A. CREATING A SECURITY INTEREST
o An interest in personal property or fixtures, which secures payment or performance of an obligation and becomes enforceable against the debtor upon attachment.
o The unsecured creditor has only a right against the buyer, whereas a secured creditor has a right against the property.
· A security interest attaches when all requirements are met:
§ Value must be given. A previously existing obligation can serve as value.
§ A debtor must have rights in the collateral or the power to transfer such rights.
o Security agreement
§ The parties must authenticate a security agreement, unless the secured party takes possession of the collateral.
· 9-102 – Definitions
§ Right to payment of a monetary obligation for property, services, or other reasons listed in 9-102(a)(2).
o Account debtor
§ A person obligated on an account, chattel paper, or general intangible.
o Chattel paper
§ A record that shows a monetary obligation and a security interest in specific goods.
o Consumer goods
§ Goods used or bought primarily for personal, family, or household purposes.
§ A person having an interest (other than a security interest) in the collateral, whether or not the person is an obligor.
§ I.e. the person granting a security interest in collateral.
§ Goods other than inventory, farm products, or consumer goods.
o Farm products
§ Crops, livestock, supplies used or produced in a farming operation, or products of crops or livestock.
o General intangible
§ E.g. postage stamps, prepaid phone cards.
§ All things movable when a security interest attaches. See 9-102(a)(44).
§ A negotiable instrument or other writing that shows a right to payment of a monetary obligation.
§ Goods leased by a person, held for sale or lease, or consisting of raw materials, work in process, or materials used in a business.
§ A person who is accountable for payment or performance of an obligation.
o Promissory note
§ Instrument that evidences a promise to pay a monetary obligation.
B. REQUIREMENT OF A SECURITY AGREEMENT
o The debtor must authenticate (sign) the security agreement unless the secured party retains possession of the collateral.
§ Collateral that may be possessed
– Certificated securities
– Chattel paper
– Documents of title
§ Collateral that may be controlled
– Deposit accounts
– Investment property
– Letter-of-credit rights
– Electronic chattel paper
– Electronic documents of title
· Adequate description of collateral
o A description of collateral is sufficient if it reasonably identifies what is described, i.e. description by type of collateral (supergeneric descriptions insufficient).
o Types of collateral
– Consumer goods
– Farm products
– Chattel paper
– Document of title
– Certificated security
t daily balance in the account between the time the proceeds were deposited and the time the creditor seeks to enforce its interest.
§ A security interest may follow transferred collateral while also attaching to proceeds received on disposition.
§ Increases collateral available to satisfy the obligation.
C. REQUIREMENT OF VALUE
· Attachment of an enforceable security interest also requires that value be given. Value must flow from the creditor to the debtor.
o Includes extension of credit, commitment to lend, or any consideration sufficient to support a simple contract.
§ A person gives value for rights if they acquire them as security for, or in satisfaction of, a preexisting claim.
· 2-507 & 2-511 – delivery and payment as conditions
o Parties are presumed to agree to simultaneous payment and delivery.
§ Always a presumption for cash sales.
§ A bounced check is failure of a condition, and the buyer’s right to retain the goods is terminated.
· 2-702 – seller’s rights on buyer’s insolvency
o If the seller discovers that the buyer is insolvent, he may refuse to deliver, or reclaim the goods.
The seller does not have to show a conscious intent to defraud; but merely that the buyer