When does a security interest attach, or become legally enforceable?
Secured interest must be supported by consideration given
Debtor must actually own the rights to the collateral or have possession
Secured interest much be recorded
What are the characteristics of perfection of interest in a secured transaction?
Gets higher priority over others claiming rights to collateral after the perfection takes place
Attachment must take place BEFORE perfection
How does perfection occur in a secured transaction?
By filing a financing statement
By possessing the collateral
When does automatic perfection occur in a secured transaction?
Store sells a consumer good on credit - Store retains security interest
A bank finances the purchase of a consumer good - Bank retains security interest
What are the priority rules for payment in a secured transaction?
If two parties are perfected, then the first one to file wins
If neither party is perfected, then the first one to attach wins
What are the advantages of a creditor holding a lien in a secured transaction?
Creditor holds priority over claims to collateral vs. unperfected security interests
Beats perfected security interests filed after lien attachment
Exceptions: Purchase money security interest, which has a 10 day grace period to be filed
Buyers purchasing in the ordinary course of business are immune from security interests held by merchants