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Final Review - Handout - Secured
Final Review - Handout - Secured
Final Review - Handout - Secured
What transactions does Article 9 apply to? (i.e., what is the scope of Article 9?)
However, it also applies to certain other transactions for public policy, notice-
filing reasons:
1) an agricultural lien
C. Leases
1) If at the end of the lease period the lessee becomes the owner of the
property for little or no consideration, it is a security agreement, not a
lease.
2) If the contract allows the lessee to terminate early at any time, and also
terminate the obligation to pay, and return the goods, its a true lease.
D. Other Transactions
(learned about equitable subrogation narrow rule; dont worry about any
others for this class).
2) Financing Statement
ii) 9.506 provides rules for when the wrong name (or any error, for
that matter) renders the financing statement seriously misleading
and thus ineffective ---
1. he owns it
2. he has possession of it under a contract. (see Thrift)
3. he leases it
4. he owns partial share of it
5. he has power to transfer rights in it
9.308(a) provides that a security interest is perfected if it has attached, and one of
the applicable requirements for perfection has been satisfied (possession, filing,
control, automatic perfection, etc.)
9.313 provides that you can perfect by possession for documents, goods,
instruments, money, or tangible (as opposed to electronic) chattel paper.
(only works for tangible collateral)
When SP does not itself take the possession: for anything but certificated
securities and document goods, possession by a 3rd party on behalf of the
SP is sufficient only if the 3rd party authenticates a record acknowledging
it holds the collateral for the SP. (9.313 (c)).
When the goods are covered by a document: the manner in which you
gain perfection in the goods depends on whether the document is
negotiable or non-negotiable:
B. Automatic Perfection
2 step analysis:
1) is it consumer goods?
2) is it a purchase money security interest?
B. Perfection by Filing
Where do you file? the secretary of state, unless its minerals, timber or
fixtures (in which case its the county real estate office) 9.501.
C. Perfection by Control
ii. Deposit accounts: You get control over a deposit account in one of
three ways: (1) when SP is the bank (home-court), (2) D, SP, and
bank have authenticated agreement SP can direct w/o Ds consent,
or (3) SP becomes the deposit account customer 9.104
Note: control is the only way to perfect in a L/C right; cant file.
9.312(b).
Also, L/C terms which prevent assignment are void; so, you can do
it, but any such assignment in the face of such non-assn terms is
only enforceable against the beneficiary who grants the SI, not
against the issuer or applicant. (so, would not be perfected by
control if issuer doesnt consent just have an enforceable SA as
b/n D/beneficiary and SP; SP will rely on D for enforcement)
9.409.
5. MULTI-STATE TRANSACTIONS
1) certificate of title goods law of the state which issued the C/T
applies per 9.303(a) This section applies to goods covered by a
certificate of title, even if there is no other relationship between the
jurisdiction under whose certificate of title the goods are covered
and the goods or the debtor. . . . (it applies to goods covered by a
certificate of title, even if theres no relationship between the
goods, the debtor, and the state where the title is issued).
For priority disputes, the law of the state where the collateral is physically located
applies 9.301(3). (This will only cause a problem when a state has some non-
uniform, non-UCC statute which applies, like a consumer statute)
Possessory security interests: the security interest stays perfected when the
collateral changes locations, as long as it is perfected when it comes into
the new location 9.316(b) (usually, if SP has possession, they will have
possession if they move around)
6. PRIORITY
A. Simple Disputes
D. Buyers
garage sale rule a consumer buyer from a consumer seller, who takes
w/o knowledge, gives value, and before a financing statement covers the
goods (normally no FS for consumer goods), takes free of a security
interest in the goods (9.320(b))
E. Leases
F. Article 2 Claimants
Note: getting goods back is the only remedy, cannot get money for
cost of shipment, etc
H. Fixtures
9-102(a)(41). "Fixtures" means goods that have become so related to
particular real property that an interest in them arises under the real
property law of the state in which the real property is situated.
General Test For Determining if Fixture: A frequent state law case test
for whether something is a fixture is that it cant be removed without
damage to the real estate.
9.334(c) default rule - if none of the rest of 9.334 applies, then the realty
interest wins over the fixture interest (not applied often one of the
other rules almost always applies).
