I.

Introduction to Secured Transactions-

A. Identification of Secured Transactions Around Us-
1. Car Purchases w/ financing
2. Cash lent with equipment or inventor used as collateral
3. !one lent to large companies where A" is used as collateral# equipment is
used as collateral# a trademar$ name is used as collateral %!icrosoft trademar$
for instance&# etc.
4. 'ot a Secured Transaction- (rian needs ) and Alice lens him mone *ut there
is no collateral. It is not a secured transaction as she hasn+t encum*ered an
of (rian+s assets. If (rian purchased a car on credit then the dealership is
secured.
(. ,hat tpe of sstem of laws should we have-
1. ,e should have a Uniform sstem of laws to tell us how the transaction is
going to wor$.
2. ,e want .(right-/ine0 rules for all of our transactions.
3. Transparenc / 1isclosure- ,e want to *e a*le to get $nowledge a*out the
parties in the transaction2records of information a*out the parties so that we
can ma$e a conclusion as to whether we want to lend to them or not.
4. ,ant laws that encourage more secured transactions
C. /oo$ing *ac$ at histor-
1. (enedict v "atner-
a) 3acts-
(1) Carpet compan was the de*tor. The went *an$rupt.
(enedict was the *an$ruptc trustee. "atner lent mone to the
compan in return for a secret assignment of all of the A" of
the compan# even though the compan could still use the
proceeds of the A" and spend it as it wished until "atner as$ed
for paments on the loan.
(2) The transaction was not recorded2'o $nowledge /
transparenc
b) Issue- ,as the transaction fraudulent-
c) 4olding- SC5TUS said that the transaction was fraudulent *ecause it
was not recorded %secret& and the A" in question remained in the
control of the 1e*tor.
d) Analsis-
(1) SC5TUS critici6ed the secrec of the transaction.
(2) SC5TUS critici6ed the fact that the carpet compan retained
ownership of the A" and complete control of it as well.
2. 78amples of Pre-Code 1evices-
9
a) Conditional Sales- %pro*lem 9# pg. 9:&- 4onest ;ohn sold a car to
'anc 1e*ts w/ < paments to *e made of )<== each. 'anc too$
possession and held the car for quite a while. 'anc ma$es one
pament and misses the second one. ;ohn sends an emploee to
repossess the car. Can he do this under > :-?=:-
(1) ;ohn CA''5T repossess the car as 'anc has had possession
for more than 9= das. %That would *e stealing&.
(2) ;ohn must sue 'anc and get a @udgment and have the sheriff
lev the vehicle and sell it at auction. %unless she is in
*an$ruptc&
(3) > 9-:=9%<?&2 a seller who allows the other part to ta$e
possession of goods is limited to a reservation of a securit
interest rather than the reservation of title in the goods.
(4) Article A- reservation of securit interest %if not recorded B
unperfected securit interest&.
1. UCC C A-
1. Scope of UCC C A-
a) > A-9=:- 1efinitions %also in > 9-:=9&
b) > A-9=A- Scope of UCC ADDD
(1) %a&%9&2UCC A applies to a transaction# regardless of its form#
that creates a securit interest in personal property or fixtures
* contract. %not real propert&
(2) %a&%<&2UCC A also applies to sales of accounts# chattel paper#
etc. %to avoid the Benedict v Ratner pro*lem&
2. UCC A-E=E- A consignor %or other part& ma file a UCC A financing
statement *ut doing so won+t effect the status of *eing either a secured
transaction under UCC A or not a secured transaction under UCC A %*asicall#
when in dou*t# file2It doesn+t cost much and doesn+t hurt our case&
3. Pro*lem :- %pg. 9?&- > A-9=A%d&%:&F A-9=A%a&%9&
a) (a$er too$ his car into a garage to *e fi8ed and didn+t have the mone
so the mechanic $ept the car as he thought he could since he had a
statutor lien.
(1) UCC A doesn+t wor$ here %A-9=A%d&%:&& because it doesnt
apply to statutory liens.
b) ,hat if it was in the G8 that he could $eep the car-
(1) Then UCC A would appl *ecause it was * G8 and not *
statute. %A-9=A%a&%9&&
4. Pro*lem <- %pg. 9H&
a) 3armer sold all of his accounts to a finance compan outright. Is the
transaction still considered to *e a securit interest- I7S under A-
:
9=A%a&%<&. %Sales of accounts# chattel paper# pament intangi*les#
promissor notes# etc.&
5. UCC 9-19(a)(4)!Consi"n#ent2UCC A now applies to certain
consignment situationsDDD %Consignments are now within the scope of UCC
A&
a) In re Fabers- pg. :=
(1) 3acts- "ug merchant went *an$rupt. Creditor was a
wholesaler of oriental rugs that .consigned0 its rugs to the
de*tor. There was a consignment agreement *etween the
creditor and the rug merchant *ut the consignor did not attempt
to file under the UCC.
(2) Analsis-
(a) The Consi"nor $as not %"enerally &no$n by 'is
creditors to be substantially en"a"ed in sellin" t'e
"oods of ot'ers.(
(b) The wholesaler/consignor argued that there was a
newspaper article stating that the rugs were *eing
consigned and that the de*tor didn+t usuall consign
rugs of that price / qualit.
(c) The Court# however# loo$ed to UCC A-9=:%a&%:=& to
sa that the de*tor+s creditors did not see the de*tor as a
consignor %the were .not generall $nown0 to *e a
consignor& so therefore the transaction *etween the
de*tor and the wholesaler / consignor would *e seen as
a UCC A secured transaction.
b) UCC A-9=:%a&%:=&- %1ef. of Consignment covered as a UCC secured
transaction&
(1) !erchant / Consignee- 'e deals in "oods of t'at &ind# A'1
is not "enerally &no$n by its creditors to be substantially
en"a"ed in consi"n#ent
(2) 7ach deliver must *e for )9=== or more
(3) The Joods must '5T (7 Consumer goods *efore deliver %A-
9=:%a&%:<&&
(4) Consignor+s Interest will then *e seen as a .Securit Interest.0
c) Pro*lem K- pg. :=- Antiques " Us is the largest antique mall in town.
It is well $nown * the populace to *e a place where ou can go to rent
out space to sell items. The handle the sales and ta$e a commission
on each one. The ta$e out a loan from 5ctopus 'atl (an$ that is
secured * .all its propert.0 It later goes *an$rupt and the *an$ wants
to get to the consignor+s propert.
(1) There is no conclusive proof in the pro*lem that it is a .true
consignment0 in that it was told us that the creditors $new the
were a consignor.
<
(2) There was also no a*ilit to prove# that the were $nown *
their creditors as consignors so that ou can avoid UCC A
requirements.
(3) ,hile it loo$s li$e the consignee falls under the definition of
.merchant0 in UCC A-9=:%a&%:=&%iii&# it is nto clear whether
each deliver is more than )9=== or whether the goods were
consumer goods.
(4) 5utcome- as we are unsure as attornes whether the
transactions would fall under UCC A-9=:# then we should
pro*a*l pa the ):= and file the UCC certificate.
d) Pro*lem E- %pg. ::-:<&- /u$e inherited a sword collection worth ):E$
from his father. 4e too$ it to ,eapons of the ,orld# a store that
generall sold their own inventor which the manufactured# to resell
for him. Is the transaction a consignment or a UCC A secured
transaction-
(1) It pro*a*l wouldn+t *e seen as a UCC A transaction as the
sword collection could *e seen as consumer goods.
(2) 45,7L7"# in real life ou would want to file a UCC
financing statement anwa as the *an$ruptc trustee might tr
to ma$e the article that the dad traded swords for profit# thus
ta$ing awa the consumer-good status.
). /eases- there is a question of whether it is a .True /ease0 or a 1isguised
Secured Sale. %UCC covers Sales 1isguised as a /ease *ut not a .True
/ease0.&DDD
a) ,h it !atters- Companies want it to *e seen as a lease *ecause %9& it
gives *etter ta8 consequences in that the can write off the price faster
with a lease than if the had to depreciate the transaction and also %:&
the don+t have to count the asset M the de*t on their *alance sheet if it
is a lease# therefore ma$ing their quic$ and current ratios *etter.
b) Pro*lem N- %pg. :<&2(IJ machines leased a cop-machine to
Connie+s Print shop for E ears. The rental cost over the E ears
exactly e*ualed t'e current #ar&et price of t'e #ac'ine at the time
of the lease. At the end of the lease# Connie could purchase the
machine for )E.==.
(1) It appears that it would *e seen as a secured transaction as the
are purchasing the copier at the end for .little or no
consideration.0
c) 3actors for 1etermining ,hether a True /ease or a Secured Trans-
UCC 9-:=<%*&
K
(1) If# at the end of the lease period# the lessee *ecomes the owner
of the propert for little or no consideration# a secured
transaction and '5T A /7AS7 has *een created.
(2) If the G8 contains a clause that permits the lessee to ter#inate
t'e lease at an time and return the leased goods# a true lease
has resulted. Such a right of termination is not an attri*ute of a
sale of goods.
(3) If the lease is for the entire econo#ic life of the leased goods#
with or without renewal# a disguised sale has occurred.
d) Pro*lem ?- %pg. :E-:N&2(usiness Corp. wants to lease a *ig copier
from Copies# Inc for a E ear period. At the outset of the lease# the
copier has a 3!L of )<==$ w/a 9= ear useful life. The cost of the
lease over the E ears is )<<=$ and there is an option to purchase at the
end is )9=$. Is it a true lease or a secured transaction-
(1) Prof. 'guen- she sas that it pro*a*l would *e seen as a
.True /ease0 as the machine has anot'er 5 years of econo#ic
life left and that the )9=$ is not %no#inal.(
(2) If Useful /ife were onl E ears- if the useful life were onl E
ears as opposed to 9=# then it pro*a*l would *e seen as a
secured transaction.
e) In re Architectural Millwork of VA, Inc. - %pg. :N&
(1) 3acts- Architectural !illwor$ ./eased0 a Gomatsu for$lift for
its entire economic life and then the could purchase it at the
end of the term for )9. The also .leased0 a 3reightliner truc$
for several ears# paing a total of )<H#E==# with the option to
purchase the truc$ at the end for its ."esidual Lalue.0 This
residual sale turned out to *e )AN:E.
(2) Analsis-
(a) Gormatsu 3or$lift- it reall was a disguised sale as ou
could purchase it at the end for )9 %nominal value&.
(b) 3reightliner- There was no )) in the G8 for purchase at
the end of the transaction. Instead# the had the option
to purchase the truc$ for its "7SI1UA/ LA/U7 which
turned out to *e )AN:E. Therefore it was seen as a
T"U7 /7AS7.
+. 5ther Transactions- UCC A applies to . . .
a) Assignments- A"# chattel Papers# Pament Intangi*les# Promissor
'otes.
b) Pro*lem H- %pg. <K&- 5'( %*an$& lends mone to the *uilder to *uild
a hospital. It is secured * the paments from the hospital that were to
go to the construction compan. The *uilder gets a suret compan to
guarantee paments to wor$ers and completion of the @o*. (uilder
E
goes *an$rupt. Suret compan finishes the construction and attempts
to assert its su*rogation rights %from the construction compan& and
collect the fees from the hospital. The *an$ sas it has a securit
interest in the fees paid * the hospital and therefore it should get the
mone instead.
(1) Analsis- the suret compan would win here# regardless of
the UCC.
(a) 7quit- the law wants to encourage su*rogation
companies to step in and do that @o* so the law grants
them priorit over secured creditors *ecause otherwise
the li$el wouldn+t want to act as suret for the
construction companies.
,ee$ :2H/<=/=E
,. 3ederal Preemption of UCC A-
a) UCC A-9=A%c&-- UCC A does not appl to the e8tent thatO
(1) A staute# regulation# or treat of the US preempts this articleF
(a) T5TA/ P"77!PTI5' I3 C5!P/7T7/I AJAI'ST.
(b) PA"TIA/ P"77!PTI5' ,/ UCC SUPP/7!7'T I3
STATUT7 '5T C5!P/7T7/I 5' P5I'T.
b) Phil$o Aviation v. Shac$et-
(1) 3acts-
(a) Shac$ets purchased an airplane from "oger Smith who
photocopied the title and gave them the copies and said
that he would ta$e care of the paperwor$. 4e $ept the
original title documents. Shac$ets too$ possession of
the plane.
(b) Smith then sold the plane again to Phil$o aviation and
gave them the original title documents *ut said that the
plane was *eing repaired so couldn+t *e delivered at
that time.
(c) Phil$o+s *an$ too$ the title documents and recorded
them with the 3AA in 5G Cit.
(2) Analsis-
(a) State Court decided that the plane was sold to the
Shac$ets */c state law applied.
(b) SC5TUS loo$ed to KA USC 9K=<%a&%9& which said that
the sale instrument must *e filed with the Sec. of
Transportation.
(c) SC5TUS loo$ed also to KA USC 9K=<%c& which said
that a sale of a plane is not good against third parties
N
until the owner has recorded such conveance with the
Secretar of Transportation.
(3) 4olding-
(a) SC5TUS said that *efore the rights of Innocent Third
Parties can *e effected# an earlier sale instrument must
*e recorded with the 3AA.
(b) SC5TUS remanded the case for determination of
whether Phil$o had '5TIC7 that Shac$ett had actuall
purchased the plane *efore the did. If there ,AS
notice then there would presuma*l *e a good sale to
the Shac$etts.
(c) SC5TUS found that State /aw determines priorit#
however# such state law priorit can onl *e given
credence when the interests involved have *een
recorded according to 3ederal law.
c) 3ederal Preemption and Intellectual Propert as Collateral-
(1) Patents# Trademar$s# and Coprights are governed * 3ederal
/aw.
(2) If a compan who owns Intellectual propert# however# uses
such intellectual propert as collateral for a loan# then what
governsF 3ederal law or State law-
(3) Patents- %UCC A&2UCC A will govern the recording of the
securit interest in the patent and priorities.
(4) Trademar$s- %UCC A&2UCC A will govern the recording of
the securit interest in trademar$s and their priorities.
(5) Coprights-
(a) "egistered Coprights- 3ederal statute requires
recordation of the Securit Interest with the Copright
5ffice. %-ederal .a$ applies to "egistered
Coprights&
(b) Unregistered Coprights- As these are not registered
with the 3ederal Jovernment# then /tate .a$ %UCC A&
will appl to the securit interest created in this.
d) /andlord+s /ien M 5ther Statutor /iens-
(1) Pro*lem A- %pg. K9& Christopher !orle opened a *oo$store
and the landlord wanted securit for the rent. The lease
document provided that all of the inventor of the *oo$store
%*oo$s& would *e su*@ect to a lien in the landlord+s favor and
could *e sei6ed and sold if Christopher defaulted on the rent
paments. Is the landlord+s lien required to *e perfected under
UCC A-
?
(a) UCC A-9=A%a&%9&- Transaction# regardless of form# that
creates a securit interest in personal property of
fi8tures * G8. %Covers the *oo$s Christopher owns.&
e) ,age Assignments-
(1) Pro*lem 9=- %pg. K9&2Carl ;ugular was an independent
insurance agent who sold policies for man companies
%Independent Contractor&# though his primar sales were the
life and auto policies of the !ontana Insurance Association. In
order to get a loan to *u a car# Carl gave the *an$ a securit
interest in .all present and future commissions earned or to *e
earned0 from !ontana. 1oes UCC A cover this assignment-
(a) UCC A-9=A%d&%<&- UCC A 157S '5T APP/I to an
assignment of a claim for wages# salar# or other
compensation of an 7!P/5I77.
(b) !ass /ife Ins. Co. v. Central Pa 'atl (an$- %<?: 3.
Supp. 9=:?&2In PA# an Independent G8+or ,AS
C5'SI17"71 T5 (7 A' 7!P/5I77 so therefore
UCC A didn+t govern. %4owever# in most states it
would.&
(c) ,hat to 1o- /oo$ to the State law to determine the
definition of 7!P/5I77. If 7!P/5I77 doesn+t
cover Independent G8+or then UCC A governs the
transaction.
f) 'on-3inancial Assignments-
(1) Pro*lem 99- %pg. K:&- ,hen !ichael /ogan sold his lucrative
art *usiness to ;ohn Pivars$i# he sold not onl all the tangi*le
assets *ut also his outstanding A" as well. !ust the *uer ta$e
the steps required * UCC A of a secured part-
(a) UCC A-9=A%d&%K&- If ou sell the A" along with a
*usiness then the UCC 157S'+T appl to the
transaction.
(b) UCC A-9=A%a&%<&- If ou @ust sell A" separatel then
the UCC 157S appl.
(2) Pro*lem 99%:&- ,hat if /ogan received a commission to paint
the portrait of the cit+s maor *ut decided he was too *us to
perform the tas$# and with the maor+s permission# transferred
the @o* %and t'e ri"'t to t'e pay#ent for it& to the other
artist. !ust the new artist ta$e UCC A steps-
(a) UCC A-9=A%d&%N&- UCC A doesn+t appl to an
assignment of a right to pament under a G8 to an
assignee that is also o*ligated to perform under the G8.
H
(3) Pro*lem 99%<&- ,hen one of /ogan+s clients refused to pa for
a delivered painting# /ogan sold the account to a collection
agenc. !ust the agenc compl with UCC A-
(a) UCC A-9=A%d&%E&- UCC A doesn+t appl to an
assignment of Accounts# chattel paper# pament
intangi*les# or promissor notes which is for the
purpose of collection onl.
(4) Pro*lem 99%K&- 3inall# pressed * his art supplies store for
pament of his outstanding ta*# /ogan transferred to the store
the mone due him from a client whose portrait he had painted
the month *efore. !ust the art supplies store ta$e UCC A
steps-
(a) UCC A-9=A%d&%?&- UCC A doesn+t appl to an
assignment of a sin"le account# pament intangi*le# or
promissor note to an assignee in full or partial
satisfaction of a pree8isting inde*tedness.
") "eal 7state-
(1) Pro*lem 9:- %pg. K:&2/ocal /oan Compan %//C& needed to
*orrow mone and so agreed to a loan with 5ctopus 'ational
(an$ %5'(& where 5'( too$ into its possession as collateral
the "eal Propert !ortgages and accompaning promissor
notes given to //C * its *orrowers. 'eed 5'( do anthing
either in the real propert recording office or under UCC A to
protect its interest in this collateral-
(a) UCC A-9=A%a&%9&- UCC A applies to personal propert
sales
(b) UCC A-9=A%d&%99&%A&- UCC A doesn+t appl to liens
on real propert.
(c) UCC A-9=A%*&- UCC A STI// APP/I7S to a securit
interest ta$en in a secured o*ligation %/i$e a
!ortgage&# even though UCC A might not appl to that
secured o*ligation %*/c it is secured * real propert
and therefore e8empted under UCC A-9=A%d&%99&%A&&.
(d) 157S A S7CU"ITI I'T7"7ST I' A !5"TJAJ7
%S7CU"ITI I'T7"7ST& JIL7 A "IJ4T T5 T47
U'17"/II'J "7A/ P"5P7"TI-
(i) UCC A-:=<%g&- If ou attach a securit interest
in a right to pament %promissor note& secured
* a securit interest or other lien %mortgage& on
personal or real propert# T47' ou also have a
securit interest in the !ortgage# Securit
Interest# or other /ien.
A
(ii) UCC A-<=H- Perfection of a securit interest in
a right to pament also perfects a securit
interest in a securit interest# mortgage# or other
lien on personal or real propert securing the
right.
%a& P7"37CTI5' 53 A S7CU"ITI
I'T7"7ST I' A !5"TJAJ7 5"
P"5!ISS5"I '5T7 ,I// A/S5
A//5, 5'( T5 P7"37CT A
S7CU"ITI I'T7"7ST I' T47 "7A/
P"5P7"TI T4AT (ACGS UP T45S7
!5"TJAJ7S.
II. The Creation of a Securit Interest-
A. Classifing the Collateral-
1. Joods- %UCC A-9=:%a&%KK&F :-9=E&2Something that is mova*le personal
propert at the time the securit interest attaches. %There are specifics in the
statute& The are further su*-classified as followsO
a) Consumer Joods- %A-9=:%a&%:<&&2the are goods used primaril for
personal or household purposes.
b) 3arm Products- %A-9=:%a&%<K&&2goods# other than standing tim*er#
with respect to which the de*tor is engaged in a farming operation and
which areO
(1) Crops grown# growing# or to *e grown# includingO
(a) Crops produced on trees# vines# and *ushes# and
(b) 7quatic goods produced in aquacultural operations
(2) /ivestoc$# *orn or un*orn# including aquatic goods produced in
aquacultural operations
(3) Supplies used or produced in a farming operationF or
(4) Products of crops or livestoc$ in their unmanufactured states.
c) Inventor- %A-9=:%a&%KH&&2CA''5T (7 3A"! P"51UCTS# *ut
can *e a good %9& leased * a person as lessor# %:& held * a person for
sale or lease or to *e furnished under a G8 of service# %<& furnished *
a person under a G8 of service# 5" %K& ma consist of raw materials#
wor$ in process# or materials used or consumed in a *usiness.
d) 7quipment- %A-9=:%a&%<<&--what ou can+t classif as consumer
goods# farm products# or inventor *ut is still a good. %Catch All
Categor&
2. Puasi-Tangi*le Propert- %pieces of paper used as collateral&
a) Instruments- %A-9=:%a&%K?&&2means a 'egotia*le Instrument 5" An
5ther ,riting that 7vidences a "ight to the Pament of a !onetar
5*ligation# is not itself a securit agreement or lease# and is of a tpe
that# in the ordinar course of *usiness# is transferred by deli0ery
with an necessar indorsement or assignment.
9=
(1) Promissor 'otes- %A-9=:%a&%NE&&2an instrument that
evidences a promise to pa a monetar o*ligation# does not
evidence an order to pa# and does not contain an
ac$nowledgment * a *an$ that the *an$ has received for
deposit a sum of mone or funds.
b) Investment Propert- %A-9=:%a&%KA&&2a securit# whether certificated
or uncertificated# securit entitlement# securities account# commodit
contract# or commodit account.
c) 1ocuments- %A-9=:%a&%<=&&2A warehouse receipt# *ill of lading etc.
2A document of title or a receipt of the tpe descri*ed in ?-:=9%:&
d) Chattel Paper- %A-9=:%a&%99&&2evidences an o*ligation and a securit
interest in specific goods %ie a securit interest in a car&. Co#bined
promissor note w/ a conveance of a securit interest. Chattel paper
requires *oth a promissor note and a securit interest in the goods.
e) /etters of Credit "ights- %A-9=:%a&%E9&&
3. Intangi*le Propert- %propert having no significant phsical form&
a) Accounts-%A-9=:%a&%:&&2A right to pament of a monetar o*ligation#
whether or not earned * performance %inclusive&
(1) %9& for propert that has *een or is to *e sold1 leased1 licensed1
assi"ned or ot'er$ise disposed of# %:& for ser0ices rendered
or to be rendered %<& for a polic of insurance issued or to *e
issued %K& for a secondar o*ligation incurred or to *e incurred
%E& for energ provided or to *e provided %N& for the use or hire
of a vessel under a charter or other G8 %?& arising out of the use
of a credit or charge card or information contained on or for
use with the card 5" %H& as winnings in a lotter or other game
of chance operated or sponsored * a State# governmental unit
fo a State# or person licensed or authori6ed to operate the game
* the State or governmental unit of a State
(2) 2ncludin" 'ealt'-care-insurance recei0ables (UT '5T
I'C/U1I'J %9& rights to pament evidenced * chattel paper
or an instrument %:& commercial tort claims %<& deposit
accounts# %K& Investment propert %E& letter of credit rights or
letters of credit %N& rights to pament for mone or funds
advanced or sold other than rights arising out of the use of a
credit or charge card or information contained on or for use
with the card.
b) 1eposit Accounts- %A-9=:%a&%:A&&2a demand# time# savings#
pass*oo$# or similar account maintained with a *an$. The term
doesn+t include investment propert or accounts evidenced * an
instrument.
c) Jeneral Intangi*les- %A-9=:%a&%K:&&2an personal property#
including things in action# ot'er t'an accounts# chattel paper#
commercial tort claims# deposit accounts# documents# goods#
instruments# investment propert# letter of credit rights# letters of
99
credit# mone# and oil# gas# or other minerals *efore e8traction. The
term includes pament intangi*les and software.
(1) Pament Intangi*les- %A-9=:%a&%N9&2it is a general intangi*le
under which the account de*tor+s principal o*ligation is a
monetar o*ligation.
(2) Intellectual Propert- trademar$s# trade secrets# customer lists#
patents# coprights.
4. In re Morton- pg. K?
a) 3acts-
(1) !organ is the de*tor and the lender *an$ is a secured creditor.
The *an$ too$ a securit interest in the de*tor+s vehicle. The
collateral was a 3ord (ronco. 1e*tor stated that the (ronco
was to *e used as a Consumer good# even though it was later
used as wor$ equipment. 1e*tor then went *an$rupt. The
*an$ruptc trustee said that it was reall equipment and
therefore was not perfected * the *an$ correctl so therefore
should *e pulled *ac$ into the *an$ruptc estate.
(2) The *an$ had a purchase mone securit interest in the (ronco
*ut perfected it as a Consumer Jood and not as 7quipment.
b) Issue- what is the true classification of the collateral- Consumer
goods or 7quipment- %1oes it accrue at the time of the creation of the
interest or can it change&.
c) 4olding- The Court said that the true classification of the collateral is
the classification AT T47 TI!7 T47 S7CU"ITI I'T7"7ST IS
C"7AT71
5. !organ Count 3eeders Inc- %9AA:2pg. E:&
a) 3acts-
(1) !cCormic$ was the purchaser of cattle from Allen %the de*tor&
and the creditor was !organ Count 3eeders. !organ had a
perfected securit interest in the cattle pre-sale to !cCormic$.
(2) The collateral was EN head of cattle.
(3) !cCormic$ challenged the classification of the collateral under
the properl recorded securit interest.
b) Issue- were the cattle inventor or equipment %was !cCormic$ a
*uer of inventor in the ordinar course of *usiness %not su*@ect to
the P!SI of !organ& or was he a *uer of equipment %and therefore
have to give up the cattle to !organ&-&
c) Analsis-
(1) Inventor purchased in the ordinar course of *usiness is
purchased * the *uer %!cCormac$& free of an P!SI in the
inventor.
(2) 7quipment purchased is not free of a securit interest in that
equipment.
9:
d) 4olding- The Cattle actuall fit under the definition of equipment and
therefore were su*@ect to the securit interest. (ecause of how the
were *ing used %fact *ased&. If this sale was to a slaughter house the
would have *een inventor
). Pro*lem 9<- %pg. KN&- fill in the proper classification of the followingO
a) Professional Pianist+s Piano- It is goods M catch-all equipment
b) 3arm Products- A-9=:%a&%<K&
(1) Cattle 3attened * 3armer- Joods with su*/class of farm-
products %de*tor is engaged in farming operations&2A-9=:%a&
%<K&%(&
(2) 3armer+s Tractor- Jood with a su*-categor of equipment %not
farm product&
(3) 3armer+s Chic$ens- Jood w/ su* class of farm product
(4) !anure from 1air 4erd- Jood w/ su* class of farm product
c) !o*ile 4ome- %A-9=:%a&%E<&&2%!anufactured 4omes&2It is reall a
.consumer good0 *ut ou could argue it is a .manufactured home0 if it
fits under the specific si6e dimensions in the statute.
d) /awsuits-
(1) "ight to Sue for (reach of G8- intangi*le w/ su* of general
intangi*le propert %Commercial Tort Claim&
(2) "ight to Sue for 'egligence from Car Accident- 'on-
Commercial Tort Claim. 7QC/U171 3"5! UCC A %A-
9=A%d&%9:&&
(3) "ight to Sue a Corp for Ta$ing a Trusted 7mploee- Permitted
* A-9=A%a&%9:&2Commercial Tort Claim2Jeneral
Intangi*les.
(4) Securit Interest in a /awsuit P has alread won and has *een
reduced to a settlement agreement- Pament Intangi*les
e) Pencils and other stationar used * Sears in its credit offices-
Pro*a*l Jood w/ su*-class of Inventor
f) /iquor /icense- general intangi*le under intangi*les. %catchall&
") "ight to a "eturn of a Securit 1eposit held * landlord- general
intangi*le. %catchall&
') 'ewspaper carrier+s right to pament for papers alread delivered-
Accounts
i) 'ewspaper carrier+s right to paments for paments to *e delivered in
the future- accounts.
3) Curtains *ought * a lawer for the law office- equipment.
(1) ,hat if the lawer changes his mind and uses them at home
later- Still a piece of equipment and not a consumer good.
&) Aunt Augusta loaned nephew )E$ w/ oral agreement he would repa
the mone the following ear. She wants to use the agreement as
collateral.-- Pro*a*l a Pament Intangi*le
+. Pro*lem 9N-
9<
a) !il$-
b) Certificate of 1eposit- Instrument
c) Air*ill for fro6en shrimp-1ocument of title
d) "eceipt
e) "are Coins- consumer goods if for his personal use *ut equipment if
used for investment.
f) Ta8 "efund- gen intangi*le
") 1e*enture *ond2
') Computer Program- if it is em*edded into the product then it is a good
*ut if it is sold * itself then it is a general intangi*le.
,. Pro*lem 9K- health insurance receiva*les
a) 4as its own definition.
9. Pro*lem 9E- classified under Accounts.
1. Pro*lem 9?- Juitar is a consumer good if he $eeps it for his personal ho**.
It will *e equipment# however# if he $eeps it for an investment.
11. Pro*lem 9H- rights to pament under a lease. It would *e classified as chattel
paper# even though it is electronic. The Puestion is .,ho has Control over
the Chattel Paper2The Authenticated Cop.0
12. Pro*lem 9A- %A-9=A%a&%:&&2UCC A governs agricultural liens as well.
(. Creation of a Securit Interest-
1. Securit Agreement-
a) 78amples-
(1) Anh+s dealership sells a car to (rian- the car is the collateral.
(rian wants financing and possession of the car. Anh will enter
into a securit agreement so that if (rian doesn+t pa on the
loan# it will *e repossessed * Anh. %need a written securit
agreement as the de*tor has possession of the collateral.&
(2) /ender and 1e*tor- when the secured part ma$es a loan and
then the secured part &eeps possession of the collateral.
%1on+t need a written securit agreement */c the secured part
has possession of the collateral.&
b) A-:=9%a&- A securit agreement is effective according to its terms
*etween the parties# against purchasers of the collateral# and against
creditors.
c) A-:=<- Attachment and 7nforcea*ilit of Securit Interests
(1) A-:=<%a&- A securit interest attaches to collateral when it
*ecomes enforceable a"ainst t'e debtor with respect to the
collateral.
(2) A-:=<%*&- A securit interest is enforcea*le against the de*tor
and third parties 5'/I I3
(a) Lalue has *een given
9K
(b) The de*tor has rights in the collateral or the power to
transfer rights in the collateral to a secured part A'1
(c) 5ne of the following conditions is met
(i) The 1e*tor has aut'enticated a securit
agreement.
d) Authentication- %A-9=:%a&%?&&- to sign 5" e8ecute or otherwise adopt
a sm*ol# or encrpt or similarl process a record in whole or in part#
with the present intent of the authenticating person to identif the
person and adopt or accept a record.
e) Pro*lem :=- 3red (ean *ought a new computer on credit from
Center*oro 5ffice Suppl. (/f he could ta$e it home the store made
him sign a .conditional sale G80 * which he agreed that title to the
computer would remain with the store until he had full paid for his
purchase. The G8 descri*ed the computer# *ut nowhere did it mention
a securit interest. 1oes the G8 qualif as a securit agreement under
> A-:=<- See 9-:=9%<?& %last sentence of 9
st
par.& M :-K=9%9& %:
nd

sentence&.
(1) Classification of Joods- the computer is a consumer good.
%he isn+t using it for *usiness&
(2) 4e too$ the computer home- 1e*tor has possession of the
collateral now.
(3) A-:=<%*&%<&%A&- 1e*tor must have an authenticated securit
agreement that provides a description of the collateral.
(4) ,hat if it doesn+t sa .Securit Agreement-0 That is o$2
there is no statutor requirement that the document has a
caption stating it is a securit agreement.
(5) 9-:=9%<?&- "eservation of Title is a Securit Interest thus
creating a securit agreement when ou follow UCC A
requirements.
f) ,hat to Include in a Securit Agreement-
(1) 1e*tor+s 'ame
(2) 1escription of the collateral.
(3) ,hat actions constitute default under the agreement.
(4) CA''5T e8pand its a*ilit to repossess the collateral.
(5) Prescri*e what state law governs the transaction. %C45IC7 53
/A,&.
()) Show what method will *e used to settle the disputes.
(+) Choice of 3orums in case of litigation %which district it will *e
litigated in&.
(,) Could put an ar*itration clause in the agreement if ou want.
(9) !7"J7" C/AUS72a clause that forces the de*tor to inform
the secured part of an changes in its situation2change of
name# *een purchased * another part# etc.
9E
2. The 3inancing Statement-
a) "equirements under the UCC-
(1) A-E=:%a&- A financing statement is onl sufficient I3 IT
I'C/U17S
(a) 'ame of the de*tor
(b) 'ame of the secured part
(c) Indication of what the collateral is
(2) A-E:9- shows what a UCC financing statement loo$s li$e.
(3) Authentication "equirement- !ust the financing statement *e
separatel authenticated %signed&-
(a) A-E=A%*&- * authenticating or *ecoming *ound as
de*tor * a securit agreement# a de*tor
%AUT5!ATICA//I& authori6es the filing of an initial
financing statement and an amended financing
statement.
b) ,hat does it do- It is used for filing in the state office where ou are
2puts e0eryone on notice that a securit agreement is in place even
though it doesn+t necessaril give a lot of details.
c) 3iling of the 3inancing Statement- the financing statement is filed
under the 1e*tor+s 'ame.
d) Searching for the 3inancing Statement-
(1) Search in the state records under the de*tor+s name.
(2) Search other names the de*tor might have or might have had in
the past to ma$e sure there aren+t other financing statements
out there ou might *e missing.
(3) Iou use the search logic of the state that ou are located in.
e) Pro*lem :9- %pg. EH& 4arr 3ellini ran a movie theater called .3ellini+s
Art Theater0 *ut since he was the sole proprietor# that was a trade
na#e. 4e gave a securit interest in the *usiness+s equipment to
Shar$teeth 3inance Co. The financing statement calls for a listing of
the .de*tor+s name.0
(1) Should the parties use the *usiness name or the individual+s
name- %loo$ to A-E=<& The should use the individual+s name
as he is a sole proprietor. %A-E=<%*&&.
(2) If the theater were run as a partnership# would the partnership+s
name *e used as the de*tor+s name- %A-E=<%K&%A& M official
9N
comment :& Use t'e or"ani4ations na#e %partnership+s
name&.
f) Pro*lem ::- %pg. EH& The de*tor+s correct name was ."amond
3.Sargent# Inc.0 *ut the financing statement listed the de*tor+s name as
."amond 3. Sargent Co.# Inc.#0 and it was so inde8ed. Is the
financing statement effective- %A-E=N&
(1) UCC A-E=N%a&- a financing statement su*stantiall satisfing
the requirements of this part is effective 7L7' I3 it has minor
errors or omissions U'/7SS the errors ma$e the financing
statement S7"I5US/I !IS/7A1I'J.
(2) If it is S7"I5US/I !IS/7A1I'J then it is '5T
7337CTIL7.
(3) A-E=N%*&- %/eriously 5isleadin"&- a financing statement that
fails sufficiently to pro0ide t'e na#e of t'e debtor in
accordance $it' /ection 9-53(a) 2/ seriously #isleadin".
(4) A-E=N%c&- %6ot /eriously 5isleadin"&- if a search of records
of the filing office under de*tor+s correct name# using the filing
office+s search logic# $ould disclose a financin" state#ent
that fails sufficientl to provide the name of the de*tor in
accordance with A-E=<%a&# then the name provided 157S '5T
ma$e the financing statement .Seriousl !isleading.0
") Post-3iling of the 3inancing Statement- Change of the 1e*tor+s 'ame
(1) Pro*lem :<- (ar*ara Song *orrowed )E=$ from 5'( in order
to start a *usiness called .(ar*+s Interiors.0 5'( M !s. Song
signed a securit agreement showing her as the de*tor and
giving 5'( an interest in the inventor and equipment. 5'(
dul filed a financing statement. Su*sequentl# !s. Song
married 3red 1ancer and changed her name to (ar*ara 1ancer.
She *orrowed another )E=$ from the 'ightfler 3in Co which
loaned her the mone after searching the records under
.1ancer0 and finding no prior encum*rances on the *usiness+s
inventor and equipment. 1id 5'( lose its securit interest
*ecause it failed to refile when her name changed- %See A-
E=?%c& and official comment K&.
(a) A-E=?%c&- If a de*tor changes its name so that a
financing statement *ecomes seriousl misleading
under A-E=N then
(i) The financing statement is effecti0e to perfect a
securit interest in collateral acquired * the
de*tor before# or $it'in four #ont's after the
change A'1
(ii) The financing statement is '5T effective to
perfect a securit interest in collateral acquired
9?
* the de*tor !5"7 T4A' K !5'T4S after
the change U'/7SS an a#ended state#ent
$'ic' corrects t'e proble# is filed $it'in t'e
4 #ont's.
(b) ,hat a Jood Attorne should have done- the should
have as$ed whether the de*tor had changed its name
during an time during the last K months to one ear
period.
(2) Pro*lem :K- /'( is the secured part M American 7lectronics
Store is the original de*tor. The A" of A7S is the collateral for
the secured transaction. /'( filed a financing statement
meeting all the requirements %listed de*tor# secured part# M the
collateral&. A7S sells all of its assets to Loice of ;apan who
then moved to A7S+s old location.
(a) 1oes /'( have a valid securit interest in the 5ld A"
that were transferred to L5;- I7S.
(b) 1oes /'( have a valid securit interest in the 'ew A"
that L5; created once in A7S+s old space. 5nl for the
K month grace period. After that# /'( does not have a
securit interest in the collateral of L5;2,ould have
to file a new or amended financing statement.
(c) ,hat if 'ew 1e*tor was located in a different state-
%78ample in Comment < to A-E=?&2then ou must file
a new financing statement in the different state
i##ediately.
(d) ,hat if L5; M A7S merge- %1o ou have to file a
new financing statement-&
(i) A-E=H%a&- Ies# the financing statement will *e
effective against the new de*tor after merger.
(ii) A-E=H%*&- (ut# the financing statement would
onl *e effective for 4 #ont's A3T7" the
name change if the change would ma$e the
financing statement S7"I5US/I
!IS/7A1I'J.
(e) ,hat if /'( assigns all of its interests to 5'( *ut
1e*tor "emains Same- %A-<9=%c&&-
(i) !ust 5'( "efile- '52as the de*tor didn+t
change# then 5'( does not have to refile2the
financing statement is still good against 1e*tor
and its other creditors.
9H
(ii) Is the 5ld 3S good against /'(+s Creditors-
'o# the old 3S would not *e good against
5'(+s creditors so 5'( S45U/1 "73I/7.
(3) Pro*lem :E- pg. EA- "o*in wanted a loan *ut couldn+t get one
*/c he didn+t have an collateral. 4e therefore as$ed his
*rother "ichard to use his acht as collateral. 7ebtor is t'e
person $'o o$ns t'e collateral so t'erefore 'e $ould be
8ic'ard (8obins 9rot'er). "o*in would then *e the o*ligor
on the loan.
3. 1escription of the Collateral in the Securit Agreement-
a) 1e*tor+s 3ear- the fear that the secured part will overreach and
cover too much collateral in the floating lien / securit interest.
b) 3ear of Secured Part- that the will *e undersecured and the de*tor
will default on the o*ligation.
c) A-:=<%*&%<&%A&- A securit agreement is enforcea*le if the de*tor has
authenticated the securit agreement and t'e collateral is described
sufficiently %and a description of t'e land if t'ere is ti#ber to be
cut on t'e land&.
(1) 1escription of Collateral- %A-9=H%a&&- 8easonably identify
$'at is described.
(a) A-9=H%*&%<&- ou are allowed to descri*e the collateral
as seen in the UCC %such as consumer goods# general
intangi*les# intangi*les# etc.&
4. 1escription of the Collateral in the 3inancing Statement-
a) A-E=:%a&%<&- Iou must %indicate t'e collateral co0ered( in the
financin" state#ent2the purpose is to put a 3
rd
party on 6:;2C<1
not necessarily to infor# 'i# of e0eryt'in" it co0ers.
b) 'otice 3iling- the financing statement is onl to put a <
rd
part on
notice that he needs to do further due diligence.
(1) Iou could as$ for a cop of the securit agreement *ut the
parties might not give ou those copies.
(2) A-E=N%c&- you use t'e searc' lo"ic of t'e office in $'ic' you
file t'e paper$or&.
c) A-E=K- a financing statement sufficientl indicates the collateral it
covers I3 the financing statement providesO
(1) A description of the collateral pursuant to A-9=H# 5"
(2) =n indication t'at t'e financin" state#ent co0ers =..
assets or =.. personal property.
9A
(3) Comment :- 'ote that a *road statement of this $ind %e.g.# Rall
de*torSs personal propertR& would not *e a sufficient
RdescriptionR for purposes of a securit agreement. See
Sections A- :=<%*&%<&%A&# A-9=H. 2t follo$s t'at a so#e$'at
narro$er description t'an >all assets1> e.".1 >all assets
ot'er t'an auto#obiles1> is sufficient for purposes of t'is
section# even if it does not suffice for purposes of a securit
agreement.
d) Pro*lem :N- Peter Poor signed a sec agreement and a fin statement in
favor of T3C giving the Co a securit interest in .All personal
propert de*tor now owns or ever owns or ever hopes to own *etween
now and the end of the world or his death# whichever occurs first.0
1oes this perfect an interest in his guitar. %See A-9=H M A-E=K&.
Should the differentiate *etween the description in the Securit
Agreement and the 3inancing Statement-
(1) Securit Agreement- much too general to *e valid for a
securit agreement under A-9=H%*&. IT !UST "7AS5'A(/I
I17'TI3I ,4AT IS 17SC"I(71.
(2) 3inancing Statement- ,hile it might not have *een the *est
description# it could wor$ under A-E=K%:& as it covers .all
personal propert.0
(a) To fit under A-9=H ou could sa that it covers all
consumer goods# etc. as those are categories of assets
under the UCC.
e) Pro*lem :?- Poll is the 1e*tor and /S( is the Secured Part. The
3/S created an interest in .all inventor# A"# equipment# Instruments#
general intangi*les# and personal propert.0 Poll also pledged her
@ewelr collection which was $ept in the (an$ Lault. She later as$ed
for it *ac$ to wear to a part and it was sei6ed through @udicial process
* another creditor. ,as the securit interest valid in the @ewelr-
(1) Securit Agreement Sufficienc-
(a) A-:=<%*&%<&%(&- The securit agreement is enforcea*le
against the de*tor and <
rd
parties I3 .t'e collateral is
not a certificated securit A'1 is in t'e possession of
t'e secured party under A-<9<# pursuant to the de*tor+s
securit agreement.0
(b) Is the 1escription Specific 7nough for the Securit
Agreement- 'o. Under A-9=H%a& the securit
agreement is not specific enough as it covered .All
Personal Propert0 *ut was not specific2should have
specified .@ewelr collection0 in an amended securit
agreement *efore the gave her the @ewelr *ac$.
(2) 3inancing Statement Sufficienc-
:=
(a) Ies# it would meet the A-E=K%:& financing statement
requirement as it covers .all personal propert0 %See the
official Comment T: that sas it is pro*a*l 5G.&
(b) Cases at end of Puestion- the said a description of
.all personal propert0 was '5T SU33ICI7'T 35" A
3I'A'CI'J STAT7!7'T.
f) Pro*lem :H- %pg. N9&- there is a securit agreement and a financing
statement that mentions the word .inventor0 and there is a question
as to whether this will reach after-acquired inventor as a .floating-
lien.0
(1) Ies# the courts will usuall allow .inventor0 to include after-
acquired inventor as that is the nature of a floating lien2a
good attorne# though# will specif .all inventor now owned
or ever owned in the future0
(2) A"- the same idea would transcend into A"+s also as the
naturall turn themselves over quic$l2specif after-acquired
A" though so ou don+t have to litigate.
") Pro*lem :A- %pg. N:&- the financing statement lists .various
equipment# see attached list0 *ut there was no list attached. ,as it a
sufficient description-
(1) 'o2the Court in Chase v ; M / Jen G8+ors said that it wasn+t
sufficient as it was am*iguous and therefore invalid.
(2) Iou could argue though# that a description of .7quipment0
would have *een sufficient2the did sa# though .see attached
list0 *ut as there was no list the court didn+t li$e that.
') !arch :==9 (ar 78am Puestion T9- (usiness sells container. To
secure loan# ( signs a SA with S# granting S a SI in after-acquired
inventor# and equipment# including the equipment contained in
e8hi*it A. ( signed 3/S with the same list. The 3/S was properl filed
with e8hi*it A attached. (an$ searched the propert records
i) Pro*lem <=- the SA stated the collateral was .machiner# equipment#
furniture and fi8tures.0 To this list# the 3S added .inventor and A".0
The parties are all willing to testif that the loan was intended to *e
secured * inventor and A" as well as * the items listed in the SA.
5ther creditors o*@ect. 1os the secured part+s interest reach
inventor and A"- See A-:=<%*& M In re Martin Grinding Mach.
!orks ?A< 3.:d EA:.
(1) A-:=<%*&- you need an aut'enticated security a"ree#ent
$it' a description of all t'e property t'at is co0ered in t'e
exc'an"e.
:9
(2) In re !artin Jrinding- where the securit agreement is clear#
no parol evidence is allowed to add assets that are covered.
(3) "easons ,h- $e $ant to stop collusion and fraud as the
lender might force the de*tor to go along with the stor.
3) Pro*lem <9- /oan officer at 5'( sent ou an e-mail w/ a question.
The *an$ is planning to ma$e a loan to /uddite Techn. And wants to
ta$e a SI in .all of the equipment of the de*tor.0 4owever# the most
important piece of equipment is the ver e8pensive A*acus-9:.
Should the securit agreement *e drafted to sa that the de*tor grants a
securit interest in .the A*acus-9: plus all other equipment0 .all
equipment# particularl the A*acus 9:0 or simpl .all equipment0- 5r
is there *etter phraseolog-
(1) Sa A*acus 9: and 5ther 7quipment so as to prevent another
part from saing that it was not included.
&) Pro*lem <:- A securit Agremeent stated that the tractor *uer
granted a securit interest to .UUUUU0 *ut the seller forgot to fill in his
name even though it was signed * him. The seller later filed a 3S
showing he had a secured interest in the *uer+s tractor. Is the
purported document with the *lan$ a A-:=< securit agreement- ,hat
a*out the 3S- ,hat a*out *oth-
(1) A-:=<- only t'e debtor 'as to aut'enticate t'e security
a"ree#ent.
(2) 3inancing Statement- it was o$ as it 'ad t'e na#e of bot'
parties plus t'e asset 'as been identified.
(3) (ollinger Corp Case- e0en $?o a for#al security a"ree#ent1
as t'e parties 'ad a financin" state#ent1 it "a0e e0idence
t'at t'ere $as 26;<6; to be secured.
,ee$ K
C. Attachment of a Securit Interest-
1. A-:=<%a&- A securit interest attaches to collateral when it beco#es
enforceable a"ainst t'e debtor with respect to the collateral# unless an
agreement e8pressl postpones the time of attachment.
2. A-:=<%*&- A securit interest is enforcea*le against the de*tor and third parties
with respect to the collateral 5'/I I3
a) @alue 'as been "i0en %such as a revolving credit line# etc.&
b) The debtor 'as ri"'ts in t'e collateral (not necessarily o$ners'ip
!dont 'a0e to 'a0e title!3ust so#e sort of property interest) 5"
the po$er to transfer ri"'ts in t'e collateral to a secured part A'1
c) 5ne of the following conditions is metO
::
(1) 1e*tor has aut'enticated t'e security a"ree#ent t'at
describes collateral (A if it co0ers ti#ber to be cut1 t'en
describe t'e land also)B :8
(2) The collateral is not a certificated securit A'1 is in t'e
possession of t'e secured party.
3. Thrift v. A17- pg. NK
a) 3acts-
(1) 1eavers was a car dealership who financed their entire
inventor with Thrift# who had a securit agreement that
covered all inventor A'1 A3T7" ACPUI"71
I'L7'T5"I.
(2) A17 was a wholesale car seller who sold < cars to 1eavers.
The delivered the cars and said the would ta$e pament for
them a few das later. A17 $ept the titles to the cars until the
cars were paid for.
(a) "7S7"LATI5' 53 TIT/7 IS 5'/I SU33ICI7'T
T5 "7S7"L7 A S7CU"ITI I'T7"7ST2%!UST
C5!P/I ,IT4 UCC A T47'&
(3) 1eavers went to Thrift and e8ecuted what wor$ed as a securit
agreement descri*ing the collateral and then Thrift gave
1eavers sufficient mone to pa for the < cars *ut after
1eavers gave A17 a chec$# it was returned for insufficient
funds.
(4) A17 wanted the cars *ac$ *ut Thrift said it had a valid securit
interest.
b) Issue- 1id 1eavers have a sufficient right in the three cars to create a
securit interest in the cars when the financed the cars with Thrift#
5" did A17+s retaining title in the car ma$e it impossi*le for 1eavers
to have a sufficient right in the cars to create a securit interest in favor
of Thrift-
c) Analsis-
(1) ;'rift had a securit interest in the collateral that was
enforcea*le against the 1e*tor and <
rd
parties as t'ey 'ad #et
t'e t'ree re*uire#ents.
(a) @alue $as "i0en %the paid 1eavers )9H$2the also
gave 1eavers the )) to pa for the rest of their
inventor&
(b) 5ne of the 3ollowing was !et2
(i) ;'e debtor 'ad aut'enticated a security
a"ree#ent t'at pro0ided a description of t'e
collateral.
(c) 727 ;C< 7<9;:8 C=@< = 82DC; 26 ;C<
C:..=;<8=.EEE
(i) A17+s Arguments-
:<
%a& The said the never passed title to
1eavers so therefore 1eavers didn+t
have an propert rights in the cars.
%i& (ut# according to A-:=K# the
passing of title is somewhat
irrelevant.
%ii& 2t loo&s li&e =7< A 7ea0ers
transaction is /<C8<;F!((ad
w/ (enedict v "atner&
(2) Court found that the didn+t want to support a S7C"7T
T"A'SACTI5'# and so therefore 1eavers transaction with
Thrift was valid and enforcea*le.
4. Pro*lem <<- pg. NH
a) 3acts- "o Ja*riel wanted to go into the music *usiness selling
Trumpets. 4e gets a loan from 5'( and signs a securit agreement
on 9/N giving the *an$ an interest in .all e8isting and after-acquired
inventor in the store.0 At that time# his inventor consisted of K
guitars and a pitchpipe. 4e did have a G8 with TT!C for K=
trumpets# however# which he paid for in advance of the deliver date.
%march <=&. TT!C pac$aged the trumpets and mar$ed them for
shipment on march 9E# and shipped them on march <= %arrived later
that da&.
b) Puestions-
(1) 5n ,hat da did 5'(+s Securit Interest attach to the guitars#
pitch pipe and trumpets- %A-:=<%a& M :-E=9&&
(a) Juitars- Lalue is given# de*tor has rights in the
collateral M de*tor had authenticated a securit
agreement with a proper description of the collateral.
ATTAC47S 5' 9/N.
(b) Pitchpipe- value is give# de*tor has rights in the
pitchpipe# M de*tor had authenticated a securit
agreement with a proper description. ATTAC47S 5'
9/N.
(c) Trumpets- Lalue had *een given on 9/N# securit
agreement w/ proper description had *een signed on
9/N. 1id 1e*tor have "ights in the Trumpets on 9/N-
(i) ;anuar N- '5.2G8 wasn+t enough to create a
right in the collateral.
(ii) !arch 9E- I7S2IT ,AS A/"7A1I PAI1
35"# !A"G71 35" S4IP!7'T A'1
PACGAJ71.2%t'e 5=8G26D :- ;C<
D::7/ is $'at is i#portant.&
(2) 1oes the answer change if we add the fact that the *an$ filed a
proper financing statement covering Ja*riel+s inventor on
:K
;anuar ?- '52the filing of a financing statement does not
effect ATTAC4!7'T2it onl effects P"I5"ITI.
(3) Can a 3inancing Statement *e 3iled (efore a Securit
Agreement is Signed- %A-E=:%d&& I7S# the can do so. The
would want to do so so that the could get priorit over another
secured creditor. %A-<::%a&%9&&.
(4) If the *an$ didn+t advance an )) until !arch <9 %the date the
*an$ saw the trumpets in the store& and if the *an$ didn+t ma$e
an commitments %see A-9=:%a&%NH&& to advance an mone
until that date# when did the securit interest attach-
(a) Lalue hasn+t *een given until 5'( paid Ja*riel for the
trumpets.
(b) Therefore# the securit agreement would attach to the
collateral on !arch <9.
5. In re 4owell 7nterprises# Inc- pg. NA
a) 3acts-
(1) 4owell M 3'( entered into a transaction where* 3'(
financed 4owell in return for a securit interest in all of
4owell+s A". 3'( filed a financing statement in a timel wa.
(2) 4owell M Trada8 *oth sold rice.
(3) (ar Schwart6 wanted to *u rice *ut wouldn+t *u it from
Trada8 and couldn+t *u from 4owell so 4owell M Trada8
figured out a scheme where* Trada8 would suppl the rice
and 4owell would sell it to (ar Schwart6 under its own name.
