De Article 9

Front 1

Scope of Article 9?

Back 1

Article 9 primarily applies to security interests in personal property and fixtures.

Front 2

Transactions covered by Article 9?

Back 2

1) Security interests in personal property or fixtures, that secures payment or performance, based on contract.
2) Agricultural Liens
3) Sale of Accounts, Chattel Paper, Promissory Notes, Payment Intangibles
4. Consignments
5. Security Interests under Article 2 or Article 4

Front 3

Personal Property?

Back 3

1. Goods (including fixtures): consumer goods, inventory, farm products, equipment
2. Documents of Title (documents that cover goods)
3. Instruments (art. 3 negotiable instrument; a document that covers money)
4. Chattel Paper
5. Accounts (Credit Device Accounts, Health Care Insurance Receivables)
6. Investment Property
7. Commercial Tort Claim
8. Commercial Deposit Account
9. Letter of Credit / Letter of Credit Rights
10. General Intangible (Payment Intangible, Non-embedded Software)
11. Proceeds

Front 4

What is a security interest in personal property?

Back 4

It is a voluntary interest in property to secure payment or performance.

Front 5

Exclusions from Article 9?

Back 5

1. Real Estate
2. Wages
3. Transfer of Accounts if for collection, part of sale of business, performance obligation, only one for prior debt
3. Insurance except for health care insurance receivable, proceeds
4. Non-commercial Tort Claim
5. Consumer deposit Accounts, except proceeds
6. Consumer Deposit Accounts, except proceeds
7. Material or Service Liens (non-consensual)
8. Matters covered by Federal Law (Airplanes)
9. Set-off Rights
10. Assignment of Judgments

Front 6

Consignment?

Back 6

Delivering goods to a merchant for the purpose of sale, when the original party retains ownership of the goods.

Front 7

Leases v. Security Interests

Back 7

Lease intended for security (disguised financed sale) is subject to article 9 as if designated a security interest.

Front 8

When is a lease intended for security?

Back 8

Lessee has no right to terminate the lease AND
1. no economic value in good at the end of the lease or
2. must buy or renew or
3. nominal buyout or renewal
4. lessee building equity

Front 9

Types of Goods?

Back 9

Goods (including fixtures): consumer goods - goods owned by consumers for personal use
inventory - goods in possession of a store to be sold
farm products - must be held by a farming operation (stuff owned by a farmer)
equipment - anything that doesn't fall into one of the three above categories; a fixed assets of a business

A good can only be ONE of these types of goods.

If a good has more than one use, it is determined by its primary use.

Front 10

Chattel Paper?

Back 10

writings or records that evidence a monetary obligation and a security interest or lease of goods - it is chattel paper when a debt is transferred

Front 11

Credit Device Account?

Back 11

bank's transfer of the right to collect money from a credit card account; only in Delaware

Is personal property subject to article 9.

Front 12

Health Insurance Receivable?

Back 12

It's only a health care insurance receivable if its being transferred by the health insurance company.

Front 13

Investment Property?

Back 13

Stocks, brokerage accounts, etc.

Front 14

Commercial Tort Claim?

Back 14

A business' tort claim.
Not a personal tort claim.

Front 15

Consignments covered by article 9?

Back 15

1. Value at least $1000
2. Not consumer goods
3. sold by merchant that deals in goods of that kind

Excluded from article 9 if:
auction
consignee generally known to be engaged in selling consigned goods
consignee conducts business in name of consignor

If consignee must pay even if goods are not sold? its a security interest

Front 16

Creation (attachment) of an article 9 security interest?

When does attachment occur?

Back 16

AGREEMENT, RIGHTS IN THE COLLATERAL, AND VALUE GIVEN

1. Agreement
-authenticated record describing collateral or
-possession by creditor or its agent or
-control by creditor or its agent
2. Value given by creditor
3. Debtor has rights in collateral (this is decided under other law)

Attachment occurs when all three have occurred.

Front 17

What rights does the secured creditor get as a result of attachment?

Back 17

Right to enforce the security interest:
-repossess, collect on collateral versus the debtor
-right to assert interest against third parties, unless third party has priority

Front 18

Requirements for Purchase Money Security Interest (PMSI)?

Back 18

1. Must Attach
2. Taken by Seller for Price of Good or Taken by financing party who lent for purchase of goods (money used to purchaes goods)

Front 19

Default Disputes

Back 19

Creditor vs. Debtor

Security interest attached + Breach of the Security Agreement

Breach examples: failure to pay, faiure to insure collateral, unauthorized sale of collateral, bankruptcy.

