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- Scope of Article 9 of the UCC: consensual security interests in personalty and fixutres
- Creditor creating an enforceable security interest in debtor's collateral (attach); Value, Contract, Rights in collateral
- Creditor PERFECTS by putting world on record notice of existence
- Where there is more than one creditor with stake in same collateral,PRIORITY is first in time, first in right
- If debtor DEFAULTS on the debt or obligation, then creditor has statutory and judicial remedies
Scope of Article 9 of the UCC
- Applies to consensual security interests in personalty (goods) or fixutres (for real estate, use mortgages)
- Does not apply to statutory or mechnic's liens
- Possible collateral:
- Tangible collateral: consumer goods, equipment, inventory, farm products, or fixtures (annexed to realty). The category
- depends on how the debtor uses the property, which is a subjective test.
- Intangible collateral: patents, trademarks, copyrights; stocks, bonds, mutual funds; proceeds from the sale of collateral, accounts receivable, promissory notes and drafts.
Creation of an Enforceable Security Interest
- A creditor creates an enforceable security interest/attaches debtor’s collateral if VCR - creditor gives Value, there is a Contract/security agreement (record must be authenticated by debtor and reasonably identify the collateral), and debtor has Rights in the collateral.
- After-acquired collateral clauses are enforceable (floating liens).
Perfection of Security Interests
- Creditor perfects the interest by putting the world on record notice.
- Purchase money security interests (PMSI - security interest that enables debtor to purchase the goods) in consumer goods are automatically perfected.
- Creditor can perfect by taking possession of the collateral.
- Most commonly, Creditor can perfect by filing a financing statement (Debtor name address, Creditor names/address, and a description of the collateral) with State Corporation Commission if Debtor’s principal residence is Va or the business is organized under Va law. Otherwise, file with the Secretary of State where Debtor principally resides/organized its business, unless the collateral is timber, minerals, or fixtures, then file where they’re located.
- Each claimant entitled to satisfaction in full before a subordinated claimant is entitled to take.
- Buyer in Ordinary Course >
- Perfected Attached Creditor >
- Lien Creditor (from a judgment) >
- Non-Ordinary Course Buyer >
- Unperfected Attached Creditor >
- General Unsecured Creditor (never bothered to take collateral)
- If there are 2 of the same creditor, the first to perfect/first in time wins.
- Article 9 gives special effect to filing.
- Creditor can file when negotiations begin, and priority relates back as long as attachment later occurs.
- If there are 2 PACs, but one is a PMSI and the other is an AACF, when the collateral is equipment, PMSIs win over after-acquired collateral financiers if they file properly within 20 days of O taking possession of the after-acquired collateral/equipment.
- If the collateral is inventory, the PMSI holder can achieve first priority over the AACF by filing before O takes possession and notifying the AACF.
- This extra step is to protect AACFs from O’s fraud where O entices the AACF to extend additional value on the basis that O will receive additional inventory but doesn’t tell AACF that the value is on credit from a PMSI holder.
- When Debtor defaults, the secured creditor can engage in self-help repossession so long as there is no breach of the peace, which occurs if Debtor makes any protest or the re-possessor misuses the color of law.
- Debtor enjoys a zone of privacy in his home, and the re-possessor may not enter Debtor’s home without voluntary and contemporaneous consent.
- Breaching the peace makes Debtor civilly and criminally liable. Debtor can avoid such liability by getting a judicial writ that orders the sheriff to obtain possession.
- occurs when the secured party retains the collateral in full satisfaction of the debt
- works best when Creditor has use of collateral and debt ~ collateral's value
- Process: secured party sends a written proposal to retain the collateral in satisfaction of the debt. For consumer goods, the notice is sent to debotr and secondary obligors (guarantor). For tother collateral, the notice is sent to debtor and other secured parties who have told the foreclosing creditor of their security interest in the collateral, and to perfected creditors and secondary obligors.
- If any of the parties objects w/in 20 days, strict foreclosure not allowed, proceed to sale.
- Consumer goods and 60% rule: Strict foreclosure is unavailable if the collateral is consumer goods and Debtor has satisfied > 60% of the debt (Creditor sells collateral within 90 days; otherwise conversion)
- COMMERCIALLY REASONABLE
- Secured party may sell public or private and apply proceeds to debt.
- Prior to sale, C must notify debtor and secondary and obligors of consumer goods collateral.
- If the collateral isn’t consumer goods, O must also notify other perfected creditors.
- If the sale is public, the notice must state the time and place.
- If the sale is private, it must state the time after which the sale will occur.
- For consumer goods, the notice must also give details as to how any deficiency will be calculated and how Debtor can redeem.
- The secured party can buy at a public sale but not a private one.
- Amount of notice is determined by commercial reasonableness (10 days before sale is reasonable in nonconsumer)
Action for a Deficiency Judgment
- If a secured party sells to an insider at an artificially low price, the FMV is used for calculating the deficiency and not the low price.
- Debtor can redeem any time before the property is sold or there’s been strict foreclosure by paying the debt, interest, and Creditor's reasonable expenses.