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What is a secured transaction?
A transaction intended to create a security interest in personal property or fixtures that secures payment or performance of an obligation.
How can you spot a secured transaction?
A credit transaction (sale on credit or a loan), AND 2) An agreement that creates a lien in favor of the creditor in the debtor’s personal property to secure the debt.
What must occur for a creditor’s interest in collateral to become secured?
If a creditor has a security interest in collateral, it must attach and must be perfected to become secured (protected) and give rise to a remedy upon default of the debtor.
What is a security interest?
A contingent property interest in the debtor’s collateral that the debtor grants to the creditor.
What happens to a security interest when default occurs?
The property interest springs to life and the creditor has rights in the debtor’s collateral.
What does Article 9 of the UCC apply to?
A consensual agreement that provides for a security interest
When does Article 9 of the UCC 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 or the name given to it by the parties.
What is a secured party?
A person in whose favor a security interest is created under the security agreement (i.e., lender or creditor)
What is an Obligor?
A person who must pay (or otherwise perform) with respect to the obligation that is secured by a security interest in the collateral
What is a debtor?
A person who has an interest, other than a security interest or other lien, in the collateral, such as the sole owner of the collateral (the Debtor is usually also the obligor, but not always)
What is a Judicial Lien Creditor?
A creditor who gains an interest in collateral after a court judgment
What are the different kinds of collateral?
Tangible, Quasi-Intangible, Intangible, and Other
What is the most commonly tested collateral on the MEE?
Tangible Collateral
What is Tangible Collateral?
Anything that is moveable at the time that a security interest attaches
What are the four classes of goods that fall under Tangible Collateral
Consumer Goods (this includes fixtures), Equipment, Farm Products, and Inventory
Within the definition of goods, what are fixtures?
Items affixed to real estate so as to become part thereof, such as standing timber that is to be cut/removed pursuant to a contract, unborn animals, growing or unharvested grown crops (including crops produced on trees, vines, or bushes), and manufactured homes
What are Consumer Goods?
Goods purchased for personal, family, or household purposes
What are Farm Products?
Crops, livestock, and supplies used or produced in farming operations → debtor MUST be engaged in a farming operation
What is Inventory?
Goods (other than farm products) that are held for sale or lease; are furnished under a service contract; or consist of raw materials, works in process, or materials used or consumed in a business
What is Equipment?
A catchall class, which consists of goods that are not consumer goods, farm product, or inventory → mostly goods for business (i.e., office furniture)
What is Attachment?
The steps legally required to give the secured party a security interest in the collateral that is effective against the debtor.
What is required to give the secured party a security interest in the collateral that is effective against the debtor?
Attachment:
1. An agreement to create a security interest evidenced by debtor’s "authentication," or the secured party's possession or control
2. The secured party must give value for the security interest
3. Debtor has rights in the collateral (or power to transfer the collateral to a secured party)
What is Perfection?
The steps legally required to give the secured party an interest in the collateral that is effective against the world.
What is required to give the secured party an interest in the collateral that is effective against the world?
Perfection: the process of giving public notice by a proper method
When does perfection most commonly occur?
When the secured party files a financing statement
Between perfected and unperfected interests, which has priority?
Perfected interests have priority (this means that the creditor will likely have superior rights to the collateral against both debtor and MOST third parties)
What is required in order for a creditor to become secured?
A creditor is not a secured creditor under Article 9 until attachment.
What must occur before a security interest can be perfected?
A key point to remember about perfection is that a security interest cannot be perfected before it attaches to the collateral. If all of the steps for perfection are taken before the security interest has attached (i.e., before debtor is given value), perfection will occur upon attachment (simultaneously).
What are the four ways to perfect a security interest?
Filing: Creditor files a financing statement with the appropriate government office (secretary of state) where the debtor is located.
Possession: Creditor obtains physical possession of the collateral.
Control: Creditor may control collateral such as investment property, bank or investment accounts or electronic chattel paper.
Automatic: Creditor extends credit to a debtor to purchase consumer goods and obtains a security interest in the goods. (i.e., PMSI in consumer goods)
What is a Purchase Money Security Interest (PMSI)?
A special type of security interest in goods.
When does a PSMI arise?
The secured party sells the goods to the debtor on credit and retains a security interest in the goods.
The creditor loans the funds to the debtor to enable the debtor to buy specific collateral, the funds are used by the debtor to acquire the specific collateral, and the creditor takes a security interest in the collateral. The PMSI secures whatever portion of the purchase price still has to be paid.
When does a “Non-PSMI” security interest arise?
A Non-PMSI security interest arises when the collateral is already owned by debtor
When is a PSMI in consumer goods perfected?
Automatically upon attachment
Between PMSI and Otherwise Perfected Security Interests, which has priority?
PMSI Has Priority.
What is required in a written security agreement?
1. An agreement to create a security interest evidenced by debtor’s "authentication," or the secured party's possession or control
2. Value must be given by the secured party for the security interest.
3. Debtor has rights in the collateral (or power to transfer the collateral to a secured party)
What is the length of perfection?
5 years
What is required in a financing statement?
The debtor’s name
The name of the secured party or a representative of the secured party
The collateral covered by the financing statement (CAN be supergeneric) •
*Should also contain the address of the debtor and secured party + identify as an individual or organization
Who has priority, secured v. unsecured claims?
A creditor who has the only secured interest in the debtor’s collateral has priority over unsecured interests.
Who has priority, competing unperfected secured claims?
If 2+ secured parties claim an interest in the same collateral but neither has a perfected claim, the first to attach has priority.
Who has priority, perfected v. unperfected claims?
If 2+ secured parties claim an interest in the same collateral but only one has perfected his or her security interest, the perfected security interest has priority.
Who has priority, competing perfected secured claims?
If 2+ secured parties have perfected security interests in the same collateral, the first to file or perfect has priority (the "first-to-file-or-perfect" rule).
Who has priority, unperfected secured party vs. buyer or lessee?
If someone buys or leases property from a debtor, their rights to the property are usually stronger than a creditor’s rights if the creditor hasn’t properly made their claim (unperfected). This is true as long as the buyer or lessee:
Doesn’t know about the creditor’s claim,
Pays for the property, and
Takes possession of it.
Who has priority, perfected secured party vs. buyer or lessee?
Generally, a security interest stays on the item purchased/leased; therefore, a holder of a perfected security interest in goods has rights in the goods superior to those of a subsequent buyer or lessee. However, there are a few exceptions where the buyer or lessee has stronger rights:
The secured party agrees to give up their claim on the item.
The buyer is a Buyer in the Ordinary Course of Business (BIOC)—someone buying goods in good faith from a seller who regularly sells that type of item.
It’s a consumer-to-consumer sale—where a buyer purchases the item for personal use from someone who also used it personally, and the buyer didn’t know about the security interest.
Who has priority, unperfected secured party vs. judicial lien creditor?
If someone wins a court judgment and gets a legal claim (lien) on a debtor’s property, their claim is stronger than a creditor’s claim on the same property if the creditor hasn’t made their claim official (perfected) before the lien is created.
Who has priority, perfected secured party vs. judicial lien creditor?
Generally, a prior perfected security interest has priority over a lien.
MEE Qs will ask you to determine:
Whether a security interest is enforceable.
Whether it has attached
Whether a security interest has been perfected.
Whether collateral (personal property) is covered by the security agreement – you must know how to classify the collateral
Which security interest takes priority when there are at least 2 parties after the same collateral
Typical MEE parties are a Business, Bank(s), a Finance Company or other creditors, and a Consumer
Note 
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