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Deals w/the creation of security interests in personal property. A. UNSECURED CREDITOR 1. Does not have a right to self-help. He must a. file a lawsuit b. Obtain a judgment (by default or trial) c. if you get the judgment, doesn’t mean you can collect, so d. You have to go to Sherrif’s office and have them seize property, sell it @ auction, and out of that $ you pay the Sherriff’s fees and then the debt is paid off. BUT: 2. Exemption Laws. Every state has them. Certain property can’t be seized to satisfy a debt. (i.e. tools of trade, homestead) 3. You can’t follow the property. If debtor sold property before a levy was done and the debtor spent the $, you can’t go after the subsequent BFP to get the value or property (unless the sale was done in a fraudulent manner in order to avoid seizure). This means you get an in personam right (you can go after the person), not an in rem right (following the property). 4. If insolvent/bankrupt, there’s no particular priority. B. SECURED CREDITOR/SECURED PARTY (SP) B/C of this, many creditors will only take a security interest (SI). Might do so via 1. As mortgagee (not governed by UCC)→ holding security interest in real property 2. As an Article 9 security interest in personal property 1. SECURED CREDITOR ADVANTAGES 1. Right to self-help. It applies if it can be asserted w/o ‘breaking the peace’. They can repossess the car from the street in front of your house, but can’t get into a locked garage to take it. 2. Not subject to exemption laws. Exemption laws specifically state they’re for unsecure creditors. 3. In rem right. Creditor can go after subsequent BFP, even if they were innocent of the lien. 4. Priority in event of bankruptcy. Get paid in full before rest of $ is distributed. I. Mechanics of Attachment 3 steps for an Article 9 SI to attach (can be in any order)… STEP 1. must be a written security agreement, signed by debtor which has a description of the collateral.
STEP 2. secured party must give value to debtor. There must be $/consideration…can’t be a gift. STEP 3. Debtor must have rights in the collateral. (Doesn’t have to have it @ time – maybe I get the ownership later). When these 3 steps area met, there’s attachment. However, there’s still no public record/notice yet. So, Article 9 also requires…. II. Perfection. To get perfection you need Financial statement/UCC – 1: filing of public notice in a public office. Contains: a) Name and address of secured party b) Name and address of debtor c) Brief description of collateral d) Signed by debtor e) Filed under debtor’s name in public office, usually the office of the Secretary of that State. (MD – it’s the state department of taxation and assessment) Effective for 5 years. Can be renewed by refilling w/in 6 months of expiration. To release it after debt is paid off, must file a termination notice. NOTE: car loans are noted as liens on the automobile’s title, rather than as a filing of a financing statement. III. Steps in getting a SI: 1. sign a promissory note: I agree to pay $ to the bank. Obligation to pay $. It’s unsecured interest. Represents your in personam indebtedness. 2. sign a security interest (this is where the process of attachment will be done). Giving the bank a SI in the car. 3. Then the bank will complete the perfection stage by having their name listed on the title as a lien holder (called notation). Different Types of Property that can be Art. 9 collateral I. TANGIBLE/GOODS 1. Types of tangible goods: a) inventory goods: held for sale or lease. i) materials intended to be consumed immediately in a biz, such as pencils, paper, etc. b) consumer goods: things bought for personal, family, household use. c) equipment: property used in a biz, but not for sale – for the biz’s use. d) farm products: aggie collateral. Ex. Grain, livestock, tractor is farm product statutorily, not equipment. 2. 2 types of SI for goods: a) Purchase Money Security Interest (PMSI): a SI taken by the person lending you the $ to buy a specific thing. These have superior rights to non-PMSIs. 2 types of PMSIs:
II. Sell it. $ owed are Sears’ accounts receivable. Agreement to allow car to be a trade-in for a reduction in the debt. Get after acquired property clause B/c of these problems. Alternative 4. Could never be able to collect b/c it never comes into being Self-destructing collateral. Other General Intangible Property This not for goods sold or services rendered. & a loan officer will also exclude from the computation delinquent or disputed accounts (so only the good ones). they must sell it. there’s a statutory obligation to sell it. If debtor demands a sale however. 3. Alternative 3. you get that remaining money. GENERAL INTANGIBLE PROPERTY A. Requires debtor’s consent. SI retained by the Seller of the thing ii. C. $ comes in little bits over long period of time Can’t collect b/c of valid ∆ s. It’s an SI in an UNsecured interest. D (debtor) can pay off the remaining/entire debt and get the good back. usually a bank will only lend on a certain % of accounts.i. If they get less than you owe. Partial strict foreclosure. (they get more $ for it than you owe). Deposit Accounts: (They get access to your bank account) B. Alternative 2. IV. Dribs and Drabs. like a 2nd mortgage. At any time between repo and sale. If Sears couldn’t collect bank can’t collect either. Bank says if you let us keep the car. SP repossesses. Accounts get paid off. Usually an acceleration clause requires payment of the entire debt once repoed for redemption to be effected. Accounts US by definition. Strict foreclosure. 2. EX. They take collateral and it wipes the slate clean. 5. Rights to payment for intellectual property . WHAT IF YOU DEFAULT? Alternative 1. If there’s a surplus you don’t get it. if there’s a deficiency. we’ll knock $5k off your debt. If there’s a surplus. you still are liable for a deficiency (lender becomes Unsecured (USP)). they can’t come after you for it. SI retained by a 3rd party lender who’s $ is used to buy the thing b) Non PMSI: all else. Lends you $ and takes interest in something you already own. Problems w/using accounts as a SI: 1. 4. Right of redemption. Accounts: (Payments outstanding) EX: customers bought things w/Sears credit card. C.
