Secured Transaction Cases Briefs

CHAPTER ONEINTRODUCTION TO SECURED TRANSACTION

It is understandable that someone extending credit in a sale or loan transaction wants to be sure of repayment. Some debtors are so solvent and/or trustworthy that the creditor demands nothing more than the debtor's promise to pay (sometimes called a "signature" loan); creditors doing this are said to be unsecured. In many transactions the creditor is less sanguine about the debtor's ability or desire to repay and may demand that the debtor either obtain a surety (called by various names: a co-signor, a guarantor, or, in Article 3 of the Uniform Commercial Code, an accommodation party) or secure the debt by nominating some of the debtor's current or future property as collateral. If the debtor defaults, the collateral may be seized and sold and the proceeds of the sale used to pay the debt.

Basic definitions: A lien is an interest in the debtor's property given by the law to protect a creditor.

i.If the debtor voluntarily grants such an interest, a consensual lien is created.

ii. If a consensual lien is taken in the debtor's real property, the lien is called a mortgage.A consensual lien in personal property or fixtures is called a security interest and is governed by Article 9 of the Uniform Commercial Code.

Involuntary liens can also be imposed against the debtor's property.

If the lien arises from judicial proceedings (the creditor sues, recovers judgment, and sends the sheriff out to seize the defendant's property), a judicial lien is created.

A statutory lien is one imposed by either a statute or the common law in favor of certain creditors the law deems worthy of protection. Examples are the liens given to landlords, to artisans repairing personal property (the garage mechanic, for example), and to a host of others, such as ostlers, innkeepers, and even attorneys.

A mechanic's lien is a statutory lien in favor of those who perform construction work. And if you do not pay your taxes, the federal government will file the awesome federal tax lien, a statutory lien that reaches all of the taxpayer's property, a matter we treat at length in a later chapter.

BANKRUPTCY

PRE-CODE SECURITY DEVICES

Wallace v. Ratner (1925)1. By the law of New York, a transfer of property, as security for a debt, which reserves to the transferor the right to dispose of the property or to apply its proceeds for his own uses is fraudulent and void as to creditors.

2. This rule applies to the assignment of present and future book accounts as well as to assignment of chattels, since it does not result from the retention of ostensible ownership by the assignor, but from the fact that the reservation of dominion by him is inconsistent with the effective disposition of title and creation of a lien.

3. Held that an assignment made by a mercantile corporation, more than four months before it was adjudged bankrupt, of its present and future accounts receivable as security for a loan was void under the above rule, so that delivery of a list of accounts, and payments made within the four months, were inoperative to perfect a lien in the assignee, but were unlawful preferences, under the Bankruptcy Act.

secret liena lien not appearing of record and unknown to the purchasers; a lien reserved by the vendor and kept hidden from third parties to secure the payment of goods after delivery.PledgeIn a pledge3 the debtor (called a pledgor) gives physical possession of the collateral to the creditor (called the pledgee) until the debt is paid. Possession then perfects the creditor's interest in the collateral (even against the bankruptcy trustee). Chattel Mortgage

The debtor could always mortgage land, so why not have something similar for personal property (chattels)? And, as with real property, the mortgage given by the debtor (the mortgagor) to the creditor (the mortgagee) was recorded in a designated place and indexed under the name of the debtor so that other potential creditors could check and see whether the collateral was encumbered. Thus, the debtor could have possession, but the secret lien problem so dreaded in Benedict v. Ratner was avoided because the mortgage was (through the recording system) witness to the creditor's very public interest in the property.

A. Conditional Sale Conditional sale whereby the buyer got possession of the property but the seller reserved full and complete title to it until the buyer paid in full (the condition in conditional sale was this payment before the buyer got any title. In most states the seller's interest in a conditional sale had to be filed to be perfected.B. Field Warehouse

CHAPTER TWO

THE SCOPE OF ARTICLE 9

V. EXCLUSIONS FROM ARTICLE 9A. Federal Statutes

UCC does not displace federal law, however it applies to the extent the federal statute doesnt in personal property. Must remember that for certain matters must be researched on federal & state level; ship mortgages, aircraft titles, patent & copyrights, railroad equipment & some interstate commercial vehicles are in part governed by the federal statutes.

Further, certain federal statutes may void security interests. E.g: Truth in Lending Act.

Philko Aviation v. Shacket (1983)Facts: Seller sold the same airplane to two different buyers one had possession but didnt record, the second on got the documents & recorded right away. Who gets it? The party that recorded

Main point: transfer of title to aircraft s not valid against innocent 3rd party w/out recorded written agreementB. LANDLORD'S LIEN AND OTHER STATUTORY LIENSPROBLEM # 9

AS a security for rent money, lease agreement stated that he can seize all tenant inventory in case of default. Does he have to perfect under article 9?

YES, consensual landlord's liens are not excluded from coverage of the Uniform Commercial Code.

C. Wage Assignments

Statutory regulations killed wage assignments; thus some states absolutely prohibit the assignment of future wages. but some permit them in limited circumstances if the employer consents, some states if both employer & spouse agree.Problem # 10

Insurance sales, to secure a loan he gave the bank" all present & future commissions earned or to be earned from company "Z"". Article 9 cover?

NO, The UCC 9-104, exempts from the coverage of U.C.C. art. 9 any transfer of a claim for wages, salary or other compensation of an employee.

D. Non-financing Assignmentsi. UCC article 9 doesnt apply to some transfer of accounts, chattel paper, payment intangibles, or promissory notes; is meant to be an exclusion of assignments of non-financing nature.

Problem #11a) B sold his business w. all account receivables; Need to take article 9 steps?

NO, This article shall not apply to: 4) a sale of accounts, chattel paper, payment intangibles, or promissory notes as part of a sale of the business out of which they arose; b)A agreed to paint. Portrait of mayor but doesnt have time. He mandated job to B. Must B take article 9 step?

NO, this article shall not apply to: an assignment of a right to payment under a contract to an assignee that is also obligated to perform under the contract;

c) A sold unpaid account to collection agency. Must collection agency take comply w. article 9?

NO, this article shall not apply to an assignment of accounts, chattel paper, payment intangibles, or promissory notes which is for the purpose of collection only; d) A transferred to B the right to money of portrait he sold. Must B comply with article 9?

NO; This article shall not apply to an assignment of a single account, payment intangible, or promissory note to an assignee in full or partial satisfaction of a pre-existing indebtedness; C. REAL ESTATE

Except for fixtures, real estate security interests are not covered by covered by article 9. What about the paperwork & promissory not the debtor sign?Problem # 12Bank A took from bank B as collateral real property mortgages & promissory notes of B's borrowers. What should A do to protect its interest?

This article doesnt apply to banks B real property mortgage.

However, when Bank B Uses them as collateral to Bank A( article 9 will cover.

"if B sells the promissory note to A, or gives security interest in the note to secure its own obligation, this article applies"

A's security interest in the note gives it a security interest in mortgage lien that secures the note.

If security interest in the note is perfected, then SI in the mortgage is perfected.

D. OTHER EXCLUSIONS

Problem # 13

Bank took security interest in all credit card purchases & personal checking account .Article 9 applies to account?No, this article doesnt apply to an assignment of a deposit account in a consumer transaction, Article 9-109 what this article does & doesnt cover

CHAPTER 3

THE CREATION OF A SECURITY INTEREST

I. CLASSIFYING THE COLLATERAL

Article 9 divides article 9 into many different categories

Goods:

Consumer Goods

Equipment

Farm Products

Inventory

Quasi-Tangible property (pieces of paper used as collateral)

Instruments

Investment Property (stocks & bonds and rights to accounts containing the same)

Documents (warehouse receipts and bill of lading)

Chattel paper

Letters of credit

Intangible Property(property having no significant physical form)

Accounts

Health-Care-Insurance Receivables (these are subcategory of "accounts")

Deposit accounts

General Intangibles

Payment Intangibles (these are sub-categories of "general intangibles")

Note that equipment is defined not only to have an unusual meaning but also as a catchall category for any good that doesnt fit into the other three goods categories.

