Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
104 Cards in this Set
- Front
- Back
- 3rd side (hint)
|
I. Judgment Lien Creditors
B. Lien Process: 3 different liens Three Types of Liens |
Judment Lien;
Garnishment; Execution |
No Hint
|
|
|
I. Judgment Lien Creditors
B. Lien Process: 3 different liens Explain Judgment Lien |
Judgment Lien. Unsecured creditor obtains judgment against obligor. Judgment automatically becomes a lien against any real property that the defendant obligor owns in the county in which the judgment is entered. Some states allow the judgment to also become a lien against personal property (not Arkansas).
-- Doesn’t have a secured interest otherwise -- AR: no lien on personal property |
No Hint
|
|
|
I. Judgment Lien Creditors
B. Lien Process: 3 different liens Explain Garnishment Lien |
Garnishment Lien. Once the creditor obtains a judgment, it can have a “writ of garnishment” issued by the clerk of the court and serve the writ on anyone it believes “owes” the defendant money. At the time the garnishment is served on the garnishee – a garnishment lien attaches to any money owed to the defendant, up to the amount of the judgment lien.
When does the garnishment lien arise – upon service on garnishee |
|
|
|
I. Judgment Lien Creditors
B. Lien Process: 3 different liens When does the garnishment lien arise on Garnishment Lien |
Service of Garnishee
|
No Hint
|
|
|
I. Judgment Lien Creditors
B. Lien Process: 3 different liens Explain Execution Lien |
Execution Lien. Once the creditor obtains a judgment, it can have a “writ of execution” issued by the clerk of the court. Once issued, the writ is taken to the sheriff to “levy” against the personal property. Once the writ is taken to the sheriff the lien becomes effective when it’s placed in the hands of the sheriff
Important for competitions – must know when these came up |
|
|
|
I. How to Create a SI
A. Attachment _________________________ |
"You need to talk about attachment – 9-203
|
value
|
|
|
I. How to Create a SI
A. Attachment What is 9-203? |
Section 9-203 provides the requirements for attachment.
|
No Hint
|
|
|
I. How to Create a SI
A. Attachment What is 9-203? |
(a) A SI attaches to collateral when it becomes enforceable against the debtor with respect to the collateralunless an agreement expressly postpones the time of attachment.
(b) Except as otherwise provided in subsections (c) through (i), a SI is enforceable against the debtor and third parties with respect to the collateral only if (1) value has been given; (2) the debtor has rights in the collateral or the power to transfer rights in the collateral to a SP; and (3) one (1) of the following conditions is met: (A) the debtor has authenticated a SA that provides a description of the collateral and, if the SI covers timber to be cut, a description of the land concerned; B) The collateral is not a certificated security and is in the possession of the secured party under 4-9-313 pursuant to the debtor's security agreement. |
|
|
|
I. How to Create a SI
A. Attachment (1) Value Given What is Value Given? |
Usually money loaned or credit extended to the obligor. A SP can give value by “promising” to advance funds.
|
|
|
|
I. How to Create a SI
A. Attachment (2) Debtor has interest in collateral What is Debtor has interest in collateral? |
Usually at point the Debtor take possession but at any point in time where the Debtor would have rights to the collateral (offer and acceptance signed and Debtor has right to pursue possession by court action).
A debtor's limited rights in collateral, short of full ownership, are sufficient for a SI to attach. However, in accordance with basic personal property conveyancing principles, the baseline rule is that a SI attaches only to whatever rights a debtor may have, broad or limited as those rights may be. |
D have rights
D's ltd rights ok; |
|
|
I. Judgment Lien Creditors
B. Lien Process: 3 different liens Three Types of Liens |
Judment Lien,
Garnishment, Execution |
No Hint
|
|
|
I. Judgment Lien Creditors
B. Lien Process: 3 different liens Explain Judgment Lien |
Judgment Lien. Unsecured creditor obtains judgment against obligor. Judgment automatically becomes a lien against any real property that the defendant obligor owns in the county in which the judgment is entered. Some states allow the judgment to also become a lien against personal property (not Arkansas).
-- Doesn’t have a secured interest otherwise -- AR: no lien on personal property |
No Hint
|
|
|
I. Judgment Lien Creditors
B. Lien Process: 3 different liens Explain Garnishment Lien |
Garnishment Lien. Once the creditor obtains a judgment, it can have a “writ of garnishment” issued by the clerk of the court and serve the writ on anyone it believes “owes” the defendant money. At the time the garnishment is served on the garnishee – a garnishment lien attaches to any money owed to the defendant, up to the amount of the judgment lien.
-- When does the garnishment lien arise? Upon service on garnishee |
No Hint
|
|
|
I. Judgment Lien Creditors
B. Lien Process: 3 different liens When does the garnishment lien arise on Garnishment Lien |
Service of Garnishee
|
No Hint
|
|
|
I. Judgment Lien Creditors
B. Lien Process: 3 different liens Explain Execution Lien |
Execution Lien. Once the creditor obtains a judgment, it can have a “writ of execution” issued by the clerk of the court. Once issued, the writ is taken to the sheriff to “levy” against the personal property. Once the writ is taken to the sheriff the lien becomes effective when it’s placed in the hands of the sheriff.
Important for competitions – must know when these came up |
No Hint
|
|
|
II. How to Create a SI
A. Attachment _________________________ |
You need to talk about attachment – 9-203, value, debtor having rights in the collateral, SA
EXAM: inventory or some normal type of collateral – not crazy type of collateral like copyrights EXAM: you need to decide if value has been given – if it doesn’t say the bank loaned the money – then you need to say I am assuming that the bank has loaned the money |
No Hint
|
|
|
II. How to Create a SI
A. Attachment What is 9-203? |
Section 9-203 provides the requirements for attachment.
|
No Hint
|
|
|
II. How to Create a SI
A. Attachment What is 9-203? |
(a) A SI attaches to collateral when it becomes enforceable against the debtor with respect to the collateral, unless an agreement expressly postpones the time of attachment.
