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Bar Exam Outline ± COMMERCIAL PAPER + SECURED TRANSACTIONS COMMERCIAL PAPER Key Concepts Note: y y Draft: Instrument where

the drawer orders drawee to pay Where payable on demand and drawn on a bank even without the words of negotiability = check y Special checks: ertified check ± bank certifies it (problem: a lot of banks o won¶t do it) o ashier¶s check ± [Bank = Drawer = Drawee]. Bank orders bank itself to pay Payee. Indorsement: y Signature other than maker, drawer or acceptor y Special indorsement identifies the person to whom payable, blank does not y Restrictive indorsement limits payment, unrestrictive does not y Qualified indorsement negates secondary liability, unqualified does not y Anomalous indicates accommodation y y I. Holder v. Maker (Drawer) Negotiable instrument  A writing  Signed by maker (drawer) of y Agency (³power of attorney´) o Principle is L if agent was authorized. o Agent is L only if signed w/o showing (1) represented party or (2) representative capacity  E.g. ³for A´ y Forgery ± Forger is L; not the party whose name was forged o E.g. Forger signs ³/Robert Redford/.´ Forger is L; Robert Redford is not L.  Unconditional y = No promise modifier. o f. Acceleration clause is OK b/c it modifies time. y No express conditions o Implied (conduct)/constructive (by law) conditions OK. y Not subject to another writing o But, ³secured by«´ OK y Limitation of funds acceptable o E.g. ³for buying A´, ³from my bank account´ OK  Promise or order y IOU is not a promise.  To pay a fixed amount y with or without interest; Instrument where maker promises to pay payee Where the promise is by a bank to repay = certificate of deposit




g. On demand/at a definite time y If check is postdated. ³To bearer´/³to order´ at time of issue (unless check). Negotiated  Only a HOLDER can ³negotiate´ an instrument.g. This is not ³for value.g. y E. waive e. if a person (forger) forges an indorsement of an order paper. o ³on 1/1/2011. right to notice of dishonor o (4) of attorney¶s fees (no need to be fixed).  But this is nevertheless ³for value. o ³on death of B´ ± NOT negotiable b/c no definite time. See above. o (3)to waive protections for the maker/indorser.e. y Any acceleration clause is OK. y But. Now.  Order = Proper indorsement + delivery  Bearer = Mere transfer of possession f.  Antecedent claim (consideration) o E. allowed exceptions: Promise o (1) to give Security (collateral). no future o E.    y at a fixed or variable rate Of money w/ No other unauthorized promises y No additional promise allowed. o ³promise´ is not a magic word. y ³to bearer´/ ³to order´ are the magic words. ³I promise to pay on the order of B´ = order paper.´ therefore the attorney is not an HDC. it is negotiated.´ o You bank as an HDC if consideration given £ 2 . Attorney receives a negotiable instrument as an advance on fees. y ³I promise to pay for a keg of nails´ = bearer paper. Delivery = voluntary transfer of possession y y If a thief steals a bear payer. o ³A pays $1k every month´ OK ± This becomes rather a malpractice not to include this.g. the transferee is not a holder b/c the forger was not a holder.  Last endorsement rule y Special indorsement = order y Blank indorsement = bearer Holder in due course (1) A holder  Made by a proper negotiation. attorney performed for client and billed her.  i.  Negotiation makes the transferee a holder. (2) for value  Executed (=present) consideration.. o E. y ³pay to the order of ____´ (a check w/ a blank payee line) = bearer paper. it is non-negotiable.g.  No consideration b/c there was preexisting duty. the attorney received $1k for the bill. o (2) to allow the holder confess judgment or dispose of collateral. accelerated by death of B´ OK. 1 year ago.