by definition. Here. D has PMSI in the car thru attachment (1. debtor gets rights). Other thing D can do is borrow $ from the bank and give them a SI in the chattel paper. value given. D needs cash (say wants to expand dealership). written security agreement. he keeps it. Gets a SI loan from a bank using these SI in the car as collateral. GENERAL INTANGIBLE PROPERTY A. Then. No seller responsibility for deficiency nor entitlement to a surplus (sometimes certain clauses are added. Bank can’t repossess cars unless/until customer defaults Art. 3 characteristics of a sale transaction: 1. it’s malpractice!) get the after acquired property clause!!! Ex. Bank would owe D any surplus and D would remain liable for deficiencies if liquidated b/c of D’s default 4. 2. This is a pure sale. To sell his chattel paper (say the face value of the installment ks are $10mil over 4 yrs. Assume it’s payable over 3 years. 2. D is not liable for the deficiencies and he’s not entitled to the surpluses. If he paid $5mil and gets the $10mil. Stage 3: Bank gets a SI in the dealer’s SI – called a SI in chattel paper. so it’s still outstanding. Stage 1: SI in goods – Secured party=dealer. Dealer sells car. but like an account.III. and uses his SI as collateral to another secured party. Doesn’t want to wait to receive the payments owed b/c they come in dribs and drabs…needs $ now. D will sell it to a factor for $5mil now). Buyer (B) puts down payment and finances rest w/Dealer (D). 9 talks about debtor → aka seller of chattel paper Secured Party→ aka buyer of chattel paper Security Agreement→ sale of chattel paper . after acquired property clause would be required. 2. Stage 2: Secured party in stage 1 becomes debtor in stage 2. Like credit cards (an account but unsecured). and 3. EX: A car. like $ back guarantee) Characteristics of the SI in the chattel paper: 1. has a SI (PMSI) in the car. Immediate notification/default not relevant 3. Bank can’t do anything unless/until D defaults to bank 3. but the dealer’s interest is a Secured Interest. Chattel papers= double level SI. A sale of a discreet package already in existence 2.. then D perfects by notation on certificate of title. Here it’s just the PMSI. 9 governs BOTH sales of chattel paper AND SI in chattel paper When Art. If he only gets $2mil. Chattel Paper SI in a secured obligation. D goes to bank & offers: 1. SO IMPORTANT (if you as an attorney don’t put this in. Dealer finances. Consumer=buyer.
it’s as if the thing you have a SI in. What’re the advantages of one over the other? Some are taxation issues. However. this alternative to stage 1 is NOT governed by Art. 9 financing statement (indexed under consignee’s name). 9) 2. 9 (though Art. lease you . C. 9 financing statements so lenders are on notice b/c lenders give $ not knowing not all the assets they see are not the property of the consignee. Take physical possession of the chattel paper. Alternative: Stage 1 →SI in goods (art. Some assets are store’s own goods. 2. you’re treated as if you’re a SP lending $ and taking a SI in the property. Advantage for sale is you get a depreciation allowance. 9) B. Debtor (seller) must have rights in chattel paper Then. You create a bailment. some are other people’s (consigned). Personal Property Lease→SI in lease (NOT Art. Art 9-§109(a): What must consignors do under Art. 9 does apply at stage 2). Consignment Take goods to a consignment shop. 9 doesn’t generally govern leases. Value given 3. 4 types of chattel paper: 1. 9 sales have to be commercially reasonable) How do you create a SI (including sales) in chattel paper? 1st. 9 SI in goods→SI in the SI (Governed by Art. Art. So. Security Agreement 2. 9) 3. Delivery of those papers to bank/factor perfects. this is how it’s treated so it can be covered by Art. 9) Personal Property Lease. D can do same thing w/leases (sell the rights in the lease (assignment) or grant a SI in the leases). In a lease there’s a stream of payments. Docs car buyers signed (the originals). D leases cars also. 1. Filing of financing statement indexed under name of debtor (the D who’s selling the chattel paper/borrowing $). 9) 4. how do you perfect SI? 1. 9 SI in goods→Sale of SI (Governed by Art. Should we require consignors to file Art. (It’s as if you’re a SP taking a SI in the property that belongs to the consignee (even though technically it’s your property. Leases Art. Art. and ∴ you must perfect by filing an Art. (remember though that Art. They act as your agent (they don’t own the property). the same 3 steps of attachment. 9)) For consignment. Lease payments are 100% deductible as biz payments if used for the company’s biz. Personal Property Lease→Sale of Lease (NOT Art. is the consignee’s goods and you (consignor) only has a SI in the goods. 9? Every time you create a consignment.
