1. defintion
    1. Article 9 does not involve installment sales
    2. Article 9 is like an installment contract, which gives a second remedy/security/mortgage
      1. A mortgage is a second remedy
      2. Before Uniform Commercial Code 9 there were precode divisions – e. g. chattel mortgages, conditional sales, etc. – they are now called the "secured transaction"
    3. Secured is defined as security for performance of an obligation
  2. Article 9 problems
    1. Mechanics (definitions)
      1. Ten categories of collateral -- property which is subject to a security interest (except for real estate)
        1. Tangibles/feelable -- everything is mutually exclusive
          1. definitions
            1. Consumer goods is used for or bought for defined as for household
              1. Doesn’t have to be used by every member of the family
            2. Goods used or bought for use at McDonalds -- longtermish types things
            3. Farm products -- so long as in the hands in farm of rancher
              1. Corn, oat, wheat, maple syrup,
              2. Ranching (cars, cattle)
            4. Inventory is defined as goods held for sale or lease or used up short-term
              1. Wrapping paper (used up in the hands of the merchants)
              2. Cars for lease are inventory
          2. Problems
            1. We look at the primary use
            2. We look at the first use
              1. Things will never change category in the same person’s hands
                1. Even something that derives from a product (a proceed) still retains the class. E. g. a farmer who has sheep, later makes them into wool, this is still a farm product. But when a trade goes on, (e. g. swapping things) it changes.
                2. Processing of something might make it into inventory – this is not considered the same thing – because of the manufacturing process, things can change
              2. Doesn’t make any difference where filed
            3. Things can be different categories of item in different people’s hands if the same item, is at one point used as equipment, and before or after used as consumer goods, or inventory
              1. Things rarely can become farm products because things can’t go from consumer product to being grown on a farm
        2. Intangibles
          1. Instruments is defined as instruments under articles 3 or 8
            1. article 3 deals with commercial paper (notes, promissory notes, etc.)
              1. three party paper such as drafts
            2. article 8 paper is stocks and papers (e. g. stocks representative of equity or debt)
              1. e. g. people could borrow money pleding their stocks and notes
            3. documents of title under article 7 of Uniform Commercial Code
              1. warehouse receipts
              2. receipts issued by common carriers (bills of lading)
              3. similar to checks are third paper paper called delivery orders
              4. chattel paper writing or writings which evidence obligation and a security agreement
            4. accounts
              1. a right to payment, but no writing, or an insufficient writing to be either an instrument or chattel paper
              2. if there is a writing it could be an instrument, or it could be chattel paper
              3. one can borrow money pleading accounts receivable
                1. doesn’t need to be a writing
                2. if the writing includes a security interst it is chattel paper
                3. if there are promisory notes, it could be an instrument under article 3
                4. if there is a non-negotiable paper, it becomes an account
          2. general intangibles everything left over
            1. copyrights
            2. trademarks
            3. goodwill
              1. value of a name (e. g. McDonalds) – this is the power of a name. People can borrow money pleding this particular asset
            4. licenses
              1. liquor license
              2. Taxi licenses
              3. Note: definition of documents are not pieces of paper. Documents are documents of title under article 7.
            5. everything left over
        3. proceeds is defined as collateral that has changed in from
          1. things are always proceeds plus the other categories, or proceeds plus cash
          2. these are not the proceeds in the same person’s hands – they are proceeds when they go into a different person’s hands
            1. e. g. chattle paper is a proceed of the inventory
            2. e. g. wool is a proceed of a sheep
          3. cash is defined as a currently used medium of exchange
            1. also FX as defined by article number 1
            2. cash is usually not collateral
      2. roles
        1. debtor is defined as person who owes an obligation (often Consumer)
        2. creditor is defined as secured party is defined as person to whom the debtor’s universe is owned (merchant)
        3. lien creditors
        4. purchasers
        5. other creditors
          1. no limit as to the number of creditors
      3. two step process to create a security interest
        1. either a giving of possession (e. g. pawning, or pledging) or security agreement (writing, signed by debtor with general description of collateral)
          1. alternative of a writing is so we can borrow or pledge so that we can pledge something to pay back debt
        2. attachment occurs when the secured party gives value
          1. value does not include gifts –
          2. if the debtor goes bankrupt one will prevail over the trustee if the debtor goes right – there must be the giving of value to have an attachment.
