Secured Transactions Flashcards
(32 cards)
Scope of Article 9
What does Article 9 govern?
Article 9 governs security interests and applies to any transaction that creates a security interest in personal property or fixtures by contract. It also applies to other transactions such as agricultural liens, consignments, and sales of accounts or promissory notes. Secured transactions must be consensual, and involve personal property or fixtures that are not real estate.
Scope of Article 9
Does Article 9 apply to a sale of rights payment?
Yes, Article 9 applies to certain sale of rights payment including (1) chattel papers, (2) promissory notes, (3) accounts, and (4) payment intangibles.
Scope of Article 9
Is payment by an account allowed?
Yes, Article 9 covers the right to be repaid money by a third party that the debtor then uses as a collateral for a loan. An account includes the rights to payment for property sold, leased, licensed, or for services rendered.
Scope of Article 9
Lease of Goods Issue
A true lease of goods does not create a security interest. But, a transaction that appears to be in the form of a lease may actually be a secured transaction disguised as a lease. The transaction may be categorized as a secured transaction if the “lessee” must pay consideration to the “lessor” for the right to possess and use the goods for the term of the lease, the payment obligation cannot be terminated by the lessee, and either (1) the lease term is equal to or greater than the remaining economic life of the goods, (2) the lessee is bound to purchase the goods at the end of the lease or to renew for remaining life of the goods, or at the end of the lease, the lessee has an option to purchase the goods renew the lease for no or nominal consideration.
Types of Collateral
Consumer Goods…
are goods used or bought for primarily personal use, such as automobiles or jewelry.
Types of Collateral
Equiptment…
are goods meant for use by a business that are not normally sold by the business, like chairs at a restraunt.
Types of Collateral
Inventory…
are goods held for sale or lease by a business, but also are materials used or consumed in a business in a short period of time.
Think cars at a dealership
OR
Water bottles at a dealership.
Types of Collateral
Farm Products…
are goods unique to farming operations.
Include crops, livestock, feed, and agriculture products.
Types of Collateral
Fixtures…
is property that is affixed to buildings so that they are sometimes considered real property
Think brick oven in pizza kitchen
Types of Collateral
Accounts…
typically unsecured obligations owed to the person for goods or services rendered
Include right to payment for good sold, property licensed, or services rendered.
Types of Collateral
Chattel Paper…
references obligations that facilitate smaller transactions. (1) Monetary obligation (someone made a promise to repay the loan and security interest is in something else), and (2) a security interest or a lease.
Types of Collateral
Deposit Accounts
are property such as bank savings or checking accounts.
Types of Collateral
Investment Property…
includes stocks, bonds, and similar types of property traded on a securities exchange.
Types of Collateral
Instrument
are pieces of paper representing the right to be paid money
Promisorry notes, checks, etc.
Attachment
Generally
For a secured party to have a calid interest in the collateral, it must first attach. Upon attachment the security interest becomes enforceable against the debtor’s collatereal.
Attachement
Requirements
Attachment requires (1) value given by the secured party, that the debtor has rights in the collateral (some property interest), and (3) the parties enter into a security agreement.
Attachment
Ways to show there was a security agreement
- Creditor takes possession of the collateral (tangible)
- There is an authenticated security agreement
- Creditor takes control of the collateral (intangible)
Attachment
Authenticated Security Agreement
Requires (1) a record (can be written or esi) showing intent to create a security interest, (2) record must be signed by the debtor (any symbol made with present intent to authenticate), (3) a description of the collateral that reasonably identifies it (can be general or specific), and (4) no supergeneric descriptions (all assets)
Attachement
After Acquired Interest
A debtor may give a security interest in future rights. This interest is created by an “after-acquired property clause” in the security agreement. Security interest for after-acquired property attaches as soon as the debtor obtains interest in that property.
Without an AAPC, the SI only attaches to the collateral that existed at the time the security agreement was executed.
Attachement
Exception to the explicit after-acquired property clause requirement
Even without an AAPC, a SI will attach automatically to collateral of a type that is reapidly depleted and replenished, such as accounts, inventory, and identiafiable proceeds of collateral.
Attachment
Future Advances
A future advance clause anticipates that the secured party may extend additional credit to the debtor after the first loan. If that occurs, the security interest relates back to the original transaction.
Attachment
Accessions
Goods that are physically united with other goods so that the identity of the original good is not lost. If collateral becomes an accession a security interest in that collateral is not lost, it continues with the accession.
Attachment
Commingled Cash Proceeds
When cash becomes physically united with other cash to the point that the identifiable proceeds identity is lost. The courts will implement the lowest intermediate balance rule. Under that rule, look at the bank account starting at the time the proceeds are deposuted and ending at the time you are applying the rule. The lowest balance during that time peropd is the creditor’s identifiable proceeds (amount can not exceed the cash proceeds originally deposited.)
Perfection
Generally,
for the secured party to have superior rights over third parties that have security interests in the same collateral the party must perfect its security interest. The party must have attached and complied with one of the following methods for perfection: (1) filing a financing statement, (2) possessing the collateral, (3) controlling the collateral, or (4) perfecting automatically.