disguised lease→If it’s really a sale. he may be safe and file. 9 says if a lessor isn’t certain if it’s a sale or a lease. or you can purchase at end for a nominal fee) 1. you’d better perfect for a SI. . Changes: 1. §1-201 (37): SI in a lease must comply w/art 9 if: 1. Art 9 covers note transactions even if sold 2. and there’s a default. there can be repossession BUT 1. D. The mortgage is a supporting obligation. but keep the surplus. OR 2. the diff is do you accrue equity/ownership as you make payments? (Some leases are actually sales. you pull out remainder of lease. A promissory note/instrument is valid art 9 collateral whether I sell my notes. Art 9 gives 2 options in perfection 3. If a default. If at the end of the lease. E. NOTE: Art. not a lease.fact that the note is secured by something not covered by art 9 doesn’t matter/prevent an art 9 SI from existing in the note. Instruments §9-109(b) and comment 7. 9 collateral). 9 applies to the sale but not the lease. you’d owe it back to the lessee. etc. just to make sure. Perfect by taking possession or filing a financing statement. If it’s a sale. (treated as an Art. you pull out remainder owed but it there’s a surplus. & 4. You can grant a SI in an instrument (art. Perfection in either way carries over to a mortgage w/o having to comply w/real estate law. such as if the lease is for the life of the item. I have option to get the goods for 0 or nominal consideration.get maintenance taken care of. Art. Both involve stream of payments. 9 doesn’t cover creation of a mortgage. it’s a disguised sale. Lease you get no ownership 3. §9-109(b) . Conceptually. During sale. -if it’s a lease. Mortgages §9-109 (d)(11). Mandatory renewal: for the remaining economic life of the good (must renew) or lease requires item to be bought upon completion of the lease OR 3. you build equity as you go along 2. 9 sale). Lease is for the item’s expected economic life. Art. (creation or sale of instrument/note and creation of SI in note). and 2. but it’s NOT an admission that it’s a sale. or give a SI in the notes.
when SI enforceable • Agreement. EX: You take my stamp collection as collateral (perfect by possession). If SP releases for periods of < 20 days (and only for specific purposes) and then takes possession again. only as of yesterday.For accounts and intangibles. 3. exchange.give bank SI in your bank account. You perfect for the old stamps from the 1st date. SI in things like stock certificates/security entitlements (give authority to liquate your portfolio if you default) 5. used for cars KIM: Priority is preserved via date of filing/perfection. unloading. they are only perfected as of that new date. Continuation Statement 3. Temporary . 6.Notation of lien is on the title itself. value given For maximum protection against 3rd parties. it’s the only way.§9-312f: A perfected SI in goods in possession of a bailee remains perfected for 20 days w/o filing if the SP makes available the goods for sale. etc.Collateral by physical possession called a pledge.CREATING A VALID SECURITY INTEREST: Stage 1 – Attachment. Perfection by control . patent royalties. while the older items are still perfected from the old date. Perfection by possession . you need to go through Stage 2 – Perfection Ways to Perfect The 6 modalities of Perfection 1. Details of the Filing System 4 things you can file: 1. (specific purposes). Financing Statement 2. loading. 4. they’re the beneficiaries of continuity of perfection (they never lost their perfection). I take back for 2 days to add more stamps. If new things are added. and returned it to you yesterday. Always valid perfection of notes (called instruments) – KIM sales of notes are automatically perfected. Small category of SIs that are automatically perfected. 2. Perfection by notation . Amendment . but a SI in notes is not automatically perfected) and possession is effective for chattel paper (it’s the best way). nothing else beyond attachment is needed – PMSIs in consumer goods. Physical delivery of collateral into the hands of the SP is always a means of perfection. but for the new stamps. Perfection by filing . debtor has rights.
. Electronic filing=straight $20. Usually it’s in the Office of the Secretary of State 2. Effectiveness For 5 years from the date of filing. and a brief description of the collateral (even “all assets” if it’s in everything would be fine) ♦ In many bizs. Errors not seriously misleading in the name (like spelling mistakes. Fees (in MD) the filing fee = $20 if 8 or less pages. it’s not seriously misleading. it’s in the State Department of Assessment and Taxation (SDAT) (What you do is check the state’s UCC to find out where in that state you’d actually file) There are some exceptions: 1.. Fixture filings: SI in goods that are physically attached to real property you file in the Office of Recorder of Deeds (in the property records) in the county where the real estate is located. you file in D. ♦ ’99 Code says you must use the legal name (get it from the articles of incorporation). After 5 years the filing lapses (the SI would become unperfected). If don’t do this. that’s where you’d file. Other states levy a % of the indebtedness. So you have to determine where Sears is located.4. Ex. SI in Sears’ inventory. etc) don’t invalidate.C. you have to refile anew and you’ll have a gap in your perfection. its trade name isn’t often it’s legal name. If $ is still owing. then it’s the state of incorporation. Sub-Question (b): Where within that state do you file? Ex Debtor’s location is in MD. you can file a continuation statement w/in 6 months. If not. 1st if that store only has one place of biz. Inventory is kept in 25 different states. In MD. Termination Statement 1st Question: Where do you file a financing statement? Sub-Question (a): What state do you file in? New Code = perfection is governed by the state of the debtor’s location.. where in MD do you file? 1. 4th if the chief executive office is in a foreign country. and it’s incorporated in a foreign land. So. ’99 Code goes on saying if the standard search logic would unearth the wrong name. you get another 5 years (You can keep doing it). >8= $75. Contents of the Filing Statement ♦ Name and address of debtor and SP. then 2nd you’d look to where the corp has its chief executive office (this is for an unincorporated biz w/more than 1 place of biz) 3rd If it is incorporated. If you do so.