(b) Except as otherwise provided in subsections (c) through (i), a SI is enforceable against the debtor and third parties with respect to the collateral only if (1) value has been given, (2) the debtor has rights in the collateral or the power to transfer rights in the collateral to a SP, and (3) one (1) of the following conditions is met: (A) the debtor has authenticated a SA that provides a description of the collateral and, if the SI covers timber to be cut, a description of the land concerned, |
No Hint
|
|
|
II. How to Create a SI
A. Attachment (1) Value Given What is Value Given? |
Usually money loaned or credit extended to the obligor. A SP can give value by “promising” to advance funds.
|
No Hint
|
|
|
II. How to Create a SI
A. Attachment (2) Debtor has interest in collateral What is Debtor has interest in collateral? |
Usually at point the Debtor take possession but at any point in time where the Debtor would have rights to the collateral (offer and acceptance signed and Debtor has right to pursue possession by court action).
A debtor's limited rights in collateral, short of full ownership, are sufficient for a SI to attach. However, in accordance with basic personal property conveyancing principles, the baseline rule is that a SI attaches only to whatever rights a debtor may have, broad or limited as those rights may be. |
No Hint
|
|
|
II. How to Create a SI
A. Attachment (3) Security Agreement What is a Security Agreement? |
Contract that governs the relationship between the parties to a secured transaction (ie, the lender and the borrower)
|
No Hint
|
|
|
II. How to Create a SI
A. Attachment (3) Security Agreement What terms are in a security agreement? |
Debtor owns or has interest in the collateral.
The Obligor is the party that owes the money to the SP and may not be the same as the Debtor. The Debtor, since he/she is the one with the interest in the collateral, must sign the SA granting the SI in the collateral. |
No Hint
|
|
|
II. How to Create a SI
A. Attachment (3) Security Agreement What does 9-203(b) tell us? |
Section 9-203(b) tells us – in order to have attachment we must have a SA authenticated by the Debtor that provides a description of the collateral.
|
No Hint
|
|
|
II. How to Create a SI
A. Attachment (3) Security Agreement What does 9-102(a) tell us? |
UCC has certain “categories of collateral.” Found in 9-102(a). If preparing a SA need to look up words you are using and make sure they mean what you think they do. Good example in the book. Client wants a SI in a bank account – you put in the SA “all accounts of the Debtor.” Account defined in 9-102(a)(2) – right to payment of a monetary obligation. Bank account would fall under “deposit account.”
|
No Hint
|
|
|
II. How to Create a SI
A. Attachment (3) Security Agreement Example of how a racing horse can change |
Also consider the fact that a particular thing you want to have a SI might change. Horse – over time can be in different categories: Born on a farm owned by a person who breeds and raises horses for a living = farm product, Same horse when sold to a broker who intends to sell it becomes inventory, Sold to a stable to be a race horse becomes equipment, Retired and now a pet – a family riding animal is now a consumer good.
|
No Hint
|
|
|
II. How to Create a SI
A. Attachment (3) Security Agreement Explain 9-108 |
Section 9-108 provides guidance for sufficiency of description.
(a) Except as otherwise provided in subsections (c), (d), and (e), a description of personal or real property is sufficient, whether or not it is specific, if it reasonably identifies what is described. (b) Except as otherwise provided in subsection (d), a description of collateral reasonably identifies the collateral if it identifies the collateral by: (1) specific listing, (2) category, (3) except as otherwise provided in subsection (e), a type of collateral defined in the Uniform Commercial Code,<br/>(4) quantity, (5) computational or allocational formula or procedure, or (6) except as otherwise provided in subsection (c), any other method, if the identity of the collateral is objectively determinable. (c) A description of collateral as "all the debtor's assets" or "all the debtor's personal property" or using words of similar import does not reasonably identify the collateral. (e) A description only by type of collateral defined in the Uniform Commercial Code is an insufficient description of: (1) a commercial tort claim, or (2) in a consumer transaction, consumer goods, a security entitlement, a securities account, or a commodity account. |
No Hint
|
|
|
II. How to Create a SI
B. What Obligations are covered? ___________ |
Basically whatever obligations the SI says is covered
Can write to cover whatever Future advance clause – says this secures this and others to be due 2 SAs – one secures the other – collateral to secure loan 2 can secure loan 1 |
No Hint
|
|
|
II. How to Create a SI
B. What Obligations are covered? What Obligations are covered? |
What obligations are secured – whatever obligations the SA says are secured by the collateral.
A promissory note dated June 1 and all extension, renewals, modification, refinancings of said note. Note signed by someone else. A certain promissory note dated June all other debts owed to SP as of the date of the SA (so any debts owed before the signing become secured). |
No Hint
|
|
|
II. How to Create a SI
B. What Obligations are covered? What are Future Advance Clause? |
This note and any future advances – or any other amounts that obligor may owe in the future to SP.
|
No Hint
|
|
|
II. How to Create a SI
B. What Obligations are covered? What is Cross-Collateralization |
If you have two (or more loans) and one of the loans contains a provision in the agreement with language such as: The SI given in this agreement is also given to secured any additional debts now owing to be to owed to lender. (Now inventory secures first loan as well).
|
No Hint
|
|
|
II. How to Create a SI
C. What Collateral is coverd? What collateral is covered? |
Remember that on equip the case law is that if you want a SI in equip that the debtor may buy in future – must have after acquired property clause
Take SI in the inventory? Will have SI in the inventory of the future because of the nature of the collateral Generally, the collateral covered is the specific collateral identified in the security agreement |
No Hint
|
|
|
II. How to Create a SI
D. What Collateral is coverd? What is After acquired property clauses? |
An example of an after acquired property clause would be – “Equipment – now owned or acquired or owned in the future.” If this provision is in a SA, it means that any future equipment will be included as collateral for the loan.
