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What is specifically EXCLUDED from Article 9?
- • Rights governed by federal law
- • Real property (except fixtures)
- • Tort claims (unfair competition)
- • Deposit accounts in consumer transactions
- • Statutory liens (“Storage Wars Shows” and MML’s)
- • Wage assignments
What’s excluded from the definition of goods?
- Minerals before extraction
- Collateral that fits in other categories
What are the different types of goods?
- --Consumer Goods – personal, family, household purposes
- --Equipment – business purposes (used/bought primarily for business)
- --Inventory – goods held for sale/lease in the ordinary course of business, raw materials, and work in progress, consumed materials
- --Farm Products – in possession of farmer engaged in farming operations AND unmanufactured condition
What do you need to have a security interest in property?
Attachment and Perfection
What are the elements of attachment?
- Contract (SA – Security Agreement) that reasonably identifies collateral
- Rights in Collateral by Debtor
Can a creditor have a SI in after-acquired property? Are there any exceptions?
Yes (very common with inventory)
Consumer good exception – only if goods acquired within 10 days of C giving value.
Will NOT work for commercial tort claims.
What are future advances and are they permitted? How can they lose priority?
Debtor can agree that collateral will serve as collateral for new loans as well as current loans.
This is permissible.
Secured C loses priority of future advances SI to a newer lien after BOTH (1) SC obtains knowledge of the lien, and (2) 45 days elapse from the date of the lien.
What is perfection and what are its elements?
Definition – process by which the C protects the security interest from most other claimants (3rd party) to the same collaterat.
Elements: (1) Attachment, (2) Act of Perfection
What are the different ways to perfect?
- • Possession by creditor
- • Filing of Financing Statement w/ SOS
- • Automatic Permanent Perfection
- • Automatic Temporary Perfection
- • Control
- • Notation of SI on certificate of title
What collateral cannot be perfected by possession?
Accounts, deposit accounts, non-negotiable docs, electronic docs, electronic chattel paper, general intangibles
What is the result on perfection if creditor loses possession? Are there any exceptions?
Perfection is lost.
Exception – 20 day exception for instruments, negotiable docs, and certified securities (temp auto)
What are the requirements to perfect by filing a financing statement?
- (1) names of D & C
- (2) address of D & C
- (3) D’s authorization in an authenticated record (automatic if D authenticated underlying SA and D may authorize AFTER filing)
- (4) Description of collateral and after acquired property covered by SI that fits within description
- (5) Description of land IF collateral is timber, minerals, fixtures, or crops
What is the effect on perfection if debtor has a name change after attachment and perfection?
- (1) Collateral D has at time of name change > perfection continues
- (2) Collateral D obtains within 4 months of name change > perfection continues
- (3) Collateral D obtains after 4 months of name change > perfection ends unless refilled within 4 months
What is the proper place for filing a financing statement?
SOS in Austin -or- county where mortgage on real estate would be filed if dealin with fixtures, minerals, timber
How long does perfection by filing a financing statement last?
5 years, then must file Continuation Statement w/in 6 months of expiration date and before the 5 years expires to continue perfection.
What is a Termination Statement and when is it required?
Required for consumer goods by earlier of 20 days after D’s written demand or within 1 month after there is no outstanding secured obligation or commitment to make advances.
For non-consumer goods, only upon the D’s requires (w/in 20 days of written demand)
What is a fraudulent filing and what are the penalties?
Filing financing statement knowing forgery, material false statements, or groundless.
Minimum $5,000 penalty plus court costs and reasonable attorney’s
What is Automatic Permanent Perfection?
- (1) PMSI (only for CONSUMER GOODS that aren’t certificate of title or fixtures)
- (2) Assignment of insignificant amount of D’s accounts
- (3) Sale of promissory notes
What is Automatic Temporary Perfection?
- (1) Proceeds – automatically perfected for 20 days from D’s receipt of proceeds
- (2) New value for instruments, negotiable docs, certified securities (20 days from time of attachment if C gave new value)
- (3) Delivery of instrument, negotiable doc, certified security for 20 days for certain purpose (i.e. sale, exchange, or presentation of the collateral)
- (4) PMSI in equipment, inventory, etc.
Generally, what state’s version of the UCC is used to determine whether C is perfected? Are there any exceptions?
Generally, the law of the state where D is located.
Exceptions (where C must follow the law of collateral’s location): (i) SI perfected by possession; (ii) fixtures, timber, agriculture liens; (iii) Certificate of title items – law of state which mist recently issued; (iv) deposit accounts – law of state which Bank has CEO
What is the effect on which state law is used if D or collateral changes/moves states?
Perfection continues for 4 months
Perfection by possession – continues for as long as perfected under new state’s law
Certificate of title items – perfection continues for as long as it would have under original
If there are two unsecured parties, who wins between them?
The first to attach wins.
If there are two perfected secured parties, who wins between them? Are there any exceptions?
The first to file or perfect wins.
Exceptions: If PMSI in inventory and livestock, PMSI prevails if (1) PMSI perfected at time D receives possession of the inventory and (2) proper notice to holders of conflicting SI
As between a secured party w/ control and a secured party with perfection, who wins?
Generally??? Secured party with control.
As between a secured party and a purchaser, who wins? Are there any exceptions?
Generally, secured party prevails.
- Exceptions (5):
- --D has permission to sell.
--Secured party unperfected, buyer gives value, buyer receives delivery item, and buyer has no knowledge of SI at time of delivery
--Buyer in the Ordinary Course of Business: (a) good faith, (b) no knowledge of SI violation, (c) goods not farm products, (d) in business of selling goods of that kind, (e) SI created by seller, (f) C not perfected by possession
--Consumer purchase of consumer goods: (a) consumer good in seller hand, (b) consumer good in buyer’s hand, (c) buyer has no knowledge of SI, (d) buyer pays value, (e) C not perfected by possession.