you have to refile (and it’ll only be valid from the date of the new filing). Code gives a 4 month grace period. and NOT 1st to perfect. . collateral. In a case where one of the SP was able to perfect w/o filing (where he’s not required to file). If you don’t. he will win if his perfection was before the other person’s filing. but rather the 1st to give notice/1st to file. you’re deemed to be continuous in your perfection. or else you become UnSP.Amendment Can add/delete a debtor. you have a duty to file the termination statement. and the value of the collateral is not sufficient to satisfy all of those claims in full. The Q of PRIORITY If there are multiple claims against the same object. 3. you must do it w/in 4 months. who gets paid 1st ? Part 3 of § 9 →Perfection and Priority §9-322. both of whom have perfected by filing a financing statement. A. SP just has to sign it and debtor has to file it. A SP who refuses to cooperate w/a termination statement is liable to debtor for damages resulting Changes Doctrine of Continuity. If you take corrective action w/in that 4 months. 2. for SI other than consumer goods: no duty until debtor requests it. or have to file anew and lose the perfection from the original date. 1. 1st qualification to the 1st to file rule: If D moves states. KIM: you only have to file a termination statement if there’s been a financing statement 4. Even then. If these are met. Think about that in addressing problems. and §9-324 → special PMSI rules EX: Unperfected SP v UnSP w/Judicial Lien: §9-317(2): one who holds a judicial lien = a lien creditor. for consumer goods: it is incumbent upon the SP to file w/in 1 month (irrespective of demand). statement of assignment. THE BIG PRIORITY RULE (THE FIRST TO FILE RULE): When there are multiple §9 SP. SP. 2nd qualification: Doesn’t work very well when one creditor is not required to file a financing statement (PMSI in consumer goods). Termination Statement For this. there has to be (1) No outstanding debt. Anyone who becomes a lien creditor before filing or other perfection wins over an unperfected SI. and you have to refile (continuity). priority is awarded NOT to the 1st to attach. and (2) No further obligation by SP to make a future loan.
. so SP2 has a PMSI in the inventory. • That inventory is sold and generates accounts receivable. There are in turn exceptions: o PMSI in inventory o PMSI in every other property than inventory Even if I know I’m 1st to file. • SP2 gets SI and files on inventory. §9-320 → Buyer of goods. he would lose…1st the file rule. If one side didn’t have to file to perfect→look at the perfection date B. which was later sold and generated accounts receivable. If SP1 files on accounts receivable he can’t be undercut by anybody who comes along later. SP1 filed directly on the accounts receivable (and before SP2 came along). If another lender comes along. One rule deals w/bank accounts. as long as there is a financing statement on file. b/c that protects only the inventory itself or if it’s sold for cash. The 1st to file rule is designed to operate when BOTH parties are perfecting via the filing system. but you don’t actually owe them any $. • If more than 1 SI qualifies for priority in the same collateral as under a. Priority rules are subject to the rule of deposit accounts. MAIN JIST: If both sides are in the filing system→ look at the filing date. Since priority is based on 1st to file. there’s no guarantee that I’ll automatically beat out someone else who comes along later if they’re a PMSI meeting §9-324. The §9-322 exception: • §9-322 has so many exceptions…check them. THE §9-324 exception: • I lend you $. The Buyer In Ordinary Course Rule (BIOC) (a buyer who purchases in the ordinary course of the seller’s business). Priorities involving PMSIs: • Basic priority rule that works is the 1st to file rule. Buyer takes free of a SI even if the SI is perfected and the buyer knows of its existence. But 1st to file can be changed if the 2nd person is the holder of a PMSI.3rd: If there’s a financing statement on file against you.b. • §9-324 inventory PMSI won’t work. • One of the policies behind these rules is the facilitation and encouragement for the creation of accounts receivable. Way to perfect SI in the account is by getting control over the account (put in your name. But if the sale generates accounts. the exception doesn’t apply. SP2 filed on the inventory. and actually get 1st place? NOT ENOUGH.or f (if you have more than 1 PMSI) priority of PMSI seller overrides the priority of PMSI lender…even if lender filed 1st .d. or bank follows lenders instructions). can I lend you $. a new lender’s priority will be based (date wise) upon others. take SI in your accounts receivable (I’m filer #1). SP2 advanced the $ that purchased the inventory.c.
