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45 Cards in this Set

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Where creditor sells the good to the debtor on credit, retaining a security interest in the goods, or creditor advances funds used to purchase goods.
Property Subject to Security Interest
Categories of Collateral
1. Consumer Goods: used or bought for family purposes
2. Farm Products in the hands of a farmer
3. Inventory: Goods held or lease or used short term
4. Equipment Goods used in business LONG TERM
5. Instruments or a promissory note (neg. or non-neg.)
6. Documents (W receipt, lading, delivery order)
7. Accounts
8. Deposit Accounts
9. Health Care Insurance Receivables
10. Chattel Paper
11. Electronic Chattel Paper
12. Letter of credit
13. Commercial Tort Claims
14. General Intangibles
15. Investment property
16. Proceeds
Primary Use test
Use it to determine if product is business or consumer good. What is it primarily used for?
Original Use test?
Was the product first bought for use at home and then you took it to the office? If so, apply original use test to determine is consumer goods or viceversa.
Embedded test for Software
Means so firmly affixed thereto as to be considered part thereof. If so, a software is part of the computer, if not then general intangible.
Farmer Brown's nuts
1. Farm products if in his hands
2. He processes them, then inventory

Only category that can change in own person's hands.
Art. 3 UCC or a promissory note (even if non-negotiable, if it is of a type used in the regular course of business) which is transferred by indorsement plus delivery.
Art. 7, UCC

1. Warehouse receipts
2. Bills of lading: receipts by common carriers
c. Delivery order: commodity
Right to payment with no writing (oral), or insufficient writing to be an instrument or chattel paper. It excludes deposit accounts, health care insurance receivables and investment property. It includes credit card debts.
Deposit Accounts
Accounts maintained with a bank, It excludes instruments and consumer transactions.
Health care insurance receivables
Another form of collateral, right to payment under insurance, for health care goods or services provided.
Chattel paper
Writing(s) evidencing an (1) obligation and (2) security interest.
Electronic Chattel Paper
Chattel paper evidenced by information stored in an electronic medium
Letter of credit right
Right to payment under a letter of credit. It excludes the right to draw on a letter of credit.
Commercial tort claims
Tort claims filed by a business (exc. personal injuries). Requires specificity, and there can be no "after-acquired tort clauses."
General Intangibles
Anything else catchall.
i.e. Liquor license, taxi medallion, goodwill.
Investment Property
1. Cert. securities held by you in paper form

2. Uncertified securities held by you in computer form

3. Securities account (intermediary holding Edward's Jones)
Whatever is acquired upon disposition of collateral. It is collateral that has changed in form. Usually one of four things:
1. Account
2. Instrument
3. Chattel Paper
4. Cash

Proceeds include multigenerational proceeds. (farmer sells sheep and gets tractor)

Security interest generally continue in proceeds.
Debtor and Creditor
Debtor: A person having an interest in the collateral

Secured Party: the party to which the interest is transferred (inc. co-signor)
How do you create a security interest?
1. Possession, or
2. Security Agreement
i. In Writing (auth. record)
ii. Signed by debtor
iii. Describing Colateral
iv. Control
How does it attach?
1. Secured party must give value
a. Not by gift
b. Preexisting debt is value

2. Debtor must have rights in the collateral, (gotta own it!)
What is a floating lien?
After acquired property clause is OK. This is future collateral for a present loan. There will be no attachment until the debtor acquired an interest in the property.

i.e. when store gets a security interest in inventory, floating liens allows attachment even if chairs come or go.


Future advance clauses
This is present collateral for a future loan. There iwll be no attachment until the secured party gives value.
How do you PERFECT?
1. Most common method is FILING
What is filed?
The financing statement: must be authorized by the debtor in writing, or by authenticated record. This authority is kept by the secured party. An authenticated security agreement will do.
What's contained in the financing statement?
1. Names: name of debtor required, debtor sign. not required, trade name of debtor insufficient.

2. Addresses: If no, still effective.

3. Description of collateral: supergeneric ok (not for sec. agreement). Test: not seriously misleading. Enough if you can find it using office's search logic.
Where is the filing of the financing statement?
Central filing with sec. of state.

Local filing for real estate related collateral (timber, fixtures, minerals).
How long is the financing good for?
1. Five years
2. All subsequent filings are amendments.
How do you perfect by possession?
1. Accounts, deposit accounts, elect. chattel paper, letter of credit rights, general intangibles CANNOT be perfected by possession. Filing or control is necessary.

