Secured Transactions Essay Rules Flashcards
Memorize Rules of Secured Transactions (12 cards)
Inventory under Article 9
Inventory under UCC Article 9 includes goods, other than farm products, that are held for sale or lease
Attachment of a security interest (How does a security interest become enforceable?)
A security interest that is enforceable against the debtor with respect to the collateral is said to have attached to the collateral and three conditions must exist: (1) the secured party must give value, (2) the
debtor must have rights in the collateral, and (3) the debtor must authenticate a security agreement that describes the collateral or else the secured party retains possession or control of the collateral.
Buyer of collateral subject to a perfected security interest
A buyer of collateral subject to a perfected security interest generally takes the collateral subject to that
interest, unless the secured party has authorized its sale free of the security interest.
Buyer in the Ordinary Course of Business (BCOB)
A buyer in the ordinary course of business (BOCB) takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. A BOCB is a buyer who (i)
buys goods, (ii) in the ordinary course of business, (iii) from a merchant in the business of selling goods
of that kind, (iv) in good faith, and (v) without knowledge that the sale violates another’s rights in the same goods. In order to qualify as a buyer, the purchaser must give new value, which in addition to paying cash for the goods includes purchasing the goods on credit. If a buyer obtains goods under the BOCB exception free of the security interest in the goods created by the buyer’s seller, the buyer may, in turn, sell the goods to a second buyer who also takes the goods free of that security interest. The second buyer is not required to qualify as a BOCB.
Purchase Money Security Interest (PMSI) * sale on credit
A purchase‐money security interest (PMSI) is a special type of security interest that exists when a secured party sold goods to the debtor, and the debtor incurs an obligation to pay the secured party all
or part of the purchase price (a sale on credit).
PMSI in consumer goods
A PMSI in consumer goods is automatically perfected upon attachment.
Consumer Good
A consumer good is acquired primarily for personal, family, or household purposes.
Consumer Buyer of Consumer Goods
A consumer buyer of consumer goods takes free of a security interest, even if perfected, unless, prior to the purchase, the secured party has filed a financing statement covering the goods. A consumer buyer is a person who: (i) buys goods for value, (ii) for his own personal, family, or household use, (iii) from a consumer seller, and (iv) without knowledge of the security interest. This is often referred to as the “garage sale” rule.
Perfection of a Security Interest
Perfection of a security interest is generally necessary for the secured party to have rights in the collateral that are superior to any rights claimed by third parties. A security interest in goods can be perfected by filing a financing statement.
When does Article 9 apply?
If the substance of the transaction is the creation of a security interest, then Article 9 applies regardless of the form of the transaction. The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer is limited in effect to a reservation of a security interest.
Consumer Seller (Element of consumer buyer of consumer good)
Someone not in the business of selling the goods.
Identifiable cash proceeds and Perfected Security Interests
Proceeds include whatever is acquired upon the sale of collateral. A security interest in collateral automatically attaches to identifiable proceeds. If the proceeds are identifiable cash proceeds (which includes checks) and the security interest in the original collateral is perfected, the perfected security interest in the proceeds continues indefinitely.
