Terminology Flashcards
Secured Transaction
Transaction intended to create a security interest in personal property or fixtures. It generally involves a sale on credit or a loan in which the seller or lender obtains a lien on some or all of the debtor’s property as security for payment.
How to spot a secured transaction
Look for (1) a credit transaction and (2) an agreement that creates a lien in favor of the creditor in the debtor’s personal property to secure the debt.
Debtor
Person who owes payment or performance of the obligation secured.
Secured Party
Also called the “creditor”. Someone who is a lender, seller, or other person in whose favor there is a security interest.
Security Agreement
Agreement between the debtor and the secured party that creates a security interest
Security Interest
An interest in personal property or fixtures that secures payment or performance of an obligation.
It’s a contingent property interest in the debtor’s collateral that the debtor grants to the creditor. When that contingency (default) occurs, the property interest springs to life and the creditor has rights in the debtor’s collateral.
Collateral
Property subject to the security interest (i.e., property that the secured party can repossess upon default to ensure the debt is paid)
Purchase Money Security Interest
Special type of security interest in goods.
Arises in two ways:
(1) secured party sells the goods to the debtor on credit and retains a security interest in the goods sold; or
(2) the creditor advances funds which are then used to purchase the goods and the creditor resveres a security interest in those goods.
A PMSI in goods other than inventory and lifestock prevails over all other security interests in the collateral, even if they were previously perfected, if the secured party perfects before or within 20 days after the debtor recieves possession of the collateral.
After-Acquired Property Clause
Security agreements typically contain an after-acquired property clause. This means that a secured party may obtain a security interest in not only the debtor’s present property, but also in property that the debtor will obtain in the future.
Future Advance Clause
Security agreements typically contain a future advance clause, in which case a new security agreement is not needed when a future advance is made.
Happens when the security party contemplates making future loans to the debtor and wants to secure these future advances in the present security agreement.
Attachment
Under Article 9, for a security interest to be enforceable against a debtor, the interest must attach to the collateral.
For attachment, three conditions must be met: (i) value must be given by the secured party; (ii) the debtor has rights in the collateral; and (iii) the debtor authenticated a security agreement that describes the collateral (or the secured party has possession and control of the collateral pursuant to the agreement).
Perfection
Deals with those steps legally required to give the secured party an interest in the collateral that is effective as against the world.
In general, perfection is the process of giving public notice of the security interest to the world.
Perfection of an attached security interest is generally necessary for the secured party to have superior rights over other parites that have security interests in the same collateral. A secured party can perfect a security interest by: (i) filing a financing statement; (ii) possession the collateral; (iii) controlling the collateral; or (iv) perfecting automatically.
Financing Statement
Document generally used to provide public notice of a security interest, and so to perfect the security interest.
BIOCOB
Buyer in the ordinary course of business takes free of a security interest created by the seller.
A buyer is a BIOCOB if he: (i) buys goods, (ii) in the OCOB; (iii) from a merchant who is in the business of selling goods of that kind; (iv) in good faith, and (v) without knowledge that the sale violates the rights of another in the same goods.