Then Swindler sells the check to an HDC for $500. which questions authenticity. Fraud in factum o Fraud is only a personal defense. ³I couldn¶t read´ not a real defense b/c you could have someone else to read for me. y HDC is a partial HDC for $500.  Duress. Illegality o Illegal subject matter (e. Before clearing the balance tomorrow. (proportional) (5) takes free of personal defenses and claims. f. ³I gave you the check in exchange for marijuana´ ± real defense. o Fraud in factum = ³maker (a) didn¶t know/ (b) had no reasonable way of knowing that the signed paper was an instrument. y HDC is a full HDC for the $1k. but subject to real defenses  Forgery.  Ex1> Swindler defrauds Maker to get a $1k check. empty head´ test ± a Subjective test. Discharge in bankruptcy  Suretyship defenses if known. principal (interest) payment at default.  Bottom line ± Those who buy consumer goods w/ checks can¶t easily avoid liability. defenses.  Infancy. g. o Illegal purpose ± voidable.(3) in good faith  (a) Honesty in fact.g. claim. b. dishonored. then 10 years)  FTC Amelioration ² o Rule: No HDC rule applies where: (1) human buys (2) consumer goods/services (3) on credit. d. Real defense.  Ex2> HDC paid $250 for the purchase. (4) without knowledge or notice of a. forgery. o (1) human ± not corporation 3 . overdueness. or h.  E. e. HDC finds out about the swindle. and o ³pure heart. Adjudicated insanity renders it void.  Alteration. SOL (3 years drafts. irregularity.g. Adjudicated insanity o Simple insanity is voidable.  (b) Observance of reasonable commercial standards of fair dealing o Merchants¶ test ± an Objective test.  Non-HDC: (b/c these are suspicious) o Bulk (buyer in bulk) o Estate (buyer from estate) o Judicial Sale (buyer through judicial sale)  Partial HDC o Time of payment (wrt notice) for the instrument governs the HDC status. 6 years notes unless no demand. murder) ± void. incompleteness. c.g.´  E.

Infant bought food on credit.g. E.  Warranty Liability for ³off instrument´ ± Extra protection for holders y Holder should consider transferor¶s warranty L if it is an ³off instrument.g. title). y Presentment (final surrender to maker/drawee) o Presenter only warrants (1) right to enforce (proper negotiation. Holder v. Maker is bankrupt (so dishonors the note). then B is not entitled to A¶s rights. refrigerator. o But if B stole a bear paper from A. 4 . e.´ i. If transferor actually knew of maker¶s insolvency. A indorses a note for $1k. B is entitled to A¶s rights. If food seller (HDC of infant¶s check) demands payment.: o transferor transferred the instrument (i) w/ ³without recourse´ or (ii) w/o signature.g.e. even if B received from A (HDC) a check knowing that it was issued out of fraud in factum. y Issuance ± No warranty L. Later. (3) on credit ± where you pay more than 4 installments. holder must take 3 steps: y (1) Presentment o = Holder goes to maker/drawee (bank) & demands payment. gym. waivable for notes):  (1) right to enforce (=proper negotiation. y (2) Dishonor o = Maker/drawee (bank) refuses. based on real defense? ± No b/c of FTC amelioration rule. can the infant refuse.o o o (2) consumer goods ± Family used goods. y (3) Notice of dishonor o = Holder tells the indorser (secondary party).g. ± Holder can hold A (indorser) for $1k (³at the time of indorsement´). title)  (2) signature genuine (+ authorized)  (3) no alteration  (4) no defense/claim against transferor  (5) no knowledge of insolvency/bankruptcy initiation. then it is fraud. No land. o Must be made within 30 days. Indorser ² Contract of secondary liability  Indorser may be L for the amount at the time of indorsement. y E. o Presenter¶s warranties as to signatures:  Presenter warrants only as to indorsers¶ signatures.  Before holder sues indorser. II.  Shelter Rule (=´umbrella protection´) ² Anyone who takes after HDC gets rights of HDC except participant (thief) o E. y Transfer o Applies to all of the following instruments  (a) w/o indorsement  (b) w/ ³without recourse´ (=qualified indorsement) o Transferor warrants (non-waivable for checks. y Cf. the note is altered to $2k.