Similarly "general intangibles".Problem 14

a. A professional pianist piano ? Equipment: (also when we cant fit anywhere we pick equipment) Cattle Fattened by a farmer for sale:? Farm Products Yes; (to be a farm product the owner must be engaged in farming) A farmer's Tractor ? Equipment; (not a farm product) The Farmers Chickens ? Farm Products The manor ? Farm product A mobile home? (good, consumer good or manufactured home) A right to sue someone under breach of contract (is a chosen action; is the old term of art for the right to sue somebody)i. a general intangible, or perhaps an account.

An Account is A right to sue someone from negligence arising from automobile accident

Torts issue; excluded from the scope of article 9

A right to sue corporation for wooing away a trusted employee

Commercial tort claim: w/in the scope of article 9

A security interest in a lawsuit P. has already won and that has been reduced to a settlement agreement

Comment 15; once a claim arising in tort has been settled & it doesnt matter what type of claim it was & is considered a payment intangible(included in article 9(a) Pencils & other stationary supplies used by Sears or a similar large retailer in its credit offices i. inventory if its for sale A liquor license (w/in one of the quasi-tangable, you can pass them subject to approval)ii. general intangible A right to return of a security deposit held by landlord.

i. payment intangible A newspaper carrier's right to payments for papers already delivered

i. account

a newspaper carrier's right to payments for papers to be delivered in the future

i. account

aunt augusta:

i. Payment intangible

Curtains bought by a lawyer for the new office / What if after purchasing the curtains the lawyer decides to use them at home? Do they become consumer goods?

If w/in 24 hours they are used 12 in the household & 12 in the business? Primarly means 51% or greater. For personal use primarly for family or household( in this hypo it is therefore business

Aunt Augusta loaned her nephew $5,000 with an oral agreement he would repay the money the following year. If she wants to use this agreement as collateral, how would it be classified?

i. Payment intangible In Re Morton

Facts: bankrupt bought car for personal use, after a while he was using it in connection with his employment & furthering his employers business. whether car was a consumer goods or inventory? Started as consumer good & became inventory.

Is it relevant? No bcz the protection afforded by article 9 precludes filing made in the proper place from being struck down because of a change in the collateral actual use. Main Point: The moment of the purchase of the relevant point of inquiry

Class Notes: there has to be a good faith representation at the time of loan. Problem # 15Q: hospital needs loan. Its patient belong to various health plans which they authorize the hospital to bill. Hospital has many of such receivables in process collection. Can it use as collateral??

A: YES 109 (d) (8): claim under a policy of insurance not covered but an assignment by or to healthcare insurance receivable is covered Hypo: What if the credit card company was selling those accounts as assets? (not using them as collateral, they are selling them to make some cash)? YES, still subject to article 9Problem #16 Q: merchants sends transactions to Credit card company for reimbursement. Can CC Company use those transactions papers as Collateral?

9-102(a)(2)

Answer: Credit card is the debtor to those merchants, I dont think it can ???Problem #17

17(a) Milk in the hand of a farmer? Farm products

In the hands of store? Inventory

Sold to customer? Consumer product

Restaurant? Inventory

17(b) certificate of deposit issued by a bank? Instrument

air bill issued by airline as a receipt for frozen shrimp? Document

receipt given to a farmer by a silo operator when the farmer stored grain? Document

in a document its ownership, in instrument gives you the right to payment

17(c) Rare coins bough by hobbyist for his collection: consumer goods

17(d) tax refund payment intangible

17(e) davanger bond issued by corporation? (Security) investment property

right to 100 shares of stock recorded: broad category :investment P. smaller category: security in title

17(g) Computer program17(h) the monthly rental obligations owed to landlord who wants to use them as collateral? Account (right to payment)

the promissory notes signed by the tenants to pay their rent? Instrument ( negotiable instrument or any other writing evidencing right to pmt. ) Morgan County Feeders Inc. v. McCormick

Buyers of inventory in the course of business take free of perfected security interest. Facts: cattle used on cattle drives not as rodeo calves or feeder cattle.

Issue: whether they are inventory or equipment?

Main point: principal use of goods determine whether they are inventory or equipment.

Factors to determine:

The good are for immediate or ultimate sale

They have a long period of use in the business

Equipment: when they are fixed assets, or have as identifiable units, a relatively long period of use

Inventory: even if not held up for sale, if they are used up or consumed in a short period of time in the production of some end product.

Problem # 18

Q: Elvis guitar bought by a fan who doesn't play guitar? How is the guitar classified? Not investment property cz. not securityA; Consumer goods ( Not inventory cz. not for sale If the ct. decide that its not cg(equipment that is a catch all)Chattel papers: e.g: car dealership, car buyers notes promissory notes & security agreements giving SI so dealership can repossess in the event of default. These set of papers are called Chattel papers. Dealership can sell those papers or use them as collateral; this is an article 9 transaction requiring article stepsProblem #19

Electronic chattel paper means chattel paper evidenced by a record or records consisting of information stored in an electronic median

Q: can the dealership use the electronic version of car lease Ks as Collateral? A: Yes

Problem # 20

Q: the state enacted a statute giving debtors unpaid debtors put a lien on farmers' crop (Statutory lien: bcz.it arises by statute it arises by statute not by farmers consent)> is this an article 9 transaction?

A: Statutory liens are not covered by article 9 (but agricultural liens are) II. TECHNICAL VALIDITY OF THE FORMS

The creation of article 9 security interest involves 2 documents: the security agreement and the financing statement.

Security Agreement: is a K. between the debtor & creditor by which the debtor grants to the creditor (the secured party) a security interest. Purpose is to create property rights between C & D.

Financing Statement: is the notice that is filed in the place specified by the article (& indexed under the debtor's name) in order to give later creditor's an awareness that the collateral is encumbered. Purpose is property rights between C & the rest of the world.A. The Security Agreement

Where the Collateral is w/in secured party's possession no written agreement required (although desirable)

But when it is not a security agreement must

1. be authenticated by the debtor2. describe the collateral

Problem # 21Q: F bought Compuer from A on credit. K says " conditional sale K: title remain to the store until paid in full" the k described the computer but didnt say the words" security intersest". Does it qualify as a Security agreement?

A; YES, doesnt need to the magic words. The Financing Statement : filled in public office by creditor (SP) to perfect the creditor's right. doesnt need to be signed by anyone ( the debtor have authenticated it by signing the security agreement)

must identify the parties

1. indicate what collateral it covered

i. if realty interest involved ( timber, fixtures minerals to be extracted from the ground) it must describe realty,

2. indicate owner of realty (if not the same as obligor) &

3. Indicate that it would be filed in real property records.

4. Note: if financing office take w/o these things it is effective.

Purpose:

i. Give notice

ii. Doesnt need details of transaction like loan amt. & monthly pmts. Interested parties can get those details from original parties. Typically have the addresses of d & SP.

B. The debtor's Identity: FS typically indexed under debtor's name, bcz. later creditors will search under his name. THIS IS IMPORTANT TO BE CORRECT.

Problem # 22'Harry Fellini ran a movie theater called "Fellini's Art Theater," but, bcz. he was sole proprietor, that was a trade name. He gave a security interest in the business's equipment to Sharkteeth Finance Comtatement. The financing statement calls for a listing of the "debtor's name."

a) Should the parties use the business name or individual name? Individual's name

b) If theater were run as a partnership, would the partnership's name be used as debtor's name? Partnership name??Problem # 23Q: D name name was "Michael A Erwin," but the financing as "Mike Erwin." The rules of Article 9 excuse "minor errors unless seriously misleading"; A; Maybe seriously misleading Parkratz Implement Co. v. Citizens National Bank

MAIN POINT: "Minor misspelling of debtor's name on a financing statement may render it "seriously misleading" and void the security interest The bank argued that the misspelling of the debtor's name as "Roger," rather than "Rodger," on the creditor's financing statement rendered it "seriously misleading" and ineffective if a searcher utilized the "standard search logic"

The court held that minor errors were those that would result in the discovery of a financing statement while searching under the debtor's correct legal name. The court found that the creditor's financing statement was seriously misleading because the bank was unable to find the debtor's name using the "standard search logic" and the only search that would have produced the creditor's interest would have been by using the temporary internet search logic, which did not constitute an official search. The court also placed the burden on the filing creditor to correctly list the debtor's name.

