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