(4) (ar Schwart6 would pa for the rice with a /etter of Credit that
would go to 4owell# who would then collect and then pa
Trada8. %the letter of credit didn+t mature for 9 entire ear&
(5) ,hen Trada8 sends the rice to (ar Schwart6 the create a (ill
of /ading which is given to 4owell so that 4owell can go to
the *an$ who issued (ar Schwart6+ letter of credit so the can
collect on it.
()) 4owell accidentall put the A" from (ar Schwart6 on is
*alance sheet %possi*l covered * 3'(& and then had a
corresponding AP due to Trada8# even though technicall# the
A" was due to Trada8# as it was their rice.
b) Issue- 1oes 3'(+s S/I attach to the (ar Schwart6 account receiva*le
%in the form of the letter of credit& that was on 4owell+s *oo$s# even
though it was technicall mone owed to Trade8 through a
corresponding AP-
c) Arguments-
(1) Trada8- the argued that the letter of credit wasn+t an A"# so
therefore didn+t fall under the Securit Interest.
(2) ,hat the Should have Argued- The should have as$ed
,47T47" T47 S/I ATTAC4712,47T47" 45,7//
4A1 82DC;/ I' T47 /7TT7" 53 C"71IT2no# the
:E
didn+t have rights in the letter of credit# as the reall weren+t
selling the rice to (ar Schwart62As Trada8 sold the goods#
Trada8 was the onl part that had a right to the letter of credit
2A-:=<%*&%:& Argument.
(3) ,as 3'( 4armed- 'guen sas '5. This is *ecause 4owell
didn+t use an of their assets to incur the A" with (ar Schwart6
2therefore# 4owell didn+t lose an value when it lost the A"
in the case.
d) 4olding- The Court said that the (an$ was not entitled to the (ar
Schwart6 letter of credit2the letter of credit %A"& reall *elonged to
Trada8.
). "ecap on Attachment-
a) A-:=< "equirements-
(1) Lalue must *e given
(2) 1e*tor must have .rights in the collateral.0
(3) Securit agreement must *e authenticated
(a) Signed * the 1e*tor
(b) There must *e a description of the collateral
(c) If it is tim*er to *e cut# ou must also descri*e the land.
,ee$ of A/:=/=E
III. Perfection of the Securit Interest-
A-<=H%a&- 78cept as otherwise provided in A-<=A# a securit interest is perfected if it has
attached and all of the applica*le requirements for perfection in A-<9= M A-<9N have *een
satisfied.
'o Attachment# 'o Perfection- If the securit agreement isn+t valid against the de*tor
then it certainl can+t *e valid against third parties. %if it hasn+t *een perfected# it can+t
attach to the collateral&
Tpes of Perfection- some tpes of perfection are *etter for certain tpes of collateral.
o Perfection * Possession of Collateral
o Automatic Perfection
o Perfection * 3iling
o Perfection * Control
A. Perfection * Possession-
1. Tpes of Collateral ou ,ant to Possess- ou might not want to do this with
*ul$ items as the are difficult to store2might want to do it with certificates
or intangi*le assets.
2. A-<9<%a&- A secured part ma perfect a securit interest in ne"otiable
docu#ents1 "oods1 instru#ents1 #oney1 or tan"ible c'attel paper * ta$ing
:N
possession of the collateral. %!ISSI'J I'L7ST!7'T P"5P7"TI2
!UST P7"37CT (I C5'T"5/& A secured part ma perfect a securit
interest in certificated securities * ta&in" deli0ery of the certificated
securities under H-<=9.
3. A-<9<%*&- Joods covered * a certificate of title %car# van# truc$# *oat& ma
have a perfected securit interest ta$en * a secured part * ta&in"
possession of t'e "oods %onl limited * A-<9N%d& though&.
4. A-<9<%c&- the /ecured Harty is dee#ed to 'a0e possession of t'e collateral
%other than certificated securities and goods covered * a document& I3
a) ;'ird person in possession of t'e collateral aut'enticates a record
ac&no$led"in" t'at it 'olds possession of t'e collateral for t'e
secured partys benefitF 5"
b) %:& Third person ta$es possession of the collateral after having
authenticated a record %written instrument& ac&no$led"in" t'at it $ill
'old possession of collateral for t'e secured partys benefit.
5. Pro*lem <K- pg. ?N
a) 3acts- Jracie is the seller of the diamond and (rown is the *uer.
(rown placed a down pament on the diamond and financed the rest
on credit. The collateral is the diamond. The Third Part is the Astor
!useum who has possession of the diamond.
b) Analsis-
(1) This would fall under A-<9<%c&%9&2The museum @ust has to
authenticate a record ac$nowledging that it holds possession of
the dia#ond for t'e benefit of Dracies security interest.
). Pro*lem <E- pg. ??
a) 3acts- Giddie 1elight manufactured tos. 3red+s 3ield ,arehousing
loc$s all the inventor in a room and seals it and issues a negotia*le
warehouse receipt %document of title& to Giddie 1elight which it used
to get a loan from !'(.
b) Puestion- 1id the warehouse receipt give a perfected securit interest
in the tos that are loc$ed in the room * 3red-
(1) A-<9:%c&- ,hile goods are in the possession of a *ailee that
has issued a ne"otiable docu#ent covering the goodsO
(a) A securit interest in the goods #ay be perfected by
perfectin" a security interest in t'e docu#ent A'1
(b) = security interest perfected in t'e docu#ent 'as
priority o0er any security interest t'at beco#es
perfected in t'e "oods by anot'er #et'od durin"
t'at ti#e.
c) Puestion T:- If the *an$ and Giddie 1elight signed a written securit
agreement covering the warehouse receipt and the inventor it
represented and if the *an$ gave G1 the ))# does the *an$ have a
:?
perfected securit interest in the warehouse receipt even before the
*an$ gets possession of it-
(1) A-<9:%e&- A securit interest in certificated securities#
negotia*le documents# or instruments is perfected $it'out
filin" or t'e ta&in" of possession for a period of 2 days
fro# t'e ti#e it attac'es to the e8tent that it arises for ne$
0alue "i0en under an authenticated securit agreement.
d) Puestion T<- If G1 %prior to *an$ruptc& wanted to get the warehouse
receipt *ac$ from the *an$ in order to present it to the warehouseman
%!ort&# get the goods# clean them# return them to the field warehouse#
and get *ac$ the receipt for rehpothecation to the *an$# will the *an$
lose its perfection if it turns the document over to the de*tor-
(1) A-<9:%f&- A perfected security interest in a ne"otiable
docu#ent or "oods in possession of a bailee# other than one
that has issued a negotia*le documents for the goods# re#ains
perfected for 2 days I2;C:U; -2.26D# I3 the secured
part ma$es availa*le to the de*tor the goods or documents
representing the goods for t'e purpose of
(a) Ultimate Sale or 78change 5"
(b) /oading# Unloading# Storing# Shipping# Transshipping#
!anufacturing# Processing# or :t'er$ise dealin" $it'
t'e# in a #anner preli#inary to t'eir sale or
exc'an"e. %li$e cleaning&.
e) Puestion TK- If the *an$ loses its perfection# who would ou advise it
to sue- %?-:=K%9&&.
(1) ?-:=K%9&- Sas you can sue t'e $are'ouse#an (;'e
Iare'ouse) for da#a"es if the fail to e8ercise such care as a
reasona*l careful man %warehouse& would have e8ercised and
that action leads to the *an$ losing its perfection in the
warehouse receipt.
+. Pro*lem <N- pg. ?H
a) 3acts- Garate Inc is the de*tor# 'ightfler 3in Co is the secured part.
The collateral is the <N promissor notes due to Garate. '3C has
possession of <E *ut gave one note *ac$ to the de*tor so he could
present it to the customer for pament. Garate then went *an$rupt.
b) Puestion- 1oes the *an$ have a perfected securit interest in an or
all of the promissor notes-
c) A-<9:%g&- a securit agreement that is properl perfected in a securit
or instrument %here a promissor note& remains perfected for := das
without filing I3 the SP has delivered the instrument or securit to the
de*tor for
(1) Ultimate sale or e8change 5"
(2) Presentation# Collection# 7nforcement# "enewal or registration
of transfer.
:H
d) A-<9:%h&- After the := da period has e8pired# perfection depends
upon compliance with UCC A.
(. Automatic Perfection- pg. ?H-
A-<=A- a securit interest is perfected upon attachment %AUT5!ATIC P7"37CTI5'&
o A-<=A%9&- P!SI in Consumer Joods- AUT5!ATICA//I P7"37CT71%'5T
C5L7"I'J vans# truc$s# cars# *oats# etc.&
o A-<=A%:&- Assignment of =ccounts or Hay#ent 2ntan"ibles.
o A-<=A%<&- /ale of Hay#ent 2ntan"ibles
o A-<=A%K&- /ale of a pro#issory note
o 7tc.
1. Purchase !one Securit Interests in Consumer Joods- A-<=A%9&
a) A-9=<- Purchase !one Securit Interests
(1) %a&- 1efinitions-
(a) %9& Purchase !one Collateral- Joods2%consumer
goods# inventor# farm products# equipment&2or
software t'at secures t'e H5/2 obli"ation.
(b) %:& Purchase !one 5*ligation- the loan that is
(i) Incurred as all or part of the price of the
collateral
(ii) Lalue given to ena*le de*tor to acquire rights in
or use of the Collateral if t'e 0alue is in fact so
used. (#ust use t'at exact JJ for t'at
purpose)
(2) %*&- Purchase !one Securit Interest in Joods-
(a) To the e8tent that goods are purchase-mone collateral
with respect to that securit interest.
(b) If the securit interest is in inventor that is or was
purchase-mone collateral# also to the e8tent that the
securit interest secures a purchase-mone o*ligation
incurred with respect to other inventor in which the
secured part holds or held a purchase-mone securit
interestF A'1
(c) Also to the e8tent that the securit interest secures a
purchase-mone o*ligation incurred with respect to
software in which the secured part holds or held a
purchase-mone securit interest.
:A
(3) %d&- Consignor+s Inventor Purchase !one Securit Interest-
the securit interest of a consignor in goods that are the su*@ect
of a consignment is a P!SI in inventor.
b) ,h is there Automatic Perfection for P!SI in Consumer Joods-
(1) P!SP en@os Automatic Perfection of P!SI in Consumer
Joods
(2) P!SP can reclaim the P! Consumer Joods when the 1e*tor
is in (an$ruptc.
(3) ,h ,e 1o This-
(a) ,e do this *ecause if the P!SI didn+t get automatic
perfection and a super-priorit# then it would
discoura"e creditors fro# ad0ancin" credit to
consu#ers!t'ereby c'illin" sales on credit.
(b) The Creditor who sold the item to the consumer is the
closest creditor to the goods so should *e a*le to retain
a super-priorit
c) In re Short- pg. H=-
(1) 3acts-
(a) Purchase !one o*ligation was ):H==
(b) The Purchase !one Collateral was *edroom furniture.
(c) There was an additional loan ta$en for )<NK: with the
*edroom furniture as collateral.
(d) There was a Consolidation of the P! 5*ligation and
the Additional /oan B )?<<? V :9W interest rate.
(2) Issue- 7oes t'e H5 Collateral no$ secure J+33+ or did t'e
Consolidation 7estroy t'e H5/2.
(3) Iays to 7ecide t'e 2ssue -
(a) Transformation- Transformation e8tinguishes the P!SI
nature
(b) 1ual Status- for the )?<<? %P!SI M 'on-P!SI
amounts.&
(c) Case * Case Approach- loo$ to the intent of the
parties to determine whether there was intent to ma$e
the P!SI secure the entire )?<<? or whether it was
onl meant to secure the original ):H==# or whether it
was destroed upon consolidation of the loan.
(4) 5utcome- %in that @urisdiction&2;'is Court follo$ed t'e
Case-9y-Case intent of t'e parties approac'.
(5) ;exas .a$- (2n re Don4ale41 2) 9.8. 133 (199+))!t'e
court said ;exas follo$s t'e ;8=6/-:85=;2:6 8U.<
!($'en a H5s obli"ation consolidates t'en it destroys t'e
H5 status. ;'e 7ebtor $ill be able to &eep t'e H5
Consu#er Doods!@ery -a0orable for t'e 7ebtor--$it'
C:6/U5<8 D::7/ only).
<=
d) J7 v Spartan !otors- pg. A=-
(1) 3acts-
(a) J7CC provided .floor financing0 in 9AH< for the
Spartan dealership. The loan covered all inventor *oth
now e8isting and after-acquired. There was a 3loating
/ien.
(b) The collateral was all the e8isting M after-acquired
inventor.
(c) Perfection- The loan was for )9m and J7CC properl
perfected the securit interest.
(d) J!AC M Spartan entered into a secured transaction
dealing with two !ercedes vehicles that was properl
perfected in 9AA9. D5=C also sent notice to D<CC
tellin" t'e# t'at t'ey 'ad a H5/2 in t'e t$o
5ercedes.
(2) Issue- when Spartan goes *an$rupt# does J7CC or J!AC
have a right in the !ercedes-
(3) 4olding- J!AC+s P!SI defeated the SI of J7CC
(4) ,h Court Passed This "uling-
(a) ,e want to encourage J!AC M J7CC to *oth finance
the dealership.
(i) J7CC- the have a SI in all inventor# *oth
e8isting and after acquired# A'1 'ad t'e ri"'t
to put in t'e Gx t'at if /partan 'ad recei0ed
financin" fro# anot'er party t'en t'e loan
$ould be =CC<.<8=;<7. The had notice
of the other lending transaction.
(ii) J!AC- the got a P!SI that trumped all other
claims *ecause otherwise the would not have
lent mone to Spartan.
e) Pro*lem <?- pg. ?A-
(1) 3acts-
(a) (il$o is a secured creditor who installs siding on
people+s homes. The installed siding on !r. M !rs.
(rown+s home %de*tors&.
(b) (rowns signed a G8 on Aug K# giving (il$o all
currentl owned consumer goods plus those acquired in
the future.
(c) /ater# on Sept. :E# the (rowns went to a 3in. Co. and
*orrowed )H= to purchase a sewing machine. The
filed a SA giving 3in. Co. a SI in the machine# *ut the
3in. Co. didn+t file a financing statement.
<9
(d) The (rowns purchased the machine on 5ct 99 and then
declared *an$ruptc the ne8t da. (il$o# the 3in. Co.
and the (an$ruptc Trustee all claim the machine.
(2) Puestion %a&- 1id (il$o+s securit interest attach to the sewing
machine- '5# IT ,5U/1'+T.
(a) A-:=K%*&- A securit interest 157S '5T ATTAC4
under a term constituting an after-ac*uired property
clause toO
(i) Consu#er "oods# other than an accession when
given as additional securit# unless t'e debtor
ac*uires ri"'ts in t'e# $it'in 1 days after
t'e secured party "i0es 0alue# 5"
(ii) A commercial tort claim.
(3) Puestion %*&- 1id the loan agreement create a P!SI in the
sewing machine# even though 3irst 3inance was the lender and
not the seller of the machine- I7S.
(4) Puestion %c&- ,ould it have *een a P!SI if the (rowns had
used the )H= to pa a liquor *ill and had used )H= from their
safe to *u the sewing machine- 4ow can a finance compan
protect themselves from the de*tor+s misuse of the funds
advanced- %See <-99=%d&&
(a) LA/U7 I' 3ACT S5 US71-- a P!SI is onl created
if the item is purchased using the funds lent * the
lender. %the P!SI is onl created if the mone is I'
3ACT S5 US71 to purchase the item secured&
(b) 4ow 3in Co can Protect Itself- it can issue a c'ec&
$it' t$o spaces for endorse#ents!one fro# t'e
9ro$ns and one fro# t'e se$in" #ac'ine dealer so
that the $now the will *u a sewing machine with the
mone rather than something else.
(5) Puestion %d&- Assuming the )H= was used for the announced
purpose. ,ho gets the sewing machine-
(a) According to 99 USC E::%f& M In re "hort# the 3in. Co.
would get the sewing machine as the had a P!SI.
f) Pro*lem <H- pg.HA
(1) 3acts-
(a) All of 3aXade !otors equipment was covered * a
perfected floating lien in favor of 5'(.
(b) 3aXade !otors thin$s it might want to *u an e8pensive
oriental rug for its office from Treasures of Persia. T5P
sas the can ta$e the rug *ac$ to the office and tr it
out.
<:
(c) Puestion T9- 1oes the (an$+s lien attach to the rug as
soon as it gets possession of the rug# even though the
haven+t *ought the rug- '5.
(d) 3! then decided to purchase the rug from T5P and
signed a G8 and made a down pament.
(e) To finance the rest of the purchase# 3! *orrowed the
remainder from 'ightfler SM/# giving it a securit
interest in the rug.
(f) Puestion T:- 1oes 'ightfler+s SI qualif as a P!SI-
%see A-9=<%a& M official comment <&. '5
(i) A P!SI 5'/I ATTAC47S ,47' I5U
(5""5, !5'7I ,4IC4 =..:I/ K:U
;: HU8CC=/< =6 2;<5. 3! 4A1
A/"7A1I PU"C4AS71 T47 "UJ 3"5!
T5P S5 T47"735"7 IT ,AS '5T A P!SI
(UT 5'/I A "7JU/A" S7CU"ITI
I'T7"7ST.
") Automatic PerfectionO Certain Accounts M 5ther Intangi*les- A-
<=A%:&-
(1) Purpose is to protect those who normall don+t ta$e these
accounts M are Unli$el to 3ile a 3/S.
(2) In re ,ood- pg. 9==
(a) 3acts-
(3) Pro*lem <A- pg. 9=<-
(a) 3acts- 5'( sold all the promissor notes it was
holding in its vault to /'(. %Promissor notes are
covered * UCC A in that the seller is the 17(T5" and
the *uer is the SP.& !ust /'( file a financing
statement or ma$e sure it has possession in order to
perfect its securit interest in the notes-
(b) Analsis- this is called securiti6ation.
(i) A-<=A%<&M%K&- A securit interest is perfected
upon attachment to a sale of pay#ent
intan"ibles M a sale of pro#issory notes.
(c) 1o ou 4ave to 3ile a 3/S- '52IT IS
AUT5!ATICA//I P7"37CT71 ACC5"1I'J T5
A-<=A%<&M%K& (UT T47' I5U /C:U.7 TAG7
P5SS7SSI5' 53 T47 P"5!ISS5"I '5T7S ;UST
T5 !AG7 SU"7.
(4) Pro*lem K=-
<<
(a) 3acts- ,hen '3C loaned ):=$ to Portia to e8pand her
law office# she gave the 3in Co a SI in her A"# which
the 3in Co promptl perfected * filing a 3/S in the
appropriate place. 5ne of these A" has a suret# the
mother of the client# who said she would pa the de*t if
the client didn+t.
(b) Puestion T9- ,hat must '3C do to perfect the interest
in the suret o*ligation of the mother- '5T4I'J.
C. Perfection * 3iling- pg. 9=K-
1. The !echanics of 3iling-
a) ,here to 3ile-
(1) In TQ ou file in the TQ Sec of State+s office with !5ST tpes
of collateral.
(2) ,hen dealing with -ixtures# ou file with the county cler&.
(3) ,ith aircraft# ou have to file with the -==.
b) ,hat Constitutes 3iling- %A-E9N&
(1) Communication of a record to a filing office.
(2) Tender of the filing fee 5" acceptance of the record * the
filing office.
(3) Pro*lem K9- pg. 9=E
(a) 3acts- filing office ma$es a mista$e on the filing and
another financing compan comes along and files
another financing statement. The first finance compan
is worried the are unprotected. ,hat should happen-
(b) Analsis- the first financing compan should win *ut
regardless# the loser should sue the financing office2
the have enough )) from the filing fees to pa
@udgment.
c) 4ow /ong does a 3/S remain in 3orce-
(1) A-E9E- it remains in effect for E ears from the date of the
original filing.
(2) "enewal- ou renew * filing a continuation statement within
N months 9<-:8< the e8piration. 7ffectiveness of the
original 3/S will then continue for another E ears.
(3) /apse- if ou don+t renew# then the 3/S will lapse# thus causing
the original SP to .:/< ;C<28 H82:82;K.
(4) Pro*lem K:- pg. 9=?
(a) 5'( had a SI in the equipment of a construction Co.
for which it filed a 3/S in the proper place on !a 9#
<K
:==:. A'( too$ a SI in the same collateral and filed its
3/S on ma :# :==:.
(b) Puestion T:- if 5'( files a continuation statement on
!a 9# :==N# is its perfected position continued- %A-
E9E&2'5# IT ,5U/1'+T AS I5U A"7 5'/I
A//5,71 T5 3I/7 A C5'TI'UATI5' ,IT4I'
T47 N !5'T4S P"I5" T5 /APS7.
(c) Puestion T<- If 5'( never files a continuation
statement at all# after !a 9# :==?# does it nonetheless
retain its priorit over A'( %who alwas thought of
itself as a @unior creditor& %A-E9E%c&&- '52IT
,5U/1 /5S7 ITS P"I5"ITI.
(d) Puestion TK- If 5'( fails to file a continuation
statement in time# *ut a wee$ later files another 3/S# is
it still senior to A'(- '52IT ,5U/1 J5 T5 T47
(5TT5! 53 T47 P"I5"ITI /IST.
d) Termination Statements- %A-E9<&
(1) L 9-513 . ;er#ination /tate#ent.
(a) %a& MConsu#er "oods.N A secured part shall cause the
secured part of record for a financing statement to file
a termination statement for the financing statement if
the financing statement covers consumer goods andO
(i) %9& t'ere is no obli"ation secured by t'e
collateral co0ered by t'e financin" state#ent
and no co##it#ent to #a&e an ad0ance1
incur an obli"ation1 or ot'er$ise "i0e 0alueF
5"
(ii) %:& the de*tor did not authori6e the filing of the
initial financing statement.
(b) %*& M;i#e for co#pliance $it' subsection (a).N To
compl with su*section %a&# a secured part shall cause
the secured part of record to file the termination
statementO
(i) %9& $it'in one #ont' after t'ere is no
obli"ation secured by t'e collateral co0ered
by t'e financin" state#ent and no
co##it#ent to #a&e an ad0ance1 incur an
obli"ation1 or ot'er$ise "i0e 0alueF or
(ii) %:& if earlier# $it'in 2 days after t'e secured
party recei0es an aut'enticated de#and fro#
a debtor.
(c) %c& M:t'er collateral.N In cases not governed *
su*section %a&# $it'in 2 days after a secured part
receives an aut'enticated de#and fro# a debtor# the
secured part shall cause the secured part of record for
<E
a financing statement to send to t'e debtor a
ter#ination state#ent for t'e financin" state#ent
:8 file t'e ter#ination state#ent in t'e filin" office
ifO
(i) %9& e8cept in the case of a financing statement
covering accounts or chattel paper that has *een
sold or goods that are the su*@ect of a
consignment# t'ere is no obli"ation secured by
t'e collateral co0ered by t'e financin"
state#ent and no co##it#ent to #a&e an
ad0ance1 incur an obli"ation1 or ot'er$ise
"i0e 0alueF
(ii) %:& t'e financin" state#ent co0ers accounts
or c'attel paper t'at 'as been sold but as to
$'ic' t'e account debtor or ot'er person
obli"ated 'as disc'ar"ed its obli"ationF
(iii) %<) t'e financin" state#ent co0ers "oods t'at
$ere t'e sub3ect of a consi"n#ent to t'e
debtor but are not in t'e debtorOs possessionF
5"
(i0) %K& the de*tor did not authori6e the filing of the
initial financing statement.
(d) %d& M<ffect of filin" ter#ination state#ent.N 78cept as
otherwise provided in Section A-E9=# upon the filin" of
a ter#ination state#ent with the filing office# t'e
financin" state#ent to $'ic' t'e ter#ination
state#ent relates ceases to be effecti0e. 78cept as
otherwise provided in Section A-E9=# for purposes of
Sections A-E9A%g&# A-E::%a&# and A-E:<%c&# the filing
with the filing office of a termination statement relating
to a financing statement that indicates that the de*tor is
a transmitting utilit also causes the effectiveness of the
financing statement to lapse.
e) Hroble# 431 Ha"e 1)P
(1) ,hen Portia !oot paid off her de*t to /ast 'ational (an$#
which had loaned her )<=== to *u a computer for her law
office %and ta$en a purchase mone SI therein# for which it had
dul filed a 3S&# she wanted the *an$ to clear up the records
down at the filing office.
(a) 'oteO This is equipment B is '5T consumer goods
(i) Y >A-E9<%a& C won+t appl B this is for consumer
goods# and the computer was for her law officeZ
(b) 1oes she have this right-
(i) >A-E9<%c& - K</ C She can ma$e an
authenticated demand %request for termination
statement&# and /'( must# within := das# send
<N
the 1 a termination statement or file a
termination statement %she meets %c&%9& B there
is no more o*ligation&
%a& ,hen collateral is not consumer goods#
1 has the *urden to ma$e this request.
%*& ,ill usuall send it to 1 B won+t file it
themselves
(ii) YIf it is consumer goods# the SP has the *urden
of doing this without 1 ma$ing the request B
has the *urden of filing B >A-E9<%a&Z
(c) I'at can s'e do if t'ey stiff-ar# 'er-
(i) Y>A-E=A%d&%:& C s'e can file an a#end#ent
'erself Q a ter#ination state#entZ
(ii) 8e#ediesP L 9-)25. 8e#edies for /ecured
HartyOs -ailure to Co#ply Iit' =rticle.
%a& %a& MRudicial orders concernin"
nonco#pliance.N If it is esta*lished that
a secured part is not proceeding in
accordance with this article# a court
#ay order or restrain collection1
enforce#ent1 or disposition of
collateral on appropriate ter#s and
conditions.
%*& %*& M7a#a"es for nonco#pliance.N
Su*@ect to su*sections %c&# %d&# and %f&# a
person is liable for da#a"es in t'e
a#ount of any loss caused by a failure
to co#ply with this article. .oss caused
* a failure to compl #ay include loss
resultin" fro# t'e debtorOs inability to
obtain1 or increased costs of1
alternati0e financin".
%i& B actual damages
%c& %c& MHersons entitled to reco0er
da#a"esB statutory da#a"es in
consu#er-"oods transaction.N 78cept
as otherwise provided in Section A-N:HO
%i& %9& a person that# at the time of
the failure# was a de*tor# was an
o*ligor# or held a securit interest
in or other lien on the collateral
ma recover damages under
su*section %*& for its lossF and
%ii& %:& if the collateral is consumer
goods# a person t'at $as a
debtor or a secondary obli"or
<?
at the time a secured part failed
to compl with this part #ay
reco0er for t'at failure in an
event an amount not less t'an
t'e credit ser0ice c'ar"e plus
1 percent of t'e principal
a#ount of t'e obli"ation or t'e
ti#e-price differential plus 1
percent of t'e cas' price.
%d& %d& M8eco0ery $'en deficiency
eli#inated or reduced.N A de*tor whose
deficienc is eliminated under Section A-
N:N ma recover damages for the loss of
an surplus. 4owever# a de*tor or
secondar o*ligor whose deficienc is
eliminated or reduced under Section A-
N:N ma not otherwise recover under
su*section %*& for noncompliance with
the provisions of this part relating to
collection# enforcement# disposition# or
acceptance.
%e& %e& M/tatutory da#a"esP
nonco#pliance $it' specified
pro0isions.N 2n addition to any
da#a"es reco0erable under subsection
(b)1 t'e debtor1 consu#er obli"or1 or
person na#ed as a debtor in a filed
record1 as applicable1 #ay reco0er
J5 in each case from a person thatO
%i& %9& fails to compl with Section
A-:=HF
%ii& %:& fails to compl with Section
A-:=AF
%iii& %<& files a record that the person
is not entitled to file under
Section A- E=A%a&F
%iv& %K& fails to cause t'e secured
party of record to file or send a
ter#ination state#ent as
required * Section A-E9<%a& or
%c&F
%v& %E& fails to compl with Section
A-N9N%*&%9& and whose failure is
part of a pattern# or consistent
with a practice# of
noncomplianceF or
<H
%vi& %N& fails to compl with Section
A-N9N%*&%:&.
%vii&B statutor damages
%f& %f& YStatutor damagesO nonco#pliance
$it' /ection 9-21.N A de*tor or
consumer o*ligor ma recover damages
under su*section %*& and# in addition#
J5 in each case from a person that#
without reasona*le cause# fails to
compl with a request under Section A-
:9=. A recipient of a request under
Section A-:9= which never claimed an
interest in the collateral or o*ligations
that are the su*@ect of a request under
that section has a reasona*le e8cuse for
failure to compl with the request within
the meaning of this su*section.
%g& %g& M.i#itation of security interestP
nonco#pliance $it' /ection 9-21.N If
a secured part fails to compl with a
request regarding a list of collateral or a
statement of account under Section A-
:9=# the secured part ma claim a
securit interest onl as shown in the list
or statement included in the request as
against a person that is reasona*l
misled * the failure.
(iii) B >A-N:E%*&C 4ere# could sue for damages for
loss suffered# A'1 %e&%K& #ay reco0er J5
(2) Ynote C page 9=? C the effectiveness of a termination %or an
other filing for that matter& cannot *e ascertained from the
pu*lic record C it needs to have *een properl authori6ed to *e
effectiveZ
2. Unaut'ori4ed filin"P
a) Hroble# 441 Ha"e 1+P
(1) ,hen attorne Sam Am*ulance handled a divorce for a client# he
incurred the wrath of her e8-hus*and# Andrew Anarchist# president of
the 3reeman Common /aw !ovement# a group that did not
recogni6e the authorit of the state or federal government. The irate
e8-spouse filed K: phon financing statements in the pu*lic records
showing that all of Sam+s assets were securit for various non-
e8istent loans in favor of Anarchist# the secured part of record.
,hat can Sam do to clear up these clouds on his title to his propert
%which the common law would have regarded as defamation&-
(a) Y/ee L9-513 and Co##ent 3 - Can re*uest t'e filin" of a
ter#ination state#ent1 or aut'ori4e t'e filin" of a
<A
ter#ination state#ent 'i#self $'ic' $ill be effecti0e if it
indicates 'e aut'ori4ed it to be filedZ
(b) L9-51,
(i) L 9-51,. Clai# Concernin" 2naccurate or Iron"fully
-iled 8ecord.
%a& (a) [Correction statement.] A
person may file in the filing office a
correction statement with respect to a
record indexed there under the
person's name if the person believes
that the record is inaccurate or was
wrongfully filed.
%*& (b) [Sufficiency of correction
statement.] A correction statement
must:
%i& %9& identif the record to which it relates
* the file num*er assigned to the initial
financing statement to which the record
relatesF
%ii& %:& indicate that it is a correction
statementF and
%iii& %<& provide the basis for the personSs
*elief that the record is inaccurate and
indicate the manner in which the person
*elieves the record should *e amended
to cure an inaccurac or provide the
*asis for the personSs *elief that the
record was wrongfull filed.
%c& (c) [Record not affected by
correction statement.] The filing of
a correction statement does not affect
the effectiveness of an initial financing
statement or other filed record.
(ii) Comment 3: Resort to Other Law. This
Article cannot provide a satisfactory or
complete solution to problems caused by
misuse of the public records. The problem of
"bogus" filings is not limited to the !! filing
system but extends to the real"property
records# as well. A summary $udicial
procedure for correcting the public record and
criminal penalties for those who misuse the
filing and recording systems are li%ely to be
more effective and put less strain on the filing
system than provisions authori&ing or
re'uiring action by filing and recording
offices.
(iii) = Can file a correction statement
(i0) Comment < C can initiate summar @udicial
procedure for correcting the record and criminal
penalties on those who a*use the filing sstem
(c) >A-E9HE C can get more in Te8as than under normal UCC in
this situation
K=
(i) L 9-51,5. -raudulent -ilin"
%a& (a) A person ma not intentionall or
$nowingl present for filing or cause to
*e presented for filing a financing
statement that the person $nowsO
%i& (1) is forgedF
%ii& (2) contains a material false
statementF or
%iii& (3) is groundless.
%*& (b) A person who violates Su*section %a&
is lia*le to the owner of the propert
covered * the financing statement forO
%i& (1) the greater of )E#=== or the
owner+s actual damagesF
%ii& (2) court costsF and
%iii& (3) reasona*le attorne+s fees.
%c& (c) A person who violates su*section %a&
ma also *e prosecuted under ><?.9=9#
Penal Code.
%d& (d) An owner of propert covered * a
fraudulent financing statement descri*ed
in %a& also ma file suit in a court of
suita*le @urisdiction requesting specific
relief# including# *ut not limited to#
release of the fraudulent 3S. A
successful plaintiff is entitled to
reasona*le attorne+s fees and costs of
court assessed against the person who
filed the fraudulent 3S. If the person
who filed the fraudulent 3S cannot *e
located or is a fictitious person# the
owner of the propert ma serve the
$nown or un$nown 1 through
pu*lication in a newspaper of general
circulation in the count in which the
suit is *rought.
(ii) In T7QAS can recover the greater of
)E===[..
%a& Plus court costs A'1 attornes fees
(d) >A-N:E%*& and %e&%K& %See a*ove&
(i) B sue for damages for loss suffered# A'1 %e&%<&
ma recover )E==
1. Herfection by Control C page 9=H
1. 3or certain tpes of collateral# the SP ma achieve perfection of the SI *
gaining control over the collateral.
2. >A-<9K%a& C for investment propert# deposit rights# etc.
K9
a) L 9-314. Herfection by Control.
(1) %a& MHerfection by control.N A securit interest in in0est#ent
property1 deposit accounts1 letter-of-credit ri"'ts1 or
electronic c'attel paper ma *e perfected * control of the
collateral under Section A-9=K# A-9=E# A- 9=N# or A-9=?.
(2) %*& M/pecified collateralP ti#e of perfection by controlB
continuation of perfection.N A securit interest in deposit
accounts# electronic chattel paper# or letter-of-credit rights is
perfected * control under Section A-9=K# A-9=E# or A-9=?
$'en t'e secured party obtains control and re#ains
perfected by control only $'ile t'e secured party retains
control.
(3) %c& M2n0est#ent propertyP ti#e of perfection by controlB
continuation of perfection.N A securit interest in investment
propert is perfected * control under Section A-9=N fro# t'e
ti#e t'e secured party obtains control and remains perfected
* control untilO
(a) %9& the secured part does not have controlF and
(b) %:& one of the following occursO
(i) %A& if the collateral is a certificated securit# the
de*tor has or acquires possession of the securit
certificateF
(ii) %(& if the collateral is an uncertificated
securit# the issuer has registered or registers the
de*tor as the registered ownerF or
(iii) %C& if the collateral is a securit entitlement# the
de*tor is or *ecomes the entitlement holder.
3. .Control0 generall means that the SP has ta$en the steps descri*ed in these
sections so it is o*vious to anone investigating the state of the collateral that
the SP has rights therein.
4. ,ill *e discussed further in Chapter N
K:
IL. C'apter 5P 5ulti-/tate /ecured ;ransactions
=. Deneral C'oice of .a$ 8ules
1. L 9-31 . .a$ Do0ernin" Herfection and Hriority of /ecurity 2nterests.O 78cept as
otherwise provided in Sections A-<=< through A-<=N# the following rules determine the law
governing perfection# the effect of perfection or nonperfection# and the priorit of a securit
interest in collateralO
a) %9& 78cept as otherwise provided in this section# $'ile a debtor is located in a
3urisdiction1 t'e local la$ of t'at 3urisdiction "o0erns perfection# the effect of
perfection or nonperfection# and the priorit of a securit interest in collateral.
b) %:& I'ile collateral is located in a 3urisdiction1 t'e local la$ of t'at 3urisdiction
"o0erns perfection# the effect of perfection or nonperfection# and the priorit of a
possessor securit interest in that collateral.
c) %<& 78cept as otherwise provided in paragraph %K&# while negotia*le documents#
goods# instruments# mone# or tangi*le chattel paper is located in a @urisdiction# the
local law of that @urisdiction governsO
(1) %A& perfection of a securit interest in the goods * filing a fi8ture filingF
(2) %(& perfection of a securit interest in tim*er to *e cutF and
(3) %C& the effect of perfection or nonperfection and the priorit of a
nonpossessor securit interest in the collateral.
d) %K& The local law of the @urisdiction in which the wellhead or minehead is located
governs perfection# the effect of perfection or nonperfection# and the priorit of a
securit interest in as-e8tracted collateral.
2. !ost perfections of these SIs have to do with perfection * filing
3. ,hen 1 and collateral are in sa#e @urisdictionO
a) Clearl that @urisdiction+s law applies
b) If 1 and collateral are *oth in TQ# TQ law applies %to where ou file#
consequences of not perfecting# priorit rules# etc.&
c) Q L9-31(1) pri#arily adopts a do#icile approac' and loo&s to t'e la$ of
t'e debtors location as t'e state in $'ic' t'e steps for perfection need to
be ta&en
4. If 1 and Collateral are in different @urisdictionsO
a) I.e.# 1 has *ranch offices
b) L9-31(1) and (3)
c) ,hat law applies if# i.e.# 1 in TQ and collateral in 'I
(1) -ile t'e -/ $'ere t'e 7 is located (place of perfection)
(a) AdvantagesO
(i) If ou can determine where the 1 is located# then
ou will $now that if ou go there and loo$ under
1+s name# ou should *e o$a B as$ for all
documents relating to 1
(ii) If 1 has *ranches in all states# ou don+t want to file
a 3S in all states# @ust where the main office is B
where the 1 is located# not in all *ranches+ offices
%where the collateral is B in all offices&
(2) 9U; to deter#ine the law related to the conse*uences of
perfection and the la$ related to priorities# ou have to loo$ to the
law of $'ere t'e collateral is located (effects of perfection)
5. Hroble# 451 Ha"e 11 O
a) !ar (ush lived in a home she owned in Cheenne# ,oming# *ut she also
wanted to *u a large sail*oat in Cleveland# 5hio# and planned to $eep a *oat
there after the purchase. 5hio law provides that whenever a consumer has
paid more than ?EW of a de*t secured * consumer goods# the creditor+s SI
K<
automaticall is stripped from the consumer goods# *ut ,oming has no
such rule. If a creditor loans !ar mone to *u the sail*oat and ta$es a SI
in it# where should the creditor file the 3S- ,hen !ar has paid ?EW of the
de*t# will the creditor+s SI still *e attached to the *oat-
(1) 1 is !ar (ush# and she is located in %resides in& ,oming
(2) Sail*oat is the collateral# which is located in 5hio
(3) To perfect a SI# file the 3S where the 1 is located C in Iyo#in"
(a) >A-<=9%9&
(4) In terms of appling the right law to the consequences of perfection
and priorities# appl the law of the @urisdiction where the collateral is
locatedB in :'io
(a) 5hio law states that whenever a consumer has paid more
than ?EW of a de*t secured * consumer goods# the
creditor+s SI automaticall is stripped from the consumer
goods %SP no longer has a SI&
(i) B if 1 %!ar& pas more than ?EW of the sail*oat#
the SP no longer has a SI in the collateral
(ii) If ou are a SP %lender&# ou have to understand 54
law B ou won+t have a SI after she pas ?EW or
more
(5) C should file the 3S in ,oming B where the 1 is located
b) !ultiple @urisdiction pro*lems arise everda
). Co$ do $e &no$ $'ere 7 is locatedE I'at is locationE
a) 7epends $'o t'e 7 is
(1) Individual 1- ,here he/she resides
(2) "egistered compan as 1- ,here the compan is registered
(3) 1e*tor with multiple offices-
(4) 3oreign 1-
b) L 9-3+ . .ocation of 7ebtor.
(1) %a& M>Hlace of business.>N In this section# Rplace of *usinessR means a place
where a de*tor conducts its affairs.
(2) %*& M7ebtorOs locationP "eneral rules.N 78cept as otherwise provided in this
section# the following rules determine a de*torSs locationO
(a) %9& A de*tor who is an indi0idual is located at the individualSs
principal residence.
(b) %:& A de*tor that is an or"ani4ation and has onl one place of
*usiness is located at its place of business.
(c) %<& A de*tor that is an or"ani4ation and has more than one place
of *usiness is located at its c'ief executi0e office.
(3) %c& M.i#itation of applicability of subsection (b).N Subsection (b) applies
only if a de*torSs residence# place of *usiness# or chief e8ecutive office# as
applica*le# is located in a @urisdiction whose law generall requires
information concerning the e8istence of a nonpossessor securit interest to
*e made generall availa*le in a filing# recording# or registration sstem as
a condition or result of the securit interestSs o*taining priorit over the
rights of a lien creditor with respect to the collateral. If su*section %*& does
not appl# the de*tor is located in the 1istrict of Colum*ia.
(4) %d& MContinuation of locationP cessation of existence1 etc.N A person that
ceases to e8ist# have a residence# or have a place of *usiness continues to *e
located in the @urisdiction specified * su*sections %*& and %c&.
KK
(5) %e& M.ocation of re"istered or"ani4ation or"ani4ed under /tate la$.N A
registered organi6ation that is organi6ed under the law of a State is located
in that State.
()) %f& M.ocation of re"istered or"ani4ation or"ani4ed under federal la$B
ban& branc'es and a"encies.N 78cept as otherwise provided in su*section
%i&# a registered organi6ation that is organi6ed under the law of the United
States and a *ranch or agenc of a *an$ that is not organi6ed under the law
of the United States or a State are locatedO
(a) %9& in the State that the law of the United States designates# if the
law designates a State of locationF
(b) %:& in the State that the registered organi6ation# *ranch# or agenc
designates# if the law of the United States authori6es the registered
organi6ation# *ranch# or agenc to designate its State of locationF
or
(c) %<& in the 1istrict of Colum*ia# if neither paragraph %9& nor
paragraph %:& applies.
(+) %g& MContinuation of locationP c'an"e in status of re"istered
or"ani4ation.N A registered organi6ation continues to *e located in the
@urisdiction specified * su*section %e& or %f& notwithstandingO
(a) %9& the suspension# revocation# forfeiture# or lapse of the registered
organi6ationSs status as such in its @urisdiction of organi6ationF or
(b) %:& the dissolution# winding up# or cancellation of the e8istence of
the registered organi6ation.
(,) %h& M.ocation of United /tates.N The United States is located in the 1istrict
of Colum*ia.
(9) %i& M.ocation of forei"n ban& branc' or a"ency if licensed in only one
state.N A *ranch or agenc of a *an$ that is not organi6ed under the law of
the United States or a State is located in the State in which the *ranch or
agenc is licensed# if all *ranches and agencies of the *an$ are licensed in
onl one State.
(1) %@& M.ocation of forei"n air carrier.N A foreign air carrier under the
3ederal Aviation Act of 9AEH# as amended# is located at the designated
office of the agent upon which service of process ma *e made on *ehalf of
the carrier.
(11) %$& M/ection applies only to t'is part.N This section applies onl for
purposes of this part.
c) Hroble# 4)1 Ha"e 11P
(1) Peripatetic Corporation was organi6ed under the laws of the State of
1elaware *ut it has its large retail store outlet in 'ew ;erse.
3urther# the corporation was reall a hus*and-and-wife tpe of
*usiness# and the did all the corporate paperwor$ at their home in
(altimore# !arland %where the also $ept the corporate records&.
Their corporate stationer used their home address.
(a) ,hen the corporation *orrows mone against its accounts
receiva*le# in what state should the 3S *e filed- See >A-
<=?%*& and %e&.
(i) 1 is a corporation
(ii) Incorporated %registered& in 7ela$are
%a& 4as several outlet stores in ';
%*& >A-<=?%e& C registered organi6ation is
located in the state of registration
KE
(iii) (ut# it is a 4M, tpe of *usiness# who do the
corporate wor$ %headquarter it& out of their home in
!1 B use this address as their corporate address
%a& Collateral is Accounts "eceiva*les# which
are intangi*le
%i& ,here are the considered to *e
located-
%ii& ,here the place of *usiness is B ou
can file at the chief e8ecutive office
of an organi6ation - >A=?%*&%<&
%iii& Is this !1 or 1elaware- This is a
tric$ fact pattern# and might *e
hard to decide\
(i0) Should file the 3S where the 1 is
%a& %*& ,here the corporate 4Ps/e8ecutive
office is- In !1
%*& (UT %e& appears right# too B in 1elaware
(0) If ou don+t $now e8actl what to appl# ou can file
in the state of incorporation/registration >A-<=?%e&
provides a wa ou
%i& 7ver compan is
incorporated/registered# so this is a
certain place to file
%ii& This is a *right line provision B ou
can file in the state of incorporation
B this is where the 1 can *e deemed
to *e located
%*& 1elaware gets a lot of mone B gets huge
advantages over other states %lots of filing
fees&
(b) If the corporation was registered in the "epu*lic of ;ahala# a
Pacific Island nation# where should the 3S *e filed-
(i) See >A-<=?%c& In ;ahala I3 ;ahala has a sstem
similar to ours# then this would *e o$a
%a& B a notice filing sstem
(ii) ,e don+t $now this# so can either
%a& 3ind out B call lawers who practice there
%this is e8pensive to find out/research&
%*& :8 3ile in ,ashington 1C
%i& B if ou don+t $now# or if ;ahala
doesn+t have a notice filing sstem#
then ma$e it simple C file in 1C
%ii& ,e deem them as located in 1C for
purposes of filing the 3S for
simplification purposes
(iii) Student questionO if the also had a corporate office
in !1 %*ut were registered in ;ahala&# then pro*a*l
o$a to file either !1 or 1C
%a& 'guen would file in 1C and !1 to *e safe
d) 'oteO Page 999O
KN
(1) Section >A-<=9%a& gives some guidance as to where a 1+s place of
*usiness is located# and the courts have developed a num*er of tests
for this issue
(2) 3or perfectl o*vious reasons# when in dou*t# file everwhere
+. I'at if t'e 7 #o0ed out of stateE
a) 1oes the perfected SI continue to *e perfected# or is the perfection terminated
*ecause the 1 moved to a new location-
b) L9-31) answers thisO L 9-31). Continued Herfection of /ecurity
2nterest -ollo$in" C'an"e in Do0ernin" .a$.
(1) %a& MDeneral ruleP effect on perfection of c'an"e in
"o0ernin" la$.N A securit interest perfected pursuant to the
law of the @urisdiction designated in Section A-<=9%9& or A-
<=E%c& remains perfected until the earliest ofO
(a) %9& the time perfection would have ceased under the law
of that @urisdictionF
(b) %:& the e8piration of four #ont's after a c'an"e of the
de*torSs location to another @urisdictionF or
(c) %<& the e8piration of one ear after a transfer of
collateral to a person that there* *ecomes a de*tor and
is located in another @urisdiction.
(2) %*& M/ecurity interest perfected or unperfected under la$ of
ne$ 3urisdiction.N If a securit interest descri*ed in su*section
%a& *ecomes perfected under the law of the other @urisdiction
*efore the earliest time or event descri*ed in that su*section# it
remains perfected thereafter. If the securit interest does not
*ecome perfected under the law of the other @urisdiction *efore
the earliest time or event# it *ecomes unperfected and is
dee#ed ne0er to 'a0e been perfected as a"ainst a purc'aser
of t'e collateral for 0alue.
(3) %c& MHossessory security interest in collateral #o0ed to ne$
3urisdiction.N A possessor securit interest in collateral# other
than goods covered * a certificate of title and as-e8tracted
collateral consisting of goods# remains continuousl perfected
ifO
(a) %9& the collateral is located in one @urisdiction and
su*@ect to a securit interest perfected under the law of
that @urisdictionF
(b) %:& thereafter the collateral is *rought into another
@urisdictionF and
(c) %<& upon entr into the other @urisdiction# the securit
interest is perfected under the law of the other
@urisdiction.
(4) %d& MDoods co0ered by certificate of title fro# t'is state.N
78cept as otherwise provided in su*section %e&# a securit
interest in goods covered * a certificate of title which is
perfected * an method under the law of another @urisdiction
when the goods *ecome covered * a certificate of title from
K?
this State remains perfected until the securit interest would
have *ecome unperfected under the law of the other
@urisdiction had the goods not *ecome so covered.
(5) %e& MI'en subsection (d) (certificate of title) security
interest beco#es unperfected a"ainst purc'asers.N A
securit interest descri*ed in su*section %d& *ecomes
unperfected as against a purchaser of the goods for value and is
dee#ed ne0er to 'a0e been perfected as against a purchaser
of the goods for value I3 the applica*le requirements for
perfection under Section A-<99%*& or A-<9< are not satisfied
*efore the earlier ofO
(a) %9& the time the securit interest would have *ecome
unperfected under the law of the other @urisdiction had
the goods not *ecome covered * a certificate of title
from this StateF or
(b) %:& the e8piration of four #ont's after t'e "oods 'ad
beco#e so co0ered.
()) %f& MC'an"e in 3urisdiction of ban&1 issuer1 no#inated
person1 securities inter#ediary1 or co##odity
inter#ediary.N A securit interest in deposit accounts# letter-
of-credit rights# or investment propert which is perfected
under the law of the *an$Ss @urisdiction# the issuerSs @urisdiction#
a nominated personSs @urisdiction# the securities intermediarSs
@urisdiction# or the commodit intermediarSs @urisdiction# as
applica*le# remains perfected until the earlier ofO
(a) %9& the time the securit interest would have *ecome
unperfected under the law of that @urisdictionF or
(b) %:& the e8piration of four months after a change of the
applica*le @urisdiction to another @urisdiction.
(+) %g& M/ubsection (f) security interest perfected or unperfected
under la$ of ne$ 3urisdiction.N If a securit interest descri*ed
in su*section %f& *ecomes perfected under the law of the other
@urisdiction *efore the earlier of the time or the end of the
period descri*ed in that su*section# it remains perfected
thereafter. If the securit interest does not *ecome perfected
under the law of the other @urisdiction *efore the earlier of that
time or the end of that period# it *ecomes unperfected and is
deemed never to have *een perfected as against a purchaser of
the collateral for value.
c) In realit# the 1 ma O
(1) Phsicall move
(2) 5" .!ove0 through merger
(a) B another compan in a different state ma *u out a 1
d) Hroble# 4+1 Ha"e 111P
KH
(1) 3actor# 3actor M !one is a legal partnership that has its
onl place of *usiness in Chicago# I/# where 5'(an$# which
has a SI in the accounts receiva*le of the firm# had filed its 3S.
(a) If the law firm ma$es a permanent move to
,ashington# 1.C.# on ;anuar 9# :=9<# does the *an$
lose its perfection# or does it have a grace period in
which to refile in the new @urisdiction- "ead >A-<9N%a&.
(i) 1 is the law firm %33!&
(ii) There is a "race period of 4 #ont's if a 1
changes its location - >A-<9N%a&%:&
%a& 5'( should re-perfect their interest in
1.C. within K months B file in 1.C.
(b) If the law firm merges with a law firm in 1.C.# with the
new 1.C. firm assuming all the de*ts of the former one#
is the time period the same- See >A-<9N%a&%<&.
(i) There is a "race period of 1 year if collateral is
transferred and the transferee *ecomes the 1
%i.e.# when companies merge as such& - >A-
<9N%a&%<&
(2) This pro*lem highlights the need for notice when a 1 moves
(a) Hut a pro0ision in t'e /= t'at t'e debtor notify you
in case it #o0es or #er"es.
(b) 1raft it specificall C include how promptl it must
notif ou# etc.
e) Hroble# 4,1 Ha"e 112P
(1) Suppose that 3actor# 3actor M !one# the Chicago law firm
in the last Pro*lem# had : creditors *efore its permanent move
to 1.C.# *oth of which had a perfected SI in the firm+s accounts
receiva*le C5ctopus 'ation (an$# which had filed its 3S first#
and /ast 'ational (an$# which had filed second# *oth creditors
filing in Chicago earl in the ear :=9:. ,hen the move
occurred on ;anuar # :=9<# /'(an$ promptl refilled in 1.C.
*efore the end of !arch of that ear# *ut 5'(an$ was careless
and didn+t reali6e that the firm had moved until that Septem*er.
If it files in 1.C. in Septem*er# will it retain its priorit over
/'(an$- See >A-<9N%*& and Comment <. 'ote the definitions
of .purchase0 and .purchaser0 in >>9-:=9%<:& and %<<&
]definitions a*ove^.
(a) If 5'( doesn+t perfect# it *ecomes unperfected it is
deemed not to have *een perfected as against a
purchaser for value.
(i) Purchaser includes securit interest holders
(ii) If it files in Septem*er# this is more than the K
month grace period and it loses its priorit
(b) B 5'(an$ loses priorit C didn+t file in 1C in time
(c) /'(an$ has priorit
KA
(d) Co##ent 3P 8etroacti0e Unperfection. Su*section
%*& sets forth the consequences of the failure to
reperfect *efore perfection ceases under su*section %a&O
the securit interest *ecomes unperfected prospectivel
and# as against purchasers for value# including *uers
and secured parties# *ut not as against donees or lien
creditors# retroactivel. The rule applies to agricultural
liens# as well. See also Section A-E9E %ta$ing the same
approach with respect to lapse&. Although this approach
creates the potential for circular priorities# the
alternative-retroactive unperfection against lien
creditors-would create su*stantial and un@ustifia*le
preference ris$s. Ysee also e8amples following
commentZ.
9. Certificates of ;itleP =uto#obile?9oat -inancin" and Herfection
1. 'ote on automo*ile financingO Pages 99:-9<
a) The automo*ile generated new methods of secured financing
b) Its unique mo*ilit and high resale value made theft *oth eas and
profita*le
c) 5ur legal sstem has alwas sharpl distinguished *etween the lot of
the good faith purchaser from a thief without title and that of the good
faith purchaser from a person with defective title
2. Cars# *oats# and truc$s are ver mo*ile collateral. ,hat $ind of sstem
should address this moving collateral-
3. Co$ to perfect /2 in %Certificates of ;itle Doods( MC of ;DNE
a) These tpes of goods are covered * certificates of title
b) 'eed to distinguish whether the C of TJ is inventor or not
(1) C of ;D Q 6on-2n0entory
(a) ,hen the are consumer goods# farm products# or
equipment# notation must be made on the Certificate
of TitleO >A-<=<
(b) L 9-33 . .a$ Do0ernin" Herfection and Hriority of
/ecurity 2nterests in Doods Co0ered by a Certificate
of ;itle.
