Secured Transactions Flashcards
Scope of Article 9
Article 9 of the UCC applies to secured transactions intended to create a security interest in personal property or fixtures by contract.
Consumer Goods
Consumer goods are movable, tangible goods that are bought primarily for personal, family, or household purposes.
Inventory
Inventory is movable, tangible goods held by a person for sale or lease.
Equipment
Equipment is movable, tangible goods that are bought primarily for business purposes.
Deposit Accounts
A deposit account is an account maintained with the bank.
Accounts
An account is rights to payment from property sold or services rendered.
Attachment
Attachment creates a valid security interest. Attachment requires a secured party extend value to the debtor; debtor must have rights in the collateral; and a security agreement evidenced by a record showing intent to create a security agreement, authentication by debtor, and a description that reasonably identifies the collateral.
After-Acquired Property
Absent an explicit after-acquired property clause in the security agreement, the secured party’s interest only reaches the collateral that debtor had rights in at the time of signing.
Perfection
Perfection is the process of giving public notice of the creditor’s security interest. A security interest cannot be perfected until attachment occurs.
PMSI
A purchase-money security interest arises when a secured party sells the goods to the debtor on credit and retains an interest in the goods sold, or a loan to the debtor to purchase specific collateral and the debtor acquires such collateral while the secured party retains an interest in the collateral.
Automatic Perfection
A PMSI in consumer goods is automatically perfected upon attachment.
Perfection by Possession
A secured party may perfect a security interest in collateral by taking mere possession so long as the collateral is the type where possession can be taken.
Perfection by Control
Security interest in non-consumer deposit accounts can only be perfected by control. The bank maintaining the account has automatic perfection by control. If the secured party is not the bank maintaining the account, perfection by control can be obtained by putting the account in the secured party’s name or a control agreement.
Perfection by Notation
Security interest in motor vehicles required to be titled can only be perfected by notation on the Certificate of Title issued by the state government authority. If debtor holds vehicles as inventory, the security interest can only be perfected by filing.
Perfection by Filing
A security interest can be perfected by filing a financing statement (UCC1) with the Secretary of State. The financing statement must contain debtor and secured party’s name, adequate description of collateral, and debtor’s authorization either by authenticating the financing statement or authenticating a security agreement covering the same collateral.
Conflicting Perfected Interest
When there are conflicting perfected interests, priority goes to the secured party that either filed first or perfected first.
Conflicting Unperfected Interest
When there are conflicting unperfected interests, priority goes to the secured party that attaches first.
Unperfected v. Perfected Priority
When there is a conflicting perfected interest and unperfected interest, the perfected interest will have priority over the unperfected interest. This rule applies even when there is unperfected PMSI.
PMSI Super Priority
A PMSI in equipment has priority over conflicting security interest in the same goods (or their proceeds) if the interest is perfected before or within 20-days after the debtor receives possession of the goods.
BIOC
A buyer in the ordinary course (BIOC) of business takes the item free of a security interest created by the buyer’s seller even if the security interest is perfected and the buyer has knowledge of the security interest. A BIOC purchases in good faith, without knowledge of a violation, and purchases from a seller who ordinarily sells goods of that kind.
Security Interest on Collateral
(not BIOC)
When a buyer buys or leases something with a security interest attached, the security interest remains on the item.
Garage Sale Exception
A buyer of goods takes the goods free of the security interest if buyer buys without knowledge of the security interest; for value; primarily for buyer’s personal, family or household purposes; and before a financing statement covering the goods was filed.
Judgment Lien Creditors Priority
If a party becomes a judgment lien creditor before a secured party files or perfects, the judgment lien creditor will enjoy priority over the secured party.
Default
If a default occurs, the creditor can demand payment or use self-help to reclaim possession if this can be done without a breach of peace. A breach of peace is any conduct that has potential to lead to violence.
