UCC ARTICLE 9 IN SOUTH CAROLINA
I. SCOPE OF ARTICLE 9 – INTRODUCTION
A. The usual application of Article 9 is to any transaction that creates a security interest in personal property by contract, typically loans secured by personal property as collateral.
B. SI – an interest in personal property that secures the pymt of an obligation
C. Security agmt – contract that creates a SI
D. Debtor – typically both owes the obligation and grants the SI
E. Secured party – creditor to whom the SI is granted
F. Applies to agricultural liens (Statutory lien upon farm products to secure pymt of an obligation for providing goods or services or leasing real property to a debtor engaged in farming operations
G. Article 9 also applies to the sale of monetary obligations, such as a debtor’s right to receive payments (an account receivable), chattel paper (a writing that evidences both a monetary obligation and a security interest), payment intangibles, and promissory notes.
H. Consignments—Consignments also fall within the scope of Article 9.
1. A consignment is a transaction in which a person delivers goods to a merchant for the purpose of sale and the merchant deals in goods of that kind under a name other than that of the person making delivery. If successful, title would pass directly from the owner to the buyer. Under Article 9, the owner of goods is a secured party and the merchant is a debtor.
2. The definition of consignment under Article 9 excludes goods that were consumer goods when owned by the consignor just prior to the consignment.
a. Ex: Court recently held that a car was a consumer good because it was for personal use in the hands of the consignor. Thus, there was no Article 9 transaction when he consigned the car to a used car dealer to sell it on his behalf. Thus, the consignor’s interest was not subordinate to the car dealer’s inventory financer (who was a perfected secured party).
3. The definition of consignment includes situations where the merchant transforms the delivered good into something else prior to sale to the third party.
a. Ex: Owner entered into agreement with Georgetown Steel that was called consignment agreement. Owner would provide iron bricks to Georgetown for use in making steel but would retain title until Georgetown sold the finished product. Owner did not file a financing statement to protect its consignment. Upon insolvency of Georgetown, Owner tried to reclaim the unprocessed iron bricks in the possession of Georgetown. Owner held this was not a consignment because Georgetown was not a merchant in iron bricks and because the iron bricks were not delivered to Georgetown for the purpose of sale. Court held that the transaction was a consignment. Even though the bricks were processed into steel before sale, the bricks were delivered for the ultimate purpose of sale—even if it was in a different form. Consignee not required to sell the raw form of the goods delivered by the consignor f or such goods to be delivered to the purpose of sale. Court also held that when a person is a merchant with sophisticated knowledge of component parts that are incorporated into its product, it is a dealer with respect to both the finished product and the component part—so it did deal in goods of the kind. Because Owner failed to perfect its security interest in the bricks, the bankruptcy trustee could avoid Owner’s SI under the strong-arm clause.
i. Add’l issue that could come up on Bar: Assume there was also a lender to Georgetown that had a SI on Georgetown
here must be a composite of written documents, signed by the debtor that evidence that a security interest was created.
b. If the secured party is in possession of the collateral or has control over certain types of collateral like deposit accts, an oral security agreement is enforceable.
c. If secured party doesn’t have possession or control of the collateral debtor must have authenticated a security agmt that provides a description of the collateral
d. Sufficient Security Agreement
i. Must be written or stored in an electronic medium.
ii. Must create or provide for a SI.
iii. Need not be a formal security agmt. The writing will be sufficient so long as it evidences that a security interest was actually created.
iv. A financing statement alone is not sufficient.
e. Sufficient Authentication
i. Usually accomplished by being signed by the debtor, but letterhead or encryption with the present intent to adopt are probably sufficient.
f. Sufficient Description of Collateral
i. Collateral description sufficient if it reasonably identifies what is described
ii. Description by collateral type defined by the Code is sufficient except for consumer goods and commercial tort claims.
iii. Super-Generic Descriptions—A super-generic description in a security agreement is insufficient for attachment. (e.g., “ all property owned by the debtor.”)