Remember case discussing after acquired property distinction between inventory and equipment. Inventory by nature “turns over” and there is support that the collateral description “inventory” includes after acquired inventory. No creditor would agree to inventory just there on the date signed b/c that inventory (hopefully) will be gone in short time. The case in the book was different because apparently the SA had “inventory on hand at May 1” and court limited the SA to that inventory – b/c language could not be construed to extend to after acquired inventory. Equipment different. Doesn’t automatically turnover – so if you ant to include after acquired equipment – must include after acquired property clause. |
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default |
SP upon default has certain rights
A sec party has rights: upon default they can take possession of the collateral if they can do that without breaching the peace |
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default What must be discussed? |
SP, Default, Breach of the Peace
|
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default What is Acceleration upon default? |
Right now you have an installment deal – if you don’t put in acceleration clause upon default – you have to go 30 years collecting that payment 1 month at time
|
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default What must be discussed on the EXAM? |
repossessing tractor, good, covered under article 9, SP has right to default, without breach of peace, then say a debtor can repossess without breach of the peace and point out all factors, then go back and say in this case – it would not be breach of the peace b/c…..
|
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default What must be discussed on the EXAM RE commercially reasonable sale? |
Commercially reasonable sale: not in essay question, maybe short answer, need to know this, what makes it commercially reasonable, factors of airplane case – if sale isn’t commercially reasonable what is the remedies of debtor – 2 views, right of redemption, after the sale has occurred no right to redeem
|
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default What is reasonable sale? |
Commercially reasonable sale: not in essay question, maybe short answer, need to know this, what makes it commercially reasonable, factors of airplane case – if sale isn’t commercially reasonable what is the remedies of debtor – 2 views, right of redemption, after the sale has occurred no right to redeem
|
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default What is default? |
Basically failure to do something required by the loan documents. The loan documents usually “define” events of default. Examples, not making payment when due, not providing insurance for the collateral as required, etc.
|
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default What is Acceleration upon default? |
Under common law – each payment due under a note is a separate obligation. Can only sue to collect payments as they are missed. Thirty year contract – you would be waiting thirty years to collect all the money.
Acceleration clauses are used to prevent this problem. Provision provides in essence that the SP may, at its option, declare the entire amount under the contract– principal and interest – now due and payable. |
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default How to answer Self-Help Repossession and Breach of Peace? |
Start with general discussion. Problem deals with equipment. Equipment is personal property and personal property transactions are governed by Art 9 of the UCC.
|
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default How to answer Self-Help Repossession and Breach of Peace? |
Under Art 9 – 9-102(a)(72) SP is defined as a person in whose favor a SI is created. From the problem facts we are assuming client is a SP. As a SP, client has certain rights upon default. From the problem facts we are assuming the loan is in default.
Therefore, the client’s rights include the remedies upon default provided by 9-609. After default a SP may take possession of the collateral. This right is limited to the additional provision in 9-609 that a SP may take possession either by judicial process or if without judicial process, without breaching the peace. Because the loan is in default and because client is a SP it can take possession of the equipment if he can do so without breaching the peace. Beach of the peace is not defined by the UCC, however, some guidance is given in the case law. |
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default Self help Factors (salisbury) |
Factors courts consider include (Salisbury case)
1) Potential for immediate violence (which increases closer to dwelling) (it is the potential for violence that is important – not whether a confrontation actually took place). 2) Nature of the premises intruded on (business/personal) 3) Reasonableness of the actions of the SP 3a)Manner of entry 3b)Time of entry 3c)Notice—not required, but helps to determine reasonableness 3d) Confrontation 4) Whether demand prior to repossession would be appropriate |
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default 3) Self help Factors (salisbury) Explain Nature of the Premises |
This concerns whether the property is on business property or personal property. Personal residence property might make breach of the peace more likely. As a general rule, as long as the SP’s actions are reasonable and there is no confrontation or no immediate threat of violence, repossession could be accomplished. Is collateral on property owned by the debtor?
|
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default 3) Self help Factors (salisbury) Explain Demand |
Demand. This brings up the issues discussed by the court in the Salisbury case. In that case the court suggested that demand may need to be made for return of the property from the owner of the property prior to trespassing on the owner’s property. The issue then becomes whether the demand would be futile. Demand is unnecessary if such demand would be futile, but there must be a determination whether demand would have been futile under the circumstances.
|
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default 3) Self help Factors (salisbury) Explain Time of Entry |
Time of entry. Even if there is a demand made, the court will continue to look at whether the trespass creates a real possibility of violence. This issue may be impacted by whether the repossession is attempted during the day or at night.
|
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default 3) Self help Factors (salisbury) Explain Manner of Entry |
Manner of entry. In cases where there is a fence – discuss issues involved in opening, cutting lock, etc., as applicable. An additional factor to consider to analyze appropriate guidelines for the client in this situation may include what provisions are in the written agreement between the parties. If the agreement gives the SP permission to enter a premises to repossess the collateral, the client would have an argument that trespass was agreed to. However, the borrower would not have the right to give a third party the right to trespass on another’s property. May want to add in this situation that if the client does pick a lock or open a gate that it be sure to secured the premises to as to not leave the property unprotected.
|
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default 3) Self help Factors (salisbury) Explain What if a guard is on the premesis |
What if a guard is on the premises. We have case law suggesting that making a misrepresentation to the guard to gain access would not be a breach of the peace, at least in some jurisdictions, however, we cannot advise that this is a reasonable action to be taken.
|
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default 3) Self help Factors (salisbury) Explain Trespass |
Trespass alone is not sufficient for breach of peace. Trespass breaches the peace only if certain types of premises are invaded, or if immediate violence is likely. This is a factual inquiry made on a case-by-case basis.
|
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default 4) Disposition of Collateral |
Section 9-610 governs the procedure for sale of the collateral.
(a) After default, a SP may sell, lease, license, or otherwise dispose of any or all of the collateral in its present condition or following any commercially reasonable preparation or processing. (b) Every aspect of a disposition of collateral, including the method, manner, time, place, and other terms, must be commercially reasonable. A SP may purchase collateral –restrictions for that. The section on “problems” with Article 9 sales mentions that the SP MAY sell but is not REQUIRED to – a delay could give debtor grounds to say commercially unreasonable or be used as a defense in a lawsuit for a deficiency judgment. |
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default 4) Disposition of Collateral What doess Commercially Reasonable Mean? |
§ 9-627. Determination of whether conduct was commercially reasonable
(b) A disposition of collateral is made in a commercially reasonable manner if the disposition is made: (b)(1) in the usual manner on any recognized market, (b)(2) at the price current in any recognized market at the time of the disposition, or (b)(3) otherwise in conformity with reasonable commercial practices among dealers in the type of property that was the subject of the disposition. |
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default 4) Disposition of Collateral Notice of sale is important 9-611 |
§ 9-611 requires the SP to give notice of the sale to
1. The Debtor 2. Any secondary obligor, and 3. If the collateral is NOT consumer goods 3a) Any party from which the SP has received, before the notification date, an authenticated notification of a claim of an interest in the collateral 3b) Any other SP or lienholder that, 10 days before the notification date, held a SI in or other lien on the collateral perfected by the filing of a FS that: 3bi) Identified the collateral 3bii) Was indexed under the debtor’s name as of that date, and 3biii) Was filed in the office in which to file a FS against the debtor covering the collateral as of that date, and 3c) Any other SP that, 10 days before the notification date, held a SI in the collateral perfected by compliance with a statute, regulation, or treaty. |
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default 4) Disposition of Collateral Notice of sale is important If notice is not given |
If this notice is not given – you cannot collect a deficiency against the Debtor. Theory is that Debtor could have bid up price and no deficiency.
