Secured Transactions Outline PDF

Preview

Summary

Outline compiled of class notes for entire semester to study for exam...

Description

SECURED TRANSACTIONS Buying Stuf… When you don’t have the money

INTRODUCTION..............................................................................................................................................2 CHAPTER 1: THE TYPICAL SECURED TRANSACTION.........................................................................................3 CHAPTER 2: CLASSIFICATION OF COLLATERAL.................................................................................................4 CHAPTER 3: INTANGIBLES & QUASI-INTANGIBLES...........................................................................................5 CHAPTER 4: TYPES OF INVESTMENT PROPERTY..............................................................................................7 CHAPTER 6: RIGHTS IN & VALUE GIVEN........................................................................................................10 CHAPTER 7 & 8: PMSI...................................................................................................................................11 CHAPTER 9: PERFECTION..............................................................................................................................12 CHAPTER 10: THE INITIAL FINANCING STATEMENT (“UCC1”).........................................................................13 CHAPTER 11: THE PROCESS OF FILING..........................................................................................................15 CHAPTER 12: LATER FILINGS & CHANGES IN THE SITUATION.........................................................................16 CHAPTER 14: AUTOMATIC PERFECTION- THE PMSI IN CONSUMER GOODS...................................................19 CHAPTER 15- PERFECTION ON & THROUGH INSTRUMENTS & DOCUMENTS.................................................20 CHAPTER 17: GOODS COVERED BY CERTIFICATE OF TITLE.............................................................................21 CHAPTER 18: PRIORITY ISSUES.....................................................................................................................22 CHAPTER 19: SPECIAL PRIORITY WITH PMSIS...............................................................................................23 CHAPTER 21: FIXTURES.................................................................................................................................25 CHAPTER 24- DOES INTEREST SURVIVE DISPOSITON?...................................................................................26 CHAPTER 25: PROCEEDS...............................................................................................................................29 CHAPTER 26: ATTACHMENT, PERFECTION, & PRIORITY IN PROCEEDS............................................................30 CHAPTER 28: LEASES OF GOODS...................................................................................................................31 CHAPTER 29: OTHER TRANSACTIONS GOVERNED BY ARTICLE 9....................................................................33 CHAPTER 30: COSIGNMENT..........................................................................................................................34 CHAPTER: 30 THINGS NOT COVERED BY ARTICLE 9.......................................................................................35 CHAPTER 31: DEFAULT..................................................................................................................................35 CHAPTER 32: REPOSSESSION........................................................................................................................37 CHAPTER 33: THE FORECLOSURE SALE..........................................................................................................40 CHAPTER 34: STRICT FORECLOSURE..............................................................................................................41

p. 431 in code = extra room to write stuffs

INTRODUCTION P. 1-20 Hypo: X buys a new car for 20k but doesn’t have 20k- only has $2k. Needs to FINANCE (make loan) for balance.  Commercial transactions are often seller financed, meaning sellers have to borrow the money from the bank. o The bank will loan this money- for a promise to return the 18k + interest on it. o Fundamental relationship = raw, bare promise in exchange for money (contract)  What things motivate X to pay that loan? o Their credit score. If she doesn’t pay back, her credit will be shot and will affect her ability to borrow again. o She can lose something if she doesn’t pay; bank can sue/threaten to sue her on the promise to pay  Instead of just relying on her promise, bank wants some tangible valuable thing to motivate her to pay back the $ o COLLATERAL. Now this is a secured transaction. She is giving rights in the collateral to the bank, Mr. Carlson.  Possessory v/ nonpossessory SI: o Nonpossessory: the thing of value = the thing they require. ($20k car) o bank keeps SI in X even though no longer in their position.  Hypo: computer system --- Even though Y goes ahead and sells computer system, Y can keep a security interest in that system even though it is no longer in Y’s possession but is now in X’s possession. o Possessory: pledge/water bottle. Why does it matter?  It’s on the bar…  2- Secured transactions infiltrate every type of commercial law  3- In your own life, you’re engaging in these transactions,  4- Filing mistake in commercial law can cost you billions. Overview of Article 9  Uniform law made by commission- recommended for adoption to each of the states. Not, by itself, law. But uniform law… gets strength from all states adopting it. There are times where parentheticals say (state should insert something here.) It is really the shell of the law.  Tenn. Code Ann. is almost identical to this uniform law.  UCC deals w/ commercial transactions (sales, leases, loan agreements)  Provisions of article 1 apply to the rest of the code. (so some of our definitions come from there)  Most recent revision of UCC is crafted to make things easier on commercial businesses, so lots of strict parts of it don’t apply to consumer goods (many say “except for consumer goods” in the recent revision of rules) o See reasonable notice requirement for foreclosure sales  If federal (USC) v. state (Colorado), then federal law will preempt (not UCC b/c states adopt diff versions of it) CHAPTER 1: P. 1-20  Person who has obligation to pay = debtor & the person owed the money = creditor  After a court judgment to pay ---- now judgment creditor & judgment debtor  If promise & nothing more--- then it is called “unsecured debt” & “unsecured creditor” SECURED CREDITOR (p. 1-2)  Increase your chance of getting paid if u agree to lend money, deliver property, or perform services in exchange for the promise to be paid in the future  If not paid, then creditor has the right to enforce the security interest against the debtor (repo/foreclosure process) BANKRUPTCY PROCESS:  Chapter 7: “straight” bankruptcy- clean slate- liquidate assets & debts forgiven by state  Chapter 11: business org. is allowed to come up with a plan for reorganization  Chapter 13: individual wage-earner can formulate a plan for repayment on a more “do-able” schedule Process: The debtor or debtor’s creditors files a petition—automatic stay is put in place- trustee can get to work. 1. List of assets 2. List of creditors to which debts are owed (Secured claims included here- then unsecured ones can collect from pot at the end) Secured transactions = credit secured consensually by personal property (is secured by collateral) CHAPTER 1: THE TYPICAL SECURED TRANSACTION  Only promises in which the commercial law shows an interest are enforceable  Secured credit exists when something has been put up as collateral Scope/ Basic definitions:  9-109(a)(1) & OC 2: When an SI is personal property by K is created, ART 9 applies regardless of form o Cannot TAKE a security interest though- it MUST be GRANTED. (See problem 1.2) o Cannot contract around it, can’t change it. These rules apply, period. o Doesn’t matter what u try to call it- it’s a SI & Article 9 applies o 9-109---Security interest in personal property by K  1-201(b)(35): SI = an interest in personal property or fixtures which secures payment or performance of an obligation  9-102(a) & OC 2(b)