(i) %a& M=pplicability of section.N This section
applies to goods covered * a certificate of title#
even if there is no other relationship *etween the
@urisdiction under whose certificate of title the
goods are covered and the goods or the de*tor.
(ii) %*& MI'en "oods co0ered by certificate of
title.N Joods *ecome covered * a certificate of
title when a valid application for the certificate
of title and the applica*le fee are delivered to
the appropriate authorit. Joods cease to *e
covered * a certificate of title at the earlier of
the time the certificate of title ceases to *e
E=
effective under the law of the issuing
@urisdiction or the time the goods *ecome
covered su*sequentl * a certificate of title
issued * another @urisdiction.
(iii) %c& M=pplicable la$.N The local law of the
@urisdiction under whose certificate of title the
goods are covered governs perfection# the effect
of perfection or nonperfection# and the priorit
of a securit interest in goods covered * a
certificate of title from the time the goods
*ecome covered * the certificate of title until
the goods cease to *e covered * the certificate
of title.
(2) C of ;D Q 2n0entory
(a) Comment E of >A-<=<O Inventor is covered * >A-<99
(i) Co##ent 5P 2n0entory. Compliance with a
certificate of title statute generall is not the
method of perfecting SIs in inventor. Section
A-<99%d& provides that a SI created in inventor
held * a person in the *usiness of selling goods
of that $ind is su*@ect to the normal filing rulesF
compliance with a certificate of title statute is
not necessar or effective to perfect the SI. !ost
certificate of title statutes are in accord. YSee
e8ample following commentZ.
(b) Inventor requires perfection * filing a 3SO >A-<99
(i) L 9-311 . Herfection of /ecurity 2nterests in
Hroperty /ub3ect to Certain /tatutes1
8e"ulations1 and ;reaties.
%a& %a& M/ecurity interest sub3ect to ot'er
la$.N 78cept as otherwise provided in
su*section %d&# the filing of a financing
statement is not necessar or effective to
perfect a securit interest in propert
su*@ect toO
%i& %9& a statute# regulation# or treat
of the United States whose
requirements for a securit
interestSs o*taining priorit over
the rights of a lien creditor with
respect to the propert preempt
Section A-<9=%a&F
%ii& %:& the following statutes of this
stateO Chapter E=9#
Transportation Code# relating to
the certificates of title for motor
E9
vehiclesF Su*chapter (-9#
Chapter <9# Par$s and ,ildlife
Code# relating to the certificates
of title for vessels and out*oard
motorsF Chapter 9:=9
5ccupations Code# relating to the
documents of title for
manufactured homesF or
Su*chapter A# Chapter <E#
relating to utilit securit
instrumentsF or
%iii& %<& a certificate-of-title statute of
another @urisdiction which
provides for a securit interest to
*e indicated on the certificate as
a condition or result of the
securit interestSs o*taining
priorit over the rights of a lien
creditor with respect to the
propert.
%*& %*& MCo#pliance $it' ot'er la$.N
Compliance with the requirements of a
statute# regulation# or treat descri*ed in
su*section %a& for o*taining priorit over
the rights of a lien creditor is equivalent
to the filing of a financing statement
under this article. 78cept as otherwise
provided in su*section %d& and Sections
A-<9< and A-<9N%d& and %e& for goods
covered * a certificate of title# a
securit interest in propert su*@ect to a
statute# regulation# or treat descri*ed in
su*section %a& ma *e perfected onl *
compliance with those requirements# and
a securit interest so perfected remains
perfected notwithstanding a change in
the use or transfer of possession of the
collateral.
%c& %c& M7uration and rene$al of
perfection.N 78cept as otherwise
provided in su*section %d& and Section A-
<9N%d& and %e&# duration and renewal of
perfection of a securit interest perfected
* compliance with the requirements
prescri*ed * a statute# regulation# or
treat descri*ed in su*section %a& are
E:
governed * the statute# regulation# or
treat. In other respects# the securit
interest is su*@ect to this Chapter.
%d& %d& M2napplicability to certain
in0entory.N 1uring an period in which
collateral su*@ect to a statute specified in
su*section %a&%:& is in0entory held for
sale or lease * a person or leased *
that person as lessor and that person is in
the *usiness of selling goods of that
$ind# this section does not appl to a
securit interest in that collateral created
* that person.
(3) B >A-<99%d& Perfection is * filing when goods are inventor
%3ile where 1 is located&
(a) This is wh the certificate of title is clean when ou *u
it from the dealership
(b) This encourages financing
(4) 9ut when goods are consumer goods# farm products#
equipment# have to follow a special rule B Put notation on CT
4. Con0enient .iars
a) ,hat do we do when people lie-
(1) >A-<=<%a& and Pro*lem KA
(2) >>A-<=<# A-<9N%d& and %e&F A-<<? and Pro*lem E=O
b) Hroble# 491 Ha"e 113P /le Salor was a truc$er who lived and
wor$ed in the State of !ichigan. ,hen his old rig wore out and he
decided to *u a completel new truc$# he went to Pennslvania and
purchased a truc$ on credit from "inger Truc$ Cit. (ecause the State
of Indiana charged a great deal less for licenses and other registration
fees# Salor told the dealership that he lived in Indiana and that the
truc$ would *e domiciled there. 4e gave "inger the address of his
sister# who did live in Indiana. Indiana law requires that lien interests
*e noted on the certificate of title# a step that "inger dul too$ when it
procured the Indiana Certificate. ,hen Salor went (" a ear later#
the trustee in (" argued that "inger was unperfected since it had not
gotten a !ichigan certificate of title and had its lien interest noted
thereon# as !ichigan law required. "inger argued that it was entitled
to *elieve the de*tor when he told the compan that he lived in
Indiana. 4ow should this come out- See >A-<=<%a&F In re Stanle.
(1) 4e has a certificate of title in consumer goods %the truc$ is a
consumer good&
(2) People lie all the time# so we must have a sstem that addresses
this# and >A-<=<%a& addresses this specificall
(a) To perfect# "TC must loo$ to the law where 1 is
deemed to reside
E<
(i) Indiana B sas for certificate of title# have to put
notation
(ii) 4e lied# and Ind law requires that the lien has to
*e noted on certificate of title
(b) 'o filing 3S C consumer goods %-&
(i) 4ad an Indiana CT# *ut not a !ichigan CT
(ii) A-<=<%a& specificall allows/addresses this B
simplified the sstem
%a& Indiana law permits Indiana certificate
%if ou tell us Indiana law# then ou can
rel on this&
%*& %a& This section applies 7L7' I3 there
is no other relationship *etween the
@urisdiction under whose CT the goods
are covered and the goods or the 1
(iii) B Perfection of the SI 1I1 occur * notation on
the Indiana certificate of title
c) >>A-<=<# A-<9N%d& and %e&F A-<<? and Hroble# 51 Ha"e 113P
(1) L 9-31) C see a*ove
(2) L 9-33+ . Hriority of /ecurity 2nterests in Doods Co0ered by
Certificate of ;itle.O If# while a securit interest in goods is
perfected * an method under the law of another @urisdiction#
this State issues a certificate of title that does not show that the
goods are su*@ect to the securit interest or contain a statement
that the ma *e su*@ect to securit interests not shown on the
certificateO
(a) %9& a buyer of t'e "oods1 ot'er t'an a person in t'e
business of sellin" "oods of t'at &ind1 ta&es free of
t'e security interest if t'e buyer "i0es 0alue and
recei0es deli0ery of t'e "oods after issuance of t'e
certificate and $it'out &no$led"e of t'e security
interestF A'1
(b) %:& t'e security interest is subordinate to a
conflictin" security interest in the goods that attaches#
and is perfected under Section A-<99%*&# after issuance
of the certificate and $it'out t'e conflictin" secured
partyOs &no$led"e of t'e security interest.
d) Hroble# 51 Ha"e 113P
(1) 5n !a 9=# 4oll Tourist %4T&# a resident of 1allas# Te8as#
*ought a new car on credit while on vacation in 'orman#
5$lahoma# from 'orman Car Sales %'CS&. 5G law required
lien interests to *e noted on the certificate of title as a condition
of perfection# which 'CS did on !a 9:. 5n !a 9K# 4oll
drove the car to 1allas# and that same da she re-registered the
car there and received a Te8as certificate. Somehow she was
a*le to do this without surrendering the 5G certificate %though
EK
TQ law apparentl required her to turn in the old certificate
*efore a new one should have *een issued&. TQ required lien
interests to *e noted on the certificate of title as a condition of
perfection# *ut the TQ certificate showed no liens of an $ind
thereon. 5n !a :N# 4oll sold the car to her neigh*or#
,illiam Innocent# who paid full value therefore without
$nowledge or 'CS+s interest. 5n !a :H# learning of the sale
to ,illiam# 'CS arranged for the car to *e repossessed from in
front of his house. Assuming that her resale of the car was a
.default0 so as to entitle 'CS to repossess# decide which of
them is entitled to the car. See >A-<=< and Comment N. 'ote
that >A-<<? favors non-*usiness *uersF a used car lot *uing
an out-of-state vehicles is not entitled to the same protection.
,h would the drafters have made this distinction-
(2) Perfection of the SI occurred upon purchase
(a) B consumer good
(b) Perfected * location on the Certificate of title
(c) 'CS %SP& immediatel $nows that
(i) ,hen certificate of title is to consumer good# I
have to put notations of the CT
(3) Sold neigh*or a car
(a) 'eigh*or loo$s to CT and it loo$s clean B a clean title
issued in TQ
(b) 'CS comes with CT and sas we have a perfected SI B
CT issued in 5G
(4) Joods generall cease to *e covered * a CT when the
su*sequentl *ecome covered * another CT - >A-<=<%*&
(5) ,hat would neigh*or argue-
(a) >A-<<? tells us that a *uer of the goods covered * a
CT that is not in the *usiness of selling the goods ta$es
the goods free and clear if the *uer gives value and
receives deliver of the goods after issuance of the
certificate and without $nowledge of the SI
(b) Sa under A-<<?# he is a *uer of the goods# and is
'5T in the *usiness of selling goods of this $ind %not
in the *usiness of selling cars and purchasing the car for
inventor purchase&
(c) 'eigh*or ta$es the car free and clear of 'CS+s interest
if
(i) Jives value
(ii) Issuing of certificate * TQ
(iii) And without $nowledge of SI held * 'CS
(d) B ta$es free of the SI
(i) 'CS had followed the law B had a 5G
certificate of title with notation# *ut still the
*uer %neigh*or& wins
EE
(e) Polic C protect innocent consumers
5. The Title/'on-Title StatesO
a) States have different laws with regard to certificates of title
(1) Some require notation on the CTs if the cars# etc.# are consumer
goods# farm products# equipment
(a) Some states do '5T require this notation on the CT
(2) (ecause there are differences and this is mo*ile collateral#
UCC helps to tr and alleviate some of the confusion
b) Pro*lem E9# >>A-<9N and A-<=<
c) Hroble# 511 Ha"e 114P ;oseph Armstrong *ought a acht in a state
that did not use certificates of title for *oats %AT A//& and that
required filing for perfection in such collateral# which step the
financing *an$# 5'(an$# dul too$. Armstrong then moved to a state
that required all SIs on *oats to *e noted on certificates of title issued
* that state# *ut he never too$ the trou*le to get such a certificate.
(1) 1oes 5'(an$+s perfection in the second state last as long as its
filed 3S is still effective or for onl K months- See >A-<9N.
(a) ;oseph *ought a acht in a state that did not use
certificates of title for *oats
(i) B the state required filing for perfection
(ii) 5'( followed that state law and perfected a SI
in the acht * filing
(iii) 5'( was once perfected
(b) ,hat if the acht moves-
(i) 4e went from a non-CT state to a CT state %one
that required CT and notation on the title in
order to perfect a SI&
(ii) ; never even got a CT.
(iii) ,hen he moved to a new state# does that state+s
law even appl- Is 5'(+s perfection still
effective-
%a& A-<9N C the law will 5'/I appl if ou
J7T a CT. 4e did '5T get a CT# so the
K month grace period found in >A-<9N%a&
%:& does not appl
%i& 7ven if 5'( tried to put
notation# the don+t have
anthing to put notation on\
%*& If ; o*tains a CT# T47' 5'( would
follow the new @urisdiction law and put
notation on the new piece of paper
within K months
%i& (UT 4ere# there is nothing C no
piece of paper- on which 5'(
can put notation
EN
%ii& 4e has no CT# so the law can not
$ic$ in
(i0) Thus# 5'(+s once perfected SI under the other
@urisdiction continues to *e perfected - >A-
<9N%d&
%a& %d& MDoods co0ered by certificate of
title fro# t'is state.N 78cept as
otherwise provided in su*section %e&# a
securit interest in goods covered * a
certificate of title which is perfected *
an method under the law of another
@urisdiction when the goods *ecome
covered * a certificate of title from this
State remains perfected until the
securit interest would have *ecome
unperfected under the law of the other
@urisdiction had the goods not *ecome so
covered.
(0) 'oteO %"an+s notes& C loo$ out for purchasers
for value - >A-<9N%e&
(2) Suppose that the opposite situation occursO Armstrong starts in
a title state and 5'(an$+s interest is dul noted on that state+s
certificate. Armstrong moves to a state that has no certificates
of title at all# 5'(an$ never files there# and Armstrong never
re-registers the acht. 'ow what result- See >A-<=< and its
Comment.
(a) 1oes 5'(+s perfected SI continue-
(i) I7S
(ii) The did what TQ law requires# so as long as
the CT is still here# it is still good
%a& B 5'( $eeps perfection *ecause the
did everthing required under the
previous @urisdiction
%*& >A-<=<%*& MI'en "oods co0ered by
certificate of title.N Joods *ecome
covered * a certificate of title when a
valid application for the certificate of
title and the applica*le fee are delivered
to the appropriate authorit. Joods cease
to *e covered * a certificate of title at
the earlier of the time the certificate of
title ceases to *e effective under the law
of the issuing @urisdiction or the time the
goods *ecome covered su*sequentl *
a certificate of title issued * another
@urisdiction.
E?
(iii) There is no CT in the new @urisdiction
(i0) Jet to maintain perfection
(0) Comment KO Continued Perfection. The fact
that the law of one State ceases to appl under
su*section %*& does not mean that a SI perfected
under that law *ecomes perfected automaticall.
2n #ost cases1 t'e /2 $ill re#ain perfectedS
L. Priorit- pg. 99E
A. Simple 1isputes-
1. A-<::- on almost ever *ar e8am question
a) 78cept as otherwise provided in this section# priorit among
conflicting securit interests and agricultural liens in the same
collateral is determined according to the following rulesO
(1) Conflicting perfected securit interests and agricultural liens
ran$ according to priority in ti#e of filin" or perfection.
Priorit dates from the earlier of the time a filing covering the
collateral is first made or the securit interest or agricultural
lien is first perfected# if there is no period thereafter when there
is neither filing nor perfection. %3I"ST T5 3I/7 _ S7C5'1
T5 3I/7F 3I"ST T5 P7"37CT _ S7C5'1 T5 P7"37CTF
3I"ST T5 3I/7 5" P7"37CT _ S7C5'1 T5 3I/7 5"
P7"37CT&
(2) Perfected Securit Interest _ Unperfected Securit Interest
%must have attachment in order to have perfection&
(3) Unperfected# 3irst to Attach _ Unperfected# Second to Attach
%first to fulfill the requirements of A-:=<%*&&.
2. A-<9?- unperfected securit interest v other lien creditors
a) Unperfected S/I ` Person with Priorit under A-<:: %3irst-in-time to
3ile or Perfect&
b) Unperfected S/I ` ;udgment /ien Creditors or (an$ruptc Trustee
%hpothetical lien creditor&
c) Comment K-
(1) If ou filed a 3/S# *ut there was no S/I and value was not given
%no attachment so therefore no perfection&. Therefore the
Intervening /I7' C"71IT5" ,I// 4AL7 P"I5"ITI over
the original Secured Part.
(2) If ou filed a 3/S# and A-:=<%*&%<& condition has *een satisfied
%for attachment& and the lien arises A3T7" such events have
occurred T47' S7CU"71 PA"TI P"7LAI/S over /ien
Creditor.
EH
d) Pro*lem E:- pg. 99E
(1) 3acts- 7pstein *oo$store *orrows )9=$ from 5'( and the
signed a S/I which meets the requirements of A-:=<%*& for
attachment. 5'( never filed a 3/S so there is no perfection.
There is a su*sequent @udgment lien on the collateral *
!artin+s Travel Service. The inventor is sold. Then there is a
*an$ruptc. ,45 J7TS PAI1 3I"ST--
(2) Answer- !artin+s Travel Service would get paid first under A-
<9?.
(3) Puestion :- The *an$ruptc trustee *ecomes a lien creditor2
the trustee wins under A-<9? against 5'( %*ut not against
!artins if martins got their @udgment lien first.&
e) Pro*lem E<- pg.
(1) 3acts- Co$e travel got a loan from !S( on its A" %should file
a 3/S in the state Co$e is located in w/ the state sec of state&. A
3/S wasn+t filed * !S( *ecause the lost it# even though it
was signed. /ater Co$e needed more mone and *orrowed it
from ('(# which searched the files and didn+t find an f/s#
using their A" as their collateral. ('( did file a f/s in the
proper place. ,hich *an$ has priorit-
(2) Answer- A-<::%a&%:& sas that ('( would have priorit as
the perfected first.
f) Pro*lem EK- pg. 99N
(1) 3acts- ;a needed mone for his clothing store. 4e went to
3'( and SS( and as$ed for mone using inventor as
collateral. The *oth as$ed him to sign a S/A. 3'( filed its
f/s first on Septem*er :E# *ut didn+t loan ;a an mone %nor
did it ma$e an commitment to do so& until 'ov 9=. 5n 5ct :#
SS( *oth loaned ;a )) and filed its 3/S. ;a didn+t pa either
*an$.
(2) Puestion T9- 1id *oth *an$s have a perfected securit interest#
assuming the filed in the proper place- Is it possi*le for two
creditors to have perfected securit interests in the same
collateral- I7S.
(3) Puestion T:- "emem*er that attachment is a prerequisite to
perfection under A-<=H# and that attachment cannot occur until
the creditor gives value# decide which *an$ has the superior
right to the inventor. See e8ample 9 in 5fficial Comment K to
A-<::. 3'( STI// 4AS P"I5"ITI 5L7" SS( (/C T47I
3I/71 3I"ST2I5U A"7 A//5,71 T5 3I/7 A 3/S (/3 A
S/A 4AS (77' SIJ'71 U'17" A-E=:. SS( ,AS 5'
'5TIC7 ,47' T47I /5A'71 T47 !5'7I 5' 5CT :.
3. 3uture Advances-
EA
a) It $eeps a lender from having to re-file all of the time
b) !ust *e in the S/A that ou can ma$e future advances.
c) A-:=K%c&- A securit agreement ma provide that collateral secures# or
that accounts# chattel paper# pament intangi*les or promissor notes
are sold in connection with# future advances or other value# whether or
not the advances or value are given pursuant to commitment.
(1) 'guen- a S/A provides
(a) for collateral to secure future advances
(b) Accounts2promissor notes to *e sold in connection
with future advances.
(c) "egardless# the advances/value are given pursuant to
commitment.
d) A-<:<- 3UTU"7 A1LA'C7S
(1) Secured Part
(a) w/ 3irst in time to 3ile or Perfect
(b) Periodicall Provides Advances
(2) Prevails over another Secured Part with Second in time to 3ile
or Perfect
e) Pro*lem EE-
(1) 3acts- ;a got a loan for his store secured * inventor. The
S/A stated that it covered the current loan A'1 A// 3UTU"7
A1LA'C7S. The *an$ filed a 3/S properl. ;a got a )9$
advance later. 1oes the *an$ need to refile an paperwor$ or
are the protected-
(2) Answer- the are protected as there is a J7'7"IC
P"5LISI5' I' T47 S/A T4AT STAT7S T4AT IT C5L7"S
3UTU"7 A1LA'C7S2T47 3/S STI// ,5U/1 PUT T47
5T47" PA"TI7S 5' '5TIC7.
f) Pro*lem EN-
(1) 3acts- ;a *orrowed mone from 3'( and then *orrowed from
S'(. 4e paid off the loan to 3'( completel *ut the never
filed a termination statement %the didn+t have to until it was
requested * ;a&. A month later# 3'( loaned ;a more mone
*ut no new financing statement. %a new S/A was signed
though&. ;a went out of *usiness. S'( sas that the first 3/S
was not valid as the de*t was paid off so therefore wasn+t good
for the :
nd
loan. ,ho gets their mone first-
(2) Answer- As S'( was still on notice from the first 3/S from
3'( then the 3/S still covers the :
nd
loan.
(3) Puestion T:- what if the original S/A didn+t have a .3uture
Advances0 Clause- ,ill the 9
st
3/S still cover the :
nd
loan-
N=
(4) Answer T:- I7S# IT ,5U/1 C5L7" T47 :
'1
/5A'
regardless of the .3uture Advances0 clause.
") Pro*lem E?-
(1) 3acts- Phillip gets a loan from the *an$ *ased on his stamp
collection. 4e ma$es an oral securit agreement with the *an$
and no f/s statement is filed *ut he gives the *an$ the collateral.
4e later gets a loan from his father# signs a s/a and his father
properl files a 3/S.
(2) Answer- the *an$ would *e protected as it has priorit since it
has possession of the collateral.
(3) 3acts T:- Phillip goes to the *an$ and ta$es the collateral *ac$.
,ho then has priorit *etween the *an$ and the father.
(4) Answer- the 1ad would have priorit under A-<::.
(a) T7!P5"A"I P7"37CTI5'- %A-<9:%f&&- this 157S
'5T APP/I as the (an$ is not considered a 9ailee
=67 H'ilip isnt doin" so#et'in" to t'e# to "et
t'e# ready for sale or exc'an"e.
(5) 3acts T<- if the *an$ turns the collection over to him *ut
ma$es him sign a S/A *ut fails to file a f/s then who wins
*etween the *an$ and the dad-
()) Answer- the should have filed a f/s (735"7 turning over the
collection to Phillip %A-<=H%c&&. Therefore the 1A1 would
have priorit.
4. Cross-Collaterali6ation-
a) ,hat Is Cross Collaterali6ation- It is a right under a loan agreement
where a lender ta$es a securit agreement in A// or 5T47" assets
other than the asset that directl encum*ers the loan.
b) 1ragnet Clause- the de*tor+s propert serves as collateral for future
loans %unrelated to the original transaction&
c) Professor Jilmore .Same Class0 Test- if the de*t is in the .Same
Class0 then the lender has the right to ta$e our cross-collaterali6ed
item awa.
d) Pro*lem EH- 4oward wanted to go into the cattle *usiness and so got a
loan for )NE$ to start his herd. The S/A stated that the cattle were
collateral for .this and all other o*ligations now or hereafter owed to
the *an$.0 4e later got a credit card from the same *an$ and used it to
go to Australia to loo$ at cattle-ranching operations there. 4e was
current on the cattle paments *ut was not current on the paments for
the credit card so the *an$ repossessed the cattle.
(1) 1ragnet Clause Analsis- it would *e o$2the *an$ has the
right to ta$e the cattle under A-:=K.
N9
(2) Jilmore Test- it would also fit under this as he was using the )
) from the credit card to loo$ at cattle2same class.
(3) 3acts T:- what if he went to Australia to go surfing instead of
loo$ing at cattle.
(a) 1ragnet Clause- it would still *e valid as he contracted
things this wa.
(b) Jilmore Test- it ,5U/1 '5T *e valid as it doesn+t fit
under the SA!7 C/ASS.
(4) ,4AT IS T47 STAT7 53 T47 /A, T51AI-
(a) In re ,ollin- pg. 99A %5regon /aw&2decided */f
current UCC A
(i) 4olding- the Court 35//5,71 T47
JI/!5"7 T7ST ver strictl and loo$ed to the
%/a#e Class( standard.
(b) A-:=K 5fficial Comment E- it re@ects the holding of In
re !ollin case and sas ou are to loo$ to the contract
itself2no same-class standard.
(c) ;exas .a$ -
(i) Case-
%a& 3acts- 1e*tor e8ecuted a loan to *u a
4onda Accord. The granted the Credit
Union a securit interest in the 4onda.
1e*tor then signs another loan
agreement with the same lender. 1e*tor
defaults on the :
nd
loan.
%*& Issue- does the 4onda serve as cross-
collateral for the :
nd
loan as well-
%c& 4olding- /ender CA' repossess the
4onda2the go with the strict
interpretation of A-:=K%comment E&.
(. Purchase !one Securit Interest-
1. P!SI M Super Priorit- %A-<:K%a&&
a) A perfected P!SI in goods 5T47" T4A' Inventor or /ivestoc$
%(asicall# Consu#er Doods A <*uip#ent or -ar# Hroducts not
li0estoc&& has priorit over a conflicting securit interest in the same
goods# A'1# e8cept as otherwise provided in Section A-<:?# a
Herfected /ecurity 2nterest in its identifiable proceeds also 'as
N:
priority# I3 the P!SI is perfected when the de*tor receives possession
of the collateral 5" $it'in 2 days t'ereafter. %there is automatic
perfection for := das\\\\&
b) Pro*lem N=- pg. 9:N
(1) 3acts- Paramount *uilds an apartment comple8 and needs to
furnish the clu*house. (ill therefore goes to a furniture store
and *us ):$ of furniture on credit. 4e signs a SA *ut doesn+t
mention to the store that all of Paramount+s equipment was
alread covered through an .after acquired equipment0 clause
in another SA that was properl perfected * a *an$. The store
doesn+t usuall file a 3/S for its credit purchases.
(2) Puestion T9- ,h would the store not perfect its securit
interest- T47I A"7 US71 T5 S7//I'J C5'SU!7"
J551S247"7# T47I A"7 S7//I'J 7PUIP!7'T.
(3) Puestion T:- ,ho has priorit- T47 ST5"7 4AS
T7!P5"A"I P7"37CTI5' 35" := 1AIS (UT I3 IT
157S'+T 3I/7 A 3/S T47' IT /5S7S ITS P"I5"ITI. %A-
<::%a&%:& sas that (an$ would have the priorit after := das&.
c) Jalleon v /ewn !achiner- pg. 9:?
(1) 3acts-
(a) Jalleon is the de*tor
(b) Central (an$ M Trust is the secured part with a
perfected SI %3/S filed in 9ANA& in equipment and
inventor.
(c) Jalleon *us new equipment from /ewn with a P!SI.
(d) /ewnO the are the SP with the P!SI.
(e) The manufacturer messed up and sent Jalleon the
machine and so /ewn sent them an invoice stating that
the sale was on .net <=0 terms ma$ing it a credit sale.
(f) 7ven though it was now a P!SI sale# /ewn didn+t file
a 3/S.
(") After 1e*tor didn+t pa Central (an$# it repossessed all
of Jalleon+s machiner# including the machine sold *
/ewn.
(') /ewn argued %since it hadn+t perfected& that 1e*tor
didn+t have an rights in the collateral as it had
."eserved the Title0 so Central (an$+s SI couldn+t
cover this.
(2) Issue- did the 1e*tor have rights in the machine-
(3) Analsis-
(a) There was a reservation of title in the machine *
/ewn when the sent the machine directl to Jalleon.
(b) A reservation of title is only a reservation of a securit
interest according to 9-:=9.
N<
(c) Therefore# since there was a SI in the propert# ou
have to file a 3/S to protect ourself and give ourself a
P!SI priorit.
(d) Therefore# /ewn didn+t have priorit.
d) Pro*lem N9-
(1) 3acts- Lideo store needs a guard dog and so purchases one
from Agatha Shaw# who previousl had the dog as a pet. She
agreed to sell the dog on credit for )9== per month for one
ear. Two months later# the video store stops paing all its *ills
and the *an$ that has a floating lien over all inventor and
equipment ta$es all the store+s assets# including the dog. Can
Agatha get the dog *ac$-
(2) Analsis-
(a) 3ang# the dog# is classified as equipment of the video
store since he is a watchdog.
(b) As Agatha didn+t file a 3/S in the dog# then she would
li$el lose out and therefore not *e a*le to get the dog
*ac$.
(3) Agatha+s Potential Arguments-
(a) Iou might argue that the deal *etween the *an$ and the
video store was secret as to Agatha as she couldn+t *e
e8pected to search the 3/S records since she didn+t
$now that 3ang fell under article A of the UCC.
(b) Iou could argue that the Lideo Store didn+t have an
interest in 3ang until he was paid for completel
%wouldn+t wor$ as an argument though&.
(c) Iou could argue equit# since there pro*a*l isn+t an
person in the US that would file a 3/S in 3ang.
e) Pro*lem N:- Joods 4eld on Approval 'ot Su*@ect to the Claims of
the (uer+s Creditors %:-<:N%:&&
(1) 3acts- There is a *ac$hoe that is held * the de*tor .on A sale
on approval0 %meaning it was a lease *ut farmer had the right
to purchase it at an time& and not su*@ect to the claims of the
*uer+s creditors. < months later# the farmer decides to *u the
*ac$hoe %equipment&. The equipment compan files a 3/S the
da after the sale too$ place. ,ho has priorit# the 7quip. Co
or the (an$ who had a floating priorit over all of the farmer+s
equipment-
(2) Analsis- the equipment compan would have P!SI priorit
as it timel filed a 3/S. The fact that the lease occurred for <
months is o$.
2. P!SI in Inventor- %A-<:K%*&&
NK
a) "equirement-
(1) Purchase !one Secured Part must perfect (735"7 the
de*tor has possession of the collateral 5" ,47' he gets
possession of the collateral %'5 J"AC7 P7"I51 of := das&.
(2) P! Secured Part must send notice to the secured part that is
holding the conflicting securit interest.
(3) The conflicting secured part must receive the notice within E
ears (735"7 the 1e*tor receives the inventor. %*asicall#
notice is good for E ears2if ou $eep selling goods to de*tor
for E ears# then ou have to give new notice&.
(4) The 'otice must have certain content.
b) 5fficial Comment N- it is presumed that the other part receives the
notice $'en you send it# not when the receive it.
c) (enefits-
(1) Iou have priorit over a Conflicting Securit Interest in the
same inventor.
(2) Iou have Priorit in I17'TI3IA(/7 CAS4 P"5C771S
"eceived 5' 5" (735"7 the deliver of the inventor to the
*uer %de*tor&.
d) Gun$el v Sprague 'ational (an$- pg. 9<:
(1) 3acts-
(a) !or$en is the de*tor
(b) Sprague (an$ gave a loan to !or$en for )9.Am and
properl perfected the loan in 9AA=.
(c) 4o8ie had a P!SI in cattle that !or$en purchased
from him in 9AAK.
(d) 4o8ie didn+t file a f/s with the cattle. 4e had
possession of the cattle though as he was to $eep them
at his feedlot so therefore perfected according to
possession.
(e) !or$en did have rights to the cattle so therefore
Sprague+s securit interest in inventor would attach to
the 9A== cattle.
(f) 4o8ie never sent Sprague A'I '5TIC7.
(2) Issue- 1oes Sprague or 4o8ie have superior right in the cattle-
Sale proceeds of the cattle-
(3) Analsis-
(a) As 4o8ie had actual possession of the cattle and
!or$en did not ever have an possession of the cattle#
then there was no requirement of a E ear notice period.
NE
(4) (an$+s Argument- the would argue that it was a .Secret
Transaction0 and that there was no wa for the *an$ or anone
else to $now a*out the transaction *etween !or$en and 4o8ie.
(5) 4ow (an$ can Protect Itself- it can sa in its Securit
Agreement with !or$en that !or$en has to give notice to the
(an$ if the are planning to use an of the collateral covered
* the securit agreement for an other purpose. If the don+t
do this# then ou call it a default and accelerate the loan.
()) 5utcome- not onl did the *an$ have a superpriorit in the
inventor# the also had a superpriorit in the proceeds of the
inventor.
e) Pro*lem N<- pg. 9<9
(1) 3acts-
(a) 4arolds Clothing store is the de*tor
(b) !erchant+s credit has a perfected securit interest in all
inventor .either now e8isting# or after acquired.0
(c) !adam (elinda+s fashions has a P!SI in the new
clothes inventor on 1ec 9=.
(i) 5n 1ec 99# the gave notice to !erchant+s
credit# filed a 3/S on 1ec 99# and shipped the
goods to de*tor on 1ec 9:.
(2) Analsis-
(a) !adam (elinda+s would have a P!SI superpriorit
under A-<:K%*&.
(b) ,e would assume that the got notice when it was sent.
(3) 3acts T:- what if !erchants didn+t get notice until 1ec 9<-
(4) Analsis T:- if the notice was received on 1ec 9<# it doesn+t
matter# as it was sent out on 1ec 99# so it is still timel.
(5) 6ote- notice is only "ood for 5 years so if 9elindas &eeps
sellin" "oods to Carolds for 5 years1 t'en t'ey need to "i0e
ne$ notice.
3. Consignment M Superpriorit-
a) A-9=<%d&
b) Consignor- the are the P!SP in the Consigned Joods
c) Consignor+s Superpriorit- Consignor must follow A-<:K%*&
requirements
d) Pro*lem NE-
C. Control M Priorit-
1. Investment Propert-
a) ,hat is it-
NN
(1) Certificated securities %under H-9=:%a&%K&&2the are stoc$s and
*onds that are represented * actual certificates.
(2) Uncertificated Securities- %H-9=:%a&%9H&&2securities that
aren+t represented * certificates %the are registered with the
issuing compan *ut no certificate given2registered in the
computer sstem of the issuing compan&
(3) Securities 7ntitlement- %H-9=:%a&%9?&&2an investor+s right
reflected in the account held * the stoc$ *ro$er.
b) Investment Propert as Collateral- %4ow to ta$e a S/I in Investment
Propert&
(1) Perfection-
(a) Attachment a "equisite Steps %as seen in A-:=<%*&&
(b) 3iling 3/S 5" Ta$e #ontrol over the investment
propert.
(c) A-<:H%9&- A securit interest held * a secured part
having control of investment propert %as seen in H-9=N
for securities& has priorit over a securit interest held
* a secured part that doesn+t have control over the
investment propert.
(i) 4ow to Ta$e Control of Collateral %H-9=N&-
%a& Certificated- %a&M%*&
%i& %a&- a secured part must ta$e
deliver of the certificated
securit.
%ii& %*&- ou must also indorse the
certificated securit over to the
*an$ for the *an$ to *e secured.
%*& H-9=N%c& Uncertificated-
%i& !ust contact the owner of the
securit and have them call the
issuing compan and have them
list the SP %*an$& as the new
owner of the uncertificated
securities in their computer
records.
%c& H-9=N%d& Securit 7ntitlement-
%i& Secured Part *ecomes the
entitlement holder.
%ii& The Intermediar %*ro$erage
firm&# the Secured Part M the
1e*tor have an agreement that
the (ro$er will follow the
directions of the Secured Part
without further direction from the
1e*tor.
N?
(2) Priorit "ules w/ Investment Propert Perfected * Possession-
A-<:H
(a) A-<:H-
(i) %9& Perfection * Control has priorit over other
methods of perfection.
(ii) %:& If two SP+s have control over investment
propert# then 3I"ST I' TI!7 has the
superpriorit.
(iii) %<& (etween the SP that has control over
investment propert and a Securities
Intermediar that has control over the propert#
the /ecurities 2nter#ediary $ill 'a0e
superpriority.
(b) Pro*lem NN- pg. 9KE-
(i) 3acts-
%a& Jold*ur is the de*tor# 5'( is the
Secured Part# ((( is the securities
intermediar or *ro$er.
%*& The collateral is 9== shares of Utopia
stoc$ held * (((2S7CU"ITI7S
7'TIT/7!7'T.
(ii) Puestion T9- if another creditor also gets control
over the rights to the 9== shares# which has
priorit- %A-<:H%:&&2T47 3I"ST PA"TI T5
4AL7 C5'T"5/ 5L7" T47 ST5CG ,I//
4AL7 P"I5"ITI.
(iii) Puestion T:- if Jold*ur *orrows )) from
((( after 5'( has control of the stoc$ and he
gives ((( a S/I in all stoc$s held in his
account# is (((+s S/I superior to 5'(+s- %A-
<:H%<& M official comment K# e8E&2(((
,I// 4AL7 P"I5"ITI 5L7" T47 (A'G
(/C ;UST (7CAUS7 T47I A"7 T5
35//5, 5'(+S I'ST"UCTI5'S 157S'+T
!7A' T47I A"7 SU(5"1I'ATI'J
T47I" I'T7"7ST I' T47 S7CU"ITI2
T47I 4AL7 4A1 .C5'T"5/0 5L7" T47
S7CU"ITI7S T47 7'TI"7 TI!7 SI'C7
T47I 4AL7 A/,AIS (77' I' T47I"
ACC5U'T.
c) ;ul :==K (ar 78am Puestion- the *an$ruptc trustee has a lien
interest that is deemed to *e perfected on 9:/9:. (an$ didn+t perfect
NH
according to H-9=N %ta$e deliver and indorse the securities& so
therefore the trustee would have priorit over the *an$.
2. Controlling 1eposit Accounts as Collateral-
a) ,hat is a 1eposit Account- chec$ing accounts# savings accounts# etc.
(1) Consumer Accounts for Consumer 1e*ts- cannot use a
consumer account as collateral for a consumer de*t.
(2) Consumer Accounts for 'on-Consumer 1e*ts- ou are
allowed to use our consumer accounts as collateral for our
non-consumer de*ts.
b) !ethods of Control over 1eposit Accounts- (9-14(a))
(1) The SP is the *an$ with which the deposit account is
maintainedF
(2) The de*tor# SP M *an$ have agreed that the *an$ will compl
with instructions from the SP regarding the disposition of the )
) in the deposit account# without an further consent * the
de*torF 5"
(3) The SP *ecomes the *an$+s customer with respect to the
deposit account %the SP puts their name on the deposit account
in place of the 1e*tor+s name&
c) Priorit "ules for 1eposit Accounts- (9-32+)
(1) A SP having control over a deposit account has priorit over a
conflicting SI held * a part that doesn+t have control.
(2) S/I+s o*tained through control have priorit according to
3I"ST I' TI!7 to o*tain control.
(3) The (an$ that maintains the deposit account will have priorit
over the SP+s that have control over that same deposit account.
%the wa around this is if ou have a *an$ give a
SU(5"1I'ATI5' AJ"77!7'T to the SP%see 9-32+(4) A
9-339&2also see TK *elow&.
(4) If a S/I perfected * control under A-9=K%a&%<& %where the SP is
registered as the .owner0 of the deposit account at the *an$&#
then T4AT SP will have priorit over the (an$ who holds the
deposit account.
d) Pro*lem N?- pg. 9KN-
(1) 3acts-
(a) Computer world wants to *orrow mone from I(A
which will give it a revolving line of credit# secured# in
part# * the *an$ account that Comp world holds at
/'(.
(2) Puestions- 4ow can I(A perfect M which A-9=K method
would *e the *est wa to perfect-
NA
(3) 3acts T:- if Comp ,orld later *orrows mone from /'( and
grants the *an$ a SI in their account there# would /'( have
priorit over I(A-
(4) Analsis-
(a) The *est wa for I(A to perfect under A-9=K would *e
to *ecome the *an$+s customer under A-9=K%a&%<& as
this wa# the *an$ can never ta$e priorit over it since
I(A+s name is now on the deposit account. A-<:?%K&
would then give I(A superpriorit over the *an$.
3. /etters of Credit "ights-
a) A-9=?- a secured part has control of a letter of credit right to the
e8tent of an right to pament or performance * the issuer or an
nominated person %if the issue or nominated person has contented to an
assignment of proceeds of the letter of credit under E-99K%c& or other
applica*le law or practice.&
(1) In 7nglish- if the <
rd
part wants to ta$e control# then it has to
as$ the lender %issuer& to assign the mone to it.
b) Pro*lem NH-
(1) 3acts-
(a) Computer ,orld is the seller of 9=$ computers to the
Universit for ):E$. Universit goes to 5'( to get a
letter of credit and names Computer ,orld as the
*eneficiar of the letter of credit. %Computer ,orld
therefore has ):E$ of A"& Computer ,orld can draw
on the )) at the *an$ if the show an invoice to the
*an$ stating the shipped the computers on or *efore
Septem*er :E.
(b) Computer ,orld needs to *orrow )9=$ from a *an$ so
that it can finance the construction of the computers.
(c) Issue T9- 4ow can the lender for computer world
o*tain a perfected interest in the rights represented *
the letter of credit- %A-9=?&
(2) Analsis-
(a) The *an$ Computer ,orld wants to *orrow from would
have to as$ 5'( to assign the letter of credit over to it.
5'( pro*a*l wouldn+t do this# however# as the
would have no wa to $now whether or not the
computers would have *een shipped.
(b) The (an$ should pro*a*l ta$e a S/I in Computer
,orld+s A" %that is supported * Computer ,orld+s
letter of credit rights& and therefore have indirect
perfection over the letter of credit rights.
?=
1. Priorit "ules "elating to (uers-
1. Jeneral "ule - A-:=9- e8cept as otherwise provided a SA is effective
according to its terms *etween the parties# against purchasers of the collateral#
and against creditors.
2. 78ception C A-<:=- 78cept as otherwise provided in su*section %e&# a *uer in
the ordinary course of business %other than in farm situations& ta$es free of a
securit interest created * the *uer+s seller# even if the securit interest is
perfected and t'e buyer &no$s of its existence.
3. Pro*lem NA- pg. 9KH- G'5,/71J7
a) 3acts- (ett *ought a TL from 1istortion TL. A month later
1istortion went *an$rupt and someone from 5'( shows up at (ett+s
house to repossess the tv. 4e e8plained that 5'( held a perfected
securit interest in the TL.
b) Puestion T9- what should (ett do- S47 IS A (UI7" I' T47
5"1I'A"I C5U"S7 S5 S47 IS P"5T7CT71 (I A-<:=%A&
c) Puestion T:- ,ould it matter if she had $nown that 5'( had a
perfected securit interest in 1istortion+s inventor- '5# '5T I3
S47 !7"7/I G'7, T4AT IT 7QIST712S47 !UST 4AL7
J551 3AIT4 T45UJ4.
d) Puestion T<- would it matter if she *ought it from a li*uidation sale-
157S'+T !ATT7".
e) Puestion TK- what if she put the TL on laawa and then 1istortion
went *an$rupt. U'17" A"TIC/7 :# I3 I5U PUT T47 IT7! 5'
/AIA,AI# A'1 T47I A"7 C5'SU!7" J551S# I5U A"7
A//5,71 T5 "7C/AI! T47 J551S UP T5 ,4AT7L7"
A!5U'T I5U 4AL7 PAI12I3 5'/I PA"TIA//I PAI1# I5U
J7T I5U" )) (ACG2I3 I5U 3U/3I// I5U" P"5!IS7 T5
PAI T47 (A/A'C7 A'1 T47 S7//7" 4AS 3I/71 35"
(A'G"UPTCI ,IT4I' 9= 1AIS# T47' I5U A"7 CA' TAG7
T47 TL2A/S5# (A'G"UPTCI /A, ,I// A//5, I5U T5
G77P UP T5 )9H== *f requiring ou to file a claim against 1e*tor.
4. International 4arvester v Jlendenning- pg. 9KA2(asicall# if ou commit
fraud *ecause of our $nowledge# then ou dont 'a0e "ood fait' and
therefore cannot *e a *uer in the ordinar course of *usiness.
5. A-<:=%e&- Hossessory /ecurity 2nterests 6ot =ffected2A-<:=%a& doesn+t
affect a securit interest in goods in the possession of the secured part under
Section A-<9<.
a) 5fficial Comment TH- A-<:=%e& prevents a *uer of goods collateral
from ta$ing free of a securit interest if the collateral is in the
possession of the secured part. The secured part referred to is the
holder of the securit interest referred to in su*section %a&.
?9
b) Pro*lem ?=- 1eering was a te8tile manufacturer that sold te8tiles on
credit to !ill 3a*rics# who was going to de and pattern the fa*rics
and sell them to Tan*ro 3a*rics. ,hile the te8tiles were still in
1eering+s warehouse# !ill contracted to *u them from 1eering#
signing a securit agreement and giving 1eering a dul filed 3/S. In
turn# !ill sold the te8tiles to Tan*ro# which paid !ill for them# *ut
agreed to possession a few wee$s later. The fa*rics remained in
1eering+s possession. Unfortunatel# !ill *ecame insolvent and never
paid 1eering for the te8tiles and so 1eering refused to deliver them to
Tan*ro. Tan*ro sued. ,ho should prevail-
(1) Answer- %A-<:=%e&&- according to A-<:=%e&# if a secured part
has possession of collateral# then A-<:=%a& will not appl and so
therefore# even though the are a *uer in the ordinar course
of *usiness# Tan*ro will not *e a*le to recover either the fa*ric
or their )).
c) Pro*lem ?9- pg. 9EE25'( had a perfected securit interest in all cars
on Smiles !otors+ lot. Smiles owed )E$ in past due insurance
premiums. The insurance agent goes to the dealership and Smiles
gives him a chec$ for )E$. Smiles# however# finds a car he li$es and
endorses the chec$ *ac$ to Smiles in e8change for the car. ,ho has
priorit# 5'( or the Insurance Agent-
(1) Answer- 5'( has priorit2not a sale in the ordinar course
2courts didn+t see it as the giving of .'7, LA/U7.0
(2) ,h Isn+t This Allowed -
(a) It is not a purchase in the ordinar course.
(b) Such a transaction can *e tainted with collusion2ou
could agree with anone that ou owed them )) and
then transfer propert to them free of a securit interest#
therefore screwing over the secured part.
d) 3irst 'ational (an$ of 7l 1orado v 3ord !otor Credit- pg. 9EE-
(1) 3acts- the dealership had floorplan financing with 3ord !otor
Credit *ut was in financial trou*le so the President and the LP
go to the *an$ and tell the *an$ that the wanted to *u two
cars and the *an$ gives them loans to cover the car and then
instead of *uing the car# the officers of the *an$ deposit the ))
into the accounts of the dealership to help $eep it afloat longer.
The cars were left at the dealership to *e sold and were never
registered in the .*uers0 names. ,hen the dealership closed#
the *an$ repossessed the cars from the dealership and 3ord
?:
!otor sued saing that the were the ones who had a priorit
SI and therefore the were the ones that should get the cars.
(2) 4olding- the court found that the (an$ was not a .Purchaser0
under A-<:=%a&. Instead# the were the part that financed a
sham *uer. Since the were not a .(uer in the 5rdinar
Course of (usiness0 then the could not avail themselves of A-
<:=.
(3) ,hat do ou tell the (an$ to 1o in the 3uture-
(a) 7ven if the *an$ had perfected their securit interest#
the still would not have priorit under A-<:=%a&.
(b) A-<:K%g& doesn+t appl unfortunatel.
e) Pro*lem ?:- pg. 9N9-
(1) 3acts- Arthur Jreen*aum *ought a new car on credit from
/orri+s car cit# which too$ a P!SI in the vehicle. It perfected
its SI * notation on the certificate of title as required * state
law. Arthur was a used car dealer * profession *ut had
purchased the car for his own private use. 'onetheless# he too
too$ the car to his lot and par$ed it there and eventuall
someone wanted to *u it2he sold it. 4e didn+t mention to
the new *uer that the car was his private car and had a SI
attached to it. After everone found out a*out everthing# Ann#
the new *uer# sued /orri+s car cit# demanding that it release
title to the car. ,hat was the result-
(2) 4olding- Ann won through A-<:=%a&2it constituted a sale of
inventor from green*aum and so the *uer ta$es free of the
securit interest in that inventor since the *uer didn+t $now it
was a personal vehicle.
f) Pro*lem ?<- pg. 9N9-
(1) 3acts- ,onder Spa pledged E= of its promissor notes to
CS(an$ and trust in return for a loan. The *an$ too$
possession of the notes. The Spa as$ed to get 9= of the notes
*ac$ so the could present them to the ma$ers of the notes for
pament# *ut after the *an$ turned them over# the sold them at
a discounted price to 5'(# a Bonified $urchaser without
knowledge of #"B%s interest&a Holder in Due Course. This
resale was in direct violation of the spa+s agreement with CS(.
,hich *an$ is entitled to the instruments-
(2) A-<9:%g&- the (an$ %CS(& has temporar perfection of the
notes for := das if the notes were given *ac$ to the part for
presentment %must perfect within := das though&.
(3) A-<<9- 45/17" I' 1U7 C5U"S7- 5'( will win as a
holder in due course %even if the *an$ perfects with a 3/S& over
CS(# regardless of the filing of a financing statement * CS(.
?<
(4) ,h 1oes CS( get Screwed- If a .4older in 1ue Course0
didn+t get priorit# then parties would *e hesitant to (u 1e*t
and the econom would still.
). A-<:=%*&- (UI7" 53 C5'SU!7" J551S 3"5! A C5'SU!7"
a) A *uer of goods fro# a person $'o used or bou"'t t'e "oods for
use pri#arily for personal1 fa#ily or 'ouse'old purposes# ta$es
free of a securit interest# e0en if perfected# if the *uer *usO
(1) Iit'out &no$led"e of the securit interest
(2) 3or value
(3) Primaril for the *uer+s personal# famil or household
purposes A'1
(4) 9efore t'e filin" of a financin" state#ent co0erin" t'e
"oods.
b) Pro*lem ?K- pg. 9N92A-<:=%*&
(1) 3acts- And *ought a stereo receiver on credit from Loice of
;apan# Inc. an electronics store# giving it a P!SI in the
receiver. L5; didn+t file a f/s. N months later# when And still
owed )<== to L5;# he sold the receiver to 'anc for ):== and
stopped ma$ing paments to L5;. Can L5; repossess the
receiver from 'anc-
(2) 5utcome- 'anc will onl ta$e free of the securit interest
from L5; if she has ta$en deliver of the receiver (735"7
L5; has filed a 3/S in the inventor. As she did ta$e deliver
*efore this occurred# then she would prevail over L5;.
(3) Polic- it stops people from *uing goods which might *e
stolen or possi*l involved with a fraudulent transaction.
c) Pro*lem ?E- pg. 9N:
(1) 3acts- 1e*tor is the icecream compan that sold icecream
from the *ac$ of truc$s in neigh*orhoods. "epossession
finance is the SP. 1e*tor sells an ice cream machine to 3ran$
%one of his own icecream machines& and after 1e*tor defaults#
then "epossession see$s to repossess the machine from 3ran$.
(2) Issue- is 3ran$ a *uer in the 5"1I'A"I C5U"S7 53
(USI'7SS-
(3) 5utcome- 3ran$ isn+t a *uer in the ordinar course of
*usiness as the icecream compan didn+t normall sell
icecream machines# *ut instead sold onl icecream to $ids.
(4) Puestion T:- ,hat if "epossession didn+t have a perfected
securit interest- A-<9?%(& SAIS T4AT 3"A'G ,5U/1
P"7LAI/ I3 47 T55G P5SS7SSI5' (735"7 T47 (A'G
P7"37CT71.
?K
(5) Puestion T<- ,hat if the *an$ $new of an approved of the
sale- IT IS 5G T47'23"A'G ,I// (7 A(/7 T5 G77P
T47 IC7C"7A! !AC4I'7.
d) Pro*lem ?N- pg. 9N<-
(1) 3acts- 5'( loaned Paul )H$ for stereo equipment for his roc$
*and. Paul purchased the equipment on April : and 5'( filed
a 3/S on April 9=. 5n April H# Paul sold the equipment to Used
Stereo 4aven# who had no $nowledge of 5'(+s P!SI. ,ho
has priorit-
(2) A-<9?%e&- 5'( would prevail over the *uer# even though the
*uer *ought during the time when there is no financing
statement# *ecause there is T7!P5"A"I P7"37CTI5' 35"
5'( for := das.
+. 3arm Products and Securit Interests-
a) Pro*lem ??- pg. 9N<23A"! P"51UCTS
(1) 3acts- 3armer (ean *orrowed a lot of )) from the 3inancing
Compan and signed a securit agreement * which he
promised not to sell his crop %collateral for the loan& without
the written consent of the financing compan. 'onetheless#
ever ear he sells his goods to the same part and gives the
proceeds to the financing compan without getting its written
consent. 1oes the *uer ta$e free of the securit interest of the
financing compan under A-<:=%a&- If the financing compan
never protested what was going on ear after ear as the
securit agreement was violated# can it *e said to have waived
its securit interest- Can a securit interest *e waived- See A-
<9E%a&%9&.
(2) A-<:=%a&- the protections of A-<:=%a& doesn+t appl to farm
products purchased in the ordinar course of *usiness.
(3) ,aiver * 3inancing Compan- I7S2IT ,5U/1 (7 A
,AIL7"2as the $new a*out it ear after ear# the *uer
would *e free of the *an$+s securit interest through ,aiver of
its A-<:=%a& protections.
b) Clovis 'at+l (an$ v Thomas- pg. 9N<
9. #ollateral ' cattle (far) $roduct* "+ ' Bank* ,ebtor ' Bunch* the
defendant is an auctioneer
a. The defendant %*uer& is a middle man B an auctioneer
*. The purchase all of these cattle# and then resell them
:. P %(an$& loaned )HG to !r. (unch in !arch 9AN<# and (unch gave (an$
a promissor note and a SA# granting (an$ a SI in KN head of cattle.