Drawer v.g. Drawee (bank) ² None unless acceptance (certification)  If certification (e.  Not ³properly payable´ ± When Drawee (bank) does not honor drawer.  This does not apply to forged drawer signatures. IV. y Drawer becomes remitter. and indorses to herself.  E. ³Pay to the order of Robert Redford [Mickey Mouse]´ ± This is not forgery. y Not over ³stop payment´ ± Banks must honor drawer¶s ³stop payment´ order. Drawer loses against any BFP. CD). Holder v. forger is L. y (2) Forged signatures. unless bank knows it.  E.  Drawer loses against any BFP. y Impostor.  If anybody indorses on the back of the check. Two situations ± y (1) If bank didn¶t pay where it should have ± Contractual damage. if any.  Any person in possession of the instrument is holder. drawee is liable for consequential damages.g. If bank paid where it shouldn¶t have paid: o (a) Forged drawer/maker signature  b/c drawer/maker is not L for signature. An accounting e/e receives a corporate check payable to e/r. y (3) Dead drawer ± Bank can still pay even if drawer is dead. Drawee (bank) ² Contractual relationship  (Drawer puts money in drawee and drawee pays out according to drawers order. The instrument is effective. forges indorsement and presents to bank. fictitious payee (UCC §3-405) o (a) Issuance to Impostor ± If an impostor induces issuer to issue the impostor an instrument by impersonating a payee:  Any person can indorse in the name of the payee. o (b) Issuance to fictitious payee ± Any payee in a fictitious name is effective ± Bank wins.)  ³Properly Payable´ Rule ± Banks don¶t have to pay. o (b) Forged indorsement  b/c transferee who possesses through a forged indorsement is not a proper ³holder´  If a thief steals a check. 5 . III. but they can pay and make the loan to drawer. bank is L to drawer for wrongful dishonor (breach of K).  Exceptions ± Bank wins if Drawer/maker/payee was negligent. Forged indorsement is effective. o (c) Fraudulent indorsement by accounting e/e ± Bank wins.  But. but they can choose to pay (³properly payable´) when: y (1) Overdraft ± Banks don¶t have to pay. Bank loses. drawer suffers. and the bank paid the thief. and is discharged from L. As to drawer¶s signature.g. y (2) Date ± Banks don¶t have to pay post-dated checks. the proper payee can sue bank for conversion. presenter only warrants no knowledge of forged signature. exceptions. but they can. See below.

o How fast (after bank made the paper available to drawer)?  Forged drawer/maker signature ± 1 year  Forged indorsement ± 3 years (=SOL)  Multiple forgeries by same wrongdoer ± 30 days  V. Effect of Alteration/Incomplete Instruments a. i. according to its terms as completed. o If drawer finds a forgery/etc. Exception ± HDC 1. Fraudulent Alteration A fraudulent alteration has the effect of discharging every party obligated on the instrument. unless the party (1) assents to the alteration or (2) is precluded from asserting the alteration. i. OR b. and the instrument may be enforced according to its original terms. an HDC (a person who takes the instrument for value. ii. 2. Effect of incomplete instrument An incomplete instrument may be enforced (1) according to its incomplete terms. Alteration = an unauthorized change in an instrument that modifies the obligation of any party in any respect. o No negligence:  Use of pencil  Leaving blank checks on top of table in restaurant o Negligence:  Leaving amount line blank/lots of space  Leaving space and say ³I trust you to put in right amount´ Drawer negligence in notifying ± Bank wins. OR (2) as augmented by an authorized completion. Burden of proof 1.y y E/r must not let the same person to (i) open a corporate account and (ii) sign the checks. 6 . b. *If the person who completed the instrument simply did so according to an (oral) agreement w/ the other party. drawer suffers. according to its original terms. c. in the case of an incomplete instrument altered by an unauthorized completion. The effect of an alteration depends on whether the alterer¶s intent was fraudulent or non-fraudulent. The person asserting lack of authorization has the burden of establishing completion w/o authorization. in good faith. Drawer negligence in drafting ± Bank wins. the other party cannot prove that the completion was unauthorized. Non-fraudulent Alteration Non-fraudulent alterations do not discharge any party. Incomplete Instruments i. Otherwise. But. he should notify the bank quickly. without notice to the alteration) may enforce the instrument: a. d.

