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Attachment vs. Perfection
- 1. Attachment: is the agreements between the parties that gives a security interest
- 2. Perfection: Is filing the UCC-1 statement to give the world notice of the attachment
Types of Security Collateral - Examples of Goods
- 1. Goods: Goods, things that are moveable, and fixtures, un-born animals
- 2. Classifications: Consumer goods, equipment, farm products, inventory
Types of Collateral - Semi-intangible property (8)
- 1. Negotiable instruments: Notes
- 2. Documents: Bill of Lading, warehouse receipt
- 3. Chattell Paper: Shows a security interest in a lease or specific goods
- 4. Investment property: stocks, bonds, mutual funds
- 5. Accounts: a right to payment (not evidenced by chattel paper), for goods, or services rendered
- 6. Deposit Accounts: Deposit accounts that are Non-consumer accounts
- 7. Commercial Tort Claims:
- 8. General Intangibles: like (patents, software)
Article 9 - What does it cover (5)
- 1. Any transaction that creates a sec interest
- 2. Agricultural liens
- 3. Sale of accounts , chattel paper (it governs the sale, even though not a security interest)
- 4. Certain Consignments
- 5. Secured sale disguised as a lease
Article 9 - What does it cover - Sale disguised as a lease
The test is whether at the time of the lease the lesee expected to get the property back with value.
Example you lease a copy machine for 3 years at the end of 3 years you buy the machine for $1, this is really a sale disguised as a lease.
Article 9 - Creation of a Security Interest when does it attach (3 requirements)
- 1. Security Agreement: Required in writing or Pledge the Property is in possession of the secured party, like a pawn shop, can be oral
- 2. Secured party: must have given value
- 3. Debtor: Must have rights in collateral
Article 9 - Creation of a Security Interest - Form of Security Agreement (3 formalities)
- 1. Must be in writing and show intent to be security instrument
- 2. Authenticated: signed or even an X
- 3. Must describe the property (if timber must describe the acrerage)
Article 9 - Scope of Security Interest - What do you get (4)
- 1. Futer advances: ok. Do not need a new agreement for each advance
- 2. After Acquired Property: If you buy inventory after the K it is still security - If the agreement doesnt state courts will imply it for depleted and replenished property
- 3. Property secured generally: Proceeds includes whatever is received upon sale, exchange or other disposition of property. Proceeds must be identifiable
- 4. Security interest in pledged property goes with the pledge. Like if you have a finance company guarntee payment
Article 9 - Scope of Security Interest- Lowest intermediary balance test - whatis it
If property is sold and co-mingled, you apply Lowest value test: gives a security interest in the lowest balance from time item sold till you apply the test. Like if you sold for $1k and your bank account dipped to $50 then jumped to $7k, the security interest is $50
Article 9 - Perfecting Security Interest - Methods (7)
- 1. Automatic: Perfected with consumer goods
- 2. Possession of Collateral: by secured party. Doesnt matter when you take the property
- 3. Perfection by Control: investment property (stocks), chattel paper perfected when you can sell and trade it without further perm
- 4. Bank Account: A Bank that loaned you has control over your commercial Deposits
- 5. Chatell Paper: If have original copy of paper that was assigned to secured corp
- 6. Notation of Lien on title: like a car loan
- 7. UCC Financing Statement:
Article 9 - Perfecting Security Interest - Methods - UCC Filing Statement what requirements, how long good for, where to file, if debtor moves, real property
- 1. Must ID the debtor: if wrong name is listed its ok unless it makes the UCC statment undiscoverable using standard search logic
- 2. Name Change: Must change on UCC w/i 4 months
- 3. Real Property: Fixtures, timbers, minerals, need to file UCC in county recorder also, must adequatly describe the real property
- 4. Does not need to be signed - oral is ok
- 5. Multiple States of business: File where corp is registered. If individual, where domicile. Must refile if D moves. If agricultural products in state of product
- 6. Time: Good for 5 years. After no more obligation, upon D's request must w/i 20 days provide a termination
Priority - Secured Party vs. Secured Party (i.e. not perfected) - General rule + 4 exceptions
- 1. General Rule 1st to file or perfect has priority
- 2. Purchase money. When a conflict, Purchase money will take precedence over non-pm if PM files w/in 20-days
- 3. Control takes priority over UCC filing
- 4. A GF buyer that receives money, he takes it free and clear even if bank had priority on the bank account
- 5. GF Purchasers of Chattel paper, ordinary course of biz, take priority over a general lien
Priority - Secured Party vs. Buyer - General rule + 3 Exceptions
- Generally secured party has priority over subsequent buyer except:
- 1. A buyer in ordinary course of business (except buying farm product) that buys goods from a seller, takes free and clear even if a perfected lien. Like buying a car when bank had a lien against inventory.
