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REG - Business Law > Secured Transactions > Flashcards

Flashcards in Secured Transactions Deck (15):

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


What is a secured transaction?

Debt secured by collateral


What is a security interest?

Right of creditor to repossess upon default


What is attachment

When secured trans is effective between cr & dr
Think: creditor attaches hand to property to protect against debtor

Legally enforceable


What is perfection?

When secured trans is effective against 3rd parties

Gives cr rights in collateral superior to certain 3rd parties


Creation of security interest - steps

1. Attachment
2. Perfection


3 requisites for attachment

1. Signed by debtor or creditor takes possession
2. Value given
3. Debora has rights in collateral


5 methods to perfection

1. Filing
2. Take possession of collateral
3. Control
4. Automatic perfection
5. Temp perfection


When does automatic perfection happen?

- PMSI in consumer goods (for personal use)
- small scale assignment of accounts


Order of priorities for creditors

1. Buyer in ordinary course of business
2. Perfected PMSI
3. Perfected non-PMSI
4. Unperfected security interest (attachment only)
5. Debtor