2. Sec. party owes a duty of reasonable care. Debtor must cough up reasonable expenses.
How do you perfect by control?
1. Deposit accounts (control is exclusive method of perfection)
2. Letter of credit rights: control occurs when issuer consents in writing to assignment of proceeds.
3. Investment property
How do you gain control over investment property?
1. Certificated security: bearer, secured party needs possession, registered, needs possession + endorsement.

2. Uncert. security: Secured party must be registered as owner, or owner acknowledges he is holding for sec. party, or issuer agrees he will comply with the secured party's instructions.
3. Security Accounts: Sec. party must be entitlement holder, or intermediary agrees it will comply with orders.
What is automatic perfection?
Perfected when attach, no need to file
2. Assignment of accounts, health care ins. receivables or payment intangibles
3. Sale of payment intangibles or prom. notes
4. Sec. interest in investment property
5. Temporary perfection
What are the grace periods for automatic perfection?
1. 4 Months: goods and debtor move to diff. state; organizatin changes its name.

2. 20 Days: for proceeds; for instruments, negotiable documents and cert. securities.
PERFECTION: Secured party v. Lien creditor
Key is perfection (20-day grace for PMSI)

Secured party v. Lien creditor: If secured party PERFECTED, wins, didn't perfect he looses.

Trustee in bankruptcy is lien creditor too, so he looses over a sec. party
PERFECTION: Perfected Sec. Party v. Purchaser (buyer of goods)`
1. Consumer purchaser vs. Consumer purchaser: Purchaser prevails unless perfected secured party filed.

2. Business purchaser: Secured party prevails (automatic perfection is effective).

3. BIOC, purchaser from a business -Purchaser wins even if filing by secured party. (BIOC=Public Policy)

4. Holder in due course: takes free of personal defenses and calims even over earlier perf. sec. interest.

5. Future advances: ???
PERFECTION: Secured party v. Secured party
First to file or perfect.

1. PMSI in inventory, chattel paper and proceeds. Will prevail over earlier SP if:
a. Notice
b. No grace must be perfected before debtor gets possession.

2. PMSI in Equipment (and proceeds)
a. Grace can be perfected before or within 20 days after debtor gets possession
b. No notice

3. Purchaser of chattel paper with possession, takes priority over non-possessory sec. party as proceeds of inventory.
Investment property
Sec. party with control OR possession prevails over sec. party who filed, even if the control was later, and the sec. party knew of the prior perfected sec. interest.
Are personal property transformed into real estate.

First to file prevails.

Exception PMSH sec. party who makes fixture filing within 20 days will prevail over prior real estate filing.

Exception to exception: A construction mortgagee prevails so long as recorded before the goods became fixtures, and goods became fixtures before the completion of construction.
Added value to personal property

The general rules of first to file or perfect with PMSI superpriority apply.
Exception: If accesion became party of whole asset subject to certificate of title law (autos) the security interest in the whole has priority over the sec. interest in the accession.
Rights upon default
1. Secured party gets rights as against debtor

2. Collection right of secured party: non goods collateral sec. party is entitled to notify the account debtor to make payment to her rather than the debtor in default.

Equity of redemption CANNOT be waived.
What does a creditor want if debtor defaults? W/O judicial intervention
1. Possession
a. Self-help, no breach of peace
b. Replevin: go to the Sheriff and the sheriff can use force.

2. Disposition
a. Commercial reasonableness
b. Form of notification
a. Two whom
b. Contents (consumer goods, nonconsumer goods)
1. Liability for damages for loss caused by failure to comply (plus $500 for each case of non compliance)

2. If consumer goods: 10% of purchase price, and all interest charges to be paid over the life of the loan
Acceptance of collateral in full or partial satisfaction (strict foreclosure)
1. In non-consumer goods cases, parties can agree to voluntary turnover in return for an agree credit the debt with the debtor acknowledging remaining deficiency.

2. In consumer goods cases, parties can agree to voluntary turnover in return for full satisfaction only.
Application of proceeds of sale
1. Expenses of retaking, holding, preparing and dispossing of collateral inc. atty's fees.

2. Satisfactin of obligation secured by security interest.

2. Satisfaction of obligation secured by subordinate security interest if secured party received demand.

4. Debtor or trustee