A mistake in the debtor's name can be seriously misleading( voiding the security interest

Hypo: Does a name change affect the security interest? The secured party has 4 month to amend their financing. Whatever they secured before continue to be perfected, but the future secured items will be affected. (the creditor will not be perfected in that new inventory)

Problem # 24Q: Barbara A. took a loan from ONB using her inventory & equipment as a collateral. ONB filed FS. When she got married she changed her name to Barbara B. & then borrowed another 50K from NFC, who didnt find the first encumbrances on her business under her new last name. did ONB lose their SI bcz. it failed to refile her name change??A: Need to amend their financing statement w/in 4 month. ????Problem #25 Q: The Last National Bank filed a financing statement in the proper place to perfect its security interest in the accounts receivable of the American Electronics Store. When the latter ran into financial difficulty, its assets were sold to a new electronics concern, Voice of Japan, which moved into the same retail location. Must Last National refile to keep its security interest perfected in (1) the accounts actually transferred by American Electronics to Voice of Japan or (2) accounts thereafter acquired by Voice of Japan? See 9-507(a) and its, Official Comment 3. A: w.r.t collateral that is sold, exchanged, leased or licensed a financing statement remains effective following the disposition of collateral only when the security interest remains in the collateral. ??????Q: Do we get the same result if American Electronics Store merges with Voice of Japan and the new entity is called "Voice of Electronics, Inc."? .A: is he new debtor? Person becomes bound by a previous security agreement. The new person is bound & no new agreement is required. Satisfy for existing & after acquired property to the extent described in the agreement. ??????Q: What if the opposite happens, and the debtor remains the same, but Last National assigns its interest in the debtor's accounts to Octopus National Bank? A: NO, If SP assigns SI filing not required to continue the perfected statute.

Q; Is Octopus National's interest superior to that of Last National's creditors???????Q: Consider that the transfer of the security interest from Last National to Octopus National is itself the transfer of an account or chattel paper; see Official Comment 4, Example 2 to 9-310. ??????Problem # 26:Q: When Robin Oakapple found he could not get a loan unless he had collateral, he got permission from his foster brother, Richard Dauntless, to use Richard's yacht as collateral. Should the lender make both sign the security agreement (only Robin signed the promissory note)? Which of these parties is the "debtor" and which the "obligor"? Compare 9-1 02(a)(28)(A) and 9-1 02(a)(59). Under whose name should the financing statement be filed?

Debtor: Robin Obligor: his brother Richard

Richard must sign ??????WEEK 3 Multiple Choice Answers2-1B

2-2 C

3-1 EThe issue here is that the name was not correct on the financing statement, which is why the second party would have superior interest.

3-2 AIf the name changes the secured party has four months from the date to amend their financing statement. Any collateral that they would attach after this date, if they havent amended, will not be perfected.

There are four methods of perfection:

1)Filing

2)Perfecting through Possession

3)Perfecting through Control

We will look at priority first

4)Automatic Perfection

Attachment9-203

authenticated security agreement by debtor that accurately describes the collateral.

Not required where possession or assigned

secured creditor has to provide value to debtor.

debtor has rights to the collateral.

D. Description of the CollateralProblem # 27 Q: P signed SA & FS to "TFC" giving them SI "all personal property D. owns now, will own or even hopes to own from now till he dies" does TFC have a SI in his guitar? 9-108 (c) says a generic a super-generic descriptions are not OK for the same thin

but for the 9-504 adequacy of description of the financing statement you can have a super generic description

For this problem this description doesnt workout bcz. if it cant attach it cannot be perfected. We want the K,. between the D & C not to have any ambiguity thats why we request more specifity in the SA.

In Re Grabowski discusses the same thing as this problem In re GrabowskiFacts: Both lenders filed financing statements. The first lender, the first to file, described its collateral in general terms and listed the debtors' business address, rather than their home address where the collateral was located. The second lender described the collateral more specifically and included the debtors' home address. Issue: whether the first lender's description was ineffective to perfect its security interest in the equipment? Holding & Reasoning: Despite the generality of the first lender's description, it was sufficient to notify subsequent creditors that a lien existed on the debtors' property and that further inquiry was necessary to determine the extent of the lien. Thus, the court found no merit in the second lender's argument that the description of the first lender's collateral was too general to fulfill the notice function of a financing statement under the Uniform Commercial Code. The debtors' business, address was not part of the lender's description of its collateral and, thus, did not serve to limit the collateral subject to the lien. In addition, the financing statement listed the names of the debtors, and not the name of the debtors' business.Problem # 28 Q: bank kept her jewelry in a vault as a collateral for her loan. Their financing statement said "personal property" She borrowed it to wear it when another creditor sized by judicial order. Is bank's interest perfected by the filed financing statement? (SCAN)

A: YES, 9-504 states that all personal descriptions general description therefore sufficient for financing statement. UCC permits debtors to encumber current & future property as collateral for credit; this is called floating lien. Creditor's lien attach to new property w/o the signing of any further paperwork. Problem # 29Q: SI & FI described collateral as "inventory". Does this extend to replacement for original collateral?

Makes a difference if it says " I. now owned or after acquired" but FS only said "I"?

A: In this case, inventory would extend to replacements because by its nature we are thinking about inventory that is constantly overturned and replaced. Equipment on the other hand is not as predictable, and it is not guaranteed that I will purchase more and there is not a floating lien. The safest thing to do is to specify that the interest is in current or after-acquired interests.

When you use the terms account receivable some court by its nature we are thinking abt. Inventory that is constantly overturned The safest way is to say current & after acquired inventory or current & after acquired interest.

"U.C.C. 9-110, advised courts not to require the most exact and detailed description possible. A majority of courts had adopted the view that, where the security agreement covered "all" inventory or accounts receivable, but contained no specific reference to after-acquired property, it was reasonable to assume that after-acquired receivables were included because of the revolving nature of the receivables and a resulting floating lien."Problem # 30 Q: FS says "various equipment; see attached list" . No list was attached. Is FS to perfect a SI? A; YES the word "various equipment' would notify other creditors that there is a security interest in place in accordance wit the financing statement. Also, equipment is a section of the UCC so it should be fine for the security agreement as well. Problem # 31Q: SA stated C/ "machinery, equipment, furniture & fixtures". FS added " inventory & accts. Receivable". The parties willing to testify to that this was what the loan ntended. Other creditors object. Does SP I reach that addition? A; Because the security agreement unambiguously described the collateral in which the security interest was granted the creditor was barred from establishing, via the loan documents, which was parol evidence, that the property omitted from the security agreement was intended by the parties to be covered by the security agreement.. i.e: SA has to define w. specifity & adequacy what SI in C are. Problem # 32Q: bank want to give loan secured by inventory. w/in that inventory very important & expensive equipment should SI name that equipment, say all inventory or say "w/o limitations"?

A; All three of them are effective, it's better as a lawyer to make sure to put the abicus-12. (including w/out limitations) Problem # 33

Q; agreement forgot to fill to Seller name. FS stated he had SI in the item. Is the agreement w. blank a SA? What abt. Financing statement? What abt. Both? A: i.e: the security agreement doesnt have the debtor's name anywhere on the doc this is not a security agreement for lack of sufficiencyIII. ATTACHMENT OF THE SECURITY INTEREST Attachment: is the process by which the SI in favor of the creditors becomes effective against debtor.Perfection: is the process by which the Creditor's SI becomes effective against the rest of the world.

Steps to attachment:

1. SA must be signed.2. creditor must give value 3. Debtor must have some rights in the Collateral

Border State Bank of Greenbush v. Bagley Livestock Exchange Main point: dont need ownership for some SI to attach/ as long as debtor has "sufficient rights" in collateral. Issue of whether caretaker who entered a cattle sharing arrangement with owner of cattle giving caretaker the right to receive some of the proceeds generated when calves were sold had significant rights to grant security interest in them was to be decide-rights includes full ownership as well as limited rights that fall short of full ownership.Facts: 1) J & A entered into a cattle-sharing agreement. A. agreed to care for and breed J's cattle, and also provided that the cattle would be considered to be owned by and sold in the name of J's Farms. 2) Some dispute over what the profit sharing arrangement was & percentage bcz. Contract was orally modified.

3) A obtained loans from Bank, granting it a security interest in all of his "rights title and interest" in all "livestock" then owned or thereafter acquired. 4) A. sold all J's cattle that he had raised pursuant to their agreement.

