The Scope of UCC Article 9 Flashcards
What is a secured transaction? (3 elements)
A secured transaction is:
- a loan or a credit transaction
- in which the lender acquires a security interest in collateral owned by the borrower and
- is entitled to foreclose on or repossess the collateral in the event of the borrower’s default.
The terms of the relationship are governed by a contract, or security agreement.
What are a couple common examples of secured transactions?
- A consumer who purchases a car on credit. If the consumer fails to make the payments on time, the lender will take the car and resell it, applying the proceeds of the sale toward the loan.
- Mortgages and deeds of trust.
What is the applicable law w/r/t secured transactions?
Secured transactions in personal property (i.e., anything other than real property) are governed by Article 9 of the Uniform Commercial Code (UCC Art. 9)
What is the scope of UCC Art. 9?
Definition: “Article 9 applies to CONSENSUAL security interests in PERSONALTY and FIXTURES”
Personalty = goods, e.g., jewelry, cars, etc. Fixtures = items affixed to realty, e.g., lighting, fans, furnaces, etc.
To what broad categories of secured transactions does Art. 9 NOT apply?
- Art. 9 does not apply if the debtor’s collateral is real estate (mortgage law applies)
- Art. 9 does not apply to statutory or mechanics liens (because it only applies to voluntary or consensual collateralizations)
What is a “debtor” w/r/t secured transactions questions?
The debtor is the entity who owes the money in the deal
What is a “secured party” OR “secured creditor” w/r/t secured transactions questions?
The secured party/creditor is the entity who lends the money in the deal
What is a “security agreement” w/r/t secured transactions questions?
The security agreement is the contract governing the terms of the deal
What is a “security interest” w/r/t secured transactions questions?
The security interest is the right the Creditor has in the Debtor’s personalty or fixtures, per the security agreement
What is “collateral” w/r/t secured transactions questions?
Collateral is the Debtor’s personalty/fixtures to which the Creditor can look for satisfaction of the debt owed
What are the two broad categories of collateral
- Tangible collateral or goods (CEIFF)
2. Intangibles or semi-intangibles
Collateral can be tangible collateral or goods. What are five types of tangible collateral?
(CEIFF)
- Consumer goods (personal- or family-use items, e.g., blender, fridge, car)
- Equipment (business-use items, e.g., cash register, restaurant oven, espresso machine)
- Inventory (goods held for sale, e.g., stock of TVs, clothing inventory, mattress inventory)
- Farm products (livestock or items used in farm operation, e.g., chickens, eggs, corn, baler)
- Fixtures (items annexed to realty, e.g., lighting, furnaces)
Collateral can be intangible or semi-intangible.
What are the three types of intangible assets?
Intangibles:
- Patents
- Trademarks
- Copyrights
Collateral can be intangible or semi-intangible.
What are six types of semi-intangible assets?
Semi-intangibles:
- Stocks
- Bonds
- Mutual funds
- Proceeds from the sale of collateral (OK to collateralize not just the good, but also the sale of the good - impt for inventory)
- Accounts (Right to payment for goods or services, e.g., You can get a bank loan using a security interest in debt owed to you by a 3rd party as collateral)
- Promissory notes and drafts
What is the key determinant for purposes of classifying TANGIBLE collateral?
(e.g., What is the classification of golf clubs?)
The primary use of the collateral in the hands of the Debtor (Subjective test)
(e.g., Classification of golf clubs depends on use. In your hands, consumer good; in Jordan Spieth’s hands, equipment; in Dick’s, inventory)