When a person demands payment w/o producing instrument claiming it was lost/stolen/destroyed. the bank waits for 90 days.g. Accord & Satisfaction  If: y (1) There is a pending claim/claim in dispute. Within 90 days seller sends $600 to buyer and says ³Let¶s start over. bank must pay him too. No bond is required of the person demanding payment. payment is final and no recovery is permitted from the innocent party whom the bank paid.g. i. Seller cashes it in. If nobody else claims it during 90 days. bank pays the person. VIII. the court will also require the person to give ³flexible protection. iii. Buyer sends check ($600) to settle dispute on $1k table. the court will order the maker/drawee to pay him. Bank recovery (finality)  Where a bank pays on a forged drawer¶s signature or other mistake (e. 1.´ (e.  E. Then. and the claimant must repay. ± Bank can¶t recover. so that the maker/drawee may be protected from other claims on the instrument. VII. b. insufficient fund). (1) the ownership. After that.  Where the bank pays on a forged indorsement.´ Then no accord & satisfaction. if an HDC appears and demands payment. (3) a factual reason why he could not produce it. and y (2) Instrument must be tendered ³in full satisfaction´ conspicuously. 7 . (2) the terms of the instrument. so long as he can prove: 1. and 3.VI.  then y collection is discharged of debtor¶s obligation. he is nevertheless entitled to payment.Lost/Stolen/Destroyed instruments a. 2.g. bond) 1.  unless: y the debtor who received the instrument tenders repayment of the paper within 90 days. i. payment is not final and the bank can recover from the innocent party whom it paid y b/c presenter breached warranty of right to enforce (title). ii. But. ii. When a person demands payment against a bank for a cashier¶s/teller¶s/certified check that he claims to be lost/stolen/destroyed.

Investment Property (rarely comes on exam) ± Perfected only by control (1) Stocks & Bonds d. 2. If not memorialized. the dealer put security interest in the car as well. Creditor has chattel paper.g. Tangible movable things (1) Inventory (2) Equipment (3) Consumer Goods (4) Rights in Real Property = Fixtures + As-extracted collateral b. a car dealer. Debtor. Consumer Goods e. *Ask: Who is the debtor? Dealer? Or Car owner? f. account (receivable) ii. Inventory b. grants interest in the car sold to consumer under a retail installment sale agreement. Debtor. c. checks. ii. Electronic Chattel Paper 8 .g. so that the dealer can take the car back when consumer defaults. Collateral 1. Classification a. Intangible rights (1) Account (2) Deposit Account (3) Instrument (4) Chattel Paper (5) Investment Property (6) General Intangibles 2. Now the dealer has a PMSI (purchase money security interest) in the car. promissory note + security agreement i. RISA. (2) On exam. E. a car dealer. i.) (4) (2) Retail installment sale agreement. Chattel Paper (1) = Paper representing both a promise to pay + a property right. I. MECHANICS A.SECURED TRANSACTIONS (UCC Article 9) Memorize: PMSI = A (1) security interest (2) that secures repayment of a loan (3) used to purchase the collateral. grants interest in the car lease to creditor. Mnemonic = ICED GALF + P + (FA) a. Just in case the consumer breaches installment payment. E. Equipment g.g. 1. Instruments (1) A promise to pay debtor memorialized in a note/certificate of deposit. think about only two kinds: (3) (1) Any lease of a thing (right to collect future rent + reversionary right) i. E. (Right to collect stream of payment only will be an account. promissory notes.

(2) Security Agreement a.: i. (As-Extracted Collateral) (1) Oil/gas/minerals (2) Security interest will attach as soon as it is extracted. (i) Authenticated Record = signed by debtor or by otherwise indicated assent in some perceivable form. Account has no or insufficient writing to be an instrument/chattel paper. Health care insurance receivables 3. Farm Products n. p. CREATING SECURITY INTEREST (RIGHTS) VALID AGAINST THE DEBTOR ± ATTACHMENT A. Proceeds (1) Whether or not the security agreement says so. Excludes: 1. Accounts (Account Receivable) (1) Account = Right to collect on a promise to pay the debtor later on a monetary obligation after sale/lease of a non-land related thing. o. an account is created. Deposit Accounts ± Perfection only by control (1) Bank account (2) Art 9 deals w/ only commercial account. email/voicemail b. Two ways to create rights: 2. No instrument (no memorialization). (1) Possession/Control + oral agreement a. (ii) Describing collateral 9 . Business goodwill k. l. Rights in intellectual property ii. General Intangibles (1) ³Catch-all´ ± Other intangible rights not otherwise categorized. Documents i. e. Control = Debtor¶s permission to release collateral to creditor. j. i. Any non-monetary right under K. 3. as long as the proceeds are somehow ³identifiable´ as linked to original collateral. iii. i. (2) e. i. Letter of Credit Right m.g. (2) Any time something is sold/leased in exchange for a promise to pay debtor in the future. a security interest automatically attaches to whatever the debtor receives for/on account of the collateral. ii. Investment property. Then discuss priority of collaterals.g. II. no right to pay at all. Other creditor may attach security interest in the proceeds (as deposit account/investment property/etc).h. ii. Includes: credit card debts. Deposit accounts 2. (Fixtures) (1) Perfection must be filed a mortgage records where the land is. Step 1 ± CREATION 1.