Private sale – notice of the time after which any private sale or other intended disposition is to be made. 10 days = CR Public sale – date, time and place of sale. |
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default 4) Disposition of Collateral Notice of sale is important 9-613 |
§ 9-613 gives requirements of the content of the notice for most Article 9 collateral.
1) The contents of a notice are sufficient if the notification 1a) Describes the debtor and the SP 1b) Describes the collateral that is the subject of the intended disposition 1c) States the method of intended disposition 1d) States that the debtor is entitled to an accounting of the unpaid indebtedness and states the charge, if any, for an accounting 1e) States the time and place of a public disposition or the time after which any other disposition is to be made. |
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default 4) Disposition of Collateral Notice of sale is important 9-613 |
§ 9-614 gives requirements for content of the notice for consumer goods.
Notice must Describe the debtor and the SP Describe any liability for a deficiency of the person to which the notification is sent Provide a phone # from which the amount that must be paid to the SP to redeem the collateral under §9-623 is available, and Provide a phone # or mailing address from which additional information concerning the disposition and the obligation secured is available |
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default 4) Disposition of Collateral Chavers v. Frazier |
Discussed problems with sale of a plane:
Price –price alone does not make a sale not CR Hasty sale = not CR. Plane sold in 1 month. Ct said “select group.” Needed more time to sell. Advertising = not CR. “As is” suggested distress sale. Brief ads in WSJ and Trade-A-Plane. Information provided was inadequate. (No log book or aircraft maintenance schedule) Distress sale = not CR. Method of sale here public = distress. Should have been sold by private sale. Did not properly prepare for sale. |
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default 4) Disposition of Collateral Remedies for Debtor if not commercially reasonable |
When SP's handling of disposition of collateral pursuant to statutory foreclosure is attacked for lack of commercial reasonableness, the SP has the burden of proving it complied with statutory provisions.
If the sale is not commercially reasonable – Two views 1. Minority—SP cannot collect deficiency, any significant irregularity in the sale procedure is sufficient to deny the deficiency altogether 2. Majority—deficiency limited to diff. in sale price and FMV BUT disposition of collateral remains |
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default 4) Disposition of Collateral 9-617 |
9-617 protects the purchaser of property
Good faith purchaser takes free of interest of Debtor even if the SP fails to comply with statute Debtor has action for damages but cannot get the property back. |
No Hint
|
|
|
II. How to Create a SI
D. As between the SP and the Debtor Rights upon default 4) Disposition of Collateral After ct determins commercially reasonable, is SP entitled to deficiency? |
Once court properly determines that sale of collateral was not commercially reasonable, legal presumption arose that collateral was worth amount of debt, and, consequently, SP was entitled to deficiency only if he proved reasonable value of collateral was less than amount of debt. (Arkansas—also depends on if it’s a consumer good, notice, and the disparity between the sale price and the FMV)
|
No Hint
|
|
|
II. How to Create a SI
E. Acceptance of Collateral in in Full or Partial Satisfaction of Debt describes what? |
Strict Foreclosure Under Article 9 for personal property
|
No Hint
|
|
|
II. How to Create a SI
E. Acceptance of Collateral in in Full or Partial Satisfaction of Debt 9-620 |
§ 9-620 provides that a SP may accept collateral in full or partial satisfaction of the obligation it secures only if:
1. The debtor consents to the acceptance 1a. Debtor consents to acceptance of collateral in 1ai. Partial satisfaction of the obligation it secures only if the debtor agrees to the terms of the acceptance in a record authenticated after default 1aii. Full satisfaction of the obligation it secures only if the debtor agrees to the terms of the acceptance in a record authenticated after default, or the SP 1aii1. Sends to the debtor in default a proposal that is unconditional or subject only to a condition that collateral not in SP’s possession be preserved or maintained, 1aii2. In the proposal, proposes to accept collateral in full satisfaction of the obligation it secures, and 1aii3. Does not receive notification of objection by debtor within 20 days after proposal is sent 2. SP does not receive notification of objection to the proposal authenticated by: 2a. A person to which the SP was required to send a proposal under §621, or 2b. Any other person, other than the debtor holding an interest in the collateral subordinate to the SI that is the subject of the proposal 3. If collateral is consumer goods, it is not in debtor’s possession when he consents to the acceptance, and 4. SP is not required to dispose of the collateral or the debtor waives this requirement |
No Hint
|
|
|
II. How to Create a SI
E. Acceptance of Collateral in in Full or Partial Satisfaction of Debt Why do it? |
Important just to know this option is available. WHY DO IT? Because it may be faster than regular commercially reasonable sale.
|
No Hint
|
|
|
II. How to Create a SI
E. Acceptance of Collateral in in Full or Partial Satisfaction of Debt Not allowed when? |
If the collateral is a consumer good and debtor has paid 60% -- not allowed.
|
No Hint
|
|
|
II. How to Create a SI
F. Proceeds, Products, and Value Tracing Concepts What are Proceeds? |
§ 9-102(a)(64) defines proceeds:(A) Whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral,(B) Whatever is collected on, or distributed on account of collateral, (C) Rights arising out of the collateral, (D) To the extent of the value of collateral, claims arising out of the loss, nonconformity, or interference with the use of, defects or infringement of rights in, or damage to, the collateral, or (E) To the extent of the value of collateral and to the extent payable to the debtor or the SP, insurance payable by reason of the loss or nonconformity of defects or infringement of rights in or damage to the collateral.
