Default (Article 9: UCC)

Towards the end of the life cycle of a secured transaction comes default. Default provides the right of a secured party to proceed against collateral. On the bar exam, it's almost always the case that this right is triggered by the debtor's failure to pay a debt. 

One avenue for the secured party after default is to use self help and take possession of the collateral. This can only be done, however, if there will not be a breach of the peace. If the secured party breaches the peace, the secured party loses the authorization to re-possess and may actually be sued for conversion if the collateral is re-possessed. Other intentional torts like battery, assault, etc., are also on the table. 

What does it mean to breach the peace? Any conduct by the secured party that has the potential to lead to violence is a breach of the peace. The standard isn't very high: if the debtor physically occupies the space where the secured party intends to acquire the collateral, that may be sufficient to prevent the secured party from using self help to acquire the collateral. If the debtor verbally objects, it almost certainly is. Merely breaking and entering onto property to acquire the collateral, however, isn't necessarily a breach of the peace if the debtor is not present on the property at the time of the breaking and entering. 

Because of this limit involving breach of the peace, self help is not always available. Another avenue is to use judicial process. Replevin is a common judicial process used to acquire collateral after the debtor has defaulted. Another option is for the secured party to make equipment unusable and then to dispose of it on the debtor's property (provided doing so does not breach the peace). If the collateral is accounts, the secured party might provide notice to the account debtor to pay the secured party rather than the party that defaulted. 

Once the secured party possesses the collateral, the secured party might choose to retain the collateral in full or in part. Or, the secured party might choose to sell, lease, license, or otherwise dispose of the collateral in a public or private sale. To sell the collateral, reasonable written notice of intent to sell must be given to the debtor and to any sureties on the debt as well as to any other secured parties. There are a few exceptions here: for example, notice need not be given if the collateral is consumer goods or if the collateral is perishable or its value threatens to decline rapidly. The notice must be sent within a reasonable time before sale.

The notice must adequately describe the parties and the collateral and every aspect of the sale must be commercially reasonable. That's to say, the secured party must show that it made an effort to obtain the best price for the collateral. 

Even after default, the game is not entirely over for the debtor. Any time before the secured party has resold the collateral, retained the collateral through possession, or has entered into a contract for disposition of the collateral, the debtor may redeem the collateral by fulfilling all obligations secured by the collateral including paying for any reasonable expenses. Typically, to redeem will require paying off the entire debt, not least of which is because there's generally an acceleration clause in the agreement between the secured party and the debtor that requires full payment upon default. 

Buyers (Article 9 UCC)

The advice I give to students is that if strapped for time, there are three concepts to know well for Secured Transactions on the bar exam: attachment, perfection, and priorities as they relate to creditors. But if less strapped, I'd take some time to understand how buyers might work their way into the mix.

The relevant question here is whether a buyer might have better rights to the collateral than a creditor who has perfected a security interest in that collateral even if perfected before the buyer purchased the collateral. The key distinction here is between buyers in the ordinary course and buyers not in the ordinary course. A buyer in the ordinary course is one who buys goods in good faith, without knowledge that the sale violates the rights of another person. Further, the buyer must buy the goods in the ordinary course of business from a seller in the business of selling goods of the kind purchased. 

The significance of satisfying that definition for buyer in the ordinary course is that such a buyer takes free of any non-possessory security interests in the goods created by the buyer's seller. Importantly, this is true even if that security interest has been perfected and even if the buyer knows of the security interest (as opposed to knowing that the sale violates a security agreement). 

Things go a bit differently if the buyer is not in the ordinary course. A buyer not in the ordinary course (a buyer who does not satisfy the definition as stated above) take subject to perfected security interests. In contrast, such buyers take free of unperfected security interests unless they know of the security interest when they give value or take delivery of the collateral. 

