UCC Article 9: Secured Transactions Key Concepts and Priority Rules

What does Article 9 of the UCC govern?

Security interests in personal property and fixtures.

What is a security interest?

A consensual lien granted voluntarily by a debtor to a creditor in collateral to secure an obligation.

What are the three main functions of Article 9?

Creating security interests (attachment), making them effective against third parties (perfection), and determining priority in conflicts.

What is the role of a secured party?

The creditor who holds the security interest.

Who is considered the debtor?

The party who owns the collateral and owes the obligation.

What is the difference between a debtor and an obligor?

An obligor is the party who owes the underlying debt, which is often the same as the debtor.

What is an unsecured creditor?

A creditor who extends credit based only on the debtor's promise, with no collateral.

What are the two rights of a secured creditor?

In personam right (to recover based on debtor's promise) and in rem right (to repossess or sell collateral).

How can a security interest arise?

Through a security agreement, possession, or control.

What does §9-315(a) state about security interests?

A security interest continues in collateral despite sale, lease, or other disposition unless authorized by the secured party.

What are proceeds in the context of a security interest?

Whatever is received upon sale, exchange, collection, or other disposition of collateral.

What is the primary use test for classifying collateral?

Collateral is classified based on the debtor's primary use at the time the security interest attaches.

What is the perfection method for consumer goods?

Auto-perfects on attachment for PMSI; filing is also acceptable.

What is the definition of inventory under UCC Article 9?

Goods held for sale/lease, raw materials, or work-in-process.

What is the catch-all category for goods used in business?

Equipment.

What defines farm products under UCC Article 9?

Crops, livestock, aquatic goods, and farming supplies, applicable only if the debtor is a farmer.

What are accounts in the context of intangible collateral?

Rights to payment for goods sold/leased or services rendered, whether earned or unearned.

How can health care receivables be classified?

As a sub-type of accounts under UCC Article 9.

What is the perfection method for deposit accounts?

Control only; filing cannot perfect.

What is chattel paper?

A record evidencing both a monetary obligation and a security interest in specific goods.

What is required for a PMSI in inventory?

Must notify prior secured parties before the debtor gets possession.

What is the significance of an after-acquired property clause?

It cannot sweep in consumer goods acquired more than 10 days after value is given.

What happens to proceeds that are cash or of the same type as original collateral?

They remain perfected indefinitely.

What is the filing requirement for general intangibles?

Filing is required for perfection.

What is the significance of control in priority for investment property?

Control beats filing in priority.

What is the temporary perfection period for filing instruments?

20-day grace period.

What defines documents under UCC Article 9?

Documents of title such as bills of lading or warehouse receipts.

What are general intangibles?

A catch-all for personal property not fitting any other category, including IP, software, goodwill, domain names, and going-concern value.

What is a payment intangible?

A subtype of general intangible under which the principal obligation is monetary, auto-perfecting when sold.

How is perfection achieved for general intangibles?

Perfection is achieved through filing; control and possession do not work for general intangibles.

What types of accounts are classified as deposit accounts?

Demand, time, savings, passbook, or similar accounts maintained at a bank.

How is perfection achieved for deposit accounts?

Perfection is achieved through control only; filing is expressly excluded.

What are the methods of control for deposit accounts?

1) Secured party is the bank, 2) Agreement in writing among debtor, secured party, and bank, 3) Secured party becomes a customer of the bank.

What is the exception for deposit accounts as proceeds?

A deposit account as proceeds of other collateral automatically perfects for 20 days.

What constitutes investment property?

Includes certificated securities, uncertificated securities, security entitlements, securities accounts, commodity contracts, and commodity accounts.

How can investment property be perfected?

By control or filing; certificated securities may also be perfected by possession.

What are the types of chattel paper?

Tangible chattel paper (paper records) and electronic chattel paper (stored in electronic medium).

How is chattel paper perfected?

Through filing, possession (tangible), control (electronic), or automatically as proceeds.

What is a negotiable instrument?

A check, note, draft, or any writing evidencing a right to payment that is not chattel paper or a deposit account.

How is perfection achieved for instruments?

By possession or filing, which gives only a 20-day temporary period.

What is a document of title?

A record that entitles the bearer to receive, hold, and dispose of the goods it covers.

How are negotiable documents perfected?

By possession or filing; electronic documents are perfected by control.

What is attachment in the context of security interests?

Attachment makes the security interest enforceable against the debtor and third parties.

What are the three requirements for attachment?

1) Value has been given, 2) Debtor has rights in the collateral, 3) Evidentiary requirement satisfied.

What constitutes value in the context of attachment?

Value is given if the secured party provides consideration sufficient to support a simple contract.

What rights must a debtor have for attachment?

The debtor must have some rights in the collateral, which can include ownership or leasehold interest.

What is the evidentiary requirement for attachment?

Satisfied by an authenticated security agreement, voluntary possession by the creditor, or control over collateral.

What is the significance of collateral description in a security agreement?

Description must reasonably identify what is described; supergeneric descriptions like 'all property' are ineffective.

What is after-acquired property in security agreements?

A security interest may attach to after-acquired property automatically when the debtor acquires rights.

What are future advances in security agreements?

A security agreement may secure future advances, with priority relating back to the original filing date.

What is the relationship between perfection and attachment?

Perfection gives the security interest priority over competing interests, but attachment is a prerequisite.

What happens if perfection is achieved by filing and possession is not taken within 20 days?

Perfection lapses if possession is not taken within 20 days.

