Scope of Article 9
1. 1-201(35): Security Interest
a. SI means an interest in personal property or fixtures which secures payment or performance of an obligation
i. SI includes:
1. any interest of a consignor and a buyer of accounts, chattel paper, a payment intangible, or a promissory note in a transaction that is subject to Article 9
ii. SI does not include:
1. the special property interest of buyer of goods on ID of those goods to a K for sale under 2-401, but a buyer may also acquire a SI by complying with Article 9
2. 9-109:
a. 9-109(a) Article 9 applies to:
i. (1) A transaction regardless of its form, that creates a SI in personal property;
ii. (2) an agricultural lien;
iii. (3) A sale of accounts, chattel paper, payment intangibles, or promissory notes;
iv. (4) a consignment;
v. (5) a SI arising under Article 2, Article 4, or Article 5
b. 9-109(c):Article 9 does not apply to:
i. (1) Article 9 does not apply if when a statutory law or treaty preempts the Article
1. preemption only applies when two laws conflict
2. must be actual preemption
c. 9-109(d): Exceptions (Article 9 Inapplicable)
i. (1) Landlord’s liens are not covered by Article 9
ii. (3) Assignments of wage and salary claims are not covered by Article 9
1. Note: Garnishment usually covered by federal and state law implicating 9-109(c)(1) preemption
iii. (4) Sale of account if sold as part of the sale of a larger business
iv. (5) The transfer of accounts to a collection agency is not covered by Article 9
v. (7) Assignment of a single account to satisfy preexisting debt is not covered by Article 9
vi. (12) Excludes a tort claim from Article 9 coverage
1. Note: Exception to Exception
a. Commercial Tort claims are covered by Article 9
Unique Situations and the Scope of Article 9
1. 9-109 = Article 9 applies to SIs
2. 1-203: Lease Distinguished from SI
a. 1-203(a): whether a transaction in the form of a lease creates a lease or a SI is determined by the facts of each case
b. 1-203(b): Transaction in the Form of a Lease Creates a SI
i. For a “lease” to be deemed a SI the lease cannot be “subject to termination by the lessee”
ii. Elements: Interminability AND either:
1. (1) “the original term of the lease is equal to or greater than the remaining economic life of the goods”;
2. (2) “the lessee is bound to renew the lease for the remaining economic lifer of the goods or is bound to become the owner of the goods”;
3. (3) “the lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement”; or
4. (4) “the lessee has an option to become the owner of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement”
c. 1-203(c): Transaction in the Form of a Lease Does Not Create a SI Merely b/c:
i. Incidents of ownership are not sufficient to create an SI in a lease
ii. (4) of the mere presence of an option to renew
d. 1-203(d): Consideration
i. Consideration is nominal if it would cost the lessee more to not exercise the option that it costs the lessee to exercise the option
ii. Consideration is not nominal if the rental price is stated to be the fair market value of the goods determined at the time the option is to be performed; however,
1. Note: “further development is left to the courts” who have found that consideration must actually be nominal despite the terms of the K stating that the value is fair market value
e. 1-203(e): Remaining Economic Life
i. The remaining economic life of the good is determined as of the time that the transaction was originally created (e.g. the original lease, not the exercise of the option to renew)
3. 1-102(20): Consignment
a. (A) The merchant:
i. (i) Deals in goods of that kind under a name other than the name of the person making the delivery;
ii. (ii) is not an auctioneer; and
iii. (iii) is not generally known by its creditors to be substantially engaged in selling the goods of others;
b. (B) With respect to each delivery, the aggregate value of the goods is $1,000 or more at the time of delivery;
c. (C) The goods are not consumer good immediately before delivery; and
d. (D) the transaction does not created a SI that secures an obligation
e. Merchant: (2-104)
i. A person that deals in goods of that kind or otherwise holds itself out by occupation as having knowledge or skill peculiar to the practices or goods involved in the transaction or to which the knowledge or skill may be attributed by the person’s employment of an agent or broker or other intermediary that holds itself out by occupation as having knowledge or skill
f. Sale (2-106)
i. The passing of title from seller to buyer, but note in a consignment it is transferred for the purpose of sale – the sale is not to the merchant. The merchant is the sale intermediary
g. Comment 14:
i. “If goods are delivered for another purpose as well [as sale], . . .the transaction is a consignment nonetheless b/c a purpose of the delivery is a ‘sale’.”
1. If the primary purpose is X and the secondary purpose is sale → consignment
2. If the primary purpose is X and the secondary purpose is delivery to “buyers to which the owner-bailor agreed to sell the goods” → not a consignment
4. 9-505: A consignor or lessor who isn’t certain whether it needs to follow Article 9 can do so without risking an admission that it should have done so
5. In Re Marhoefer Packing Co., Inc. ~
a. Neither the lessee’s option to purchase equipment for $1 at the conclusion of the second 4-year term, nor the initial option to purchase it for $9,968 after the first 4 gave rise to a conclusive presumption under the U.C.C. that the lease was intended as security; rather, from all the facts surrounding the transaction, the agreement between Δ and lessor was a true lease and therefore the lessor was not required to file a FA to protect his interest and
.: “The goods shipped herein and listed on the attached page serve as security for the repayment of the credit given by X. Title to these goods passes upon delivery to Y.”
2. 9-309: Security Interest Perfected upon Attachment
a. FIRST MUST ENSURE COLLATERAL IS ATTACHED
b. 9-309 = Automatic Perfection
i. (1) PMSI in Consumer Goods
1. Consumer Goods:
a. 9-102(a)(23) = goods that are bought for use primarily for personal, family, or household purposes
b. Does not apply to equipment
i. E.g. Office Furniture
2. PMSI requires that the credit or loan is used to purchase the collateral underlying the loan
a. 9-103(a)(2): Purchase-Money Obligation = one incurred to purchase the collateral
b. 9-103(a)(1): Purchase-Money Collateral = goods securing a purchase-money obligation
c. 9-103(b)(1) = requires PMO and PMC have a purchase money security interest
ii. (2) Accounts or Payment Intangibles which are not a “significant” portion of the assignor’s accounts are transferred
1. 9-109(a)(3) – Scope of Article 9 applies to a sale of accounts, chattel paper, payment intangibles, or promissory notes
2. 9-109(d)(7) – Scope of Article 9 does not apply to an assignment of a single account, payment intangible, or promissory note to an assignee in full or partial satisfaction of a preexisting debt
a. E.g. – two accounts worth a total of $100 when assignor’s accounts are worth thousands
iii. (3) a sale of a payment intangible
iv. (4) a sale of a promissory note
c. Comment 4:
i. “The purpose of ¶ (2) is to save from ex post facto invalidation of casual or isolated assignments which no would think of filing”
1. ex post facto – law that retrospectively changes the legal consequences of an act committed
ii. “¶ (3) and (4) afford automatic perfection to sales by individuals of payment intangibles and promissory notes, respectively. . . . To the extent that the exception in ¶ (2) covers outright sales of payment intangibles, . . . the exception is redundant.”
3. Fifth Third Bank v. Comark, Inc. ~
a. Comark filed a financing statement that mislabeled the collateral as inventory when it was in fact equipment. Fifth Third took a security interest in collateral (Computers) in question and tried to claim priority. Comark’s financing statement had an adequate description of the collateral that would have put Fifth Third on notice of Comark’s interest; therefore the mislabeling was not a fatal flaw. One important fact is that Vertica (debtor) did not have any other equipment for which to confuse it.