There's an important exception for buyers not in the ordinary course that has appeared on the exam from time to time. Consumer goods are goods used or bought primarily for personal, family, or household purposes. In the case of consumer goods, a buyer (even if not in the ordinary course) takes free of a perfected security interest if the buyer without knowledge of the security interest buys for value consumer goods before a financing statement covering the consumer goods has been filed. This is called a consumer-to-consumer sale because for this rule to apply, the goods must be consumer goods in the hands of both the buyer and the seller. 

An interesting point to note here is that another rule states that a PMSI in consumer goods is perfected as soon as it attaches. This rule here regarding consumer-to-consumer sales incentivizes creditors to file a financing statement even though there may be automatic perfection. By filing the statement, there's less risk that a buyer not in the ordinary course will have priority over the creditor.

Perfection (Article 9 UCC)

Next up in the lifeline of a secured transaction is perfection. Attachment gives the secured party rights against the debtor. Perfection will give a creditor rights superior to other creditors (as well as rights superior to other third parties other than creditors).

There are five ways to perfect a security interest: filing a financing statement; taking possession of the collateral; taking control of the collateral; automatic perfection; and temporary perfection.

A few of those ways should look familiar: taking possession of the collateral or taking control of the collateral was an element of attachment for some creditors. That means that if the other elements of attachment are satisfied, it may well be true that taking possession or control of the collateral will both attach a security interest, and perfect a security interest, all at the same time.

There’s actually quite a lot of nuance that goes into each of those ways to perfect a security interest. Will get into that in later posts. But the easiest one is automatic perfection. For purposes of the bar exam it would be enough to remember that perfection is automatic for a PMSI in consumer goods. A PMSI in consumer goods is perfected the moment it attaches.

Attachment (Article 9 UCC)

A few things about the subject of Secured Transactions on the bar exam: it's a subject that many students find challenging, and it's a subject that's tested with a high frequency. Not the greatest combination for those preparing for the exam.

I have a memory from a number of years ago when a student (I still think it was a clever joke, but I didn't want to ask in case he was serious) said to me "I have just one question to ask about Secured Transactions. What's a secured transaction?"

I'm writing up a resource to assist students with the subject but highly doubtful it'll be offered by July. So instead, I'll post occasionally on here leading up to July on this subject.

Best place to begin is with attachment, since that's sort of the starting line in a Secured Transactions essay. Attachment gives the creditor rights against the debtor.

It's all about the elements, and there are three elements to attachment: (1): the parties must agree to create a security interest; (2): value must be given to the debtor by the secured party; and (3): the debtor must have rights in the collateral (for example, ownership rights, or even just possessory rights).

Numbers 2 and 3 are straight forward: they are what they say. As for the first element, there are three ways to evidence that such an agreement has taken place: (1) the creditor takes possession of the collateral; (2) an authenticated security agreement is signed by the debtor; or (3): the creditor takes control of the collateral.

That third element might seem a bit suspect. Why control if you can take possession? But control is available when possession is not possible. For example, you can't possess electronic chattel paper (a type of collateral) so the option is available to instead take control of it.

There are nuances to some of the stuff above, but that's very much the framework for attaching a security interest. The next step from there would be to get some rights against creditors who might claim priority (rather than just the debtor): that's where perfection comes in.

Buyer in the Ordinary Course of Business vs. Buyer of Consumer Goods

There are two important provisions in UCC 9 (Secured Transactions) that deal with buyers. Both provide a buyer with protection even against those who have perfected a security interest. But along with that similarity, there are some material differences to keep in mind. 

A buyer in the ordinary course of business is a person who, in good faith, and without knowledge that a sale violates the rights of a third party, buys goods in the ordinary course from a seller who is in the businesses of selling goods of that kind. 

And being a buyer in the ordinary course comes with some privileges. With exception for a person buying farm products from someone in the farming business, a buyer in the ordinary course takes free of a security interest created by the buyer's seller. And, importantly, this is true even if the seller's security interest is perfected, and even if the buyer knows of the existence of that security interest. 