b.´ (2) ³after-acquired´ collateral OK. Pre-existing duty/debt is value. After-acquired collateral applicable only to property acquired within 10 days of any secured value given. (3) Future loan ± OK. (3) describing collateral (1) Reasonably identifying the collateral.g. ii. unless creditor releases it by consent.g. (1) loses ownership in property. Step 2 ± ATTACHMENT 1. ³Consignment´ but actually a sale a. E. Effects ± Sale. Doubling of collateral 1. e. There is no attachment until creditor gives value (in the future).g. 2. and b. inventory. E. (2) is not an auctioneer.´ (2) After-acquired collateral ± OK. 2. (3) Future loans OK. C. collateral in debtor-seller + collateral in buyer D. b. Agreement a. (4) Consumer Goods limitations: i. 3. Consumer goods ± i. i. More specific description required. and (3) is not generally known to sell other people¶s goods. 2. a security interest in follows the property. Creditor giving loan to debtor (99% of exam) b. but as creditor w/ security interest in goods. Value (gift) ± Value must be given to debtor by creditor. (4) Cf. ³all future indebtedness´ OK. a. but not ³all assets. Rights ± Debtor must have a right in the collateral to give away to creditor.g. When delivering (1) non-consumer goods (2) worth more than $1k (3) to a merchant for sale. E.´ generally by categories (e. not a lease/consignment. Suspect transaction: 1. email/voicemail ok. equipment). Oral agreement is OK if creditor takes possession/control of the collateral. (2) has unperfected security interest in the goods (Article 9 applies). But not ³all assets. ³Lease´ but actually a sale. If a property changes hands. Creditor: a. B. if the merchant: (1) acts under its own separate name. (1) Description must be more specific. Buyout option at the end of lease for ³nominal´ value ($1) 3. 10 .g: a. (2) After-acquired collateral for consumer goods are limited to those acquired within 10 days of the secured value have been given. By category only OK. law treats ³consignor´ not as owner who sold the goods w/ right of return. (2) security agreement c.g.(1) Description must simply ³reasonably identify. ii. (1) Authenticated (1) signed or otherwise indicated assent in a perceivable form (2) e. Lease term over entire useful life of property b.