Note: the PMSI rule doesnt apply to later real property interests,
only earlier ones. If the FSI gains priority over an earlier realty
interest via PMSI, then it will generally gain priority over a later
realty interest via the first-to-file rule (see below).
What is a fixture filing? Where required by 9.334, the fixture filing rules
are provided for in 9.501 and 9.502:
The rules governing accessions are set forth in 9.335. The rules
governing priority of competing security interests are governed by
other law (9.322 or 9.324),
2. Commingling
Other regular priority rules apply, except for 9.336(f) when you
have two or more SIs in pre-commingled goods, which each
become SIs in the resulting product, you apply the pro rata rule.
IRC 6323(c) provides that the Art. 9 SP still has priority over the
IRS-filed lien for 45 days after the filing, regardless of knowledge.
IRC 6323(d) says that the perfected Art. 9 SP (which entered the
SA before the tax filing) still has priority as to any advances made,
over the IRS-filed lien, for 45 days after the filing, or when the SP
discovers the tax lien filing, whichever is earlier. After that point,
if the SP makes more advances, the tax lien prevails over such
later-incurred indebtedness after the 45th day (or knowledge). (any
inventory or any advances acquired after 45th day, tax lien would
have priority over even the SP)
A. Trustees Status
PMSI v. Trustee: PMSI still gets the 20 day period to file after Debtor
receives the goods. As long as files before 20th day, even if there is a
bankruptcy petition filed before, PMSI still has super-priority.
B. Preferences
Statutory liens (i.e., mechanics liens) are generally effective against the
trustee so long as they are not created to arise automatically on
insolvency.
8. PROCEEDS
A. Meaning of Proceeds
Proceeds are basically anything you get from the sale or other disposition
of the original collateral. Under 9.102(a)(64), it includes anything
received, including insurance proceeds from a policy insuring the
collateral.
B. Priorities in Proceeds
This automatic perfection, however, is only temporary, and will lapse after
20 days unless one of the tests of 9.315(d) is met:
Example of when test above is not met: The debtor traded a duplicating
machine for a used car (and state law requires a lien interest in a vehicle to
be noted on the certificate of title as the sole means of perfection). The SP
must get noted on the cars certificate of title. None of the 9-315(d) rules
operate to automatically extend perfection (no FS b/c its a car, not cash,
not otherwise perfected unless the lien notation is made).
Example 2 when test above not met: The debtor sold a calculator to a
friend for cash and that same day used the cash to buy a painting. The SP
must file an additional FS, or its perfection in the painting proceeds will
lapse. 9-315(d)(1) doesnt work, b/c there was intervening cash. 315(d)(3)
doesnt work because the existing FS only covers all business machines
doesnt cover paintings (probably equipment).
- What can the bank with the interest in the proceeds do to protect
itself?
Answer: Become the deposit account banks customer,
thereby taking control of the account under 9-104(a)(3). 9-
340(c) gives this right priority over the common law right
to setoff.
9. DEFAULT
* 1-302(b) prohibits the bank from generally contracting away liability for
its own negligence (i.e., cannot disclaim its obligations of good faith and
care).
B. Default
A secured partys rights to repossess and dispose of its collateral only arise
upon the default of the debtor. 9.601 and 9.609. This is a matter of
contract, although a failure to make scheduled debt payments will always
be a default.
9-601(a). After default, a secured party has the rights provided in this
subchapter and, except as otherwise provided in Section 9.602, those
provided by agreement of the parties. A secured party:
(1) may reduce a claim to judgment, foreclose, or otherwise
enforce the claim, security interest, or agricultural lien by any
available judicial procedure; and
(2) if the collateral is documents, may proceed either as to the
documents or as to the goods they cover.
Examples when can properly accelerate: bank has SI in mobile home: The
confiscation of the mobile home and the arrest of the debtor for
possessing marijuana?
There is also a special rule for when the secured party is the buyer
at a sale, which brings a price significantly below what would have been
realized had someone else been the buyer. Under 9.615(f) and 9.626(a)
(5), the debtor may limit the creditors deficiency to what it would have
been had the higher price received from a 3rd party buyer.
1. Redemption
2. Strict Foreclosure