5) The livestock exchange was aware of the Bank's SA with A but determined that the SI did not attach to the calves and allowed them to be sold, and issued a check to Johnson Farms.

6) Bank sued the livestock exchange and J, contending that they had converted the Bank's perfected SI in the calves, and J. sought indemnity from A. in the event that the Bank's claim was successful

Holdings: whether bank's security interest in calves attached and was enforceable did not depend on whether debtor had ownership interest in calves, but on whether he had rights in calves under cattle-sharing agreement; i.e: You dont have to have ownership but only some interest in the cattle to use them as collateral for a security agreement.Problem#34 (SCAN)a) The interest attached on January 6, the date the loan was made, the debtor signed the security agreement and the debtor had rights in the pitch-pipe guitar. The trumpets are different because they were going to be shipped at a later date, and so the interest attaches March 15th bcz. that is the date that was marked for the shipment. Under 2-501, once the goods are marked for shipping (identified) at that point the buyer has an insurable interest-the debtor has rights in the collateral at this point. Could also be March 3oth bcz. the interest was supposed to be inventory in the store. b)Financing statement doesnt change the attachment date, & u cannot be perfected until u have attachment. You might want to file it early to make your interest superior. If you are a perfected secured party, your date off attachment is the date of filing. You cannot file a financing statement before you get a security agreement unless you get written permission from the debtor.

b) March 31stthe date when the value is provided. A commitment to loan has value as long as it is a binding commitment.

CHAPTER 4

PERFECTION OF THE SECURITY INTEREST

A SI that is perfected makes it senior to most later creditors.

Must attach before to perfect.

SI between D & C must be effective.

I. PERFECTION OF THE POESSESSION (PLEDGE)

Problem # 35Q: Museum party keeping jewel for B. A buys jewel from B giving it a big down payment & signing an agreement to make three more pmt. Can A perfect a SI by notifying the museum of the sale & telling them to hold it to his benefit until she fisnishes paying (like an escrow agreement & the museum is escrow agent)?A: in order to rely on this section and perfect through possession, needs to obtain an acknowledgment from the museum in writing that they are holding it for him as a security interest.

Section 9-313. When Possession by or Delivery to Secured Party Perfects Security Interest without Filing 9-313 (c) (If the good not covered by a document) a secured party takes possession of collateral in the possession of person other than debtor. when:

(1) That party authenticates that it holding the collateral for the secured partys benefit; or

(2) The person takes possession after authenticating that it will hold the collateral for the secured partys benefit.

Problem # 36

a) :No, because under appropriate circumstances, even though there is perfection under a negotiable warehouse receipt, because the debtor is so closely related to the janitor, the goods would not be perfected. Under 9-312, a security interest can be perfected from a bailee through the warehouse receipt.if we didnt have the ganitor issue would the security interest be perfect? YES, that can be perfected by possession. Bailee here is the field house, they can be perfected in the document. In order to b e true field warehouse situation we need a true fieldhouse situation.???? YOU PERFECT A WAREHOUSE RECEIPT BY POSEESSION...b) 9-312(f)(2)(e) Temporary perfected for 20 days , i.e; interest is protected for 20 days

c) If the debtor needs temporarily he gets 20 days grace period there .What happen if it doesnt get back to them w/in 20 days? How can we protect ourselves against other creditors priority wise? Financing statement.

Problem # 37

1)No. Although they are perfected on the 35 notes they have, under 9-312(g) they lose the security interest if more than 20 days have lapsed unless they have filed the financing statement to protect themselves as an insurance policy.2) (a) Perfection by filing permitted. A security interest in chattel paper, negotiable documents, instruments, or investment property may be perfected by filing.

I. AUTOMATIC PERFECTION 9-309Types of Security Interests that are Automatically Attached

1)Purchase Money Security Interest Consumer Goods

Seller acts as a creditor and gives the debtor financing to purchase from them

Bank makes loan to buyer, who makes payment to seller, who gives title back to buyer, who gives a security interest to the bank.

NONEX: you have a rare coin, and you want cash, you lose the coin to get security interest to get the clubs, which do not have a security interest in them.

2)An Assignment of Accounts (treated like a security interest)

If the assignment constitutes less than a significant amount of the debtors interest, it is automatically perfected.

Automatic perfection: means that the SP need only make sure its SI has attached to get perfection.

It occurs with:

a. PMSI

b. Certain accounts & other intangibles

a. Purchase money security interest (PMSI); A security interest that is created when a buyer uses the lenders money to make the purchase and immediately gives the lender security ([See the Uniform Commercial Code]); a security interest that is either (1) taken or retained by the seller of the collateral to secure all or part of its price or (2) taken by a person who by making advances or incurring an obligation gives value to enable the debtor to acquire rights in or the use of collateral if that value is in fact so used. *** If a buyer's purchase of a boat, for example, is financed by a bank that loans the amount of the purchase price, the bank's security interest in the boat that secures the loan is a purchase-money security interest..."(BLACK'S LAW DICTIOANRY) II. Automatic PerfectionA. PMSI in Consumer goodsWe give automatic perfection to PMSI in consumer goods w/o requiring further filling or possession bcz. consumer goods are unlikely to be used as collateral twice, thus rarely any later creditors to protect. Not worth it for merchants to pay to file it.

Exception: motor vehicles, SI requires perfection steps.Problem # 38

a) That will only attach to stuff acquired w/in ten days.No. Under 9-204, when a secured creditor tries to take a security interest in all of debtors consumer goods, that will only attach to stuff that is acquired within 10 days, not indefinitely. b) It is still a security agreement whether or not they are the direct seller or a third party securer.c) The actual cash or check that the secured creditor is providing has to go to pay for the good which the finance company is trying to get an interest in.d) Finance company would get the sewing machine because they would be automatically perfected and a perfected secured creditor would beat out the other secured creditors who are not perfected.

In re ShortF)The debtor bought furniture from furniture co for $2800, then he took a second loan for $3242. then he refinanced them into one Two loans: one PMSI and one not, which are refinanced into a 7k loan.

I) whether a PMSI when the original PM is refinanced through renewal or consolidation with another obligation?

R)Dual Status Rule alien maybe partially PM & partially non-PM, but the part that is not PM is not destroyed. The unpaid part of PM still stands and attaches.Automatic Transformation Rulethey are consolidated and the PMSI is extinguished

Case by Casehas been so transformed that it cannot be viewed as a PMSI anymore. Sale on Approval and Sale or Return; Consignment Sales and Rights of Creditors

(1) Unless otherwise agreed, if delivered goods may be returned by the buyer even though they conform to the contract, the transaction is

(a) a "sale on approval" if the goods are delivered primarily for use, and

(b) a "sale or return" if the goods are delivered primarily for resale.

(1) Purchase-money collateral means goods or software that secures a purchase-money obligation incurred with respect to that collateral; and

(2) Purchase-money obligation means an obligation of an obligor incurred as all or part of the price of the collateral or for value given to enable the debtor to acquire rights in or the use of the collateral if the value is in fact so used.

Problem #39

No ,this is a sale on approval, until they accept it its not subject to the claims.

Does NF qualify as the purchase money kind? Nightflyers security interest qualifies because once it becomes a . . .

G.E. Capital commercial automotive finance Inc. v. Sparton Motors, Ltd. Issue: whether by Spartan advancing the funds to purchase vehicles after Spartan had already paid for & received them, the D. GECC acquired a PMSI? Facts: The lender and the auto dealer had a security agreement whereby the lender acquired a blanket lien on the auto dealer's inventory. Thereafter, the secured lender and the auto dealer entered into a security agreement in which the funds loaned were secured by the vehicles purchased by those funds. The auto dealer purchased two cars and, within days thereafter, was reimbursed by the secured lender. When the auto dealer's business failed, the secured lender claimed that it had a purchase money security interest in the two cars. The lender argued that it had the priority lien. The court agreed with the secured lender, and held that U.C.C. 9-107(b) did not require that the secured lender pay the funds directly to the seller of the cars or that the loan occur prior to the sale. The secured lender was able to show that the advance was made to enable the auto dealer to purchase the collateral, and that the sequence of loan first and acquisition second was not required as this practice was common and routine between the parties. The agreement between the secured lender and the auto dealer was adequately specific to identify the collateral, and the lender was timely put on notice.