In addition to protection for buyers in the ordinary course, there are also protections for buyers who purchase consumer goods. Buyers of consumer goods are buyers who buy goods from a person who used or bought the goods for use primarily for personal, family, or household purposes. 

Just as with the buyers in the ordinary course, buyers of consumer goods are privileged with some protections, though the requirements for those protections differ. For a buyer of consumer goods to take free of a security interest (even if that security has been perfected) the buyer must buy the consumer goods without knowledge of the security interest, and must buy the goods for value. Further, the buyer must buy the goods primarily for the buyer's personal, family, or household purposes, and must buy the goods before there has been the filing of a financing statement covering those goods. 

That's to say, if a seller took the step of filing a financing statement to perfect a security interest, then that will prevent a buyer of consumer goods from having better rights in those goods than the seller. This is one reason why it can benefit a seller to file a financing statement even if the code allows, for example, for automatic perfection: doing so is an additional layer of protection. 

Also, an important distinction to keep in mind here is that with a buyer in the ordinary course, the buyer will have better rights than a perfected seller even if the buyer knows of the perfected security interest. In contrast, with a buyer of consumer goods, for the buyer to benefit, the buyer must be without knowledge of the security interest. 

Consumer to Consumer Exception (Article 9 UCC)

Many are aware that there's an exception under UCC 9 by which a buyer in the ordinary course of business ("BIOCOB") takes free of a security interest created by its seller even if the security interest was perfected. For those issues, it's important to ensure that the buyer satisfies that BIOCOB status before applying that exception.

But there's another exception that I find to be less well known that the NCBE has tested over the years. The exception is often called the "consumer to consumer exception." A buyer of goods from a person who used or bought the goods for use primarily for personal, family, or household purposes takes free of a security interest even if that security interest has been perfected. Simply put, the buyer needs to have purchased the goods from a seller who was using the collateral as consumer goods as that term is defined by the UCC.

There are some additional requirements, however. For the buyer to take free of the security interest, the buyer must (1) have purchased the goods from the seller without knowledge of the security interest, (2) for value, (3) primarily for the buyer's personal, family, or household purposes, and (4) before anyone else has filed a financing statement covering the goods. 

Number 4 above is especially important. When consumer goods are at issue there's the option of automatic perfection if the security interest is a purchase money security interest. With automatic perfection, there's no need to file in order to perfect. But, it still might be in the interest of the secured party to file even if automatic perfection is possible. Because a secured party, by filing a financing statement, will prevent a buyer from claiming the consumer to consumer exception and thereby having better rights to the collateral than the secured party. 

See more @ https://www.law.cornell.edu/ucc/9/9-320

Superpriority of Purchase Money Security Interests (UBE & Florida)

UCC Article 9 is tested more frequently than many would prefer and a key concept of the subject is the purchase money security interest ("PMSI"). This post will entirely focus on that concept.

A PMSI arises in two situations. The first is when the seller sells collateral to the debtor on credit and also reserves a security interest in the collateral. The second is when the creditor as a lender (often a bank) advances funds to allow the debtor to purchase the collateral and also takes a security interest in the collateral. If there are conflicting PMSIs, one with a PMSI as a seller will have priority over one with a PMSI as a lender.

Knowing the definition above is important but understanding the significance of these security interests is more important. PMSIs enjoy a "superpriority" which makes them superior even to prior perfected security interests in the same collateral provided that some other requirements are met. 

Once you understand the definition and the significance of PMSIs, it's then important to understand the specific rules that apply for certain types of collateral. 

Inventory:  A PMSI in inventory collateral has priority over conflicting security interests in the same inventory or proceeds of that inventory (chattel paper, instruments, or cash proceeds) if the PMSI is perfected at the time that the debtor gets possession of the inventory (filing must take place before the inventory is delivered). Further, any secured party who has perfected a security interest in the same inventory must receive written notification of the PMSI before the debtor receives possession of the inventory. The notification must state that the party providing notice expects to take a PMSI in the specifically named inventory. Might be noted that a similar rule applies to livestock collateral, but I haven't seen that one tested often if at all.

