UCC 9 Flashcards
Secured Transaction
Any consensual transaction, regardless of its form, that is intended to create a security interest in personal property.
Security Interest
An interest in personal property or fixtures to secure payment of a debt or performance of an obligation. (i.e….Collateral).
Applicability of UCC9
Article 9 focuses on substance of a transaction, not the form or the name the parties use. Where a party tries to take an interest in someone else’s property to ensure that it gets paid, it is a secured transaction and Article 9 applies. Applies to everything but real property/land… thus UCC 9 sort of the “mortgage” type rules for personal property.
UCC 9 Debtor
Person who gives the security interest; the borrower.
UCC9 Secured Party
Person who gets the security interest; the lender.
Seven Angry Creditors Persistently Pursue Secured Parties Relentlessly
S = Is There a Security Interest?
A = Has the Security Interest Attached? C = What Is the Classification of the Collateral? P = Is this A PMSI? P = Is the Security Interest Perfected? S = What Is the Status of the Party P = What Priority Rule Applies? R = What Remedy Is Available?
3 Ways for a Creditor to Create a Security Interest under UCC Article 9:
- Security Agreement
- Possession of the collateral
- Control of the collateral
Security Agreement
A security agreement is a record that sufficiently describes the collateral, contains a granting clause that state “i hearby grant you a security interest”, and is authenticated by debtor.
SECURITY INTERST VIA POSSESSION or CONTROL:
Can create a security interest by having a Non-authenticated security agreements (can be oral) AND possession OR control of the collateral.
Attachment
A term used to say a security interest is enforceable against identifiable collateral itself, not just the party, and not against 3rd parties until perfected.
THREE REQUIREMENTS OF ATTACHMENT (VCR)
- 1) Value must given by the secured party to the debtor in exchange for the security interest .
- 2) Contract that evidences the security interest attaches through security agreement, possesion, or control.
- 3) Debtor given enough rights in the collateral (e.g., owns it) that he can give a security interest in the collateral to someone.
After Acquired Property
Collateral to be acquired in the future may be the subject of a security agreement. The SI does not attach until the Debtor gets rights in the collateral; when the Debtor gets the after-acquired property, the SI immediately attaches. Very common for inventory. Automatically implied for inventory collateral in MD. Never allowed for consumer goods or commercial tort claims.
When does Attachment Occur?
Attachment occurs as soon as the last of the VCR requirements is met, no matter in what order and no matter how long it takes.
Why are classification of collateral important?
Because different classifications are perfected in different ways.
How to Classify:
Classification is NOT what the collateral itself is, but how the debtor intends to use the collateral at the time of attachment of the security interest to the collateral. If debtors intends to use several ways, classify by the debtor’s primary intended use at the time of attachment. Only one class at a time.
Goods Classification
All moveable physical things, tangible at time the security interest attaches. There are four categories… consumer goods, farm products, inventory, and equipment.
What are the four categories of Goods Classification?
⁃ Consumer Goods Classification: Goods acquired primarily for personal, family or household use. (e.g, your TV at home; your home lawnmower; your personal computer)
⁃ Farm Products Classification: Goods used or produced in farming; includes crops or livestock in unmanufactured state, if in possession of a farmer.
⁃ Inventory Classification: Goods held for sale or lease by a business or raw materials to be processed (e.g., flour to be made into bread); or materials used up or consumed in a business (e.g., nails used by a carpenter).
⁃ Equipment Classification: Goods used in operating a business (including equipment used in farming.) This is the catch call classification for goods that don’t fit in other three categories.
What are the three subcategories of Goods?
Fixtures, Accessions, and Motor Vehicles.
What is a Fixture SubClassification?
Thing that used to be goods but are now attached to real property (e.g., furnace at your house, electrical wiring at the office)
What is an Accessions SubClassification?
Goods attached to other goods (e.g., brake shoes on car, Intel processor in Dell computer) [rare]— unlikely on BAR.
What is a Motor Vehicles SubClassification?
and other goods subject to certificate of title laws and registration laws (e.g., planes, trains, automobiles, boats)
What is Documentary Assets Classification?
A physical piece of paper that is ITSELF the valuable thing… i.e… it is the formal embodiment of right to payment or of ownership/title to other property where the paper is necessary to transfer the value.
What is Financial Assets Classification?
A Bank Account..i.e…assets that you own that bank has control over… Includes “deposit accounts” (e.g., checking / savings account), “investment property,” “letter of credit rights.”
What is Intangible Assets Classification?
Everything else that gives a legal right but doesn’t have a physical form….e.g…Accounts, general intangibles, and commercial tort claims. These intangible assets may be noted in a writing or other record, but the physical writing is not needed to collect the value.
What are Accounts in an Intangible Assets Classification?
A type of intangible asset classification that is the right to payment for a monetary obligation, which arises from the debtor’s sale or lease of property.
What are General Intangibles in an Intangible Assets Classification?
A type of intangible asset classification that is a Catch-all for any personal property that does not fit into any other category. Most often intellectual property.
What are Proceeds?
Proceeds are the assets/cash received when the debtor sales or trades the secured party’s collateral. As a general rule, the Security interest automatically follows both the “outgoing” collateral AND the “incoming” proceeds.
Purchase Money Security Interest (PMSI)
A security interest that arises from money that lets the debtor purchase the collateral. (e.g., Seller loans Debtor $ for Debtor to buy item and gets a SI in the item Debtor bought.). PMSI is favored child of UCC 9.
What are the two ways to create a PMSI?
A PMSI is created when a secured party sells collateral to Debtor and then takes Security Interest in collateral sold to secure purchase price. (e.g., Car dealer sells you a car and finances the purchase price “in house,” taking a security interest in the car they sold you.) or… when a secured party gives Debtor loan to buy specifically identified collateral from someone else, which secured party take security interest in. (e.g. Bank gives you money to buy a car and bank takes SI in car).
Basic Methods of Perfection
Financial Statement Filing, Possession, Control, Auto Perfection
When does Perfection Occur?
Not until the moment all requirements for attachment (“VCR”) AND perfection have occurred. The PMSI grace period is the one exception.
PMSI Perfection Grace Period
If PMSI secured party files within 20 days after a debtor receives possession of goods, perfection of the PMSI dates back to time of attachment and squeezes out interest that arise between attachment and the filing. Does not apply to PMSI for inventory.
Perfection via “Financing Statement”
One can perfect a secured interest for a 5 year period, which is renewable within 6 months of expiration, by filing a Financing Statement in the State where the debtor lives or works. The statement need only contain information sufficient to give notice of the security interest. Moment of filing dates to presentation of Filing Statement and fee OR when accepted by filing offer, even if misindexed.
SDAT
The proper place to file a financing statement in Maryland is the Maryland State Department of Assessment and Taxation.
What is the Required Information on Financing Statement?
Exact Legal Name of Debtor (Not Trade Name), Name of Secured Party, and a Bare Bones Description of Collateral. Also, the Debtor Must Authorize the filing via signature or separate authenticated agreement.
What is a Termination Statement?
A secured party must terminate its Financing Statement after debtor’s obligations are paid and commitments to provide further credit have expired. Typically, must be filed within 20 days after request by debtor or, in the case of consumer goods, 30 days after payment and expiration of statement.
What is the Major Error in a Financing Statement?
Financing statements exist to put third parties on notice via a database search of debtor’s name. Thus, the major error in filing a statement is incorrectly listing the debtor’s name, if the error is so serious that it does not show up in a search.
