Ch. 21: Secured Transactions – No. 1
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
Secured Transaction: A transaction in which a debtor
guarantees payment or performance by pledging collateral
that she owns or in which she has a legal interest.
Ch. 21: Secured Transactions – No. 2
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
CREATING A SECURITY INTEREST
For a security interest to become enforceable (attach):
(1) the debtor must have rights in the collateral; and
(2) the secured party must give value (e.g., extend credit)
authenticated by the debtor; or
(b) the secured party must – depending on the type of
collateral – possess, control, or take delivery of
the collateral.
Ch. 21: Secured Transactions – No. 3
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
PERFECTING A SECURITY INTEREST
Perfection: The process by which a secured party protects its
security interest in the collateral against the claims of third
parties who may look to the same collateral to satisfy the
debtor’s obligations to them.
For every type of collateral, a secured party may perfect her
(5) in the case of collateral subject to a certificate of title
statute or other statute that preempts UCC Article 9 as to
perfection, complying with the applicable statute.
Exhibit 29-3 identifies various types of collateral Article 9
Ch. 21: Secured Transactions – No. 4
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
PERFECTING BY FILING
Legal Sufficiency: A financing statement must contain
(1) the debtor’s name,
(2) the secured creditor’s name, and
(3) any other entity where its place of business is located
or, if it has places of business in more than one state,
where its chief executive office is located.
Filing Office: A secured party or its agent must file against
Ch. 21: Secured Transactions – No. 5
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
THE DEBTOR’S NAME
A financing statement against an individual or a
nonregistered organization (e.g., a general partnership)
properly names the debtor only if it uses “the individual or
organizational name of the debtor.”
debtor’s trade name is legally insufficient.
Safe Harbor: An incorrect debtor’s name will suffice if it is
not seriously misleading. By definition, a debtor’s name is
not seriously misleading if a search of the correct filing
PERFECTING WITHOUT FILING
Perfection by Possession: A secured creditor may also
perfect against many types of collateral by taking possession
Security interests in certain types of collateral – notably
accounts receivable and general intangibles – may only
be perfected by filing.
A secured party must perfect PMSIs in all other goods in
the same manner and place it perfects non-PMSIs.
Most states require a certificate of title for any automobile,
motorcycle, boat, or motor home. In those states, a security
Ch. 21: Secured Transactions – No. 7
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
MAINTAINING PERFECTION
Duration: As a general rule, a financing statement is
effective for five years from the date it is filed.
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
THE SECURITY INTEREST’S SCOPE
In addition to covering collateral already in the debtor’s
inventory).
After-Acquired Property: Property fitting the security
agreement’s collateral description the debtor acquires
after executing the security agreement (e.g., replacement
perfected security interest in the same collateral that
secures the initial loan.
Floating Lien: A security interest in collateral that is
retained even when the collateral changes in character,
classification, or location.
Ch. 21: Secured Transactions – No. 2
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
CREATING A SECURITY INTEREST
For a security interest to become enforceable (attach):
(1) the debtor must have rights in the collateral; and
(2) the secured party must give value (e.g., extend credit)
authenticated by the debtor; or
(b) the secured party must – depending on the type of
collateral – possess, control, or take delivery of
the collateral.
Ch. 21: Secured Transactions – No. 3
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
PERFECTING A SECURITY INTEREST
Perfection: The process by which a secured party protects its
security interest in the collateral against the claims of third
parties who may look to the same collateral to satisfy the
debtor’s obligations to them.
For every type of collateral, a secured party may perfect her
(5) in the case of collateral subject to a certificate of title
statute or other statute that preempts UCC Article 9 as to
perfection, complying with the applicable statute.
Exhibit 29-3 identifies various types of collateral Article 9
Ch. 21: Secured Transactions – No. 4
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
PERFECTING BY FILING
Legal Sufficiency: A financing statement must contain
(1) the debtor’s name,
(2) the secured creditor’s name, and
(3) any other entity where its place of business is located
or, if it has places of business in more than one state,
where its chief executive office is located.
Filing Office: A secured party or its agent must file against
Ch. 21: Secured Transactions – No. 5
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
THE DEBTOR’S NAME
A financing statement against an individual or a
nonregistered organization (e.g., a general partnership)
properly names the debtor only if it uses “the individual or
organizational name of the debtor.”
debtor’s trade name is legally insufficient.
Safe Harbor: An incorrect debtor’s name will suffice if it is
not seriously misleading. By definition, a debtor’s name is
not seriously misleading if a search of the correct filing
PERFECTING WITHOUT FILING
Perfection by Possession: A secured creditor may also
perfect against many types of collateral by taking possession
Security interests in certain types of collateral – notably
accounts receivable and general intangibles – may only
be perfected by filing.
A secured party must perfect PMSIs in all other goods in
the same manner and place it perfects non-PMSIs.
Most states require a certificate of title for any automobile,
motorcycle, boat, or motor home. In those states, a security
Ch. 21: Secured Transactions – No. 7
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
MAINTAINING PERFECTION
Duration: As a general rule, a financing statement is
effective for five years from the date it is filed.
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
THE SECURITY INTEREST’S SCOPE
In addition to covering collateral already in the debtor’s
inventory).
After-Acquired Property: Property fitting the security
agreement’s collateral description the debtor acquires
after executing the security agreement (e.g., replacement
perfected security interest in the same collateral that
secures the initial loan.
Floating Lien: A security interest in collateral that is
retained even when the collateral changes in character,
classification, or location.