Goods Other Than Inventory:  A PMSI in goods other than inventory (for example, equipment) has priority over conflicting security interests in the same goods or in their proceeds if the interest is perfected before or within 20 days after the debtor receives possession of the goods. The key difference here is that the notice requirement for inventory is lacking for goods other than inventory. 

One final rule to keep in mind that involves PMSIs has more to do with perfecting the security interest than it has to do with priority over others who also have a security interest. A PMSI in consumer goods is automatically perfected. In other words, once a PMSI in consumer goods has attached, it is perfected.  There is no need to take any additional steps such as filing a financing statement or taking possession of the collateral which may be required for non-PMSIs. Of course, this also might play into a priority analysis since that automatic perfection could provide the secured party with priority over others who perfect their interest later.

Fixture Filings

One of the most difficult Article 9 (Secured Transactions) essays I've seen show up on the multistate esssay exam ("MEE") contains among many other issues an issue on fixture filings. Should it show up again, it'll be helpful to know about it.

Fixtures are goods that become so attached to real property that an interest in them arises under real property law. In other words, upon attachment to the real property this personal property ceases to become merely an item of personal property.  And so imagine that there is a valid security interest in an item of personal property. Things can get complex when that item of personal property is attached to real property that also happens to have upon it a mortgage. Should the mortgagee or the secured property have priority over that item of personal property if the real property is sold at foreclosure?

A fixture filing is a filing in the local real estate records describing the real property to which the fixture is attached. Generally, the first to file a fixture filing or the first to record the real property interest will prevail. There is an important exception, though.

A purchase money security interest ("PMSI") is a special type of security interest that enables those who finance a debtor's acquisition of goods to acquire first priority in the collateral. If a secured party is secured by a PMSI and that secured party makes a fixture filing within 20 days after the item of personal property is affixed to the real property then the secured party will prevail over any real property interest in the same item of personal property even if the real property interest was recorded prior to the fixture filing. In other words, the first to file rule does not apply here.

Another point to note: If the above applies and the fixture has priority over any interest in the real property, then the holder of the security interest in the fixture may upon default remove the fixture from the real property. But the holder of the security interest will be required to reimburse any owner of the real property who is not also the debtor for the cost of any repairs for physical injury to that real property.

Disposition of Collateral

People generally hope that Secured Transactions doesn't show up on the MEE.  It's not uncommon for it to show up, and so it's a good idea to understand the issues that have appeared on prior exams. One such issue deals with the obligations that a secured party has in the collateral once the debtor has defaulted.

The general rule here is that after default by the debtor, a secured party may dispose of the collateral. A private sale by the secured party of the collateral is permissible if commercially reasonable. The proceeds of that disposition will first be applied to the cost associated with the sale and then the remainder will go to the secured party to satisfy the obligation that the debtor failed to pay.

Before disposition, though, the secured party must send to the debtor a reasonable, authenticated notification of disposition. This is the default rule and should be applied unless an exception applies.

An exception to the default rule applies when the collateral is perishable or if for any reason the value of the collateral threatens to decline speedily in value. In such instances, the need to provide notification is balanced against the need to dispose of the collateral in the quickest possible manner.

Let's assume here that the exception does not apply and that a notification is required. If a notification is required but the notification is not sent to the debtor prior to the secured party disposing of the collateral, the secured party may be liable. This liability might result in damages owed to the debtor. More likely, though, is a deduction in the amount owed to the secured party from the debtor for the damages caused by the debtor's default.

Default Rules (Article 9 UCC)

For sure, three areas to know well for Article 9 UCC on the MEE are attachment, perfection, and priorities. Another area that is tested that is often overlooked is default. Specifically, the rules that determine the responsibility of the secured party as to the collateral after the debtor has defaulted by not paying back the loan.

