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Secured Transactions Outline
I. UCC
a. Articles:
i. Article 1: General Provisions
1. Sets out a series of legal principles which are applicable to all of the other articles
ii. Article 2: Sales
1. Commercial law, transactions of good and services
iii. Article 2A: Leases
iv. Article 3: Negotiable Instruments
1. Checks
v. Article 4: Collections
1. Banks
vi. Article 5: Letters of Credit
vii. Article 6: Business Sales
1. Abolished
viii. Article 7: Transfers of Goods
1. The carriage of goods from one place to another
ix. Article 8: Stock Certificates
1. Nothing to do with the commercial code
2. Investment securities
x. Article 9: Secured Financing
1. Written by and for bankers; not intended to give debtor rights.
2. §9-109(a)(1) – Article 9 applies to any transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract. Personal property can include intangibles such as trademarks, etc. Anything that can be defined as personal property which is anything other than real estate.
b. History of UCC:
i. UCC is not a federal statute, but it is intended to be fairly uniform throughout the various states
ii. Purpose is to create a body of uniform commercial law for all states in order to create a national economy
iii. National Conference of Commissioners for Uniform State Laws: drafts laws with the intent of them being adopted by all 50 states (Uniform Probate Code, for example)
iv. When we look at the various provisions, for the most part it’s the law of NC, but also that law of everywhere but Louisiana
c. Terms:
i. “Code” – treating an areas of law in a systematic way
1. Make sure to look up the definitions of the words w/in the code (ex. “goods”).
ii. Debtor (Δ) – a person having an interest, other than a security interest or other lien, in the collateral, whether or not the person is an obligor
iii. Collateral () – means the property subject to a security interest or agricultural lien. Term includes:
1. Proceeds to which a security interest attaches;
2. Accounts, chattel paper, payment intangibles, and promissory notes that have been sold; and
3. Goods that are subject to a consignment.
iv. Security Interest (SI) — Interest C has in collateral to pay an underlying debt. An interest in personal property or fixtures which secures payment of an obligation. That which a SC takes to guarantee payment of a debt from a Δ.
II. Chapter 3: Establishment and Perfection of Security Interests:
a. Terms:
i. Floorplanning – acquisition of a dealer’s inventory of durable goods
ii. Blanket Lien – very broad coverage
iii. Line of Credit – bank makes advance in its discretion, not pursuant to commitment.
iv. Sight draft – instruction to pay upon presentation
i. Letter of Credit – provides that from time to time subject to a stated limitation on amount per week, upon receipt of General Motors’ (paper of electronic) draft drawn on FB accompanied by an automobile invoice for the automobiles being shipped, FB will pay to GM the amount of the invoice.
b. Five common forms of agreements between a dealer and assignee of installment credit contracts:
i. Without recourse/non-recourse – Bank will not look to the dealer in the even to of a buyer’s nonpayment.
ii. Repurchase
iii. Partial guaranty
iv. Limited repurchase
v. Full guaranty
c. Basics:
i. Simple debts from person to person are under contract law. The agreement that you and I entered into in an Article 9 transaction is a “security agreement”. This is a simple contract.
ii. A financing statement provides public notice.
iii. Security Agreement: (SA)
1. Definition from §9-102: “SA means an agreement that creates or provides for a security interest.”
2. Pg. 99 provides an example of a security agreement. The security agreement is the agreement b/t the D and the C in which the D provides some collateral in exchange for credit.
a. Don’t confuse with financing statement which is just public notice for the security agreement. IT IS NOT the agreement!
b. The security agreement is how a security interest is created.
c. When a SA is created, it then becomes ATTACHED. Could have an oral security agreement. The ACT of creating a SA is “Attachment”
3. Once a SA is created, you have to give public notice in the form of Perfection (filing a financing statement).
a. Perfection can also be taking possession of the property.
4. NOTE à have a security interest does NOT create a SA.
d. Perfection of a security interest requires: (§9-308(a))
i. Filing a financing statement; and
ii. Security interest attachment
1. For attachment: the debtor must sign or otherwise authenticate a security agreement describing the collateral (create a SA) — (UCC 9-203(b)(3)(A)).
iii. “Certificate of Title laws” – the normal method of perfecting a security interest in an automobile is by causing the security interest to be reflected on the certificate of title issued by a central office. Exception made for dealer’s inventory.
b. Until a secured creditor perfects his debt he will lose in a battle.
c. §9-203: Attachment and Enforceability of Security Interest; Proceeds; Supporting Obligations; Formal Requisites
i. Elements of Attachment:
1. Creditor gives value to Debtor;
2. The Debtor has rights in the collateral;
3. One of the following two have occurred:
a. Debtor has authenticated SA that provides a description of the collateral; or
b. The collateral is not a certified security (not stock) and is in the possession of the secured party
ii. “Authenticate” (§9-102(7)) – Authenticate means to either sign or execute or otherwise adopted a symbol or encrypt
d. Filing:
i. Generally speaking for virtually everything in the UCC, you would file in whatever office is designated in that state.
ii. Airplanes — if you’re going to take a security interest in an airplane, you have to file in the Oklahoma City with the Federal Aviation Administration (EXAM)
iii. Cape Town Convention – deals with International movable property.