|
No Hint
|
|
|
II. How to Create a SI
F. Proceeds, Products, and Value Tracing Concepts Give an example of Tracing? |
Readily Identifiable
If your collateral (boat) is sold – your SI attaches to the proceeds of that sale – proceeds can be the check written to pay, the cash, promissory note, etc. Note also that “proceeds are collateral” so this becomes circular – If proceeds are collateral – then if proceeds are disposed of your SI continues to follow – if cash is used to buy a camper for instance -- camper is now your collateral, trade camper for piano – piano now is proceeds from camper and the piano is your new collateral. |
No Hint
|
|
|
II. How to Create a SI
F. Proceeds, Products, and Value Tracing Concepts 9-102(a)(12) |
Same result by looking at § 9-102(a)(12) with the definition for “collateral” -- Collateral means the property subject to a SI . . . . The term includes:
(A) Proceeds to which the SI attaches, (B) Accounts, chattel paper, payment intangibles, and promissory notes that have been sold, and (C) Goods that are the subject to a consignment. Under this section of the UCC – even if the SA does not mention proceeds – they are covered automatically under the UCC. Burden of proof on SP to prove traceability of the proceeds of collateral |
No Hint
|
|
|
II. How to Create a SI
F. Proceeds, Products, and Value Tracing Concepts What is the 9-315(a)(2)? |
One limitation to the idea that proceeds continue to be collateral “so long as they remain identifiable.” § 9-315(a)(2) a SI attaches to any IDENTIFIABLE proceeds of collateral.
|
No Hint
|
|
|
II. How to Create a SI
F. Proceeds, Products, and Value Tracing Concepts What is the Lowest intermediate balance rule? |
The amount of the SP’s collateral remaining in a bank account is equal to the lowest balance of all funds in the acct between the time the collateral was deposited to the acct and the time the rule is applied.
|
No Hint
|
|
|
II. How to Create a SI
F. Proceeds, Products, and Value Tracing Concepts What is the Lowest intermediate balance? |
Arthur sells his encumbered asset for $12,000 and deposits the $12,000 in his bank account, which already contains $3,000.
Opening Balance +$3,000 Sale of collateral + $12,000 = $15,000 Tuition Payment <$11,000> = $4,000 Student loan + $6,000 = $10,000 Books <$5,000>=$5,000 Identifiable proceeds at end of month? $4,000. The lowest balance of all funds in the acct between the time the collateral was deposited to the acct and the time the rule is applied. |
No Hint
|
|
|
III. Protecting against 3rd Parties
A. How to Perfect a SI What is Covered by Article 9? |
a. Any transaction that creates a SI in personal property or fixtures by K
b. Agricultural liens c. Sales of accounts, chattel paper, payment intangibles, or promissory notes c(i). Unless they are part of a sale of the business out of which they arose d. Consignments |
No Hint
|
|
|
III. Protecting against 3rd Parties
A. How to Perfect a SI (Initial Considerations) What is NOT Covered by Article 9? |
a. Property covered under a statute, regulation, or treaty of the U.S.
b. Property that is highly personal in nature c. Assignment of wages d. Pension rights e. Insurance policies f. Real estate interests g. Noncommercial tort claims |
No Hint
|
|
|
III. Protecting against 3rd Parties
A. How to Perfect a SI (Methods) 4 Ways to Perfect? |
Filing, Possession, Control, Automatically
|
No Hint
|
|
|
III. Protecting against 3rd Parties
A. How to Perfect a SI (Methods) Most Sis are perfected by ______ and what are examples? |
Most SIs are perfected by “filing.” What you file is a FS.
Collateral that can be perfected by filing 1. Inventory 2. Equipment 3. Accounts (only method of perfection) 4. General Intangibles (only method of perfection) 5. Tangible chattel paper 6. Commercial tort claims 7. Negotiable and non-negotiable documents 8. Farm products 9. Goods 10. Instruments 11. Investment property 12. Motor vehicles (if inventory in the hand of the debtor) |
No Hint
|
|
|
III. Protecting against 3rd Parties
A. Financing Statements What is the required information? |
§ 9-502(a) requires 3 items of information
1. Name of the debtor 2. Name of the creditor 3. Indication of the collateral covered §9-520(a) REQUIRES the filing officer to refuse to accept a FS unless it contains 1. The names of the Debtor and the SP 2. The mailing addresses of the Debtor and the SP 3. An indication of whether Debtor is an individual or corporation |
No Hint
|
|
|
III. Protecting against 3rd Parties
A. Financing Statements What is the requirment for description? |
Must reasonably identify the collateral—broader than requirement for SAs
Case in text points out that FS sufficiently indicates collateral if described by 9-108 descriptions. |
No Hint
|
|
|
III. Protecting against 3rd Parties
A. Financing Statements What is the requirment for the debtor's name? |
1. UCC §9-503 provides that a FS sufficiently provides the name of
1a. A registered entity if it provides the name of the debtor indicated on the public record of the debtor’s jurisdiction of origination 1ai. Look in the Articles of Incorporation at the Secretary of State’s office 1b. An individual or partnership if it provides the individual or organizational name of the debtor(s) 2) UCC §9-506(c) provides the proper test for determining if a debtor’s name on a FS is seriously misleading 2a) The test is to conduct a search in the records of the filing office under the debtor’s correct name, using the filing office’s standard search logic 2b. If the search discloses a FS that fails to sufficiently provide the name of the debtor, the name provided does NOT make the FS seriously misleading 3. A FS is not rendered ineffective by the inclusion of the debtor’s trade name, however, use of the trade name alone is insufficient Individuals: Courts have consistently favored the longer or more formal version of a name over shorter, more colloquial version. TEST – run search under sec of state’s logic – if it pulls up your FS you are okay – if not you aren’t okay-search under the correct name too |
No Hint
|
|
|
III. Protecting against 3rd Parties
A. Financing Statements What kind of authorization is required? |
Before Article 9 – Debtor had to sign. Now Debtor must “authorize the filing in an authenticated record” – a signed record. SA giving SI works. Paragraph in SAs today – authorize initial filing and filings to continue perfection.