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(1) Individuals ± principal place of residence. i. If financing statement describes collateral more broadly then security agreement. accurate legal name of the debtor to enable other creditors to find the statement. (2) State that the filing covers fixtures. Effective for all transactions. Other financing statements ± where the debtor is. Debtor cleared loan by repayment. if tested. 2.g. the collateral is treated as if the statement has never been filed. Creditor does not file a security agreement.´ (3) If debtor¶s name changes which makes the financing statement ³seriously misleading. MAKING RIGHTS ENFORCEABLE AGAINST 3P ± PERFECTION  Only after attachment has occurred + one of various steps for perfection taken properly. general partnerships) ± where the office is. Full. b. Fixture filing a. (1) E. (3) Unregistered orgs (e.´ (2) If filing office¶s search logic w/ full legal name cannot not find misspelled/wrong name. 12 . 7. 5. creditor must either have (1) debtor sign the financing statement or (2) authorize filing by a separate document. (3) Description of Collateral a. place of chief executive office. No need to file another statement again. ³Fixture filing´ ± where the land is. a UCC-1 filing must have been authorized in an ³authenticated record´ by debtor. Filing a UCC-1 ³Financing Statement´ 1. Fixture + as-extracted collateral ± Financing statement must be filed as a ³fixture filing.´ 3. but: (1) To be effective. b. Lapse ± Filing lasts 5 years. 5 years. b. c.g.´ at mortgage records.g.´ and the security interest is ³unperfected. ³all of the debtor¶s property´). b. Super-generic description OK (e.g. security agreement covering the same collateral. unregistered orgs. b. **Sole proprietorship = individuals. and (3) Identify the owner of realty (if different from owner of fixture). (2) Registered organizations ± state of registry. then: i. (2) Secured Creditor¶s Name 4. Properly filed statement perfects any security interest in described collateral in any secured loan b/t creditor & debtor. Continuation ± b/t 4 yr 6 mo and 5 yr. a. If it lapses. E. Filing Locations for interstate transactions a. Financing statements are indexed by debtor¶s name. More info required: (1) Describe the real property w/ sufficient detail to support a mortgage. (1) Trade names/nicknames are insufficient and thus make financing statement ³ineffective. 6. Debtor loans from the same creditor w/ same collateral before filing lapses. a.III. the financing statement is ³seriously misleading´ and ³ineffective. i. If more than one offices. (1) Debtor¶s Name ± Most tested. A.

PMSI (purchase money security interest) a. (1) instrument + (2) chattel paper. Perfection by control in investment property beats perfection in any other way. the bank has control. (1) ³loan´ ± whatever portion of loan OK (2) ³used to purchase´ ± Actual use. E. Accounts/Deposit accounts b. Electronic chattel paper c. 4. If a collateral is a (1) vehicle (2) covered by a certificate of title ± perfect only by applying the Department of Motor Vehicles to have the lien noted on the face of the certificate of title. b. 3. perfection is done by (1) transfer of possession of the certificate + indorsement. If debtor moves to a new state ± Creditor has 4 months. B. financing statement in the previous state is retroactively ineffective. 2. (2) Control agreement ± broker agrees to follow the secured creditor¶s instructions as to the stock/bond in the account. indirectly held through broker. Letter of credit right d. Rule: PMSI in consumer goods is automatically perfected. c. Deposit accounts can be perfected only by control. 3. or c.c. After that. Possession is superior perfection to filing for: a. Automatic Perfection upon Attachment ***Memorize PMSI definition*** 1. or (2) re-registration of the stock in creditor¶s name. b. Add creditor¶s name to the deposit account. perfection is done by 1 of 3 ways: (1) If [creditor = broker]. Lien on certificate of title (Vehicles only) 1. Cannot perfect by possession if: a. certified securities. Control agreement ± bank agrees to follow the secured creditor¶s instructions as to the money in the account. PMSI = A (1) security interest (2) that secures repayment of a loan (3) used to purchase the collateral. Control of deposit accounts ± by 1 of 3 ways: a. as it never existed. a. Control = Debtor¶s permission to release collateral to creditor. b. C. (1) Why this rule? ± To encourage lending consumers. or (3) Add creditor¶s name as account holder. If [creditor = bank of the deposit account]. Possession satisfies both writing requirement for attachment and perfection. General intangibles 2. May be perfected by filing a UCC-1. Control of investment property ± If collateral is: a. Possession (Tangibles only) 1. 5. Two scenarios: (1) Bank loans debtor to buy collateral 13 . broker has control. Car dealer¶s inventory ± inventory. Control (deposit account*/investment property/electronic chattel paper/letter of credit right only) 1. D.