- 2. Consumer to Consumer: Takes priority if they didnt know about the lien, unless a UCC filed
- 3. Not ordinary course of biz: Perfected lien holder has priority except to a general lien or lease that he doesnt act on it for 45 days
Priority - Perfected Secured v. Lien Creditor - General Rule
1st to perfect or attach
Priority -Perfected v. Perfected - General Rule
1st to file
Priority - PMSI vs Perfected (general rule)
PMSI wins if he perfects in 20-days. So if a perfected creditor has a lien against future property, and a PMSI lends money for new property, he has 20-days to perfect
Priority - Secured Party vs. Judicial Lien - General rule + (PMSI, Future Advances, Possessory lien holder)
- 1. Judicial lien takes priority if lien holder NON-perfected.
- 2. a PMSI: has 20 days to file UCC after a judgment creditor gets judgment if PMSI had lien b4 judgment
- 3. Future Advances: A judgment will take precedence over a general lien for future advances if advances are made after 45 days of the judicial lien
- 4. Possessory Lien Holder: A person who supplies goods (like building contractor) has priority over Perfected Lien holder, if contractor has control of the goods
Priorities of Secured Creditors - In order of priority (10)
- 1. Buyer in ordinary course of biz
- 2. Holder in Due Course
- 3. Transfer of money or funds
- 4. Chattel paper and instruments w/possession
- 5. Possessory Lien holder
- 6. Article 2 claimant w/ possession (B rejected the goods and S has in possession)
- 7. PMSI
- 8. Judicial lien unless lien holder perfects 1st
- 9. Purchaser for value over un-perfected lien holder
- 10. Unperfected Security interest
Rights on Default - Right to possession or sale collateral
- 1. Give notice to D (10-days)
- 2. Public sale - Commercialy reasonable
- 3. Can take property
- 4. Can sue for deficiency
- 5. Buyer takes clear of lien
Rights on Default - Right to possession or sale collateral - Commercially reasonable in sale (4 requirements)
- 1. Sufficiency of advertising
- 2. if limited market, people in market contacted
- 3. Cleaning and repair to collateral
- 4. If auction - convenience and time of auction
Rights on Default - Retention of collateral (3 rules)
- 1. If D paid more than 60% of property, P must sale property w/i 90-days or D can sue for conversion
- 2. If P elects to keep property in full satisfaction w/in 20-days must give notice to D, if D rejects in writing, P must sell property.
- 3. If non-consumer can keep (w/ approval) and sue for deficiency
Rights on Default - Debtor's right to redemption
B4 property sold or debt discharged by redemption, D or any other creditor can purchase for all obligations owing
Rights on Default - What damages can debtor get for Creditor Failure to Comply with Article 9
- 1. Debtor can get damages, minimum 10% of the cash value of the goods plus all interest paid on the loan
- 2. Secured party may loose right to deficiency judgment
Rights on Default - Rebutable presumption regarding deficiency after sale of Commercial Goods
There is a presumption that the sale proceeds of commercial propertysatisfied the lien, P can prove otherwise
Rights on Default - Rebutable presumption of deficiency on sale of Consumer Goods
- No presumption in code, courts have:
- 1. Applied the presumptio; or
- 2. Deny secured party any deficiency; or
- 3. Allow deficiency minus D's actual damages
Jurisdiction Rules - General Rule (3 ways to have jurisdiction)
- 1. Generally the state where D is located governs perfection of security
- 2. If a registered corp, state it organized
- 3. Unregistered Biz, principal place of Biz, if more than one place, then where ceo is
Jurisdiction Rules - For Specific assets (5)
- 1. Possessory SI in fixtures and timber, governed by law property located
- 2. Goods covered by cert of title, gov by state that issued title (car title)
- 3. Deposit accounts, state that bank has its principal place of biz
- 4. Investment property, state where security is certified. If uncertified, state corp organized.