Signing SA is authorization to file |
No Hint
|
|
|
III. Protecting against 3rd Parties
A. Financing Statements What is the test for errors in the debtors name? |
Remember test for whether Debtor’s name is correct on FS is to run a search under the correct name using the filing offices’ search logic. If your FS appears, the name is considered acceptable. If it does not appear, the name is considered to be seriously misleading.
|
No Hint
|
|
|
III. Protecting against 3rd Parties
A. Financing Statements Where do you file the financing statement? |
§9-501(a) provides that if the local law of the State governs perfection, the office in which to file a FS to perfect the SI is:
(1) the office designated for the filing or recording of a record of a mortgage on the related real property, if: (A) the collateral is as-extracted collateral or timber to be cut, or (B) the FS is filed as a fixture filing and the collateral is goods that are or are to become fixtures, or (2) the office of the circuit clerk in the county in which the debtor is located in this state if the debtor is engaged in farming operations AND the collateral is equipment used in farming operations, or farm products, or accounts arising from the sale of farm products, or AR has this exception – if used for farming – file in circuit clerk of that county (3) the office of the Secretary of State, in all other cases, including a case in which the collateral is goods that are or are to become fixtures and the FS is not filed as a fixture filing. |
No Hint
|
|
|
III. Protecting against 3rd Parties
A. Financing Statements When do you file the financing statement? |
FS may be filed at anytime, even before the SI attaches to the collateral, and will be effective as long as the filing is authorized.
|
No Hint
|
|
|
III. Protecting against 3rd Parties
D. Continuation Statement Give the rules for continuation statements? |
1. UCC §9-515(a) provides that a FS is effective for 5 years after the date of filing
2. UCC §9-515(c) provides that upon lapse, a FS ceases to be effective and any SI becomes unperfected, unless the SI is perfected otherwise 2a. If the SI becomes unperfected upon lapse, it is deemed never to have been perfected as against a purchaser of the collateral for value 3. UCC §9-515(d) provides that a continuation statement may be filed within 6 months before the expiration of the 5 year period 4. UCC §9-515(e) provides that a timely filed continuation statement extends the effectiveness of the initial FS for 5 years from the date the effectiveness of the FS would have lapsed |
No Hint
|
|
|
III. Protecting against 3rd Parties
A. How to Perfect a SI (Methods) Explain Sis that are perfected by possession |
Possession as a Means for Perfection
1. Types of collateral covered a. Tangible negotiable documents b. Goods (except motor vehicles if certificate of title would perfect) c. Instruments d. Money (only perfected by possession) e. Tangible chattel paper 2. Possession is superior to filing for all types of collateral covered, except for goods 3. Perfection by possession occurs no earlier than the time the SP takes possession and continues only while the SP retains possession |
No Hint
|
|
|
III. Protecting against 3rd Parties
A. How to Perfect a SI (Methods) Explain Sis that are perfected by control |
1. Substitute for filing for certain collateral
a. Deposit accounts b. Electronic chattel paper c. Investment property d. Letter of credit rights 2. §9-104 provides that a SP has control of a deposit account in 3 circumstances a. If the SP is the bank with which the deposit account is maintained, b. If the debtor, SP, and bank have agreed in an authenticated record that the bank will comply with instructions originated by the SP directing disposition of the funds in the deposit account without further consent by the debtor, or c. If the SP becomes the bank’s customer with respect to the deposit account |
No Hint
|
|
|
III. Protecting against 3rd Parties
A. How to Perfect a SI (Methods) Explain Sis that are automatically perfected |
SI in PMSI on consumer goods is perfected by operation of law and no filing is necessary.
PMSI –Buy collateral on credit. Borrow money and use it to purchase collateral. Consumer goods – goods that are used or bought for use primarily for personal, family, or household purposes. EXAM: say this is a consumer good – why does it matter Explain that this person wins over this one because it’s a PMSI in consumer goods – tell why you think it’s a consumer good |
No Hint
|
|
|
IV. Change in Use, ID, and Name
1. Chg in Debtors Name |
1. Changes in the Debtor’s Name
a. UCC §9-507(c) provides that even though a change in the debtor’s name renders a filed statement seriously misleading, it remains effective with regard to: 1(a)(i). Collateral owned by the debtor at the time of the name change, and 1(a)(ii). Collateral acquired by the debtor in the first 4 months after the name change 1(a)(ii)(1). The FS doesn’t perfect a SI in collateral acquired by the debtor more than 4 months after the name change |
No Hint
|
|
|
IV. Change in Use, ID, and Name
1. Chg in Use of Collateral |
1. Changes in the Use (Description) of the Collateral
1(a). A change in use that does not control the place of filing (Type 1 change) 1(a)(i). UCC §9-507(b) provides that even if the change in use has rendered the FS seriously misleading, it remains effective 1(b). A change in use that is sufficient to affect the method of perfection (Type 2 change) 1(b)(i). UCC §9-507(b) excuses the seriously misleading description, but not the failure to make a new filing in the appropriate place |
No Hint
|
|
|
IV. Change in Use, ID, and Name
2. Exchange in Use of Collateral Without Cash |
Change in Collateral, No Cash(UCC §9-315(d)(1))
i. Debtor exchanges collateral for same type of collateral (Type 0) 1(i). SP’s secured interest remains perfected because the description of the collateral has not changed 1(ii). The SI attaches to the new collateral and perfection relates back to the original filing 2. Debtor exchanges collateral for different type of collateral 2(i). If the description is now insufficient, the place of filing is the same, then the SP remains perfected (Type 1) 2(i)(a). This is the “same office” rule, sometimes referred to as the “elephant” rule 2(ii). If the description is now insufficient, and either the place of filing or the method of perfection are also different, then the SP must refile in the appropriate place, or complete the proper method of perfection (Type 2) 2(ii)(a). The SP has 20 days from the time the debtor receives the proceeds to complete this 2(ii)b. The SP doesn’t need additional authorization from the debtor to file the FS necessary to perfect in the proceeds of the collateral (UCC §9-509(b)(2)) |
No Hint
|
|
|
IV. Change in Use, ID, and Name
2. Exchange in Use of Collateral With Cash |
a. Change in Collateral, With Cash
a(i). Debtor sells collateral for cash and uses the cash to buy the same type of collateral a(i)1. SP’s perfected SI attaches to the new collateral, perfection relates back to the original filing a(i)2. UCC §9-203(f)—the attachment of a SI in collateral gives the SP the rights to proceeds provided by section 9-315 and is also attachment of a SI in a supporting obligation for the collateral a(i)3. UCC §9-502(d)—a FS can be filed before SA is made or a SI otherwise attaches a(ii). Debtor sells collateral for cash and uses the cash to buy different type of collateral a(ii)1. Description in original FS is insufficient a(ii)2. UCC §9-315(d)(3) requires SP to file new FS to cover the new collateral w/in 20 days of Debtor’s receipt of the new collateral. a(ii)(2)a. Any filing made after 20 days is not continuous, and perfection starts from date of 2nd filing a(ii)(2)b. If filing made w/in 20 days, perfection relates back to original filing a(ii)3. Description of collateral is insufficient AND/OR either the location of the filing is different, or the method of perfection is different a(ii)(3)a. SP must file new FS with sufficient description w/in 20 days of the debtor’s receipt of the new collateral in order to continue its perfection from the date of the original filing, otherwise, perfection starts from date of 2nd filing a(ii)4. If debtor does not purchase new collateral with the proceeds, the SP has continuous perfection in identifiable cash proceeds under §9-315(d)(2) |
No Hint
|
|
|
V. Relocation of Debtor
|
§9-316(a)(2) provides that – Perfection continues until 4 months after Debtor changes location. SP has 4 months to file in new location.
