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Chapter 16: Secured Transaction (Agreement (must be written on paper and…
Chapter 16: Secured Transaction
Secured Transactions
Article 9 of the Uniform Commercial Code governs secure transactions in personal property
Article 9 applies to any transaction intended to create a security interest in personal property or fixture
Scope of Article 9
Collateral for transactions may include
documents of title
accounts
investment property
general intangibles
instuments
chattel paper
Inventory
Agreement
must be written on paper and signed by the debtor,or electronically recorded and authenticated by the debtor
Must reasonably identify the collateral
Without agreement, there is no security interest
Possession and Value
in certain cases, the security agreement need not be in writing if the parties have an oral agreement and the secured party has possession
for the security interest to attach, the secured party must give value.
Debtor Rights in the Collateral
the debtor can only grant a security interest in goods if he has some legal right to those goods himself
a debtor may also give a security interest if he is leasing the goods of even if he is a bailee, meaning that he is lawfully holding them for someone else
Attachment to Future Property
After-acquired property refers to items that the debtor obtains after the parties have made their security agreement
Proceeds: what is obtained when collateral is sold or disposed of
Perfection
Possession
Consumer goods
Filing
Place and Duration of Filing
Check local law as provision may vary from state-to-state
generally, a party must file in a central filing office located in the state where and individual debtor lives or where an organization has its executive office
Article 9 specifies where a secured party must file
Perfection by Possession
For most types of collateral, in addition to filing, a secured party generally may perfect by possession
However, possession imposes one important duty: a secured party must use preservation of collateral in her possession
Perfection of Consumer Goods
A purchase money security interest (PMSI) is one taken by the person who sells the collateral or by the person who advances money so the debtor can buy the collateral.
a PMSI in consumer goods perfects automatically, without filing.
The UCC gives special treatment to security interest in most consumer goods
Attachment of a Security Interest
Attachment is a vital step in a secured transaction.
the secured party gave value in order to get the security agreement
the debtor has rights in the collateral
The two parties made a security agreement and either, (1) it is in writing, describes the collateral, and is signed by the debtor, or (2) the secured party has possession of the collateral.
Protection of Buyers
Generally, once a security interest is perfected, it remains effective regardless of whether the collateral is sold, exchanged, or transferred.
Buyers in Ordinary Course of Business
Priorities Among Creditors
If neither secured party has perfected, the first interest to attach gets priority
Between perfected security interests, the first to file or perfect wins.
A perfected security interest takes priority over one with an imperfected interest
Default and Termination
Taking Possession of the Collateral
Default: when debtor fails to make payment due or enters bankruptcy
Termination
A termination statement is a document indication that there is no longer a security interest in the collateral
This happens when the debtor has fully paid off the debt