Secured Transactions

Flashcards based on UCC Article 9 lecture notes.

What is the primary applicable law for secured transactions?

Article 9 of the UCC

What is the difference between a debtor and a secured party?

Debtor: Owes the obligation and offers collateral.

Secured Party: Has a legal interest in the collateral to secure repayment.

Does Article 9 of the UCC only govern transactions explicitly labeled as creating a security interest?

No. Article 9 of the UCC governs any transaction that creates a security interest, regardless of its form.

Is the title to collateral material required for UCC Article 9 to apply to a security interest?

No. UCC Article 9 applies to a security interest regardless of whether title to the collateral is in the name of the secured party.

Can a seller retain or reserve title to goods that have been delivered or shipped?

No. Any attempt by a seller to retain or reserve title to goods that have been delivered or shipped is limited to a reservation of a security interest.

Will a 'lease' be deemed a security interest if the lessee has an option to become the owner of the goods for no additional consideration?

Yes. A 'lease' will be deemed a security interest if the lessee can become the owner of the goods for no additional consideration.

Are investment property or accounts evidenced by an instrument included in the definition of a 'Deposit Account'?

No. A Deposit Account does not include investment property or accounts evidenced by an instrument.

Are goods held only for repair considered 'Inventory'?

No. Inventory does not include goods held only for repair.

Are farm products considered 'Inventory'?

No. Inventory does not include farm products.

Is a security interest perfected before it has attached?

No. A security interest cannot be perfected unless it has first attached.

Does a financing statement require substantial compliance with its requirements to be effective?

Yes. Substantial compliance is required for an effective financing statement.

Are minor errors or omissions in a financing statement always permissible?

No. Minor errors or omissions are acceptable unless they make the statement seriously misleading.

Is a security interest automatically perfected for a Purchase Money Security Interest (PMSI) in non-consumer goods?

No. A PMSI for non-consumer goods requires filing a financing statement before or within 20 days after the debtor receives delivery of the collateral for priority.

Does a debtor who has sold an account, chattel paper, payment intangible, or promissory note retain an interest in the collateral sold?

No. A debtor that has sold these types of collateral does not retain an interest in the collateral sold.

Does a security interest automatically perfect upon attachment if an assignment of accounts transfers a significant part of the assignor's outstanding accounts?

No. Automatic perfection for an assignment of accounts occurs only if it does not transfer a significant part of the outstanding accounts of the assignor.

Will a security interest continue after the collateral is sold, leased, or otherwise disposed of, even if the secured party does not authorize it?

Yes. A security interest will continue despite any sale, lease, or other disposition of the collateral, unless the secured party authorizes a transfer free of the security interest.

Does a perfected security interest attach to identifiable proceeds from the disposition of collateral?

Yes. A perfected security interest will attach to any identifiable proceeds from the disposition of collateral.

Does a secured party have 'control' of a deposit account if they are the bank where the account is maintained?

Yes. A secured party has 'control' if the secured party is the bank where the account is maintained.

Can a security agreement provide for a security interest in after-acquired commercial tort claims?

No. Commercial tort claims are an exception to after-acquired property clauses in security agreements.

Can a seller who did not have title to goods transfer title to a buyer?

No. A seller who did not have title to goods cannot transfer title to a buyer unless an exception, such as the Buyer in the Ordinary Course of Business rule, applies.

Does a buyer in the ordinary course of business take free of a security interest?

Yes. A buyer in the ordinary course of business takes free of a security interest.

Does a perfected security interest have priority over a conflicting unperfected interest?

Yes. A perfected interest has priority over a conflicting unperfected interest.

Does the rule of 'first in time, first in right' control when there are two conflicting perfected interests?

Yes. When there are two perfected interests, the first creditor to perfect has priority based on the 'first in time, first in right' rule.

Does a possessory lien on goods always have priority over a security interest in the same goods?

Yes—a possessory lien (aka “statutory lien”) generally has priority over a security interest in the same goods as long as the lienholder retains possession.

Example:

• A repair shop fixes a debtor’s car (creating a mechanic’s lien) and keeps the car until paid.

• Even if a bank has a perfected PMSI in the car, the repair shop’s possessory lien has priority while in possession.

What is an accession?

An accession in Secured Transactions is when goods are physically united with other goods, but their identity is not lost.