you must purchase in good faith and w/o knowledge that the sale is wrongful (Just b/c you know there’s a SA. §9-320(b) → for Consumer buyer. take possession. B keeps everything and SP gets nothing. Dealership defaults. Replacement stuff can be stuff. identify your fighters so you can plug in the right rule. destruction. and proceeds of proceeds. If dealership defaults. bank has right to get check. Bank doesn’t have a SI in the car anymore b/c the buyer was a BIOC. and credit agreement). 3. Dealer sells a car (check. and this is sold at yard-sale). exchange. not the 1st to file. What are they? The check received. repo the trade-in. trade-in. B Buys from D NOT in the ordinary course of biz (say D isn’t a retailer. Forget the 1st to file rule. and B gets surplus. buy for personal use. if Buyer wins. and the chattel paper generated. If SP wins. and use the Buyer rules. and so on. Bank has SI in dealership. In SP v SP the first one pulls out his debt and the rest goes to the other SP. D2 sells to D1 (SP1 has a SI in his inventory w/after acquired property clause). give value. lease. Whatever debtor has that’s traceable to the collateral no matter how many generations removed. SP pulls out his debt. • Includes proceeds of collaterals. You take free of a SI the dealer gave to the bank…you never take free of a SI you yourself created. In the SP v Buyer issue. Proceeds Issue 1st concept: Basic Rule→ §9-315. 2. bank can’t repo the car. and 4. or they can be intangibles like goods sold that generate chattel paper. When looking at priority questions. Both default. B will take clear (and SP must not have filed a financing statement). but win vis a vis an unperfected SI except for the consumer buyer exception: a/k/a: The Garage sale exception. or monies. Bank has a SI in the proceeds of the car.§1-201→ to be a BIOC. the trade-in. SP2 can’t get D2’s equipment back from D1 b/c D1 was a BIOC. there’s no reason for you to assume that it’s passing to you is wrongful). §9-320(a) →you take free of a SI created by the Buyer’s seller. but B still unaware/without notice. (§9-320b). replacement stuff of collateral. barter items (non-cash proceeds). General rule about NON-BIOC is they lose to a perfected SI. B’s from S’s not in ordinary course of biz who: 1. and take over . Double Debtor Problem → Use the Buyer Rules. D2 in biz of selling equipment (SP2 has a SI in his stuff). What do we mean by proceeds? Whatever is received upon sale. don’t have knowledge of outstanding SI will win over perfected SP unless perfected SP filed a financing statement.
LIBR says we treat nonproceeds as water and proceeds as oil. he gets whatever he can establish via the LIBR. It gives SP the benefit of depletion by saying until the account dips below $5.000 is still there. but more non-proceeds $ delivered.000 (the non-proceeds $) is coming out of the non-proceeds. got $ for it. LIBR→Proceeds $ and general $ in a bank account. so any withdrawl less than the $10. • • 2nd basic concept: Generally. It’s then converted into proceeds. put it in an account. §9 requires identification and then it goes into C/L. leaving account now to $8. If dealership gets payments. • BUT there are specific rules: . Proceeds $ of $5. it could destroy priority. When SP claims proceeds. Perfection Requirements? Perfected SI on collateral. all of which is non-proceed.000. but the buyer doesn’t qualify as a BIOC b/c you’re not in the ordinary biz of selling things. the status of the checks are the proceeds of chattel paper that are the proceeds of the inventory in which the bank had a SI.000. So if sold to BIOC (9320) lender loses right to go after the collateral. UCC says method of ID used to show your collateral is in the account is based on C/L principles. I can go after the collateral. You sell equipment to a buyer. I have to show that my proceeds $ is still in the account. The most common formula used is lowest intermediate balance rule (LIBR). it doesn’t deprive access to collateral…that would depend on priorities. • I have a perfected SI in your equipment. SP has burden of showing that proceeds can be identified to his collateral. If you sold collateral. Day 2 $5.000. you’ll be entitled to get the lowest point it reached unless more proceeds $ came in. When collateral is sold and generates $ and the $ is co-mingled into a bank account where there’s proceeds and non-proceeds. Danger is that once the checks get into the bank account and someone else gets control. or I can choose instead to go after the proceeds.the chattel paper by notifying the customer. DO you have to re-perfect? • Basic rule is NO…a perfected SI on original collateral will continue to be on proceeds.000 you’re covered. Assume account has $10. or go after both but I can only get a single satisfaction. I can still repossess the item of equipment.000 withdrawl. Proceeds doesn’t automatically mean you lose the right to the collateral. When you default. Proceeds rule gives SP an extra place to go after. If it dips below $5. Day 3 $7. Proceeds include tangible and intangible.000 proceeds $ deposited. a SI that attaches to collateral will automatically attach to the proceeds. You don’t need a specific clause in the SA.
you don’t have to do anything. but say another party had control over that account… they get priority. They perfect by noting lien on the Certificate of Title. they’ll become unperfected. I automatically have a perfected SI in cash proceeds. Do they have a SI in those other things? NO b/c (1st) same place of filing rule can’t cover generation 3 b/c it wasn’t done via filing and (2nd) intervening cash proceeds. a. If I have a perfected SI however. You sell the car. you have to do it by day 21. c. I take perfected SI in that. Bank would have to file w/in 20 days of debtor getting boat. proceeds go into account. it qualifies as cash proceeds. Where you get in trouble is when the cash buys item 3. EXAMPLE: Bank lends you $10k to buy a car. your automatic rollover is only for 20 days unless a # of conditions are met (3): 1. and bank has a perfected SI in that $ up to the LIBR. KIM: §9 separates perfection from priority. SLA I perfect w/in the 20 days I’ve got continuity of perfection. your perfection carries. Let’s say I sold you a computer system (you buy as equipment). When a car is sold in a barter example (car for boat). If $ was simply put into your bank account. 2. (You’re not a dealer. • b. then you cleaned out the account and bought a lot of stuff. collateral sold. EX. so I only have 20 days. You default. but unless they file a new one that covers the boat. Automatically perfected. checks. the cash intermediary breaks the chain to the 3rd thing. Ex. Your perfection may carry over but it doesn’t mean that your priority carries over as well. B exchanges that computer for a boat. bank wants to go after proceeds. you never have to reperfect. the same place of filing rule won’t be appropriate. When you perfect by filing a financing statement. Also doesn’t apply to 3rd generation proceeds where 2nd was cash.Initially. Cash. (Not by filing). Same place of filing rule wouldn’t work if you perfected original in a manner other than filing. You then sell the computer for $ and you use the $ to buy some other thing. so that you get the benefit of the doubt for the same place of filing rule. . Does CC have perfected SI in the boat? Yes for 20 days. If you’re not in a position to use the other means. bank accounts. 3. What if you deposited it. With respect to cash proceeds. Same place of filing rule: If you perfected your SI in the original collateral by filing a financing statement. PMSI in consumer goods (bought a computer from CC). and the proceeds are collateral for which if you were to file on that proceeds would be in the same office as you did file for the collateral. so Buyer not a BIOC). you should have as broad a description as possible.
