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UCC Article 9
Secured Transactions

Master the rules governing security interests in personal property: attachment, perfection, and priority under the Uniform Commercial Code.

CPA Regulation (REG)

What Is a Secured Transaction?

A secured transaction is any agreement where a creditor (the secured party) obtains a security interest in a debtor's personal property or fixtures. If the debtor defaults, the secured party can seize and sell the collateral to satisfy the debt.

Key Parties and Terms

Debtor
The person who owes the obligation and owns or has rights in the collateral.
Secured Party
The lender, seller, or other creditor who holds the security interest.
Collateral
The personal property subject to the security interest (e.g., equipment, inventory).

Types of Collateral

Goods
Consumer goods, equipment, farm products, inventory
Quasi-Tangibles
Instruments, documents of title, chattel paper
Intangibles
Accounts receivable, general intangibles, deposit accounts

The Three-Step Framework

STEP 1 Attachment STEP 2 Perfection STEP 3 Priority Creates rights vs. debtor Creates rights vs. third parties Determines who gets paid first

Requirements for Attachment

Attachment is the moment the security interest becomes enforceable against the debtor. All three elements must be present:

1
Value given: The secured party must give value (e.g., a loan, binding commitment to lend, or past consideration).
2
Debtor has rights in collateral: The debtor must own the collateral or have the power to transfer rights in it.
3
Security agreement: An authenticated record describing the collateral, or the secured party has possession/control of the collateral.

Methods of Perfection

Filing
File a UCC-1 financing statement with the Secretary of State. The most common method for most collateral types.
Possession
The secured party physically holds the collateral (e.g., a pledged stock certificate or negotiable instrument).
Control
Required for deposit accounts, electronic chattel paper, and investment property held in securities accounts.
Automatic
A PMSI in consumer goods is perfected automatically upon attachment: no filing needed.

Attachment vs Perfection

Attachment Perfection
Purpose Creates the security interest Gives notice to third parties
Effective Against Debtor only Debtor + third parties
Requirements Value, rights, agreement Attachment + filing/possession/control
Without It No security interest exists Interest exists but subordinate to perfected creditors
Timing Can occur simultaneously with perfection Cannot occur before attachment

Priority Rules

HIGHEST PRIORITY Buyer in Ordinary Course (BIOC) SUPER-PRIORITY Perfected PMSI (filed within 20 days) STANDARD RULE First to file or perfect wins LOWEST PRIORITY Unperfected secured creditors

The PMSI Super-Priority

A Purchase Money Security Interest (PMSI) arises when a creditor either sells goods on credit or lends money specifically to purchase identified collateral. PMSIs receive special priority treatment:

1
PMSI in goods (non-inventory): File within 20 days of debtor receiving the collateral to get super-priority over earlier-filed creditors.
2
PMSI in inventory: Must file before debtor receives inventory and send written notice to all prior perfected creditors.
3
PMSI in consumer goods: Perfected automatically upon attachment: no filing required.

How to Analyze a Secured Transaction

1
Identify the collateral: What type of personal property is involved? (goods, accounts, instruments, etc.)
2
Check attachment: Was value given? Does the debtor have rights? Is there an authenticated security agreement or possession?
3
Determine perfection: Was a UCC-1 filed? Did the secured party take possession or control? Is it an automatic PMSI?
4
Apply priority rules: Is there a PMSI? Was it timely filed? Who filed or perfected first? Is there a BIOC?
5
Determine the winner: Apply the hierarchy: \(\text{BIOC} > \text{PMSI} > \text{first to file/perfect} > \text{unperfected}\).

Example 1: Basic Attachment

✓
Value given? Yes: Bank disbursed $50,000.
✓
Rights in collateral? Yes: Delta already owns the equipment.
✓
Authenticated security agreement? Yes: Delta signed the agreement describing "all equipment."

Example 2: Priority Contest

1
First Bank filed first (Jan 10) under the general "first to file or perfect" rule.
2
Second Bank has a PMSI: it loaned money specifically to purchase the machine.
3
Second Bank filed within 20 days of the debtor receiving the machine (\(15 \text{ days} < 20 \text{ days}\)).

Example 3: BIOC Exception

1
Customer is a Buyer in Ordinary Course of Business (BIOC): purchasing goods in good faith from a seller who deals in goods of that kind.
2
A BIOC takes the goods free of any security interest created by the seller, even if the buyer knows the interest exists.

Common Mistakes

✕ Confusing Attachment with Perfection
Attachment creates the interest against the debtor. Perfection protects it against third parties. They are separate steps.
✕ Missing the PMSI Deadline
A PMSI in non-inventory goods must be filed within 20 days of the debtor receiving the collateral. Inventory PMSIs must file before delivery.
✕ Forgetting Automatic Perfection
A PMSI in consumer goods is perfected automatically. No filing is needed. Many students assume all PMSIs require filing.

Summary of Perfection Methods

Collateral Type Filing Possession Control Auto
Equipment ✓ ✓ - -
Inventory ✓ ✓ - -
Consumer Goods (PMSI) ✓ ✓ - ✓
Accounts Receivable ✓ - - -
Deposit Accounts - - ✓ -
Negotiable Instruments ✓ ✓ - -

Question 1 of 5

Which of the following is not required for a security interest to attach under UCC Article 9?

Question 2 of 5

A PMSI in consumer goods is perfected by which method?

Question 3 of 5

Which creditor has priority in the printing press?

Question 4 of 5

A customer buys a television from an electronics retailer whose inventory is subject to a perfected security interest held by a bank. The customer knows the bank's security interest exists. Under UCC Article 9, which statement is correct?

Question 5 of 5

Under UCC Article 9, which type of collateral can only be perfected by control (not by filing)?