Chapter 1 – Scope
· Applicable Rules:
o MCLA 600.6023 – Property exempt from levy & sale under execution, lien excluded from exemption; homestead exemption; rents & profits
o UCC 1-201(b)(29) – Definition of “Purchase”
o UCC 1-201(b)(30) – Definition of “Purchaser”
o UCC 1-201(b)(35) – Definition of “Security Interest”
o UCC 2-403(1) – Power to Transfer; Good Faith Purchase of Goods; “Entrusting”
o UCC 9-317(b) – Interests that take priority over or take free of security interest or agricultural lien – Buyers that receive delivery
· Course Material 1 Notes
o Available Types of Financing
1) Sue to get judgment
2) Writ of execution to get judgment lien on non-exempt assets
3) Sale of non-exempt assets
1) Take possession of collateral without breach of peace (9-609)
2) Dispose of Collateral (9-610)
First to execute prevails over other creditors and purchasers
Generally prevails over other creditors & purchasers
o Aircraft Trading & Services v. Braniff, Inc.
§ Brief Fact/Issue: Chattel mortgage holder for jet aircraft engine brought action for conversion, replevin, & forfeiture against 2 subsequent purchasers of engine & purchaser under lease/purchase agreement.
· Unperfected chattel mortgage, though subordinate to interest of subsequent purchasers continued to exist
· Chattel mortgage, which was perfected 4 or 5 months prior to exercise of purchase option by lessee under lease purchase agreement, had priority over interests of purchaser
· Federal law requires an interest in aircraft/engines, including chattel mortgage, must be recorded with the FAA to perfect a security interest. (Federal Aviation Act)
· State law determines priority between holders of interest in engine aircraft (if recorded per FAA requirements)
· Purpose of statute requiring recording with FAA was to create a central clearing house for recordation of title so that a person would know where he could find ready access to claims against, or liens, or other legal interests in an aircraft.
· Interest of holder of chattel mortgage, not recorded until after sale of engine and subsequent lease, had priority over interest of lessee/purchase, who did not exercise purchase option until 4 or 5 months after chattel mortgage holder’s security interest in engine had been perfected.
o Shelter v. Derivation Principle
Purchaser acquires no less than all of the rights of the transferor
Purchaser acquires no more than all of the rights of the transfer
Structure of Article 9
· 9-100s – Definitions & General Provisions
· 9-200s – Relationship of Secured Party to Debtor
· 9-300s – Relationship of Secured Party to Others (Perfection & Priority)
· 9-400s – Rights of 3rd Parties (Not Debtor or Secured Party)
· 9-500s – Filing
· 9-600s – Default & Remedies
· 9-700s – Transition Provisions
· Applicable Rules:
o MCLA 440.2326
o UCC 1-201(b)(3)
o UCC 1-201(b)(12)
o UCC 1-201(b)(35)
o UCC 1-203
o UCC 2-326(1)
o UCC 2-326(2)
o Scope: Whether a particular transaction is governed by Article 9 of the UCC or not
§ If outside the scope, just means Article 9 us not applicable in regards to validity or effect
o Article 9-109 – Defines Scope of Article 9. 9-109(a) is the “general scope article” which sets forth 6 different types of transactions within Article 9
§ The additional 5 inclusions are not “secured transactions” in classical sense, but brought in for policy reasons.
Transaction that creates a security interest in personal property or fixtures
· Agricultural Lien
· Sale of accounts, chattel paper, payment intangibles, or promissory notes
· Article 2 or 2A security interest
· Article 4 or 5 security interest
o Definition of Security Interest in in UCC 1-201(b)(35)
Security Interest – 1-201(b)(35)
Interest in personal property or fixtures which secures payment or performance of an obligation
· Interest of consignor
· Interest of buyer of accounts, chattel paper, payment intangible, promissory note in an Art 9 transaction
· Retention or reservation of title by seller of goods
· Special property interest of buyer of goods upon identification under 2-401
· Right of seller or lessor of goods to retain or acquire possession under Art 2 or 2
t lessee could become owner for merely nominal consideration, and lease was actually a security interest in the equipment purchased
· Jackson v. State of Alabama
o Facts/Issue: Defendant pleaded guilty to 2nd degree theft of property.
o Held: Agreement concerning several items of furniture was a lease and did not create a security interest, thus, defendant could be prosecuted for 2nd degree theft of property for selling furniture.
o Rule: Secured interest is an interest in personal property or fixtures which secures payment or performance of an obligation.
· Whether a transaction creates a lease or security interest is determined by facts of the case, however, a transaction creates a security interest if the consideration the lessee is to pay the lessor for the right to poession an duse of the goods is an obligation for the term of the lease no subject to termination by the lessee, and
· “1. the original term of the lease is equal to or greater than the remaining economic life of the goods, or
· “2. the lessee is bound to renew the lease for the remaining economic life of the goods or is bound to become the owner of the goods, or
· “3. the lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement, or
· “4. the lessee has an option to become the owner of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement.
o Analysis: Under rental agreement, D was not obligated to pay any particular sum of money for any specified period of time, except amount of monthly rental, he had option to renew lease by making monthly rental payment in advance, and he had right to terminate lease by returning property to rental company without any further liability, and rental agreement provided that rental company retained title to property and was responsible for paying any taxes levied on property.