%*randed .,1 (A"0&. In April 9AN<# (unch signed another SA# giving
(an$ an additional securit interest in 9=: head of cattle for the !arch
?E
loan and for additional loans to *e made to him * the (an$ from time to
time.
<. In ;ul 9AN<# (unch deposited )<#E== %proceeds from the sale of <E of
the cattle covered * the SAs&# and )<#<== of this amount was applied *
the (an$ on the inde*tedness.
K. In 5cto*er 9AN<# (unch deposited )E#N== in (an$# all of which was
applied * the (an$ on the inde*tedness %this was proceeds from the sale
of EN of the cattle covered * the SAs&. This consisted of : chec$s from
1 %a licensed commission house/mar$et agenc B handled the sale of the
cattle for (unch&
E. 9an& &ne$ 9unc' $as #a&in" sales of cattle co0ered by t'ese earlier
/=s.
N. In Septem*er 9AN<# (unch applied for an additional loan to purchase
additional cattle# and after an investigation# (an$ approved this loan# and
* 'ovem*er# (unch had acquired the new cattle %*randed .,1 (A"0&.
a. In 6o0e#ber he signed a new note/SA covering :H< head of
cattle to secure this inde*tedness %of ):9#E==# ):G of which was
still owing on the original note&
*. The SA was recorded# and provided that without (an$+s written
consent# 1 will not sell/dispose of the cattle.
?. Then# 9unc' consi"ned t'e cattle to 7 for sale on 9unc's be'alf at
public auction (9an& did not &no$ about t'ese or "i0e consent&. 9K9
cattle were sold for )9NG# *ut (unch gave none of this mone to (an$.
9an& see&s reco0ery of t'is #oney fro# 7
H. (an$ see$s to recover from 1 %):9G&
a. 1idn+t go after the cattle owner
*. (an$ sas auctioneer is lia*le to them B for conversion
c. "ancher is de*tor# who *orrowed mone from *an$ %SP C
perfected interest in the cattle&
d. (ecause the $ind of goods are farm products# the *uer that
purchases them can not ta$e free of the *an$+s SI B >A-<:=%a&
e. So (an$ sas auctioneer is deemed as the *uer B is lia*le for its
principal+s %the farmer+s& actions B are lia*le to the *an$
f. ,hatever the sold# the sold su*@ect to the *an$+s SI
i. I.e.# auctioneer sells to Q# and gives this mone to the
farmer# and auctioneer $eeps commission from the sale
ii. (an$ sas it doesn+t onl want this mone# *ut wants the
entire amount from the sale
iii. (an$ sas# too *ad# auctioneer C ou are now the *uer
iv. Iou ta$e the cattle su*@ect to the SI
v. 7ither give us *ac$ the cattle or ou have committed
conversion
9. Auctioneer doesn+t even have the mone
anmore\
:. B this is a 4A"S4 rule\
<. 1efinition of *uers is ver *road to include
auctioneers also
K. ,e have a long histor of protecting farmers+
lenders B we want to help the industr get
mone# so we protect the lenders to encourage
them to lend to the farmers
?N
E. B give the lender much more power than a
regular SP
N. =uctioneers are dee#ed as buyersF
?. 4ave to *e careful if the products are farm
products Bwill ta$e su*@ect to SI# and can *e
sued for conversion
A. 4oldingO "he didn%t even reach the waiver issue, or go over the waiver
$roble) below, -ust discussed the above
a. (an$ consented to the sales of ,1 (A" cattle covered * the
'ovem*er SA# thus waived possessor rights it had in the cattle
i. As a matter of common practice/procedure# allowed
(unch to sell cattle under the earlier SAs# and consented
to (unch+s receipt of the proceeds. Same with the
'ovem*er SA. In practice# (an$ never required prior
written consent.
ii. B P acquiesced in/consented to these sales# and waived
an possessor rights it ma have had in these cattle B
Implied consent and waiver
9. (an$ waived its lien B lost its SI in the collateral
iii. 1 not responsi*le for (unch+s failure to remit proceeds
of the sales to (an$
9=. 'ote after caseO ,here the *an$ was aware that the farmer was routinel
ignoring the SA+s requirement of written consent# the courts# li$e this
one# were especiall li$el to find a waiver of the SI
c) 3arm Credit (an$ of St Paul- pg. 9?:
(1) 3acts-
(a) (onneprises are the 1+s here. 3arm Credit (an$ is the
SP. The collateral is the dair mil$. 3or a long time# the
1e*tor sold their mil$ to /and 5 /a$es %(an$ $new
a*out it&. The then decided the wanted to sell their
mil$ to 3A 1air.
(b) Traditionall# the *uer would have sent the proceeds
directl to the *an$# as opposed to the (onneprises.
3MA dair sent the mone 1I"7CT/I to the 3armer2
therefore the (an$ wanted its mone and argued that
the (uer %1air& held the collateral su*@ect to its
securit interest.
(c) (an$ sent notice to 3MA 1air when it found out a*out
the switch of *uers2the sent a letter and a cop of
the securit agreement *etween the *an$ and the
farmer.
(d) 3MA 1air said that such .notice0 wasn+t sufficient to
give notice under the statute.
(e) Such notice was given in August. %After the August
sale *ut *efore the Septem*er# 5cto*er M 'ovem*er
sales&.
(2) Issue- did 3A 1air have notice from the 3ederal Statute
??
(3) 4olding- The Court said that the notice given * the (an$ was
adequate and that the 3ederal Statute %? USC 9N<9& trumped A-
<:=%a& and so therefore the (an$+s securit interest still was
attached to the collateral# despite the sale to the 1air.
d) ? USC 9N<9- this pre-empts state laws %li$e the UCC& and protects the
*uer of farm products.
(1) 9uyer ;a&es /ub3ect ;o /ecurity 2nterest - if# within one
ear# the *uer has received from the secured part $ritten
notice of the securit interest organi6ed according to farm
products that2
(a) Is an original or reproduced cop thereofF
(b) Contains %9& the name and address of the secured part#
%:& the name and address of the person inde*ted to the
secured part# %<& the social securit num*er of the
de*tor# %K& a description of the farm products su*@ect to
the securit interest created * the de*torF A'1 %E&
contains an pament o*ligations imposed on the *uer
* the secured part as conditions for waiver or release
of the securit interestF and
(c) The *uer has failed to perform the pament
o*ligations.
e) Pro*lem ?H- pg. 9?:
(1) 3acts- 3armer (ean *orrowed )) from 5'( which had him
sign a securit agreement. The Agreement for*ade him from
selling his crops without written consent. It also required him
to give the *an$ a list of potential *uers# which 3armer (ean
did. The list was made up of the five people the farmer
traditionall sold to in the past. The *an$s sent a written notice
compling with the federal statute. "ural Silo# a grain
merchant that G8+d with (ean to *u all of his wheat crop in
:=9=# was not on the list *ut G'7, that (ean had *orrowed
mone from 5'( and that 5'( had filed a valid 3/S. It
*ought the crop from (ean and paid him cash %even though the
SA said ou had to pa 5'( directl&. Is "ural Silo protected
* the federal statute-
(2) 4olding- the federal statute requires ACTUA/ notice2not
constructive notice. If there was no notice# then the SI doesn+t
attach to the crop as per A-<:=%a&.
,. (uers in the 5rdinar Course of (usiness- %(I5C&
a) Pro*lem ?A-
(1) 3acts-
?H
(a) 4alards *ought a *oat and ('( was the lender who
had a SA and was properl perfected through a filed
3/S.
(b) 4alard then sold the *oat to 5il Slic$ *oats# a dealer in
used *oats2the paid full value for the *oat and
though the had clear title to the *oat.
(2) Issue- who wins *etween ('( M 5il Slic$- %oil slic$ has the
*oat&
(3) 4olding-
(a) 5il Slic$ IS '5T A (UI7" I' T47 5"1I'A"I
C5U"S7 53 (USI'7SS (7CAUS7 T47
4A/IA"1S A"7 '5T I' T47 (USI'7SS 53
S7//I'J (5ATS T5 5T47" PA"TI7S.
(b) 1oes A-<:= appl- As 5il Slic$ isn+t a *uer in the
ordinar course of *usiness# then it isn+t protected.
(c) 1oes A-<9? protect 5il Slic$- no# it doesn+t help 5il
Slic$.
(4) 3acts T:- 5il Slic$ sells the *oat to the (lin$s# who were
innocent third persons who paid full value for the *oat.
(5) Issue- do the (lin$s hold the *oat free of ('(+s securit
interest- %Are the (uers in the 5rdinar Course of (usiness&
()) 4olding- '52,4I/7 T47I A"7 A (UI7" I' T47
5"1I'A"I C5U"S7 53 (USI'7SS# T47I 5'/I TAG7
3"77 53 T47 S7CU"ITI I'T7"7ST T4AT ,AS
C"7AT71 (I 5I/ S/ICG %,45 1I1'+T C"7AT7 A'I
S7CU"ITI I'T7"7ST&. A-<:=%A& 1I1'+T P"5T7CT
T47! 3"5! T47 4A/IA"1+S S7CU"ITI I'T7"7ST.
(+) A-<:=%a&- a *uer in the ordinar course of *usiness onl ta$es
free of a securit interest that is created * T47 (UI7"+S
S7//7" %(asicall# the gu he *ought it from&.
(,) 4ow to Protect Iourself if ou are the (lin$s- ou put it in the
G8 that the *oat is assumed to *e ta$en free and clear of an
securit interest and also put in damages and choice of law
provisions2gives *etter protections than UCC :.
(9) A-<:=%*&- this will onl wor$ if *oth parties to the transaction
are C5'SU!7"S and also 5'/I I3 the *an$ 4AS'+T filed
a 3/S.
7. "ecap of Priorit "ules-
1. /etter of Credit "ights-
a) Control- Secured Part has the Issuing *an$ assign the proceeds of the
letter of credit in order for them to ta$e priorit.
?A
b) Issuer (an$- the have the right to refuse to assign the proceeds of the
/etter of Credit.
c) Secured Part v Secured Part- the part with control prevails over
other methods of perfection.
d) Secured Part v Secured Part- The first in time wins
2. ;ul :==K *ar e8am question-
a) Lideo 7quipment- A9 and the (an$ *oth had an interest in the video
equipment.
(1) It is considered equipment under the UCC.
(2) A9 would have an automatic superpriorit for := das *ut since
it didn+t properl perfect its SI within that := das# then the
*an$ would have priorit.
(3) T47 P7"37CTI5' !UST 4AL7 TAG7' P/AC7 (735"7
T47 (A'G"UPTCI ,AS 3I/71 AS T47 AUT5!ATIC
STAI ,5U/1 (5T4 ST5P T47! 3"5! 3I/I'J A'1
,5U/1 C"7AT7 A P"5P7"TI "IJ4T I' T47
T"UST77.
b) Stoc$ Certificates-
(1) The *an$ would get it over the trustee due to possession.
3. !arch :==9 (ar 78am Puestion-
a) Supercoat Painting Assem*l-
(1) Sue would have priorit *ecause she was the first to file.
b) All 7quipment After !ove to 'ew /ocation-
(1) There ma*e a pro*lem with Sue+s 78hi*it A as it technicall
onl covered the supercoat painting assem*l.
(2) 4owever# the SA granted her a SI over all the e8isting and
after-acquired inventor and equipment.
(3) 'otice 3iling 1efect-
(a) !ost li$el the *an$ will prevail and not sue as there
was a defect on 78hi*it A in Sue+s 3/S.
c) 3or$lift- Carl+s 7quipment would have priorit over the *an$ and Sue
*ecause it is a P!SI in the for$lift.
d) Containers that (elonged to 1ave-
(1) (an$ would li$el prevail over Sue *ecause her 3/S onl
descri*ed the supercoat painting assem*l.
(2) 1ave wouldn+t get to $eep it *ecause it is not a true
consignment2(o*+s creditors didn+t $now that he was in the
regular *usiness of consigning the containers.
(3) 9-13(d)- H5/2!a consi"nor 'as a H5/2 in t'e "oods t'at
are t'e sub3ect of t'e consi"n#ent
3. /eases- unless specified# the term also includes a su*lease
H=
1. A-<:9%c&- A lessee in the ordinar course of *usiness ta$es its leasehold
interest free of a securit interest in the goods created * the lessor# even if the
securit interest is perfected and the lessee $nows of its e8istence.
2. Pro*lem H=- pg. 9?H-
a) 3acts- 4igh*id Construction gives a SI to 5'( in all of its
construction equipment now owned or hereafter acquired. 5'( filed
a 3/S in the proper place. Two ears later# 4igh*id was in the middle
of an enormous construction pro@ect at Universit when a num*er of
its emploees quit# leaving it short staffed. So as not to *reach# it
farmed the pro@ect out to 'ewcomer. It said it would lease 'ewcomer
all of its equipment.
b) 5utcome- while it is a true lease# 'ewcomer isn+t leasing the
equipment in the 5rdinar Course of (usiness *ecause the are leasing
it from 4igh*id who IS '5T I' T47 (USI'7SS 53 /7ASI'J
equipment. Therefore# the would *e su*@ect to the SI of 5'(.
3. Pro*lem H9- pg. 9?H-
a) 3acts-
(1) 5'( was a lessor of machiner to 4igh*id2the had
purchased the machine from 4igh*id and was leasing it *ac$ to
them for ta8 purposes.
(2) 5'( has a sale disguised as a lease and the didn+t perfect
their securit interest li$e the should have done.
(3) 4igh*id then wanted a loan from A'( and offered the leased
machiner as collateral. A'( chec$ed the pu*lic records
under 4igh*id+s name and didn+t find an recorded securit
interest so thought it was free and clear of all securit interests.
The had 4igh*id sign a SA and then the filed a 3/S.
(4) ,hen 4igh*id defaulted on its lease paments# 5'(
repossessed the machine and A'( claimed the had proper
rights in the equipment */c of the fraudulent sale-lease*ac$.
b) ,hat A'( should have done- The should have as$ed who had
possession of the grading machine2if the *an$ had possession# then it
is clear that the *an$ has a valid securit interest through possession in
the machine.
c) 5utcome- A'( wins *ecause the are the 3I"ST I' TI!7 T5
P7"37CT T47I" S7CU"ITI I'T7"7ST T4"5UJ4 T47 3I/I'J
53 A 3/S %A-<::%a&%9&&2this is */c 5'( had a sale disguised as a
lease2if it was a true lease then there would *e no need to perfect.
d) ,hat if the /ease Agreement Provided the /essee with a "ight of
Termination At An Time- This would ma$e it a .true lease0 and
would allow 5'( to win.
4. Summar of (uer+s "ights-
H9
a) A-<:=%a&- a *uer in the ordinar course of *usiness generall ta$es
free of a securit interest created * his seller %direct29 level onl&.
J. Article : Claimants-
1. Pro*lem H:- pg. 9?A--(UI7"S
a) 3acts- ;ac$ was a traveling salesman and needed new luggage to carr
his samples. 4e *ought a set from alligator fashion which got a SI M
filed a f/s in the luggage. 5ne month later# ;ac$ sold all his samples
A'1 the luggage to !ar$# who was an impulse *uer. ,hen !ar$
discovered the truth# he revo$ed his acceptance of the goods pursuant to >:-
N=H and claimed a SI in the goods. "ead >:-?99%<&. 5n learning of ;ac$+s
resale to !ar$ and of the latter+s revocation of acceptance# Alligator 3ashions
decided to call the loan and repossess the luggage. ,ho is entitled to the
luggage- See >A-99=.
(1) 9
st
transactionO
(a) ;ac$ B 1F Alligator 3ashions B SP with attached and
perfected %* filing& SIF collateral B luggage %equipment&
(2) Secured Transaction %A Sale B Article : transaction&
(a) ;ac$ B sellerF !ar$ B *uer/Article : claimant
(b) !ar$ still has possession
(3) =- 0s. 5ar&P /H 0s. =rticle 2 clai#ant (L2-+11(3)B L9-11)
(a) L9-11O /ecurity 2nterests =risin" Under C'apter 2 or 2=O A
SI arising under >:-K=9# >:-E=# >:-?99%c&# or :A-E=H%e& is su*@ect
to this chapter. 4owever# until the 1 o*tains possession of the
goodsO
(i) %9& the SI is enforcea*le# even if >A-:=<%*& has not *een
satisfiedF
(ii) %:& filing is not required to perfect the SIF
(iii) %<& the rights of the secured part after default * the 1
are governed * Chapter : or :AF and
(i0) %K& the SI has priorit over a conflicting SI created * the
1.
(4) B we are in favor of the Article : claimants as long as the claimant
has possession.
(5) !ar$ prevails. 4e has priorit *ecause he has possession
(a) 1 does not have possession
(b) As long as the 1 %;ac$& does not have possession# *ut the
*uer has possession# then the *uer will have priorit over
the SP
(c) Hossession of "oods for buyers is 0ery i#portant
(d) If !ar$ releases possession# he will not have priorit of the
luggage anmore. 4e has to hold on to the luggage to have
priorit.
2. Pro*lem H<- pg. 9H=--S7//7"S
a) 3acts- Ju wrote a *oo$ and sold it to *oo$stores directl. 4e sold it
to Cows$in *oo$store and the were insolvent and didn+t pa. Can he
H:
get the *oo$s *ac$- ,hat if cows$in lied and told them the were
solvent when the weren+t-
b) (ad Chec$- seller will have L7"I limited rights to reclaim the goods
w/in 9= das of when the *uer received the goods(eond the 9=
das# the seller cannot reclaim the goods.
c) /ellers .ie- if a 0endor lied to a seller t'en t'e /H is dee#ed to be
t'e purc'aser. 6or#ally1 a Hurc'asers interest $ill 'a0e priority
o0er t'e unpaid seller.
3. In re Arlco-- S7//7"
a) 3acts-
(1) Arle- the were an insolvent *uer
(2) Jale- the were the seller and tried to reclaim their te8tiles
sold to Arle after the found out that Arle was insolvent.
(3) CIT- the have a floating lien in all of the inventor that Arle
has2the filed the 3/S.2The are deemed to *e a
PU"C4AS7".
(a) PU"C4AS7"- a purchaser includes a secured part
with the perfection of a securit interest %even if it is
@ust in a floating lien on inventor&.
b) ,ho ,ins- Jale 4AS 9= 1AIS T5 J7T T47 J551S (ACG2
A3T7" T4AT# T47I 15'+T 4AL7 A /5T 53 5PTI5'S.
4. Summar of Unpaid Sellers "ights-
a) Iou don+t have man rights under UCC A
b) Iou should alwas file a 3/S under UCC A to *e protected.
c) (est wa to protect our seller client+s interest is to use A-<:K%*&.
5. Pro*lem HK- pg. 9A=
a) 3acts- 5'( had a perfected SI in all the cattle owned * 3amil 3arms of
Iowa# Inc.# %a !om and Pop operation&. ,hen it *ecame o*vious that the
farm was failing financiall# 5'( decided to pull the plug. (efore it did so#
it wanted to ma$e sure that the cattle were well fed# so the 5'( officer in
charge of loan management called Cow Chow# Inc.# and encouraged it to
ma$e another deliver of cattle feed to 3amil 3arms# even through it had not
*een paid for its last two deliveries. 5'( did not mention that it was a*out
to foreclose on the fattened cattle# which it did as soon as the had consumed
most of the new deliver %for which Cow Chow *illed 3amil 3arms in the
amount of )9=#===&. Cow Chow was an unsecured creditor# which 5'(
well $new. Is 5'( required to give Cow Chow an of the mone it reali6es
from the foreclosure sale- See >>9-9=< and 9-:=<F 'inth 1ist. Prod. Credit
Assn. v. 7d 1uggan# Inc.
(1) SP B 5'( %has perfected SI * filing&F collateral %cattle&# owned *
the 1 %33 of I&. Cow Chow is an unsecured seller/creditor
(2) 33 not doing well# in financial trou*le# so SP decided to pull the plug
%*ut wanted cattle to *e well-fed *efore the foreclose on them&
(3) 5'( G'7, the were going to foreclose# $new 1 was not paing
cow Chow
H<
(a) B acting in *ad faith
(4) Cases saO
(a) Courts do not li$e when SPs li$e 5'( here use this $ind of
dirt tactic. 1o no loo$ favora*l on them.
(b) ,ill demand that 5'( pas to Cow Chow the mone.
(c) 1on+t want 5'( to ta$e advantage of the unsecured creditor
%CC&# $nowing the situation that the 1 is in
b) ,ho ,ins- Cow Chow will win over 5'( *ecause it is a *ad faith
situation and courts don+t li$e parties that act in *ad faith.
4. Statutor /ienholders- li$e !echanic+s /iens %A-<<<&
1. Pro*lem HE- pg. 9A=
a) 3acts-
(1) "3C had a perfected SI in 4attie+s car that it noted on the title.
(2) !i$e+s garage had a statutor lien in the car *ecause it was in
its possession and it was fi8ing the car.
(3) !i$e lost possession of the car when he gave it *ac$ to 4attie
and therefore lost perfection.
b) Analsis for A- "3C had priorit *ecause !i$e lost possession.
c) Analsis for (- !i$e has priorit.
d) Analsis for C- Ies. "ecover of possession B recover of perfection
and priorit.
I. 3i8tures- pg. 9A9-
1. A-9=A%a& 1efinition- 3i8tures are goods that have *ecome so related to a
particular real propert that an interest in them arises under real propert law.
a) Jeorge v Commercial Credit Corporation- pg. 9A:
(1) 3acts- a compan gave Jeorge financing for the real estate
that he par$ed a mo*ile home on. 4e went *an$rupt. The
compan argued that the mo*ile home was a fi8ture of the
propert and therefore part of the propert the had a SI in.
(2) ;'ree Hart ;est for -ixtures-
(a) =ctual p'ysical annexation to t'e realty (t'e de"ree
of annexation).
HK
(b) =pplication or adaptation to t'e use or purpose to
$'ic' t'e realty is de0oted (if bot' t'e real property
and t'e fixture are used for t'e sa#e types of t'in"s)
(c) Ias it t'e intent of t'e person #a&in" t'e
annexation or adaptation to #a&e a per#anent
fixtureE
(3) 5utcome- the Court held in favor of the credit compan.
(4) "easoning-
b) Te8as Steps for 1etermining 3i8tures-
(1) /oo$ to I'T7'T %T<&
(2) /oo$ to 17J"77 53 A''7QATI5' %T9&
2. Perfection of a Securit Interest in 3i8tures-
a) A-E=:- Iays to Herfect a -ixtures /ecurity 2nterest
(1) %c&-!5"TJAJ7 3I/I'J- a mortgage instrument is effective
from the date of recording2IT IS 3I/71 AS A 3IQTU"7S
3I/I'J. %filed w/the count cler$&
(2) %*&- 3IQTU"7S 3I/I'J %"equirement for 3i8tures 3iling& to
*e sufficient# a 3/S that covers as-e8tracted collateral
%including oil and gas interests& or tim*er to *e cut# or which is
filed as A 3IQTU"7S 3I/I'J and covers goods that are or are
to *ecome fi8tures# then it !UST SATIS3I %a& A'1
(a) Indicate that it Covers the tpe of collateral
(b) Indicate that it is to *e filed in the real propert records.
(c) Provide a description of the real propert to which the
fi8tures are related %sufficient to give constructive
notice& A'1
(d) If the de*tor doesn+t have an interest of record in the
real propert# then provide the name of the record
owner. %li$e with a trailer or Pwest *uilding&
b) 3iling with the Secretar of State- %A-E=9%a&%:&&- ou file it in the
Secretar of State+s office2'5T 177!71 T5 (7 A 3IQTU"7S
3I/I'J 35" J551S T4AT A"7 5" A"7 T5 (7C5!7
3IQTU"7S.
c) Pro*lem HN- ou file the certificate with the secretar of state+s office.
3. Priorit "ules for 3i8tures-
HE
a) A-<<K-
(1) %C&- Jeneral "ule- in cases not governed * %d& or %h&# a
securit interest in fi8tures is su*ordinate to a conflicting
interest of an encum*rancer or owner of the related real
propert other than the de*tor.
(2) %1&- e8cept as provided in %4&# a Perfected securit interest in
fi8tures has priorit over a conflicted interest of an
encum*rancer or owner of the real propert if the de*tor has an
interest of record in or is in possession of the real propert
A'1
(a) The Securit Interest is a P!SI
(b) The Interest of the encum*rancer or owner arises *efore
the goods *ecome fi8tures A'1
(c) The SI is perfected * a fi8ture filing *efore the goods
*ecome fi8tures 5" ,IT4I' := 1AIS
T47"7A3T7".
(3) %4&- %Priorit of Construction !ortgagee&2a mortgage is a
construction mortgage to the e8tent that it secures an o*ligation
incurred for the construction of an improvement on land#
including the acquisition cost of the land# I3 a recorded record
of the mortgage so indicates. 78cept as otherwise provided in
%7& M %3&# a S7CU"ITI I'T7"7ST 26 -2T;U8</ %not one
filed $it' t'e /ec of /tate& is SU(5"1I'AT7 to a
C5'ST"UCTI5' !5"TJAJ7 if a record of the mortgage is
recorded (735"7 the goods *ecome fi8tures and the goods
*ecome fi8tures (735"7 the completion of the construction.
%A "efinance !ortgage is the same as a 5riginal Purchase
!ortgage&.
(4) %7&%9&- a perfected securit interest in fi8tures has priorit over
a conflicting interest of an encum*rancer or owner of the real
propert I3
(a) The de*tor has an interest of record in the real propert
5" is in possession of the real propert A'1 the
securit interestO
(i) Is perfected * a fi8ture filing (735"7 the
interest of the encum*rancer or owner is of
record %*/f the mortgagee records& A'1
(ii) 4as priorit over an conflicting interest of a
predecessor in title of the encum*rancer or
owner.
(5) %7&%:&- a perfected securit interest in fi8tures has priorit over
a conflicting interest of an encum*rancer or owner of the real
propert I3
(a) (efore the goods *ecome fi8tures# the SI is perfected *
A'I !7T451 permitted * this article and the
fi8tures are readil remova*leO
HN
(i) 3actor or office machinesF
(ii) 7quipment that is not primaril used or leased
for use in the operation fo the real propert 5"
(iii) "eplacements of domestic appliances that are
consumer goods.
b) Pro*lem H?-
(1) 3acts- Simon *orrow )Km from CS( to *uild an apartment
*uilding. Simon mortgages the real estate %mortgagor& and
gives the *an$ a SI in *oth the real estate# the appurtenances
and things affi8ed thereafter %*an$ B construction mortgagee&.
The mortgage contained a legal description and was filed in the
real propert records. Is this effective as a 3/S-
(2) Answer T9- es# it would *e effective as a f/s2as a fi8tures
filing.
(3) 3acts T:- Simon later *ought a furnace on credit from (last
3urnace and gave them a SI in the furnace. ,ho has priorit
*etween (an$ and P!SP %(last&2
(a) (an$ would as the furnace was put into the construction
*efore it was completed# giving it priorit under A-
<<K%h&.
c) Pro*lem HH-
d) /ewiston v Ge (an$ of !aine- pg. 9AN-
(1) 3acts-
(a) Ge (an$ loaned ):.Em to 1i(iase and got a SI in the
real propert %mortgage& and fi8tures. %A-E=:%c&&
(b) Ge (an$ filed the mortgage documents with the
count office.
(c) In 9AH? /(JO the had a P!SI in heating/AC unitsF
filed fi8ture filing in the Count 5ffice. Pro*lem with
the 3i8ture 3iling- %A-E=:%*&&2it was filed under a
different name for the de*tors2the G8+d with the
corporation rather than the individual who owned the
propert2AC units were installed in the Inn owned *
the individual.
(d) Ge (an$ made another loan to 1i(iase and when he
couldn+t ma$e the paments# the foreclosed on the Inn
owned * 1i(iase# I'C/U1I'J the AC Units.
(2) Analsis-
(a) Are the AC Units 3i8tures- %pg. 9AH&2Court said that
the were fi8tures.
(i) Phsicall ne8t to the real estate
H?
(ii) Put to the same purpose as the real estate was
used for.
(iii) Intent- %most important&- the intent of the
parties.
%a& /oo$ to use# notice# etc.
(b) A-<<K- 3IQTU"7S 3I/I'J P"I5"ITI- /ewiston
could still have priorit over Ge (an$ I3 the had a
P!SI in the AC units M if the met the requirements of
A-E=:%(& and made a C5""7CT 3i8tures 3iling.
(i) A-E=:%*&- 17(T5"+S 'A!7- the did not
put the correct name for the de*tors down for
the owner of the propert so therefore their
3IQTU"7S 3I/I'J was not adequate. %Purpose
of A-E=:%*& is to put everone on notice a*out
liens on the 1e*tor+s propert.&
e) Pro*lem HA- pg. :=9- A-<<K
(1) 3acts-
(a) The SP perfected * a fi8tures filing.
(b) Thee is also a ;udgment /ien Creditor
(2) Analsis- According to A-<<K%e&%<& the SP prevails *ecause it
perfects first# 7L7' I3 it did not file with the real propert
records %onl filed with the Sec of State.
f) Pro*lem A=- pg. :=9-
(1) 3acts-
(a) Tenants moved in and didn+t li$e the refrigerator that
Simon installed so had him remove it.
(b) She *ought another refrigerator on credit from 7b
Credit who had a P!SI in the refrigerator %consumer
goods&.
(c) 7b Credit had a SA *ut never filed a 3/S as it was
consumer goods.
(d) State law allows after-acquired propert mortgage to
reach lessee+s fi8tures.
(2) ,ho 4as Priorit- %(an$ holding mortgage or 7b Credit&
(a) >A-<<K%e&%:&%C& C perfected SI in fi8tures has priorit over a
conflicting SI of an encum*rancer I3
(i) (735"7 the goods *ecome fi8tures# the SI is
perfected %* an method&%es& and the fi8tures are
readily re#o0able %es& replace#ents of do#estic
appliances %Ies& that are consumer goods %es&
(ii) YPerfection P!SI in consumer goods C automatic
perfectionZ
(b) A-<<K%h&- I3 a mortgage was a C5'ST"UCTI5'
mortgage A'1 the fi8tures were installed *efore the
construction was completed# T47' the !5"TJAJ77
HH
has priorit over the SP holding a Perfected 3i8tures
3iling.
") Pro*lem A9-
(1) 3acts- assume that Tennant *ought a trash compactor and
remodeled her $itchen to accommodate the item. Should the
compan that sold it to her file a 3/S or are the automaticall
perfected.
(2) Analsis-
(a) A-<<K%e&%:&%C&- The Trash Compactor is not a
"7P/AC7!7'T of a 1omestic Appliance2
T47"735"7 157S'+T APP/I ,/ AUT5!ATIC
P7"37CTI5'.
(b) A-<=A %Comment <&- A 3IQTU"7S 3I/I'J IS
"7PUI"71 35" P"I5"ITI 5L7" C5'3/ICTI'J
I'T7"7STS I' 3IQTU"7S T5 T47 7QT7'T
P"5LI171 I' A-<<K.
(c) A-<<K%d&- it will '5T 47/P 7b C"71IT unless the
file a fi8tures filing within := das after Tenant installs
the fi8ture.
') Pro*lem A:- pg. :=:
(1) Analsis- CS( and (last need to negotiate a remed to the
situation2CS( should give (last some mone for the furnace
so that the would not have to repossess the furnace.
(2) A-N=K-
i) 5aple$ood 9an& A ;rust 0. /ears1 8oebuc& A Co. pa"e
22
99. ;C2/ C=/ 9<<6 :@<88U.<7 Q ;C2/ 2/ 6:; ;C< .=I
=6K5:8<F
9:. IssueO ,hether a 9
st
mortgage lender or a fi8ture financier is entitled to
priorit in the funds reali6ed from a foreclosure sale of the mortgaged
premises.
9<. 4oldingO 9
st
mortgage is entitled to priorit in such funds
9K. !aplewood (an$ is the holder of a 9
st
P! mortgage %dated Septem*er
:=# 9AHH and recorded 5cto*er E# 9AHH& on premises owned * the
Capers
9E. 5n !a :9# 9AHA# Sears filed a 3S covering a completel new $itchen#
consisting of new countertops# etc.# installed in the mortgaged premises.
Sears filed a 3S.
9N. 5n August 9H# 9AHA# Capers e8ecuted a :
nd
mortgage on the premises to
'; Savings (an$# which was recorded on August :<# 9AHA.
9?. Capers defaulted to *oth# and !aplewood filed a complaint for
foreclosure. Sears and !aplewood are fighting over the mone from the
anticipated foreclosure saleC Sears sas it has priorit %sas the P!SI
priorit applies to the proceeds of the @udicial sale instituted * a P!
mortgagee&.
HA
9H. The new $itchen Sears financed was a fi8ture %Sears had a perfected
P!SI in the fi8tures# *ut not the realt as a whole&
a. >A-<<K%d& C P!SI# when perfected# has priorit over the
conflicting SI of an encum*rancer/owner of the real estate[
SUP7"-priorit
*. 8e#edy C
i. Sears is '5T entitled to the proceeds of the @udicial sale
instituted * a P!
ii. >A-<9<%H& of '; Code C /ears can re#o0e t'e fixtures
%or not remove the fi8tures&
iii. Court sas re#o0al is t'e only re#edy a0ailable to
t'e# 6ot Dood .a$
3) /o $'at is t'e la$ no$E L9-)4 (ne$ in 21)
9. (etween the *an$ and the SP who wants to repossess[
a. (last+s lia*ilit is limited to the )9===.
*. L9-)4
i. %c& if a SP has priorit %Sears here& over
owners/encum*rances# after default * 1 %Simon here&#
ma remove the collateral from the real propert
ii. %d&[A person entitled to reimbursement
may refuse permission to remove until the
secured party gives ade'uate assurance for
the performance of the obligation to
reimburse.
9. 6e$ la$ allo$s re#o0al of t'e fixtures as
lon" as t'e /H pro0ides ade*uate assurance
iii. If 1 is in default# would ou %Sears& remove the $itchen-
:. The CA' under >:-N=K%c&# *ut is it a good
decision-
a. Sears should tr to get the construction
mee to pa them %in return for not
removing the $itchen&
*. Construction mee will negotiate with
Sears C the want the $itchen in there
for resale purposes
<. %c& B SP can remove# and %d& doesn+t have to
reim*urse for an compensation# onl has to
give assurance
K. Construction mee will *e willing to negotiate
with ou\
iv. 5verrules !aplewood U can re#o0e :8 ne"otiate to
&eepF
E. 5nl remed is not removal
N. The SP ma prefer not to e8ercise his removal
rights
a. I.e.# if an elevator was designed for a
specific *uilding# it would have little or
no value apart from the *uilding.
A=
?. Comment 3: Fixtures. (ubsection (b) is
new. )t ma%es clear that a security
interest in fixtures may be enforced either
under real"property law or under any of
the applicable provisions of *art +#
including sale or other disposition either
before or after removal of the fixtures
(see subsection (c)). Subsection b!
a"so ser#es to o#erru"e cases ho"din$
that a secured %arty&s on"y remedy
after defau"t is the remo#a" of the
fixtures from the rea" %ro%erty. See'
e.$.' Maplewood Bank & Trust ! Sears" #oebuck
& Co! 1 )25 =.2d 53+ (6.R./uper. Ct.
=pp.7i0.1993).
(ubsection (c) generally follows former
(ection ,"-.-(/). )t gives the secured
party the right to remove fixtures under
certain circumstances. A secured party
whose security interest in fixtures has
priority over owners and encumbrancers
of the real property may remove the
collateral from the real property. 0owever#
subsection (d) re'uires the secured party
to reimburse any owner (other than the
debtor) or encumbrancer for the cost of
repairing any physical in$ury caused by
the removal. This right to reimbursement
is implemented by the last sentence of
subsection (d)# which gives the owner or
encumbrancer a right to security or
indemnity as a condition for giving
permission to remove.
&) Pro*lem A<-
(1) "ural State (an$ v Seeds- P!SP with P!SI in the crop.
(a) A-<<K%i&- Seeds# Inc. prevails over the holder of the lien
on the real estate
(i) Comment :- a SP with a S/I in crops ta$es
priorit over a "eal 7state mortgagee+s interest.
l) Pro*lem AK- pg. :=?
(1) 3acts-
(a) 3armer *ought a dou*lewide trailer and moved it to his
lot# placed it on a foundation# attached various utilities
and *uilt a dec$ around it.
(b) If we are the attorne representing the *an$ on the loan
to )9==$ that farmer used to purchase the trailer with#
then 45, ,5U/1 I5U P7"37CT T47 3I/I'J 53
T47 S/I-
A9
(2) Analsis-
(a) A-<<K%e&%K&- Iou would loo$ to %e&%K& to see that it
would 4AL7 P"I5"ITI 5L7" T47 I'T7"7STS I'
3A"!7"+S "7A/ P"5P7"TI I3 T47I P7"37CT
PU"SUA'T T5 A-<99%A&%:& %notation on the
certificate of title&.
#) T7QAS /A, T5 17T7"!I'7 I3 IT IS A 3IQTU"7-
(1) Intent- whether the person affi8ing the goods intended them to
*ecome fi8tures.
(2) 1egree of Affi8ation- goods are fi8tures if the are affi8ed to
the real propert in such a manner that the cannot *e removed
without materiall damaging the real propert.
n) 37("UA"I 9AAN (A" 7QA! PU7STI5'-
(1) 3acts- 'elda as$s Crstal to advance her funds to *u an air-
conditioning unit %window unit& to install and use in a dance
studio that is attached to her home. The studio is owned * a
friend of 'elda who lives in CA. Crstal *elieves the air
conditioner ma *e considered a 3i8ture. Advice Crstal with
respect to the questions she has raised.
(a) 4ow can Crstal 1etermine whether the air-conditioner
*ecomes a fi8ture-
(i) /oo$ to Intent M degree of affi8ation.
(b) If the air conditioner is a fi8ture# what must Crstal do
to perfect a lien on it-
(i) 3ile a 3/S
(ii) Put down the 'A!7 53 T47 P"5P7"TI
5,'7"23"I7'1 53 '7/1A.
(c) If Crstal isn+t certain whether the AC is a fi8ture# then
what should she do to perfect- 3ile w/ the Sec of State
A'1 ma$e a fi8tures filing also2no automatic
perfection as it is not a C5'SU!7" J5512it is
considered equipment for the dance studio23I/7
,47"7 T47 17(T5" IS /5CAT712
CA/I35"'IA.
(d) If the AC is a fi8ture# under what conditions will
Crstal+s Perfected /ien have Priorit 5ver an 1oT
liens against the real propert-
(i) A-<<K%d&- she must have a fi8tures filing within
:= das of the item *ecoming a fi8ture.
(ii) Iou might also state that it is a "7!5LA(/7
15!7STIC APP/IA'C72!UST (7 A
"7P/AC7!7'T 53 A C5'SU!7" J551
%A-<<K%e&%:&%c&&2A'1 IS 7PUIP!7'T T4AT
IS '5T P"I!A"I/I US71 5" /7AS71
A:
35" T47 5P7"ATI5' 53 T47 "7A/
P"5P7"TI%A-<<K%e&%:&%*&&
o) ;ul :==9-
(1) ,hat Iou 4ave to do-
(a) Identif whether the TL is a fi8ture2loo$ to two part
test %intention and degree of affi8ation.
(2) ,hich Priorit "ule will Appl- 15'+T 4AL7 T5 J5 T5 A-
<<K%4& (/C T47"7 ,AS '5 3IQTU"7S 3I/I'J.
(3) (etween Anco and ;oe %*uer of 1L1 plaer& who has
Priorit-
(a) Is ;oe a (uer in the 5rdinar Course of (usiness-
'5# he isn+t a *uer in the ordinar course of *usiness
%under A-<:=& and so 7nco had priorit according to A-
<9?%*&.
(4) (etween 3ederal (an$ have a SI in the installment sales G8
signed * "a for the 1L1 plaer and the TL set-
(a) A-<<=%*& M A-<9:- the did not have possession of the
chattel paper signed * "a2
p) 3e*ruar :==K-
(1) (an$ M Jpsum Co with respect to the drwall- A-<<K%a&
tells us that it doesn+t appl to *uilding M construction
materials %UCC A 157S'+T APP/I 47"7&2not a fi8ture.
(2) Sin$s M Toilets- loo$ to TQ test.2loo$ to A-<<K%d& for
priorit rule.
(3) (an$ M Credit 7quip Co respecting the credit card verification
reader- /oo$ to A-<<K%e&%:&%A&2is it a fi8ture that is a factor
or office machine- %it wouldn+t fall under (&.
(4) (etween 3inance M /ight Compan- is it a fi8ture or regular
equipment- 3inance compan si the lien creditor and recorded
@udgment in the real propert records *ut 3I/71 /AT7.
(a) Are the /ights 3i8tures or "egular 7quipment- Iou
have to ma$e an assumption here2give : answers.
(i) 3i8tures- the light compan will prevail if it is
determined that it is a fi8ture.
(ii) 'ot a 3i8ture-
4. "ecap for 3i8tures-
a) If ou do a fi8tures filing under A-E=:%*& %where ou name the secured
part# the de*tor# the description of the land# and a T7C4'ICA/
S7'T7'C7 as$ing the cler$ to put it in the real-propert records.
b) A-<<K%c&- %Jeneral "ule&2the SP with an interest in the fi8ture ` the
78isting 7mcum*rancer with interest in "eal Propert including the
3i8ture.
A<
c) A-<<K%d&- %the P!SI e8ception to the Jeneral "ule&2there has to *e a
fi8tures filing done within := das.
d) A-<<K%h&- %The Construction !ortgagee 78ception to A-<<K%d&&-
P!SI "ule# I3 the goods *ecome fi8tures *efore the completion of the
construction A'1 I3 the construction mortgage is recorded *efore the
goods *ecome fi8tures.
e) A-<<K%e& M %f&- %(oth 78ceptions to A-<<K%h&&
f) A-<<K%e&%:&- "eadil !ova*le 3i8tures have priorit over other
encum*rancers *ecause the part selling the readil mova*le fi8tures
didn+t anticipate that it could *ecome a fi8ture. !UST (7 7IT47"
(1) 5ffice or 3actor machineF or
(2) 7quipment not used in the operation of the real propertF or
(3) "7P/AC7!7'T of 1omestic Appliances %Consumer Joods&
") A-<<K%e&%<&- SP with a S/I in 3i8tures vs /ien Creditor with Interest in
"eal Propert including a 3i8ture2T47 SP ,I// P"7LAI/ 5L7"
T47 /I7' C"71IT5" AS /5'J AS T47I P7"37CT 3I"ST (I
A'I !7T451.
') A-<<K%e&%K&- %!o*ile 4omes# etc.&2a SP with the perfected S/I in
C7"TI3ICAT7 53 TIT/7 goods prevails over other conflicting
interest in real propert %real estate mortgage& AS /5'J AS
perfection was gained through notation on t'e certificate of title.
i) A-<<K%f&- If the 7ncum*rancer C5'S7'TS to *e su*ordinate to the
SP with an Interest in the 3i8ture.
3) A-<<K%i&- %C"5PS& A SI in growing crops pre0ails over
encum*rancer+s interest in real propert.
LI. C'apter )P HriorityP -ederal Hriority for 7ebts and ;axes
A. The 3ederal Priorit Statute %<9 USC <?9<& note . she didn%t discuss this
$articular statute, -ust fro) (b/, down (but this see)s relevant0necessar1 to what
we discussed/
i. A *roadl worded "rant of pre-98 priority for =.. federal clai#s %no
matter how the arise&
1. B these are paid first when 1 *ecomes insolvent
ii. 31 U/C L 3+13. Hriority of Do0ern#ent clai#s
1. a!(! A claim of the nited (tates 1overnment
shall be paid first when2
a. (=) a person inde*ted to the Jovernment is insolvent and2
i. (i) the de*tor without enough propert to pa all
de*ts ma$es a voluntar assignment of propertF
ii. (ii) propert of the de*tor# if a*sent# is attachedF or
iii. (iii) an act of *an$ruptc is committedF or
*. (9) the estate of a deceased de*tor# in the custod of the
e8ecutor or administrator# is not enough to pa all de*ts of
the de*tor.
AK
2. a!)! This subsection does not apply to a case
under title ...
3. b! A representative of a person or an estate (except
a trustee acting under title ..) paying any part of a
debt of the person or estate before paying a claim of
the 1overnment is liable to the extent of the
payment for unpaid claims of the 1overnment.
iii. (ut courts have su*ordinated the federal claim to an earlier lien if the lien
is .choate0 %see *elow for definition&
iv. (ut SI creating a floating lien/after-acquired propert# future advances B
'5T choate# so is inferior to the federal claim %--- See page :=A-9= B
does this mean until 1 receives rights/value given----&
B. -ederal ;ax .ien and HriorityP 9i" Hicture
i. ,hen ou don+t pa our ta8es# the federal government gets a lien on our
propert
1. Covers A// of the TP+s propert# real or personal# presentl owned
or after-acquired
2. There is often a SP with a SI in the same propert
3. Issue B who has priorit-
4. 4ow should UCC A solve the priorit pro*lem-
a. The federal government wants to *e paid first
#. C'oate Concept- -ederal ;ax lien on ;ax Hayers Hroperty 0s. :t'er .iensP
;'e C'oate Concept
i. 5ne ConceptO The C'oate /ien
1. ,hen the other SP+s lien is choate# then it will have priorit over
federal ta8 lien
a. Also# must *e recorded *efore the federal ta8 lien occurs
2. I'at does c'oate #eanE
a. I1 of /ienor %Secured Part&
*. Amount of the lien
c. Propert attached %has to *e existin" property2'5T after
acquired&
3. (ut note that thse < requirements are met when a SI is attached and
perfected\
a. It has alread attached %we $now I1 of 1 from the 3S&# in
attachment# the amount of the loan %value given& will *e
providedF and the propert will attach %1 has right in
propert/power to transfer it&
*. If ou do this# ou seem to have met the requirements of a
choate lien and have priorit over the federal ta8 lien
4. !an lower courts have found that most SIs perfected under UCC
A A"7 sufficientl choate to come ahead of the US+s claim
AE
,. Herfection $rt =fter-=c*uired Hroperty and -uture =d0ancesP
i. 3loating lien concept %after acquired propert&
1. ,hen the 1 gets possession of the %new& propert# this is the point
when the SP has perfection
a. B that+s when 1 gets right in the computer B this is when
the SI *ecomes choate
ii. 3uture advances provided * the SP
1. 1 has the propert right in all of the collateral.
2. SP gives )9#=== loan# ta$es SI in collateral. The SI is perfected
onl up to the )9=== value.
3. If SP advances more mone %i.e.# )9=#===&# more value is given#
and the SI is perfected in collateral up to the new value B )9=#===
in collateral.
2. ;'e -ederal ;ax .ien and 9asic Hriority
i. >N<:9 C the lien held * the government is ver *road
1. L )321 . .ien for taxes. )f any person liable to pay any
tax neglects or refuses to pay the same after
demand# the amount (including any interest#
additional amount# addition to tax# or assessable
penalty# together with any costs that may accrue in
addition thereto) shall be a lien in favor of the nited
(tates upon all property and rights to property#
whether real or personal# belonging to such person.
ii. 3ote: (he didn4t go over# but boo% mentions (56)):
1. L )322 . Heriod of lien. nless another date is
specifically fixed by law# the lien imposed by section
N<:9 shall arise at the time the assessment is made
and shall continue until the liability for the amount so
assessed (or a $udgment against the taxpayer arising
out of such liability) is satisfied or becomes
unenforceable by reason of lapse of time.
iii. >N<:< C ;'e Hriority rule for federal tax lien
1. L )323 . @alidity and priority a"ainst certain persons:
a. a! *urchasers' ho"ders of security
interests' mechanic&s "ienors' and
+ud$ment "ien creditors.""The lien imposed
by section N<:9 shall not be valid as against any
purchaser# holder of a security interest#
mechanic's lienor# or $udgment lien creditor
until notice thereof which meets the
re'uirements of subsection (f) has been filed
by the (ecretary.
*. b! *rotection for certain interests e#en
thou$h notice fi"ed [omitted , didn-t
AN
discuss' not mentioned in boo. , LO/0
%ro#ision]
c. c! *rotection for certain commercia"
transactions financin$ a$reements' etc.1
i. (1) 2n "eneral.2%"egular S/I will ta$e priorit& To
the e8tent provided in this su*section# even though
notice of a lien imposed * section N<:9 has *een
filed %in the propert records& # suc' lien s'all not
be 0alid $it' respect to a security interest $'ic'
ca#e into existence after tax lien 'as been filed
(UT ,4IC42
1. (=) The securit Interest is in *ualified
property covered * the terms of a written
agreement entered into before ta8 lien filing
and constitutin"2
a. (i) a commercial transactions
financing agreement#
b. (ii) a real propert construction or
improvement financing agreement#
or
c. (iii) an o*ligator dis*ursement
agreement %li$e a tpe of note from a
*an$&# and
2. (9) The Securit Interest is protected under
local law against a 3ud"#ent lien arisin"#
as of the time of ta8 lien filing# out of an
unsecured obli"ation.
ii. (2) I'at 2s a Co##ercial transactions financin"
a"ree#ent.--3or purposes of this su*section2
1. (=) 7efinition.--The term >co##ercial
transactions financin" a"ree#ent> means
an agreement %entered into * a person in
the course of his trade or *usiness&2
a. (i) to #a&e loans to t'e taxpayer to
be secured by co##ercial
financin" securit acquired * the
ta8paer in t'e ordinary course of
'is trade or business# 5"
b. (ii) to purchase commercial
financing securit %other than
inventor& acquired * the ta8paer
in the ordinar course of his trade or
*usinessF
c. *ut such an agreement shall *e
treated as coming within the term
onl to the e8tent that such loan or
A?
purchase is #ade before t'e 4)t'
($?in 45 days) day after t'e date of
tax lien filin" or (if earlier) before
t'e lender or purc'aser 'ad
=C;U=. 6:;2C< or &no$led"e
of suc' tax lien filin".
2. (9) .i#itation on *ualified property.--The
term Rqualified propertR# when used with
respect to a commercial transactions
financing agreement# includes onl
commercial financing securit acquired *
the ta8paer *efore the KNth da after the
date of ta8 lien filing.
3. (C) Co##ercial financin" security
defined. --The term Rcommercial financing
securitR means %i& paper of a $ind
ordinaril arising in commercial transactions
%li$e promissor notes# etc.&# %ii& accounts
receiva*le# %iii& mortgages on real propert#
and %iv& in0entory.
a. '7IT47" 7PUIP!7'T 5"
C5'SU!7" J551S A"7 I' T47
SA37 4A"(5"\\\\\\\
4. (7) Hurc'aser treated as ac*uirin"
security interest.--A person who satisfies
su*paragraph %A& * reason of clause %ii&
thereof shall *e treated as having acquired a
securit interest in commercial financing
securit.
iii. (3) 8eal property construction or i#pro0e#ent
financin" a"ree#ent.2Yo#itted U not discussed
in boo& or class U lon" pro0isionN
d. d! 234day %eriod for ma.in$
disbursements.""7ven though notice of a lien
imposed by section N<:9 has been filed# such lien
shall not be valid with respect to a security
interest which came into existence after tax
lien filing by reason of disbursements made
before the 8+th day after the date of tax lien
filing# or (if earlier) before the person ma%ing
such disbursements had actual notice or
%nowledge of tax lien filing# but only if such
security interest2
i. (1) is in propert %A& su*@ect# at the time of ta8 lien
filing# to the lien imposed * section N<:9# and %(&
AH
covered * the terms of a written agreement entered
into *efore ta8 lien filing# and
ii. (2) is protected under local law against a @udgment
lien arising# as of the time of ta8 lien filing# out of
an unsecured o*ligation.
iv. This is one of the few federal priorit schemes out there
1. ,e usuall loo$ to state law for priorit
v. (ut here# loo$ to federal law for priorit
1. (ut loo$ to state law to see what is required for recording
2. B To prevail over purchasers# SPs# mechanic+s lienors# and ;/Cs#
the federal ta8 lien must *e 3I/71 in the place designated under
state law %>N<:<%f&&
vi. U./. 0. <state of 8o#ani pa"e 21 %9AAH&
1. 3acts- there was a @udgment lien placed on the 1e*tor+s propert in
9AHE. The 3ed. Jov. sas that the have a ta8 lien on the propert
2. The federal priorit statute ><?9<%a& provides that a claim of the
US government shall *e paid first when a 1+s estate can+t pa all
its de*ts %government has a*solute priorit&#
3. *ut the Ta8 /ien Act of 9ANN provides that the federal ta8 lien shall
not *e valid against ;udgment /ien Creditors %;/CS& until a
prescribed notice (i.e.1 $it' t'e district court) 'as been "i0en
4. IssueO 1oes this statute require that a federal ta8 claim *e given
preference over a @udgment creditor+s perfected lien on real
propert even though such a preference is not authori6ed * the
3ederal Ta8 /ien Act-
5. 3actsO "omani Industries o*tained a @udgment lien against 3rancis
"omani %was recorded and *ecame a lien on all of 1+s real
propert B P7"37CT71&. Then# the I"S filed ta8 liens on the
same propert %for unpaid ta8es&. 1 died. 28/ didnt "i0e t'e
notice re*uired by t'e ;ax lien =ct.
a. ;/ was filed *efore the federal ta8 lien was filed
*. , ' Francis Ro)ani*
c. 34# ' Ro)ani Industries
d. IR" ' lien holder
6. 3ederal Priorit vs. I"C Ta8 /ien - the law is not settled on this
issue. Court questions how to harmoni6e the : statutes. In the
past# the court has held that other acts were to *e given effect
despite the Priorit Statute+s literal# unconditional conte8t %i.e.#
under the 'ational (an$ Act# (" law# etc.&.