********Closely Allied Test:

1) Temporal ProximityCloseness in Time

2) The parties had to intend that it was going to be a PMSI

If both are established, and the court thinks they were here, and it appears that Spartan motors would not have bought these two cars without the loan from GMAC, then the transactions were closely aligned and they are considered PMSI.

B. Certain Accounts & other Intangibles

2 tests available " significant part" or "casual isolated transaction"

In Re Wood (test for Significant Amount)Issue: Whether this transaction falls w/in the exemption from filling? Facts: The debtors, an attorney, and his law firm, assigned the rights to contingency fee proceeds from certain litigation to the creditor, another attorney who loaned the debtors money. The debtors ultimately filed for bankruptcy under Chapter 11 of the Bankruptcy Code. The bankruptcy court held that the transaction in question did not fall within the exemptions from filing contained in U.C.C. 9-302(1)(e), and thus the creditor was an unsecured creditor. On appeal, the court reversed and remanded, holding that the creditor had a perfected security interest in the accounts. The court found that the creditor had met its burden with regard to the Holding: casual and isolated transaction test because the creditor was not a commercial lender engaged in regularly accepting assignments from debtors.

Reasoning: 1) the transaction was between two individuals who maintained a personal and professional relationship. 2) creditor was not regularly engaged in the business of taking accounts and, therefore, he clearly fell within the exemption from filing under 9-302(1)(e). It was error for the bankruptcy court to hold otherwise.Problem # 40 No, because under 9-304 a sale of accounts is automatically perfected.

Problem # 41

If you have attached original collateral you are also attached in the supporting obligation.

III PERFECTING BY FILLING

Except for the transaction listed in 9-310 , Filling of Financing Statement is the exclusive method of perfection of the creditor's security interest:

A. The Mechanics of Filing Before computer age was harder. Now, most Central filing, typically in the secretary of state, for almost all financing statements. Local County, for matters having to do with realty.Problem # 42

Q: right name wrong place

A: E. filed first.

Whichever creditor loses should sue the state for negligence. Hypo: what if the financing statements said Shakespeare?? Filed in the wrong place; Financing statement is ineffective.

Note; Always make copies when you file FS. Problem # 43

Q: how long is FS affectiveA: UCC 9-515A filed financing statement is effective for a period of five years after the date of filing. The effectiveness of a filed fin statement lapses on the expiration of the period of its effectiveness unless before the lapse a continuation statement is filed.

a. It is effective for five years.

b. It is not because the continuation must be filed within the last 6 months of the previous filings 5 years expiration, no sooner.

c. No, it does not. AN B has priority because the effectiveness of the statement lapsed by not being continued. The security interest became un-perfected upon the lapse and is deemed never to have been perfected as against a purchaser for value. A purchaser for value CAN be a Secured Creditor, which is why ANB is covered.

d. It still lapses and ANB is still first. The policy reason for that type of rule is ...

Problem # 44

Q:

A: Secured creditor is a purchaser for value. secured party of record must file a termination statement w/in 20 days of notice

Debtor could file a termination statement under

If consumer goods: Termination must be made upon earlier of (i) 1 month , or (ii) 20 days days after authenticated demand. The company has a month to comply with the termination statement, which is filed when no valid obligation is secured by the collateral (for consumer goods). The amendment has to identify that the debtor is doing it and that it is against the secured party, and puts other creditors on notice. This also happens when the debtor did not authorize the filing of the initial financing statement. Under 9-625 a person is liable for damages in the amount of any loss caused by a failure to comply with this article. Loss can include loss resulting from the debtors inability to obtain, or increased costs of, alternative financing.

In his exams he asks one policy question. e,g: A & B went under the code; what's the reason behind/ what's the policy.Problem# 45

Q: divorcing man filed faux financing statements in the public records office showing his assets were a security for various nonexistent loans in favor of himself. What can the wife's lawyer do to clean up those records?

A: In the case of an unauthorized financing statement, the person named as debtor in the financing statement may file a termination statement, effective against the bogus filings.

IV. PERFECTION BY CONTROL

10/2/2009 Week 4 Class slides MC 4-1 D

MC 4-2 Checking act can't perfect by filing onlyMC 4-3 F. feb 5; all 3 requirements: ASI , value, debtor has rights in the collateral.CHAPTER 5

MULTI-STATE TRANSACTION Each state has adopted a version of the UCC, with some very small differences from state to state, and it is very important that they have the same choice of law rules. The code says that you file in the jurisdiction whose law governs perfection, which is important so you know where to file and you do not have competing interests.

When reading 9-301

Perfection means the technical steps needed for perfection.

Effect of Perfection and Priority mean the legal status given to creditor and his rights against 3rd parties.

Under 9-301:

(1)Wherever the debtor is located, the law of that jurisdiction governs all aspects of the transaction.

(2)When we have a possessory security interest, a pledge, it is the collaterals location that governs all aspects of the transaction.

(3)While tangible negotiable documents, good, instruments, money, or tangible chattel paper is located in a jurisdiction, the local law of that jurisdiction governs:

i. The effect of perfection or non-perfection and the priority of a non-possessory security interest in the collateral.

ii. The debtors location is the location of perfectionwhere to file.I. General Choice of laws

Article 9 adopts a domicile approach and looks to the law of the debtor's location as the state in which perfection need to be take.

However, if the C/ has a physical form, the law of the jurisdiction in which of C/ is located will govern issues involving priority & other article 9 matters.

So, the secured party looks for:

i. the jurisdiction in which the debtor is located is located as the place of perfection, BUT

ii. The collateral as to the effect of perfection. Problem 46:The creditor should file the financing statement in the debtors location, their domicile in the case of an individual, which is Wyoming in this case and the general rules of perfection apply though this is a good. The creditors security interest will not be attached to the boat any longer and Ohio law governs because in the case of goods, the effect of perfection and priority is determined for goods by the collaterals location.

Problem 47:

place of business means a place where a debtor conducts its affairs.

Debtors location:

(1) If Debtor is an individual (located at the individuals principal residence.

(2) If debtor is an organization & has only 1 place of business ( located at its place of business.

(3) if debtor that is an organization & has more than 1 place of business ( located at its chief executive office.

If non of these applies (or D in a place does not apply that doesnt have a recording system like overseas etc.,) the debtor is located in the District of Columbia.

Under 9-307(e) if an organization is registered in a state and is the debtor, it is located in the state in which it is registered. If they were an individual debtor it would be their personal residence and if it is a common law partnership, general partnership, which is not registered with the state, is located at its place of business. It is not that there is one state where you can file, but there will be one state where all of the files are located, which makes them easier to locate.

In the case of Jahalla, you would file in Washington DC.

Problem 48:

A security interest perfected remains perfected until the earliest of:

(1) The time perfection ceased under the law of that jurisdiction;

(2) 4 months after a debtors re-locate to another jurisdiction; or

(3) 1 year after a transfer of collateral another debtor who is located in another jurisdiction.9-316 that it has 4 months after the change in the debtors location to file in the new location.

If it merges, then under 9-316(a)(3), you have year after a transfer of collateral to a person that thereby becomes a debtor and is located in another jurisdiction.

Problem 49:(If the debtors fails to perfect their interest w/in the time frame above they become unperfected & remain unperfected against a purchaser for value )

No, they are going to lose their priority under 9-316(b), which states that if a security interest in (a) becomes perfected under the law of the other jurisdiction before the event in that subsection, it remains perfected thereafter. If it does not become perfected, it becomes unperfected and is deemed never to have been perfected as against a purchaser of the collateral for value.

I. II. Certificate of Title

Title is alegalterm for an owner'sinterestin a piece ofproperty. It may also refer to a formaldocumentthat serves as evidence ofownership. Conveyance of the document may be required in order to transfer ownership in the property to another person. Title is distinct frompossession, arightthat often accompanies ownership but is not necessarily sufficient to prove it. In many cases, both possession and title may be transferred independently of each other. Problem # 50

Q:

A: UCC 9-303

(a)This section applies to goods covered by a certificate of title, even if there is no other relationship between the jurisdiction under whose certificate of title the goods are covered and hte goods or the debtor.

(b) goods become covered by a certificate of title when a valid application for the certificate of title and the applicable fee are delivered to the appropriate authority.

