When there are two or more perfected secured parties with rights to the same colalteral, the first to file or perfect its security interest has priority. If both are perfected, priority dates from the time of filing or perfection, whichever occurs first
Priority when one of the security interests is a PMSI
A PMSI in goods other than inventory or livestock prevails over all other security interests in collateral, even if they were previously perfected, if the security interest is perfected when the debtor receives possession of the collateral or within 20 days.
When may a transaction be categorized as a secured transaction, even though it appears to be a lease
The transaction may be categorized as a secured transaction if the lessee must pay consideration to the lessor for the right to possess and use the goods for the term of the lease, the payment obligation cannot be terminated by the lessee, and one of four conditions has been met, including when the lessee has the option to become the owner of the goods for no consideration or nominal consideration upon completion of the agreement
Methods of perfection
A secured party can perfect a security interest by filing a financing statement, possessing the collateral, controlling the collateral, or perfecting automatically
Requirements for a financing statement
A financing statement must contain the debtor’s name, the name of the secured party, and the collateral covered by the financing statement
What if steps for perfection are taken prior to attachment?
If the necessary steps for perfection are taken prior to attachment, then the security interest is perfected upon attachment.
General rule for a buyer of collateral subject to a perfected security interest
A buyer of collateral subject to a perfected security interest generally takes the collateral subject to that interest, unless the secured party has authorized the sale free of the security interest.
Scope of article 9
Article 9 of the UCC applies to any transaction intended to create a security interest in personal property or fixtures.
What is a security interest
A security interest gives a creditor the right to sell a debtor’s property to satisfy a debt
Enforcability of after acquired property clauses
After acquired property clauses may be included in security agreements and are generally enforceable, allowing the after acquired property to be secured in favor of the secured party.
After acquired property clauses and consumer goods
After acquired property clauses do not apply to consumer goods unless the debtor acquires rights in them within 10 days after the secured party gives value.
What constitutes a default
The parties may specifically define what constitutes a default. If left undefined, nonpayment generally constitutes a default
Accounts
Accounts include the right to payment for goods sold, property licensed, or services rendered.
Inventory
Inventory includes goods, other than farm products, that are held for sale or lease.
Do goods held for repair count as inventory?
Inventory does not include goods that are being held by the debtor for repair.
Inventory and raw materials
Inventory not only includes goods, other than farm materials, held for sale or lease, but also raw materials, works in process, or materials used or consumed in a business.
Equipment
Equipment, a catchall class, consists of goods that are not consumer goods, farm products, or inventory
What is a judicial lien creditor
A judicial lien creditor is a creditor who acquires a lien on the collateral by a judicial process, rather than by operation of law.
Priority of judicial lien creditors
A judicial lien creditor takes the property subject to a perfected security interset, but generally has priority over an unperfected security interest
Methods of perfecting a security interest
A security interest is perfected upon attachment and compliance with one of the methods of perfection: (i) filing a financing statement; (ii) taking possession of the collateral; (iii) exerting control over the collateral; or (iv) automatic perfection
When is a security interest enforceable against a debtor
Under Article 9, for a security itnerest to be enforceable against a debtor, the interest must attach to the collateral.
How does a security interest attach to proceeds
A security interest in collateral automatically attaches to identifiable proceeds
What are proceeds
Proceeds include that which is acquired upon the sale, exchange, or other disposition of collateral.
How is a security interest in proceeds perfected
If the security interest in the original collateral is perfected, a security interest in proceeds is temporarily perfected for 20 days from the time it attaches
Same office rule
Under the same office rule, a perfected security interest in proceeds may continue indefinitely when (i) the filed financing statement covers the original collateral; (ii) the proceeds are collateral in which a security interest may be perfected by filing in the same office as the financing statement; and (iii) the proceeds are nto acquired with cash proceeds
PMSI
A purchase money security interest (PMSI) arises when a creditor sells goods to a debtor on credit and retains a security interest in those goods, or the creditor advances funds, which are then used to purchase the goods and the creditor reserves a security interest in those goods
When does a PMSI in inventory have priorty over other security interests
A PMSI in inventory has priority only if (i) the PMSI is perfected by the time the debtor receives possession of the collateral; and (ii) the purchase-money secured party sends an authenticated notification of the PMSI to the holder of any conflicting security interest before the debtor receives possession of the collateral.
PMSI priority
A PMSI has priority over other security interests in the same goods, even if those security interests were previously perfected