7. Coldin"P ;'e 19)) =ct 'as t'e effect of li#itin" t'e operation
of t'e federal priority statute as to tax debts
a. .i#its L)321 (she said this, even though book see)ed to
be )ore concerned with 56786(a//
AA
*. B the federal ta8 lien Act# rather than the federal priorit
statute# is the governing statute when the government
claims a preference in the insolvent estate of a delinquent
ta8paer and# therefore# an unrecorded %no notice to district
court& federal ta8 lien did not have priorit over a ;udgment
/ien that had *een perfected under Pennslvania law.
c. B the ;/C was recorded *efore the federal ta8 lien. People
who filed *efore didn+t have notice
i. B the federal government+s liens are '5T valid
against the ;/C+s earlier lien. 3ederal government
not given super-priorit
d. The ;/ will provide I1# I1 the propert# etc. B the <
requirements are met under the choate analsis# and it was
propert filed
e. Consistent with the choate concept to allow the ;/C to
retain priorit
i. Do0ern#ent $ill only pre0ail if t'ey file -28/;
1. -ederal tax lien #ust be filed (a"ainst t'e
;Hs property) before perfection of /2 in
t'e sa#e property
2. 2f so1 federal tax lien 'as priority
ii. 2f federal "o0ern#ent files later t'e ot'er lien
is c'oate and 'as priority
8. 4ow to appl this to secured transactions %T4IS IS "7A/
P"5P7"TI&
a. =ll t'is case is about !a$e sure that our client %the
other SP& perfects its interest as soon as possi*le. If the
federal government+s interest comes later# this SP+s lien will
*e choate and the federal government+s ta8 lien will not
have priorit
vii. Hroble# 9)1 Ha"e 22P
1. 5'( had a perfected SI in the inventor# accounts receiva*le#
instruments# and chattel paper of an automo*ile dealership named Smiles
!otors# to which the *an$ made periodic loans. Smiles !otors failed to
pa its federal ta8es# and the I"S filed a ta8 lien in the proper place on
5cto*er 9. 5n the first das of 'ovem*er and 1ecem*er# new shipments
of cars arrived at Smiles+s lot# and all during the ear Smiles continued to
sell cars on credit# generating chattel paper and accounts receiva*le.
PT9--1oes the filing of the ta8 lien cut off 5'(+s floating lien in whole
or in part-
i. 9:B ' ;$erfected< "I
ii. #ollateral ' inventor1, accounts, Instru)ents, chattel
$a$er
9==
1. ;'is is *ualified property Q commercial
financing securit# covered * the terms of a
written agreement %%c&%9&%A&# %:&%(&&
iii. , ' ")iles
iv. , ac=uired new inventor1
v. 9:B $rovided $eriodic loans ' 9:B has a floating lien
*. Floating lien
i. SI in the collateral %inventor# Accounts# etc&
ii. The SI floats# covers the new things she gets
iii. This should *e spelled out in the SA
c. Govern)ent filed ta> lien on 9ctober 8, so ?@ da1s later is
:ove)ber 8?
i. Jovernment gives SP KE das
ii. 5'( has no $nowledge of the ta8 lien filing
d. I' PA"T
i. new collateral acquired * Smiles in the KE das
following the ta8 lien filing ta$es priorit# *ut not that
after KE das of the ta8 lien filing
ii. As to the 6o0e#ber s'ip#ent# 5'( has priorit B
>N<:<%c&
1. B falls within the KE das grace period
2. Perfected B the received the shipment B "ot
ri"'ts in t'e 6o0e#ber in0entory C so >A-
:=<%*& B attached# so perfection occurs then
iii. As to the 1ecem*er shipment# the 3ederal Jovernment
has priorit *ecause the shipment arrives A3T7" the KE
da period after the filing of the 3ederal Ta8 /ien has
e8pired.
e. 'otice to SP (an$ Cancels Priorit- if it had ACTUA/ '5TIC7
of the ta8 lien %if the see the documents# etc.2not constructive
notice li$e *eing told& T47' T47 J5L. ,5U/1 4AL7
P"I5"ITI.
i. >N<:<%c&%:&%A& requires hat the loan has to *e made
without $nowledge of the ta8 lien filing
1. IS constructive $nowledge not enough- The
I"S had filed\
a. '5 C have to have actual &no$led"e
within the KE das for it to matter
b. Gnowledge means actual $nowledge
c. /awers will purposel not search the
filings so the don+t get actual
$nowledge
2. %*ut if 5'( didn+t $now at the time# and then
later discovered it# its later discover in no wa
affects it s priorit during the KE da period&
9=9
viii. Hly#out' /a0in"s 9an& 0. U./. 2.8./. pa"e 222
1. 4ospital owed 1ionne %nursing home& )?EG2she had a G8 right to
pament on !arch <9# 9AAE# and 1ionne owed the (an$ and the I"S
%*oth had valid liens on the mone that 4ospital owed to 1ionee&.
a. 3acts
i. (an$O 1 owned a nursing home %Jreenlawn& # and on
Septem*er ::# 9AA<# (an$ filed a 3S for its SI in the
nursing home and other assets of 1 %*efore e8tending
credit&.
1. 5n April 9<# 9AAK# 1 e8ecuted an )HEG
promissor note to (an$# granting (an$ a SI in
all personal propert individuall and as sole
proprietor of Jreenlawn B includes cash from
services of 1# inventor# receiva*les# contract
rights# etc.
2. She defaulted on this note.
ii. I"SO 1 failed to ma$e 3ICA %federal insurance&
paments# and the I"S filed a ta8 lien on 1ecem*er 9A#
9AAK# and again on 3e*ruar 9K# 9AAE.
iii. 4ospitalO !arch <9# 9AAE - Contract C 1 would help
hospital o*tain license to operate a nursing facilit in
return for pament. This contract was entered into
e8actl KE das after the :
nd
ta8 lien filing * the I"S.
The 4ospital still owes her )?E#=== %which the 4ospital
paid to the court to distri*ute&
1. I"S/(an$ are fighting over this mone
*. , ' ,ionne* "+ ' IR" ' ta> lien on ,%s $ro$ert1* "+ ' Bank
(collateral ' all $ersonal $ro$ert1, 2A#. ' see above/
2. Issue I'ic' lien (t'e 9an& or t'e 28/) 'as priorityE
a. Case defines .commercial financing securit0 and .qualified
propert0
i. Inventor# accounts# instruments %qualified propert&
Acquired within KE das following the filing of the
federal ta8 lien
ii. >N<:<%c& e8tends the priorit of these prior SIs to certain
.qualified propert0 that the ta8paer acquires even
A3T7" the government has filed notice of its ta8 lien.
%certain after-acquired propert&
1. To fall in this safe har*or for after acquired
propert# it must *eO
2. A SI in .qualified propert covered * the terms
of a written agreement entered into *efore the
ta8 lien filing0
a. %%c&%9&%A&%i&& B includes a .commercial
transactions financing agreement0 B an
agreement to ma$e loans to the TP to *e
secured * commercial financing
securit acquired * the TP in the
ordinar course of *usiness
9=:
3. A'1 must *e entered into within KE das of the
date of the ta8 lien filing
a. The commercial financing securit can
*e paper# accounts receiva*le# etc. B and
these definitions all require that 7
ac*uire 82DC;/ (to pay#ent)
i. !ust *e acquired * TP *efore
the KN
th
da after the date of the
ta8 lien filing
iii. 4ere# 1 signed the personal service contract e8actl KE
das after the I"S+s second ta8 lien notice.
*. 7id 7 ac*uire ri"'ts to t'e J+51 (Contract right- Proceeds
of contract rights- Accounts-&
i. If not# then the I"S+s lien ta$es priorit
ii. If so# then the (an$+s lien trumps the I"S+s lien %*ecause
the 4ospital contract is commercial financing securit#
and the (an$ agreement is a commercial transactions
financing agreement&. The (an$+s SI is in qualified
propert# and the )?E#=== would fall within the safe
har*or for after-acquired propert.
1. 4ere# this involved a ri"'t to pay#ent %this
means accounts&
a. So this IS commercial financing securit
b. SP gets *enefit of KE das
i. The contract rights %to *e paid&
was acquired * 1 at the time of
the contracting B I=/ $it'in
45 days of t'e tax lien filin"
2. B SP has priorit
a. Q are *ualified property protected by
L)323s safe 'arbor
b. ;'e 9an&s lien tru#ps t'e 28/s
3. "eversed# remanded to decide if 1 entered into the contract in the
ordinar course of trade/*usiness
ix. H5/2 and -ederal ;ax .ienP -ederal ;ax lien (existin"1 filed) 0. H5/2 (post-
tax lien)
1. There is a twist wrt P!SIs
2. Hroble# 9+1 Ha"e 229
a. Si8 months after the I"S filed a ta8 lien against her# Charlene
!cJee *ought a fire e8tinguisher sstem for her horse sta*les.
She purchased the sstem on credit from Ging Protection
7nterprises# which reserved a P!SI in itself and perfected it. Is
the I"S+s line superior to Ging+s P!SI-
i. It has *een N months B clearl out of the KE da window
ii. , ' McGee
iii. "+ ' IR" ' ta> lienholder
iv. +M"+ ' Bing . collateral (fire e>tinguisher/
v. '5 Ging+s P!SI has priorit
9=<
1. 4ere# there is a perfected P!SI2the had to
file a financing statement with the Secretar of
State where the 17(T5" is located.
2. "evenue "uling NH-E?# and In re Specialt
Contracting M Suppl# Inc. C Sas .the S Ct has
recogni6ed that a H5/2 is entitled to priority
o0er a pre0iously filed federal tax lien. The
priorit of a P!SI is *ased on the theor that the
propert su*@ect to the H5/2 belon"s to t'e
seller rat'er t'an t'e taxpayer[0
3. B Ging Protection has priorit B the P!SP
prevails
vi. Holicy U t'e property concept
1. H5/H is closer to t'e property B is giving it to
the 1 * providing the 1 credit
F. ;ax liens and -U;U8< =7@=6C</
i. >N<:<%d&-- =fter t'e filin" of t'e tax lien# the TP+s financing creditor ma ma$e
a ne$ loan# e8pecting it to *e secured * an existin" perfected SI in the collateral
listed in the SA2the SP will still have priorit over the ta8 lien I3 the 3uture
Advances provided to the 1e*tor are given ,IT4I' KE das after the filing of
the federal ta8 lien.
1. C provides future advances %B value is given&
ii. 5ore on L)323(d) C
1. d! 234day %eriod for ma.in$ disbursements.""7ven
though notice of a lien imposed by section N<:9 has been filed#
such lien shall not be valid with respect to a security interest
which came into existence after tax lien filing by reason of
disbursements made before the 8+th day after the date of tax
lien filing# or (if earlier) before the person ma%ing such
disbursements had actual notice or %nowledge of tax lien filing#
but only if such security interest2 (!A34T 0A97 A!TA:
3;T)!7)
a. (1) is in propert %A& su*@ect# at the time of ta8 lien filing# to the lien
imposed * section N<:9# and %(& covered * the terms of a written
agreement entered into *efore ta8 lien filing# and
*. (2) is protected under local law against a @udgment lien arising# as of
the time of ta8 lien filing# out of an unsecured o*ligation.
2. I"C >N<:<%d& gives protection to future advances made without
$nowledge of the ta8 lien in the KE das after its filing if the advance is
collaterali6ed * a perfected SI in e8isting propert of the ta8paer# such
as equipment
a. B If loan made without $nowledge of the ta8 lien and within KE
das and I3 the advance is collaterali6ed * a perfected SI %the 1
has a lot of propert# and SP alread filed 3S# and is givine new
value now&
3. Unli&e (c) and (e)1 t'is pro0ision tells us t'at t'ere is 6: .252; :6
;C< G267 :- H8:H<8;K
a. B does not have to *e inventor# paper of a $ind#...etc.# li$e in %c&
9=K
iii. Hroble# 9,1 Ha"e 23P RU7D5<6; .2<6/
1. !arie !edici owned a hat factor. She financed her *usiness through as
series of loans from the "ichelieu State (an$ pursuant to an agreement
* which she gave the *an$ a SI in all of the factor+s equipment# and the
*an$ agreed to loan her mone from time to time .as it thin$s prudent.0
A 3S covering the equipment was filed in the proper place. 5n August 9
she owned the *an$ )9#E== %having paid most of the prior loans&. The
equipment consisted of two machinesO the 4a*s*urg 4at (loc$er %worth
)?#===& and the 4uguenot 3elt Press %worth )E#===&. 5n that date the
U.S. filed a federal ta8 lien against all of !edici+s propert. 5n August
<9# the *an$ loaned her another )9=#===.
a. , ' Medici
*. "+ ' Bank ("I in all factor1 e=ui$)ent/ ' agree to future
advances, F" filed
i. 3iled 3S in the e8isting collateral
ii. Cad D )achines on E08
c. E08, F" filed ta> lien (?@ da1s later ' G08@/
d. E068 . Bank )ade future advance
e. %a&
i. Assuming the *an$ did not $now of the ta8 lien on
August <9# does the *an$ or the U.S. have priorit in the
equipment-
1. See I"C >N<:<%d& ;'e 9an& pre0ails
a. B protection to future advances made
without $nowledge of the ta8 lien in the
KE das after its filing if the advance is
collaterali6ed * a perfected SI in
e8isting propert of the ta8paer
ii. I'at if t'e ban& did &no$-
1. Then# the I"S would have priority
f. (b) =ssu#e t'ere is no tax lien1 but on =u"ust 13 .ouis 7upes
paid 5edici J51 cas' for t'e Cu"uenot -elt Hress# and on
August <9 the *an$ loaned her the )9=#===. 1oes the purchase
cut off the *an$+s SI-
i. ,u$es ' bu1er ' :9A a Bu1er In 9rdinar1 #ourse (M
doesn%t sell this kind of e=ui$)ent, onl1 hats/
1. Bought felt $ress E08@
2. Bank further advance E068
ii. Can Cut off *an$+s SI if *an$ $new of the *uer+s
purchase
1. See L9-323(d)O 78cept as otherwise provided in
%e&# a buyer of "oods ot'er t'an a 92:C ta&es
free of a /2 to t'e extent t'at it secures
ad0ances #ade after t'e earlier of
a. (1) t'e ti#e t'e /H ac*uires
&no$led"e of t'e buyers purc'ase
b. (2) 45 days after t'e purc'ase
9=E
2. In This Situation- in this situation# the (an$
,5U/1 '5T (7 CUT 533 *ecause it
provided the loan within KE das after the
purchase of the machine\\\\
iii. 7oes it #atter $'et'er or not t'e ban& &ne$ of t'e
sale prior to t'e =u"ust 31 loanE
1. I7S C if *an$ did not $now of *uer+s purchase#
then its SI is '5T cut off until KE das after the
purchase %SI would not attach to advances made
after KE das&
2. /ee L9-323(e)P %e& Su*section %d& does not
appl if the advance is made pursuant to a
commitment entered into without $nowledge of
the *uer+s purchase and *efore the e8piration of
the KE-da period.
g. %c& Instead of *uing the machine# as in the last paragraph#
assume that 1upes in another creditor of !edici. 5n August 9E
he levied e8ecution on the felt press pursuant to a @udgment. If
he did this with full $nowledge of the *an$+s SI and if with
notice of his lev the *an$ still loans !edici the )9=#=== on
August <9# does 1upes or the "ichelieu State (an$ have the
superior interest in the felt press as to the future advance-
i. ,u$es ' 34# on E08@ ' filed against ,%s $ro$ert1
ii. Vs "I on sa)e $ro$ert1 to secure future advances
h. This is '5T a federal ta8 lien pro*lem C loo$ to >A-<:<\
i. Similar to federal ta8 lien provision
ii. L 9-323. -uture =d0ances.
1. (a) [5hen %riority based on time of
ad#ance.] 7xcept as otherwise provided
in subsection (c)# for purposes of
determining the priority of a perfected
security interest under Section A-<::%a&%9&#
perfection of the security interest dates
from the time an advance is made to the
extent that the security interest secures
an advance that:
a. %9& is made while the securit interest is
perfected onlO
i. %A& under Section A-<=A when it
attachesF or
ii. %(& temporaril under Section A-
<9:%e&# %f&# or %g&F and
b. %:& is not made pursuant to a commitment
entered into *efore or while the securit
interest is perfected * a method other than
under Section A-<=A or A-<9:%e&# %f&# or %g&.
2. (b) [Lien creditor.] 7xcept as otherwise
provided in subsection (c)# a security
9=N
interest is subordinate to the rights of a
person that becomes a lien creditor to the
extent that the security interest secures
an advance made more than 8< days after
the person becomes a lien creditor unless
the advance is made:
a. %9& without $nowledge of the lienF or
b. %:& pursuant to a commitment entered into
without $nowledge of the lien.
3. (c) [6uyer of recei#ab"es.] (ubsections
(a) and (b) do not apply to a security
interest held by a secured party that is a
buyer of accounts# chattel paper# payment
intangibles# or promissory notes or a
consignor.
4. (d) [6uyer of $oods.] 7xcept as
otherwise provided in subsection (e)# a
buyer of goods other than a buyer in
ordinary course of business ta%es free of a
security interest to the extent that it
secures advances made after the earlier
of:
a. %9& the time the secured part acquires
$nowledge of the *uerSs purchaseF or
b. %:& KE das after the purchase.
5. (e) [7d#ances made %ursuant to
commitment: %riority of buyer of
$oods.] (ubsection (d) does not apply if
the advance is made pursuant to a
commitment entered into without
%nowledge of the buyer's purchase and
before the expiration of the 8<"day period.
6. (f) [Lessee of $oods.] 7xcept as
otherwise provided in subsection (g)# a
lessee of goods# other than a lessee in
ordinary course of business# ta%es the
leasehold interest free of a security
interest to the extent that it secures
advances made after the earlier of:
a. %9& the time the secured part acquires
$nowledge of the leaseF or
b. %:& KE das after the lease contract *ecomes
enforcea*le.
7. (g) [7d#ances made %ursuant to
commitment: %riority of "essee of
$oods.] (ubsection (f) does not apply if
the advance is made pursuant to a
commitment entered into without
%nowledge of the lease and before the
expiration of the 8<"day period.
iii. The 9an& 'as t'e superior interest B this is within KE
das % not more than KE das after 1upes *ecame a ;/C&
9=?
1. See L9-323(b)O 78cept as otherwise provided in
%c&# a SI %(an$& is su*ordinate to the rights of a
person that *ecomes a lien creditor %1upes& to
the e8tent that the SI secures an advance made
#ore t'an 45 days after the person *ecomes a
lien creditor unless the advance is madeO
a. %9& without $nowledge of the lienF 5"
b. %:& pursuant to a commitment entered
into without $nowledge of the lien.
2. B E08@ . 34 filed* bank loaned , H on E068
(within ?@ da1s, 2V2: !IAC BA:B%" FF44
B:9!42,G2 of the lev1I/
3. ;'is differs fro# t'e tax lien statute Q
&no$led"e durin" t'e 45 days doesnt #atter
4. <0en $it' &no$led"e1 t'e /H $ill pre0ailF
iv. If the *an$ did not $now of the lev * 1upes on August
9E *ut loaned !edici an additional )E#=== on 5cto*er
9E# who would have priorit as to this advance-
1. If made outside the KE das period =67 with
$nowledge# then the SP will prevail over the
;/C
2. The 9an&
a. 'ow# is more than KE das# *ut did not
have $nowledge of the lien
T@. (an$ruptc and UCC A-
A. Automatic Sta in (an$ruptc- Upon the filing of the *an$ruptc the sta will
come in and stop an creditor from collecting on the de*t that was owed them
prior to the *an$ruptc filing.
i. 7ven for Secured Creditors# if the want to get paid then the have to go
through the (an$ruptc Court process.
B. Loida*le Transfers- if a de*tor transfers an asset and doesn+t get enough in return#
then *an$ruptc law will cause the transfer to *e voided and the asset returned to
the estate.
#. Tpes of (an$ruptc-
i. Chapter ?- the de*tor liquidates and ceases *usiness.
ii. Chapter 99- the de*tor attempts to reorgani6e and continue in *usiness2
ver few actuall do this2must *e a large compan.
iii. Chapter 9<- a sort of reorgani6ation for individuals.
,. Trustee+s Powers-
i. Strong-Arm Clause- %99 USC > EKK%a&&-
ii. The o$ the distri*ution process from the de*tor to the creditors# *oth
secured and unsecured.
iii. A *an$ruptc trustee 4AS P"I5"ITI over a client+s unperfected securit
interest.
9=H
iv. A Trustee ,I// '5T cut off a P!SI grace period for perfection however
%the := da temporar perfection&2I5U 15'+T '771 T5 3I/7 A
!5TI5' 35" "7/I73 3"5! STAI (735"7 I5U P7"37CT I5U"
S7CU"ITI I'T7"7ST.
2. Preferences-
i. It includes the A= das *efore the filing of the *an$ruptc.
ii. If an creditor gets paid within A= das of the *an$ruptc filing then it will
*e seen as a preference and therefore will *e .suc$ed *ac$0 into the
*an$ruptc estate.
iii. 1efinition- an transfer made within A= das of the *an$ruptc filing that
gives the creditor more than what it is entitled to under a hpothetical
chapter ? distri*ution proceeding.
iv. =ffir#ati0e 7efenses to =0oidance - %99 USC >EK?%c&&2the prevent the
trustee from avoiding the preference that our client received2as the are
affirmative defenses# however# then ou have the *urden of proof %as the
creditor& to raise and prove these.
1. Contemporaneous 78change of Lalue-%EK9%c&%9&& the transfer *
the 1e*tor to the Creditor was a contemporaneous e8change of
loan/value to the de*tor.
a. >EK?%e&- ,hen do ou have to perfect the .transfer-0
i. %:&%A&- a transfer is made at the time such transfer
ta$es effect *etween the transferor and the
transferee if such transfer is perfected at# or within
9= 1AIS T47"7A3T7".
ii. %:&%(&- at the time such transfer is perfected# if
such transfer is perfected after such 9= dasF 5"
iii. %:&%C&- immediatel *efore the date of the filing of
the petition# if such transfer is not perfected at the
later of
1. The commencement of the caseF or
2. 9= 1AIS after such transfer ta$es effect
*etween the transferor and the transferee.
%might *e <= das now with the new law&
2. EK?%c&%:&- the transfer is for pament of a de*t incurred * the
de*tor in the .5rdinar Course of (usiness.0
3. EK?%c&%<&-
a. P!SI in de*tor+s P! propert
*. Perfected within := das %might now *e <= das with the
new law&
c. ,hen do ou have to perfect the secured tansaction
involving P!SI# >EK?%e&.
4. EK?%c&%K&- after such transfer# such creditor gave '7, LA/U7 to
or for the *enefit of the de*tor
9=A
a. 'ot secured * an otherwise unavoida*le securit interestF
A'1
*. 5n account of which new value the de*tor did not ma$e an
otherwise unavoida*le transfer to or for the *enefit of such
creditor.
5. EK?%c&%E&- a perfected securit interest in inventor or A" or the
P"5C771S 53 7IT47".
v. Pro*lem AA-
1. 3acts- Sun# who owns a restaurant goes *an$rupt and has tons of
unsecured creditors. 5n April 9? Sun got a loan from the *an$ and
right *efore the *an$ could perfect their interest Sun went
*an$rupt.
2. Puestion T9- can the trustee avoid the *an$+s securit interest
under >EKK%a& of the Code- I7S2T47 AUT5!ATIC STAI
,I// ST5P T47! 3"5! 3I/I'J.
3. Puestion T:- ,hat result if the *an$ had filed its financing
statement two seconds *efore the *an$ruptc petition was filed-
a. Under >EKK# the simple answer T can '5T avoid this
granting of a SI
*. (ut later# when we loo$ at the preferences# this answer is much
more comple8 %we would have to loo$ at if it was a preference&
4. %c& If the *an$+s interest had *een a P!SI# would the filing of the ("
petition have cut off the usual := da grace period %of >EK?%c&%<&%*&&-
See >EKN%*& of the Code.
a. '5 B there is no cutting off of the grace period/P!SI B there is
the := da grace period. (ut ou !UST file the 3S within this
:= das# or else ou are unperfected and ou lose out to ("
trustee.
vi. Pro*lem 9==-
1. 3acts- 5n ;une H# (usiness Corporation *orrowed )H=#=== from 5'(
and gave the *an$ a SI in its equipment %worth )9==#===&. 5n ;ul 9H#
5'( filed a valid 3S in the proper place. The ne8t da# (C filed its ("
petition.
a. 2=ui$)ent ' worth H8JJ,JJJ* 4oan is HEJ,JJJ
i. BA:B is oversecured
*. 4oan ' 3une E* # $erfected a )onth and 8J da1s later, then the
, filed $etition
2. Puestion T9- Can the trustee destro 5'(+s secured position and turn it
into a general creditor under the theor that the delaed perfection is a
preference-
a. /H sat on its ri"'t1 and didnt perfect until $ay later Q
perfection occurred a #ont' and 1 days later
*. Is this a preference-
i. (" filing date B ;ul 9A
ii. 9 days before t'is Q includes t'e Rune , loan Q is in
t'e preference period
99=
iii. This is a delaed perfection
iv. 78ceptions to preference are under %c&
1. 'ot %E&# %<&
2. Is this ordinar course of *usiness %:&- 'o C no
pament *ac$ here
3. %c&%9&- Contemporaneous e8change-
4. 6: Q no conte#poraneous exc'an"e
5. 5'( can not argue that perfection a month later
was contemporaneous
6. B it too$ too long
7. 'ot an e8ception to the preference
8. B this delaed perfection was deemed as a
preference %can not squee6e it in this e8ception&
B can+t use %c&%9&
v. I7S2T47"735"7 T47 (A'G ,I// (7
C5'SI17"71 A' U'S7CU"71 C"71IT5".
3. Puestion T:- If 5'( had perfected on ;une H *ut the de*tor made some
e8traordinar paments to 5'( in the A=-da period *efore the filing of
the petition# could the trustee use >EK? to ma$e 5'( pa that mone
*ac$ into the estate-
a. Perfection on the date of the loan %perfected right awa&
*. If# i.e.# on ;une 9=# the 1 paid 5'( ):=G# can the T avoid this
%must 5'( give it *ac$ to T so T can put it in propert of the
estate-&
c. 6:; a preference (not e0en in L54+(b) to be"in $it') Q 'e
$as :@<8-secured and perfected ti#ely1 so (5) is not #et1 so
you dont e0en 'a0e to "et into t'e exceptions
i. Q 'e did not recei0e #ore t'an 'e $ould recei0ed
under C'apter + . . .
4. Puestion T<- 3inall# again assume that 5'( had perfected on ;une H
*ut the collateral was onl worth )N=#=== %the de*t was still )H=#===# so
the *an$ is undersecured&. ,ould routine pay#ents #ade to ser0ice
t'is debt be preferentialE See >EK?%c&%:&F Union (an$v. ,olas
a. 4ere# the loan was undersecured
*. (UT it is a routine pament
i. 8outine pay#ents1 e0en for an undersecured C1 $ill
be o& Q non-preferential
ii. ,ill *e in the 5C( e8ception
1. 1id not receive more than were entitled to B
falls into e8ception for preferences
vii. Pro*lem 9=9-
1. 3acts- 5n 'ovem*er 9 the Pigg 'ational (an$ loaned Germit )9#===
to *u a *an@o he wanted for his nightclu* act# ma$ing him sign a SA and
a 3S. 4e *ought the *an@o on 'ovem*er 9E# and the (an$ filed the 3S in
999
the proper place on 'ovem*er :=. Germit filed his (" petition the ne8t
da. %nov :9&
2. Puestion T9- Is the transfer of the SI in his *an@o a preference-
See>EK?%c&%<&.
a. This is a P!SI# and there is a := da grace period for filing
*. := das grace period will allow SP to argue that the T can+t
avoid this
c. '5 B is not a preference B falls in the e8ception for P!SIs
3. Puestion T:- If the *an$+s SI was not of the P! variet# *ut was
simpl a floatin" lien co0erin" all after-ac*uired e*uip#ent#
what result using the same dates- See > EK?%e&%:&.
a. Can *e avoided
*. Is not a P!SI# was not timel perfected
i. Transfer made 'ovem*er 9
st
# perfection occurs on
the :=
th
.
ii. B this was not within the 9= das of %e&%:& B chec$
this C is this how it wor$s-
iii. S77 ,4IT7 A'1 SU!!7"S >:<-E-- Can I
access this--
c. T will prevail over the SP B can+t squee6e in the e8ceptions
d. L54+(e)(2) 3or the purposes of this section# e8cept as
provided in paragraph %<& of this su*section# a transfer is
made2
i. (=) at the time such transfer ta$es effect *etween
the transferor and the transferee# if such transfer is
perfected at# or within 9= das after# such time#
e8cept as provided in su*section %c&%<&%(&F
ii. (9) at the time such transfer is perfected# if such
transfer is perfected after such 9= dasF or
iii. (C) immediatel *efore the date of the filing of the
petition# if such transfer is not perfected at the later
of2
1. (i) the commencement of the caseF or
e. (ii) 9= das after such transfer ta$es effect *etween the
transferor and the transferee
viii. Hroble# 121 Ha"e 233P
1. In earl :=9< ;ohn Carter *orrowed )9#=== from the (arsoom ,orld
(an$F it was a .signature0 loan %i.e.# no collateral&. 5n Septem*er :E#
:=9<# ;ohn made a )E== pament to the *an$ %assume that this pament
is not in the ordinar course&# *ut on 5cto*er K he *orrowed )<== more
from the *an$# giving it a SI in his sword collection. The *an$ never
filed a 3S# and ;ohn filed a (" petition on 'ovem*er H# :=9<. 4ow
much# if anthing# can his (" trustee recover from the *an$- See
>EKK%a&%:&# EK?%c&%K&.
a. )9=== was the original loan# was not secured
*. (" petition on 'ovem*er H do A= das calculation
99:
i. Septem*er :E is within the A= das
ii. T will demand *an$ give it *ac$ the )E==
c. (ut[new loan 5n 5cto*er K C this loan was secured *
swords
d. %c&%K& B
i. The )E== was within the A= das
ii. (UT the *an$ also lent )<== more after this A'1 got
securit for it
iii. 4ow much will the *an$ as$ for *ac$-
1. ; $ill as& t'e ban& to "i0e it J2 bac&
2. The 1 paid the *an$ )E==# and at this time# was
unsecured# *ut *an$ had lent 1 '7, LA/U7
that was full secured B the estate was *enefited
* )<==# so the *an$ is entitled to this )<==
3. B e8ception to the preference is this )E== C this
amount
F. Trustee v SP+s 3loating /ien-
i. SP+s 3loating /ien- 1ependent on 1e*tor+s "evolving / After-Acquired
collateral %inventor# accounts&2T47 C"71IT5" CA' 5'/I
P"7LAI/ 1U"I'J T47 P"737"7'C7 P7"I51 I3 T47"7 IS
7'5UJ4 C5//AT7"A/ T5 C5L7" T47 /5A' A!5U'T.
ii. SP Undersecured 1uring the Preference Period- the trustee will *e a*le to
avoid a lien %to the e8tent of undersecurit& when the SP is undersecured
during the preference period.
iii. In re Smith+s 4ome 3urnishings-
1. 3acts-
a. (an$ruptc Petition was on August ::# 9AAE.
*. TC3C+s /oan was )9=.?m
c. The Collateral was )9=.Hm
d. Preference Period was from !a :K to August ::.
e. 1uring the preference period the SP %TC3C& received a*out
)9:m in paments from the de*tor.
f. TC3C was not undersecured during the Preference Period.
g. Trustee has the *urden to show that EK?%*&%E& $ic$ed in and
that 1e*tor made a preferential pament to TC3C.
h. Then TC3C would have to meet t'e 54+(c)(5) affir#ati0e
defense exception to the preference that was proved * the
trustee.
i. > EK?%c&%E&- it insulates the transfer of a S/I in after-
acquired propert %floating lien&# provided that the
creditor doesn+t improve his position during the
preference period.
ii. It is onl an affirmative defense I3 T47
C"71IT5" ,AS U'17"S7CU"71.
99<
iii. /oo$ at the collateral availa*le to the Creditor at the
(7JI''I'J of the Preference Period.
iv. %If the Creditor is )H$ at the *eginning of the
preference period and )9:$ at the time of the
*an$ruptc petition then there will *e a )K$
preference&.
G. 3raudulent Transfers-
i. Tpes-
1. 'o "easona*l 7quivalent Lalue- the transfer from the insolvent
de*tor was not for reasona*l equivalent value.
2. Intent to 1efraud- the transferor and the transferee had the actual
intent to defraud the de*tor+s creditors.
ii. Pro*lem 9=K-
1. International diplomat was a diplomat *ut was in de*t so gave a
securit interest in his *oo$ roalt paments to his wife for the
.man de*ts he owed her.0 She filed a 3/S and he then declared
*an$ruptc.
2. Can the creditors get the )) *ac$ saing it was a fraudulent
transfer-
3. Ies# the could get the )) *ac$ as there was an I'T7'T T5
173"AU1.
T@2. Proceeds- !ust *e identifia*le for a securit interest to attach.
A. 1efinition- %A-9=:%a&&- it means the following propert
i. ,hatever is acquired upon the sale# lease# license# e8change# or other
disposition of collateralF
ii. ,hatever is collected on# or distri*uted on account of# collateralF
iii. "ights arising out of collateral
iv. To the e8tent of the value of collateral# claims arising out of the loss#
nonconformit# or interference with the use of# defects or infringement of
rights in# or damage to# the collateralF 5"
v. To the e8tent of the value of collateral and to the e8tent paa*le to the
de*tor or the secured part# insurance paa*le * reason of the loss or
nonconformit of# defects or infringement of rights in# or damage to# the
collateral.
vi. A-<9E%a&- a securit interest continues in .Identifia*le0 proceeds of
collateral.
99K
vii. A-<9E%c&- There is automatic perfection of proceeds.
viii. A-<9E%d&- there is automatic perfection of the securit interest in proceeds
35" := 1AIS. P7"37CTI5' IS AUT5!ATIC A3T7" T47 := 1AIS
I3O
1. T47 35//5,I'J C5'1ITI5'S A"7 SATIS3I71 or
a. A 3iled 3/S covers the original collateral.
*. Same 5ffice "ule Proceeds- The proceeds are collateral in
which a securit interest ma *e perfected * filing in the
office in which the financing statement has *een filed
A'1%even if the description in the original 3/S is wrong.&
c. The proceeds are '5T acquired with cash proceeds.
2. The proceeds are identifia*le cash proceeds 5"
3. The securit interest in the proceeds is perfected# other than under
su*section %c& when the securit interest attaches to the proceeds or
within := das thereafter.
ix. ,hen Iou !UST file a 'ew 3/S- within the := da period of automatic
perfection
1. Proceeds of the Cash Proceeds %:
nd
generation proceeds&
2. The description in the original 3/S doesn+t cover the proceeds
produced. 5"
3. 5aintain perfection per 9-315(d)(3).
x. A-:=<%f&- Attachment continues in the proceeds of collateral ,IT45UT
A11ITI5'A/ P7"37CTI5'.
xi. Pro*lem 9=E- "osetta traded in her old car# gave the dealer a ):== down
pament# signed a promissor note# and then too$ her new car home.
(an$ had a SI in all of the dealer+s inventor.
1. Puestion T9- will *an$+s SI continue in "osetta+s new car- '52
S47 ,AS A (UI7" I' T47 5"1I'A"I C5U"S7 53
(USI'7SS.
2. Puestion T:- ,ill (an$ have a SI in the proceeds- I7S2T47I
,I// 4AL7 A SI I' T47 5/1 CA"# T47 ):==# A'1 T47
P"5!ISS5"I '5T7
3. Puestion T<- does the (an$ have to re-perfect its securit interest-
'52ACC+1 T5 A-:=<%3& T47 P7"37CTI5' C5'TI'U7S.
xii. 3armer+s Cooperative 7levator v Union State (an$- pg. :E:
1. C operated a hog farm# o*taining financing for several ears from US(.
In 3e*ruar 9AH9# US( loaned C a large sum of mone and too$ a SA
covering all equipment and fi8tures# all farm products# including
.livestoc$# and supplies used or produced in farming operations whether
now or hereafter e8isting or acquired.0
99E
2. In 9AH<-HK# C entered into P!SAs with C5-5P for livestoc$ feed. 3or
each transaction# C55P filed a 3S %with S of State& which stated it
covers 3eeder hogs now owned or after acquired including
additions/replacements of such livestoc$# all products thereof# and the
proceeds from this collateral.
3. C defaulted to *oth Cs
4. C55P claims its interest in the livestoc$ and proceeds is superior to
US(+s under >A-<:K%a&
5. It is admitted that C55P has a P!SI in the feed.
6. P!SI A/S5 claims that the priorit interest %from having a P!SI&
continues in livestoc$ which consume the feed
a. C55P too$ the P!SIs to secure the price of the feed# not the
hogs
*. C55P argues that the hogs are .proceeds0 of the feed *ecause
proceeds is defined as .whatever is received upon the sale[or
other disposition of the collateral0 in >A-<9E%a&# and this should
include ingestion when livestoc$ consume feed
c. '5 C ingestion of feed is '5T a tpe of .other disposition0
within the contemplation of >A-<9E%a&.
i. B the hogs are not proceeds of the feed
xiii. Pro*lem 9=N- a farmer was lent )) that was secured * his crops2he was
then paid * the government not to grow crops. ,as the government
pament a .Proceed0 of the crops-
1. Court said that '5# the Jov. Paments were not proceeds *ut
rather general intangi*les.
B. Attachment / Perfection in SI in Proceeds-
i. Continuation of Herfection
1. Hroble# 111 Ha"e 2)+P 5n August :# when the filed 3S in favor of
/'( covered .all *usiness machines#0 the 1 engaged in the transactions
listed *elow. 1ecide for each transaction if the *an$ should ta$e action
*efore August :: %:= das& or if the 3S is sufficient as filedO
a. %a& The 1 traded a computer for another computer.
i. 1o we have to file a new 3S-
1. There are proceeds %the new computer&
a. Proceeds include whatever the 1
received in e8change for[.
ii. '5 C the meet %d&%9&+s < requirements
1. Same office rule
2. There is alread a filed 3S# computer is not
acquired * cash proceeds %there is no cash
intervening here# a computer is simpl
e8changed for another computer&
*. %*& The 1 traded another computer for a painting to *e hung in
the office.
i. Same result B no new 3S required
99N
ii. Painting is classified as equipment. Iou file a 3S for
equipment in the same place ou filed for computer#
which alread has a 3S filed.
iii. The same officeB there is no cash intervening.
iv. B %d&%9&
c. %c& The 1 traded a duplicating machine for a used car %and state
law requires a lien interest in a vehicle to *e noted on the
certificate of title as the sole means of perfection&.
i. Used car here is not inventor %so can+t file a 3S&. This
is a certificate of title good %so have to do perfection *
notation&.
ii. ,hat does 1 have to do to maintain perfection in the
proceeds %the used car&-
iii. It will '5T *e covered * the 3S
1. 'ot in %d&%9&
2. 'ot in %d&%:&
3. So it is in %d&%<& B SI in proceeds# if perfected *
method other than %9& B es B would have to *e
perfected * notation on CT
4. So would have to do this %notation& to perfect it
iv. B 'a0e a re*uire#ent in t'e /= t'at t'ey 'a0e to
infor# you if t'ey c'an"e t'e collateral as suc' Q
v. i.e.1 t'ey 'a0e to tell you $it'in 1 days1 so t'en you
'a0e an additional 1 days to perfect by t'e different
#et'od
d. %d& The 1 sold a calculator to a friend for cash and that same da
used the cash to *u a painting.
i. 4ere# there are intervening cash proceeds
1. %d&%9& won+t *e availa*le
ii. %d&%:& won+t wor$ either
iii. 4ave to refile the 3S
iv. ,hat if the 3S+s description included .all *usiness
machines0
1. Same B the painting $ouldnt *e a *usiness
machine B is @ust equipment
v. So how could ou draft the 3S so ou don+t have to $eep
going *ac$ and refilling when it is not in %d&%9& C %<&-
1. Use a super-"eneric description of t'e
collateral# and ou won+t have to go *ac$ and
file as often
2. 1on+t want a narrow description of the collateral
2ma$e the description ver general.
e. %e& The 1 sold an adding machine for )E== and put the cash in a
*an$ account at a different *an$F on August : that *an$ e8ercised
its right of setoff against the account. See >A-<K=.
i. ,e+ll come *ac$ to after the S7C case
99?
ii. 9-340. Efectiveness of Right of
Recoupment or Set-Of Against Deposit
Account.
1. (a) E!ercise of recoupment or set-
of." Except as otherwise provided in
subsection (c), a bank with which a
deposit account is maintained may
exercise any right of recoupment or set-of
against a secured party that holds a
security interest in the deposit account.
2. (b) Recoupment or set-of not
afecte# $% securit% interest." Except
as otherwise provided in subsection (c),
the application of this article to a security
interest in a deposit account #oes not
afect a right of recoupment or set-of
of the secured party as to a deposit
account maintained with the secured
party.
3. (c) &hen set-of inefective." he
exercise by a bank of a set-of against a
deposit account is inefective against a
secured party that holds a security
interest in the deposit account which is
perfected by control under !ection "-
#$%(a)(&), if the set-of is based on a claim
against the debtor.
f. %f& The 1 sold a coffee ma$er for ):== and gave the mone to a
Salvation Arm volunteer that same da. See >A-<<:%a&.
i. B sold a *usiness machine and gave the mone to S
Arm
ii. Can S Arm $eep this mone-
iii. This is cash proceeds C we have read that with cash
proceeds# don+t have to file a 3S
iv. L9-332 U ;ransfer of 5oney
1. (a) A transferee of mone ta$es the mone free of a
SI unless the transferee acts in collusion with the 1
in violating the rights of the SP.
a. B if not acting with collusion
b. S Arm will sa no collusion# we get the
mone
v. If S Arm had ta$en the car instead of cash# the SI would
have continued
1. B when charities ta$e the o*@ect itself# the are
ta$ing this ris$. The usuall prefer cash
donations as compared to propert donations
2. B the SI in the original collateral will continue
#. 5ini-8ecap on t'e =bo0e ApproachO
i. 3irst I1 if it is a proceed or not
1. 1efinition
ii. Then as$ if there was attachment of the proceeds
99H
1. There will *e# *ecause if the original collateral is attached# there will *e
attachment in the proceeds - >A-:=<%f&
iii. Perfection-
1. >A-<9E
2. If there is perfection in the original collateral# there will *e a := da
perfected grace period
3. After this# ou ma or ma not have to ta$e additional steps
4. There ma *e continuation of perfection for
a. Cash proceeds
*. Same office rule
5. If it is Proceeds of Cash Proceeds# ou have to see if the original
description in the oridinal SA covers these
,. Hriority of /2 in Hroceeds
i. 2ntroP
1. SP ma ta$e a SI in inventor and accounts receiva*le
2. The 1 usuall has man Cs
a. I.e.# a lender with a SI in chattel paper
*. It turns out that the Chattel paper is proceeds of the original
collateral
3. /ender with direct SI in the chattel paper# which is the proceeds of the
inventor vs. SP %wrt the chattel paper&
a. B chattel paper is proceeds of the inventor
ii. C'attel Haper Clai#ed 5erely as Hroceeds of 2n0entory
1. Hroble# 1+1 Ha"e 25)P
a. The AAAS %auto shop& sold and installed stereo equipment in
cars. Its inventor was financed * Canis (an$# which had a
perfected SI in present and after-acquired inventor. ,hen
AAAS sold the sstems# it sometimes was paid cash# sometimes
e8tended credit without signed contracts# and sometimes made
customers sign contracts promising pament and granting AAAS
a SI in the sstems. ,hen AAAA needed further financing# it
too$ a later loan from Cassiopeia 3inance Compan# granting the
lender a SI in its accounts receiva*le and its chattel paper.
Cassiopeia $new all a*out the prior loan and inventor SI of
Canis at the time it filed the 3S in the proper place. AAAS
defaulted on *oth paments# and *oth SPs claimed the accounts
and the chattel paper %onl Canis claimed the inventor&.
Canis+s ma@or theor was that the accounts and chattel paper
were .proceeds0 of the inventor. The chattel paper was in
Cassiopeia+s possessionF it had not et collected an of the
accounts receiva*le.
*. Transaction 9
i. AAAS B 1
ii. Canis (an$ B SP %inventor financier&
1. SI in present/a-a inventor# perfected %* filing
in the Sec of State+s office in the state where 1
is&
99A
iii. Inventor B Collateral
1. Perfected
iv. Inventor Proceeds
1. 1 sold stereos to customers# and when the sold#
the as$ed the customer to sign a contract and
give a SI in the sstem B contract a SI
2. This is c'attel paper B proceeds
c. Transaction :
i. AAAS B 1
ii. Cassiopeia 3C B SP
1. SI in accounts receiva*le and chattel paper
2. 'ot a financier li$e Canis
iii. Gnew a*out Transaction 9
iv. 3iled a 3S A'1 too$ possession of the chattel paper
d. (oth SPs claim accounts and chattel paper
e. ,ho should prevail- See >>A-<9E# A-<<=%a&# A-<::%a& and %*&.
i. L9-33O Hriority of Hurc'aser of C'attel Haper or
2nstru#entP
1. (a) A purchaser of chattel paper has priorit over a SI
in the chattel paper that is claimed merel as
proceeds of inventor su*@ect to a SI ifO
a. (1) in good faith =67 in t'e ordinary
course of t'e purc'asers business# the
purchaser gives ne$ 0alue and ta$es
possession of the chattel paper or o*tains
control of the chattel paper under >A-9=EF
A'1
b. (2) the chattel paper does not indicate that it
has *een assigned to an identifia*le assignee
other than the purchaser.
2. (b) A purchaser of chattel paper has priorit over a SI
in the chattel paper that is claimed other than merel
as proceeds of inventor su*@ect to a SI if the
purchaser gives new value and ta$es possession of
the chattel paper or o*tains control of the chattel
paper under >A-9=E in good faith# in the ordinar
course of the purchaser+s *usiness# and without
$nowledge that the purchase violates the rights of the
SP.
3. (c) 78cept as otherwise provided in >A-<:?# a
purchaser having priorit in chattel paper under %a& or
%*& also has priorit in proceeds of the chattel paper
to the e8tent that
a. (1) >A-<:: provides for priorit in the
proceedsF or
b. (2) the proceeds consist of the specific
goods covered * the chattel paper or cash
proceeds of the specific goods# even if the
purchaser+s SI in the proceeds is
unperfected.
9:=
4. (d) 78cept as otherwise provided in >A-<<9%a&# a
purchaser of an instrument has priorit over a SI in
the instrument perfected * a method other than
possession if the purchaser gives value and ta$es
possession of the instrument in good faith and
without $nowledge that the purchase violates the
rights of the SP.
5. (e) 3or purposes of %a& and %*&# the holder of a P!SI
in inventor gives new value for chattel paper
constituting proceeds of the inventor.
6. (f) 3or purposes of %*& and %d&# if chattel paper or an
instrument indicates that it has *een assigned to an
identified SP other than the purchaser# a purchaser of
chattel paper or instrument has $nowledge that the
purchase violates the rights of the SP.
ii. L 9-322. Hriorities =#on" Conflictin" /ecurity 2nterests in
and ="ricultural .iens on /a#e Collateral.
1. (a) [0enera" %riority ru"es.] 7xcept as
otherwise provided in this section# priority
among conflicting security interests and
agricultural liens in the same collateral is
determined according to the following
rules:
a. %9& Conflicting perfected securit interests
and agricultural liens ran$ according to
priorit in time of filing or perfection.
Priorit dates from the earlier of the time a
filing covering the collateral is first made or
the securit interest or agricultural lien is
first perfected# if there is no period thereafter
when there is neither filing nor perfection.
b. %:& A perfected securit interest or
agricultural lien has priorit over a
conflicting unperfected securit interest or
agricultural lien.
c. %<& The first securit interest or agricultural
lien to attach or *ecome effective has
priorit if conflicting securit interests and
agricultural liens are unperfected.
2. (b) 3or the purposes of %a&%9&O
a. (1) the time of filing or perfection as to a SI
in collateral is also the time of filing or
perfection as to a SI in proceedsF and
b. (2) the time of tiling or perfection as to a SI
in collateral supported * a supporting
o*ligation is also the time of filing or
perfection as to a SI in the supporting
o*ligation
3. (c) U (") Mo#ittedN
iii. (an$ vs. Casiopeia- Priorit in chattel paper collateral -
>A-<<=
1. Proceeds in inventor have *een transformed to
A" and chattel paper
9:9
2. (an$ sas we filed first# we have priorit
3. Casio sas we win under A-<<=
a. >A-<<=%a& - Purchaser of chattel paper
has priorit over a SI [which is
claimed merel as proceeds
i. This is the case here
b. [.ta$es possession/control of the
chattel paper
i. this is what we have here
ii. this is wh possession is so
important when the chattel
papers are proceeds of inventor
4. Cassiopeia 3C prevails *ecause it had
possession
a. >A-<<= - Chattel paper was claimed
merel as proceeds of inventor# and the
lender has possession
i. SP merel has SI in the original
collateral
5. Cassiopeia has priorit in the chattel paper B
Possession is $e
6. ,h do we have such a sstem-
a. To aid in the *usiness of chattel paper
b. There is a huge mar$et *uing and
selling chattel paper B we want to
encourage this industr
c. ,ill have priorit over a compan that
ta$es a SI merel in the inventor itself
7. 4ow do ou ta$e possession-
a. Ta$e the cop of the chattel paper
f. ,hat result where the accounts receiva*le financier filed first-
i. The accounts are proceeds# too
ii. Canis (an$
1. There is no similar rule li$e for chattel paper B
no particular rule
2. So go *ac$ to the original priorit rules that we
$now
a. >A-<:: C the part that filed first has
priorit in A"s
i. 4ere# the (an$ perfected first
%filed the 3S in the original
collateral&# so will have priorit
ii. The A"s are proceeds of the
inventor# and the inventor was
perfected prior to the SI *
Cassiopeia
b. The maintain perfection under >A-
<9E%d&%9& B same office rule
c. Same office rule B for A"
9::
iii. Hroble# 1111 Ha"e 2),P
1. ((TC floor-planned the inventor of 7! and perfected its SI in the
inventor %and proceeds& * filing in the proper place. See >A-<99%d&.
7! sold a car to Smith# who paid )9#=== down and signed a contract
o*ligating him to pa ):E#=== more. The dealership %7!& assigned this
contract to Cartier %CTC&# which too$ possession of the contract and
notified Smith he was to ma$e future paments to CTC. Smith made no
paments at all *ecause the car had serious mechanical difficulties# and
eventuall the parties cancelled the transaction and the car was returned
to 7! on Septem*er 99. 5n Septem*er 9:# a representative of CTC
came to the dealership and too$ possession of the car# claiming it was
.proceeds0 from the contract of purchase# which CTC still had. ((TC
o*@ected and claimed a superior interest in the car# asserting its priorit in
the Inventor of the dealership. ,ho prevails here- See >A-<<=%c& and
comments A and 9=.
a. ((T C inventor financierF SI in inventor and proceeds C
perfection
*. Cartier C purchaser of chattel paper from 7! %promissor note
signed * Smith for the car&
c. Car then returned to 7! %Smith didn+t li$e the car&
d. Is the returned car the proceeds of the chattel papers-
i. es B are proceeds of the chattel paper dealing with
returned goods
ii. Cartier - >A-<<=%c&
1. L9-33(c) 78cept as otherwise provided in >A-<:?# a
purchaser having priorit in chattel paper under %a& or
%*& also has priorit in proceeds of the chattel paper
to the e8tent that
a. (1) >A-<:: provides for priorit in the
proceedsF or
b. (2) the proceeds consist of the specific
goods covered * the chattel paper or cash
proceeds of the specific goods# even if the
purchaser+s SI in the proceeds is
unperfected.
2. Co##ent 9P Hriority in 8eturned and
8epossessed Doods. "eturned or repossessed goods
ma constitute proceeds of chattel paper. The
following comments e8plain the treatment of
returned and repossessed goods as proceeds of chattel
paper. The analsis[is *ased on the following
e8ampleO <xa#pleP SP9 has a SI in all of the
inventor of a dealer in goods %1ealer&F SP9+s SI is
perfected * filing. 1ealer sells some of its inventor
to a *uer in the ordinar course of *usiness
%(I5C(& pursuant to a conditional sales contract
%chattel paper& that does not indicate that it has *een
assigned to SP9. SP: purchases the chattel paper
from 1ealer and ta$es possession of the paper in
good faith# in the 5'C# and without $nowledge that
the purchase violates SP9+s rights. (I5C( returns
9:<
the goods to 1ealer *ecause the are defective.
Alternativel# 1ealer acquires possession of the
goods following (I5C(+s default.
3. Co##ent 1. =ssi"n#ent of 6on-.ease C'attel
Haper.
a. .oan by /H-2 to 7ealer /ecured by C'attel
Haper (or -unctional <*ui0alent Hursuant to
8ecourse =rran"e#ent).
%9& 8eturned Doods. If (I5C5( returns the goods
to 1ealer for repairs# 1ealer is merel a *ailee and
acquires there* no meaningful rights in the goods to
which SP-9Ss securit interest could attach. %Although
SP-9Ss securit interest could attach to 1ealerSs
interest as a *ailee# that interest is not li$el to *e of
an particular value to SP-9.& 1ealer is the owner of
the chattel $a$er %i.e.# the owner of a right to
pament secured * a securit interest in the goods&F
SP-: has a securit interest in the chattel paper# as
does SP-9 %as proceeds of the goods under Section A-
<9E&. Under Section A-<<=# SP-:Ss securit interest in
the chattel paper is senior to that of SP-9. SP-: en@os
this priorit regardless of whether# or when# SP-:
filed a financing statement covering the chattel paper.
