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What is the scope of Article 9?
Article 9 applies to consensual security interests in personalty and fixtures.
How does a creditor create an enforceable security interest in debtor's collateral, aka ATTACH?
- Rights in the collateral
How does a creditor attain PERFECTION?
By putting the world on record notice of the security interest.
When more than one creditor has a stake in the same collateral, what are the rules of PRIORITY?
The first to perfect takes.
What if the debtor DEFAULTS?
The Article 9 lender has statutory and judicial remedies.
The entity who owes the money
The entity who lends the money
The contract, record
The right the creditor has in debtor's personalty or fixtures
The personalty or fixtures that creditors can look to for satisfaction
Those items used for personal or familial purposes
Items used in business
Goods held for sale or lease
Crops, livestock, and supplies used in farming operations.
Items annuxed ro realty
Intangibles or semi-tangibles
- Mutual funds
- Proceeds from the sale of collateral
- Amounts receivable
- Promissory notes and drafts
What is required to create an enforceable security interest?
The attachment of the right (value, contract, rights in the collateral).
What is necessary to satisfy the "contract" requirement for attachment under Article 9?
The security agreement or record must evidence the secured transaction unless the secured party has taken possession of the collateral.
The record must be 1) authenticated by debtor (signed or electronically marked) and 2) must reasonably identify the collateral.
No need for contract if creditor is in possession.
When is there no need for a contract for attachment under Article 9?
The secured party has taken possession of the collateral.
Places the world on record or constructive notice of the secured party's existence.
How does a creditor attain perfection of an Article 9 secured interest?
- Take possession
- Automatic perfection for PMSIs in consumer goods (PMSI = purchase money securty interest, enables the debtor to purchase the goods)
- The secured party files notice of the security interest in the public records
Purchase money security interest.
Enables the debtor to purchase the goods.
There is automatic perfection for PMSIs in consumer goods.
What is sufficient to satisfy the notice requirement for perfection under Article 9?
The security party files notice of the security interest in the public records.
Generally files financing statment - only purpose is to provide interest parties with sufficient information to make follow-up inquiries.
- Contents--simple and sparse
- 1) Debtor's name and address
- 2) Creditor's name and address and
- 3) Descipriton of the collateral
- Where filed?
- -Secretary of State in the state where debtor is located
- --State of debtor's principal residence
- --State of debtor's registered organization
- --EXCEPTION: If the collateral is timber, minerals, or fixtures file locally in the county where the realty is located
What are the required contents of a notice of an Article 9 security interest in order to perfect the interest?
- Debtor's name and address
- Creditor's name and address
- Description of the collateral
Where must notice of an Article 9 security interest be filed in order to perfect the interest?
- Secretary of State in the state where debtor is located
- --State of debtor's principal residence
- --State of debtor's registered organization
EXCEPTION: If the collateral is timber, minerals, or fixtures, then file locally in the county where the realty is located.
Each claimant is entitled to satisfaction in full before a subordinated claimant is entitled to take
Buyer in Ordinary Course
Someone who purchases the collateral from a merchant's inventory
Perfected Attached Creditor
The Article 9 creditor who succeeds in attaining perfection.
Who has priority over a perfected attached creditor?
1) The perfected attached creditor who filed first.
Article 9 allows you to file early, even at the onset of loan negotiations. Then if the early filer subsequently attaches she is allowed the benefit of the early filing.
2) Some Purhcase Money Security Interests (PMSIs)
3) The Buyer in the Ordinary Course
General unsecured creditor who goes to court to get a judicial lien on the collateral
Non-ordinary course buyer
Someone who purchases the collateral outside the ordinary stream of commerce
Attached Unperfected Creditor
This is the Article 9 creditor who creates an enforceable security interest.
Who does the attached unperfected creditor have priority over?
- Subsequent Attached Unperfected Creditor
- General unsecured creditor
Who has priority over the attached unperfected creditor?