1. Allows the US to buy products from other countries and still repossess.
2. Secured Creditors file in Dublin, Ireland
e. Problem 3.2.1:
i. What are the D’s rights under §9? First, in order say the C has some rights when the D defaults, must ask if the C has a security interest? Here, FB has a security interest. Value has been given in the form of the money used to buy inventory. FB now can exercise his rights.
ii. Possible remedies providing in Article 9:
1. §9-609 provides SC has right to take possession of secured collateral.
2. §9-610 provides for disposition of the collateral after repossession.
3. Note that Article 9 does NOT define what default is. The SA defines default.
iii. Other remedies:
1. SA usually provides remedies.
2. §9-601: after default, a secured party has the rights provided by the agreement of the parties.
iv. Demand Note: Pg. 106/107 of text
f. Problem 3.2.2.
i. (a) When Main’s president orally agreed that FB had a security interest in the cars, The SA is not signed so its not enforceable. We need an authenticated SA because Article 9 says so.
ii. (b) See In re Cheqnet below. In order to have an enforceable SA, you must have an authenticated SA and writing on the promissory note is not good enough.
1. The SA is the actual document b/t the creditor and the Δ. The law says that a SA can be oral only if the Π takes possession of the goods otherwise it has to be in writing (can be electric) and signed.
2. The financing statement is not the agreement b/t the Δ and Π. The rest of the world doesn’t see this document. This document which is on Pg. 98, is filed in the public office that is required under §9-501. The financing statement serves as a public notice function to the rest of the world.
a. The reason for this is that if things fall apart, the idea is that the secured creditor is able to go specifically and take possession of specific property () in lieu of paying off the debt before the rest of the world. But we have to tell the world that this is happening b/c we don’t want anyone else loaning money to our Δ
d authenticated by the Δ.
v. §9-102(a)(28) provides that the Δ – “is a person having an interest, other than a security interest or other lien, in the ,” regardless of whether the person owes the obligation that the secures.
l. Description of the ; After-acquired Property
i. A SA authenticated by the Δ must “provide a description of the to satisfy §9-203(b)(3)(A)”
1. §9-108(a) contains the general rule that: a description of personal or real property is sufficient, whether or not it is specific, if it reasonably identifies what is described. All it has to do is make possible identification of the described but does not have to be exact and detailed.
2. The identification function also is served by the alternative of possession or control by the secured party; these alternatives serve as evidentiary proxies for a SA that describes the .
ii. It is the date of filing the financing statement – not the date of a SA – that generally determined priorities.
iii. Super generic descriptions of are invalid.
iv. A SA may create or provide for a SI in after-acquired but in order to do so, does it have to specify that it has an interest in the after-acquired ? Courts haven’t decided.
v. Notes:
1. §9-108 says we can list as a category “inventory”.
a. §9-102: “Inventory” means goods, other than farm products, which:
i. Are leased by a person as lessor;
ii. Are held by a person for sale or lease or to be furnished under a K of service;
iii. Are furnished by a person under a K of service; or
iv. Consist of raw materials, work in process, or materials used or consumed in a business.
2. “Immovables” are outside of Article 9. Article 9 covers moveables and intangibles!
a. “Goods” are the entire category of property that includes moveables and intangibles.
i. Four categories of goods:
1. Inventory
2. Farm products
3. Equipment; and
4. Consumer goods
3. “Floating Lien” – covers a category of goods but is not constant “SA on inventory.”
a. §9-108(c): “A description of as “all the Δ’s assets” or “all of the Δ’s personal property” or using words of similar import does not reasonably identify the .
i. To avoid this, the creditor just has to list all the categories
4. Financing Statements:
a. §9-504: the 108(c) limitation doesn’t apply to financing statements! Creditor can say “all of Δ’s assets.”
b. SA sets the limits!!! FS is a broader statement than the SA!! So the SA is more limited in description, it says the what the SI is!
5. “Floorplan” – knocking out the current bank loan and moving in.
6. “After-acquired property”
a. §9-204(a) “except as otherwise provided in (b), a SA MAY create or provide for a SI in after-acquired .” (Ex. on Pg. 99)
b. So any new inventory that the Δ gets is included in the SA.
7. Problem 3.2.6.: Pg. 133
a. Computer programs usually constitute “software” and as such, are not “goods” as this Article uses the terms!!!
8. A person can grant a SI in goods that are leased!! Because the Δ has some rights in the property.
a. Any restriction on your property that says you cannot assign an interest in your property is invalid under Article 9. Abolishes freedom of K. Look to §9-406!!