Perfection as a matter of law if: 1. Macy's acquires Armani's spring line of clothing on credit. OR iii. 2. continuous automatic perfection. granting Armani a security interest in the line. Armani is a PMSI holder. PMSI = A (1) security interest (2) that secures repayment of a loan (3) used to purchase the collateral. If identifiable cash proceeds. Perfect the PMSI. ii. Armani must file properly before debtor Macy's takes possession AND 2. 4 months grace period in the new jxn when debtor moves. the holder of PMSI beats all other SC and LC. (1) After 20 days. Proceeds automatically attached to a perfected collateral is automatically perfected for 20 day grace period. PMSI in equipment (non-inventory. and ii. b. original collateral was perfected by filing.(2) Seller of goods loans debtor to buy sell¶s collateral 2. holder of PMSI must do 2 things before he delivers collateral to debtor: i. Temporary + Continuation a. proceeds were not acquired w/ cash proceeds. he may achieve super priority. 2. 14 . Armani must notify Bank before debtor Macy's takes possession. proceeds can be perfected by filing in the same office as the original collateral. How can Armani achieve priority in the Armani spring line? iii. Original financing statement describes the proceeds (easy). AND 3.´ Bank properly perfects its interest. = debtor receives property instead of cash b. The collateral is inventory. (2) No notice to other SC+LC required. a. PRIORITY BATTLES ± WHO WINS? A. perfection continues in 3 ways w/o further action (filing a new UCC-1) by creditor: i. ii. i. PMSI in inventory (+ proceeds) (1) To achieve priority. A> Armani must satisfy two requirements: 1. Notify in writing any PSC for after-acquired inventory of his priority. whether now held or hereafter acquired. IV. c. (2) Example> Macy¶s borrows $2M from Bank. Perfected Secured creditor (PSC) v. granting Bank a security interest ³in all of Macy¶s inventory. **Exceptions (Super Priority. Bank is a PSC in inventory. where 2d PSC in time prevails): If 2d PSC is a holder of PMSI (Purchase money security interest). + proceeds) (1) Grace period ± If PMSI is perfected within 20 days of delivery of collateral to debtor. Perfected Secured creditor (PSC) 1. First to Perfect (through UCC-1 filing/otherwise) wins. a. Later.

PSC v. ³Strict´ Foreclosure: Creditor keeps the collateral by negotiating w/ debtor to buy it. ³Breaching the peach´ ± stick to your gut feeling what is breaching. (2) = BIOC (buyer in the ordinary course) takes free of security interest of PSC (perfected secured creditor). SC wins. i. 15 . If PSC perfects before LC arises. ii. debtor did not sell to buyer in his ordinary course of business). C. If the SI was perfected b/f purchase. The SI is cut off. so long as it does not breach the peach. (1) Payment to debtor does not discharge the debtor¶s debtor from debtor. a dentist asserts a claim (³LC´).e. trustee in bankruptcy. regardless of PSC filed a UCC-1 or a fixture filing w/ mortgage record. C wants the stereo back. A> B prevails b/c C did not perfect. C secures interest in the stereo and perfects. Failure w/in 20 days is a silent assent. Example> C sells D a stereo on an installment plan. Fixtures ± first-filing PSC wins. 2. Sale must be commercially reasonable. D sells stereo to B in garage sale. D. a. i. Proposal ± In exchange for forgiveness of some/all of debt. Example> C secured interest in D¶s stereo (w/o perfection). Assent from debtor + other creditors. a. a. Foreclosure by Sale 1. ENFORCEMENT ON DEFAULT A. Purchaser from debtor (Buyer of goods) 1. Garage sale rule: (1) nBIOC (Non-ordinary course buyer) ± Where buyer is a not BIOC (i.) 2. Repossession 1. Notice ± Creditor must notify other actually/constructively known creditors having interest in the collateral. 1. 2. then buyer loses. However. Buyer takes free of security interest of unperfected secured party. What result? (2) A> C prevails b/c C perfected first. 3. B. BIOC rule: (1) Inventory sold in the ordinary course of Debtor¶s business is generally not subject to SI.g. General rule: A perfected security interest follows collateral into the hands of buyer. Exceptions a. ct¶s seizing order) 2. Remedies for Creditor¶s failure to comply = actual damages. V. Debtor¶s account collateral (right to collect from debtor¶s debtor) can be repossessed by telling the debtor¶s debtor to pay directly to SC. C. 1. (Even if buyer bought the goods before collateral was perfected. What result? a. the collateral follows the goods. iii. Otherwise. This is true even if LS acquired right through judicial process (e. **Collection rights of SC from non-goods (account) collateral. Lien creditor (LC) 1. b. SC can repossess the collateral w/o notice & by any means. LC wins. Perfected Secured creditor (PSC) v. Later D defaults. (1) Later D defaults.B.