            1. Value also includes old debts and antecedent claims
            2. Debtor must have rights of ownership in the collateral
              1. Can describe land and crops
          3. *one can have an after-acquired property clause: e. g. future collateral for a present loan – this is called a floating loan
            1. no security agreement attaches after an after-acquired property clause when given as addition
              1. security agreement may provide that any or all obligations covered by the security may be secured by after acquired collateral
              2. security interst is oakay in both consumer good and present property of consumer, but it is invalid for a consumer to consent to an after-acquired consumer goods -- the secured party can only attach things that were acquired within ten days
                1. this is a reaction to the single company store
                2. it never applies to inventory
            2. there will be no attachment until the debtor has some rights of ownership in the collateral
            3. attachment occurs when the conditions, occurs uneless there is a specific agreement
          4. default is that the security agreement will give the secured party the right to proceeds as defined in 9-306
          5. conflict
            1. if there is a conflict between the Uniform Commercial Code and the certificate of title act we will use the certificate of title act
      4. perfection (four)
        1. Possession: only method for negotiable instruments
          1. Giving of possession is also pefection
        2. Automatic: Limted to a purchase money security interest in consumer goods
          1. a purchase money security interst is defined as when someone gives one the money to buy somthing and retains a security interst (or sells one a security interest)
          2. can have a purchase money security interest but one has to file – the only automatic purchase money security interest is in consumer goods.
        3. Temporary perfection
          1. Proceeds are temporarily pefected for 10 days, than can refile in its new form
          2. If the debtor moves, the creditor will get four months in its new state
        4. Filing (most common)
          1. Not good for negotiable instruments—because of rules in 3 and 8, these things are substitutes for money. If you want to pledge a negotiable instrument, one must actually turn over the negotiable instrument
            1. E. g. under number 3, these things could be the property of a holder in due course and they could be able to collect
          2. Financing statement in place to filing in
            1. Name, signature of the debtor, address of debtor and creditor, and the addresses of the debtor
              1. Creditor can sign if the loan has already been made
              2. Substantial compliance is okay, even if it contains minor errors -- it can be minor unless it is seriously misleading.
                1. If the name of the business there can be four months temporary perfection (see later)
            2. This is about the same stuff as is in the security agreement – it might cost a bit more to file this than to file a UCC1 form
              1. No better rights
          3. Place to file -- differs based on states
            1. File where the goods are
              1. If the goods move (e. g. trucks or accounts receivable) it is at the debtor’s place of business
              2. If they are covered under the certificate of tile (e. g. cars), one files where the jurisdiction of the issuing state says to file
                1. Cars in inventory are inventory not under the certificate of title act
                2. Cars in the possession of the dealer under the certificate of title are considered to be titled under the certificate of title act
            2. Three alternatives within states
              1. Most common is the dual system – two alternatives
                1. Business collateral is filed with secretary of state
                2. Other collateral is filed with the record of deeds office
                3. Might be best to double-file
              2. Central (e. g. Hawaii) for everything
              3. Only local filing (Georgia)
          4. Length of filing validity
            1. Usual is 5 years (renewal)
              1. In Arizona it is 6
            2. Temporary perection
      Please visit
    2. Rules of priority (who prevails in the case of fight) --
      1. Secured party v. a lien creditor Perfection
        1. Perfection – if the secured party was perfected, he wins
          1. Imperfection – if the secured party was not, he loses
        2. Grace period (some jurisdiction): most jurisdictions grant a 20 day grace period for a purchase money security interest (so long as the secured party files before or within 20 after the debtor got possession, than he will take priority)
        3. Exception: purchase money security interest in consumer goods are automatically perfected
          1. this grace period is only for lien creditors
          2. general rule: consumer purchased from dealer – if it was automatically consumer goods it would be automatically perfected
        4. lien creditors include judgment creditors and bankruptcy trustees
          1. if you would have perfected you would have won
          2. most common lien creditors are bankruptcy trustees (he becomes a hypothetical lien creditor) and trustee will lose – under 9-301 the key is perfection
            1. exception: secured party doesn’t take priority over a trustee when the secured party was given for antecedent debts within 90 days of declaration of bankruptcy
