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53 Cards in this Set
- Front
- Back
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Article 9 - start essay with and most tested issues |
South Carolina has adopted UCC Article 9 for transactions which create a security interest in personal property by contract, typically loans secured by personal property as collateral (purchase money security interests).
Most tested - - purchase money security interests in consumer goods > security interest is perfected automatically - termination of financing statement -a secured party who files an unauthorized financing statement must send a termination statement to debtor or file a termination statement within 20 days of receiving a demand by the debtor. |
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Order of issues
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Scope of article 9 (does it apply) > attachment of interest > perfection > priority rules > fixtures > default and enforcement > bankruptcy
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Scope of Art. 9
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- Any transaction creating a security interest in personal property by contract
- Sale of monetary obligations - debtor right receive payments - Consignments - transaction where A delivers good to merchant for purpose of sale - owner of goods is a secured party and merchant is a debtor |
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Leases (usually for equipment) can create a security interest if:
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- term of lease greater than useful life of goods
- lessee is bound to renew for remaining life or purchase - lessee has option to renew for economic life for no additional consideration - lessee has option to purchase for little to no consideration |
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Attachment - 3 requirements
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A security interest attaches when it becomes enforceable against the debtor with respect to the collateral.
1) security agreement - satsifying statute of frauds 2) debtor has rights - in the collateral or power to transfer rights in the collateral to secured party 3) value has been given by secured party |
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Attachment - statute of frauds
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Must be a composite of written docs, signed by debtor, evidencing the creation of a security interest
- If an oral agreement, or if secured party has possession or control of collateral > fails statute of frauds |
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Attachment - Requirement of security agreement
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- Written/electronic sufficient to evidence a SI (financing statements alone are not sufficient)
- Authenticated - signed by debtor (but letterhead w/ present intent to adopt as SI sufficient) - Describe the Collateral - general terms sufficient, but NOT for consumer goods or commercial tort claims ---- Super-generic terms are INSUFFICIENT "all property owned by debtor" ---- After-acquired property - if porperty is regularly turned over, then description will auto-include, otherwise must specifically have after-acquired property clause |
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Attachment - Rights in the collateral
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Debtor has rights if:
- has possession - has a contract for purchase that specificially identifies the goods bailees (consignment) do not have sufficient rights for security interest to attach |
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Attachment - power to transfer rights
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a person who buys goods but gives bad/dishonored check has voidable title
a party with voidable title has the power to transfer good title to a good faith purchaser for value, including a secured party so- watch out for a party who has collateral but gave a bad check (art 3/4) and then sells it to a good faith purchaser for value > so the party may have a security interest in goods against the purchaser |
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Attachment - value
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Making a loan, committing to make a loan, or any consideration sufficient to support a contract
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Scope of a Security Interest
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Secured party may acquire a SI in property
- currently owned - after-acquired - identifiable proceeds (tracing rules apply) - future advances - agreement must EXPRESSLY provide for these |
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Perfection - automatic
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- SI's are perfected automatically UPON ATTACHMENT
- A Purchase Money Security Interest in consumer goods (not Cert. of title goods) is perfected automatically ---- seller takes security interest in goods sold ---- seller gives money to enable the purchase of the goods Limitation on PMSI auto-perfection priority - SP will NOT have priority over a Subsequent Buyer if (sub buyer takes free of SI if): ---- goods for personal/family/household purposes ---- without knowledge of SI ---- for value ---- before financing statement is filed covering goods |
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Perfection - Assignments of accounts
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SI in accounts can generally only be perfected by filing:
- assignments of account is a sale of monetary obligations covered by Art. 9 Perfection will be AUTO if - account not significant portion of debtor's outstanding accounts receivable and buyer is NOT in business of buying/selling acct receivables. |
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Perfection - temporary automatic perfection in proceeds
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Collateral perfected > SI in proceeds will be perfected for 20 days
Beyond 20 days - Same office rule ---- SP filed on original collateral in same office as it would against proceeds > remain perfected UNLESS acquired with cash proceeds (proceeds of proceeds) - Proceeds were Identifiable cash proceeds - Filing on the proceeds before expiration of 20 day period |
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Perfection - by possession
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SP can perfect by taking possession in instruments, goods, negotiable documents, chattel paper, and money by taking possession
- Must have bailee's authenticated (signed) acknowledgement that it holds the collateral for the secured party's benefit |
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Perfection by possession - Documents of Title
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Documents of title - bailee has possession of goods, issues non-negotiable DoT - SI in goods perfected by:
- issuance of document in name of secured party - Bailees receipt of notice of SP's interest OR - Filing a financing statement as to the goods |
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Perfection by Control
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If collateral is a deposit account, investment property, letter of credit rights, or electronic chattel paper
Security interest will be perfected by control - satisfied by - SP is Bank where deposit account located - control agreement between Secured Party, bank, and debtor that bank will follow secured party instructions - SP is a customer of the bank who holds a deposit account |
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Perfection by Filing a financing statement
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General rule - must file a financing statement with Sec. of State.