(ecause chattel paper and goods represent different
tpes of collateral# 1ealer does not have an
meaningful interest in goods to which either SP-9Ss or
SP-:Ss securit interest could attach in order to secure
1ealerSs o*ligations to either creditor. See Section A-
9=: %defining Rchattel paperR and RgoodsR&.
'ow assume that (I5C5( returns the goods to
1ealer under circumstances where* 1ealer once
again *ecomes the owner of the goods. This would *e
the case# for e8ample# if the goods were defective and
(I5C5( was entitled to re@ect or revo$e acceptance
of the goods. See Sections :-N=: %re@ection&# :-N=H
%revocation of acceptance&. Unless (I5C5( has
waived its defenses as against assignees of the chattel
paper# SP-9Ss and SP-:Ss rights against (I5C5(
would *e su*@ect to (I5C5(Ss claims and defenses.
See Sections A-K=<# A-K=K. SP-9Ss securit interest
would attach again *ecause the returned goods would
*e proceeds of the chattel paper. 1ealerSs acquisition
of the goods easil can *e characteri6ed as
RproceedsR consisting of an Rin $indR collection on or
distri*ution on account of the chattel paper. See
Section A-9=: %definition of RproceedsR&. Assuming
that SP-9Ss securit interest is perfected * filing
against the goods and that the filing is made in the
same office where a filing would *e made against the
chattel paper# SP-9Ss securit interest in the goods
would remain perfected *eond the :=-da period of
automatic perfection. See Section VV-A-<9E%e&-WW
VVXA-<9E%d&XWW.
(ecause 1ealerSs newl reacquired interest in the
goods is proceeds of the chattel paper# SP-:Ss securit
interest also would attach in the goods as proceeds. If
9:K
SP-: had perfected its securit interest in the chattel
paper * filing %again# assuming that filing against
the chattel paper was made in the same office where a
filing would *e made against the goods&# SP-:Ss
securit interest in the reacquired goods would *e
perfected *eond := das. See Section VV-A-<9E%e&-
WW VVXA-<9E%d&XWW. 4owever# if SP-: had relied
onl on its possession of the chattel paper for
perfection and had not filed against the chattel paper
or the goods# SP-:Ss securit interest would *e
unperfected after the :=-da period. See Section VV-
A-<9E%e&-WW VVXA- <9E%d&XWW. 'evertheless# SP-:Ss
unperfected securit interest in the goods would *e
senior to SP-9Ss securit interest under Section A-
<<=%c&. The result in this priorit contest is not
affected * SP-:Ss acquiescence or non-acquiescence
in the return of the goods to 1ealer.
%:& 8epossessed Doods. As e8plained a*ove# 1ealer
owns the chattel paper covering the goods# su*@ect to
securit interests in favor of SP-9 and SP-:. In
Article A parlance# 1ealer has an interest in chattel
paper# not goods. If 1ealer# SP-9# or SP-: repossesses
the goods upon (I5C5(Ss default# whether the
repossession is rightful or wrongful as among 1ealer#
SP-9# or SP-:# 1ealerSs interest will not change. The
location of goods and the part who possesses them
does not affect the fact that 1ealerSs interest is in
chattel paper# not goods. The goods continue to *e
owned * (I5C5(. SP-9Ss securit interest in the
goods does not attach until such time as 1ealer
reacquires an interest %other than a *are possessor
interest& in the goods. 3or e8ample# 1ealer might *u
the goods at a foreclosure sale from SP-: %whose
securit interest in the chattel paper is senior to that
of SP-9&F that disposition would cut off (I5C5(Ss
rights in the goods. Section A-N9?.
In man cases the matter would end upon sale of the
goods to 1ealer at a foreclosure sale and there would
*e no priorit contest *etween SP-9 and SP-:F 1ealer
would *e unli$el to *u the goods under
circumstances where* SP-: would retain its securit
interest. There can *e e8ceptions# however. 3or
e8ample# 1ealer ma *e o*liged to purchase the
goods from SP-: and SP-: ma *e o*liged to conve
the goods to 1ealer# *ut 1ealer ma fail to pa SP-:.
5r# one could imagine that SP-:# li$e SP-9# has a
general securit interest in the inventor of 1ealer. In
the latter case# SP-: should not receive the *enefit of
an special priorit rule# since its interest in no wa
derives from priorit under Section A-<<=. In the
former case# SP-:Ss securit interest in the goods
reacquired * 1ealer is senior to SP-9Ss securit
interest under Section A-<<=.
*. 7ealerOs :utri"'t /ale of C'attel Haper to /H-2.
Article A also applies to a transaction where* SP-:
*us the chattel paper in an outright sale transaction
9:E
without recourse against 1ealer. Sections 9-:=9%<?&#
A-9=A%a&. Although 1ealer does not# in such a
transaction# retain an residual ownership interest in
the chattel paper# the chattel paper constitutes
proceeds of the goods to which SP-9Ss securit
interest will attach and continue following the sale of
the goods. Section A-<9E%a&. 7ven though 1ealer has
not retained an interest in the chattel paper# as
discussed a*ove (I5C5( su*sequentl ma return
the goods to 1ealer under circumstances where*
1ealer reacquires an interest in the goods. The
priorit contest *etween SP-9 and SP-: will *e
resolved as discussed a*oveF Section A-<<= ma$es no
distinction among purchasers of chattel paper on the
*asis of whether the purchaser is an outright *uer of
chattel paper or one whose securit interest secures
an o*ligation of 1ealer.
e. ,h are we so much in favor of the financing compan-
i. ,e+ll finish !onda Ywe never didZ
2. 'oteO (oo$ Page :NH sasO 3or a complete review of priorit pro*lems#
some involving proceeds and some not# read Comments K-A of >A-<::.
iv. ;racin" Cas' Hroceeds in Co##in"led -unds
1. 9an&s 8i"'t to /et-offP Hroble# 1,1 Ha"e 25)P Shadrach 4eating
and AC *orrowed )9E#=== from !!3A in order to purchase a new
furnace for its own home office. ,hen one of its important clients
needed an identical furnace in a hurr# Shadrach sold it its own new
furnace# which it installed in the client+s place of *usiness. The )9?#===
chec$ it received in pament was put into S+s chec$ing account %*alance
prior to the deposit was )H9& with A*ednego (an$. Thereafter# S made
one further deposit of )E#===# followed a wee$ later * a withdrawal of
)E#=K=.
a. (alance )H9# 1eposit )9?#===# deposit of )E#===# withdrawal
)E#=K=
i. These are commingled
*. %a& Are proceeds from the furnace sale still in the *an$+s
accounts- Y4ow do ou trace this particular mone- Can ou
argue that these are identifia*le cash proceeds-Z
i. See Universal CIT Credit Corp. v. 3armers (an$ %the
general rule is that .in tracing commingled funds it is
presumed that an paments made were from other than
the funds in which another had a legall recogni6ed
interest#0 called the lower *alance rule.&
ii. >A-<9E%*& permits tracing of identifia*le proceedsF see
also Comment < %Seems to adopt this rule&. Also note
>K-:9=%*&.
iii. Co##ent 3 to L9-315P /ecured Hartys 8i"'t to
2dentifiable Hroceeds. Under %a&%:&[# a SI attaches to an
identifia*le .proceeds#0 as defined in >A-9=:. See also >A-
:=<%f&. Su*section %*& is new. It indicates when proceeds are
commingled with other propert are identifia*le proceeds and
permits the use of whatever methods of tracing other law
9:N
permits with respect to the tpe of propert involved. Among
the .equita*le principles0 whose use other law ma permit is
the .lowest intermediate *alance rule.0
iv. ,hen the 1 withdrew the E=K= chec$# how is it traced-
1. 3irst in# first out B 3I35 rule applies
2. Iou loo$ at how much mone the 1 has ta$en
out of the account# and appl this against the
first original *alance# and then the ne8t amount
that is unencum*ered
3. B when 1 withdrew a chec$# the first funds
would come from the original *alance %)H9& and
the ne8t would come from the )E#=== deposit
4. Then su*tract it and ou get the proceeds---
5. ,ill put it against the original *alance
a. 3irst# the )H9 goes
i. E=K= C H9 B KAEA
b. Then the )E#=== goes
i. a K9
ii. B (alance of )K9----
iii. There would still *e )K9.
c. %*& If S defaults on its loan repament to !!3A and also on an
unsecured promissor note currentl held * the A(an$# can the
*an$ e8ercise its C/ right of setoff and pa itself out of the
chec$ing account# or is its setoff right @unior to !!3A+s SI in the
proceeds- See >A-<K=.
i. 1eposit account is at a *an$ B is proceeds from the
original collateral of SP
ii. 1 also *orrows a previous loan from the *an$ as well
iii. (an$ w/deposit account v. SP
1. (an$ wants its mone *an$ B wants to set-off
against the deposit account
2. (oth want these proceeds
iv. L9-34 U <ffecti0eness of 8i"'t of 8ecoup#ent or /et-off
a"ainst 7eposit =ccount
1. (a) 78cept as otherwise provided in %c&# a *an$ with
which a deposit account is maintained ma e8ercise
an right of recoupment or setoff against a SP that
holds a SI in the deposit account.
a. B (an$ has right of set-off against SP
b. this is the general ruleB 9an& $ill
pre0ail o0er /H
2. (b) 78cept as otherwise provided in %c&# the
application of this chapter to a SI in a deposit account
does not affect a right of recoupment or setoff of the
SP as to a deposit account maintained with the SP.
3. (c) The e8ercise * a *an$ of a set-off against a
deposit account is ineffective against a SP that holds
a SI in the deposit account that is perfected *
control under >A-9=K%a&%<&# if the set-off is *ased on a
claim against the 1.
9:?
a. (c) B e8ception to the general rule
b. Is ineffective if the SP holds a SI in the
deposit account which is perfected *
control under >A-9=K%a&%<&
c. B onl when the SP perfects * control
per %a&%<& B
i. SP is the customer of the *an$
%their name is on the account&
d. This is consistent with the priorit rules
we learned wrt deposit accounts
v. CCC Credit Corp. 0. /prin"s @alley 9an& A ;rust (:.7 .=I)
pa"e 25+
1. /indsa purchased wholesale farm equipment from 4esston %for resale&.
4CC provided financing for the purchases.
a. Pursuant to a SA# / granted 4CC a SI in all equipment it
purchased from 4esston and in the proceeds from the sale of the
equipment.
*. / also agreed to pa 4CC immediatel for equipment sold from
proceeds of the sale. 4owever# 4CC/4esston never required /
to deposit and segregate proceeds from the sale of 4esston
products into a separate account.
2. In 9AA9# IS1T agreed to purchase from / 9K 4esston tractors. / got
them from 4esston on credit provided * and su*@ect to the SA in favor
of 4CC. / received pament %)9AAG& and deposited the mone into the
(an$. /indsa wrote a chec$ in this amount plus the mone it alread
had in the *an$ %total B ):9:G& to the *an$ to pa previous de*ts owed
* / to the *an$ B used mone from proceeds to pa *an$.
3. / filed (" in 9AA9. 4 see$s to recover the 9AAG in proceeds from the
*an$.
4. C## took "I in Inventor10e=ui$)ent and $roceeds
a. , sold e=ui$)ent to a custo)er (and there was )one1 fro) the
sale/
*. , de$osited it in "V Bank (de$osit account held at "VB/
c. Ahen , wrote a check, $a1able to the Bank
i. Bank is the $a1ee (because C## had borrowed )one1
fro) the bank earlier/
ii. ' Bank is the transferee of the de$osit account
iii. Ahis is different than 5G-6?J
5. C## v. Bank
a. 4 had a valid and perfected SI in the )9AAG proceeds. 9attleP
9et$een /H of t'e proceeds of collateral and a 3
rd
party to
$'o# t'e 7 transfers t'ose proceeds.
*. L9-332 Q ;ransferee of 5oneyB ;ransfer of -unds fro#
7eposit =ccount
i. (a) A transferee of mone ta$es the mone free of a SI unless
the transferee acts in collusion with the 1 in violating the
rights of the SP.
9:H
ii. (b) A transferee of funds from a deposit account ta$es the
funds free of a SI in the deposit account unless the transferee
acts in collusion with the 1 in violating the rights of the SP.
1. B %*& Transferee ta$es free of SI in deposit
account unless acts in collusion with 1
iii. 6oteO Case not decided under this provision %was *efore
it was created&
iv. Seems li$e (an$ will win C have priorit over other SPs
6. The (an$ is ver powerful#
a. has right to setoff under >A-<K=
*. also has these rights in >A-<<:
vi. Summar of Proceeds- it is @ust a transfer of collateral from one form to the
other.
1. Identif It- it is whatever our collateral transforms itself into.
2. Attachment- loo$ to whether a securit interest that attached to the
original collateral will give ou a perfected securit interest in the
proceeds of that collateral.
3. 3iling- %Same 5ffice "ule&2if ou would file in the same office with
the proceeds as ou did with the original collateral then ou 15'+T
4AL7 T5 "73I/7.
4. :
nd
Jeneration Collateral- if the description of the original collateral
157S'+T cover the :
nd
generation proceeds then ou have to file
another financing statement2most lawers# however# will file a SUP7"-
J7'7"IC financing statement that will cover everthing2pa attention
to certificate of title goods also.
5. Priorit- %A-<::&2if ou have priorit in the original collateral then ou
will have priorit over the proceeds as well.
6. 78ception- If the proceeds are C4ATT7/ PAP7" then ou don+t have
priorit.
7. (an$s- a transferee will have priorit over the secured part who has a
perfected securit interest in the inventor that was turned into )) that
was placed into the deposit accounts. %(an$ is .closer0 to the mone
than our client anwa&.
T@22. (ar 78am "eview of 99/H/=E-
A. -ebruary 1991 YU</;2:6 1P
i. /ast State (an$ on 'ovem*er 9E# 9AHA# made a loan to 1an 1e*tor# a retail
furniture dealer. 1an e8ecuted and delivered to (an$ a SA covering all the assets
of 1an+s furniture *usiness .now owned or hereafter acquired.0 The SA also
provides that (an$ has a SI in all the collateral to secure an future advances
made * the (an$ to 1an. The (an$+s SI is dul perfected * the *an$ on the
date of the loan.
1. ,' ,ebtor
2. "+ ' 4"Bank
3. #ollateral ' all assets of business now owned or after ac=uired, f-a
clause
9:A
4. ,ul1 $erfected (so assu)e was sufficient descri$tion for
attach)ent0$erfection/ on :ov. 8@, 8GEG
ii. Assuming the foregoing facts# discuss the priorities as *etween the *an$+s SI and
the interest acquired * each C or *uer descri*ed *elow. Assume that the
interest is acquired * each C/( was acquired after 'ovem*er 9E# 9AHA %a&-%g& all
happened after 99/9E. If ou need additional facts to determine priorities# specif
the facts that ou need and wh ou need them.
iii. Consider each of the transactions discussed in each of the questions as if the
transactions discussed in the other questions had '5T occurred.
iv. (a) /a#e /eller sells 7an a co#puter on credit and perfects a /2 to secure
t'e pay#ent by 7an of t'e purc'ase price.
1. , ',an
2. S$ % Same Seller & $MS' in computer
3. >A-<:K C Superpriorit for P!SIs
a. If this is a consumer good %to *e used at home& B automaticall
has superpriorit
*. If it is equipment# will have superpriorit I3 this perfection was
in the := da grace period
i. Perfection is required.
c. 1oesn+t loo$ li$e it will *e used as inventor %which would
require notice to /S(# etc.&
4. B if do this# /a#e /eller $ill 'a0e priority
5. (etween Sam and the (an$- %A-<:K%a&&2as long as Sam has perfection
*efore the temporar perfection e8pires %:= das& then he will have
priorit over the *an$.
v. (b) 9ernard 9uyer buys furniture at retail fro# 7an $it' &no$led"e of t'e
ban&s /2.
1. (ernard is a (I5C *ecause he purchased the furniture from Sam# who
was in the *usiness of selling goods of this $ind %e8plain on e8am&.
2. >A-<:=%a& C ta$es free of (an$+s SI# even with $nowledge
%G'5,/71J7 157S'+T !ATT7"&.
3. 9ernard $ould $in out o0er t'e ban&
vi. (c) -riendly -inance Co ad0ances funds to 7an to finance 7ans purc'ase of
additional in0entory.
1. 3riendl 3inance has a P!SI in inventor.
2. SUP7"P"I5"ITI "U/7--!ust follow all of >A-<:K%*& to have
superpriorit.
a. !ust *e perfected when 1 receives possession
*. 33C must send aut'enticated notification to the holder %(an$&
c. The 'older (ban&) #ust recei0e t'is notification $it'in 5
years before 7 recei0es possession of t'e in0entoryF and
d. 'otification must sa that P!SP has/e8pects to have a P!SI#
descri*e the inventor
3. T47"7 IS '5 I'1ICATI5' I' T47 3ACTS T4AT 3"I7'1/I 1I1
A'I 53 T47 A-<:K%(& SUP7"P"I5"ITI "7PUI"7!7'TS S5 ,7
J5 (ACG T5 T47 .3I"ST I' TI!70 "U/72(an$ would win as it
has a perfected securit interest over 3riendl+s unperfected securit
interest.
9<=
vii. (d) :n 7ece#ber 11 19,91 t'e 28/ filed a federal inco#e tax lien to secure
pay#ent of 7ans delin*uent federal inco#e taxes. ;'en on 7ece#ber 151
19,91 7an ta&es so#e #oney out of 'is personal sa0in"s account and buys
so#e #o0eable display counters for 'is furniture business.
1. Immediatel thin$ of the KE 1AI "U/72KE das after 1ecem*er 9
st
2a
SI in after-acquired collateral that was A3T7" the 3ederal Jovernment
filed its lien A'1 the collateral is PUA/I3I71 P"5P7"TI %Inventor#
A"# M Commercial Paper %prom. 'otes M chattel paper&& then ou can
perfect within the KE da period to get priorit.
2. /oo$ to Tpe of Propert- he *ought mova*le displa counters2
7PUIP!7'T *ecause he sells furniture# not displas2%e8plain wh not
inventor&2%not qualified propert&.
3. I guess this is an after-acquired .asset0 %even though 1an used own
account-&
4. /55G T5 T47 PUA/I3I71 P"5P7"TI 3"5! T47 (A'G+S
P5I'T 53 LI7,2'5T T47 17(T5"+S P5I'T 53 LI7,.
5. L)323 C I"S usuall has priorit
a. There is sometimes an e8ception for a-a propert %will ta$e
priorit if within KE das# no $nowledge# etc.&# (UT this onl
applies to commercial financing securit# which includes
inventor# *ut '5T equipment
*. This loo$s li$e equipment# so >N<:<%c& doesn+t appl
c. Can+t do to %d& *ecause there is no future advance here.
6. 28/ 'as priority o0er t'e 9an&s lien because 2t is 6ot a Yualified
=sset.
viii. (e) Ape8 3inance perfects a SI in the same collateral as that in which the *an$
holds a SI. Assume that Ape8 perfects its SI prior to the *an$+s ma$ing a future
advance to 1an. Assume that the *an$ then ma$es the advance with $nowledge
of Ape8+s SI.
1. 9an& 'as priority t'rou"' 9-322 A 9-323
a. >A-<:<%a& C the *an$ had filed a 3S covering this in 'ovem*er
which was *efore Ape8+s SI was perfected%so perfection dates
from this time# not the time the advance is made&2
T47"735"7# 3I"ST I' TI!7 ,I'S.
ix. (f) /on /en+s @udgment lien is levied after the *an$ has made one additional
advance to 1an *ut prior to the ma$ing of a second additional advance.
1. >A-<:<%*& - ;/C has priorit if SP+s SI secures an advance made more
than KE das after ;/ unless advance made without $nowledge.
2. ;'e first future ad0ance B9an& 'as priority because t'e ban&
perfected 9<-:8< ;C< RU7D5<6; .2<6 =8:/<F (9-31+)
3. The second future advance C %made after @udgment lien arose& depends
when it was made and if *an$ had $nowledge
a. KE 1a "ule-
i. if within KE das# (an$ has priorit %even with
$nowledge of the ;udgment /ien&.
ii. If more than KE das A'1 (an$ has $nowledge C then
;/C %//& will prevail
x. (") Perr Purchaser# prior to the *an$+s ma$ing an additional advance to 1an#
purchases an old sander used * 1an in refinishing furniture. Assume that the
9<9
*an$ made the additional advance to 1an with $nowledge of Perr+s purchase of
the sander.
1. (I5C- '5 C 1an is not in *usiness of selling sanders24e ta$es the
sander su*@ect to the (an$+s SI now.
2. 3uture Advances- if the *an$ was full aware of the purchaser *uing
the sander# A'1 the ma$e an additional loan# then P7""I
PU"C4AS7" ,I// TAG7 P"I5"ITI2%we won+t allow the (an$ to
have priorit *ecause the have full $nowledge their collateral has gone
down (735"7 the ma$e the advance.&
3. (uer of consumer goods - >A-<:=%*& C no# this was used in his *usiness
4. 9an&s /2 re#ains U6.<// it #a&es a future ad0ance.
B. Ruly 199,1 YU</;2:6 111 Hart =P I<6; :@<8 ;C2/ :6<
i. 5n ;ul 9# in consideration of a loan of )9==#===# Lideo# 7tc.# gave a SI in the
inventor of its 4ouston# Te8as# store to /onghorn (an$. The SA provided in
part that the SI of /onghorn (an$ e8tends to .all present and future inventor of
Lideo# 7tc.# at its 4ouston# Te8as# store.0 /onghorn (an$ perfected its SI in the
inventor to Lideo * filing a 3S in the Te8 Sec of State+s office. The 3S stated
that /onghorn (an$ has a SI in .all inventor owned * Lideo.0 Thereafter#
from ;ul 9E through ;ul <=# Lideo made the following sales from inventor at
the 4ouston StoreO
1. This is a proceeds (uestion
2. "A includes ;AA $ro$ert1,< but F" doesn%t . this is $robabl1 ok to
include itK."o)eti)es even "As are construed to include it even if the1
don%t )ention it ()atter of contract law/ ' all 1ou need is an indication
under 5G-@J?
3. , ' Video
4. "+ ' 4Bank ("I . inventor1/,
a. +erfected beginning of 3ul1
5. !e know that each bu1er is a BI9# in @ of the L transactions
a. 4B%s "I is e>tinguished as to the original collateral, 2M#2+A
AC2 9:2 A9 Aiffan1 Richardson
*. But the "I )a1 continue in the identifiable cash $roceedsIII
ii. 1 - @ideo sold a 0ideo recorder to Rac& ;aylor. ;aylor paid t'e purc'ase
price by issuin" a c'ec& #ade payable to @ideo and t'e c'ec& $as placed in
a dra$er in @ideos Couston store.
1. Ahis is an instru)ent ' +R9#22,"
2. (5G-6JDf . attaches u$on attach)ent of collateral/
3. >A-<9E%d& %9& SA!7 533IC7 "U/7
a. a filed 3S covers the original collateral
*. and the proceeds can *e perfected * filing in the same office in
which the 3S has *een filed
c. and the proceeds are not acquired with cash proceeds
4. ' N2"I Instru)ent
a. #ould $erfect b1 $ossession 5G-686, but Bank doesn%t have
$ossession
*. #ould also $erfect b1 filingII 5G-68D
5. %d& applies B identifia*le cash proceeds
9<:
6. .9an& C=/ a perfected /2
iii. 2 - @ideo sold a 0ideo recorder to 5ary /o$ell. ;'e purc'ase price $as paid
in cas' and t'e #oney $as placed in t'e sa#e dra$er as t'e c'ec& at @ideos
Couston store.
1. Proceeds B cash
2. (ut these were commingled B unli$e the previous one# was cash rather
than a chec$
a. The cash is now commingled with other cash
*. Is this identifia*le cash proceeds-
i. '5 C doesn+t seem identifia*le B not identifiable
ii. Iou need to *e a*le to sa T4AT is the cash right there
c. ,hat a*out the 3I35 rule in the pro*lem-- 4ow do those go
together-
3. .9an& does 6:; 'a0e a perfected /2
iv. 3 - @ideo sold anot'er 0ideo recorder to .arry =s'ford. ;'e purc'ase price
$as paid in cas'1 $'ic' $as deposited in a ne$ ban& account at /econd
9an&. ;'e account contained not'in" but t'e funds "enerated by t'is sale.
1. Proceeds B cash placed in a new *an$ account
2. L9-315(d)(2) Cseem li$e identifia*le cash proceeds %nothing else in the
*an$ to tell apart&C no new 3S needed\
3. .9an& C=/ a perfected /2
v. 4 U @ideo sold anot'er 0ideo recorder to -red -ore#an. - paid t'e purc'ase
price in cas'. ;'ereafter1 @ideo i##ediately used t'is cas' to buy a lar"e
per#anent display case to be used in its Couston :ffice.
1. Same filing rule onl applies when the proceeds are '5T proceeds of the
cash proceeds
a. 4ere# paid cash and video used the cash to *u a large permanent
displa to he used
*. B proceeds $ere used to buy t'e display case
c. Can+t use same office rule *ecause %d&%9&%C& not met
2. This is equipment *ut '5T inventor
a. The 3S onl covers the inventor
3. So we loo$ at >A-<9E%d&%<& 1oes not cover this equipment at all
a. So we need a new financing statement
4. 'eed to file a new 3S *efore the e8piration of := das
5. .9an& does 6:; 'a0e a perfected /2
vi. 5 - @ideo traded a 0ideo recorder to ;iffany 8ic'ardson in exc'an"e for a
second lar"e per#anent 0ideo display case $'ic' $as placed in its Couston
store.
1. "he is not a BI9# ' the "I will continue here in the actual e=ui$)ent
2. Same office rule applies
3. .9an& does 'a0e a perfected /2
vii. ) - @ideo sold anot'er 0ideo recorder to Connie Call on credit and offered to
bill 'er for t'e purc'ase price at t'e end of t'e #ont'
1. Proceeds B defined in %>A-9=:%a&%NE&&
a. This is an account B right to pament
9<<
2. >A-<9E%c& C SI in proceeds is perfected if the interest in the original
collateral is perfected
3. %d& C A perfected SI in proceeds *ecomes unperfected on the :9
st
da
after the SI attaches to receipt of the proceeds
a. %9& Same office rule APP/I7S
i. 5riginal 3S is alread there %covers the original
collateral&# ou file this 3S in the same office as well
ii. These are '5T proceeds of the cash proceeds %proceeds
are not acquired with cash proceeds& B no new 3S
required
*. 'o new 3S required
viii. Proceeds-
1. first# articulate the rules on proceeds2identif them# e8plain perfection#
and e8plain rules e8plaining how to $eep our perfection in proceeds
%same office rule# etc.&
2. Chec$- I5U 15'+T 4AL7 T5 3I/7 A '7, 3/S 35" CAS4
P"5C771S2the are identifia*le as the are chec$s.
3. Sale to !ar Sowell- it will *e intermingled with the other proceeds2
hard to identif2difficult to trace2P7"37CTI5' ,I// !AI'TAI'
I' T47 CAS4 P"5C771S.
4. Sale to /arr Ashford- the are identifia*le cash proceeds so perfection
would remain2the are identifia*le as the are the onl thing in the
*an$ account.
5. Sale to 3red and Used )) to (u 1ispla Case2%Second Jeneration
Proceeds&2we need to go *ac$ and loo$ to the 5"IJI'A/ 3/S and
determine whether it covers 7PUIP!7'T2here it does not2onl
covers A// I'L7'T5"I2therefore# the (an$ will have to file a 'ew
3/S or else lose perfection.
6. Trade of "ecorder for another 1ispla Case- there are no cash proceeds
intervening21I"7CT P"5C771S2appl .SA!7 533IC7 "U/702
*an$ won+t have to file a new 3/S *ecause the filing of the new 3/S
would *e in the Same 5ffice as that filed with the 5riginal Collateral2
*an$ doesn+t have to do anthing after the := das automatic perfection.
7. Sale to Connie 4all- the proceeds are the A"2%A-<9E%c&%:&&2as the
3/S would have to *e filed in the SA!7 533IC7 as the original
inventor# then the don+t have to file another 3/S.
#. ;ul 9AAH (ar 78am Puestion T99# Part (- /ewis Construction Compan %/CC& is in the
*usiness of performing construction wor$. 5n ;ul 9# in e8change for a loan of )<E#===
from State (an$# /CC gave State (an$ a SI in construction equipment owned * /CC.
This SI secured not onl State (an$+s original loan of )E=#=== to /CC# *ut also an
future case advances State (an$ ma ma$e to /CC in its discretion. State (an$ perfected
its SI in the construction equipment * filing a 3S with the Te8as Secretar of State+s
office on ;ul 9. 5n August 9# Ted (radle# a @udgment creditor of /CC# o*tained a lien
against construction equipment in which State (an$ has a perfected SI# * lev.
1. , ' 4##
2. "+ ' Bradle1 (34# . construction e=ui$)ent/ . August 8
3. 45 days after t'is is /epte#ber 15
9<K
ii. 5n August 9=# State (an$# without notice or $nowledge of the ;/ held * Ted
(radle against construction equipment# made an advance of )E#=== to /CC. 5n
Septem*er <=# still without $nowledge# State (an$ made a second advance of
)E#=== to /CC. 5n 5cto*er 9# State (an$ learned of Ted (radle+s lien. 5n
5cto*er 9=# State (an$ made a third advance of )E#=== to /CC.
1. )u*ust +, & f-a .o knowled*e
2. "e$te)ber 6J . f0a :o knowledge
3. 9ctober 8 . got knowledge
4. 9ctober 8J f0a . Bnowledge
iii. 2s /tate 9an& entitled to priority o0er ;ed 9radley as to eac' ad0ance .CC
described abo0eE <xplain fully.
1. >A-<:<%*& ;/C has priorit if SP+s SI secures an advance made more
than KE das after ;/ unless advance made without $nowledge
2. B if within KE das# SP has priorit %even with $nowledge&
a. 5nl if more than KE das# SP has $nowledge C then ;/C will
prevail
3. )u*ust +, & f-a .o knowled*e
a. ,ithin KE das %o$ regardless&O B 5G
*. /H 'as priority Q /tate 9an&
4. "e$te)ber 6J . f0a :o knowledge
a. After KE das# *ut no $nowledge B 5G
*. /H 'as priority Q /tate 9an&
5. 9ctober 8J f0a . Bnowledge
a. After KE das# *ut $nowledge B '5T 5G
*. R.C $ill pre0ail (9radley)
,. ;ul :==K Puestion 9:- YU</;2:6 12 U I<6; :@<8 ;C2/ :6<
i. In ;ul :==<# ,alter# while a resident of Ardmore# 5$lahoma# *orrowed )9E#===
from (an$# located in 1allas# Te8as. 4e *orrowed the mone to pa off suppliers
of his refrigerator repair *usiness in Ardmore. 4e signed a promissor note for
the )9E#=== and a securit agreement giving (an$ a securit interest in a sa0in"s
deposit account ,alter maintained at (an$ in 1allas# Te8as. 9an& did not file
any docu#entation re"ardin" t'is security interest eit'er centrally or
locally. %doesn+t matter though */c *an$ has control&
ii. In August :==<# ,alter *orrowed an additional )E#=== from (an$. 4e signed a
promissor note for the )E#=== and a securit agreement giving (an$ a securit
interest in all e*uip#ent now owned or hereafter acquired. (an$ properl
perfected this securit interest * filing a financing statement centrall in
5$lahoma. At that time ,alter owned a pneumatic paint spraer that he used in
his *usiness.
iii. In ;anuar :==K# ,alter moved to 1allas# Te8as and relocated his refrigerator
repair *usiness and equipment there. 5n !arch :# :==K# ,alter *orrowed
)9=#=== from 3inanceCo for operating capital. 4e signed a promissor note for
the )9=#=== and a securit agreement giving 3inanceCo a securit interest in all
his e*uip#ent and in the same sa0in"s deposit account maintained at (an$ in
1allas# Te8as. 3inanceCo filed the securit agreement with the Te8as Secretar
of State on !arch <# :==K. 5n ;une 9# :==K ,alter purchased a hdraulic hoist
for use in his *usiness.
9<E
iv. It is now ;anuar :==E and ,alter has defaulted on *oth loans# and *oth (an$
and 3inanceCo claim a superior securit interest in the savings deposit account#
the paint spraer and the hdraulic hoist.
v. , ' !
vi. "+ ' Bank (collateral ' de$osit account, e=ui$)ent0after-ac=uired/
vii. "+ ' Finance #o (collateral ' e=ui$)ent and de$osit account/
viii. Odiscuss attach)ent, $erfection, etc./
ix. Bank vs. F#
x. Control- e8plain a*out how to ta$e control over a deposit account2e8plain the
priorit rules for deposit accounts# etc.
xi. I'ic' creditor 'as t'e superior security interest in t'e follo$in"P
1. (an$O ,rt to the different statesO
a. ,hen 1 moves# must refile within K months %>A-<9N%a&%:&&
i. 1eposit account C was never filed to *egin with
ii. 7quipment C filed in August :==<
1. 1 moved in ;anuar :==K C so 9an& #ust refile
in ;exas in =pril of 24 Q $e dont &no$ if it
e0er did
2. a. t'e sa0in"s deposit accountE
a. (an$ B attached *ut did not perfect * filing
*. (UT can perfect * ta$ing control B
c. 1eposit accountO perfection * control *eats other methods
i. SP has control - >A-9=K%a&
1. (1) if /H is t'e ban&
2. %:& if 1# SP# and *an$ agree in authenticated
record that *an$ will compl with instructions
originated * SP
3. %<& the SP *ecomes the *an$+s customer wrt the
deposit account
d. 9an& 4AS control B the accounts are maintained there\ %9& is
met
i. Cas priority o0er t'e -inance Co.
ii. Herfected by control in Ruly 23
e. 'ote C wrt 3inance Co C Attached/perfected * filing !arch <#
:==K
f. SP %3inance Co& will/would have control/priorit over the *an$
if the 3 Co *ecomes customer of the *an$ %>A-9=K%a&%<&&
i. >A-<:?%K& C A SI perfected * control under >A-9=K%a&
%:& has priorit over a SI held * the *an$ in which the
deposit account is maintained.
ii. Such perfection would give priorit
3. b. t'e paint sprayerE
a. Is equipment# there is attachment
*. 3irst to perfect wins C would *e the (an$[
c. 9U; if (an$ doesn+t refile in Te8as in the 4 #ont' "race
period I3 T47I ,A'T T5 4AL7 P7"37CTI5' I' T47
9<N
'7, C5//AT7"A/%* April :==K&# then it loses priorit in
April I' T47 '7, C5//AT7"A/ and -inance Co will win
i. Q 3acts don+t sa ever refiled
ii. 1eemed as never perfected unless the refilled.
iii. Unperfected%(an$& vs. Perfected %3 Co&2the finance
compan would win in this situation.
iv. >A-<:: C 3inance Co wins with 3I"ST I' TI!7 "U/7.
d. 5ld Collateral- the (an$ will still retain its securit interest in
the old collateral ,IT45UT refilling in the new @urisdiction.
4. c. t'e 'ydraulic 'oistE
a. 3irst to perfect wins C (an$
*. IT IS A3T7"-ACPUI"71 7PUIP!7'T.
c. 9U; if (an$ didn+t refile in Te8as in the K month grace period
%* April :==K&# then it loses priorit and -inance Co wins
d. Yshe didn+t go overZ
2. ;ul :=== Puestion <-
i. /um*er Sold to Constructor * /um*er@ac$-- /um*er@ac$ files in the ,"5'J
filing office %according to A-<:K& so therefore cannot perfect2,7 4AL7 T5
J5 (ACG T5 T47 3I"ST I' TI!7 P"I5"ITI "U/7
1. Te8as (an$- the have a perfected securit interest in the inventor.
2. /um*er@ac$- as the filed in the wrong office# then the would /5S7
under A-<:: first in time.
ii. If Constructor fails to pa !ar$ and 1efaults on its Paments to TQ (an$# ,hat
rights# if an# do !ar$ and TQ (an$ 4ave to "epossess the Jrader and the
(ulldo6er from 5dd ;o*-
1. 5nl if !ar$ perfected within := das of 5dd ;o*+s possession of the
collateral.
2. Jrader- !ar$ would have superpriorit.
3. (ulldo6er- (an$ alread has perfection fo this2!ar$ does '5T have a
P!SI in the (ulldo6er2onl had a regular securit interest in the
*ulldo6er2(an$# who perfected * filing first# will have priorit over
mar$ with the (ulldo6er.
4. 5dd-;o*s- the are '5T a (uer in the 5rdinar Course of (usiness2
the are @ust a regular *uer2T47I T47"735"7 TAG7 T47
7PUIP!7'T SU(;7CT T5 T47 S/I 47/1 (I T47 (A'G.
iii. ,hich Creditor# as (etween TQ (an$ and 4ouston (an$# has the Superior S/I in
Constructor+s 7quipment# Inventor# M Accounts-
1. Te8as (an$- the were the 3I"ST T5 3I/72doesn+t matter who has
paid off )) on the line of credit2don+t want to put a *urden on *an$s *
ma$ing them file new 3/S evertime a part pas down its line of credit.
iv. ,hich Creditor# */t Te8as and 1allas (an$# has the Superior SI in Constructor+s
7quipment# Inventor# Accounts# and ,hat# If Anthing# could the *an$ with the
Inferior Position 4ave 1one to Achieve a Superior Priorit Position-
1. Continuation- In order for 3/S to maintain its effectiveness# ou must
renew it within N months or else it will *e li$e it was never filed.
9<?
2. As 4ouston (an$ didn+t file its continuation statement then it+s S/I
lapsed.
T@222. 1efault- Chapter A
A. "ights and 1uties-
i. Pre-1efault 1uties of the Secured Part- ,hen the SP has possession of the
collateral.
1. 1ut of "easona*le Care- %A-:=?%a&&2If the SP has possession of the
collateral the have a 1UTI 53 "7AS5'A(/7 CA"7-
a. 5fficial Comment T:- the dut to e8ercise reasona*le care
cannot *e ta$en awa * agreement2however# the parties are
free
*. I' "7A/ITI# IT IS A L7"I /5, STA'1A"1.
2. 78penses- %A-:=?%*&&2
a. 1e*tor *ears the cost of reasona*le e8penses.
*. 1e*tor *ears the ris$ of accidental loss or damage to the e8tent
of an deficienc of insurance coverage.
c. The SP #ust &eep t'e collateral identifiable# *ut fungi*le
collateral can *e commingled.
3. "equest for Accounting * SP- %A-:9=&2the SP must $eep the collateral
identifia*le so that he can give an accounting to the 1e*tor when the
de*tor requests2if he doesn+t# then he is lia*le under A-N:E
a. 1amages for 'on-Compliance Under A-N:E-
i. %f&- Statutor 1amages of )E==.
ii. %*&- Actual damages caused * the failure to compl
4. Hroble# 1121 Ha"e 2)9P
a. 3acts- And 1oria was the owner of 9== shares of Titanic
Telephone# which he pledged to the !orro Castle 'ational (an$
as collateral for a )9=#=== loan. At the time of the pledge# the
stoc$ was selling for )9== a share. The SA was oral# and the
*an$ filed no 3S.
*. Puestion T9- if the stoc$ *egan to fall in 0alue and if on
'ovem*er K# when it was selling at )H= a share# And called the
*an$ and told the *an$ to sell# is the *an$ responsi*le if it does
not and the stoc$ *ottoms out at )9.E= a share-
i. '5
ii. L9-2+(a) C 78cept as otherwise provided in %d&# a SP
shall use reasona*le care in the custod and preservation
of collateral in the SP+s possession[
iii. 3ederal 1eposit Ins. Corp. v. Air Atl.O This case said that
.the dut of reasona*le care imposed * >A-:=?%a& is
confined to p'ysical care of t'e collateral.( .The
pledgee is not lia*le for a decline in the value of pledged
instruments# even if timel action could have prevented
such decline.0 .A lender in these situations merel
9<H
accepts the stoc$ as collateral# and does not there* itself
invest in the issuing firm0 B is not the investor that has
to ma$e these decisions\
iv. '5 dut AT A// to sell the collateral\\
v. This reasona*le care standard is L7"I low B SP is held
to a ver low standard
1. "eason B this would *e too great a *urden on the
SP. The lender is in the *usiness of
lending/ma$ing interest# not investing
c. Puestion T:- ,ould it help the *an$+s position if the pledge
agreement contained a clause saing that the *an$ was not
responsi*le for its own negligence in dealing with the stoc$-
"ead >9-9=:%<&F see (rodheim v. Chase !anhattan (an$.
i. >9-9=:%<& %where is it in TQ- This is the regular UCC
provision& B provides that the provisions of the code
ma *e modified * agreement# e8cept that the
o*ligations of good faith# reasona*leness# diligence# and
care ma not *e disclaimed * agreement
1. B freedom of contract
2. (ut also sas that the parties ma * agreement
determine the standards * which the
performance of such o*ligation is to *e
measured if such standards are not manifestl
unreasona*le
a. (alance with pu*lic polic
ii. B depends if this was manifestl unreasona*le
iii. (rodheim v Chase !anhattan (an$- Court said that this
clause was 7QCU/PAT5"I2the parties couldn+t
waive the negligence portion of the agreement2ou
CA' change the standard of care as long as it is
reasona*le.
d. Puestion T<- And+s dealings with the *an$ *ecame more
complicated# and eventuall the *an$ held# as pledge# And+s
stoc$s in five different companies. 5ne of the se# /usitania
3oundr# offered a stoc$ split potion that had to *e e8ercised on
1ecem*er <9# so And wrote the !orro Castle 'ational (an$
and# e8plaining that his records had *ecome confused# as$ed the
*an$ how man shares of /usitania 3oundr it held. %IS T4IS
ASGI'J 35" A' ACC5U'TI'J---es& The *an$ replied
that it possessed E= shares %this was a tpographical errorF it
actuall held 9E=&. And tendered E= shares of equivalent stoc$
to the *an$ in e8change for a return of E= shares of /usitania
3oundr# on which he then e8ercised the stoc$ option# which
proved ver profita*le. 5n ;anuar <# And learned he owned
9== more shares than the *an$ heldF it was too late to ta$e the
stoc$ option on these shares. 7oes =ndy 'a0e a cause of action
a"ainst t'e ban& under L9-2+E Under L9-21E I'at
da#a"es can 'e reco0erE /ee L9-)25(b) and (f).
9<A
i. L 9-21. 8e*uest for =ccountin"B 8e*uest 8e"ardin" .ist
of Collateral or /tate#ent of =ccount.
1. %a& M7efinitions.N In this sectionO
a. %9& R"equestR means a record of a tpe
descri*ed in paragraph %:&# %<&# or %K&.
b. %:& R"equest for an accountingR means a
record authenticated * a de*tor requesting
that the recipient provide an accounting of
the unpaid o*ligations secured * collateral
and reasona*l identifing the transaction or
relationship that is the su*@ect of the request.
c. %<& R"equest regarding a list of collateralR
means a record authenticated * a de*tor
requesting that the recipient approve or
correct a list of what the de*tor *elieves to
*e the collateral securing an o*ligation and
reasona*l identifing the transaction or
relationship that is the su*@ect of the request.
d. %K& R"equest regarding a statement of
accountR means a record authenticated * a
de*tor requesting that the recipient approve
or correct a statement indicating what the
de*tor *elieves to *e the aggregate amount
of unpaid o*ligations secured * collateral
as of a specified date and reasona*l
identifing the transaction or relationship
that is the su*@ect of the request.
2. %*& M7uty to respond to re*uests.N Su*@ect to
su*sections %c&# %d&# %e&# and %f&# a secured part# other
than a *uer of accounts# chattel paper# pament
intangi*les# or promissor notes or a consignor# shall
compl with a request within 9K das after receiptO
a. %9& in the case of a request for an
accounting# * authenticating and sending to
the de*tor an accountingF and
b. %:& in the case of a request regarding a list of
collateral or a request regarding a statement
of account# * authenticating and sending to
the de*tor an approval or correction.
3. %c& M8e*uest re"ardin" list of collateralB state#ent
concernin" type of collateral.N A secured part that
claims a securit interest in all of a particular tpe of
collateral owned * the de*tor ma compl with a
request regarding a list of collateral * sending to the
de*tor an authenticated record including a statement
to that effect within 9K das after receipt.
4. %d& M8e*uest re"ardin" list of collateralB no interest
clai#ed.N A person that receives a request regarding a
list of collateral# claims no interest in the collateral
when it receives the request# and claimed an interest
in the collateral at an earlier time shall compl with
the request within 9K das after receipt * sending to
the de*tor an authenticated recordO
9K=
a. %9& disclaiming an interest in the collateralF
and
b. %:& if $nown to the recipient# providing the
name and mailing address of an assignee of
or successor to the recipientSs interest in the
collateral.
5. %e& M8e*uest for accountin" or re"ardin"
state#ent of accountB no interest in obli"ation
clai#ed.N A person that receives a request for an
accounting or a request regarding a statement of
account# claims no interest in the o*ligations when it
receives the request# and claimed an interest in the
o*ligations at an earlier time shall compl with the
request within 9K das after receipt * sending to the
de*tor an authenticated recordO
a. %9& disclaiming an interest in the
o*ligationsF and
b. %:& if $nown to the recipient# providing the
name and mailing address of an assignee of
or successor to the recipientSs interest in the
o*ligations.
6. %f& MC'ar"es for responses.N A de*tor is entitled
without charge to one response to a request under this
section during an si8-month period. The secured
part ma require pament of a charge not e8ceeding
):E for each additional response.
ii. Under A-:9=# this is a .request for accounting0 in >A-
:9=%a&
1. %he is not sending them anthing to approve# @ust
requesting information&
2. Provides that SP must respond within 9K das
%*& with accurate accounting
a. 4ere# the *an$ did not give the accurate
accounting of the collateral# and the
option to sell the stoc$ vanished
iii. L9-)25 B "emedies B the improperl performed under
>A-:9= 1e*tor+s protection against loss * >A-:9=
1. 7ctua" dama$es: 894:)3b!
[;ama$es for noncom%"iance.] (ub$ect
to subsections (c)# (d)# and (f)# a person
is "iab"e for dama$es in the amount of
any "oss caused by a failure to comply
with this article. :oss caused by a failure
to comply may include loss resulting from
the debtor's inability to obtain# or
increased costs of# alternative financing.
2. *uniti#e dama$es: 894:)3f!
[Statutory dama$es: noncom%"iance
with /ection 9-21.] A debtor or consumer
obligor may recover damages under
subsection (b) and# in addition# = 3<< in
each case from a person that# without
9K9
reasonable cause# fails to comply with a
re'uest under Section A-:9=. A recipient of a
re'uest under Section A-:9= which never
claimed an interest in the collateral or
obligations that are the sub$ect of a
re'uest under that section has a
reasonable excuse for failure to comply
with the re'uest within the meaning of
this subsection.
5. "emem*er C none of this applies if the 1 has possession of the collateral
6. ,hen the SP has possession of the collateral# loo$ at >A-:=?%*& B
a. All the reasona*le e8penses %insurance# ta8es# charges& in
operation of the collateral are chargea*le to the 1\\ (urden on 1
to pa these e8penses
ii. Hroble# 1131 Ha"e 2+P 2nsurance
1. !! *orrowed ):#=== from the !ount (rown State (an$ and# as
collateral# pledged to the *an$ her stamp collection %valued at ):#===&.
She used the mone for a South American vacation. ,hile she was
awa# the *an$# which was located in an unsta*le geological area# was
destroed * an earthqua$e. The stamp collection went with it.
3ortunatel# t'e ban& $as fully secured by a policy $it' t'e Dibbons
2nsurance Co#pany# which# inter alia# paid the *an$ ):#=== for the loss
of the stamp collection. Ji**ons then notified !! that she should pa
the ):#=== de*t to Jo**ins# which was using the doctrine of su*rogation
to step into the shoes of the *an$. 'eed she pa-
a. See >A-:=?%*&%:&.
i. (b) [=x%enses' ris.s' duties' and ri$hts when
secured %arty in %ossession.] 7xcept as
otherwise provided in subsection (d)# if a secured
party has possession of collateral: %:& the ris$ of
accidental loss or damage is on the 17(T5" to the
e8tent of a deficienc in an effective insurance
coverageF
*. '5 C the were full covered * the insurance compan. This
section puts the ris$ of damage on the 1# *ut onl to the
deficienc of insurance B does not provide that she must pa the
insurance.
c. Q 2nsurance Co#pany 6:; entitled to /ubro"ation
i. '5T allowed to use su*rogation theor to go after 1
d. The SP %*an$&+s de*t has alread *een paid B recovered from the
insurance compan
e. The insurance compan can not go after 1# or else the 1 would
end up paing twice
2. If there was '5 insurance compan involved# then the 1 would *e lia*le
B ris$ of loss on 1# not on the SP
B. 1efault-
i. ,hat Constitutes 1efault-
9K:
1. The SP+s rights come into *eing whenever there has *een a default * the
1.
2. 4ow do we $now that there is a default in a particular transaction-
3. There is '5 definition for default in UCC A# so it is defined * the
parties in the SA. The SA must fill in the *lan$s.
a. !an @ust list the events that constitute default C i.e.# 1 fails to
ma$e paments# merges with another compan# *ecomes
insolvent# etc.
*. 3rom (oo$O Sometimes# there is a specific definition of the term
so that it incluces not onl failure to pa on time *ut also failure
to perform an terms of the agreement
c. It+s up to the companies to define it B agree in advance what
constitutes default
4. ,hen 1 is in default# SP+s rights are triggered
a. Upon default# certain rights are immediatel triggered# and these
rights A"7 defined under the statute
ii. Cumulative "ights of the Secured Part-
1. (an$ of Piper Cit v. A-,a Inc-
a. 1e*tor signed a promissor note that was secured * grain.
*. 1e*tor defaulted on the note
c. In 3e*ruar 9AH:# State (an$ was awarded a @udgment of )9<9G
against (renner %( had defaulted on promissor notesF State
(an$ had a SI in (+s grain which was stored in A-,a+s
warehouse&. A,a held E9K9.:= *ushels of (+s grain. State
(an$ goofed and accidentall ordered A-,a to pa it )E9K9.:=
%confused the num*er of *ushels with their value& B to enforce
its SI in (+s grain
i. A-,a had actuall sold the grain and gotten )99#<9=.
A-,a gave State (an$ onl the amount requested
%)E9K9.:=&
d. H months later# State (an$ reali6ed its mista$e and sought to
collect the rest
e. 7ebtor ar"ued res 3udicata and #er"er!court said it $asnt
a res 3udicata proble# but a secured transaction case
instead.
f. SP can %9& collect the de*t through @udicial process and reduce
the claim to @udgment or %:& foreclose/enforce the SI in the
grain/proceeds.
g. 4olding- %A-N=9%c&&-- when a de*tor is in default# the /Hs
ri"'ts are cu#ulati0e2the can go after ou for the notes and
if there is a deficienc# the can go after ou for enforcement
%repossession& to satisf the deficienc.
2. -oster 0. Gnutson pa"e 2+5
a. Gs entered into a contract to purchase from 3 all of the
outstanding stoc$ of 4esperian %a fruit-growing corporation&.
9K<
The purchase price was )KE<$# with a down pament of )9<9G
%Gs *orrowed the mone and signed a promissor note to
5neonta for this amount&. The shares were deposited into an
escrow account in a *an$ B held as securit for the rest of the
paments.
*. There was a *ig free6e and 4esperian was reduced in value# and
a new agreement was entered *etween the parties B %April 9<
agreement&2due to the *ig free6e2to give the (an$ 7QT"A
collateral.
i. Principal paments under the original contract were
deferred#
ii. Gs+ supplemental mortgages of assets %of 1e*tor+s
home& were provided as additional securit %these were
pro*a*l their home mortgages&
iii. !an new conditions imposed on Gs %purchasers&#
iv. Included a provision providing that in the event of
default# sellers ma elect to declare all paments due
%accelerate&#
1. Yalso had to give notice of accelerationZ
v. Provided a right to a deficienc @udgment
c. 5n 1ecem*er 9# 9A?=# 3 gave notice to Gs that the were in
default %failure to pa )9<#=== under contract# to maintain
adequate records# etc.&# and that unless cured within <= das# 3
would elect to declare the full purchase price due/see$ all
remedies %accelerate B require the 1 to tender the entire amount
of the loan&.
d. Gs paid the )9<#===# *ut did not cure the other defaults. 3
notified Gs that the stoc$s would *e sold at auction on 3e* A#
9A?9# and Gs made no o*@ection. The stoc$ was sold for )9:=G.
There was a deficienc of )99EG owing * Gs on the contract.
e. 3 went to court and sought a deficienc @udgment A'1 a @udicial
foreclosure of the mortgage of 17(T5"+S 45!7.
f. Under UCC 91 a Creditor #ay c'oose #et'ods of obtainin"
t'e benefit of 'is bar"ain fro# a defaultin" 7[B election of
remed Ysee page :H=Z
i. 9 - SP ma sei6e the goods su*@ect to his SI and $eep
them in satisfaction of the de*t
ii. : - "esell them and appl the proceeds to the de*t# iin
which the 1 is lia*le for an deficienc
1. i.e.# 1 *orrows )E===# collateral car. SP ta$es
car and resells it for )K===. There is a
deficienc of )9=== B SP can go after 1 for
)9===. 5r SP could have @ust $ept the car under
the first method %*ut there# can+t go after 1 for
deficienc B if SP $eeps the car&.
iii. : - SP can ignore his securit and o*tain a @udgment on
the o*ligation and proceed * e8ecution and lev
%@udgment lien relates *ac$ to the date of perfection of
the SI in the collateral& >A-N=9%E&.
