Secured Transactions - Model Rule Statements Flashcards
(16 cards)
enforceable security interest
Generally, a security interest that is enforceable against the debtor is said to have “attached” to the collateral.
Attachment requires that: (i) value has been given by the secured party, (ii) the debtor has rights in the collateral, and (iii) the debtor has authenticated a security agreement that describes the collateral, or the secured party has possession or control of the collateral pursuant to a security agreement.
Inventory includes goods, other than farm products, that are held for sale or lease.
perfection
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.
BOCB
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 person who: (i) buys goods; (ii) in the ordinary course of business; (iii) from a merchant who is in the business of selling goods of that kind; (iv) in good faith; and (v) without knowledge that the sale violates the rights of another 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.
form of transaction
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.
PMSI
A PMSI in goods 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 PMSI in consumer goods is automatically perfected upon attachment. Consumer goods are those goods acquired primarily for personal, family, or household purposes.
consumer buyer vs. 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. However, a consumer buyer of consumer goods takes free of a security interest, even if perfected, unless prior to the purchase the secured party filed a financing statement covering the goods.
**A consumer buyer is a person who: **(i) buys consumer 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.
proceeds
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.
general intro rule statement
A security interest that is enforceable against the debtor with respect to the collateral is said to have attached to the collateral.
In order to be enforceable, the secured party must give value, the debtor must have rights in the collateral, and either the debtor has to authenticate a security agreement that describes the collateral by executing or adopting a signature on the security agreement or the secured party must have possession or control of the collateral pursuant to a security agreement.
The security interest can attach to collateral that the debtor acquires in the future.
Collateral that is tangible includes goods, which are anything that can be moved when the security interest attaches.
Equipment is anything that is not consumer goods, farm products, or inventory.
perfection
Perfection of a security interest is necessary for the secured party to have a superior right in the collateral. A security interest is perfected when the collateral attaches and the secured party complies with one of the methods of perfection. Those methods include filing a financing statement, having possession or control of the collateral, or it can be automatically perfected. When there are two or more perfected secured parties with rights in the same collateral, the first to file or perfect its security interest has priority
when a PMSI prevails
A purchase money security interest (“PMSI”) is a special type of security interest that has different rules regarding perfection and priority. A PMSI in goods exists when 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 PMSI in goods other than inventory or livestock prevails over all other security interests in the collateral, even if they were previously perfected, if the security interest is perfected when the debtor receives possession of the collateral or within 20 days.
authentication & asset description
To be enforceable, a security agreement must be authenticated, meaning that the debtor executed or adopted the signature or symbol that is attached to or logically associated with the record with the present intention to do so.
Additionally, the security agreement must provide a sufficient description of the collateral that reasonably identifies the collateral. A description that identifies the collateral by category or by type of collateral reasonably identifies the collateral. Equipment is a catch-all class of collateral that consists of goods that are not consumer goods, farm products, or inventory. It typically refers to goods that are used in a business, such as machinery used in manufacturing.
A description of the collateral as “all the debtor’s assets” or “all the debtor’s personal property” does not reasonably identify the collateral under the UCC.
how to perfect
A secured interest is perfected upon attachment and compliance with any one of the methods of perfection. A secured party can perfect a security interest by (1) filing a financing statement; (2) possessing the collateral; (3) exerting control over the collateral; and (4) automatic perfection (either temporary or permanent). A security interest attaches when it becomes enforceable.
perfect interest v. unperfected
A perfected security interest has priority over an unperfected security interest in the same item of collateral. A secured party’s knowledge of another security interest in the same collateral does not affect the secured party’s priority.
judicial lien creditor
A judicial lien creditor is a creditor who acquires a lien on the collateral by a judicial process, rather than by operation of law. A judicial lien creditor takes the collateral subject to an existing perfected security interest, but generally has priority over an unperfected security interest.
does an effective financing statement cure an ineffective security agreement?
NO!
An effective financing statement does not cure an ineffective security agreement.
goods vs. equipment
Under Article 9 of the Uniform Commercial Code (UCC), goods are classified into four mutually exclusive categories based on their primary use by the debtor: (1) consumer goods, (2) inventory, (3) farm products, and (4) equipment.
Equipment is the default or residual category and includes goods used or bought for use primarily in business (including long-term assets such as machinery, tools, or office furniture), rather than for personal, family, or household purposes, for sale or lease (inventory), or in farming operations (farm products).
