Haines Secured Transactions Fall 2014
I. Fundamentals
A. Basic Definitions
1) Lien – An interest in the debtor’s property given by the law to protect a creditor.
2) Consensual lien – the debtor voluntarily grants an interest in the debtor’s property to protect a creditor.
3) Mortgage – a consensual lien taken in the debtor’s real property.
4) Security interest – a consensual lien in personal property or fixtures governed by Article 9 of the U.C.C.
(a) 1-201(b)(35) – an interest in personal property or fixtures which secures payment or performance of an obligation – referred to as collateral
5) Judicial lien – an involuntary lien imposed against the debtor’s property, arising when the creditor sues, recovers judgment, and sends the sheriff out to seize the defendant’s property.
6) Statutory Lien – imposed by either a statute or the common law in favor of certain creditors the law deems worthy of protection (e.g., liens given to landlords; a mechanic’s lien given to people who perform construction work; a federal tax lien filed by the government that reaches all of the taxpayer’s property).
7) Secret Lien – a lien that other creditors do not know about and which is void as fraudulent.
8) Chattel Mortgage – like a mortgage on real property, a debtor mortgage personal property. The mortgage was recorded so other potential creditors can check to see whether the collateral was encumbered. Weakness: you cant keep track of all the property- most chattels are movable, but real property stays in one place
9) Conditional Sale – buyer takes possession of the property but the seller reserves full and complete title to it until the buyer pays in full.
II. Scope of Article 9 – § 9-109
A. Article 9 applies to:
1) Security interests created by contract in personal property or fixtures. (9-109(a)(1))
2) Agricultural liens; (9-109(a)(2))
3) Sales of: (9-109(a)(3))
(a) accounts,
(b) chattel paper,
(c) payment intangibles, or
(d) promissory notes.
(i) Sales of accounts are covered by Article 9 because if the seller sells its accounts to a buyer, seller’s creditors won’t know the seller doesn’t own the accounts.
4) Consignments; – defined in 9-102(20) (9-109(a)(4))
5) The security interest arising out of Article 2 or 2A: (9-109(a)(5))
(a) § 2-401 [conditional sale]
(b) § 2-505 [shipment under reservation]
(c) § 2-711(3) [rejection or revocation by buyer], or
(d) § 2A-508(5) [rejection or revocation by lessee]
6) A security interest arising under (9-109(a)(6))
(a) § 4-210 [security interest of a collecting bank] or
(b) § 5-118 [security interest of a letter-of-credit issuer or nominated person].
7) Security interest in secured obligation § 9-109(b)
(a) E.g., a bank can loan money to a loan company, and the loan company can use mortgages and promissory notes it owns as collateral. In order for the bank to protect itself, it would file a financing statement. Once the bank is perfected in its security interest, it is perfected in the mortgages too and need do nothing else to perfect its interests.
B. Article 9 doesn’t apply to: §9-109(d)
Liens
1) A landlord’s lien, other than an agricultural lien;
(a) Be careful if the landlord’s lien is covered by a contract (e.g., a lease agreement) because that is a contract, which is covered by Article 9; therefore, the courts could go either way.
2) A lien, other than an agricultural lien, given by statute or other rule of law for services or materials;
(a) Be careful: an artisan’s lien or a mechanic’s lien are covered by statute and not covered by Article 9 BUT
(b) If a customer signs a statement that gives his mechanic the right to repossess his car if the bill isn’t paid, that is a contract, which is covered by Article 9; therefore, the courts could go either way.
Wage Assignments
3) An assignment of a claim for wages, salary, or other compensation of an employee;
(a) But if the debtor is an “independent agent/independent contractor,” his commissions or wages ARE covered by Article 9.
Non-Financing Assignments
4) A sale of accounts, chattel paper, payment intangibles, or promissory notes as part of a sale of the business out of which they arose;
5) An assignment of accounts, chattel paper, payment intangibles, or promissory notes which is for the purpose of collection only;
6) An assignment of a right to payment under a contract to an assignee who is obligated to perform under the contract;
7) An assignment of a single account, payment intangible, or promissory note to an assignee in full or partial satisfaction of a preexisting debt;
(a) These are excluded because we’re less concerned about secret lien issues.