Initial FS sufficient to perfect if it contains: - Name of debtor - CRITICAL - legal name, registered name, or organizational name ----- name will be seriously misleading unless a search for debtor's name will show the financing statement - Name of secured party - Collateral covered ---- either same description as on security agreement or ---- using super-generic descriptions ----** FS do not have to have after-acquired property clause |
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Incomplete financing statements
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Will be ineffective without 3 requirements
- name of debtor - name of secured party - collateral covered Still EFFECTIVE TO PERFECT if financing office accepts the statement lack those three things |
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Financing statement - authorization to file
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FS not effective unless it is filed by a person authorized
Can show authorization by - debtor signed authorization to file or - debtor signed security agreement covering collateral |
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Financing statement - termination
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SP who files unauthorized FS must send termination to debtor or file a termination statement within 20 Days after receiving demand from debtor
- debtor mail file if SP fails to file - SP filing unauthorized FS is liable for damages |
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Financing statement errors
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Errors are OK so long as seriously misleading
- if seriously misleading > not effective to perfect Filing office errors - If accepts a FS with errors - the SP will be subordinate in priority to conflicting perfected SP who gave value in reasonable reliance on the incorrect information - Office rejects a compliant (art 2) FS based on missing information, still effective as a filed record, but a subsequent purchaser who gives value on reliance of absence of FS will have priority - Filing office neither accepts or rejects - unclear - Indexing errors - do NOT affect the effectiveness of FS |
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Financing Statements - where to file
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Location of debtor
- Individual - primary residence - Registered organization - state organized in - Org with only one place of business - place of busienss - org with more than one place of biz- chief executive office |
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Financing statement - duration
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FS is effective for 5 years (unless manufactured home, 30 years)
Continuation statement is filed in last 6 months of effectiveness, will extend for another 5 years If FS lapses - SI becomes unperfected and deemed never to have been perfected |
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Financing Statements - transfers of collateral
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If D makes unauthorized sale of colalteral subject to SI perfected by FS and buyer does NOT qualify as BIOCOB, Buyer will be subject to perfected SI
- need not refile against new owner - Fact that sale renders FS seriously misleading doesn't matter - EXCEPTION - a perfected SI in collateral transferred to a person OUTSIDE jurisdiction remains perfected for 1 year after transfer. SP must file within 1 year |
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Financing Statement - debtor changes location
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SP remains perfected for 4 months after change
- must refile within 4 months to remain perfected |
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Financing STatment - debtor name change
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Orginal FS is effective as to collateral acquired before and 4 months after name chnage
- to secure after-acquired property (after 4 months) - must have a new filing with correct name |
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Financing Statement - new debtor
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When two entities merge / sole proprietor becomes INC. If new debtor is obligated and acquires substantially all of original debtor's assets - new debtor bound by original security agreement
- If name changes cause FS to become seriously misleading > FS only effective to perfect against collateral before or within 4 months of name change > SP must file FS for 4 months within name change ANY SP perfected SOLELY by "before or within 4month" rule is subordinate to a party who files against new debtor in another manner. |
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Perfection - Certificate of Title statutes
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If goods are covered by a Cert. of Title and not held as inventory by a dealer
A NOTATION on the CoT is required. Filing not necessary or effective. NO automatic perfection If title is clean and Debtor sells to a consumer rather than a dealer, Lender will lose to the consumer even if it reperfects in a new jurisdiction within the 4 month period because Buyer/consumer will have purchased for value without notice of a SI for personal, family, or household purposes |
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Perfection - Certificate of Title - collateral pursuit rule
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If SP can find and take possession of the collateral, that is sufficient to reperfect its SI if the SP does so within the four month period (of a change of name, jdx, etc).