The secured party (the creditor) has some options. The secured party can sue on the debt itself, take possession of the collateral (importantly, only if doing so will not be a breach of the peace),  or sell the collateral by a public or private commercially reasonable sale and then collect any deficiency after sale.

In the case of a sale, the debtor as well as other secured parties (if any) are generally entitled to notice. The notice must be sent within a reasonable time and must be detailed as to the parties, collateral, time and method of sale, etc.

A detail worth noting is that if the debtor has paid 60% of the cash price on a purchase money security interest ("PMSI") in consumer goods or 60% of the loan on a non-PMSI in consumer goods, the secured party must dispose of the collateral within 90 days after re-possessing it or the debtor will be entitled to recover it in conversion. This rule is very specific to consumer goods (a type of collateral). With respect to any other type of collateral, the secured party may retain the collateral in full satisfaction of the debt but only if the debtor consents to the retention in an authenticated record after default or if the debtor (or any other secured party) does not object to the retention within 20 days after notice is sent by the secured party.

Until the secured party has sold the collateral or has discharged the debt by retention of the collateral, the debtor or other secured party may redeem the collateral by paying all obligations plus additional reasonable expenses.

If a secured party fails to follow the requirements as to how to handle the collateral after the debtor has defaulted, the secured party will be liable for actual damages caused by that failure which could amount to entirely denying the secured party the right to collect a deficiency from the debtor or allowing the secured party to recover a deficiency but subtracting from that amount any actual damages that the debtor can prove has resulted from the secured party's failure to follow the default rules.

Secured Parties vs. Buyers

There are two problematic things about UCC Article 9 on the bar exam. Most people don't want it to show up, and it shows up.  An area that appears with some consistency deals with priority between a secured party and a buyer in the ordinary course of business.

First the easier case: a person who buys or leases collateral from a debtor generally has an interest in the collateral superior to a secured party who has an unperfected security interest in the collateral if the buyer or lessee without knowledge of the security interest gives value and receives delivery of the collateral. In other words, this is yet another situation in which a bona fide purchaser ("BFP") wins. There are certain types of collateral (for example "accounts") which cannot be delivered and so in those situations the delivery requirement is not applied.

Even an unperfected secured party may not be out of luck, though. If that party attaches a purchase-money security interest ("PMSI") in the debtor's collateral before the buyer or lessee pays value and receives delivery from the debtor, the unperfected interest will have priority over the buyer or lessee but only if that party perfects the interest by filing within 20 days after the debtor takes possession of the collateral.

Commonly tested is the priority between a buyer or lessee and a perfected security interest. Generally, a perfected security interest wins over the rights of a buyer or lessee who receives the collateral after the secured party has perfected his interest. But there are many exceptions. All of the following will allow a buyer or lessee to defeat even a perfected secured party.

--The secured party consents to a disposition of the collateral free of the security interest.

--A buyer or lessee in the ordinary course of business takes free of a perfected security interest unless the buyer knows that the sale or lease is in violation of the security interest. This is true even if the buyer knows that another party has a perfected security interest in the goods that they buyer is going to purchase. That alone will not prevent the buyer from having the status of a bonafide purchaser for purposes of Article 9.

--A consumer purchasing from a consumer has priority over a secured party who has a PMSI in consumer goods unless the purchaser knows of the security interest or a financing statement has been filed by the secured party.

--A buyer or lessee not in the ordinary course of business has priority over future advances or commitments to make future advances made by a secured party after the secured party learns of the purchase or lease as well as any future advances made more than 45 days after the purchase or lease.

Automatic and Temporary Perfection of a Security Interest

To review, there are 5 ways to perfect a security interest as per the rules in Article 9 of the UCC.  The previous 2 posts have discussed 3 of those ways (filing, possession, and control), and this post will discuss the remaining 2, automatic perfection, and temporary perfection.