Classic Example:

• A car owner installs new tires (or a GPS system).

• The tires are an accession because they’re united with the car, but you can still identify them separately.

Does a security interest in separate goods that become accessions still continue in the accession collateral?

Yes. A security interest in the separate goods continues in the accession collateral.

After default, can a secured party take possession of collateral without judicial process if it is done without a breach of the peace?

Yes. After default, a secured party may take possession of collateral without judicial process if it is without a breach of the peace.

Is a secured party always required to send an authenticated notification of disposition to the debtor after default?

No. Notice is not required if the collateral is perishable, threatens to decline speedily in value, or is customarily sold on a recognized market.

Can a secured party purchase the collateral at a private sale even if it is not customarily sold on a recognized market or the subject of widely distributed standard price quotations?

No. A secured party can only purchase at a private sale if the collateral is customarily sold on a recognized market or is the subject of widely distributed standard price quotations.

Can a debtor redeem collateral at any time after the secured party has entered into a contract to dispose of it?

No. Redemption may occur at any time before a secured party has entered into a contract to dispose of the collateral.

What is the differenced between consumer goods and inventory or equipment?

Consumer goods - Purchased primarily for personal, family, or household purposes.
Inventory - Material used/consumed in businesses
Equipment - Goods other than inventory (tractors)

What is a proceed vs. chattel paper?

Proceeds - money or property gained from the sale of collateral.
Chattel paper - a document that evidences both a monetary obligation and a security interest in specific goods.

What is an account?

A right to payment of a monetary obligation

What is the difference between attachment and perfection?

Attachment refers to the process by which a secured party becomes legally entitled to a security interest in collateral, while perfection is the act of making that security interest enforceable against third parties, typically through registration or possession.

What is a mnemonic device to know the difference between attachment and perfection?

Attachment - Some people enjoy inapproriate cuddling

Secured Party Entitled interest collateral

Perfection - Assholes Make Sex Intensely Exciting
Act Makes Security Interest Enforceable

What does attachment require?

Attachment requires three elements: a security agreement, value given by the secured party, and the debtor's rights in the collateral.

What does perfection require?

Perfection requires that the security interest be properly registered or that the secured party takes possession of the collateral.

What does a financing statement require? (Three things)

A financing statement requires the debtor's name and the secured party's name, must be filed, and a description of the collateral.

What is a PMSI?

A Purchase Money Security Interest (PMSI) is a special type of security interest that allows a creditor to claim a security interest in the collateral that secures a loan used to purchase that specific collateral.

Ex. - Debtor buys a refrigerator from BestBuy on store credit. BestBuy keeps a security interest in the fridge until paid off.

Does a PMSI automatically perfect without filing? Any distinctions?

Under UCC Article 9:

• A PMSI in consumer goods automatically perfects upon attachment (no filing required).

• A PMSI in inventory or equipment does NOT automatically perfect. The secured party must file a financing statement and, in the case of inventory, send an authenticated notice to any prior secured parties.

What is an accession?

An accession is an item that is added to or becomes a part of another item, which retains its identity as a separate item.

Example of an Accession

• A car engine installed into a vehicle becomes an accession to the vehicle.

• The engine keeps its own identity, but it is now part of a larger item.

Legal Significance of Accessions

1. Security Interests Can Continue
   

   • A security interest in an accession continues even after it becomes part of the whole.

   • (UCC § 9-335(a))

Does a secured party have a right to collect a debt directly from an account debtor?

Yes, a secured party can collect directly from an account debtor if the debtor has authorized this arrangement or if the right to collect is included in the security agreement.

What is the garage sale rule?

Under the garage sale rule, a buyer of consumer goods takes free of a perfected security interest if:

1. The buyer purchases goods for value;

2. The goods are consumer goods in the hands of both the seller and the buyer;

3. The buyer purchases without knowledge of the security interest;

4. The buyer purchases before a financing statement covering the goods is filed.

What is the PIG FAT mnemonic device?

This determines priority.

✅ P – PMSI in inventory/livestock (if perfected + notice)
✅ I – Inventory perfected interests (non-PMSI)
✅ G – General perfected interests (other collateral)
✅ F – First to file or perfect (UCC § 9-322)
✅ A – After-acquired property clauses
✅ T – Trustee in bankruptcy & unperfected interests lose