(c) the local law of the jurisdiction under whose certificate of title the goods are covered governs perfection, the effect of perfection or non-perfection, and the priority of a security interest in goods covered by a certificate of title from the time the goods become covered by the certificate of title until the goods cease to be covered by the certificate of title.

HYPO 4-2:

It will remain perfected in the first jurisdiction so long as security interest has remained perfected under the law of the first state.

HYPO 4-3:The SI is treated as unperfected against the used car dealer under 9-316(e)

Used car dealer will likely take free of SI under 9-317.

Hypo 4-4:The buyer takes free of the security interest in accordance 9-337(1). THERE IS A CHART IN SLIDES for Party and Result.

Metzger v. Americredit Financial Services

A third person purchased a car in New York. The holder financed the purchase and the New York certificate of title issued to the person reflected the holder's security interest in the car. The person later moved to Georgia. He submitted an application to convert the New York certificate of title to a Georgia one. The state motor vehicle department processed the application, but made a clerical error. As a result, a Georgia certificate of title was issued that did not reflect the holder's security interest in the car. The person later transferred the car to an automobile dealer owner and, eventually, the buyer purchased it. After the buyer registered the car, the holder located it, repossessed it, and sold it at auction. On appeal, the appellate court found that the buyer took the car free of the security interest pursuant to O.C.G.A. 11-9-337. Although the holder's security interest in the car remained perfected at the time that the buyer purchased the car, that security interest could not be enforced against the buyer, a good faith purchaser as defined in O.C.G.A. 11-9-337(1), since the security interest was not properly reflected on the Georgia certificate of title.http://law.scu.edu/FacWebPage/Neustadter/article9/main/commentary/71.htmlProblem 51:Question: on 5/10 Tourist buys car from NCS in OK

5/12NCS records lien on OK title

5/14Car to TX: new clean title 9 although the law requires the lien stays in title)

5/26Tourist sells car to Innocent (GFPV)

5/28NCS repossesses car

As of May 28, Texas certificate still covers vehicle 9-303(b)

Texas law governs 9-303

NCS is still perfected when new Texas cert is issued without notation of SI because within 4 months 9-316(d)(e)

William Innocent will take free of NCSs security interest under 9-337(1)

1st lender remains perfected w/in 4 month as above however a buyer of the goods -other than a person in the business of selling goods of that kind- takes free of the security interest if the buyer gives value and receives delivery of the goods after issuance of the certificate and without knowledge of the security interest;

Problem 52:It should only last four months. The issue is going from a UCC state to a CT state. Because the law of the state says that you have to have it titled under our state, he becomes unperfected and the bank must re-record or continue in the new state.

When moving from title state to a UCC state, he is probably going to continue to be perfected indefinitely in state 1 under 9-303(b) and (c)

Chapter 6PRIORITY

I. Simple disputes. Which creditor gets what? 9-317 lists the parties prevailing over an unperfected security interest (attached but not perfected).

Lien creditor:

(A) a creditor that has acquired a lien on the property involved by attachment, levy, or the like;

(B) an assignee for benefit of creditors from the time of assignment;

(C) a trustee in bankruptcy from the date of the filing of the petition; or

(D) a receiver in equity from the time of appointment.

Problem # 53Q: E. bookstore borrowed $10 k from Octopus National bank (ONB), signed a SI giving ONB a floating lien over inventory. ONB never filed. M travel services was an unpaid creditor of the E & recovered a judgment against the store. It then had the sheriff levy on the inventory. a) Who gets paid 1st when the inventory is sold? b) if, instead of a judgment creditor's seizing the goods, E had filed bankruptcy petition while ONB was still unperfected, what result? a) Lien creditor acquires a lien on the P by attachment, when there is a conflicting SI , a lien creditor is entitled to priority if he is the earlier in time (except to that is PMSI), M gets 1sProblem # 54Q: CTA used its accounts receivables as C/ for a loan from MS bank, but MS didnt file FS. 6 month later CTA took another loan from BNB, who searched & didnt see MS FS, so it took an I in CTA accounts receivables. BNB filed FS. Which bank has superior interest?

A: a perfected security interest has priority over unperfected SI, therefore BNB has priority,

Problem # 55

Q: E went to two banks 1st NB & 2nd SB , on the same day to borrow money using inventory as C/ & signed a SA with both. 1st NB filed FS Sept 25 , but didnt gave him the money or make any commitment until Nov. 10. /// 2nd SB loaned E the $ & filed FS on Oct 2. E paid neither

a) Do both banks have a perfected SI? Can 2 creditors have SI in the same C/? yesb) (Attachment is a prerequisite to perfection, and attachment doesnt occur until C gives value) which bank has superior right to the inventory?

1st has priority. Whichever party files first regardless of who gave the loan 1st.

C) If 2nd SB had Knowledge of the transaction between E & 1st NB, does this affect its priority? Knowledge is irrelevant for determining priority of claims

Problem # 56

A: Collateral may secure future as well as past or present advances if the security agreement so provides.

Problem # 57

A: "Notice filling": the financing statement maybe made before the security interest attaches. Used in financing transactions involving inventories, accounts, & chattel paper because it obviates the necessity on refilling on each series of transactions in a continuing arrangement under which the collateral changes from day to day????Problem # 58

a) CNB, dont need to file bcz. consumer goods & are perfected by possession or filling. b) If perfection depends on possession of C/ by SP ; perfection doesnt start b4 possession, & continues only while the SP retains possession. Remains perfected w/o filling for 20 days if SP borrows to d for a manner preliminary to their sale or exchange. ????c) A security Interest secured by one method remains secured if method changes as long as there is no interruption (continues ) Problem # 59 Q: Cattle Company took a loan to purchase Herd, signed SI using herd as C/ for "this and all other obligations now or hereinafter owed to the bank. " . Bank Filed FS. 2 years later received a credit from the same card & used it to travel to Australia for a business reason. When he failed to pay the Credit card (although loan pmt. Current) the bank repossessed the cattle. Did the bank interest encompass Credit card obligation? Would it make a difference if he had gone to Australia in search of the perfect wave for surfing? Drag net Clause: Collateral covering several loans under a single security agreement, also called a dragnet clause. In essence, collateral for each loan backs the entire package of loans

The true intention of the parties is really the sole and controlling factor in determining whether future advances were covered by the original agreement [orl would have to be re-perfected."); }

In Re Wollin (page 127)

Debtors disputed the enforceability of "dragnet clauses" in security agreements that provided future advances and antecedent debts would also be secured. The court held the future transaction must be "so related to" the primary loan that the consent of the debtor to its inclusion may be inferred. The court declined to adopt a per se test based on the status of the loans as purchase money transactions. The court could not find future advances for credit card charges sufficiently related to vehicle loans. The vehicle loan differed in scope and solemnity from the miscellaneous credit card charges, and consent for vehicles to secure credit card account would not be inferred. As to antecedent loans, the court adopted the "specific reference" standard. The antecedent debts were not specifically referenced, as such, the vehicles did not secure them. Creditor's objections were overruled and the debtors' objections to the claims were sustained.Cross-Collateral Clauses: Common stipulation in loan agreements under which a bank has a legal right to seize any or all assets pledged by a borrower (for different loans with the same bank) even if only one loan goes into default. Bankers justify this clause on the logic that a default sours the bank-client relationship, not a just a loan agreement. Problem # 60 Q: used one C.C for his purchases using purchased objects as C/. From another bank he financed his ranching operations using Cattle as C/. Both banks SA stated that debt also encompass "any & all debts now existing or after-acquired" . the two banks merged. Do the cattle protect his C.C debts? A: Not according to the "so related test"

I. PMSI

A. The Basic Rule

The seller or lender who advances money has a special equity in the eyes of the law. If the parties sign a SA, the seller/lender gets a PMSI. Even though the goods become subject to existing SI when they come into the buyer's possession, the PMSI is given priority; even if PMSI is later in time.

Where the collateral is consumer goods, no further steps is required for PMSI to prevail over prior or later interest. All other PMSI must be perfected w/in 20 days following the buyers possession to take advantage of the relation-back priority to that date. Special Rule for:

i. PMSI taken in goods that are to become part of the buyer's inventory &

ii. PMSI taken in goods to become buyer's livestock.