Automatic Perfection:  The rules you'll need to know about automatic perfection are very limited.  Only a purchase money security interest ("PMSI") in consumer goods is automatically perfected.  A seller of goods has a PMSI when the security interest is retained to secure at least part of the purchase price of the goods.  So, if a seller of consumer goods lends money to the buyer and retains a security interest to secure that loan (i.e., ensure repayment) then that security interest will be automatically perfected with no further action required to perfect it.  It's important to note that not all PMSI's are eligible for automatic perfection.  If the PMSI is in inventory or equipment, for example, then you should not apply the rule regarding automatic perfection; it should only be applied to consumer goods.  In addition, there is an exception for motor vehicles to keep in mind:  a security interest in motor vehicles can be perfected only by notation on the vehicle's certificate of title.

Temporary Perfection:  The first place to begin when discussing temporary perfection of a security interest is with proceeds.  A security interest in proceeds from original collateral is continuously perfected for 20 days from the debtor's receipt of the proceeds.  This is automatic perfection but the security interest will become unperfected after 20 days unless the statutory requirements are followed.  The security interest, however, will continue beyond the 20 days if:

(1): The security interest in the original collateral was perfected by filing a financing statement, a security interest in the type of collateral constituting the proceeds would be filed in the same place as the financing statement for the original collateral, and the proceeds were not purchased with cash proceeds of the collateral.

or

(2): The proceeds are identifiable cash proceeds.

or

(3): The security interest in the proceeds is perfected within the 20-day temporary perfection period.

In addition to proceeds, there are a few other types of security interests eligible for 20-day temporary automatic perfection.  The first deals with instruments, negotiable documents, and certificated securities.  Where new value is given under an authenticated security agreement for instruments, negotiable documents, or certificated securities, perfection is valid for 20 days after attachment; nothing further is required to perfect temporarily.

In addition, where a creditor has perfected a security interest by possession and delivers to the debtor instruments, negotiable documents, certificated securities, or goods in the possession of a bailee, perfection will continue for 20 days after which the creditor must re-perfect (since the creditor no longer has possession).

An example here might be helpful:  Assume that the creditor possesses a promissory note as collateral for a loan given by the creditor to the debtor.  The note has been perfected by possession but at some point the creditor must give the note to the debtor so that the debtor can present it for payment.  Perfection of the security interest will not be lost on that note the moment that the creditor stops possessing it, but the creditor will need to perfect (for example file or re-possess) the note within those 20 days or else lose perfection.

Perfection of a Security Interest by Possession or Control

In the last post I discussed how one might perfect a security interest by filing a security agreement.  There are 5 ways in total to perfect a security interest, and this post will be focus on 2 of the remaining 5, possession and control.

Possession:

Security interests in most types of collateral can be perfected by possession.  There are some types of collateral, however, that cannot be perfected by possession and they should be kept in mind.  The types of collateral that cannot be perfected by possession are general intangibles, non-consumer deposit accounts, non-negotiable documents, electronic chattel paper, certificate of title goods, and accounts.  In other words, to perfect a security interest in these types of collateral will require perfecting by a method other than possessing the collateral.

If perfecting by possession, the security interest will be perfected from the moment of possession and will continue as long as possession is retained.  When the collateral is being possessed by a bailee, possession will begin the moment a bailee authenticates a record acknowledging that it is holding the collateral for the benefit of the secured party.

Control:

As with possession, there are certain types of collateral that can be perfected by control, and here they are rather limited. They are non-consumer deposit accounts, electronic chattel paper, and investment property. Regarding non-consumer deposit accounts, a bank in which a non-consumer deposit account is maintained will automatically have control over the deposit account.  If the secured party is not such a bank, it may obtain control over a non-consumer deposit account by putting the deposit account in the secured party's name or by agreeing in an authenticated record with the debtor and the bank in which the deposit account is maintained that the bank will comply with the secured party's orders regarding the deposit account without requiring the debtor's consent.