If outside 4 month period, SP will be deemed not to be continuously perfected and will lose priority to subsequent purchasers who perfected by notation |
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Priority - unperfected interests
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Take subordinate to:
- perfected secured parties - persons who become lien creditors before perfection --- bankruptcy trustees - A buyer, other than a SP, of goods and other tangible collateral takes free of an unperfected SI if he gives value and takes delivery without knowledge before perfection PMSI unperfected SP - if perfected within 20 days after debtor gets possession of collateral, secured party defeats intervening lien creditors ** remember consumer goods are automatically perfected so this only applies in non-consumer goods |
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Priority - first to file or first to perfect rule
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As between perfected secured parties, priority goes to the first party to file or perfect
- earlier date of filing or perfection PRoceeds - date of perfection or filing is date of perfection on collateral Future advances - date of perfection or filing |
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Priority - purchase money priorities
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Subsequent purchase money financer of new collateral can establish priority over an earlier filed secured party who claims a SI in new collateral under after-acquired property clause
Either by showing the collateral - secures the debtor's obligation to pay the purchase price or - a loan that enables the debtor to acquire the collateral |
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Priority - purchase money - transformation
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Cross-collateralization
- SP has more than one purchase money secured interest in a single debtor's collateral SA for each loan says it is secured with the other purchase money collateral and vice versa Does not automatically result in loss of purchase money status SP bears burden of showing the extent to which the security interests qualify as purchase money |
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Priority - purchase money - inventory
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Loss of purchase money status when inventory is cross-collateralized
SI inventory is purchase-money if - original collateral is or was purchase-money collateral or - SI secures an obligation that was a purchase money obligation with respect to other inventory in which the secured party held a purchase money SI |
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Priority - purchase money interests other than livestock and inventory
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Priority over conflicting SI if the PMSI is secured before or within 20 days after debtor receives possession of collateral
Possession - can happen before becoming a debtor Perfected PMSI - initial blanket FS can perfect PMSI in a series of subsequent transactions and perfect the purchase-money financer's priority Proceeds - PM prioirty in goods other than inventory extends to identifiable proceeds of collateral |
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Conflicting PMSIs
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When debtor has granted multiple PMSIs in same collateral, priority goes to PMSI securing part of price of collateral OVER PMSI securing the enabling loan
-first to file or perfect will govern from there |
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New Debtor priority problems
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Perfected SI in collateral acquired by a new debtor is subordinate when it is perfected solely by a FS filed against original debtor.
FS against original debtor is effective to perfect in collateral acquired by new debtor Before or within 4 months of becoming new debtor If original FS is not rendered seriously misleading by new debtor name change - effective indefinitely SP must refile or perfect within 4 month window |
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Priority - Secured Party vs. Buyers of goods - unperfected SIs
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Buyer who buys goods in authorized sale takes FREE of SI if:
- gives value - receives delivery of goods - takes without knowledge of SI - And before it is perfected |
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Priority - Secured Party vs. Buyers of goods - Perfected SIs - BIOCOBs
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BIOCOB! - Takes FREE of SI if SI is perfected AND buyer KNOWS of its existence.
Buyer In Ordinary Course of Business - Buys goods - in good faith - without knowledge that sale violates rights of another (but knowledge of SI is ok) - In ordinary course - From a person in the business of selling goods of that kind (NOT pawnshops) - Takes possession or has right to possession |
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Priority - Secured Party v. Buyers - Shelter Rule
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Buyer of collateral takes free of SI, subsequent transferees ALSO take free even if NOT a BIOCOB.