--HDC of negotiable instrument will win over earlier perfected interests in the negotiable instrument.
As between a secured creditor and a statutory mechanics lien, who wins?
Conditions: (a) person furnished services or materials with respect to the goods covered by the SI (parts and labor), (b) furnishing was in ordinary course of business, and (c) collateral is in the possession of the statutory lien holder.
What happens if a C has a SI in building materials which are later used to construct real property? Are there any exceptions?
C with SI in building materials loses its SI once construction occurs.
- Fixtures can be removed w/ some damage to realty (ex: hot water heater, sinks, etc.) if (1) materials perfected with a Fixture filing before real estate interest is recorded and (2) is filed in county office where mortgage on the real property would be recorded.
As between a perfected SI in crops and a conflicting interest in the land on which the crops are growing, who wins?
The perfected SI in crops has priority.
What is the impact of bankruptcy?
Bankruptcy may change the normal priority rule (especially with regard to Preferences). This is a possible cross-over topic on the bar exam.
Upon default, may C repossess? Is any notice needed? Are there any rules for repossession?
C may repossess. No notice is needed. C is allowed a self-help remedy, but can’t breach the peace (ex: can’t yell, can’t break and enter car, can use threats, violence, force, etc.). C strictly liable for any agent (such as independent contractor repossession company) that breaches the peace in trying to repossess.
What are a creditor’s options after repossession?
- (1) resell and sue for deficiency and give surplus to D
- (2) strict foreclosure – keep collateral and call it even
Is notice of sale of repossessed collateral required? If so, are there any exception?
Notice of sale is required.
- (1) Collateral perishable
- (2) Collateral threatens to decline speedily in value
- (3) Collateral sold in recognizable market or is a good with set market prices (produce that can rot; stock market; Kelley Blue Book)
When giving notice of intent to sell repossessed vehicles, what must the notice include?
- (1) description of D
- (2) description of secured property
- (3) description of collateral
- (4) method of sale (public auction or private)
- (5) statement that D entitled to accounting (how much paid/owed)
- (6) time and place of public sale or time after which a private sale will be made
- (7) If consumer goods, notice must also explain:
- a. that D is liable for deficiency
- b. phone # of person from whom D can obtain amount needed to redeem collateral
- c. phone #/addy where D can get additional info about sale
When must a notice of intent to sale repossessed collateral be sent?
Notice must be sent a reasonable amount of time before sale (usually a fact question), but for non-consumer transaction 10 days or more before sale is reasonable.
Who must receive notice of intent to sale repossessed collateral?
- (1) Debtor, unless D waived notice in an authorized agreement AFTER deault
- (2) Sureties
- (3) If collateral NOT consumer goods = notice to C’s who have perfected filing, notation on certificate of title or who have given notice to reselling C.
After collateral is sold, does D have a right to redeem? If so, what are the requirements?
D has a (very rare) right to redeem, IF
- (1) C hasn’t yet sold or entered into a K to sell collateral
- (2) Strict foreclosure not occurred
- (3) D hasn’t waived right to redeem after default
- (4) D tendered fulfillment of all obligations secured by collateral (payments and acceleration)
- (5) D tenders C’s rzbl expenses (storage costs, repo costs)
What is the proper standard of care when selling repossessed collateral? Who has the burden of proving that this standard was adhered to?
The method, manner, time, place, and terms of the sale must be commercially reasonable.
The BOP is on the C.
Does C have the ability to purchase repossessed collateral at resale?
Public sale (auction) = yes
Private sale = maybe, if collateral is customarily sold in a recognized market or is subject to widely-distributed standard price quotations.
When buying repossessed collateral, what warranties and title does the purchaser receive?
Reselling C warrants title, possession, and quiet enjoyment by the purchaser unless C takes steps to disclaim warranties.
When repossessed collateral is sold, how are the resale proceeds distributed (what is the priority order)?
- (1) Reasonable expenses of reselling
- (2) Satisfaction of debt
- (3) Satisfaction of subordinate C’s
- (4) Surplus (if any) to D
If the proceeds from the sale of repossessed collateral is not enough to satisfy the debt, is the C entitled to a deficiency judgment? What type of security interest will C have in a deficiency judgment?
Yes – C may sue for remaining balance.
C is an unsecured creditor for the deficiency amount.
What are the penalties for not complying with resale requirements?
- (1) C liable for actual damages (to D and other C’s not paid); if consumer goods (automatically liable for finance charge + 10% principal)
- (2) If a consumer transaction, there is an absolute bar to recover deficiency
- (3) If a non-consumer transaction, rebuttable presumption that value of collateral was equal to debt
How is collateral sold if dealing with collateral accounts or instruments?
C directs obligor to make payments directly to C, rather than D.
What is strict foreclosure?
Strict foreclosure is when the creditor retains collateral in total satisfaction of a debt (if non-consumer either total or partial).
What are the requirements to use strict foreclosure?
- (1) D consents (a) expressly by authenticated record made after default or (2) implied – D fails to object w/in 20days of C sending notice
- (2) C sends authenticated notice to retain collateral to (a) D, unless waives in authenticated agreement after default, (b) if collateral not consumer goods, notice to C’s who have perfected by filing, notation on certificate of title, or who have given notice to C
- (3) No timely objection: if D or another C objects w/in 20 days, C may not keep collateral and must conduct resale.
Can a creditor conduct a strict foreclosure if D has paid 60%+ of the price of consumer goods?
No, if D has paid 60%+ for the price of consumer goods, a creditor cannot strictly foreclose. Resale necessary w/in 90 days of repossession.