As to electronic chattel paper (chattel paper stored in an electronic medium such as a computer), it is controlled when a system is put in place to show the transfer of interests in the chattel paper which reliably establishes the secured party as the assignee.

And finally, there is investment property.   One can gain control over a certificated security (such as a stock or bond represented by a certificate) by taking possession of the certificate if it is in bearer form.  If, however, the certificate is in registered form, the secured party must take possession and the certificate must be indorsed to the secured party or registered by the issuer in the name of the secured party.

If the investment property is a securities account rather than a certificated security, then one will obtain control over that account if the owner of the account instructs the securities intermediary that the secured party has the same rights in the account as the owner or if the owner instructs the intermediary that the intermediary may comply with the secured party's orders without the owner's further consent.

Types of Collateral

Article 9 of the UCC (Secured Transactions) is difficult.  The complexity makes it daunting in the relatively short time available for students to learn it for the bar exam. But an important first step in getting a grip on this subject is to understand the different categories of collateral that can form the basis of a security interest.  The rules throughout this subject will often refer back to these categories (for example, some rules only apply to consumer goods, a type of tangible collateral) and building this foundation by simply understanding the types of collateral can set you up to far better understand the subject as a whole.

In total there are 3 main categories with sub-categories within each one to keep in mind.  The three main categories are tangible collateral, intangible collateral, and proceeds.

I:  Tangible Collateral (often referred to as "goods"):

(1):  Consumer goods:
These are goods bought or used for personal, family, or household purposes.

(2):  Inventory:
These are goods held for sale or lease and goods consumed by a business.

(3):  Farm products:
These are goods used or produced in farming that are in the possession of or used by a farmer.

(4): Equipment:
These are goods that do not fit within any of the 3 above categories.

II:  Intangible Collateral

(1): Instruments:
Instruments include notes, drafts, and certificates of deposit.

(2):  Documents:
Documents include bills of lading and warehouse receipts.

(3)  Chattel Paper:
Chattel paper are records evidencing both a monetary obligation and a security interest in specific goods or a lease of specific goods.

(4):  Accounts:
These are rights to payment for goods, services, etc.

(5):  Deposit Accounts:
These are savings accounts, passbook accounts, etc.

(6):  Investment Property:
These include stocks, bonds, mutual funds, brokerage accounts, etc.

(7):  Commercial tort claims:
These are tort claims filed by organizations and tort claims filed by an individual that arose out of the individual's business and do not involve personal injury.

(8):  General intangibles:
These are intangibles not fitting within any of the above 7 types of intangibles.

III: Proceeds

Proceeds include whatever is received upon the sale, exchange, collection or other disposition of collateral or other proceeds.  Insurance payable by reason of loss or damage to collateral is also deemed to be proceeds unless it is payable to someone other than the debtor or secured party.

MEE Fast Fact: Attachment (Secured Transactions)

Not only is secured transactions a very complex subject but it is tested with some frequency on the MEE.   There's plenty to say about this subject but an initial place to begin is with the concept of attachment. A security interest will not be enforced unless it has first attached.  Essentially, this means that the secured party will have no rights against the debtor unless there has been an attachment of a security interest.  And attachment requires the following:

(1): The parties (the secured party and the debtor) must agree to create a security interest.  Evidence of this agreement can be accomplished in a few ways, one of which is the creditor taking possession of the collateral (personal property of the debtor).  In addition, the interest can be evidenced by the debtor authenticating a security agreement describing the collateral.  Finally, the agreement can be evidenced by the secured party taking control of certain types of collateral.

(2): In addition to the evidence outlined above, value must be given by the secured party to the debtor.

(3): Lastly, the debtor must have ownership rights in the property used as collateral.

If all three elements above are satisfied, a security interest has attached.  That's just the beginning, but it's a good place to start.