Article 9 Secured Transactions Definitions Etc

Front 1

What is a Security Interest?

Back 1

INTEREST IN PERSONAL PROPERTY OR FIXTURES 9-102(a)(41) WHICH Secures Payment or performance of an obligation

Front 2

What is a Lien?

Back 2

A "lien" is a property interest given to the creditor in the debtor's property.

Front 3

What is a judicial lien?

Back 3

Judicial liens are those liens acquired in judicial proceedings. They are typically created when the winning party in a lawsuit has the sheriff or other court official "levy" on (seize) the property.

Front 4

What is a statutory lien?

Back 4

Statutory liens are liens created by statute (or common law) in favor of certain unsecured creditors. Examples of creditors accorded this special legislative protection are landlords, attorneys, artisans (i.e., those who perform work on personal property, such as TV repairers and automobile mechanics), and the I.R.S.

Front 5

What is a Consensual lien?

Back 5

Unlike the two types of liens above, consensual liens arise by agreement between the debtor and creditor. Article 9 security interests (and those created by real estate mortgages) are examples of consensual liens.

Front 6

What is a Security Agreement?

Back 6

"Security agreement" means an agreement that creates or provides for a security interest.

Front 7

What is a debtor?

Back 7

A debtor is the owner, lessee, etc., of the goods being used as collateral.

Front 8

What is an Obligor?

Back 8

an obligor is the person who owes the debt to the creditor.

Front 9

Needing to borrow money to start his law practice, a young lawyer asked his parents if he could use their yacht as collateral. They signed the security agreement in favor of the lender, giving the lender a security interest in the yacht, and the young lawyer signed the promissory note in favor of the lender, thereby promising to repay the debt so his parents would not lose their yacht. Who is the debtor and who is the obligor?

Back 9

Under the UCC definitions, the lawyer's parents are the "debtors" and the lawyer is the "obligor."

Front 10

The heir to the family fortune decided to sell a valuable painting of an ancestor, so she turned it over to an art dealership to sell for her. Is this an Article 9 consignment?

Back 10

Article 9 would not apply to this true consignment because the item being sold qualifies as consumer goods, and also because an art dealership would be generally known to be selling goods belonging to others.

Front 11

When City Newspaper replaced its major printing press, .. it took the old one to Printing Machines Unlimited, a seller of its own new and used printing presses, and asked that company to sell it for City Newspaper if possible, taking a commission if it was able to do so. Does article 9 apply to this consignment?

Back 11

This is a true consignment but Article 9 applies to it because (i) the printing press, which is equipment, is worth at least $1,000, (ii) Printing Machines Unlimited does not usually sell the goods of others, and (iii) the consignee (Printing Machines Unlimited) runs its business under a different name than the consignor (City Newspaper).

Front 12

What 2 primary documents are usually involved in an article 9 financing transaction?

Back 12

The two primary documents usually involved in an Article 9 financing transaction are the security agreement and the financing statement. Basically, the security agreement is a contract between the debtor and creditor that spells out the rights and duties of the parties regarding the collateral and is required for "attachment" of the security interest.

The financing statement is a document containing certain information about the creditor's security interest and is typically (although not always) used to accomplish "perfection"; i.e., the creditor perfects by filing the financing statement in the public records, where it is indexed under the debtor's name. Thus, the function of the financing statement is to give notice to others of the creditor's interest in the debtor's property.

Front 13

What are the 3 requirements for attachment?

Back 13

There are three requirements for "attachment" of a security interest:

(i) The parties must have an agreement that the security interest attach;

(ii) Value must be given by the secured party; and

(iii) The debtor must have rights in the collateral.

The security interest attaches as soon as these three requirements have been met, unless the parties have explicitly agreed to postpone the time of attachment. The three events may occur in any order, but they must coexist before the interest attaches. [UCC §9-203(a)]

Front 14

Borrower borrowed $10,000 from lender on May 1 and signed a security agreement giving Lender a security interest in Borrower's existing factory equipment. Lender also agreed to lend an additional $20,000 to Borrower against Borrower's existing inventory and an automobile Borrower was planning to buy. Borrower received this $20,000 loan June 1 and bought the automobile on July 1. When did each piece of collateral attach?

