Secured Transactions: Introduction & Scope Of Article 9

Front 1

You want to be a debtor. Options of potential creditor are...

Back 1

1) Outright refusal (no).
2) Mere promise to repay (unsecured/general creditor)
3) Obtain a surety
4) Obtain collateral

Front 2

Unsecured / General Creditor

Back 2

If debtor fails to pay, must bring suit, get judgment and have sheriff seize enough of the debtor's non-exempt property to satisfy the judgment.

Expensive and time-consuming.

Front 3

Surety

Back 3

Someone else who promises to pay

Front 4

Collateral:

Creditor might require debtor to place some of debtor's property at risk so that if debtor doesn't pay, creditor may take property

Back 4

1) Real property: creditor may obtain mortgage or deed of trust over land

2) Personal property: creditor may obtain a security interest in debtor's personal property under Article 9 of UCC

Front 5

Basic Approach

Back 5

1) Is transaction w/in scope of Article 9?
2) Classify collateral.
3) Determine if a security interest has been created (attachment has occurred)
4) Determine if security interest has been properly perfected.
5) Determine persons who are making claims to the collateral.
6) Apply proper priority rules and rules regarding repossession.

Front 6

Subject Matter of Article 9

Back 6

Collateralized Transaction
Sales of Receivables
Consignments
Agricultural Liens Created by Statute
Lease-Purchase Agreements

Front 7

Collateralized Transaction

Back 7

Any transaction intended to create a security interest in personal property or fixtures

Property used as collateral may be:
1) Already owned by debtor
2) To be acquired with loan, that is, a purchase money security interest (PMSI) --> PMSI where lender/seller are different entities, lender must be able to trace exact money it lent to debtor into collateral; PMSIs often have special (better) rules than other types of security interests
3) After-acquired (inventory)

Front 8

Sales of Receivables

Back 8

Outright sale of accounts, chattel paper, payment intangibles, and promissory notes

Front 9

Consignments

Back 9

Bailment by owner/bailor/consignor under which the bailee/consignee has authority to sell.

To the world, consignee appears to own goods and thus the true owner (consignor) may be required to comply with Article 9 to gain protection over consignee's other creditors.

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Consignments Which Must Comply with Article 9

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1) Consigned goods are worth $1000 or more, and
2) Consignor didn't used goods for personal, family or household purposes; and
3) Potentially Deceptive Consignee

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Potentially Deceptive Consignee:

Position to deceive potential creditors with consigned goods

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1) Consignee deals with goods of that kind under a name other than consignor's name;

2) Consignee is not an auctioneer; and

3) Consignee is not generally known by consignee's creditors to be substantially engaged in selling consigned goods

Front 12

Agricultural Liens Created by Statute

Back 12

Nonpossessory liens on farm products such as crops and livestock created by state law in favor of a person who provides goods or services to a farmer

Front 13

Lease-Purchase Agreements

Back 13

Article 9 does not govern true leases of personal property. When lease term is over, lessor can recover the leased property without complying with Art. 9 free of lessee's creditors.

Front 14

Example of "lease" that's really an installment sale (and thus must comply with Article 9)

Back 14

Lease can't terminate lease early and:
1) Lease term is equal to or greater than remaining economic life of goods; or
2) Leesee owns property at end of term; or
3) Lessee has option to buy for nominal consideration at end of lease term

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Exclusions from Article 9

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1) Rights gov. by federal law
2) Real property (except fixtures)
3) Tort claims (though commercial claims that do not involve personal injury, are covered) [unfair competition claim]
4) Deposit accounts in consumer transactions
5) Statutory liens [landlord's lien, mechanic or artisan lien]
6) Wage Assignments