Now recognize that we have a national system of filing and you have to determine which jurisdiction is appropriate for filing. Conflict of law rules to determine which state law applies. (a) A SI perfected pursuant to the law of the jurisdiction designated in § 4-9-301(1) or § 4-9-305(c) remains perfected until the earliest of: (a)(1) the time perfection would have ceased under the law of that jurisdiction, (a)(2) the expiration of four (4) months after a change of the debtor's location to another jurisdiction, or (a)(3) the expiration of one (1) year after a transfer of collateral to a person that thereby becomes a debtor and is located in another jurisdiction. |
No Hint
|
|
|
VI. Certificate of Title
General Rule |
Reason we discuss certificate of title systems is b/c §9-311 tells us that it is not necessary to file a FS to perfect a SI in collateral that is subject to the certificate of title statutes. So we look to the law to see exactly what is covered by the certificate of title statutes.
|
No Hint
|
|
|
VI. Certificate of Title
Arkansas Laws |
In Arkansas, we have the Motor Vehicle Registration Act in Arkansas. A.C.A. § 27-14-703. Vehicles subject to provisions include:
Every motor vehicle, trailer, semitrailer, and pole trailer when driven or moved upon a highway and every mobile home shall be subject to the provisions of this chapter except . . . exceptions omitted. Next we need to see – what is considered a motor vehicle – A.C.A. § 27-14-207. Definitions As used in this subchapter: (5) "Motor vehicle" means every vehicle which is self-propelled and every vehicle which is propelled by electric power obtained from overhead trolley wires, but not operated upon rails. (7) "Vehicle" means every device in, upon, or by which any person or property is, or may be, transported or drawn upon a highway, excepting devices moved by human power or used exclusively upon stationary rails or tracks. Arkansas Code tells us – that compliance with the Motor Vehicle Registration Act is the ONLY way to perfect. Note lien on the face of the title or in Arkansas an optional way to perfect is to: (i) Record the lien on the manufacturer's statement of origin, or (ii) Record the lien on an existing certificate of title, and (B) File with the Revenue Division of the Department of Finance and Administration a certified copy of the instrument creating and evidencing the lien or encumbrance. |
No Hint
|
|
|
VIII. Competitions Among Secured Parties
A. SP vs. Lien creditor General Rule |
Judgment Lien Creditor – lien arises when Writ of Execution delivered to the Sheriff.
Garnishment Lien Creditor – lien arises when Writ of Garnishment served on Garnishee If NON PMSI Secured Creditor: Lien creditor must become a lien creditor prior to the time (1) SP perfects its SI, or (2) SP files a FS and complies with §9-203(b)(3) SA condition |
No Hint
|
|
|
VIII. Competitions Among Secured Parties
A. SP vs. Lien creditor PMSI (nonconsumer good) Exception |
The Exception to the Rule -- Purchase Money Priority §9-317(e)
If a person files a FS with respect to a PMSI before or within 20 days after the Debtor receives delivery of the collateral, the SI takes priority over the rights of a lien creditor which arise between the time the SI attaches and the time of filing. If the PMSI attaches first, PMSI has 20 days to perfect and defeat a lien that came into existence between date of attachment and perfection of PMSI. Jan 1 John buys a computer for his business on credit. Jan 2 John takes delivery of the computer. Jan 15 Judgment Lien Creditor Delivers Writ of Execution to the Sheriff Jan 22 Secured Creditor perfects SI in computer Since PMSI perfected within 20 days of delivery of collateral – PMSI wins over the lien creditor. |
No Hint
|
|
|
VIII. Competitions Among Secured Parties
A. SP vs. Lien creditor Future Advance Clauses |
§9-323. If the agmt provides for future advances, you are perfected as to the future advances as of the date the UCC-1 is filed UNLESS YOU HAVE KNOWLEDGE OF THE LIEN – if you have knowledge, you’re still protected for 45 days after the lien is created
If the advance is made pursuant to a commitment to make the advance – even if after the 45 days – SP will be protected (as long as commitment entered into without knowledge of the lien). If the advance is made without a commitment to make the advance and it is after the 45 day period – you are inferior to lien creditor for advances made after the 45 day period. |
No Hint
|
|
|
VIII. Competitions Among Secured Parties
B. SP vs. SP Basic Rule (first to file, first to perfect) |
§9-322(a)(1). The priority date of a SI is the earlier of the dates on which the SP filed with respect to the interest or perfected it. The holder who gains priority by first filing or perfecting retains it so long as he remains continuously perfected.