              1. if there is a transfer for antecedant debt, the trustee will lose
              2. bankruptcy trustee can reverse fraudulent transfers
              3. if there is a current transfer of transaction, the trustee will lose
      2. secured parties vs. Purchasers
        1. consumer goods possessor who sold to a consumer goods purchasers unless will win unless there was a filing : automatic pefection is ineffective
          1. consumer buys used goods from merchant, for use in the home (consumer goods), with a purchase money security intersts – automatic perfection. Consumer goods purchaser who bought from another consumers goods purchaser
            1. if the merchant had filed, he would have prevailed
        2. business purchaser, than the secured party prevails, and automatic perfection will prevail
          1. e. g. a sale by a consumer purchaser to a merchant, the first merchant will pervail (automatic perfection)
        3. if you have a business purchaser than automatic perfection is fine, a biocob will prevail even if there is a filing
          1. consumer goods purchaser from a business will win even if there is a filing (e. g. manufacture can’t take from the people the merchant sold it to)
          2. even if the consumer know, he will prevail
      3. secured parties vs. Other secured parties
        1. general: first to file or perfect
          1. filing can be made before attachment
        2. exceptions
          1. where there is superpriority for a purchase money security interest in inventory which includes identifiable proceeds only as well as the inventory – no superpriority for accounts or chattel paper where there is notice given by the creditor to the earlier secured party and there is no grace period, if it is perfected before the debtor gets possession
          2. purchase money security interest in equipment (other than inventory) and proceeds
            1. would get superpriority for accounts and chattel period, so long as filed within 20 days (sometimes 10 days)
            2. no notice requirement
          3. perfected purchase money security interest in inventory prevails over a conflicting security interest in the same inventory, has priority over identifiable cash proceeds received on or before the delivery to a buyer if 1) purchase money secured interest is perfect at the time the debtor receives possession of the invesntory and 2) the purchase money secured party gave notification in writing to the holders of the conflciting security interest
          4. purchase money security interest in inventory has priority over identifiable cash proceeds received on or before the delivery to a buyer if 1) purchase money secured interest is perfected at the time the debtor receives possession of the invesntory and 2) the purchase money secured party gave notification in writing to the holders of the conflicting security interest
          5. purchase money security interest in collateral other than inventory has priority over a conflicting security interest in the same collateral or its proceeds, if the purchase money security interest is perfected at the time the debtor receives possession of the collateral within 10 (or 20) days
          6. in case not government by other rules, priority between conflicting security interests will be determined as follows
            1. general rule is: conflicting security interests rank in time of filing or perfection (whichever is earlier) priority dates from the time a filing is first and covering the collateral or the time the security interest is first perfected, so long as conflicting security interests are unperfected, the first to attach has priorities
              1. with super priority for purchase money security interest in inventory (only to identifiable cash – e. g. envelope or check) notice must be given, and no grace
              2. a purchase money security interest for equipment has a grace period but no notice, there is grace but no notice --
        3. methodology
          1. assets by asset
            1. decide who is trying to get at the priority
            2. perfected or not-pefected
              1. general rule is that the first to file wins
                1. exception is that a purchase money security interest for things in inventory if there was a notice to the second party (no one can stop sale)
                  1. the notice can alert people to things being bought on credit when there is already credit
                  2. no grace period for this notice – there has to have been a filing before he delivered the goods
                  3. if there is identifiable cash (name and goods)
                  4. they would not get superpriority in accounts or chattel paper because accounts and chattel paper are not identifiable cash
              2. after-acquired equipment – he is also a perfected secured party because he perfected before he got possession.
                1. As between the two perfected secured parties, the first to file or pefect prevails
                2. A purchase money security interest in equipment other than inventory will have superpriority over the earleir perfected secured party and proceeds thereof, -- so long as he was perfected at the time (or withing 10 or 20 day gross period) – no notice requirement
                  1. Purchase money security interest will be beat earlier perfected secured party if there was an account, someone bought, or there was chattel paper, the superpriority would extend to proceeds thereof – things do not extend in inventory to proceeds.