9KK
g. ;'ese re#edies are expressly #ade cu#ulati0e.
h. Under method :# if SP decides to resell# ever aspect of the
disposition %here# the auction& must *e done in a co##ercially
reasonable #anner - L9-)4(3).
i. 4ere# the SP itself *ought the collateral\\
ii. Is commerciall reasona*le when SP purchases the
collateral as long as notice of the sale isO Ysee page :H:Z
1. %9& given to the 1e*tor and pu*lic sufficientl in
advance
2. %:& given to a .pu*lic0 reasona*l e8pected to
have an interest in the collateral sold and
notifing of the time# place of the sale
3. %<& has information descri*ing the collateral to
*e sold# etc.
4. %K& pu*lished in a manner reasona*l calculated
to assure such pu*licit that the collateral will
*ring the *est possi*le price[
iii. ;'e record s'o$s t'ese $ere #et B was commerciall
reasona*le
i. SP *ought the propert for mone and 7 is liable for t'e
deficiency
@. "7!71I 35" 35ST7" ,IT4 4IS C/AI! A'1
173ICI7'CI - Can collect this deficienc =67 foreclose the
mortgage %on 1e*tor+s 4ome&
$. 6oteP The lower court had felt sorr for the 1 and tried to
rewor$ the contract
i. Trial Court said that the remedies provided in the
contract %which 3 is see$ing& were too harsh in the
a*sence of su*stantial default
ii. '5 C courts are without legal power to interpose its
@udgment for that of the parties as to whether or not the
remedies contracted for are more harsh than accord with
its own sensi*ilities
1. The T Ct erred * su*stituting its @udgment for
that of the parties
2. 4ave to follow the contract terms
l. 4arsh for 1# *ut it is the law\ Allow the SP to en@o its rights
3. S7/3-47/P 35" S7CU"71 PA"TI- pg. :H=
a. If 'ot Consumer Joods-
i. The SP ma sei6e the goods and $eep them in
satisfaction of the de*t 5"
ii. SP ma resell the goods# appl the proceeds to the de*t#
and then 1e*tor is lia*le for the deficienc.
9KE
iii. I5U !UST ACT I' A C5!!7"CIA//I
"7AS5'A(/7 !A''7"2in disposing of the
collateral.
1. !ust give '5TIC7 (735"7 SA/7 T5 T47
17(T5" A'1 T5 T47 PU(/IC.
4. ;udicial !eans-
a. SP o*tains a @udgment on the o*ligation# gets e8ecution and lev
on their @udgment.
*. ;udgment /ien relates *ac$ to the perfection date.
#. Acceleration and 'otice-
i. Caution A*out Acceleration Clauses-
1. 5*@ective "easona*le Person Standard- when reading the loan# is it
reasona*le to thin$ that the (an$ has the right to accelerate the loan-
2. It is a Su*@ective Test.
3. It is a Jood 3aith standard.
ii. Hroble# 1141 Ha"e 2,3P
1. ,hen !r. and !rs. (an$ruptc *ought a mo*ile home from 'ervous
!otors# Inc.# the signed a P!SA in favor of the seller that contained the
following acceleration clauseO
a. .The parties agree that if at an time the SP deems itself insecure
*ecause in "ood fait' it belie0es t'e prospect of pay#ent or
perfor#ance is i#paired# it shall have the right to declare a
default and accelerate pament of all unpaid sums or
performance or# at its option# ma require the 1 to furnish
additional collateral.0
i. This is a ver tpical acceleration clause B declare
default and accelerate
2. ,hich of the following events# in our opinion# is sufficient to trigger the
proper use of the clause-
a. %a& A ver *ad financial quarter for 'ervous !otors-
i. !a*e C pro*a*l not.
1. 7ach part will argue different was.
ii. '! would sa# we have purchasers paing ever month
B mone will $eep coming in.
*. %*& A serious drop in the state of the econom-
i. 'o.
c. %c& Gnowledge that the ("s have *een tal$ing to a lawer %could
the seller here ma$e use of >:-N=A&-
i. 3; (o what > people tal% to :awyers all
the time
1. >2-)9. 8i"'t to =de*uate =ssurance of
Herfor#ance.
9KN
a. (a) A contract for sale imposes an
obligation on each party that the
other's expectation of receiving
due performance will not be
impaired. ?hen reasonable
grounds for insecurity arise with
respect to the performance of
either party the other may in
writing demand ade'uate
assurance of due performance and
until he receives the assurance
may if commercially reasonable
suspend any performance for which
he has not already received the
agreed return.
2. @Aaybe use this provision to figure out
why they are tal%ing to a lawyer
(could be totally unrelated).B > she
didn4t mention this provision
d. %d& A report %which simple investigation would show to *e false&
that the ("s have failed to pa their grocer *ills for the last :
months-
i. 'o
e. %e& An anonmous phone call that states the ("s are getting
read to move the mo*ile home to !e8ico.
i. 'o C this could *e completel unfounded. The can not
rel on this. There has to *e a good faith *elief B must
do some investigation here.
f. %f& The confiscation of the mo*ile home and the arrest of the ("s
for possessing mari@uana-
i. (laine v. Jeneral !otors Acceptance Corp. held the
finance compan ,AS @ustified in e8ercising its
insecurit clause\
ii. See >9-:=H and Comments. The courts disagree on
.good faith0 standardO Compare (lac$ v. Peoples (an$
M Trust Co. %o*@ective reasona*le person test& with Lan
4orn v. Lan 1e ,ol# Inc. %purel su*@ective test&. An
e8haustive discussion of the meaning of Jood 3aith is in
the opinion of ,atse$a 3irst 'ational (an$ v. "uda. In
3irst 'ational (an$ in /i** v. Twom*l# the court
awarded punitive damages for a *ad faith acceleration.
iii. Jood faith standardB have to research our own
@urisdiction. !a *e different result.
g. %g& ,ould >9-:=H *e relevant at all if the ("s had signed a
de#and pro#issory note %one that permits the Creditor to call
the loan A'I TI!7 T47 C"71IT5" ,IS47S&- See
Comments to >9-:=H and Solar !otors# Inc. v. 3irst 'ational
(an$ of Chadron.
i. The case said that the UCC+s general dut of good faith
does '5T require the lender to call its demand note onl
9K?
pursuant to good faith *usiness @udgment. The court
said that the holder of a demand note ma at an time for
an reason or for no reason demand pament. 3or an
reason the want B doesn+t matter# the SP CA' call it\
iii. Glin"beil 0. Co##ercial Credit Corp. pa"e 2,4
1. 5n !a :N# 9ANN# G entered into an installment sales contract with
1ealer for the purchase of a new car. 4e made a down pament of )K==
and was to pa the remaining *alance of )K#E== in monthl installments.
There was an acceleration clause and enforcement provisions.
Commercial %the installment sales finance compan& *ecame the
assignee %paid )<K== for it&.
2. G %purchaser& wo$e up one morning and his car was gone. Commercial
had ordered a repossession compan to ta$e it B too$ it on ;une ::# 9ANN#
(735"7 G+s first monthl installment was due %*ecause Commercial
.felt insecure0&. G was not in default# this was 4 days before t'e first
install#ent $as due# Commercial gave no notice# demand# etc.
3. The contract provided that *efore *efore G had to pa in full or *e
required to redeliver# Commercial first had to indicate which course was
required %ma$e demand&.
a. .upon demand0 meant the had to give notice of acceleration
*. It did not# and simpl repossessed the car without notice B '5T
o$a
c. Ydamages for loss of G+s personal propert# loss of the vehicle for
this period# and loss of value of the auto itselfZ
4. 'guen sas the lawer made a mista$e drafting this clause.
a. The had a provision that the 4A1 to give notice *efore
acceleration.
*. 5ther lawers have learned from cases li$e this
5. 1amages- there was a question as to what damages he was allowed to
get2actual damages *ut what were the reall-
iv. Hroble# 1151 Ha"e 2,9P ,aiver and "einstatement
1. 'att (irdwhistle *ought a car with mone *orrowed from "epossession
3inance Compan %"3C& %which perfected its interest in the car&. The
SA provided that .time was of the essence0 and that the acceptance *
"3C of late paments was not a waiver of its right to repossess. 'att
alwas paid 9= to 9E das later. 5ne month# "3C had had enough# and it
sent a man out who too$ the car %using a duplicate set of $es& from the
par$ing lot from the factor where 'att wor$ed.
2. 4as a default occurred- See >:-:=HF !oe v. ;ohn 1eereF Jilmore
ArticleO .Courts pay little attention to clauses $'ic' appear to say
t'at #eanin"ful acts are #eanin"less and t'at t'e /H can blo$ 'ot or
cold as 'e c'ooses.(
a. 2-2, 'as been #o0ed to L1-13 in ;T B is the provision on
Course of Herfor#ance.
9KH
i. (d) B C5P is relevant in ascertaining the meaning of the
parties+ agreement# ma give particular meaning to
specific terms if the agreement# and ma supplement or
qualif the terms of the agreement[
*. Loo.s "i.e they ha#e wai#ed the ri$ht to their
>time is of the essence? c"ause by a"ways
acce%tin$ "ate %ayments (based on their course
of performance).
i. C the contract has been modified# and have
waived their right to repossess C can 3;T
repossess# because this is no longer a
default
3. If "3C+s conduct has waived the right to repossess if 'att is late# what
can it do to reinstate the .time if of the essence0 clause- See >:-:=A%E&.
a. Send notice that strict performance will *e required from now on
%reinforce the time is of the essence&
*. L 2-29. 5odificationB 8escission and Iai0er.
i. (e) A party who has made a waiver affecting an
executory portion of the contract may retract the
waiver by reasonable notification received by the
other party that strict performance will be
re'uired of any term waived# unless the
retraction would be un$ust in view of a material
change of position in reliance on the waiver.
v. 'oteO Credit Insurance and 1efault# Page :HA %not mentioned in class&
1. If the 1 has died or *ecome ill or disa*led# so that the credit insurance
ta$en out at the time the original contract was signed should pa the de*t#
there is authorit for the proposition that the SC must loo$ first to the
credit insurance *efore repossessing.
,. /elf-Celp of 8epossession $it'out 9reac' of t'e Heace 8epossession and 8esale
i. SP has the right to repossess and resell when 1 is in default >A-N=A authori6es
the SP to s$ip going through @udicial processes and to repossess the collateral on
the 1+s default if this can *e done without a .*reach of the peace.0
1. L 9-)9. /ecured HartyOs 8i"'t to ;a&e Hossession =fter 7efault.
a. (a) [*ossession@ renderin$ eAui%ment unusab"e@
dis%osition on debtor&s %remises.] After default# a
secured party:
i. %9& ma ta$e possession of the collateralF and
ii. %:& without removal# ma render equipment unusa*le and
dispose of collateral on a de*torSs premises under Section A-
N9=.
*. (b) [Budicia" and non+udicia" %rocess.] A secured
party may proceed under subsection (a):
i. %9& pursuant to @udicial processF or
ii. %:& without @udicial process# if it proceeds without *reach of
the peace.
9KA
c. (c) [7ssemb"y of co""atera".] )f so agreed# and in any
event after default# a secured party may re'uire the
debtor to assemble the collateral and ma%e it available
to the secured party at a place to be designated by the
secured party which is reasonably convenient to both
parties.
2. C can use $udicial process ;D self"help
a. )f you use self"help# you can repossess the
collateral )5 you do so without breach of the peace
ii. Iillia#son 0. -o$ler ;oyota1 2nc. pa"e 29
1. 3T sold a car to Jilmore# who paid )<== down and agreed to :9 *i-
wee$l paments and one final pament. J also gave 3T a SI in the Car.
4e donated the car to Camp 4udgens and stopped ma$ing paments on it
%then died&. 4udgens too$ the car to ,illiamson Auto to e8amine it and
assure it was safe to sell %, had no $nowledge of an lien&.
2. After a*out <= das# the car was gone. The loc$ on the gate was missing
%had *een cut with *olt cutters&. 3T had repossessed it %hired !cJregor
to do so# and he told the police that he had done this&. 4e had tried to
call , *efore entering# *ut no answer# so he entered. After repossession#
3T didn+t attempt to contact , %*ut told !cJregor not to enter as such in
the future&.
3. T CtO Actual damages of )KE %loc$/chain and 9 hour of *illa*le time& and
Punitive damages of )9E#===
4. /ia*ilit for Acts of Independent Contractor Usuall not lia*le unless
%e8ception for& wor$ inherentl dangerous or unlawful# or where the
emploer owes a contractual or defined legal dut to the in@ured part.
This was unlawful# so 3T IS lia*le
a. Q t'e ri"'t of self-'elp t'at belon"s to t'e /H is 6:;
transferable and t'e Cs duty to exercise t'is in a peaceable
#anner is non-dele"able $it'out liability (if you transfer to
3
rd
party t'en you still o$e duty and $ill 'a0e to pay
da#a"es)
i. Q 6:6-dele"able duty - Kou cant dele"ate t'is duty
to a ;'ird Harty I2;C:U; .iability
*. -; is liable for 5cDre"ors trespass and breac' of t'e peace
i. Q t'is I=/ breac' of t'e peace
5. Actual A'1 Punitive 1amages T Ct had found wanton and rec$less
disregard for the rights of others %)9E#=== pun dgs&. I7S B this was not
e8cessive %considering 3T+s worth# etc.&
iii. Hroble# 11)1 Ha"e 29+P 1on ;ose was in charge of repossession for Carmen
!otors. 5ne !onda morning the dealership told him that cars owned * K 1s
%7# !icaela# b# and !orales& were to *e pic$ed up *ecause the *uers had missed
paments. /oo$ at >A-N=A# and answerO Is Carmen !otors required to give the
1s notice that the are in default *efore repossessing- 1on ;ose visited each of
the 1s with the following resultsO
1. Y*asicall# decide if it is a *reach of the peaceZ
2. Puestion T9- 4e found 7+s car par$ed in his drivewa at :O== a.m.F he
*ro$e the car window# hot-wired the car# and drove it awa.
9E=
a. 4as a *reach of the peace occurred-
i. Jiles v. 3irst Lirginia Credit Services C 6: *reach of
peace in this case C there was '5 confrontation with
anone
ii. "7A/ITI- if ou want to repossess the car# ou have to
get into the car and figure out a wa to start it2as long
as there is no confrontation# etc. then there is no *reach
of the peace.
*. ,hat if 7scamillo heard the window *rea$# rushed out# and
*egan elling- !a 1on ;ose continue the repossession# or must
he quit-
i. 4e #ust quit repossessing the car to avoid *reach of
peace when there is confrontation.
ii. (asicall# it depends on how loudl someone *egins
elling in the middle of the night.
iii. If it is in the middle of the da and someone as$s the
question .what are ou doing0 then there pro*a*l isn+t
a *reach of the peace.
c. If he goes awa# ma he tr again later that night-
i. ,ade v. 3ord !otor Credit Co.F cf. Jriffith v. Lalle of
the Sun "ecover M Ad@ustment (ureau %repossessor
lia*le in negligence for act of 1+s neigh*or who used a
shotgun to shoot a *stander during repossession melee&.
ii. I7S In ,ade case# the first attempt was not
successful# *ut one a month later was B court said no
*reach of peace
iii. I7S2ou can come *ac$ even later that night
according to 'guen.
3. Puestion T:- 1on ;ose showed up at !icaela+s house accompanied *
his *rother %an off-dut sheriff who was wearing his sheriff+s uniform&.
1on ;ose told !icaela that he was repossessing the car# and she said
nothing. 4as a *reach of the peace occurred-
a. I7S B this is use of constructive force
*. See Stone !ach Co. v. Gessler %constructive force also
constitutes a *reach of the peace&F accord 3irst M 3armers (an$
v. 4enderson %)?E#=== punitive damages&.
c. A-N=A 5fficial Comment < %last paragraph&-- ou can+t use a
police officer unless ou get @udicial enforcement.
4. Puestion T<- 1on ;ose *ro$e into b+s garage through the use of the
services of a loc$smith. The garage loc$ and door were undamaged. A
clause in the contract provided that the CP had the right to enter the 1+s
premises to remove the propert. 1oes the repossession compl with >A-
N=A- See >A-N=:%N&F 1avenport v. Chrsler Credit Corp.-- when ou
*rea$ into someone+s propert then it is against the goals of the UCC and
it would amount to a *reach of the peace.
a. This is breach of the peace# but what about the
provision
*. '5 B >A-N=: sas ou can+t change the rules as such
9E9
c. >9-)2. Iai0er and @ariance of 8i"'ts and 7uties. 7xcept as
otherwise provided in Section A-N:K# to the extent that
they give rights to a debtor or obligor and impose duties
on a secured party# the debtor or obligor may not waive
or vary the rules stated in the following listed sections:
i. (+) Section A-N=A to the extent that it imposes upon
a secured party that ta%es possession of
collateral without $udicial process the duty to do
so without breach of the peaceE
d. 56): L 9-)3. ="ree#ent on /tandards Concernin" 8i"'ts and
7uties.
i. %a& M="reed standards.N The parties ma determine *
agreement the standards measuring the fulfillment of the rights
of a de*tor or o*ligor and the duties of a secured part under a
rule stated in Section A-N=: if the standards are not manifestl
unreasona*le.
ii. %*& M="reed standards inapplicable to breac' of peace.N
Su*section %a& does not appl to the dut under Section A-N=A
to refrain from *reaching the peace.
5. Puestion TK- 1on ;ose phoned !orales and said that the car was *eing
recalled *ecause of an unsafe engine mount. !orales *rought the car in
that morning. ,hen the time came to pic$ up the car# 1on ;ose said
.April 3ool# it+s *een repossessed\0 and refused to return it. Is the
repossession valid- Compare Co8 v. Jaligher !otor Sales Co. with
3ord !otor Credit Co. v. (rd.
a. Co8 sas '5 *reach of peace so 5G.
i. Some tric$er is usuall allowed
*. Y'oteO (ut 3ord !otor said this was '5T o$a %lia*le for
conversion&Z
iv. Cilli#an 0. Cobado pa"e 29,
1. S %purchaser& *ought a herd of cattle from C. Under the terms of the
initial agreement# the sale was secured * a mortgage on the farm realt.
(ut *efore deliver of the cattle# C demanded additional SI in the cattle.
Under the new agreement# C was given a chattel mortgage interest in .NH
cows and 9 *ull.0 Pament due was )KH#:==# in monthl paments of
)9#===.
a. This contained a provision permitting the SP to .enter 1+s
premises peacea*l[.ta$e possession of the collateral.0
2. C delivered the cattle to S# and S .culled0 %selected/pic$ed and chose& a
num*er of the poorer cattle delivered
3. A <
rd
instrument was e8ecuted# the collateral *eing .<? replacement
cows.0 The *alance due was fi8ed at )<A#E== %reduced amount&# and the
same pament schedule applied.
a. This also contained a provision permitting the SP to .enter 1+s
premises peacea*l[.ta$e possession of the collateral.0
4. S has never defaulted# *ut C was unhapp with S+s culling the cattle.
5. Suddenl# C and : sheriffs showed up at S+s home to repossess the
collateral. S said no# *ut C said .to 4ell with this# let+s go get the cows0
9E:
and went into the *arn and released the cattle and started *eating them to
get them into the trailers.
6. A ne$ sheriff arrived and told C not to leave with the cattle or he would
*e arrested %and this occurred2he was arrested&.
7. The provision to .enter 1+s premises peacefull0 is consistent with no
*reach of peace in the UCC
8. ;'is I=/ a breac' of t'e peace.
a. C must redeliver the cattle at his own cost and e8pense
v. Hroble# 11+1 Ha"e 32P
1. 5'( financed !!+s purchase of a new car# in which it perfected a SI.
The loan agreement provided that on default# the *an$ had all the rights
listed in Part N of Article A UCC and that he parties agreed that the *an$
would not *e lia*le for conversion or otherwise if there were other items
in the car at the time it was repossessed. !ar missed a pament# and
5'(+s agent too$ the car in the dead of night from its par$ing place in
front of her home. She protested the ne8t da# claiming that her golf
clu*s were in the trun$. 5'( loo$ed there *ut couldn+t find the clu*s.
,hen she sued# 5'( defended on the *asis of the SA+s e8culpator
clause.
a. Is it valid- See 3ord !otor Credit Co. v. Cole.
i. '5 C pu*lic polic doesn+t permit this %mortgagor is
entitled to maintain suit for the value of the propert&
1. B some courts will hold such e8culpator
clauses not valid at all
ii. 1epends where this non-collateral propert is located
1. If it is in plain view or in the trun$ %---&
*. If 5'( finds the clu*s and returns them promptl on her
demand# is the *an$ still guilt of conversion- See Thompson v.
3ord !otor Credit Co.
i. Iou A"7'+T /IA(/7 if ou return the items
P"5!PT/I UP5' "7PU7ST 53 17(T5".
vi. 2#perial 7iscount Corp. 0. =i&en pa"e 32
1. 1 *ought a car *atter from a retail store for ):A. In order to *e
permitted to pa * wee$l installments# he agreed to a service charge of
)E B signed a retail installment contract %with his car as additional
securit# together with an future cars he acquired to replace it&.
2. 1 stopped ma$ing paments %had paid ):<.:E out of )<E.==&# and P
%seller& repossessed the car. It sued for part of the price of the *atter# for
late charges# attornes fees# repossession charges# auctioneer+s fees %car
was sold at an auction&# and storage charges. It also credited him for )E=
%the amount for which the car was sold&. The total was )9:H.H= %he had
onl owed )99.?E to *egin with\&.
a. B 1 lost his car# his *atter# and is *eing sued for )9:H.H=.
3. Court said '5 B S45CG71 T47 C5U"T+S C5'SCI7'C7 T4AT
T47 17(T ,AS SPI"A/I'J 5UT 53 C5'T"5/ B too oppressive
4. 9U; how does this go together with the 3oster v. Gnutson case B there#
the court said there was freedom of contract C tough luc$\
9E<
a. There# the farmers were in the *usiness of farming B more
sophisticated
*. 4ere# this is @ust a man *uing a car *atter B the little man
5. ,hich is the good law toda-
a. UCC 'as 2 trac&s Q one for consu#ers and one for non-
consu#ers
i. ,ith consumer transactions# the UCC will loo$ to other
statutes for support# *ut with *usiness transactions# this
IS the law B 3oster v. Gnutson ,I// (7 the law for
business transactions
*. UCC consistentl does this
c. So *oth of the a*ove are still the law
6. Consumer Transactions Under UCC A Part N- the provisions aren+t so
applica*le to consumer transactions so the Court will loo$ to State law to
determine whether it should *e allowed or not %can loo$ to fairness# etc.&
2C5U"T CA' 4AL7 S45CG71 C5'SCI7'C7 47"7.
7. 6ote after caseO It is important to remem*er that if the 1 files a petition
in ("# ><N: of the Code creates an automatic sta of an creditor
collection activit %for*ids not onl repossession *ut also other attempts
to collect the de*t B i.e.# letters&. C action ta$en without $nowledge of
the filing mist *e undone upon learning of the filing# *ut an tried
information that reaches the C from whatever source that the (" has
*een filed invo$es the protection of automatic sta. 1eli*erate C conduct
thereafter violating the sta would not onl *e in contempt of court# *ut
could also lead to the invocation of ><N:%h& B damages provision.
vii. Hroble# 1191 Ha"e 3)P
1. After 'ightfler /oan Compan had repossessed /(+s car# it decided to
advertise it for *ids in a local newspaper.
a. This is a consumer transaction. '/C repossessed and is going to
dispose of it.
*. Is this a pri0ate or public sale- See Comment ? to >A-N9=
i. Comment C to 894:(<: *ub"ic #s. *ri#ate
;is%ositions. This *art maintains two
distinctions between "public" and other
dispositions: i! the secured party may buy at
the former# but normally not at the latter ((ection
,"+.F(c))# and ii! the debtor is entitled to
notification of Dthe time and %"ace of a %ub"ic
dis%ositionD and notification of Dthe time
after whichD a %ri#ate dis%osition or other
intended dis%osition is to be made ((ection
,"+.-(.)(7)). )t does not retain the distinction
under former (ection ,"<F8(8)# under which
transferees in a noncomplying public disposition
could lose protection more easily than transferees
in other noncomplying dispositions. )nstead#
(ection ,"+.G(b) adopts a unitary standard.
9EK
Although the term is not defined# as used in this
Article# a D%ub"ic dis%ositionD is one at which
the %rice is determined after the %ub"ic has
had a meanin$fu" o%%ortunity for
com%etiti#e biddin$. DEeanin$fu"
o%%ortunityD is meant to im%"y that some
form of ad#ertisement or %ub"ic notice must
%recede the sa"e or other dis%osition! and
that the %ub"ic must ha#e access to the sa"e
dis%osition!.
ii. This is a pu*lic notice# *ut advertising in local
newspaper will lead to P"ILAT7 sale. This is not li$e a
pu*lic auction B *uers don+t $now of each others+ *ids#
etc.
iii. Courts li$e this *ecause it tpicall leads to a higher
selling price than private sales.
c. 4ow much in advance of the resale must she %/(& *e given
notice- See >A-N99# N9: Ysee a*oveZ
i. '5' C5'SU!7" J551S- The statute sas C non-
consumer transaction %li$e equipment or farm products&
B 1 days 6:;2C<
1. >A-N9:%*& B this is a re*utta*le presumption that
this is a reasona*le time
ii. It doesn+t sa anthing a*out consumers
1. The 9= das is for the non-consumer
transactions.
iii. C5'SU!7" T"A'SACTI5'S- 3or consumer
transactions# ou have to loo& to ot'er statutes B for
how much time is reasona*le
1. 5ne would assume that for consumer
transactions# $ould need #ore t'an 1 days#
*ut ou have to loo$ to consumer statutes for the
answer
d. ,hat should the notice sa- See >A-N9K %for the notice to *e
given to non-consumers# see >A-N9<&.
i. Ydidn+t answerZ
e. L 9-)13. Contents and -or# of 6otification 9efore 7isposition of
CollateralP Deneral. 7xcept in a consumer"goods
transaction# the following rules apply:
i. (.) The contents of a notification of disposition
are sufficient if the notification:
1. %A& descri*es the de*tor and the secured partF
2. %(& descri*es the collateral that is the su*@ect of the
intended dispositionF
3. %C& states the method of intended dispositionF
4. %1& states that the de*tor is entitled to an accounting
of the unpaid inde*tedness and states the charge# if
an# for an accountingF and
9EE
5. %7& states the time and place of a pu*lic disposition or
the time after which an other disposition is to *e
made.
ii. (H) ?hether the contents of a notification that
lac%s any of the information
specified in paragraph (.) are nevertheless
sufficient is a 'uestion of fact.
iii. (-) The contents of a notification providing
substantially the information specified in
paragraph (.) are sufficient# even if the
notification includes:
1. %A& information not specified * that paragraphF or
2. %(& minor errors that are not seriousl misleading.
iv. (8) A particular phrasing of the notification is not
re'uired.
v. (<) The following form of notification and the
form appearing in Section A- N9K%<&# when
completed# each provides sufficient information:
1. /OFGFGC7FGO/ OF ;GS*OSGFGO/ OF
COLL7F=R7L
2. To: @Name of debtor, obligor, or other
person to which the notification is
sentBE
3. 5rom: @Name, address, and telephone
number of secured partyBE
4. 3ame of Iebtor(s): @Include only if
debtor(s) are not an addresseeBE
5. @For a public disposition:B ?e will sell @or
lease or license# as applicableB the
@describe collateralB @to the highest
'ualified bidderB in public as follows:
a. Iay and Iate:
b. Time:
c. *lace:
6. @For a private disposition:B ?e will sell @or
lease or license# as applicableB the
@describe collateralB privately sometime
after @day and dateB .
7. 6ou are entitled to an accounting of the
unpaid indebtedness secured by the
property that we intend to sell @or lease or
license# as applicableB @for a charge of =B.
6ou may re'uest an accounting by calling
us at @telephone numberB[=nd of Form]
f. L 9-)14. Contents and -or# of 6otification 9efore 7isposition of
CollateralP Consu#er-"oods ;ransaction. )n a consumer"
goods transaction# the following rules apply:
i. (.) A notification of disposition must provide the
following information:
1. %A& the information specified in Section A-N9<%9&F
9EN
2. %(& a description of an lia*ilit for a deficienc of
the person to which the notification is sentF
3. %C& a telephone num*er from which the amount that
must *e paid to the secured part to redeem the
collateral under Section A-N:< is availa*leF and
4. %1& a telephone num*er or mailing address from
which additional information concerning the
disposition and the o*ligation secured is availa*le.
ii. (H) A particular phrasing of the notification is not
re'uired.
iii. (-) The following form of notification# when
completed# provides sufficient information:
1. @Name and address of secured partyB
2. @DateB
3. /OFGC= OF OHR *L7/ FO S=LL
*RO*=RFI
4. @Name and address of any obligor who is
also a debtorB
5. (ub$ect: @Identification of TransactionB
6. ?e have your @describe collateralB#
because you bro%e promises in our
agreement.
7. @For a public disposition:B ?e will sell
@describe collateralB at public sale. A sale
could include a lease or license. The sale
will be held as follows:
a. Iate:
b. Time:
c. *lace:
d. 6ou may attend the sale and bring
bidders if you want.
8. @For a private disposition:B ?e will sell
@describe collateralB at private sale
sometime after @dateB. A sale could
include a lease or license. The money
that we get from the sale (after paying
our costs) will reduce the amount you
owe. )f we get less money than you owe
you @will or will not, as applicableB still
owe us the difference. )f we get more
money than you owe# you will get the
extra money# unless we must pay it to
someone else.
6ou can get the property bac% at any time
before we sell it by paying us the full
amount you owe (not $ust the past due
payments)# including our expenses. To
learn the exact amount you must pay# call
us at @telephone numberB. )f you want
9E?
us to explain to you in writing how we
have figured the amount that you owe us#
you may call us at @telephone numberB @or
write us at @secured partys addressBB and
re'uest a written explanation. @?e will
charge you = for the explanation if we
sent you another written explanation of
the amount you owe us within the last six
months.B )f you need more information
about the sale call us at @telephone
numberB @or write us at @secured partys
addressBB. ?e are sending this notice to
the following other people who have an
interest in @describe collateralB or who
owe money under your agreement:
a. @Names of all other debtors and
obligors, if anyB
9. [=nd of Form]
iv. %K& A notification in the form of paragraph %<& is sufficient#
even if additional information appears at the end of the form.
v. %E& A notification in the form of paragraph %<& is sufficient#
even if it includes errors in information not required *
paragraph %9&# unless the error is misleading with respect to
rights arising under this article.
vi. %N& If a notification under this section is not in the form of
paragraph %<&# law other than this article determines the effect
of including information not required * Su*division %9&.
2. After the resale# 'ightfler simpl sent her a statement stating that the
amount she how owed was )<#:==. She is unsure how '3 came up with
this figure# and comes to ou for advice.
a. ,hat are her rights here- See >A-N9N# A-N:E%c& and %e&.
i. L 9-)1). <xplanation of Calculation of /urplus or
7eficiency.
1. (a) [;efinitions.] )n this section:
a. (9& R78planationR means a writing thatO
i. %A& states the amount of the surplus
or deficiencF
ii. %(& provides an e8planation in
accordance with su*section %c& of
how the secured part calculated
the surplus or deficiencF
iii. %C& states# if applica*le# that future
de*its# credits# charges# including
additional credit service charges or
interest# re*ates# and e8penses ma
affect the amount of the surplus or
deficiencF and
i0. %1& provides a telephone num*er or
mailing address from which
additional information concerning
the transaction is availa*le.
b. %:& R"equestR means a recordO
9EH
i. %A& authenticated * a de*tor or
consumer o*ligorF
ii. %(& requesting that the recipient
provide an e8planationF and
iii. %C& sent after disposition of the
collateral under Section A-N9=.
2. (b) [=x%"anation of ca"cu"ation.] )n a
consumer"goods transaction in which the
debtor is entitled to a surplus or a
consumer obligor is liable for a deficiency
under Section A-N9E# the secured party shall:
a. %9& send an e8planation to the de*tor or
consumer o*ligor# as applica*le# after the
disposition andO
i. %A& *efore or when the secured
part accounts to the de*tor and
pas an surplus or first ma$es
written demand on the consumer
o*ligor after the disposition for
pament of the deficiencF and
ii. %(& within 9K das after receipt of a
requestF or
b. %:& in the case of a consumer o*ligor who is
lia*le for a deficienc# within 9K das after
receipt of a request# send to the consumer
o*ligor a record waiving the secured partSs
right to a deficienc.
3. (c) [ReAuired information.] To comply
with subsection (a)(.)(J)# a writing must
provide the following information in the
following order:
a. %9& the aggregate amount of o*ligations
secured * the securit interest under which
the disposition was made# and# if the amount
reflects a re*ate of unearned interest or
credit service charge# an indication of that
fact# calculated as of a specified dateO
i. %A& if the secured part ta$es or
receives possession of the collateral
after default# not more than <E das
*efore the secured part ta$es or
receives possessionF or
ii. %(& if the secured part ta$es or
receives possession of the collateral
*efore default or does not ta$e
possession of the collateral# not
more than <E das *efore the
dispositionF
b. %:& the amount of proceeds of the
dispositionF
c. %<& the aggregate amount of the o*ligations
after deducting the amount of proceedsF
d. %K& the amount# in the aggregate or * tpe#
and tpes of e8penses# including e8penses of
9EA
reta$ing# holding# preparing for disposition#
processing# and disposing of the collateral#
and attorneSs fees secured * the collateral
which are $nown to the secured part and
relate to the current dispositionF
e. %E& the amount# in the aggregate or * tpe#
and tpes of credits# including re*ates of
interest or credit service charges# to which
the o*ligor is $nown to *e entitled and
which are not reflected in the amount in
paragraph %9&F and
f. %N& the amount of the surplus or deficienc.
4. (d) [Substantia" com%"iance.] A
particular phrasing of the explanation is
not re'uired. An explanation complying
substantially with the re'uirements of
subsection (a) is sufficient# even if it
includes minor errors that are not
seriously misleading.
5. (e) [Char$es for res%onses.] A debtor
or consumer obligor is entitled without
charge to one response to a re'uest under
this section during any six"month period in
which the secured party did not send to
the debtor or consumer obligor an
explanation pursuant to subsection (b)(.).
The secured party may re'uire payment of
a charge not exceeding =H< for each
additional response.
ii. >A-N9N B she is entitled to an .explanation0 B an [ %see
provision&# And she is entitled to an accountin"
1. And she is entitled to re#edies if the don+t
follow the duties/requirements under UCC A2
including 1A!AJ7S and even punitives.
iii. L 9-)25. 8e#edies for /ecured HartyOs -ailure to Co#ply
Iit' =rticle.
1. a! [Budicia" orders concernin$
noncom%"iance.] )f it is established that
a secured party is not proceeding in
accordance with this article# a court may
order or restrain collection# enforcement#
or disposition of collateral on appropriate
terms and conditions.
2. b! [;ama$es for noncom%"iance.]
(ub$ect to subsections (c)# (d)# and (f)# a
person is liable for damages in the amount
of any loss caused by a failure to comply
with this article. :oss caused by a failure
to comply may include loss resulting from
the debtor's inability to obtain# or
increased costs of# alternative financing.
9N=
3. (c) [*ersons entit"ed to reco#er
dama$es@ statutory dama$es in
consumer4$oods transaction.] 7xcept
as otherwise provided in Section A-N:H:
a. %9& a person that# at the time of the failure#
was a de*tor# was an o*ligor# or held a
securit interest in or other lien on the
collateral ma recover damages under
su*section %*& for its lossF and
b. %:& if the collateral is consumer goods# a
person that was a de*tor or a secondar
o*ligor at the time a secured part failed to
compl with this part ma recover for that
failure in an event an amount not less than
the credit service charge plus 9= percent of
the principal amount of the o*ligation or the
time-price differential plus 9= percent of the
cash price.
4. (d) [Reco#ery when deficiency
e"iminated or reduced.] A debtor whose
deficiency is eliminated under Section A-N:N
may recover damages for the loss of any
surplus. 0owever# a debtor or secondary
obligor whose deficiency is eliminated or
reduced under Section A-N:N may not
otherwise recover under subsection (b) for
noncompliance with the provisions of this
part relating to collection# enforcement#
disposition# or acceptance.
5. (e) [Statutory dama$es:
noncom%"iance with s%ecified
%ro#isions.] )n addition to any damages
recoverable under subsection (b)# the
debtor# consumer obligor# or person
named as a debtor in a filed record# as
applicable# may recover =<FF in each case
from a person that:
a. %9& fails to compl with Section A-:=HF
b. %:& fails to compl with Section A-:=AF
c. %<& files a record that the person is not
entitled to file under Section A- E=A%a&F
d. %K& fails to cause the secured part of record
to file or send a termination statement as
required * Section A-E9<%a& or %c&F
e. %E& fails to compl with Section A-N9N%*&%9&
and whose failure is part of a pattern# or
consistent with a practice# of
noncomplianceF or
f. %N& fails to compl with Section A-N9N%*&%:&.
6. (f) [Statutory dama$es:
noncom%"iance with /ection 9-21.] A
debtor or consumer obligor may recover
damages under subsection (b) and# in
9N9
addition# =<FF in each case from a person
that# without reasonable cause# fails to
comply with a re'uest under Section A-:9=.
A recipient of a re'uest under Section A-:9=
which never claimed an interest in the
collateral or obligations that are the
sub$ect of a re'uest under that section
has a reasonable excuse for failure to
comply with the re'uest within the
meaning of this subsection.
7. (g) [Limitation of security interest:
noncom%"iance with /ection 9-21.] )f a
secured party fails to comply with a
re'uest regarding a list of collateral or a
statement of account under Section A-:9=#
the secured party may claim a security
interest only as shown in the list or
statement included in the re'uest as
against a person that is reasonably misled
by the failure.
iv. %e&%N& B if the fail to compl with >A-N9N%*&%:&# she
gets )E==
v. And get actual damages under >A-N:E
*. /;<H/ :6< C=/ ;: ;=G<- 2f /H $ants to dispose of
property after repossession t'en t'ey #ust
i. /end notice to 7 (1X days)
ii. 2f 'a0e notice and disposeS
1. 2f t'ere is a deficiency1 /H $ould li&e to
collect t'is deficiency
2. 7s ri"'tsP
a. =r"ue t'e a#ount of t'e disposition is
too s#all1 and de#and
i. 2te#i4ation - L9-)1)
b. =r"ue t'at s'e is entitled to re#edies
under L9-)25
i. (e) Q t'e %8apson rule(
ii. 7 $'o learns t'at t'e /Hs
disposition brou"'t really lo$
nu#bers $ants to pro0e t'ere
$as so#et'in" $ron" $it' t'e
disposition1 and if 7 can s'o$
t'is (t'at /H didnt follo$
UCC 9 co##ercially
reasonable re*uire#ents)1
t'en t'e 'i"'er nu#ber t'at 7
s'o$s $ill be substituted for
t'e actual sale price (t'e
suspiciously lo$ nu#ber)
iii. B this (5P that 1 has to meet
is not eas\ (ecause ofO
9N:
i0. 894:)Ca! [0reater
amount obtainab"e under
other circumstances@ no
%rec"usion of commercia"
reasonab"eness.] The fact
that a greater amount could
have been obtained by a
collection# enforcement#
disposition# or acceptance at
a different time or in a
different method from that
selected by the secured
party is not of itself
sufficient to preclude the
secured party from
establishing that the
collection# enforcement#
disposition# or acceptance
was made in a commercially
reasonable manner.
c. =nd "et actual da#a"es in addition to
t'e J5 - L9-)25(d)
3. The price o*tained at the resale seems suspiciousl low to her. 4ow
relevant is that- See >A-N:?%a&.
a. Ydidn+t go overZ
4. She suspects that the reason the sale *rought so little is that the onl
*idder was '3 itself. Can the do that- See >A-N9=%e&F A-N9E%f&# and A-
N:N%a&%E&.
a. L 9-)15. =pplication of Hroceeds of 7ispositionB .iability for
7eficiency and 8i"'t to /urplus.
i. (a) [7%%"ication of %roceeds.] A secured party
shall apply or pay over for application the cash
proceeds of disposition under (ection ,"+.F in
the following order to:
1. %9& the reasona*le e8penses of reta$ing# holding#
preparing for disposition# processing# and disposing#
and# to the e8tent provided for * agreement and not
prohi*ited * law# reasona*le attorneSs fees and
legal e8penses incurred * the secured partF
2. %:& the satisfaction of o*ligations secured * the
securit interest or agricultural lien under which the
disposition is madeF
3. %<& the satisfaction of o*ligations secured * an
su*ordinate securit interest in or other su*ordinate
lien on the collateral ifO
a. %A& the secured part receives from the
holder of the su*ordinate securit interest or
other lien an authenticated demand for
proceeds *efore distri*ution of the proceeds
is completedF and
b. %(& in a case in which a consignor has an
interest in the collateral# the su*ordinate
9N<
securit interest or other lien is senior to the
interest of the consignorF and
4. %K& a secured part that is a consignor of the collateral
if the secured part receives from the consignor an
authenticated demand for proceeds *efore
distri*ution of the proceeds is completed.
ii. (b) [*roof of subordinate interest.] )f
re'uested by a secured party# a holder of a
subordinate security interest or other lien shall
furnish reasonable proof of the interest or lien
within a reasonable time. nless the holder does
so# the secured party need not comply with the
holder's demand under subsection (a)(-).
iii. (c) [7%%"ication of noncash %roceeds.] A
secured party need not apply or pay over for
application noncash proceeds of disposition under
Section A-N9= unless the failure to do so would be
commercially unreasonable. A secured party that
applies or pays over for application noncash
proceeds shall do so in a commercially
reasonable manner.
iv. (d) [Sur%"us or deficiency if ob"i$ation
secured.] )f the security interest under which a
disposition is made secures payment or
performance of an obligation# after ma%ing the
payments and applications re'uired by
subsection (a) and permitted by subsection (c):
1. %9& unless su*section %a&%K& requires the secured part
to appl or pa over cash proceeds to a consignor# the
secured part shall account to and pa a de*tor for
an surplusF and
2. %:& the o*ligor is lia*le for an deficienc.
v. (e) [/o sur%"us or deficiency in sa"es of
certain ri$hts to %ayment.] )f the underlying
transaction is a sale of accounts# chattel paper#
payment intangibles# or promissory notes:
1. %9& the de*tor is not entitled to an surplusF and
2. %:& the o*ligor is not lia*le for an deficienc.
vi. (f) [Ca"cu"ation of sur%"us or deficiency in
dis%osition to %erson re"ated to secured
%arty.] The surplus or deficiency following a
disposition is calculated
based on the amount of proceeds that would
have been reali&ed in a disposition complying
with this part to a transferee other than the
secured party# a person related to the secured
party# or a secondary obligor if:
1. %9& the transferee in the disposition is the secured
part# a person related to the secured part# or a
secondar o*ligorF and
2. %:& the amount of proceeds of the disposition is
significantl *elow the range of proceeds that a
9NK
compling disposition to a person other than the
secured part# a person related to the secured part# or
a secondar o*ligor would have *rought.
vii. (g) [Cash %roceeds recei#ed by +unior
secured %arty.] A secured party that receives
cash proceeds of a disposition in good faith and
without %nowledge that the receipt violates the
rights of the holder of a security interest or other
lien that is not subordinate to the security
interest or agricultural lien under which the
disposition is made:
1. %9& ta$es the cash proceeds free of the securit
interest or other lienF
2. %:& is not o*ligated to appl the proceeds of the
disposition to the satisfaction of o*ligations secured
* the securit interest or other lienF and
3. %<& is not o*ligated to account to or pa the holder of
the securit interest or other lien for an surplus.
*. L 9-)2). =ction in I'ic' 7eficiency or /urplus is in 2ssue.
i. (a) [7%%"icab"e ru"es if amount of deficiency
or sur%"us in issue.] )n an action arising from a
transaction# other than a consumer transaction#
in which the amount of a deficiency or surplus is
in issue# the following rules apply:
1. %9& A secured part need not prove compliance with
the provisions of this part relating to collection#
enforcement# disposition# or acceptance unless the
de*tor or a secondar o*ligor places the secured
partSs compliance in issue.
2. %:& If the secured partSs compliance is placed in
issue# the secured part has the *urden of esta*lishing
that the collection# enforcement# disposition# or
acceptance was conducted in accordance with this
part.
3. %<& 78cept as otherwise provided in Section A-N:H# if
a secured part fails to prove that the collection#
enforcement# disposition# or acceptance was
conducted in accordance with the provisions of this
part relating to collection# enforcement# disposition#
or acceptance# the lia*ilit of a de*tor or a secondar
o*ligor for a deficienc is limited to an amount *
which the sum of the secured o*ligation# e8penses#
and attorneSs fees e8ceeds the greater ofO
a. %A& the proceeds of the collection#
enforcement# disposition# or acceptanceF or
b. %(& the amount of proceeds that would have
*een reali6ed had the noncompling secured
part proceeded in accordance with the
provisions of this part relating to collection#
enforcement# disposition# or acceptance.
4. %K& 3or purposes of paragraph %<&%(&# the amount of
proceeds that would have *een reali6ed is equal to the
sum of the secured o*ligation# e8penses# and
9NE
attorneSs fees unless the secured part proves that
the amount is less than that sum.
5. %E& If a deficienc or surplus is calculated under
Section A-N9E%f&# the de*tor or o*ligor has the *urden
of esta*lishing that the amount of proceeds of the
disposition is significantl *elow the range of prices
that a compling disposition to a person other than
the secured part# a person related to the secured
part# or a secondar o*ligor would have *rought.
ii. (b) [/on4consumer transactions@ no
inference.] The limitation of the rules in
subsection (a) to transactions other than
consumer transactions is intended to leave to the
court the determination of the proper rules in
consumer transactions. The court may not infer
from that limitation the nature of the
proper rule in consumer transactions and may
continue to apply established approaches.
c. Ydidn+t go overZ
5. If she succeeds in reducing the amount she owes# can she also get actual
damages for the harm the have caused her- See >A-N:E%d&.
a. (d) [Reco#ery when deficiency e"iminated or
reduced.] A debtor whose deficiency is eliminated
under Section A-N:N may recover damages for the loss of
any surplus. 0owever# a debtor or secondary obligor
whose deficiency is eliminated or reduced under Section A-
N:N may not otherwise recover under subsection (b) for
noncompliance with the provisions of this part relating to
collection# enforcement# disposition# or acceptance.
6. !5"A/ 53 T47 ST5"I- SU!!A"I
a. If the SP follows the .commerciall reasona*le0 procedures for
the sale of the collateral then the are 5G.
*. I3# 45,7L7"# the don+t follow .Commerciall "easona*le0
procedures then there IS A P"7SU!PTI5' that the did not act
in a P"5P7" !A''7" so t'erefore $ill 'a0e to pro0e
%*urden shifts& that the 15'+T owe damages to the 1e*tor.
c. 'otice- must get notice to 1e*tor more than 9= das *efore sale.
d. Itemi6ation- %A-N9N&2de*tor has a right to itemi6ation of the
e8penses## the proceeds of the sale# and how ou got to the
deficienc claim.
i. If Iou 1on+t 1o This- then the 1e*tor is entitled to the
deficiencies found in 9-)25.
e. "apson+s "ule- %A-N9E%f&&- /ow price from disposition
will lead to de*tor complaining# (UT if the SP follows the
commerciall reasona*le method then the P"7SU!PTI5'
I' 3AL5" of the SP will *e seen as 5G.
9NN
viii. Hroble# 121 Ha"e 3)P
1. !s decided to open a restaurant# for which purpose the needed )H=#===.
The went to A'(# which agreed to loan them the mone if the got a
suret# signed an agreement giving the *an$ a SI in the restaurant+s
equipment and inventor# and pledged to the *an$ additional collateral
having a value of ):=#=== ore more. !s got !rs. !+s father %S& to sign
as a suretF the signed the SA# and the *orrowed ):=#=== worth of
stoc$ from !+s cousin %/edon&. The stoc$ was registered in /+s name at
the time it was pledged to A'(# *ut A'( had it re-registered in A'(+s
name so that it could *e sold easil in the event of default. A'( did#
however# file its 3S in the appropriate office. Su*sequentl# the !s
*orrowed another )E#=== from 'CU# which also too$ a SI in the
restaurant+s equipment# and filed a 3S. The restaurant then *ecame
involved in an unfortunate food poisoning incident# and *usiness fell off
dramaticall. !s %who were in the midst of divorce& missed : paments
on the loan. A'( sent its collection agent# Crowle# out to the
restaurant. Crowel sent a written notice to !r. ! %who he $new was
now living in a hotel&# telling him that the stoc$ would *e sold on the
open mar$et %no specific date given& and that the restaurant equipment
would *e sold at pu*lic auction on 1ecem*er 9 at the offices of the
Crowle Collection Agenc. Crowle phoned S and told him the same
thing. 4e sent a written notice to / %the stoc$ owner&# *ut the letter came
*ac$ mar$ed .!oved C no forwarding address.0 If as$ed# either !r. or
!rs. ! would have supplied Crowle with /+s new address. Crowle
sold the stoc$ for )9=#=== on the open mar$et %that was its current selling
price& and auctioned off the restaurant equipment on 1ecem*er 9 for
)E== %onl 9 *id was received B Crowle himself was the *idderF he later
resold the equipment to other restaurants for )9=#===&. Crowle turned
over the proceeds from the : sales %)9=#E== total& to A'(# which then
*rought suit against the !s and S for the deficienc.
a. (a) 2s a surety entitled to notice under L9-)11- That is# is he a
.de*tor0- "ead >>A-9=:%a&%:H&%A&# A-9=:%a&%?9&# A-N99%c&.
i. K</ C the father-in-law is entitled to the notice B he is a
.de*tor0 %A-N99%c&&
ii. 7ebtors include sureties and 2ndary obli"ors!(t'ey
in essence o$n t'e collateral)
iii. L9-12(a)(2,) R1e*torR meansO
1. %A& a person having an interest# other than a securit
interest or other lien# in the collateral# whether or not
the person is an o*ligorF
2. %(& a seller of accounts# chattel paper# pament
intangi*les# or promissor notesF or
3. %C& a consignee.
iv. L9-12(a)(+1) RSecondar o*ligorR means an o*ligor to the
e8tent thatO
1. %A& the o*ligorSs o*ligation is secondarF or
2. %(& the o*ligor has a right of recourse with respect to
an o*ligation secured * collateral against the de*tor#
another o*ligor# or propert of either.
*. ,as / a de*tor too- See Comment :a to >A-9=:.
9N?
i. Ies B he is a :ndar o*ligor with interest in the propert
2he *asicall owned the collateral that was used in the
transaction.
ii. Comment )a to 894(<).. *arties to Secured
Fransactions.
a. D;ebtorD@ DOb"i$orD@ DSecondary Ob"i$or.D
Ietermining whether a person was a "debtor"
under former (ection ,".F<(.)(d) re'uired a
close examination of the context in which the
term was used. To reduce the need for this
examination# this Article redefines "debtor" and
adds new defined terms# "secondary obligor" and
"obligor." )n the context of *art + (default and
enforcement)# these definitions distinguish
among three classes of persons: (i) those
persons who may have a sta%e in the proper
enforcement of a security interest by virtue of
their non"lien property interest (typically# an
ownership interest) in the collateral# (ii) those
persons who may have a sta%e in the proper
enforcement of the security interest because of
their obligation to pay the secured debt# and (iii)
those persons who have an obligation to pay the
secured debt but have no sta%e in the proper
enforcement of the security interest. *ersons in
the first class are debtors. *ersons in the second
class are secondary obligors if any portion of the
obligation is secondary or if the obligor has a
right of recourse against the debtor or another
obligor with respect to an obligation secured by
collateral. ;ne must consult the law of suretyship
to determine whether an obligation is secondary.
The Destatement (-d)# (uretyship and 1uaranty
K . (.,,+)# contains a useful explanation of the
concept. ;bligors in the third class are neither
debtors nor secondary obligors. ?ith one
exception ((ection ,"+.+# as it relates to a
consumer obligor)# the rights and duties provided
by *art + affect non"debtor obligors only if they
are "secondary obligors."
Jy including in the definition of "debtor" all
persons with a property interest (other than a
security interest in or other lien on collateral)# the
definition includes transferees of collateral#
whether or not the secured party %nows of the
transfer or the transferee's identity. 7xculpatory
provisions in *art + protect the secured party in
that circumstance. (ee (ections ,"+F< and ,"
+H/. The definition renders unnecessary former
(ection ,"..H# which governed situations in
which collateral was not owned by the debtor.
The definition also includes a "consignee#" as
9NH
defined in this section# as well as a seller of
accounts# chattel paper# payment intangibles# or
promissory notes.
(ecured parties and other lienholders are
excluded from the definition of "debtor" because
the interests of those parties normally derive
from and encumber a debtor's interest. 0owever#
if in a separate secured transaction a secured
party grants# as debtor# a security interest in its
own interest (i.e.# its security interest and any
obligation that it secures)# the secured party is a
debtor in that transaction. This typically occurs
when a secured party with a security interest in
specific goods assigns chattel paper.
c. 7oes t'e :8=. notice to / satisfy L9-)11(b)E See >9-:=9%<H&#
A-9=:%a&%?&# and A-N99+s Comment E.
i. '5 B it can '5T *e 5"A/ notice# it #ust be
,"ITT7' notice
ii. L1-21(a)(3+) RSignedR includes using an sm*ol e8ecuted
or adopted with present intention to adopt or accept a writing.
iii. L9-12(a)(+) RAuthenticateR meansO
1. %A& to signF or
2. %(& to e8ecute or otherwise adopt a sm*ol# or
encrpt or similarl process a record in whole or in
part# with the present intent of the authenticating
person to identif the person and adopt or accept a
record.
iv. Comment 3 to 894:((. 7uthentication
ReAuirement. (ubsections (b) and (c) explicitly
provide that a notification of disposition must be
"authenticated." (ome cases read former (ection
,"<F8(-) as validating oral notification.
d. %*& ,ere an parties entitled to notice of the stoc$ sale- See >A-
N99%d&.
i. 894:((d! [Subsection 94:((b!
ina%%"icab"e/OFGC= *ROJGSGO/S!:
%erishab"e co""atera"@ reco$niKed mar.et.]