they have right to take it out of your account. IF I buy a heating system. §9 perfected SI vs a right of set-off (this is where you have $ in an account.A purchaser is NOT same as a Buyer. technically the bank already has control of the account unless SP gets control of the account before the bank. Purchaser is broader than Buyer. Sub-rule says when you’re 1st to file on collateral. all tangible property will be real estate. hot water heater…these are removable things. (3) Gives new value (not if D were to transfer its chattel paper b/c of a past debt owed) Ultimate lesson…if you’re a lender against chattel paper. Purchaser of chattel paper has priority over a SI in that chattel paper which is claimed merely as proceeds of inventory if: (1) In good faith (you’re not aware there’s a transfer restriction) and (2) In the OC of PURCHASER’s Biz (part of purchaser’s biz to make loans on chattel paper). or a personal property that becomes a fixture. and BG&E takes a SI in it. it can be subject to §9. Take possession. 2nd qualification → there’s a special type of financing statement required to be filed. the fixtures are sold w/the house. you’re considered to be 1st to file on proceeds too. that gives you superior right not only to chattel paper. UCC says an §9 SI can’t be created in real estate. Under §9-315 there’s also continuity of perfection (you have to have this). Fixtures §9-334. Essentially personal property physically attached to real estate. It’s called a fixture filing. personal property. 1st qualification→ it doesn’t apply to building materials used to build the house. Where you file-these are local filings and have to be filed in the land records office where you’d file a mortgage statement . but it’s really about a degree of affixation. Another rule is §9-330. Basic rule is if you win b/c of chattel paper rule. don’t rely on filing as a means of perfection. but they are fixtures to the house. but CAN be created in a fixture. This is analogous to how it deals w/multiple SP…remember whoever gets control of the bank account 1st trumps 1st to file rule. Generally. and you owe the bank $ for a loan. The issue is HOW connected is it? KIM that it can vary from state to state. If you don’t pay them on time. Can mean a B of chattel paper. Basically. 2 things that distinguish a fixture filing from a regular filing 1. A/C unit. but also to proceeds of chattel paper and to the goods (this is implicit). unless you otherwise indicate.Basic priority rule is §9-322…1st to file rule.) → §9 provides that right of set-off has priority over even a perfected §9 SI. when you sell a house. or a lender of chattel paper who takes a SI in chattel paper.
the mortgagee wants all the stuff to stay w/the house. that has a SI in a fixture vs the holder of a real estate mortgage on the entire house? I own a house. if the mortgagee is foreclosing on its mortgage. I also have a SA w/the bank who helped me buy the house. • • If mortgagee has priority fixtures can’t be removed. Fixture filings are NOT mandatory. Or he could demand an allocation – sell the house but figure out how much goes towards the heating system. but you probably won’t beat real estate filings. Special favortism granted to a construction mortgage ($ was lent for purpose of new construction) that says the construction mortgage wins vis a vis goods that become fixtures before the completion of construction . I’ve installed a # of appliances and systems which I bought on credit. sell them separately. §9-334e3: a perfected SI in fixtures has priorities over a conflicting interest if the conflicting interest is a lien on the real property obtained by legal/equitable means after it was perfected by any means permitted by this article. There are 2 exceptions to this rule: 1. Certain requirements for content – must contain a legal description of the land where the fixture is. §9-334: What are rights of §9 SP. he could remove heating and A/C units. or by automatic perfection. Clearly. Will my SI survive a bankruptcy if I don’t file. As long as fixture filing was perfected before the judgment lien arose the fixture filing prevails. automatic if PMSI in consumer goods. or by not filing at all if it’s a PMSI in a consumer good. the answer is YES. Rule 2: A PMSI in a fixture will prevail over a real estate mortgage if the holder of the PMSI makes a fixture filing before affixation or w/in 20 days thereafter. “Perfection by any method permitted by this article” includes a fixture filing. If fixture person has priority. If fixture guy has priority. the fixture filing will always win. or where there’s a PMSI in consumer goods.2. Ways a §9 will win over a pre existing real estate mortgage: Rule 1: If you perfect by a fixture filing before real estate mortgage has been properly recorded. When it’s a non-construction mortgage (I borrow $ to buy a pre-existing house) apply the PMSI rule as above. Depends on type of mortgage. . and I granted PMSIs to various lenders. or a filing in the land office. NOTE: this requires there be a FIXTURE filing (automatic perfection won’t help). he can remove items. or allow foreclosure sale and take out what’s owed to him. Perfection can occur by a regular §9 filing. BUT it will tend to be very vulnerable w/o a fixture filing. Theoretically I could perfect by a non-fixture filing.