PMSIs are an exception to the first-to-file-or-perfect rule.3 step to analyzing a PMSI problem:

1. Classify the collateral.

2. Does a SP have a PMSI.

3. Did the SP with a PMSI comply with 9-324 to get priority?

Problem #61

Q: Sophy signed SI for the furniture it bought for the new apartments on june 8 & goods delivered the same day , although However the company's equipment was under SI & FS for a bank. This agreement contained an "after-acquired property" clause, which stated that later similar collateral coming into the property" clause, which stated that later similar collateral coming into the buyer's estate would automatically fall under the bank's SI. the policy of Sophy's Interiors was not to file financial statements for its credit furniture sales. a) Bill had rights in the interior stuff he bought on credit on the day he received, june8.

b) Company should perfect its SI w/in 10 days. ----------- ------------------------------------------------ A security agreement may create or provide for a security interest in after-acquired collateral

A credit buyer acquires "rights" in the property when possession is received from the seller.

When a buyer takes possession of property under a credit sales contract, he acquires the property, not merely an equity interest in the property. The seller retains only a security interest in the property. A determination of which party holds title to the property is immaterial.

The sufficiency of a description in a financing statement is measured in terms of notice. The designation of "equipment now owned or hereafter acquired" gives notice to a seller of a machine to be installed on the premises of an operating business and used in production that it is subject or likely to be subject to a perfected security interest.

Code 9-202 (1940) states that each provision of this article with regards to rights, obligations or remedies applies whether title to collateral is in the secured party or in the debtor. If it is the desire of the parties to effect a reservation of title until the purchase price be paid, a secured transaction should be entered into and a proper filing made if required to protect the creditor's interest as against third persons. For a plaintiff to recover in detinue he must show:a) that at the commencement of the action he had a general or special property in the goods sued for, b) the right to immediate possession of the goods, and c) that the defendant had possession of the property. the first to file a financing statement gains priority. specific exception to the rule, by giving purchase money security interests priority over other security interests in the same collateral, provided the purchase money interest is perfected by filing within a designated period after the debtor takes possession of the goods.Galleon Industries v. Lewyn Machinery F) The financier had a security interest in all existing and acquired factory equipment. The supplier ordered the equipment from the manufacturer to be shipped to the supplier and delivered to the factory after cash payment. The manufacturer shipped the equipment to the factory. The supplier demanded cash payment from the factory. The factory failed to pay the supplier and the financier. The financier foreclosed under its security interest on all of the factory's equipment. The supplier brought a detinue action against the factory and the financier.

I)

H) The financier's security interest in later acquired factory equipment had priority

Problem # 62Q: Video store owner has a floating lien on over inventory & equipment. He bought a dog $1200,he got the dog agreed to pay $100/ month but will not get the title until all pmts. Paid. She stopped paying & the bank seized all assets including the dog. What are the options for the dog owner? A: Since video store owner didnt fulfill the condition precedent to make full payment, The bank's security interest could not attach because the video store owner had mere possession of the dog.

Problem # 63

Q: Hart farm gave Farmer a 6 month lease w. option to buy at any time during the lease term, called "sale on approval" 3 month after equipment delivery , farmer agreed to buy &hart filed a FS next day claiming PMSI. Farmer already had a perfected floating lien for another bank. Who wins the priority hart farm or the bank? A: 9-324 Comment ( c ) once a lease converted a SI , filing a FS is necessary to protect the seller's SI.

B. Inventory & Livestock

Inventory financer will have a perfected interest in existing & after acquired inventory, in effect a floating lien over the mass of changing goods available for sale by the debtor' to other. If the debtor buys new inventory & gives the seller PMSI, the original financier is hurt if:

i. doesn't know abt. the PMSI & thinks he has propriety of all C/

ii. PMSI is held to prevail over the already perfected interest in after- acquired inventory.

9-324 (b) has notification procedure for the PMSI secured creditor to follow in order to get normal priority.

Problem # 64

a. Mmadam Belinda

b. No she has 20 days

c. ..

Kunkel v. Sprague National Bank Week 6 MC 6-1 Growamerica

MC 6-2 B 1st to file or perfect. We go after 1st to file 1st

MC 7-3 C. A doesnt matter bcz. not for inventory.

To get super priority has to perfect BEFORE DELIVERY, Need to send authenticated notification (letter) sent & received w/in 5 year period PRIOR DELIVERY . E is wrong bcz. They are perfected. MC 6-4 C .plain meaning test is the test adopted by the UCC. Plain meaning test: business class, personal class. Same Class Plus so related.

TRUE CONSIGNMENT:

Indicative Factors:

Consignor repossesses goods if not sold

Consignor controls the price

Consignor Control Proceeds

Consignor bears risk of loss

If Cee issues a SI, the title remains w. Cor.

DISGUISED SALE WITH SECURITY INTEREST (case law test)

Persuasive Factors:

Buyers Keeps Good if Not Sold

Buyer Controls Price.

Buyer Bears Risk of Loss

In this case the rest there will competition w. rest of secured creditors. Article 9 says that certain Con. We will treat as a SI Definition is in A9 -102 (a)

III. Control & Priority

Control is to "intangibles" as "possession" is to goods. Taking steps to "Control" gives the world some notice at least that the creditor has legal rights in intangible property that must be respected. A. Control over Investment Property

How is SI taken in investment property? 2 ways: 1. the filling of a financing statement and/or

2. the taking of control over the investment property.

the 2nd method trumps the 1st; a SP who has control has priority one who has merely filed.

Generally one has control over a certified security by taking delivery of it along with any necessary endorsements.

The same rule applies to uncertified securities, the only difference is here delivery is artificially defined as making sure that the secured party is registered as the stock owner in the records of the issuing corporation. In the case of Indirect holding, Control requires that SP takes steps to make sure that it can reach the rights of the debtor in the event it needs to foreclose, as shown in the next case. Number 67 To get Control of a security under entitlement: by becoming an account holder w. your debtor, transferring the assets to your own bank,

B. Control over Deposit Account

Similar rules apply. Article 9 allows a SI in such accounts by a creditor obtaining control over the account. Consumer accounts may not be used as collateral for consumer debts. (can be for non-consumer debts)

Number 68 C. Control over Letters of Credit Rights.

If one party doesnt trust the other to make payment at an agreed upon time, that party may require that the payment be made directly by a reputable bank. The bank then will issue a letter of credit to the person to whom the credit is o be made specifying the circumstances under which the bank will honor drafts. The person who gets the bank to grant him is called the applicant. The beneficiary can use its rights under the letter as a C/. Problem #69

IV. BUYERS

9-315 a buyer takes subject to the SI unless the SP authorizes sale w/o SI Problem # 70

International Harvester Co. v. Glendenning

Page 154 Problem # 71

You can't be a buyer of ordinary goods if the possession of the seller. Problem # 72

When you are an insider you are not a buyer in the course of business.

Problem # 73

Once it was placed on his lot from her prospective she was a buyer in the ordinary course of business. "Pimping both sides of the street"???? Dont need to know who is a holder in due course; he will tell us on the exam.

Problem # 74WEEK 7Chapter 2

II. Consignments

A true consignment is neither a sale or a security device; it is a marketing procedure by which the owner of the goods (the consignor) sends (consigns0 them to a retailer (the consignee) for sale to the public.

The retailer doesnt buy the goods (so no sales take place when the consignor deliver the goods to the consignee).

If the retailer cannot sell them, they are returned to the consignor.The consignee is the selling agent for the consignor. i.e: bailee with the ability to sell the bailor's goods.

The advantage to a true consignor of a true consignment over an outright sale is that he retains control over the terms of retail sale & at common law there is no requirement that he files a notice that this is a consignment.

Some consignments are not true consignments but are sales of credit (secured transactions) disguised as consignments in order to escape the filing requirement." If the retailer must pay for the goods whether or not able to resell them , this is not a true consignment, it is a creation of SI in goods.

If a security interest is intended, then it must not be true consignment at all & article 9 requirements must be complied with. Article 9 adopted some kinds of true consignments & treat them as article 9 matters, therefore needs the usual steps of perfecting "a SI in someone else's inventory" but leaving some true consignments outside the Code, thus protected by common law. Class Notes: If we have a true consignment, the consignor keeps title, therefore the creditor cannot attach to that C// (that can create secret liens). Once we separate true consignment what is left over? Remaining disguised sales, we true them as true sales

Consignments can be article 9 Consignment which are a sub-group of True consignments.