Illustration: Dec 1 Bank 1 filed FS -Debtor has rights in collateral -(But does not lend money nor enter into SA with the Debtor) No attachment Dec 5 Bank 2 files FS Perfects – enters into SA, lends money, Debtor had rights in the Collateral 12/1 Dec 10 Bank 1 perfects by entering into a security agreement and lending money. Bank 1 has priority b/c Bank 1 filed before Bank 2 filed or perfected. |
No Hint
|
|
|
VIII. Competitions Among Secured Parties
B. SP vs. SP Priority of future advances |
RULE: If the FS covers the collateral – all advances are going to relate back. (Implicit in §9-322(a)(1).)
Illustration: Bank 1 files a FS against Collateral Bank 2 files and perfects against Collateral Bank 1 perfects by taking SIs and gives value Bank 1 first to file OR perfect so Bank 1 wins If Bank 1 makes additional advances against the collateral, those advances will have the same priority as the first b/c FS already filed Note that the SA does not have to have a future advance clause for this to work |
No Hint
|
|
|
VIII. Competitions Among Secured Parties
B. SP vs. SP After Acquired Property Clauses |
RULE: After-acquired lender’s priority relates back to the filing of the FS
Illustration: April 1 Bank 1 files FS -- “Equipment” April 5 Bank 2 files FS -- “Equipment” April 10 Debtor acquires piece of equipment April 11 Debtor signed SA with AAPC Bank 2 gives value (makes advance) April 15 Debtor signs SA in favor of Bank 1 Bank 1 gives value (makes advance) Relates back to the filing of the FS to Bank 1 wins. |
No Hint
|
|
|
VIII. Competitions Among Secured Parties
B. SP vs. SP Priority of PMSI |
§9-324(a). A PMSI in collateral OTHER THAN INVENTORY has priority over a conflicting SI in the same collateral if PMSI is perfected not later than 20 days after the Debtor receives possession of the collateral.
Illustration: Feb 1 Bank 1 files FS in equipment owned by Debtor, Debtor signs SA, Value given July 1 Store sells computer (equipment) to Debtor on credit Delivers computer to Debtor July 20 Store perfects SI by filing FS Store wins b/c perfects PMSI w/in 20 days of Debtor obtaining possession of collateral. §9-324(b). A PMSI IN INVENTORY has priority over other creditors if: A) PMSI financier perfects BEFORE Debtor receives the collateral, and B) PMSI financier gives notice to the inventory lender that it expects to acquire a PMSI in inventory B(1). To give notice, PMSI financier B(1)(a)Searches filing system for names and addresses of SPs with an interest in inventory of the type it plans to sell B(1)(b)Sends notice to those SPs B(2)The notice expires after 5 years B(2)(a). Can be avoided by repeating notice before expiration date B(3)NOTE: PMSI status only flows to chattel paper, instruments, and cash proceeds. |
No Hint
|
|
|
VIII. Competitions Among Secured Parties
B. SP vs. SP PMSI v. PMSI |
§9-324(g)(1) gives a seller’s PMSI priority over a cash-lender’s PMSI. If both parties are cash-lender’s, then priority is governed by the “first to file or perfect” rule.
What if you have two PMSI in the same collateral? Illustration: Mary is buying piano – purchase price is $10,000 Seller will finance $8000 Mary doesn’t have $2000 down payment Mary borrows $2000 from Bank to make down payment and grants SI in piano Mary takes the $2000 from Bank and makes the down payment on the piano and finances the balance -- $8000 with the Seller. 9-324(g)(1) gives the priority to the seller. Code more sympathetic to seller losing interest in property it previously owned than to the lender that just takes a SI in the property. |
No Hint
|
|
|
VIII. Competitions Among Secured Parties
B. SP vs. SP Marshelling of Assets |
Marshaling Assets is an equitable doctrine used by junior creditors to limit superior creditors’ choice of which collateral to sell first.
3 elements to apply marshalling: 1. 2 creditors of the Debtor 2. 2 funds (or two pieces of collateral) owned by the Debtor 3. The ability of one creditor to satisfy its claims from either or both of the funds, while the other creditor can satisfy from one of the funds. Court will not allow this when there are more than 2 creditors and it will mean that one of the junior lien holders will be prejudiced. Court will not require senior to foreclose on home to allow junior to have an interest. |
No Hint
|
|
|
VIII. Competitions Among Secured Parties
B. SP vs. Buyer General Rule |
As a general rule -- Buyers take subject to encumbrances of record.
§9-201 – SI is effective against subsequent purchasers. §9-315(a) – SI continues in collateral notwithstanding sale. |
No Hint
|
|
|
VIII. Competitions Among Secured Parties
B. SP vs. Buyer Authorization of Disposition Exception |
9-315(a)(2) SI does not continue if SP authorizes disposition free of the SI
Buyer doesn’t have to search public record. Buyer can know there is a SI there. Authorization does not have to be “express” – can be implied Even if the SA prohibits the sale without the “prior written consent” – if the SP knows that the Debtor is selling and allowing it – it could result in waiver of that provision and the sale may be considered “free and clear of liens” |
No Hint
|
|
|
VIII. Competitions Among Secured Parties
B. SP vs. Buyer Buyer in the Ordinary Course Exception |
9-320(a): A Buyer in the OCB can take free of a SI created by the seller. A buyer is in the OCB only if it is “from a person in the business of selling goods of that kind.”
Buyer’s Knowledge. §9-320(a) protects a buyer in the OCB even if he knows of the SI. A buyer WILL take subject to the SI if he knows (1) the existence of the SI, and (2) that the sale violates a term in the agreement between debtor and SP. Created By His Seller. Buyer does not take free of SI created by his seller’s predecessors in title. |
No Hint
|
|
|
VIII. Competitions Among Secured Parties
B. SP vs. Buyer Consumer to Consumer Exception |
Garage sales! (Beavis and Butthead)
§9-320(b) provides that a buyer in a consumer-to-consumer sale takes free of a SI, even if perfected, if the buyer buys: 1. Without knowledge of the SI 2. For value 3. Primarily for the buyer’s personal, family, or household purposes, and 4. Before the filing of a FS covering the goods This exception only applies if the goods are consumer goods in the hands of the seller before the sale and consumer goods in the hands of the buyer after sale. Note the exception we discussed in class where the retail store actually filed a FS and the SI followed the collateral (the Beavis and Butthead problem). |
No Hint
|