- Perfected Attached Creditor
- Lien Creditor
- Any buyer without knowledge of the security interest
General unsecured creditor
This is the lender who never bothered to take collateral
After-acquired collateral financier
A secured creditor who takes as collateral a security interest "in all of Debtor's whether now held or hereafter acquired."
A floating lien.
Purchase Money Security Interest (PMSI)
A security inerest that enables the debtor to purchase the goods.
AACF v. PMSI (priority)
- -PMSI wins if it files properly within 20 days after debtor takes possession of hte cash registers
- -PMSI wins if 1) it files properly BEFORE debtor takes possession AND 2) notifies AACF BEFORE debtor takes possession
- Debtor has breached
- Self help repossession is permissible - so long as creditor does not breach the peace
Is self help repossession permissible in case of a default (breach by the debtlor)?
Yes, so long as the creditor does not breach the peace.
When does a "breach of the peace" occur in the context of self help repossession?
- A breach of the peace occurs when the secured party's actions are likely to cause violence.
- --A reposession made over ANY protest by the debtor constitutes a breach of the peacee
- --Where the repossessor misuses the color of law there is a breach of the peace.
What is required for a repossession in the home to not constitute a breach of the peace?
Voluntary and contemporaneous consent.
When does repossession outside of the home constitute a breach of the peace?
Whenever the debtor objects.
Occurs when the secured party retains the collateral in full satisfaction of the debt.
In a strict foreclosure, what must the secured party do in order to retain the collateral in satisfaction of the debt?
Send a written proposal.
- Writing is sent to
- -Consumer goods = debtor and secondary obligor (a guarantor of the debt)
- -Non-consumer goods = debtor and other secured parties who have told the foreclosing creditor of their security interest in the collateral, perfected creditors and secondary obligors
In the case of consumer goods, who must the secured party send a written proposal to in order to retain the collateral in satisfaction of the debt?
- Secondary obligaor (a guarantor of the debt)
In the case of non-consumer goods, who must the secured party send a written proposal to in order to retain the collateral in satisfaction of the debt (strict foreclosure)?
- Other secured parties who have told the foreclosing creditor of their security interest in the collateral
- Perfected creditors
- Secondary obligors
What happens if a notified party objects within 20 days after written notice of a strict foreclosure is sent?
Strict foreclosure is not allowed.
60% rule with consumer goods
If the collateral is consumer goods and the debtor has paid 60% of the loan, in the event of a non-PMSI, or 60% of the cash price in the event of a PMSI, strict foreclosure is not allowed. Instead, the secured party must sell the collateral within 90 days or be liable in conversion.
The secured party may sell the collateral and apply the sale proceeds to the debt.
What is required in order for a secured party to sell the collateral and apply the sale proceeds to the debt?
- Every aspect of hte sale must be commercially reasonable
- Prior to the sale, reasonable notice must be sent
What s required to satisfy "reasonable notice" in advance of a sale of the collateral?
- Article 9 provides standard notice forms which are presumptively commercially reasonable
- If consumer goods, notice must be sent to debtor and secondary obligors
- With all types of collateral notice must be sent to the debtor and those secured parties who have advised the foreclosing creditor of their security interest, as well as perfected creditors and seconary obligors
- Public sale -- the time and place of sale
- Private sale -- time after which the sale will be made
- Consumer goods -- need to include how to calculate deficiency and the debtor can redeem
- Amount of notice? Commercial reasonableness; for consumer goods needs to be at least 10 days or more before the time of sale
- Can secured party buy? (Public sale - yes; private sale - no)
When can there be an action for a deficiency judgment after a sale?
The collateral nets less than the oustanding debt.
If a secured party sells collateral at a low price to an insider buyer, the price that an independent third party would have paid, rather than the actual amount paid, is the price that will be used in calculating the deficiency.
Debtor's limited right of redemption
- Cut off once the secured party has resolved or completed a strict foreclosure
- The debtor must pay the amount owed plus any interest and creditor's reasonable expenses. (If there is an acceleration clause, then the debtor must pay off the entire debt and interest and expenses.)