Secured Transactions Outline

LAW OF CREDIT OUTLINE – PROF. MOONEY – SPRING 2012

I. SALES

· § 2-401: Passing of Title: Article 2 applies irrespective of title to goods

· § 2-403: GFPV / Entrustment

o (1) Nemo Dat: Purchaser of goods acquires all title which his transferor had or had power to transfer

§ Purchaser of a limited interest acquires rights only to the extent the interest purchased

§ Exception: Person with voidable title has power to transfer good title to GFPV

· Void v. Voidable Title: Thief has void title, but B using fraud has voidable title because S put goods into the stream of commerce

· § 1-201(b)(29): Purchase = taking by sale, lease, discount, negotiation, mortgage, pledge, lien, SI, (re)issue, gift, or any other voluntary transaction creating an interest in property

· § 1-201(b)(20): Good Faith = honesty in fact and observance of reasonable commercial standards of fair dealing (no matter how stupid or careless)

· § 2-103(1)(b): Good Faith for Merchant = honesty in fact and observance of reasonable commercial standards in the trade

o § 2-104(1): Merchant = person who deals in goods of this kind (DIGOTK) or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction

· § 1-204: Value = acquires rights in return for a binding commitment to extend credit, as security or satisfaction of a previous claim, by accepting delivery; or in return for consideration sufficient to support a simple K

§ § 2-312 Warranty of Title: In every sales K there is a warranty for good title

o (2) Entrustment: Any entrusting of possession of goods to DIGOTK gives him power to transfer all rights of the entruster to a BIOCOB

§ § 1-201(b)(9): BIOCOB is a narrower category than GFPV

· § 2-502: B’s Rights to Goods on S’s Insolvency

o (1): B who has paid a part or all of the price of the goods may recover them from seller if

§ (a): bought for personal, family, household purposes OR

§ (b): S becomes insolvent within 10 DAYS after receipt of 1st price installment

· § 2-507: S’s Cash Sale Right to Reclaim: Where payment due, B’s right against S to retain or dispose of goods is conditional upon making payment

o Cmt. 3: no specific time limit for cash S to exercise reclamation right

· § 2-511: Payment by Buyer

o (1): For cash sales, unless otherwise agreed, tender of payment is a condition to S’s duty to tender and complete delivery

o (2): Tender of payment sufficient when made by any means or in any manner current in the ordinary course of business

o (3): Payment by check is conditional and defeated as between the parties of dishonor of the check on due presentment

· § 2-609: Right to Adequate Assurance of Performance

o (1): When reasonable grounds for insecurity arise with respect to performance either B or S, the other may in writing demand adequate assurance of due performance

§ Until receipt of assurance, other party may if commercially reasonable suspend performance

o (4): If reasonable assurance is not provided within 30 DAYS of demand, can repudiate K

· § 2-702: S’s Remedies on Discovery of B’s Insolvency

o (1) Right to Refuse Delivery: Where S discovers B’s insolvency, S may refuse delivery

§ § 1-201(b)(23): Insolvent = cease to pay debts in the ordinary course of business, D cannot pay debts as they come due, or bankruptcy insolvency under § 101(32)

o (2) Credit Sale Right to Reclaim: Where S discovers B has received goods on credit while insolvent, S may reclaim the goods upon demand made within 10 DAYS after the receipt

§ But it misrepresentation of solvency has been made to S in writing within 3 months before delivery, 10-day limitation does not apply!

· Theo. Hamm Brewing Co. v. First Trust & Sav. Bk.: check may constitute representation of solvency if S relied upon it as such

§ Note: S does not have to prove fraud or reliance; only insolvency

§ Note: S cannot claim common law fraud for fraudulent promise to pay

§ (3): Right to reclaim subject to rights of GFPV and BIOCOB and excludes other remedies

· § 2-703: S’s General Remedies: Where B wrongfully rejects or revokes acceptance of goods, or fails to make payment due on or before delivery, or repudiates with respect to a part or the whole, S may

o (a): withhold delivery of such goods

o (b): stop delivery by any bailee

§ § 2-705: Stoppage of Delivery: S may stop delivery of goods in possession of carrier when he has any right to withhold

o (c): identify goods still unidentified to the contract to avoid loss (§ 2-704)

o (d): resell or recover damages (§ 2-706)

§ § 2-706: Resale by S: S can resell goods concerned or delivered balance of goods. Where resale made in GF and in commercial reasonable manner, S may recover difference between the resale price and K price along with incidental damages

o (e): recover damages for non-acceptance (§ 2-708)

o (f): cancel

§ Note: replevin not included as a S remedy

· § 2-715: B’s Damages

o (1): Incidental Damages = expenses reasonably incurred in inspection, receipt, transportation, and care and custody of goods rightfully rejected + commercially reasonable charges

o (2): Consequential Damages = any loss resulting from requirements that S had no reason to know at time of contracting and which count not have reasonably been prevented by cover

· § 2-716: B’s Right to Specific Performance

o (1): Specific performance if goods are unique

o (2): Decree can include terms / conditions as to payment of price, damages, other relief

o (3): B has right to replevin if he is unable to effect cover after reasonable efforts

II. ESTABLISHMENT AND PERFECTION

1. ATTACHMENT AND ENFORCEABILITY

· Definitions

o § 1-201(b)(35): Security Interest = interest in personal property which secures payment or performance of an obligation

§ Includes interest of a consignor; buyer of accounts, chattel paper, payment intangible, or promissory notes subject to Art. 9

§ Does NOT include buyer of goods on identification of those goods to a K

§ Right of seller/lessor to retain or acquire possession of goods ≠ SI

o § 9-102(a)(73): Security Agreement = agreement creating or providing for a SI

· Types of Collateral – Goods

o § 9-102(a)(44): Goods = all things that are movable when a SI attached.

· Includes fixtures, timber, unborn young of animals, crops, manufactured homes

· Includes computer program embedded in goods and any supporting info provided in connection with a transaction relating to program is considered part of the goods or person acquires right to use program in connection with goods.

§ § 9-102(a)(48): Inventory = goods (other than farm products) held for (A) lease, (B) sale, (C) furnished under K, or (D) raw materials to be consumed in a business

§ § 9-102(a)(23): Consumer Goods = goods used or bought for use primarily for personal, family, or household purposes

§ § 9-102(a)(34): Farm Products = goods, other than standing timber, with respect to which D engaged in farming operation and = (A) crops + aquatic goods; (B) livestock (born or unborn); (C) supplies used or produced in farming operation; (D) products of crops or livestock in unmanufactured states

· § 9-102(a)(35): Farming Operation = raising, cultivating, propagating, fattening, grazing or any other farming, livestock, or aquacultural operation

§ § 9-102(a)(33): Equipment = goods other than inventory, farm products, or consumer goods (residual category)

· Cmt. 4a: goods = equipment if they are fixed assets or have a relatively long period of use. In contrast, inventory are used up or consumed in a short period.

o § 9-102(a)(75): Software = computer program provided in connection with transaction relating to the program; does NOT include computer programs included in definition of goods

· § 9-108: Sufficiency of Description

o (a) Reasonable ID: Description is sufficient if it reasonably ID’s what is described (regardless of specificity) (courts have applied parol evidence rule and composite document rule) à intent?

o (b): Examples of reasonable ID: specific listing, category, as defined in UCC, quantity

o (c) Supergeneric: A description of as “all D’s assets” or “all D’s personal property” does NOT reasonably ID collateral

§ Policy: increase