Fake fixtures go to §9 person. but then you replace it. the very fact that it’s readily removable means it’s NOT a fixture at all and ∴ not subject to a real estate mortgage. not before. I’m essentially guaranteed that I’ll have a priority in fixtures. but not the 1st. it’s a PMSI ii. There are 3 categories of fake fixtures (e). Replacements of domestic appliances that are consumer goods . The initial installation of fixtures during construction will always go to the construction mortgagee unless see above. Also doesn’t apply after fixtures were installed. you’ll still lose b/c mortgage was filed after. §9 protects the 2nd replacement fixture. A fixture filing was made iii. EX: I’m a construction lender. b. §9 SI in a fixture has priority over a real estate mortgage when a. Readily removable equipment not connected to the operation of the real estate iii. Any method of perfection/filing will suffice. and the fixtures are installed during that construction. fixture filing always wins. the §9 doesn’t have to perfect by a fixture filing. PMSI priority→ even where mortgage filed 1st. c. even if they’re sold on a PMSI basis and even if they’re readily removable as to the initial installation. BUT that exception doesn’t apply where the competing mortgage is a construction mortgage. ii. original fixture. the fixture will always have priority. vi. In many states. Mortgagee filing after affixation is relying on those fixtures being there for the valuation of his risk as a source of collateral. You NEED a fixture filing. SUMMARY: 1. and (2) even if non-construction but mortgage filed after affixation. where mortgage filed 1st. 2. Even though you filed your fixture filing w/in 20 days. No fixture filing on file.EX: You install fixture on Day 1. Dealing w/fake fixtures. fixture filing must have been made before affixation. For this exception. Day 3 you file your fixture filing. You NEED a fixture filing. the PMSI undercutting won’t happen if (1) construction mortgage and installed before completion. i. no ifs ands or buts. Factory or office machines. §9 SI may still have priority if i. it can be perfected by any means (including automatic PMSI perfection). Replacements. 20 day rule iv. If the jurisdiction would say something was a fixture. If a fixture filing was made before mortgage recorded. Fake fixtures priority→ where they’re fundamentally fake (they more or less resemble pure personal property) then we’ll allow the §9 SI to have priority. However. First to file priority→ absolute. and all must be readily removable. Day 2 mortgage recorded. v. Next Group of Exceptions: 1. If fixture filing done before mortgage filing.
you really wouldn’t need this category. Impairment of Net worth→ You say that your net worth will always be 125% of my liability. Can be done by SP or his agent. you’re also in default to me. You just need the fake fixture section for those jurisdictions that do consider it a fixture. Section called “events of default” (a/k/a representations. If I dip below that. • Special favoritism we give to PMSIs. consumer. farm products. and we give the construction lender the benefit. lender may want to say then you’re in default Debtor moving collateral. why should the §9 person win? If they really would not be fixtures. warranties. the mortgages file first. unless (one of the 3 exceptions above).Main point about §9-334 on Fixtures…. . I borrow $ and give bank mortgage on the house. they can demand the entire debt. • Default rule in §9-334 is mortgage wins. say the mortgage wasn’t a construction mortgage. PART 6 OF §9 – PRACTICAL MECHANISMS OF REPOSSESSION AND SALE (How do you enforce a SI) §9 SI in physical goods (including inventory. etc. saying if I miss a payment. but are personal property. Construction lending is a very great risk. and I put in a refrigerator. SP has to have honest faith belief of insecurity in debt. you are in default to me. • 1st one in should win. • Construction lender will usually beat out the PMSI lender. equipment) Rule 1 → SP can’t do ANYTHING until there’s a default (what SA defines it as being) Usually SA have acceleration clauses. • Doesn’t require prior notice (SP self-help not unconstitutional). the PMSI lender will be able to get back the fridge. • No requirement that one goes to court to repossess (self-help repossession). covenants) list additional things: Cross-Default→ if you’re in default to anybody. that’s an event of default STEP 1 IS DEFAULT STEP 2 AFTER DEFAULT: Repossession of collateral. etc. and so we want to give them lots of protection to encourage construction lending. Major exception to this is where repossession would involve a breach of the peace. • However. Bankruptcy Default Clause→ if you go into bankruptcy. Vast majority of these cases.→ if you move it. • If it’s not a fixture anyway.