Subsection b! does not a%%"y if the
co""atera" is %erishab"e OR threatens to
dec"ine s%eedi"y in #a"ue OR is of a ty%e
customari"y so"d on a reco$niKed
mar.et.2
1. no one is entitled to notice if it is the type
sold on a recogni&able mar%et.
ii. '5 C %d& this is not perisha*le[
iii. There is some $inds of collateral for which no notice at
all is required
iv. 5ne of these is stoc$ C it is sold on a recogni6ed mar$et
C no one is entitled to notice at all. Iou can find out via
chec$ing the mar$et B lessen the SP+s *urden.
e. 4ow a*out the sale of the equipment- See >A-N99%c&.
9NA
i. 894:((c! [*ersons to be notified.] To
comply with subsection (b)(notice provisions)#
the secured party shall send an authenticated
notification of disposition to:
1. %9& the de*torF
2. %:& an secondar o*ligorF and
3. %<& if the collateral is other than consumer goodsO
a. %A& an other person from which the secured
part has received# *efore the notification
date# an authenticated notification of a claim
of an interest in the collateralF
b. %(& an other secured part or lienholder
that# 9= das *efore the notification date#
held a securit interest in or other lien on the
collateral perfected * the filing of a
financing statement thatO
i. %i& identified the collateralF
ii. %ii& was inde8ed under the de*torSs
name as of that dateF and
iii. %iii& was filed in the office in which
to file a financing statement against
the de*tor covering the collateral as
of that dateF and
c. %C& an other secured part that# 9= das
*efore the notification date# held a securit
interest in the collateral perfected *
compliance with a statute# regulation# or
treat descri*ed in Section A-<99%a&.
ii. 6otice is clearly re*uired.
iii. /'o$ t'at you 'a0e 7one <0eryt'in" t'at $as
C:55<8C2=..K 8<=/:6=9.<!you #i"'t
$ant to send notice a couple of ti#es.
f. If no notice was sent to 'CU *efore the equipment was sold# did
Crowle himself ta$e free of its SI when he *ought the
equipment at the foreclosure sale- See >N9? %-&.
i. Ydidn+t answerZ
ii. L 9-)1+. 8i"'ts of ;ransferee of Collateral.
1. (a) [=ffects of dis%osition.] A secured
party's disposition of collateral after
default:
a. %9& transfers to a transferee for value all of
the de*torSs rights in the collateralF
b. %:& discharges the securit interest under
which the disposition is madeF and
c. %<& discharges an su*ordinate securit
interest or other su*ordinate lien Yother than
liens created under Ycite acts or statutes
providing for liens# if an# that are not to *e
dischargedZZ.
2. (b) [Ri$hts of $ood4faith transferee.]
A transferee that acts in good faith ta%es
9?=
free of the rights and interests described
in subsection (a)# even if the secured
party fails to comply with this article or
the re'uirements of any $udicial
proceeding.
3. (c) [Ri$hts of other transferee.] )f a
transferee does not ta%e free of the rights
and interests described in subsection (a)#
the transferee ta%es the collateral sub$ect
to:
a. %9& the de*torSs rights in the collateralF
b. %:& the securit interest or agricultural lien
under which the disposition is madeF and
c. %<& an other securit interest or other lien.
g. 1id the *uer from Crowle- See >:-K=<%9&.
i. 1isposition of collateral is essentiall a foreclosure sale
C *uer *us at own ris$ %as is&
ii. ,hat are *uer+s rights when he *us such propert-
1. ,e have learned that the SP+s SI continues
regardless of disposition of the collateral >A-<9E
2. Q t'e /2 $ill continue in suc' foreclosure sales
iii. >:-K=< C sas if ou are a *uer of this collateral# ou
will onl ta$e free of the SI if ou are getting a clear
title# *ut ou ma not *e a*le to get this
1. This is not a tpical sale transaction governed *
UCC :
iv. L 2-43. Ho$er to ;ransferB Dood -ait' Hurc'ase of
DoodsB ><ntrustin">.
1. (.) A purchaser of goods ac'uires all title
which his transferor had or had power to
transfer except that a purchaser of a
limited interest ac'uires rights only to the
extent of the interest purchased. A person
with voidable title has power to transfer a
good title to a good"faith purchaser for
value. ?hen goods have been delivered
under a transaction of purchase the
purchaser has such power even though
a. %a& the transferor was deceived as to the
identit of the purchaserF
b. %*& the deliver was in e8change for a chec$
which is later dishonoredF
c. %c& it was agreed that the transaction was to
*e a Rcash saleRF or
d. %d& the deliver was procured through fraud
punisha*le as larcenous under the criminal
law.
v. SI continues
h. (c) Is the notice sent to !r. ! sufficient as to !rs. !- See
Tau*er v. ;ohnson.
i. '5 C a*solutel not. 'otice has to *e sent to *oth.
9?9
i. (d) 1oes >A-N99 require the C to whom notice is returned * the
post office to ta$e further steps to notif the 1- See Comment N.
i. This is a question of fact. The court will decide if it is
reasona*le or not.
ii. 'ot tring again wouldn+t loo$ good to the @ur.
iii. As an attorne# ou would want to *e safe and chec$ C
was there a tpo- Should I resend again- "egistered
mail- 1o something to ma$e sure the court thin$s ou
did everthing ou could.
iv. Comment : to 894:((. Second Fry. This
Article leaves to $udicial resolution# based upon
the facts of each case# the 'uestion whether the
re'uirement of "reasonable notification" re'uires
a "second try#" i.e.# whether a secured party who
sends notification and learns that the debtor did
not receive it must attempt to locate the debtor
and send another notification.
@. (e) If the restaurant equipment is also named as collateral in a
@unior filed 3S# must A'( notif that SP of the resale- See >A-
N99%c& and %e&.
i. I7S
ii. 'otice has to go to Suret# :ndar o*ligors# and the SP
that filed a 3S\
$. (f) ,ho has the (5P as to the commercial reasona*leness of the
sales- See >A-N:N%a&%:&.
i. The SP disposing of the collateral has the (5P %to show
that disposition was commerciall reasona*le&
ii. L 9-)2). =ction in I'ic' 7eficiency or /urplus is in 2ssue.
1. (a) [7%%"icab"e ru"es if amount of
deficiency or sur%"us in issue.] )n an
action arising from a transaction# other
than a consumer transaction# in which the
amount of a deficiency or surplus is in
issue# the following rules apply:
a. %9& A secured part need not prove
compliance with the provisions of this part
relating to collection# enforcement#
disposition# or acceptance unless the de*tor
or a secondar o*ligor places the secured
partSs compliance in issue.
b. %:& If the secured partSs compliance is
placed in issue# the secured part has the
*urden of esta*lishing that the collection#
enforcement# disposition# or acceptance was
conducted in accordance with this part.
l. (") If Crowle had given the equipment sale no pu*licit# has a
pu*lic sale occurred# and if so# was it commerciall reasona*le-
See >A-N9=# Comment ?.
i. 6: C no pu*licit is no good %need advertising or
something for it to *e commerciall reasona*le&
9?:
ii. Comment C to 894:(<. *ub"ic #s. *ri#ate
;is%ositions. This *art maintains two
distinctions between "public" and other
dispositions: (i) the secured party may buy at the
former# but normally not at the latter ((ection ,"
+.F(c))# and (ii) the debtor is entitled to
notification of "the time and place of a public
disposition" and notification of "the time after
which" a private disposition or other intended
disposition is to be made ((ection ,"+.-(.)(7)).
)t does not retain the distinction under former
(ection ,"<F8(8)# under which transferees in a
noncomplying public disposition could lose
protection more easily than transferees in other
noncomplying dispositions. )nstead# (ection ,"
+.G(b) adopts a unitary standard. Although the
term is not defined# as used in this Article# a
"public disposition" is one at which the price is
determined after the public has had a meaningful
opportunity for competitive bidding. "Aeaningful
opportunity" is meant to imply that some form of
advertisement or public notice must precede the
sale (or other disposition) and that the public
must have access to the sale (disposition).
m. (') ,hen a SP repossesses goods and sells them at a foreclosure
sale# will this give rise to the Article : sales warranties *eing
made to the purchaser at the sale- See >:-<9: Ywarrant
provisionZ# A-N9=%d& and %e&# and the latter+s Comment 99.
i. >A-N9=%d& and %e& C
1. %d& sas the disposition of collateral provides
some $ind of warranties
2. (UT %e& C SP can disclaim A// of them B this is
what the all do
3. 2f t'ey disclai# t'e $arranties1 t'e buyer
purc'ases t'e collateral $it'out t'ese
$arranties Q buys at 'is o$n ris$
ix. "ecap of Pro*lems 9:=-9:9-
1. SP must give notice of the sale of the collateral to the 1# other SP+s
and 5ther parties that have interests in the collateral.
2. 'otice must *e given at least 9= das *efore the sale and must tell
the time# place and manner of the sale.
3. The sale must *e in a C5!!7"CIA//I "7AS5'A(/7 wa.
4. 1ISC/AI! ,A""A'TI7S2in writing %A-N9=%d&#%e&#%f&&
x. Hroble# 1211 Ha"e 3,P
1. (S( held a perfected SI in the logging equipment of (5TC. ,hen
(5TC defaulted on its loan repament# (S( repossessed the equipment.
The sale was held the ne8t da in the middle of a snowstorm. The
equipment sold for ver little %there was onl one *idder# and he
9?<
complained that it was hard to $now the condition of the equipment
*ecause it was so dirt# *eing covered with mud from the *ac$woods&.
(S( sued (5TC for the amount still due.
a. %a& ,as the notice period too short- See >A-N9:.
i. This is not a consumer transaction# *ut is a non-
consumer equipment sale %sale to a tim*er compan&.
ii. I7S C this was too short C didn+t meet the 9= da
requirement
*. %*& Is the SP required to wash the collateral prior to the sale- See
>A-N9=%a&F ,eiss v. ', Acceptance Corp.
i. I7S C has to do commerciall reasona*le prepping of
the collateral C this would include washing off the
collateral. This doesn+t ta$e a lot of wor$.
c. %c& 1id it violate >A-N9=%*& to conduct the sale in the
snowstorm- /i*ert 'atl. (an$ M Trust Co v. Acme Tool 1iv of
the "uc$er Co.
i. '5 C this is not commerciall reasona*le.
xi. Hroble# 1221 Ha"e 3,P
1. ,hen ou e8plained to our client# "3C# all the rights that 1s have when
the C sei6es the collateral and resells it# the president of "3C as$ed ou
how to draft a clause in the SA waiving these rights.
2. 4ow should ou do this- See >A-N=: and its Comment.
a. >A-N=: shows the rights that a 1 has
i. L 9-)2. Iai0er and @ariance of 8i"'ts and 7uties.
7xcept as otherwise provided in Section A-N:K# to
the extent that they give rights to a debtor or
obligor and impose duties on a secured party#
the debtor or ob"i$or may not wai#e or #ary
the ru"es stated in the fo""owin$ "isted
sections:
1. (.) Section A-:=?%*&%K&%C&# which deals with
use and operation of the collateral by the
secured partyE
2. (H) Section A-:9=# which deals with re'uests
for an accounting and re'uests concerning
a list of collateral and statement of
accountE
3. (-) Section A-N=?%c&# which deals with
collection and enforcement of collateralE
4. (8) Sections A-N=H%a& and A-N9E%c& to the
extent that they deal with application or
payment of noncash proceeds of
collection# enforcement# or dispositionE
5. (<) Sections A-N=H%a& and A-N9E%d& to the
extent that they re'uire accounting for or
payment of surplus proceeds of collateralE
6. (+) Section A-N=A to the extent that it
imposes upon a secured party that ta%es
possession of collateral without $udicial
9?K
process the duty to do so without breach
of the peaceE
7. (G) Sections A-N9=%*&# A-N99# A-N9<# and A-N9K#
which deal with disposition of collateralE
8. (/) Section A-N9E%f&# which deals with
calculation of a deficiency or surplus when
a disposition is made to the secured party#
a person related to the secured party# or a
secondary obligorE
9. (,) Section A-N9N# which deals with
explanation of the calculation of a surplus
or deficiencyE
10. (.F) Sections A-N:=# A-N:9# and A-N::#
which deal with acceptance of collateral in
satisfaction of obligationE
11. (..) Section A-N:<# which deals with
redemption of collateralE
12. (.H) Section A-N:K# which deals with
permissible waiversE and
13. (.-) Sections A-N:E and A-N:N# which
deals with the secured party's
liability for failure to comply with this
article.
ii. 1 has all of these rights
iii. %?& C rights under >A-N9=# etc.
iv. 1eficienc and surplus issues
v. 1 !AI '5T ,AIL7 these rights at all B SP can+t put
these in a SA
*. (ut sas[78cept as otherwise provided in >A-N:K B N:K is an
e8ception to N=:
i. CA' waive these rights
ii. L 9-)24. Iai0er.
1. (a) [5ai#er of dis%osition
notification.] A debtor or secondary
obligor may waive the right to notification
of disposition of collateral under Section A-
N99 only by an agreement to that effect
entered into and authenticated after
default.
2. (b) [5ai#er of mandatory
dis%osition.] A debtor may waive the
right to re'uire disposition of collateral
under Section A-N:=%e& ;3:6 by an
agreement to that effect entered into and
authenticated A5T7D default.
3. (c) [5ai#er of redem%tion ri$ht.]
7xcept in a consumer"goods transaction#
((; T07D75;D7 )3 A 3;3"!;3(A7D
TDA3(A!T);3) a debtor or secondary
obligor may waive the right to redeem
9?E
collateral under Section A-N:< only by an
agreement to that effect entered into ()3
?D)T)31) and AT073T)!AT7I A5T7D
default.
iii. ,aive right of notice of disposition
1. 5nl * authenticated agreement after default B
1 C=6 waive# *ut onl after default# and onl if
there is an agreement in writing %authenticated
indicates that it must *e in writing&
2. Can+t put it in the SA# can+t do *efore 1 is in
default
3. Can guarantors %as opposed to the primar 1& waive these rights- See
>A-N=:# Comment K.
a. '5 B our guarantor/suret can '5T spea$ for ou
*. Comment 2 to 894:<). 5ai#er by ;ebtors and
Ob"i$ors. The restrictions on waiver contained in this
section apply to obligors as well as debtors. This
resolves a 'uestion under former Article , as to whether
secondary obligors# assuming that they were "debtors"
for purposes of former *art <# were permitted to waive#
under the law of suretyship# rights and duties under that
*art.
xii. Hroble# 1231 Ha"e 39P
1. 3! granted a SI in its inventor to 5'(# which dul perfected * filing
a 3S in the proper place. Then 3! granted an identical SI to '3C to get
short-term credit. ,hen 3! failed to repa the second de*t# '3C
repossessed the inventor and sold it. !ust it somehow account to 5'(
for the proceeds of the resale- See >A-N=H# A-N9E# and Comment E to A-
N9=.
a. 5'( B senior SP# '3C B @unior SP
*. A-N=H%a&- application fo the Proceeds from the Sale/1isposition
of Collateral
i. "easona*le e8penses# fees incurred * "epossessing SP
ii. "emainder2appl against the 1e*t at issue
iii. If there is a 1eficienc2go after the de*tor
iv. If there is still ))) left# to other su*ordinate SP+s/
/ienors if demand notice received * the "epossessing
SP
v. If there is still )) left A3T7" all of this# then the 1e*tor
is entitled to the surplus.
c. ,h 1oes ;unior Secured Part Jet ))-
i. It gets )) *ecause the Senior Secured part had the
a*ilit to repossess the collateral# which it didn+t do# so
therefore the shouldn+t get all the proceeds.
ii. ;unior Creditor- the repossessing SP is '5T required to
account in an wa to the Superior SP/creditors
9?N
iii. (uers of goods from the "epossessing SP IS SU(;7CT
T5 S7'I5" SP+s I'T7"7ST I' T47 C5//AT7"A/.
iv. ;unior Creditors- the can $eep the cash proceeds if the
disposition was conducted in good faith and without
$nowledge that the sale violates the rights of the Senior
SP.
d. Comment 3 to 894:(<. ;is%osition by Bunior
Secured *arty. Iisposition rights under subsection (a)
are not limited to first"priority security interests. Dather#
any secured party as to whom there has been a default
en$oys the right to dispose of collateral under this
subsection. The exercise of this right by a secured party
whose security interest is subordinate to that of another
secured party does not of itself constitute a conversion
or otherwise give rise to liability in favor of the holder of
the senior security interest. (ection ,"+.< addresses
application of the proceeds of a disposition by a $unior
secured party. nder (ection ,"+.<(a)# a $unior secured
party owes no obligation to apply the proceeds of
disposition to the satisfaction of obligations secured by a
senior security interest. (ection ,"+.<(g) builds on this
general rule by protecting certain $uniors from claims of
a senior concerning cash proceeds of the disposition.
7ven if a senior were to have a non"Article , claim to
proceeds of a $unior's disposition# (ection ,"+.<(g)
would protect a $unior that acts in good faith and
without %nowledge that its actions violate the rights of a
senior party. Jecause the disposition by a $unior would
not cut off a senior's security interest or other lien (see
(ection ,"+.G)# in many (probably most) cases the
$unior's receipt of the cash proceeds would not violate
the rights of the senior.
The holder of a senior security interest is entitled# by
virtue of its priority# to ta%e possession of collateral from
the $unior secured party and conduct its own disposition#
provided that the senior en$oys the right to ta%e
possession of the collateral from the debtor. (ee (ection
,"+F,. The holder of a $unior security interest normally
must notify the senior secured party of an impending
disposition. (ee (ection ,"+... Degardless of whether
the senior receives a notification from the $unior# the
$unior's disposition does not of itself discharge the
senior's security interest. (ee (ection ,"+.G. nless the
senior secured party has authori&ed the disposition free
and clear of its security interest# the senior's security
interest ordinarily will survive the disposition by the
$unior and continue under (ection ,"-.<(a). )f the
senior en$oys the right to repossess the collateral from
the debtor# the senior li%ewise may recover the collateral
from the transferee.
?hen a secured party's collateral is encumbered by
9??
another security interest or other lien# one of the
claimants may see% to invo%e the e'uitable doctrine of
marshaling. As explained by the (upreme !ourt# that
doctrine "rests upon the principle that a creditor having
two funds to satisfy his debt# may not by his application
of them to his demand# defeat another creditor# who
may resort to only one of the funds." Me1er v. Fnited "tates #
<?E U.S. :<<# :<N %9AN<&# 'uoting "owell v. Federal Reserve Bank #
:NH U.S. KKA# KEN-E? %9A:E&. The purpose of the doctrine is
"to prevent the arbitrary action of a senior lienor from
destroying the rights of a $unior lienor or a creditor
having less security." )d. at H-G. Jecause it is an
e'uitable doctrine# marshaling "is applied only when it
can be e'uitably fashioned as to all of the parties"
having an interest in the property. )d. This Article leaves
courts free to determine whether marshaling is
appropriate in any given case. (ee (ection ." .F-.
e. '5 - >A-N9E%a&%<& C the satisfaction of o*ligation secured * an
su*ordinate %;unior&
i. L 9-)15. =pplication of Hroceeds of 7ispositionB .iability
for 7eficiency and 8i"'t to /urplus.
1. (a) [7%%"ication of %roceeds.] A
secured party shall apply or pay over for
application the cash proceeds of
disposition under (ection ,"+.F in the
following order to:
a. %<& the satisfaction of o*ligations secured *
an su*ordinate securit interest in or other
su*ordinate lien on the collateral ifO
i. %A& the secured part receives from
the holder of the su*ordinate
securit interest or other lien an
authenticated demand for proceeds
*efore distri*ution of the proceeds
is completedF and
ii. %(& in a case in which a consignor
has an interest in the collateral# the
su*ordinate securit interest or
other lien is senior to the interest of
the consignorF and
ii. B ou will onl give the proceeds to the parties @unior to
ou
iii. 5'( will get no mone
f. ,h-
i. 5'( could have gone in there and disposed of the
collateral itself
ii. Iou get notice of the disposition# and ou have the right
to intervene if ou want to since ou are senior. Iou
chose not to# so ou are out of luc$.
g. ,e onl give mone to su*ordinate SPs
i. 4ere# there are none
9?H
ii. The 1 will get an surplus
xiii. Hroble# 11,1 Ha"e 35P
1. ,onder Spa gave Antitrust 'ational (an$ %A'(& a SI in its accounts
receiva*le and chattel paper in return for a loan. ,hen ,S missed :
paments in a row# A'( notified the spa+s customers that future
paments should *e made directl to the *an$.
a. Puestion T9B 1+s has rights to e8pect pament from its
customers %accounts&
i. 1 assigned these accounts to the SP
ii. SP %A'(& is the assignee
iii. The customers are .account de*tors0
iv. The 1 is still a 1# *ut is now also an .assignor0
*. Puestion T:- 1oes the *an$ have this right- "ead >A-N=? %See
a*ove& and its Comment :F see >A-K=?%c&.
i. I7S B SP has ever right to get this pament from the
customer I3 '5TIC7 IS JIL7' I' ,"ITI'J\\\
ii. Comment ) to 894:<C: Co""ections: Gn
0enera". !ollateral consisting of rights to
payment is not only the most li'uid asset of a
typical debtor's business but also is property that
may be collected without any interruption of the
debtor's business This situation is far different
from that in which collateral is inventory or
e'uipment# whose removal may bring the
business to a halt. 5urthermore# problems of
valuation and identification# present with
collateral that is tangible personal property#
fre'uently are not as serious in the case of rights
to payment and other intangible collateral.
!onse'uently# this section# li%e former (ection ,"
<FH# recogni&es that financing through
assignments of intangibles lac%s many of the
complexities that arise after default in other
types of financing. This section allows the
assignee to li'uidate collateral by collecting
whatever may become due on the collateral#
whether or not the method of collection
contemplated by the security arrangement before
default was direct (i.e.# payment by the account
debtor to the assignee# "notification" financing)
or indirect (i.e.# payment by the account debtor
to the assignor# "nonnotification" financing).
iii. 8942<Cc! , The creation# attachment#
perfection# or enforcement of a () in the lessor4s
interest under the lease contract or the lessor4s
residual interest in the goods is not a transfer
that materially impairs the lessee4s prospect of
obtaining return performance or materially
changes the duty of or materially increases the
9?A
burden or ris% imposed on the lessee within the
purview of HA"-F-(d) unless# and then only to
the extent that# enforcement actually results in a
delegation of material performance of the lessor.
2. Puestion T<- If the spa stops opening its doors# need its former
customers $eep paing A'(- %The spa contracts did not mention the
possi*ilit that the contracts would *e assigned&. See >A-K=K%a&.
a. '5 - >A-K=K%a& C the retain all defenses
i. I.e.# the customers have the defense of *reach. If the spa
shut the door# the *reached the customer with the
customers# so the customers can raise this defense.
ii. The will not continue paing once the 1 closes the
door.
iii. L 9-44. 8i"'ts =c*uired by =ssi"neeB Clai#s and 7efenses
="ainst =ssi"nee.
1. (a) [7ssi$nee&s ri$hts sub+ect to
terms' c"aims' and defenses@
exce%tions.] nless an account debtor
has made an enforceable agreement not
to assert defenses or claims# and sub$ect
to subsections (b) through (e)# the rights
of an assignee are sub$ect to:
a. %9& all terms of the agreement *etween the
account de*tor and assignor and an defense
or claim in recoupment arising from the
transaction that gave rise to the contractF and
b. %:& an other defense or claim of the account
de*tor against the assignor which accrues
*efore the account de*tor receives a
notification of the assignment authenticated
* the assignor or the assignee.
*. YSP can still sue 1 for the rest of the de*tZ
c. 'oteO The a*ilit of customers to raise defenses against the
finance compan is *ound up in law of negotia*le instruments C
see Unico v. 5wen# the leading case C and special consumer
protection statutes# i.e.# the 3TC 4older in 1ue Course "ule. >A-
K=< carefull preserves an other rule of law that protects
consumers from waiving their rights to assert their defenses
against assignees of their o*ligations.
i. L9-43
1. (e) C This section is su*@ect to law other than this
chapter that esta*lishes a different rule for an account
de*tor who is an individual and who incurred the
o*ligation for P34 purposes.
2. (f) 78cept as otherwise provided in %d&# this section
does not displace law other than this chapter that[.
d. B when ou are consumers# ou need to read what ou sign
2. "edemption of Collateral and Strict 3oreclosure-
9H=
i. ,hat if the 1e*tor ,ants to "edeem the Collateral- %A-N:<&.
1. 1e*tor must tender the total outstanding o*ligation %not @ust the
installment pament\\\&
2. Tender A// e8penses and attorne fees incurred * the S/P
3. 5f Course# Tender must *e (735"7 the SP either disposes of the
collateral or e8ercises their strict foreclosure rights %to $eep the
collateral.&
4. SP CA''5T !AG7 17(T5" ,AIL7 "IJ4T T5 "7177!
C5//AT7"A/.
5. 1I33ICU/T T5 "7177! C5//AT7"A/.
ii. Hroble# 1251 Ha"e 31P
1. ,hen P! *orrowed ):#=== from /S( in order to finance a trip to
Iceland# the *an$ made him sign an agreement giving the *an$ a SI in
P!+s private acht. 4e agreed to repa the loan at a rate of ):==/month.
4e too$ the trip and on his return made the first pament on time. 4e
failed to ma$e the second pament on the due date# and the ne8t da the
*an$ repossessed the acht. P! raced to the *an$ with the late pament.
4e had ):== in cash# which he tendered. The *an$ refused to ta$e the
mone. 2ts loan officer1 5r. =1 pointed to an acceleration clause in
t'e /= t'at #ade t'e entire a#ount due if one pay#ent $as #issed.
= de#anded t'e total unpaid balance. 'eed P! pa off everthing-
See >A-N:< along with Comment :. YSee pre-Code# Code casesZ. There
is pre-revision authorit for the proposition that mis-description of the
redemption rights *ars an action for the deficienc. 3irst 'ational (an$
v. 1i1omenico.
2. P! B 1F /S( B SP
3. 9-)2- SP $eeps the collateral in satisfaction of the de*t# o*ligation
a. 1e*tor accepts in ,"ITI'J/AUT47'TICAT71 within :=
das that ou want to "7177!.
*. If the 1e*tor doesn+t do this# though# then it will *e assumed that
he doesn+t want to redeem the item and therefore he will not
have the right to "edeem.
c. I' A C5'SU!7" T"A'SACTI5'# ,47' T47 17(T5"
4AS PAI1 533 N=W 5" !5"7 53 T47 P"IC7# T47' T47
SP !UST 1ISP5S7 53 T47 C5//AT7"A/ %"AT47"
T4A' G77P IT& ,IT4I' A= 1AIS. %no right to strict
foreclosure here for the SP&
d. !A'1AT5"I 1ISP5SITI5' '5T ALAI/A(/7 ,IT4
'5'-C5'SU!7" T"A'SACTI5'S.
4. L9-)23 U rede#ption pro0ision
a. It is *etween repossession and disposition of the collateralF
i. I.e.# 1 gets notice# hears SP too$ his propert# tring to
get his propert *ac$ B redeem his collateral
1. here# * giving the overdue pament
*. !ust *e *efore SP 1isposition B (efore SP ma$es a decision to
sell
9H9
c. 1oes P! have to give him the entire amount# or @ust the ):==-
i. 4as to pa the entire amount
ii. >A-N:<%*& C shall tender the entire amount# P/US
reasona*le e8penses and attorne fees\
1. i.e.# SP hired repo man to repossess the
collateral# storage fees
2. 1 has to pa the entire de*t# plus these
reasona*le fees that the SP incurs
3. This is unli$el\ 4ave to have a lot of mone
5. Comment ) to 894:)3. Redem%tion Ri$ht. nder this
section# as under former (ection ,"<F+# the debtor or another
secured party may redeem collateral as long as the secured
party has not collected ((ection ,"+FG)# disposed of or
contracted for the disposition of ((ection ,"+.F)# or accepted
((ection ,"+HF) the collateral. Although this section generally
follows former (ection ,"<F+# it extends the right of redemption
to holders of nonconsensual liens. To redeem the collateral a
person must tender fulfillment of all obligations secured# plus
certain expenses. )f the entire balance of a secured obligation
has been accelerated# it would be necessary to tender the
entire balance. A tender of fulfillment obviously means more
than a new promise to perform an existing promise. )t re'uires
payment in full of all monetary obligations then due and
performance in full of all other obligations then matured. )f
unmatured secured obligations remain# the security interest
continues to secure them (i.e.# as if there had been no default).
iii. Can 1 waive the right to redeem the collateral-
1. >A-N:K%c& Ya*oveZ C 78cept in consumer goods transaction# 1 ma waive
right to redeem[onl * agreement entered into and authenticated
A3T7" default
a. 4as to *e in writing# signed * 1# after default
*. Thus# a SA containing this provision won+t *e valid B this is
*efore default
2. In consumer transactions# have to loo$ to different statutes
iv. 7ffects of SP+s Strict 3oreclosure %A-N::&-
1. 1ischarge de*tor+s o*ligation to the e8tent consented to * the 1e*tor
2. Transfer to sP of all of 1e*tor+s rights in the collateral.
3. 1ischarges the SI that is su*@ect to 1e*tor+s consent---A'1 an
su*ordinate SI and lien %@unior SP+s&
4. Terminates all other Su*ordinate SI+s %don+t have to pa ;unior SP+s&
5. 17(T5" 4AS '5 "IJ4TS T5 SU"P/US\\\\\\ %even if consumer
goods2*ut less than N=W paid off&
6. 157S TAG7 SU(;7CT T5 SUP7"I5" S/P+s "IJ4TS.
7. "eese v 3out6 M Tanner- pg. <9:
9H:
a. There was strict foreclosure and the SP sold the collateral for a
lot of )). The de*tors wanted the surplus )).
*. Under the 5/1 UCC A# the 1e*tor could get this.
c. Under the '7, UCC A# the 1e*tor would '5T get surplus.
v. Hroble# 12)1 Ha"e 311P
1. AAI sold 1C a )E#=== painting * Smoc$ Pallet# a famous artist. 1C
paid )9#=== down and agreed to pa over )9#=== a month thereafter. The
finance charge was )9E9.:=F the AP" was 9HW. The contract contained
a clause saing that in the event of default# AAI could repossess the
painting Ythis is 5GAIZ and $eep it without reselling it or# at its option#
could resell it and sue for the deficienc. 1C made < more paments and
then missed the last one# *eing temporaril short of funds. AAI# without
notice# sent one of its agents to 1C+s home. 4is teenage son let the agent
in# and he simpl removed the painting off the wall and wal$ed out#
saing# .Than$ ou.0 1C immediatel tendered )9#=== to AAI and
demanded the painting. AAI refused %the painting is now worth )?#===&.
3our months later# 1C filed suit.
a. SP tring# in the SA# to have the option to e8ercise strict
foreclosure or resell it and sue for deficienc
*. Can '5T do this
c. >A-N:=C If the SP wants to e8ercise S3# has to send a notice
%proposal of $eeping the collateral& to the 1# and the 1 !UST
C5'S7'T %or decide not to consent& to it\
1. If the 1 does not o*@ect within a certain amount
of time %:= das&# then the SP can e8ercise S3 B
deem as accepted
a. ,ith S3# there are no rights of
deficienc B SP is $eeping the collateral#
and can+t go after the 1 for deficienc
d. >A-N:< C the rights of other SPs will *e 7/I!I'AT71\
i. ;unior SPs are worse off than with resale B at least the
have a chance there\
1. The foreclosing part has no dut to them
ii. The other SPs don+t li$e this B no opportunit for
surplus/proceeds to these other parties
e. Consumer transactionsO There is a statute that protects 1s B
when 1 pas more than N=W# there is a mandator disposition\\
>A-N:=%e&
2. ,hat is the *asis of his cause of action# and to what relief is he entitled-
See >A-N:=%e& and %f&# A-N:E%*& and %c&.
a. 1 has paid )K===/)E=== B more than N=W# and it is a consumer
transaction
i. Painting is at his home
*. 'oteO 1 then tendered the remainder of the outstanding amount
B )9=== B has paid the total B right of redemption under >A-N:<
c. (asis for cause of action and reliefO
d. >A-N:=%e& and %f&
9H<
i. %e& - Consumer transaction %es& C mandator disposition
of the consumer goods if N=W of the cash price has *een
paid# P!SI in consumer goods
1. 1 CA' demand mandator disposition here
2. %e&%:& C N=W of the principal amount of the
o*ligation for non-P!SI in consumer goods# too
a. B here# if it was a loan# not P!SI# same
if consumer has paid more than N=W
ii. %f& C see
e. 1 has right for remedies in >A-N:E
i. %*& C actual damages
1. (b) [;ama$es for noncom%"iance.]
(ub$ect to subsections (c)# (d)# and (f)# a
person is liable for damages in the amount
of any loss caused by a failure to comply
with this article. :oss caused by a failure
to comply may include loss resulting from
the debtor's inability to obtain# or
increased costs of# alternative financing.
ii. %c& C punitive damages for strict foreclosure/mandator
disposition
1. (c) [*ersons entit"ed to reco#er
dama$es@ statutory dama$es in
consumer4$oods transaction.] 7xcept
as otherwise provided in Section A-N:H:
a. %9& a person that# at the time of the failure#
was a de*tor# was an o*ligor# or held a
securit interest in or other lien on the
collateral ma recover damages under
su*section %*& for its lossF and
b. %:& if the collateral is consumer goods# a
person that was a de*tor or a secondar
o*ligor at the time a secured part failed to
compl with this part ma recover for that
failure in an event an amount not less than
the credit service charge plus 9= percent of
the principal amount of the o*ligation or the
time-price differential plus 9= percent of the
cash price.
2. B If the collateral is consumer goods# and SP
failed to compl with %mandator disposition&#
then 1 will get not less than the credit service
charges %)9E9& a 9=W of the principal amount of
the o*ligation %9=W of the principal loan
amount&
3. If 1C had made onl one pament and then defaulted# causing AAI to
repossess# could AAI have sent him a proposal that it would $eep the
painting and forgive c the remaining de*t onl- See >A-N:=%g&.
a. Ydidn+t answerZ
vi. A-N:E%c&-
9HK
1. I3A person# at the time of the failure to pa# was a de*tor# was an o*ligor
or was a person that held a securit interest in or other lien on the
collateral ma recover damages under su*section %*& for its loss A'1.
2. If the collateral is consumer goods# a person that was a de*tor or a
secondar o*ligor at the time a secured part failed to compl with this
part ma recover for that failure in an event an amount not less than the
credit service charge plus 9=W of the principal amount of the o*ligation
of the time-price differential plus 9=W of the cash price.
T2T. 9ar <xa# Yuestions U =pril 21 25
A. YU</;2:6 ,1 -ebruary 1999
i. 5n April 9<# 9AA?# (la$e purchased a *ig screen television set from Am*ience
7ntertainment Center %RA7CR& for household use. %consumer transaction& The
cash price for the television set was ):#===. (la$e made a ):== down pament
and agreed to pa off the )9#H== *alance with finance charges in 9: monthl
paments *eginning on !a 9# 9AA?. A7C perfected a securit interest in the
television set.
1. , ' Blake
2. "+ ' A2# (+M"I . AV set/
a. +erfected . auto)aticall1 (+M"I consu)er goods/ and b1 filing
ii. The securit agreement# signed * (la$e on the da of the purchase# contained
the following Rstrict foreclosureR clauseO
1. Secured Part reserves the right# in the event of repossession of the
collateral# to elect to dispose of the collateral * strict foreclosure and# no
matter how great a percentage of the cash price has *een paid# to retain
the collateral in full satisfaction of the de*t. In that event# 1e*tor agrees
that he has waived his rights under the UCC with respect to the
repossessed collateral and Secured Part agrees that it has waived its
right to recover an deficienc.
iii. After ma$ing 1 #ont'ly pay#ents# (la$e defaulted. At the time of default# the
balance due on t'e debt $as J3). A7C repossessed the television set on !arch
9<# 9AAH.
1. 3irst Thing to 1o-
a. 78plain what strict foreclosure is to the *ar e8aminer
9HE
*. 78plain the rules of strict foreclosure2what has to *e done to
e8ercise this remed.
c. 78plain under what circumstance a part ma have strict
foreclosure in a consumer good situation.
i. Strict 3oreclosure- this is where the SP wants to ta$e
*ac$ the collateral in repament of the de*t.
ii. In a consumer transaction# if the consumer has paid more
than N=W of the purchase price# then the SP ma ta$e the
collateral *ac$ *ut must dispose of the collateral within
A= das through a sale. %cannot waive the right to
mandator disposition ,IT4 A C5'SU!7"
T"A'SACTI5'&
iii. ,aiver- %A-N=:%9=&&2sas that a consumer ma not
waive its right to !A'1AT5"I 1ISP5SITI5'# even
though it can *e waived in a non-consumer transaction.
iv. A-N:= ,aiver- in order to *e effective# a waiver must *e
in writing and authenticated.
2. A2# re$ossessed
a. At the ti)e, H6LJ was owing (, had $aid H8L?J0HDJJJ/ ' EDP
iv. At the time of the repossession# the A7C representative orall proposed the
following to (la$eO If (la$e would agree to let A7C $eep the television set in
complete satisfaction of the *alance owed * (la$e# A7C would waive an right
to recover a deficienc. (la$e said he agreed.
v. A7C stored the television set in a *ac$ room of its warehouse until Septem*er
9<# 9AAH. It then sold the television set at a pu*lic sale of which (la$e received
notice 9E das *efore the sale. (la$e did not attend the sale.
1. ,hile there is no time period for consumer transactions# non-consumer
transactions have to have 9= das notice so therefore consumer
transactions should have more than that.
vi. 1. Ias eit'er t'e >strict foreclosure> clause contained in t'e security
a"ree#ent or t'e oral a"ree#ent #ade at t'e ti#e of t'e repossession
effecti0e to $ai0e 9la&eOs ri"'ts to t'e collateral under t'e UCCE 7iscuss
fully.
1. 6:
9HN
2. ,aiver governed * >A-N=:%9=& and >A-N:K
a.
3. L9-)2(e) C A SP that has ta$en possession of collateral S4A// dispose
of it pursuant to >A-N9= I3 N=W of the principal amount has *een paid in
the case of a P!SI in consumer goods %"IJ4T 53 !A'1AT5"I
1ISP5SITI5'---,IT4I' A= 1AIS&
a. I7S C this applies\
4. L9-)24 B CA' waive these < right# *ut can onl *e waived after default#
in writing
a. (b) 1 can waive right to require disposition under >A-N:=%e& onl
* an agreement entered into and authenticated after default
i. 6:
5. 4ere# neither attempted waiver meets these requirements
a. the first agreement was pro*a*l authenticated# *ut not after
default
*. the second was after default# *ut oral %not authenticated&
vii. 2. =ssu#in" t'at neit'er a"ree#ent $as an effecti0e $ai0er1 $'at are
9la&eOs ri"'ts under t'e UCC and $'at if any da#a"es can 9la&e reco0er
fro# =<CE 7iscuss fully.
1. >A-N:E B spells out (la$e+s rights
a. Actual damages2he is entitled to have the TL sold in a
.commerciall reasona*le manner02if not then he has the right
to actual damages.
i. (alance was )<N=
ii. ,e don+t $now how much it was worth
iii. If what the would have resold the TL for was much
less# would want this deficienc in what the got
2. Consumer transaction B did ( pa more than N=W- I7S B mandator
disposition
a. (la$e could have demand that SP resell it and he can collect
surplus %*/c of no strict foreclosure in this case& under >A-N:E#
actual damages- >A-N:=%e& and %f&
i. Surplus- %A-N9E& articulate that he would get the surplus
*etween )<N= and )E==.
9H?
ii. Actual 1amages- he would get the difference *etween
)E== and )?==.
iii. So >A-N:E remedies C %c&
iv. ,hat is the calculation in %c&-
v. Credit service charge %we don+t $now&# plus 9=W of the
principal amount/cash price
vi. 9=W of the o*ligation %)9H==# '5T ):===& B )9H= plus
credit service charges
B. YU</;2:6 41 Ruly 1999P
i. 5n 3e*ruar 9# 1on Sanders purchased on credit from Lideo 4ut# Inc. a video
recorder that Sanders intended to use on his vacation. The cash price was ):#:E=.
Sanders signed an installment credit agreement that added )?E= in finance
charges# ma$ing the total purchase price )<#===. Sanders agreed to pa the
purchase price in 9E monthl installments of ):== each# commencing on !arch
9.
1. , ' ,on "anders
2. "+ ' Video Cut (+M"I in video recorder/
a. +erfected b1 filing
ii. The installment credit agreement conveed to Lideo 4ut a valid securit interest
in the video recorder to secure pament of the purchase price. Lideo 4ut properl
perfected the securit interest and filed a financing statement in all appropriate
places.
iii. After ma$ing the first two paments# Sanders defaulted * failing to ma$e the
pament due on !a 9. 5n !a 9H# a representative of Lideo 4ut called Sanders
* telephone to inquire a*out the default. Sanders told him# RI canSt ma$e the
paments# ISm washing m hands of the entire matter# and I donSt want to have
anthing more to do with Lideo 4ut.R 5n !a 9A# Sanders returned the recorder
to Lideo 4ut.
iv. Lideo 4ut advertised a pu*lic sale of repossessed merchandise# including the
video recorder returned * Sanders# to *e held on !a <=. 5n !a :H# Lideo
4ut sent to Sanders# properl addressed and * regular mail# a written notice that
the video recorder would *e put up for pu*lic sale at the time and place of the
advertised sale on !a <=. (ecause of an error * the Post 5ffice# the notice
never reached Sanders and was returned to Lideo 4ut mar$ed# RAddress
Un$nown - 'o 3orwarding Address.R
9HH
v. 5n !a <=# ;im !itchell# a *uer who had no prior relationship to Lideo 4ut
and had no notice of an possi*le defect in the sale# attended the pu*lic sale and
purchased the video recorder for )9#KE=. The price paid * !itchell was the fair
mar$et value of the video recorder on the date of the sale.
vi. 5n ;ul 9# Lideo 4ut sued Sanders for )E==# the deficienc due on the
installment credit agreement after crediting the proceeds of the sale to !itchell
and the unearned finance charges.
vii. =. I'at1 if any1 ri"'ts does /anders 'a0e a"ainst 5itc'ellE 7iscuss fully.
1. !itchell is the *uer
a. Is in the 5C5(
*. 'o collusion with L4
c. Attended the pu*lic sale and purchased it for 3!L
2. S has '5 rights against ! in this case according to the UCC
viii. 9. 7oes /anders 'a0e any ri"'t to reco0er da#a"es a"ainst @ideo Cut in t'e
deficiency action and1 if so1 in $'at a#ountE 7iscuss fully.
1. L4 repossessed and resold# and there was deficienc# and Sanders is not
happ
2. Is .I don+t want anthing to do with ou. a good enough waiver- 'o C
this is not a valid waiver %no writing&
3. Amount 5wed-
4. S didn+t receive timel notification of the disposition %and didn+t waive
it&
a. >A-N9: - "equires 9= das for non-consumer goods# probably
lon"er for consu#er "oods# and the onl would have given :
das notice# P/US it never got there B the should have sent it
earlier and had enough time to resend it - >A-N99%*&
5. So what remedies-
a. S can sue for actual damages under >A-N:E%*& %lac$ of notice&
*. Sanders has a right to itemi6ation of the costs %since there is a
deficienc&2if the don+t give him this then he has a right to
damages.
9HA
c. 5ral Statement * Sanders- there are onl < waivers that are
allowed2oral waivers don+t count
d. 1id he pa more than N=W-
i. If so# determine the 9=W equation plus )?E=
ii. )::E=%.9=& a ?E= B )::Ea )?E=
#. YU</;2:6 91 -ebruary 22P
i. 1ecor# Inc.# a 1elaware corporation# operates a retail store in 1allas# Te8as.
1ecor sells decorative items for the home.
ii. In August :==9# 1ecor *ought 9?E lamps for its inventor on credit from /arr+s
/amps. ;'e la#ps $ere retained in .arrys $are'ouse for later deli0ery to
be directed fro# ti#e to ti#e by 7ecor. 7ecor properly co#pleted and
aut'enticated a sales contract co#bined $it' a security a"ree#ent1 "rantin"
.arrys a security interest in t'e la#ps. .arrys1 'o$e0er1 ne"lected to file a
financin" state#ent.
1. , ' ,Qcor
2. "+ ' 4arr1%s (+M"I 87@ 4a)$s/
3. :9 F" filed, but 4arr1%s has $ossession
4. Attach)entR N2"
a. Value . Nes* , rights in collateral . Nes, "A with descri$tion .
N2"
5. +erfectedR N2"
a. :o F", but $erfection b1 $ossession of the goods (5G-686(a//
iii. Also in August :==9# 1ecor *ought on credit and too$ deliver of E= *ird*aths
from Carrie. In connection with this transaction# 1ecor properl completed and
authenticated a sales contract com*ined with a securit agreement# granting
Carrie a securit interest in the *ird*aths. Carrie timel filed a financing
statement in the office of the Secretar of State in the State of 1elaware. The
financing statement descri*ed the *ird*aths and included all required information
regarding the parties. The securit agreement also descri*ed the *ird*aths and
contained a provision * which 1ecor purported to waive notice of default *efore
repossession and also to waive an damages arising from an repossession *
9A=
Carrie.
1. ,' ,Qcor
2. "+ ' #arrie (+M"I in birdbaths/
3. F" filed in ,elaware '
a. su$$osed to file where , is located
*. Cere, ,Qcor is located in state of incor$oration ' this is 9BAN
' 5G-6J7(e/
4. Atte)$ted waiver of notice of default and of an1 da)ages fro)
re$ossession (:9 . can%t do - 5G-LJD(86/ . can%t waive "+%s liabilit1/
iv. In Septem*er :==9# Sam *ought ?E lamps from 1ecor to *e delivered to Sam
directl from /arr+s warehouse. The ?E lamps were identified and put in a
separate section of the warehouse. Sam paid 1ecor for the lamps. 1ecor used the
proceeds of the sale to pa the full amount due Carrie on the purchase of the
*ird*aths. Consequentl# 1ecor defaulted on its o*ligations to /arr+s# so /arr+s
refused to deliver the ?E lamps to Sam.
1. , ' "a)
2. "+ ' ,Qcor
3. #ollateral - la)$s (I,ed/, but 4arr1%s failed to deliver&it is considered
inventor1.
4. Is "a) BI9# of BusinessR +ossibl1&but who bu1s 7@ la)$s at one ti)e
&he would $ossibl1 be a bu1er in bulk&3F"A A""FM2 C2 I".
5. !hen goods I,ed, bu1er has interest in goods - 5D-@J8(a/
6. Attach)entR N2"&there is a securit1 agree)ent and a signed securit1
agree)ent (all re=uire)ents under G-DJ6 )et/.
7. +erfected "ecurit1 InterestR N2"&$erfection b1 $ossession of the
collateral in the warehouse.
8. +roceeds $aid #arrie
v. Carrie inadvertentl credited the pament from 1ecor to the wrong account so
that it appeared on Carrie+s *oo$s that 1ecor was in default. Carrie+s hired "e*a+s
"epo Service# an independent repossessor# to repossess the *ird*aths from 1ecor.
1. #onversion
vi. After dar$ one evening# "e*a went to 1ecor+s store and# finding that the
9A9
*ird*aths were on displa in front of the store# loaded them in a trailer. The store
manager# who was @ust closing up the store# approached "e*a# who told him she
was repossessing the *ird*aths. ,hen the manager tried to stop her# protesting
that Carrie had *een paid# "e*a shoved him and @umped into her truc$. The
manager pursued her# and# as "e*a swerved toward the manager to scare him
awa# the trailer overturned# and all the *ird*aths fell out and *ro$e to pieces.
1. Ahis is breach of the $eace ' there was confrontation
vii. 1ecor sues Carrie# claiming wrongful repossession and damages to the *ird*aths
under the Te8as Uniform Commercial Code# Chapter A. Carrie asserts as defenses
that %a& she was not required to give notice *efore attempting to repossess the
*ird*aths# %*& she is not responsi*le for "e*a+s actions and %c& 1ecor waived an
damages that might occur in connection with a repossession.
viii. Sam demands that /arr+s deliver the ?E lamps to him.
ix. 1. =s bet$een .arrys and /a#1 $'ic' 'as t'e superior ri"'ts to t'e +5
la#psE <xplain fully.
1. /arr+s
a. /arr+s had a perfected SI from the start C in August of :==9 %see
a*ove B $ept possession&
*. Sam+s interest did not arise until Septem*er :==9 %when goods
I1ed&
2. If Sam is (uer in (ul$ "ather than (I5C- then Sam could not ta$e
priorit over /arr+s as the did not ta$e possession of the lamps.
x. 2. I'at ar"u#ents s'ould 7ecor #a&e in support of its clai#s a"ainst
Carrie1 and $'at is t'e li&eli'ood of success of eac' of Carries defensesE
<xplain fully.
1. Although she was not required to give notice *efore repossession %waiver
of notice in contract is o$a I thin$&# s'e 'ad to do it $it'out breac' of
t'e peace. 4ere# t'ere $as confrontation# so there was *reach of the
peace. - >A-N=A%*&
a. /elf-'elp is non-dele"able1 so 8eba #ust not breac' peace
eit'er1 and Carrie 2/ liable for 'er actions if s'e does
*. Usin" t'e truc& to %scare so#eone( is definitely a breac' of
t'e peace.
2. The waiver of lia*ilit is '5T o$a
9A:
a. Atte)$ted waiver of an1 da)ages fro) re$ossession (:9 . can%t
do - 5G-LJD(86/ . can%t waive "+%s liabilit1/
,. YU</;2:6 91 Ruly 23P 7276; D: :@<8
i. 5n ;une 9# ;a$e purchased from 1ealer and too$ possession of# a porta*le cement
mi8er for use in ;a$e+s TQ home remodeling *usiness# which he operated as a
sole proprietor. The price was ):#===# to *e paid in installments# and ;a$e gave
dealer a SI in the cement mi8er. 1ealer perfected the SI * properl filing a 3S.
1. ,' 3ake
2. "+ ' ,ealer (+M"I in ce)ent )i>er/, $erfected b1 filing 3une 8
ii. The promissor note ; signed provided for accelerated paments in the even of a
default# and the SA contained a provision * which ; waived notice of sale in the
event of repossession * 1ealer.
1. Atte)$ted waiver of notice of dis$osition (:9 . can onl1 do this after
default - 5G-LD?(a//
iii. 5n ;ul 9# ; o*tained a *usiness loan from (an$ and gave (an$ a SI in all
present and after-acquired equipment. (an$ perfected its SI * properl filing a
3S.
1. , ' 3ake
2. "+ ' Bank ("I in e=ui$)ent/, $erfected b1 filing 3ul1 8
iv. ; failed to ma$e an paments to 1ealer# and on Septem*er 9# 1ealer properl
notified ;a$e of the default# accelerated the inde*tedness in accordance with the
note and SA# and demanded that ; return the cement mi8er. ; refused. 1ealer
then contracted with Speed "epo to repossess the cement mi8er.
1. Ahis is breach of the $eace under 5G-LJG(b/
v. Anticipating trou*le# Speed "epo hired 5fficer# a local off-dut P5# to
accompan its emploee in carring out the repossession. The found the
cement mi8er on a pu*lic street in front of a house where ; was repairing the
drivewa. As the were hitching the cement mi8er up to Speed "epo+s truc$# ;
confronted them and told them to leave it alone and go awa. 5fficer displaed
his police *adge and revealed his service revolver and told G that the were
authori6ed * Speed "epo to ta$e the cement mi8er. ;# afraid of a violent
confrontation# shrugged his shoulders and wal$ed awa.
vi. A wee$ later# 1ealer sold the mi8er for )9#K==. 1ealer# reling on the waiver
contained in the SA# did not give notice of the sale to ;a$e. 'or did 1ealer give
9A<
notice of the sale to (an$ *ecause 1ealer had no actual $nowledge of (an$+s SI.
1ealer now see$s to recover from ;a$e the )N== *alance owed.
vii. 1. I'at ri"'ts1 if any1 does Ra&e 'a0e a"ainst 7ealer1 /peedy 8epo1 or bot'
arisin" fro# t'e $ay t'e repossession $as carried outE <xplain fully.
1. Against 1ealer and "epo B can collect damages *ecause there was a
*reach of the peace
viii. 2. 7oes 7ealer 'a0e a ri"'t to a deficiency 3ud"#ent a"ainst Ra&e1 and1 if so1
'o$ s'ould t'e a#ount be calculatedE <xplain fully.
1. ----
2. 1ealer didn+t compl with the required notification %the Atte)$ted
waiver of notice of dis$osition was not effective ' (:9 . can waive
notification after default - 5G-LD?(a//
3. (ut I+m not sure if this means that 1ealer @ust can+t collect deficienc
period# or what-
ix. 3. I'at ri"'ts1 if any1 does 9an& 'a0e a"ainst 7ealerE <xplain fully.
1. >A-N99%c& C 1ealer had to give (an$ notification *ecause *an$ had
perfected * filing over 9= das *efore the notification date
2. >A-N9E%a&%<& - If @unior SP repossesses# resells# '5 o*ligation to pa
senior SP
a. (UT 47"7# *ecause the senior SP repossessed# it must pa
@unior SPs B T4IS IS T47 CAS7 B !ust pa if there are
proceeds# *ut don+t thin$ there are an
9AK