Terminology Flashcards
Secured Transaction
A secured transaction under UCC Article 9 involves a loan or purchase that is secured by collateral.
The relationship typically involves two parties, a debtor and a creditor.
The debtor gives the creditor a security interest in the debtor’s specific property (e.g. the collateral) to assure that the debtor will perform (e.g. repay the loan/pay the purchase price).
Security Interest
A security interest is an interest in personal property or fixtures that secured payment or performance of an obligation.
Secured Party
A secured party is the person in whose favor a security interest is created under the security agreement.
Usually, the secured party is the person who has loaned money or extended credit to the obligor.
Example: a bank that loans money to a business is a typical secured party.
Obligor
An obligor is a person who must pay (or otherwise perform) with respect to the obligation that is secured by a security interest in the collateral.
Example: business that receives a loan from the bank is a typical obligor.
Debtor
A debtor is a person who has an interest, other than a security interest or other lien, in the collateral, such as the sole owner of the collateral.
Although the debtor is usually also the obligor, the debtor need not be.
Collateral
Property subject to a security interest.
What are ‘goods’ as collateral?
Goods encompasses anything that is moveable at the time that a security interest attaches.
What are the four classes of goods that fall under ‘tangible collateral?’
- Consumer Goods: goods acquired primarily for personal, family, or household purposes.
- Farm Products: goods that are crops or livestock and include supplies that are used or produced in farming. Note: farming equipment is NOT considered farm product goods.
- Inventory: goods-other than farm products-that are (a) held for sale or lease; (b) furnished under a service contract; (c) consist of raw materials, works in progress, or materials used or consumed in a business.
- Equipment: a catch-all class which consists of goods that are not within any of the above categories. Examples: machinery, delivery vans, etc.
What are the two most frequently tested types of intangible collateral?
- Accounts: the right to payment for goods sold, property licensed, or services rendered. Also included is a right to payment for the issuance of an insurance policy, the use of credit or charge card, or winning a lottery.
- Deposit Account: a bank account. Example: savings, passbook, time, or demand account maintained with a bank.
What are the seven types of intangible collateral (not frequently tested)?
- Instruments: writings representing the right to be paid money. Example: promissory notes, checks, etc.
- Documents: writings representing the right to receive goods. Example: bills of lading, receipts, etc.
- Chattel Paper: record evidencing an obligation and security interest in goods or a lease of goods. Example: a promissory note and security agreement.
- Investment Property: certified and uncertified securities. Example: stocks and bonds.
- Commercial Tort Claims: tort claims possessed by an individual/organization that arose in the course of business. Exception: no personal injury or death claims.
- Letter-of-Credit Right: right to payment or performance under a letter of credit.
- General Intangibles: residual category of personal property that is not included in other types of collateral. Example: copyrights, software, etc.
What is a security agreement and what are the three requirements for it to valid?
A security agreement is a contract that creates a security interest. There are three requirements for a security agreement to be valid:
- Agreement must be stored in a record (need not be in writing);
- Record must be authenticated by the debtor;
- The security agreement must describe the collateral.
What is attachment and what is its effect?
Attachment is an arrangement linking a debt to a particular piece of collateral.
Upon attachment, a party becomes a secured party and the security interests are enforceable against the debtor’s collateral.
What is an after-acquired property clause?
An after-acquired property clause is a clause that is written into the security agreement to give the creditor a security interest in property acquired by the debtor after the security interest attaches.
Example: “all of the debtor’s existing and after-acquired collateral” or “all of the collateral now owned or hereafter acquired.”
What is accession?
Accession happens when goods are physically united with other goods so that the identity of the original goods is NOT lost.
Example: adding stereo system to a car is accession because the original identity of the car is not lost.
What are commingled goods?
Goods are commingled when goods are physically united with other goods to the point that their identity is lost in a product or mass.
Example: a secured party has a SI in eggs and milk, but when they are added with other goods to create cookies, the secured party’s interest is in the product (the cookies).