What is the priority rule for control holders over filers?

Control holders have priority over filers in disputes regarding investment property.

What is a classic exam trap regarding deposit accounts?

Filing a financing statement does NOT perfect a deposit account, except as proceeds.

What is a financing statement (UCC-1)?

A publicly filed notice document that puts third parties on notice of a security interest.

What is the default perfection method for most collateral?

Filing a financing statement.

What are the required contents of a financing statement?

Debtor's name, secured party's name, and description of collateral.

What happens if the debtor's name on a financing statement is 'seriously misleading'?

The filing is ineffective.

Where should a financing statement be filed for most debtors?

In the state where the debtor is located.

What is the duration of a financing statement's effectiveness?

5 years from the filing date.

What must be done to extend a financing statement beyond 5 years?

File a continuation statement within 6 months before expiration.

What happens if a financing statement lapses?

Perfection is lost; a subsequent filing does not relate back.

What types of collateral cannot be perfected by filing?

Deposit accounts, money, and letter of credit rights.

What is one method of perfection by possession?

Taking physical possession of tangible collateral.

What collateral types does perfection by possession apply to?

Goods, instruments, money, negotiable documents, tangible chattel paper.

What is the definition of a Purchase Money Security Interest (PMSI)?

A security interest that secures the price of collateral or a loan used to acquire the collateral.

When does a PMSI in consumer goods automatically perfect?

Upon attachment, with no filing needed.

What is required for a PMSI in inventory to win over a prior perfected security interest?

The PMSI must be perfected when the debtor receives possession and the PMSI holder must notify the prior secured party.

What is the general priority rule under UCC §9-322?

First to file or perfect wins among perfected secured parties.

What happens when a perfected security interest competes with an unperfected security interest?

The perfected security interest always wins.

What is the priority of a PMSI in goods compared to an earlier security interest?

The PMSI wins if perfected before or within 20 days of debtor possession.

What is the priority rule for a perfected security interest against a lien creditor?

The lien creditor wins unless the security interest was filed or perfected first.

What is the significance of filing a financing statement before lending money?

The creditor benefits from the filing date for priority purposes.

What collateral types does perfection by control apply to?

Deposit accounts, investment property, electronic chattel paper, electronic documents, letter of credit rights.

What is the effect of a security interest in proceeds?

It automatically perfects for 20 days from when the debtor receives the proceeds.

What must happen after 20 days for continued perfection of proceeds?

Filing must cover proceeds, proceeds must be identifiable cash proceeds, or must be independently perfected.

What is required for motor vehicles to be perfected under state certificate of title laws?

The lien must be noted on the certificate of title.

What is the exception for inventory held by a dealer regarding perfection?

Ordinary UCC filing applies instead of title statute.

What is the effect of returning possession of collateral to the debtor?

The creditor must file a financing statement to remain perfected.

What is the analytical approach to determining priority of security interests?

Identify contestants, type of match-up, collateral type, governing UCC statute, and determine the winner.

What does §9-320(b) state about consumer buyers?

A consumer buyer without knowledge wins against a security interest.

What conditions must be met for a buyer to win against a security interest?

The buyer must provide value, receive delivery, have no knowledge of the security interest, and act before the security interest is perfected.

What does §9-327 state regarding control of deposit accounts?

Control beats non-control; a bank takes priority over all competing security interests in accounts it maintains.

What is the significance of §9-328 for investment property?

Control beats filing; the control holder wins.

What is required for a chattel paper purchaser to win against a security interest?

Possession, good faith, and new value beats prior filer.

What is a lien creditor?

A lien creditor obtains a judicial lien by attachment, levy, or sequestration.

What powers does a trustee in bankruptcy have under 11 U.S.C. §544?

The trustee has the powers of a hypothetical lien creditor as of the petition date and can avoid unperfected security interests.

When does a perfected security interest beat a lien creditor?

If the security interest was perfected before the lien creditor's lien arose.

What happens if a security interest is unperfected when a lien arises?

If it perfects within 20 days for PMSIs in goods, it relates back.

What is a Buyer in Ordinary Course of Business (BIOC)?

A BIOC takes free of a security interest created by the seller, even if the interest is perfected and the buyer knows of it.

What are the requirements for a consumer-to-consumer buyer to take free of a perfected security interest?

The buyer must give value, have no knowledge of the security interest, and buy for personal use.

What is the general rule for buyers of goods under §9-317(b)?

A buyer takes free of an unperfected security interest if they give value, receive delivery, and have no knowledge of the security interest.

What does §2-403 state about entrustment?

When a secured creditor entrusts possession of collateral to a debtor, the debtor can sell that collateral free of the security interest.

What is the priority rule for deposit accounts under §9-327?

Control beats filing; a bank takes priority over all competing security interests in accounts it maintains.

What does §9-610 allow after repossession?

The secured party may sell, lease, license, or otherwise dispose of collateral.

What must be commercially reasonable in the disposition of collateral?

Every aspect of disposition, including method, manner, time, place, and terms.

What is the notification requirement under §9-611?

Must send reasonable authenticated notification of sale to the debtor and any secondary obligor.

What happens if the proceeds from disposition exceed the debt and costs?

The surplus goes to the debtor.

What is strict foreclosure under §9-620?

In lieu of disposition, a secured party may propose to retain collateral in full or partial satisfaction of the debt.

What is the effect of breaching the peace during repossession?

The debtor may have tort claims and can defeat the secured party's right to a deficiency judgment.