UCC Notice Rules for Movement of Debtor or Collateral
- 1. Collateral valid for 4-months in the original state
- 2. If collateral transferred to new debtor in new state, original UCC good for 1 year
Jurisdiction Rules - Movement of Title (automobiles)
- 1. If move car to new state old state law applies for so long as it would have applied if vehicle not moved
- 2. If a new buyer, new state will govern after 4-months
Essay Answer: General rule statement for when "A security interest has Attached" . Requires 3 elements:
- "A security interest is established when it attaches to collateral. To attach requires 3 elements:
- 1. Debtor signs a security agreement describing the collateral
- 2. Creditor gives value
- 3. Debtor gains rights in collateral"
Essay Answer: When collateral is inventory.
Goods purchased for sale or lease are considered inventory.
Essay Answer: General rule statement of for when Attached property becomes Perfected.
An attached security interest may be perfected by retaining possession, control or filing a UCC financing statement.
Essay Answer: General rule statement for the "Buyers in the Ordinary Course" (BIOC), exception to attachment.
Buyers are subject to perfected liens. There is an exception for buyers in the ordinary course of business (BIOC) from a seller in the business of selling the goods. B takes free of any lien, if he does not know one exists.
Essay Answer: General rule statement for when a seller sells a product on credit, creating a Purchase Money Security Interest (PMSI).
A PMSI is a security acquired in a product sold on credit. In consumer goods, the PMSI is perfected when it attaches, no further steps are required to perfect.
Essay Answer: General rule statement for when a consumer buys goods from another consumer who is subject to a PMSI that was not recored.
A consumer who buys from another consumer is not liable on a lien if the PMSI did not record a UCC.
Essay Answer: General rule statement for when there is PMSI who has secured his future advances and a judgment creditor.
If a PMSI makes a future advance less than 45-days of a perfected judgment creditor, the PMSI prevails
Essay Answer: General rule statement when a creditor repossesses collateral.
Upon default, a creditor has the right to re-possess, without notice or judicial proceedings, as long as she can do so without breaching the peace.
Essay Answer: General rule statement for D's right to redeem repossessed property
UCC allows Debtor to redeem his property by paying the full balance owing. This right cannot be waived in the security agreement.
Essay Answer: General rule statement for when C violates any provision of UCC-9
An entity is liable for damages in the amount of any loss caused by failure to comply with any Article 9 rule.
Essay Answer: General rule statement for when a Creditor's UCC statement names more collateral than the security agreement calls for
A secured party may not perfect an interest in property that it has not attached
Essay Answer: General rule statement when a Secured Creditor of S tells Buyer to make its payments directly to SC
The holder of a secured interest in accounts may require a buyer to make payments directly to the secured creditor.
Essay Answer: General rule statement as to who wins between a perfected interest in real property and a perfected interest in fixtures of the property.
The first to file notice of the lien with the county recorder. A fixture lien needs to be filed with the county, not SOS.
Essay Answer: General rule statement of the notice required before seller can publically sell the repossessed equipment
Reasonable notice (time, place, accounting)must be given to Debtor and all surities on the collateral, notice must be at least 10-days before the sale.
Essay Answer: General rule statement that a consignors goods are subject to a lien by consignor's secured creditors
Consigned goods worth $1,000, and are the type of goods of consignee's business, doesnt usually consign, then goods are treated like inventory and consignor's interest is treated like a PMSI.
Essay Answer: General rule statement of how a PMSI of inventory can protect itself from an existing Perfected interest holder.
PMSI must file a UCC and give the current Perfected creditor notice, Before he delivers goods to Buyer