Note: there might be an acceleration clause!

Front 20

Creditor's rights upon default (default dispute)?

Back 20

1. REPOSSESSION
2. RESELL or lease collateral
3. RETAIN collateral in satisfaction of debt
4. COLLECT directly from third party obligor on collateral (like care lease payments directly from lessors of cars)
5. JUDGMENT and execution on collateral

Front 21

Creditor's rights upon default (default dispute):
REPOSSESSION

Back 21

May repossess the property via self-help as long as there is no breach of the peace (violence, threat of violence, entry onto premises w/out consent, parties may not set standard)

If a breach of peace, then creditor will be liable for: conversion, any torts comitted, loss suffered by debtor, potentially punitive damages

If there will be a breach of peace, then creditor must go to court and get a judgment and execution.

Front 22

Creditor's rights upon default (default dispute):
RESALE or LEASE

Back 22

Creditor may dispose of collateral after repossession.

Disposal must be commercially reasonable.

Must give notice to debtor of sale. Notice can only be waived AFTER default.

Front 23

Creditor's rights upon default (default dispute): RESALE or LEASE

Non-Consumer Transaction Safe Harbor?

Back 23

Presumptively Reasonable if:

Notice of sale after default at least 10 days before sale.
Notice sufficient if:
describes debtor and secured party
describes collateral
method, time & place of public sale or method & earliest time of private sale
right to accounting

Front 24

Creditor's rights upon default (default dispute): RESALE or LEASE

Consumer Transaction?

Back 24

Presumption that reasonable if:

Notice sent w/in reasonable time (no min. but at least 10 days).
Notice sufficient if:
-everything from commercial transaction AND:
-DESCRIBE LIABILITY FOR DEFICIENCY
-phone number for payoff
-phone number or address for more information

Front 25

Creditor's rights upon default (default dispute): RESALE or LEASE

Creditor's failure to comply with the sale requirements?

Back 25

Creditor pays damages suffered by creditor by deficiency being wiped out.

If creditor succeeds in rebutting the presumption, then the only damages debtor can get is if it shows there should have been a surplus generated from the sale.

Commercial Transaction - rebuttable presumption that there would have been no deficiency in a property sale

consumer transaction - in DELAWARE, lose right to deficiency and statutory minimum damages

Good faith purchaser in the sale protected regardless.

Front 26

Creditor's rights upon default (default dispute):

RETENTION OF THE COLLATERAL

Back 26

Retention of the Collateral in either full or partial satisfaction of the debt.

Front 27

Creditor's rights upon default (default dispute):

RETENTION OF THE COLLATERAL
in FULL SATISFACTION OF THE DEBT

Back 27

1. Notice sent to debtor & creditor, any party who requests
2. no objection w/in 20 day
3. entire debt satisfied; debtor has no further liability

Not available if consumer has paid 60%; not available until after default.

Front 28

Creditor's rights upon default (default dispute):

RETENTION OF THE COLLATERAL
in PARTIAL SATISFACTION OF THE DEBT

Back 28

1. Not a consumer transaction
2. debtor must expressly agree in authenticated agreement that explains the details
3. must be after default
4. debtor liable for balance of the debt

Failure to comply = no right to retain collateral, liable for any dagages

Front 29

Priority Disputes?

Analysis?

Back 29

Secured Creditor v Third Party

CIPP
Classify Collateral
Indentify Parties
Perfection
Priority

Front 30

Methods of perfection?

Back 30

1. Filing
2. Possession
3. Automatic
4. Control

Front 31

How to perfect by filing?

Back 31

Efective for all collateral except:
1. money
2. deposit account (commerical bank account)
3. letter of credit rights

File a financing statement (UCC 1)
Must include:
1. Debtor's Legal Name & name of Secured Creditor
2. Description of Collateral

Front 32

Where to file?

Back 32

1. Most Collateral?
Secretary of state in state of incorporation or registration
-if not registered, place of business or chief executive office
-individual's primary residence

2. Real Estate Related Collateral (timber, oil, mineral)
In recorder of deeds where land is.

3. Fixtures
Either secretary of state or recorder of deeds, but recorder of deeds to defeat interest in land

Front 33

Perfection by Possession?