Buyers have rights of the Sellers |
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Purchasers of chattel paper
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Chattel papers -evidence a monetary obligation and a SI in specific goods or a lease in specific goods
Art. 9 applies to both the underlying agreement and the sale of chattel paper itself Perfection - FS, possession, control |
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Priority - purchasers of chattel paper (as proceeds)
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SP who holds SI in chattel paper AS PROCEEDS
Purchase has prioirty if SP is claiming priority has proceeds of inventory if the chattel paper purchser - acts in good faith - purchases chattel paper in ordinary course of business - gives new value - takes possession and - chattel paper does not indicate that it has been assigned to assignee other than the pruchaser |
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Priority - purchasers of chattel paper other than proceeds
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Purchaser hasp rioirty over SP claiming other than merely asp reeds of inventory if the purchaser
- acts in good faith - purchase is in Ordinary Course of Business - gives new value - takes possession - No actual knowledge of violation of rights of SP |
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Priority - purchaser of chattel paper - Priority in returns
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GALAXY BOATS PROBLEM
Problem occurs when priority conflict between an inventory financer and chattel paper purchase that arose when the buyer of the goods subject to the chattel paper revoked acceptance and returned the goods to the dealer Purchaser who has priority in the chattel paper also has priority in the proceeds of the chattel paper - to the extent proceeds consist of specific goods covered by the chattel paper, even if SI in proceeds is Unperfected |
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Priority - purchaser of chattel paper - purchase money priority in chattel paper as proceeds
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PM priority in inventory does NOT extend to the proceeds except SP may be able to claim priority in chattel paper proceeds
SP with PMSI in inventory can claim PM priority in chattel paper proceeds If: - priority in the inventory - priority in the chattel paper |
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Priority - Claims on deposit accounts
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Set-of
- right as a matter of law of bank to apply customer funds against a defaulted loan by that customer Identifiable cash proceeds - SP can claim a SI in deposit account to extent that it can establish identifiable cash proceeds of the collateral in the account - Lowest intermediate balance rule Deposit account as original collateral - SP can claim SI in a deposit account, EXCEPT in consumer transactions - Only can have perfection by control |
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Priority - conflicts in deposti account
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1) SP with control AND customer at bank
2) Set-off rights 3) SP with SI in deposit account perfected by control over uncontrolled SPs 4) SI held by bank where account maintained has priority over a SP who obtained control pursuant to deposit agreement |
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Fixtures - goods that have become so related to the property that an interest in them arises under real property law
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Common law test - degree of physical attachment to the land, the adaptation for use with the land, and the intent to make a permanent improvement on the land
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Fixture Filings
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3 Requirements
- indicate the filing covers fixtures indicate that it is to be filed for record in the real property records - provides description of the real property upon which the fixture is or will be installed - provide record owner name |
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Fixture Filings - where
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file in state where fixture is located and in the office where a mortgage over the real property would be filed instead of with the SoS
A Financing Statement gets priority as to other secured parties A Fixture Filing gets priority over other real property encumbrances |
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Fixture Filings - priority rules
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Generally - SI in fixture is subordinate to conflicting real property encumbrances
SP has priority if it makes a FF before a real property encumbrancer records interest PM interest in a Fixture has priority over a conflicting real property encumbrance if - debtor has interest or possession of underlying real property - Fixture financer has a PMSI - Interest of real property encumbrancer arose BEFORE THE GOODS BECAME FIXTUREs - The fixture financer SI was perfected by a FF before or within 20 days after BECOMING FIXTURES |
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Bankruptcy Strong-arm clause
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Trustee has status of a creditor who obtained a judicial lien on all property on date the bankruptcy was filed (relation back)
SIs are subordinate to persons who become lien creditors before perfection PMSI and files financing statement within 20 days after debtor receives delivery of the collateral, SP will have priority over a person who becomes a lien creditor prior to the filing |