Back 14

The security interest in the factory equipment attached on May 1, when the three steps were completed. The security interest in the inventory did not attach until June 1, when Borrower received value from Lender. The security interest in the car did not attach until July 1, when Borrower acquired the automobile.

Front 15

On April 10, Borrower signed an agreement with Lender giving , Lender a security interest in Borrower's stamp collection. On April 15, Lender filed a financing statement in the appropriate place. On April 18, Lender loaned Borrower the money. When did attachment Occur?

Back 15

Attachment did not occur until April 18, when Lender gave value.

Front 16

What must accompany the debtor's and creditor's agreement that a security interest in the debtor's collateral has been created?

Back 16

(i) The creditor's possession of the collateral;

(ii) The creditor's control of the collateral; or

(iii) A record authenticated by the debtor that describes the collateral.

lf these requirements are not met, the security interest cannot attach.

Front 17

When is an Authenticated record of a security agreement not required? In other words, when can oral agreement suffice for attachment?

Back 17

1. If the secured party has possession of the collateral to which the security agreement attaches (a "pledge" transaction), an authenticated record of a security agreement is not required. Note: A security agreement is still necessary for attachment, but it may be oral since the collateral is pledged. [UCC §9-203(b)(3)(B)]

2. For certain kinds of collateral (i.e., investment property, letter of credit rights, deposit accounts, electronic chattel paper) the secured party need only obtain "control" over the property to prevail against other parties. How this is done is considered later (see infra, §§211-222), but when the secured party has control pursuant to any kind of agreement, no authenticated record of the transaction is required for attachment. [UCC §9-203(b)(3)(D)]

NOTE: If the secured party is not in possession or control of the collateral, the security interest will be valid only if there is a security agreement "authenticated" by the debtor and containing a description of the collateral. [U.C.C. §9-203(b)(3)(A)]

Front 18

What is definition of authenticate?

Back 18

(7) "Authenticate" means:

(A) to sign; or

(B) to execute or otherwise adopt a symbol, or encrypt or similarly process a record in whole or in part, with the present intent of the authenticating person to identify the person and adopt or accept a record.

Front 19

What is the definition of debtor?

Back 19

9-102(a)(28) "Debtor" means:

(A) a person having an interest, other than a security interest or other lien, in the collateral, whether or not the person is an obligor;

(B) a seller of accounts, chattel paper, payment intangibles, or promissory notes; or

(C) a consignee.

Front 20

What is the definition of Obligor?

Back 20

9-102(a)(59) "Obligor" means a person that

(i) owes payment or other performance of the obligation,

(ii) has provided property other than the collateral to secure payment or other performance of the obligation, or

(iii) is otherwise accountable in whole or in part for payment or other performance of the obligation.

The term does not include issuers or nominated persons under a letter of credit.

Front 21

What is a secured party?

Back 21

1. Recipient of security interest

2. Person holding agricultural lien

3. Consignor

4. Purchaser of accounts, chattel paper, payment intangibles, or promissory notes.

5. Representative receiving security interest or agricultural lien, OR

6. person holding security interest under Art. 2, 2A, 4, 5.

Front 22

What constitutes value?

Back 22

A person gives value for rights if the person acquires them:

(1) in return for a binding commitment to extend credit or for the extension of immediately available credit

(2) as security for, or in total or partial satisfaction of, a preexisting claim;

(3) by accepting delivery under a preexisting contract for purchase; or

(4) in return for any consideration sufficient to support a simple contract.

1-204

Front 23

What is the general rule for the sufficiency of the description of collateral and what are the Six sufficient examples given by article 9?

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The description is sufficient if it reasonably identifies the collateral.

Except for investment property, a description of collateral reasonably identifies the collateral if it identifies the collateral by:

(1) specific listing;

(2) category;

(3) a type of collateral defined in [the Uniform Commercial Code]; --except for commercial tort claims, consumer transactions, consumer goods, a security entitlement, a securities account, or a commodity account.