Back 33

Permissible for pretty much all types of collateral except intangibles. Not effective for:
-non negotiable documents
-accounts
-general intangibles
-commercial tort claims
-deposit accounts
-letter of credit rights

Possession must be by creditor, agent of creditor, or bailee for creditor. The debtor can NEVER possess for the creditor.

Front 34

Automatic Perfection?

Back 34

Permanent Automatic Possession:
1. PMSI in Consumer Goods
2. Sale of Notes or Payment Intangibles

Temporary Perfection (20 Days) - Agreement in Record
1. Negotiable documents and bailed goods if taken for sale, shpment, etc.
2. instruments, certificated securities if taken for collection, renewal or sale
3. Instruments, negotiable documents, certificated securities if new value given for security interest

Front 35

Certificate of Title Perfection?

Back 35

notation on title and compliance with certificate of title statute

motor vehicles and trailers; ships and railroad cars

Front 36

Perfection by Control?

Back 36

MUST BE PERFECTED BY CONTROL:
1. deposit accounts
2. letter of credit rights

MAY BE PERFECTED BY CONTROL
1. investment property
2. electronic chattel paper

Front 37

How to perfect in proceeds?

Back 37

Perfected if:

A. Original Collateral Perfected AND
cash proceed OR
file in same office as original

OR

B. Perfect directly in Proceed within 20 days

Front 38

Priority Rules: Secured Creditor v. Secured Creditor

Back 38

1. Perfected beats unperfected
2. first to file or perfect wins
3. borth unperfected - first to attach wins
4. proceed priority same as original collateral
5. future advance same as first advance if made when filed or perfected

Front 39

Priority - non-consumer PMSI?

Back 39

Priority if:
A. PMSI in Inventory or Livestock Priority if:
1. Notice to earlier perfected creditor AND
2. Perfected AT TIME OF debtor's possession.

B. PMSI in Other Collateral Priority if Perfect w/in 20 days of debtor's possession.

C. PMSI v. PMSI
1. Seller over non-seller
2. others - first to file or perfect

Front 40

Secured Creditor v. Lien Creditor (Third Party)

Back 40

Secured Creditor Priority over Lien Creditor if:
1. Perfected beofre lien attaches OR
2. Sec. Agreement authenticated & SI filed before lien attaches.

Front 41

Secured Creditor v. Trustee
(Third Party)

Back 41

Secured Creditor Priority over Trustee if Perfected before bankruptcy.

Front 42

Secured Creditor v. Buyer / Lessee of Goods (Third Party)

Back 42

1. Buyer / Lessee in Ordinary Course of Business defeats even known, perfected security interest.

2. Buyer of Consumer Goods from Consumer, without knowledge before Filing defeats security interest.

3. Other buyers defeat unperfected security interest if pay and take possession without knowledge of the security interest.

Front 43

Secured Creditor v. Holder in Due Course (Third Party)

Back 43

Holder in Due Course of an Instrument defeats all secured creditors.

Front 44

What is a buyer in the ordinary course of business?

Back 44

purchased the inventory of the debtor, in good faith, in ordinary course, from one who deals in goods of that kind without knowledge that its a violation of the security agreement
(no duty to inquire)

Front 45

Secured Creditor v. Purchaser of Chattel Paper / Instrument (third party)

Back 45

Purchaser of Chattel Paper / Instruent takes priority over earlier perfected security interest if:
1. New value and
2. Possession (contorl if electronic) and
3. Ordinary course of purchaser's business and
4. either: without knowledge of violation of security interest OR chattel paper / instrument is claimed as proceed of inventory & there is no indication of assignment

Front 46

Secured Creditor v. Consignment (Third Party)

Back 46

Perfected Consigner beats all other security interests

Front 47

Priority by control v. priority by non-control?

Back 47

priority by control beats priority not by control of:
1. deposit accounts
2. investment property
3. letter of credit rights

Front 48

Possession v. non-possession in isntrument?

Back 48

Possession beats non-possessor of instrument if possession is in good faith and without knowledge of violation of security interest

Front 49

Security Interest in Fixtures v. Real Estate Lender?

Back 49

Real estate lender wins, unless:
1. fixture filing before real estate interest recorded OR
2. PMSI and fixture filing w/in 20 days of becoming a fixture OR
3. real estate interest is a lien creditor or trustee & security interest OR
3. readily removable machines / replacement of domestic appliances and perfected by any means first OR
5. crops OR
6. debtor has right to remove fixture