In order to protect themselves they need to file FS. How do we give them strategic advantage : they are providing a PMSI to the buyer, therefore if they follow the steps in 9-24(b) they will have super priority. How do you know that it is a true consignmet?

True Consignment Indicative Factors:

Consignor keeps good if Not Sold

Consignor controls Price

Consignor controls Proceeds

Consignor bears Risk of LossDisguised sale with security interest:Persuasive Factors:

Buyer keeps Good if Not Sold

Buyer Controls Price

Buyer Bears Risk of LossFollow this not outline bcz. Outline is wrong & pple. Lost points. (he was ( )

Hypo # 7-1:New hybrid automotive company hopes to avoid the claims of its dealers creditors by providing cars under a Consignment Agreement. Under the agreement automotive company keeps title, but transfers possession to the dealer. The dealer is obligated to sell the vehicles within one year of delivery by automotive company or otherwise pay the wholesale price as determined by automotive company.

True consignment or disguised sale?

This is a disguised sale bcz. they were required to buy it, they bear the risk of loss. If they want to keep priority the company needs to file a financing statement.

Hypo 7-2

GreenMachines sells computers that are refurbished and assembled from used parts to the maximum extent possible. GreenMachines enters into a Contract for Selling Services with the businesses that provide computers for refurbishing. The Contract for Selling Services sets GreenMachines eventual sale price for the refurbished computers and requires that the businesses take back the computers that GreenMachines doesnt sell, at which point GreenMachines gets a refund of the money that it originally paid for the computers. A normal observer would likely believe that GreenMachines actually bought the used computers.

Is this a true consignment or a disguised sale?

True Consignment, the fact that they set the price together is a little weird as is the refund money though. As it is a true consignment, is it also an A9 Consignment?9-102 (20) Consignment means a transaction, regardless of its form, in which a person delivers goods to a merchant for the purpose of sale and:

(A) the merchant:

(i) deals in goods of that kind under a name other than the name of the person making delivery;

(ii) is not an auctioneer; and

(iii) is not generally known by its creditors to be substantially engaged in selling the goods of others;

(B) with respect to each delivery, the aggregate value of the goods is $1,000 or more at the time of delivery;

(C) the goods are not consumer goods immediately before delivery; and

(D) the transaction does not create a security interest that secures an obligation.

If they want to protect themselves from green machine creditors they need to file a financing statement.

For to be an article 9 consignment: pple dont need to know its a consignment; which meansarticle 9 is designed to protect creditors, if they know its a Problem # 4 No the SI would not reach that of a dealer's because this is not going to meet the article 9 definition largely because it appears thet pple. Know that this store sells good for others.

In Re Fabers: Problem # 5 Is this an article 9 consignment? He would have to do a filling. If most pple, believe that he makes them himself then pple dont believ he does consignments, its worth >$1000, he is not an auctioneer, & ,,,.

Problem # 66

Barbara Shipek was pleased and flattered when Tim Isle, owner of Isle's Fine Art Works, asked her if he could exhibit and sell some of her poetry. She gave him five of her favorite pieces. The next day she took a party of friends down to the store to see the display and was astounded to learn that Octopus Nationnl Bank (ONU), which had a perfected floating lien on the store's inventory, had foreclosed and seized everything in the store, including Barb's pottery. Can ONB do this to her? She has to file before delivery & give notice to other credits( she will have a PMSI

Under 9-103(d) an article 9 consignment is treated like a PMSI Leases ; a problem similar to the applicability of article 9 to consignments occurs when the parties disguise a secured sale as a lease

Problem # 6

Notes Page 23

Each lease must be evaluated on its own.

It doesnt necessary answer the central question if the lessee pays consideration equal to or even greater than the fair market value (FMV) of the leased goods.

Nor does the lessee's assumption of major duties (taxes, risk of loss, etc) necessarily indicate a lease or a sale of goods.

As long as the lease doesnt cover the total economic life of the goods.

In Re Winston

Does the transaction fall into one of the brigt line rules of 1-203(b)? (insert graph, its not w. last years) Graph 2 for the second

1. did the lesee give value & receive delivery w/o knowledge of the SI & prior to the perfection of SI? (9-317 c)

Yes? The secured creditor takes SUBJECT to the interest of lesee b. NO? Is the lesee a lessee in the ordinary course of business 9-321?

YES( go back to a NO( Does the leased item secure future advances by the secured creditor made more the 45 days after (i) the secured creditor had knowledge of the lease or (ii) the lease became enforceable (9-323f) ?

YES( a

NO( the secured creditor takes FREE of the interest of the lessee

Problem # 7

What is missing in this is the present market vale. We need that to know whether it was nominal or not. 10 years implies that it was nominal value, however doesn't cut it clear.

In re Architectural Millwork of Virginia, Inc.

F) Debtor entered a "truck lease agreement," which provided for debtor's lease of a semi-tractor from creditor. Debtor and a third party entered a "conditional sales agreement" for a forklift. The third party assigned all of its rights to creditor. Debtor subsequently filed a Chapter 11 petition, but continued to operate its business as a debtor-in-possession under chapter 11. Creditor asserted that the agreements were leases and sought to compel their assumption or rejection under chapter 11. Creditor further sought to require payment on the leases. Debtor argued that Chapter 11 did not apply because the transactions were not true leases. The court found against creditor as to the forklift transaction and in favor of creditor as to the semi-tractor transaction. H) The court held that the forklift transaction was a security agreement rather than a lease. However, the semi-tractor agreement was a true lease because the option to purchase the semi-tractor was for more than just nominal consideration.LeasesLease" means a transfer of the right to possession . . . , but a sale, including a sale on approval or a sale or return, is not a lease. . .It should be noted that according to 2A" unless the context clearly indicates otherwise, the term includes a sublease." Lesee's Benefit

Tax Benefits Lease Payment -- business expense deduction.

Purchase Payment depreciation deduction.

Avoid personal-property taxes.

The lessor risks that a goods Future money value will decline.

Doesnt impact ability to borrow.

Balance Sheets some arent listed as liabilities; giving up a SI for a loan appears as a debt.

Lessor's Benefit

Tax deductions for accelerated depreciation.

Remedies -- the lessor can exercise lease remedies, not just Article 9 remedies.

Bankruptcy Rights -- often better. The lessor can cram-down against a PSP.

You can charge high interest rates and not violate state usury laws.

A Sale or A lease? Goods residual value after the lease term. The goods true owner takes the risk that the residual value is different than the parties expected at the outset.

There is strong evidence of:

Sale w/SI -- if the residual value passes to the lessee for no or a nominal payment. Lease if (i) lessor gets the residual value, or (ii) lessee pays FMV for it.Ressidual Value/ Payment Calculation: Value of Good = $20,000

Lease Term = 5 years

Residual Value = Expected value of good after 5 years = $5,000

Lease Payment = $15,000 amortized over 5 years.

What is Nominal Value?

1-203(d) guides us on nominal consideration:

Nominal -- if its less than the lessees cost of not exercising the option.

Not nominal -- if the rent was the FMR when the lessee has to exercise the option.

There is no universally-accepted definition of nominal.

45 days

After Federal Tax Lien 6323(d)Advances made without knowledge are secured by the item levied against.Advances are subordinate to tax lien.

After Buyer9-323(d)Advances made without knowledge (or pursuant to a commitment made w/o knowledge) are secured by the purchased item.Buyer takes free of future advance.

After Judicial Lien9-323(b)Advances in this period remain secured by property levied against.Advances are subordinate unless made W/O knowledge or pursuant to binding commitment made w/o knowledge.

*

_1317813989.ppt

True Consignment or Disguised Sale? See Caselaw factors

If TRUE CONSIGNMENT, analyze under 9-102(a)(20) to determine if meets definition of A9 Consignment?

If DISGUISED SALE. . .

If A9 CONSIGNMENT. . .

Then A9 applies and the seller/consignor must comply with A9 to have priority against other secured creditors.

If NOT A9 CONSIGNMENT title has been retained by the Consignor, who will win against the secured creditors of the consignee

_1315941242.ppt

Perfection of the Security Interest