SP has burden of proof. 2. 3. cost of the auctioneer. 1. Collateral can be sold at a public sale (auction). Maybe D defaulted to Jr. Sr perceives Jr’s sale as a non-event b/c it doesn’t effect him. What if there’s a shortfall? Sr SP pulls out the $ he gets from sale and applies towards debt owed. This presupposes that there’s a surplus. I sell a car. and if there’s a Jr SP giving the Sr SP notice (and ONLY IF giving notice). Seller is a SP (under §9). and a Buyer (under §2) Part 1 is general construction. and Sr’s SI is NOT extinguished (b/c UCC says sale extinguishes SI for seller and all juniors). Sales must be commercially reasonable. but he can be at a public sale. (2ndary obligors – people who have to pay off the SP if the debtor didn’t). and D raises ∆ sale commercially unreasonable. Jr keeps what he gets from sale. formation and readjustment (how do you create/modify a contract of sale?) Part 3 is what are the obligations of a contract once formed? (what are you required to do) . and he’s a Seller (under §2). Sr can repo from Jr. Buyer is a Debtor (§9). Part 2 is form. Providing the amount was commercially reasonable.STEP 3 – TO SELL COLLATERAL OR TO KEEP THE COLLATERAL Selling the collateral. would go back to debtor. it’s owed to me). 4th – Anything left over after this. Jr who under-files. Who’d say it wasn’t? D may use sale as a total/partial ∆ in an action for a deficiency.Sales of Goods (tangible personal property) Many §9 transactions would also be §2 sales. and I retain a PMSI. or it can be sold in a private sell (S by himself or thru a broker finds a B willing to pay a good price). A B at a UCC sale is definitionally not a BIOC. but the sale is governed by §2. Article 2 . administrative costs of the sale 2nd – to the principle and interest of the secured debt 3rd – if there’s a surplus. Must give notice to debtor. What if Jr repossessed? If D defaulted to Sr also. the cost of the repossession. Distribution of proceeds of the sale: 1st – the cost of the sale. Jr would have to under-file (send Sr note saying “if there’s any more $. The remainder of the debt becomes an UnSecured claim (no more collateral left to cover it). If SP brings action against D for deficiency. 4. my PMSI rights are determined by §9. surety or guarantor. they have POE burden. but not Sr…Sr can’t collect unless a cross-default clause or something. it goes to Jr SP. If D brings action saying should’ve been a surplus (or Jr does). A SP can’t be the B at his own private sale.
2 weeks later. If B is a merchant and is aware of what this is about. But I still have my right to bring in PE. Requires a signed writing. Between Merchants (professional sellers) such as a whole-seller to a retailer. you can’t second guess the 500 pounds. If I receive a memo and don’t contest it.000 of goods. B can’t enforce against S b/c S DIDN’T sign. After meeting S sends B letter saying thank you for your order of $1. SOF activated if price of goods is $500 or more. Part 7 details specific remedies when a breach occurs Part 2 of §2 – formation of a contract. you just need a writing that indicates a contract was made signed by party against whom enforcement is sought (I’m looking forward to getting what we talked about on Monday). Potential for asymmetrical enforcement. That’s incorrect b/c only issue subsection 2 is concerned w/ is whether a party can raise ∆ of SOF.Part 5 is how does one perform those obligations? Part 6 is about breach. S is bound by this. Section on Statute of Frauds §2-201 and the Parole Evidence Rule §2-202 Both involve a writing being more important than something not in writing SOF= k not enforceable unless it’s in writing Parole Evidence Rule . a contract for sale of goods for more than $500 won’t be enforceable if not in writing.once a k is in writing. but allows it to be used against non-signer. Subsection 2: Sometimes a writing signed by one party may be sufficient to satisfy SOF even against other party. When SOF is activated. You could use PE to show writing is inaccurate. contract is unenforceable against the non-signer. changed. Can B bring in E to contest accuracy of that writing? Some courts have said no. how must it be satisfied? The contract need not be in writing. and he does nothing for 10 days. B realizes that deal was for $800. If the writing says 500 pounds. S will be able to enforce contract against B b/c B signed.000 of goods. Say memo says Thanks for order for $1. and one party says agreement was for 600 pounds. If no signed writing. by some oral agreement that doesn’t appear in the writing itself (oral supplements) Both are de facto “disfavored” today. B and S have oral agreement to purchase $1. and B doesn’t respond. with of course many exceptions… Trigger is the price of goods. or other things.000. I can’t raise my failure to sign a writing as a ∆ …that’s what I lose. can only be enforced against one who signed a writing indicating contract was made Writing doesn’t have to have entire contract. he becomes bound and can’t raise SOF as a ∆ . B followed up w/a signed writing. b/c it must have been in 10 days. §2-201 UCC Statute of Frauds Normally. varied. I can still . supplemented. to what extent can it be interpreted. The one thing which must be accurate in the writing is the quantity.
we’re merchants. Let’s say I send written notice of rejection. INCORRECT. and (2) misapply to offer and acceptance and it really should only be applied to confirmation of previously agreed to offer and acceptances. B tries to argue I sent you a memo. I don’t acknowledge a contract b/w us. I’m not bound to yours.show it doesn’t accurately represent what was agreed to. . He fails to respond to my PO w/in 10 days. general C/L rule is you can’t be forced into acceptance by silence. I’m bound to mine. You’d have to say I hereby decline to consider this writing evidence of a contract. ∴ we have a contract. you failed to respond. It has to be a writing in confirmation…meaning it follows up an offer and acceptance. This doesn’t change the C/L rule. A PO is an offer you haven’t accepted. Similarly. Assume as a merchant I send PO to S. 2 court mistakes therefore are (1) use to prevent a recipient to challenge accuracy and he should have that right.
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