8) A transfer of an interest in or an assignment of a claim under a policy of insurance, other than an assignment by or to a health-care provider of a health-care-insurance receivable and any subsequent assignment of the right to payment;
9) An assignment of a right represented by a judgment, other than a judgment taken on a right to payment that was collateral;
10) A right of recoupment or set-off;
Real Estate – Except for fixtures
11) A security interest or lien on real property (including a lease or rents) are not covered by A9, BUT these things ARE:
(a) If a creditor is attached and perfected in promissory notes backed by mortgages, the creditor will automatically be attached and perfected in the supporting mortgages. §§ 9-203, 9-308
(b) fixtures § 9-334;
(c) fixture filings §§ 9-501, 9-502, 9-512, 9-516, and 9-519; and
(d) security agreements covering personal and real property. § 9-604
Tort Claims
12) An assignment of a claim arising in tort, other than a commercial tort claim;
Personal Accounts
13) An assignment of a deposit account in a consumer transaction;
Anything covered by federal statute
14) This includes registering ownership in aircraft. § 9-109(c)(1).
15) Equitable Subrogation – not covered by UCC. Common law states that equitable subrogation trumps a security interest.
III. Classifying Collateral § 9-102
A. Goods
1) Consumer Goods – goods that are used or bought for use primarily for personal, family, or household purposes.
(a) Examples of consumer goods:
(i) a mobile home
(ii) milk in the hands of the grocery store consumer who is buying it for consumption
(iii) Rare coins bought by a hobbyist for addition to his collection
2) Equipment – goods other than inventory, farm products, or consumer goods.
(a) Examples of equipment:
(i) a professional pianist’s piano
(ii) a farmer’s tractor
(iii) curtains bought by a lawyer for the law office
· Under common law, if, after purchasing curtains for the office, t
k recorded on the books of the debtor’s stockbroker.
3) Letters of Credit Rights – a right to payment or performance under a letter of credit, but not the right of a beneficiary to demand payment or performance under a letter of credit. § 9-102(a)(51).
4) Commercial Tort Claim – a claim arising in tort with respect to which: (1) the claimant is an organization or an individual and (2) the claim arose in the course of the claimant’s business, as long as the damages didn’t arise out of personal injury to, or the death of, an individual.
5) [Electronic Chattel Paper]; Fixtures; Money; Oil, Gas & Other Minerals before extraction
D. Intangible Property (property having no significant physical form)
1) Accounts – money due in exchange for goods or services—now or in the future— including:
(a) For property sold, leased, licensed, or assigned (but not money due under a landlord lease)
(b) For services
(c) For a policy of insurance,
(d) For a secondary obligation,
(e) For energy,
(f) For the use or hire of a vessel under a charter or other contract,
(g) Arising out of the use of a credit card or information contained on or for use with the card, or
(h) Lottery winnings
(i) Health-care insurance receivables (e.g., payments due to a hospital from patients’ health insurance companies).
(j) Accounts do not include:
(i) Rights to payment evidenced by chattel paper or an instrument,
(ii) Commercial tort claims,
(iii) Deposit accounts,
(iv) Investment property,
(v) Letter of credit rights or letters of credit, or
(vi) Rights to payment for money or funds advanced or sold, other than rights arising out of the use of a credit card or information contained or for use with the card.
2) General Intangibles – any personal property, including things in action (a/k/a chose in action), payment intangibles and software.
(a) Doesn’t include: accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money, and oil, gas, or other minerals before extraction.
(i) Examples of general intangibles:
· right to sue someone for breach of contract
· a liquor license
· a computer program out of the box
(b) Payment Intangibles – a general intangible under which the account debtor’s principal obligation is a monetary obligation.
(i) It’s not in exchange for goods or services
(ii) It’s not a piece of paper
(iii) Examples of payment intangibles:
· tax refund
· right to return of a security deposit from landlord
· lawsuit settlement proceeds
· A loan to a relative made by oral agreement