                  2. The purchase money security interest in inventory required a notice to the earlier secured party.
              3. Special sections for fixtures and asessions
                1. definitions
                  1. Fixtures are personal property which become attached to real estate and become a part thereof
                  2. Assessions is defined as added value to personal property (tries to car). The installer of the item will prevail over the earlier mortgagee (tire people will prevail over the mortgagee on the vehicle).
                  3. Assessions that are impossible to separate are applied using a ratio
                2. Choice of law
                  1. Real estate claimant will prevail where there is both real estate and personal prop
                  2. Two person property claimants
          2. the trustee in bankruptcy – which is a lien trustee
            1. secured parties will prevail over trustees
        4. rationale for purchase money security interest preference
          1. they wouldn’t sell
          2. the original people might not even be hurt with the sales
    3. Rights upon default (creditor’s rights on default) part 5 of Uniform Commercial Code number 9
      1. Default isn’t defined
      2. There are no rights at all unless there is a default one is a converter or a criminal
        1. Parties can agree on rights upon default except for things that can’t be contracted away
          1. Equity of redemption (if you could come up with all the money owed – including the acceleration clause, and incidentals)
          2. Accounting for surplus: money that is gotten after it is sold – other things have priority
            1. All Incidental costs including attorney will get money before secured party gets money
            2. Satisfaction to secured parties
            3. Junior secured parties
              1. If someone would have been fully satisfied to any junior secured parties
            4. Afterwards things go to trustees (not to unsecured parties)
          3. Can’t waive a notification of sale
            1. Can waive after default (e. g. if there would be an advantage to sale)
        2. Rights that creditor would have assuming default
          1. Right to acquire property
            1. Self help (repossession) can happen if there is no breach of the peace is defined as denial, hostage, or holding the debtor down while they take the property
              1. Can bring friends, but must all leave
              2. Right to self help is not really state actions (but can be consensual and contractually agreed)
            2. By action: (replevin, sequestration, "action to get the property back"): creditor goes into court (impossible to get it) – Sheriff
              1. Sheriff will bring whatever force is necessary
          2. Turning the property into money: All aspects of the subsequent sale are governed by commercial reasonableness
            1. Reasonableness can be argued both ways (differs by jurisdiction)
              1. Pro-debtor: In some states there is no deficiency judgment possible
              2. Pro-creditor: debtor will only get the losses caused by the failure to comply – all that they will get is the loss caused by the failure to comply
              3. Intermediate: no deficiency judgment (preemptively), but the creditor will show harmlessness or error reduction
            2. Commercially reasonable definitions
              1. Can be delayed (will argue the other)
              2. Effort (maybe extravagant)
              3. Public or private (codes permit either)
                1. Some say it has to be public
                2. Debtor has to have cash
                3. Code presumes the sale be0ing good
              4. Was the sale at the place of repossession
              5. Was it fixed or broken
              6. Finished or in process
            3. Creditor expected to give out notices
        3. Equitable problems: If there is a significant amount of money paid in, the sale has to be done in 90 days
  3. Constitutional law aspects
    1. Due process: Agreements for garnishment (sometimes void as against public policy)
      1. Substantive component
        1. Rationality test:
        2. Compelling justification test
      2. Procedural due process
        1. Notice: Time to prepare
          1. There might be exceptions for perishables – so commercial reasonableness governs
          2. Not a matter of Constitutional law
        2. Fair hearing – before wages can be assigned -- must be hearing if acquired by state action
          1. Can’t have contingency for judges
          2. Can’t have flat fee for judges
        3. Irebuttable presumption
          1. Can’t presume away important rights
    2. Action (replevin with Sheriff) the right of replevin will be extended to replevin --
      1. Arizona supreme court disagreed with supreme court (nullification) since it was a split court
      2. In some states there could be a replevin before hand, as long as there is an independent judicial officer
      3. De juri liens (common law)
        1. Landlords, hotieliers, warehousemen don’t have a constitutional requirement incident to these sales because there is no state action
          1. There is a NY constitutional right to a hearing, which doesn’t mean a federal right to a hearing
Back to the Law Outlines of CASE.TM