(4) quantity;

(5) computational or allocational formula or procedure; or

(6) except for supergeneric descriptions, any other method, if the identity of the collateral is objectively determinable.

Front 24

What collateral cannot be described by type alone?

Back 24

Commercial Tort claims

Consumer goods

Consumer securities accounts

consumer commodity account

Example: A description of Debtor's collateral as "all of Debtor's consumer goods" (a description of the collateral by type) is ineffective, but a description of the collateral as "Debtor's Toshiba television," if Debtor only owns one Toshiba television, is effective because it is more specific.

Front 25

What is a floating lien?

Back 25

A "floating lien" is one that attaches to a debtor's accounts, stock, inventory of goods, or other aggregation of items of collateral. However, the debtor has the right to transfer and dispose of individual items of collateral. Thus, the actual identity of the collateral may always be changing, but the inventory or aggregation as a whole continues to be subject to the lien; i.e., the lien "floats" over the collateral, attaching to an item when it comes into the debtor's possession and terminating when the item is sold or the account is paid.

Front 26

What does the requirement "debtor has rights in the collateral mean regarding a security agreements?

Back 26

The term "rights in the collateral" is not defined by the Code, but it would seem to mean that the debtor must have some ownership interest or right to obtain possession. The term "rights" is defined to include remedies. [U.C.C. §1-201(36)]

Front 27

a description of a security entitlement, securities account, or commodity account is sufficient if it describes what?

Back 27

a description of a security entitlement, securities account, or commodity account is sufficient if it describes:

(1) the collateral by those terms or as investment property; or

(2) the underlying financial asset or commodity contract.

Front 28

A description only by type of collateral defined in [the Uniform Commercial Code] is an insufficient description of what?

Back 28

A description only by type of collateral defined in [the Uniform Commercial Code] is an insufficient description of:

(1) a commercial tort claim; or

(2) in a consumer transaction, consumer goods, a security entitlement, a securities account, or a commodity account.

Front 29

When can you use a supergeneric description of the collateral?

Back 29

in the financing statement.

Front 30

What 4 types of collateral automatically attach?

Back 30

(f) [Proceeds and supporting obligations.]

The attachment of a security interest in collateral gives the secured party the rights to proceeds provided by Section 9-315 and is also attachment of a security interest in a supporting obligation for the collateral.

(g) [Lien securing right to payment.]

The attachment of a security interest in a right to payment or performance secured by a security interest or other lien on personal or real property is also attachment of a security interest in the security interest, mortgage, or other lien.

(h) [Security entitlement carried in securities account.]

The attachment of a security interest in a securities account is also attachment of a security interest in the security entitlements carried in the securities account.

(i) [Commodity contracts carried in commodity account.]

The attachment of a security interest in a commodity account is also attachment of a security interest in the commodity contracts carried in the commodity account.

Front 31

What are the 4 ways to perfect a security interest?

Back 31

1. Automatic

2. Filing

3. Possession or delivery

4. Control

Front 32

What are the 13 situations in which security interests are perfected automatically?

Back 32

The following security interests are perfected when they attach:

(1) a purchase-money security interest in consumer goods,

(2) an assignment of accounts or payment intangibles which does not by itself or in conjunction with other assignments to the same assignee transfer a significant part of the assignor's outstanding accounts or payment intangibles;

(3) a sale of a payment intangible;

(4) a sale of a promissory note;

(5) the assignment of a health-care-insurance receivable to the provider of the health-care goods or services;



(7) a security interest of a collecting bank arising under Section 4-210;

(8) a security interest of an issuer or nominated person arising under Section 5-118;

(9) a security interest arising in the delivery of a financial asset under Section 9-206(c);

(10) a security interest in investment property created by a broker or securities intermediary;

Front 33

When can you have temporary automatic perfection?

Back 33

A security interest in

certificated securities,

negotiable documents, or

instruments

is perfected without filing or the taking of possession or control for a period of 20 days from the time it attaches to the extent that it arises for new value given under an authenticated security agreement.