UCC - Secured Transactions Flashcards
Security Interest
A security interest arises when a party (the debtor) uses certain property as collateral to secure repayment of funds to another party (the secured party). The creditor’s interest in the collateral is the security interest.
What happens if the debtor defaults on repayment?
The creditor may take possession of the collateral and apply it to the balance owed
What are the categories of collateral?
- Goods
- Tangible intangibles
- Intangible intangibles
- Investment property
Define ‘goods’ in the context of security interests.
Includes all things that are movable at the time the security interest attaches
What are the subcategories of ‘goods’?
- Consumer goods
- Inventory
- Farm products
- Equipment
What are fixtures?
Goods that become so related to particular real estate that an interest in those goods arises under real property law
How does a security interest in fixtures relate to real estate?
It is generally subordinate to a conflicting interest in the related real estate by one other than the debtor
Accessions
Goods that are physically united with other goods in such a manner that the identity of the original goods is not lost
What happens to a perfected security interest when collateral becomes an accession?
The security interest remains perfected
Commingled Goods
Goods that are physically united with other goods in such a way that their identity is lost in a product or mass
Includes goods whose identity is lost through manufacturing or production (e.g. flour that has become part of baked goods) and through mere mixing with other goods from which they cannot be distinguished (e.g., ball bearings).
Can a security interest exist in specific goods that have become commingled?
No, but a security interest may attach to a product or mass resulting from commingling
Tangible Intangibles
Certain intangibles, such as contractual obligations to hold or deliver goods or to pay money, and ownership in goods or business entities, are commonly reduced to tangible or written form; by transferring the writing, the intangibles are transferred.
May be categorized as:
- Instruments;
- Documents; or
- Chattel paper.
Instruments
Negotiable instruments, drafts, notes, or any writing evidencing a right to payment of a monetary obligation
Documents
Documents of title, such as bills of lading, dock warrants and receipts, warehouse receipts, or any other document that in the regular course of business or financing is treated as adequately evidencing that the person in possession of it is entitled to receive, hold, and dispose of the document and the goods it covers.
Unlike instruments, which represent intangibles with no other tangible form, documents of title “cover” or represent ownership in tangible goods.
Chattel Paper
A record evidencing both a monetary obligation and a security interest in, or a lease of, specific goods
Intangible Intangibles
Many intangibles, such as monetary obligations or literary rights, while possibly evidenced by writings, are treated as intangibles. The writings take on no commercial significance of their own.
Includes: accounts, commercial tort claims, general intangibles
Financing Statement
The document filed to give notice of the security interest and to perfect it
Security Agreement
An agreement that creates or provides for a security interest in certain collateral. The security agreement must be in writing and contain:
* A granting clause
* A description of the collateral
* Authentication by the debtor
After-Acquired Collateral Clause
A clause stating that the security interest extends to collateral acquired after the agreement is made
Generally valid in Virginia
How do corporations perfect security interests in Virginia?
By filing a financing statement with the State Corporation Commission
In a competition for the same collateral, how is priority determined?
Priority normally goes to the one who was first either (1) to perfect or (2) to file a valid financing statement.
Purchase Money Security Interest (PMSI)?
When a creditor loans money to a debtor to finance the purchase of certain goods. And in return, the debtor grants the creditor a security interest in those goods.
May have “super priorty” over other creditors.
What conditions must be met for a PMSI in inventory to have super priority?
The creditor, before handing over possession of the inventory to the debtor (1) sends a special written notice to other security interest holders, and (2) takes steps to assure that its PMSI will be perfected at the time the debtor receives possession.
Consumer Goods
Goods for personal, family, or household use
When are security interests in consumer goods perfected?
Automatically upon attachment for personal, family, or household use
What is the limitation on an after-acquired collateral clause for consumer goods?
Ineffective for goods acquired more than 10 days after the creditor has given value
What happens when a buyer in the ordinary course of business purchases goods?
Takes the goods free of any security interest, unless they know of the interest
Does a person receiving a gift of property subject to a security interest have priority?
No, they do not have priority over the holder of the security interest
Attachment
A security interest attaches when all three of the following conditions are satisfied:
(1) Value is given;
(2) Debtor has rights in the collateral;
(3) A security agreement is authenticated, OR the secured party has possession or control of the collateral.
Rights of a Surety (VA Code § 49-27)
A surety who makes a payment on a loan on behalf of the principal is entitled to all of the rights and remedies of the creditor.
The surety can exercise the same rights as the creditor, including the right to repossess collateral or enforce repayment.