o Collateral: the property subject to a security interest or agricultural lien o Debtor: a person having an interest, other than a SI/ lien, in the collateral, whether or not the person is an obligor. o Obligor: person who owes the $ o Secured Party: person in whose favor a SI is created o Security Agreement: an agreement that provides for or creates a security interest.  Person related to (62): v. Person related to, with respect to an organization (63) v. Just “Person” (27): CHAPTER 2: CLASSIFICATION OF COLLATERAL P. 27 TYPES OF GOODS  Collateral does not have to be tangible- rights have value as well (watch, TV v. player contracts) o BROWN V. NAT’L BANK : Personal property is broad-- can be a watch, plane, BUT ALSO can be rights to a K.  Need a proper “description” or “indication” of the collateral 9-102(a) Goods: all things movable [tangible] when a SI attaches. Gives examples. Consumer Goods: goods used or bought for use primarily for personal, family, or household purposes . Farm products: goods, other than standing timber, w/ respect to which the debtor is engaged in a farming operation and which are (a) crops grown, growing, or to be grown (i) even if on vines, trees, or bushes, (ii) aquatic goods produced in aquacultural operations, (b) livestock, born or unborn, including aquatic, (c) supplies used or produced in a farming operation, (d) products of crops or livestock in their unmanufactured states. (PARALLEL OF INVENTORY) Farming operation: raising, cultivating, propogating, fattening, grazing, or any other farming, livestock, or aquacultural operation. Inventory: goods, other than farm products, which: (a) are leased by a person as lessor, (b) are held by a person for sale or lease or to be furnished under a contract of service, (c) are furnished by a person under a K of service; or (d) consist of raw materials, work in process, or materials used [UP] or consumed in a business.  Whether it is leased to you & you’re driving it around or whether sitting in the parking lot waiting to be leased, it is inventory Equipment: goods other than inventory, farm products, or consumer goods. (catchall)  Equipment if they are fixed assets and have relatively long period of uses  Copier paper: will be used UP – nature changes when something put on it. Doesn’t last long as plain white copy paper. (inventory) OC 4(a) to 9-102: In borderline cases, look @ principal use of the property. Problem 2.1: Fresno Furniture approaches a major commercial lender. collateral = furniture stored where it keeps finished pieces.  Debtor = Fresno. Secured party= commercial lender. Collateral = furniture.  Inventory (is tangible so good. Not consumer good (look at what it is IN THE HANDS OF THE DEBTOR). Not farming product.) Meets this definition (held for sale/lease)  If sold to a wholesale distributor, would still be inventory (still held for sale/lease)  If sold to a boutique retailer, would be inventory  If sold to Tanya, a customer, now consumer good (personal/family/household purpose). (collateral = sofa)  If in dental office, equipment (used for work, not consumer good) Problem 2.2: Fresno’s furniture in their possession.  Table saws, lathers, standing machines Fresno uses to make furniture- equipment  Piles of wood, etc. ready to be made into furniture- inventory (work in process)  Nails, screws, sandpaper, glue the company uses- inventory (raw materials)  Partially completed furniture- inventory (work in process)  Completed furniture- wrapped & labeled ready to go- inventory (materials used in business/ held for sale) Problem 2.3: Farmer farming raspberries.  Seed, fertilizer, pesticides- farm products (this is equivalent to nails/glue that are inventory)  Tractor owned/used on farm- equipment (not used UP, just used like the table saw)  Tractor fuel kept on farm- farm products (more like glue b/c necessary but it gets used UP)  Raspberries growing- farm products  Harvested raspberries- farm products Problem 2.4:  Raspberries went from farm products to inventory once preserved, put in labeled jars & ready to go for sale! (Not selling them AS raspberries) o Farm product seizes to be a farm product once a manufacturing process is superimposed on it (canning/labeling/etc.) In Re Estate of Silver: Wilson filed UCC1 calling items equipment then Silver filed UCC1, labeling them consumer goods.  If insufficient labeling, then not perfected!! So who was right?? o Ct said equipment NOT consumer goods, so Wilson won b/c his SI in equipment was perfected  purchased for use in his business/ never displayed in his home but in model homes, condos, etc.  TAKE-AWAY: IF INCORRECTLY CLASSIFIED, MAY NOT BE AS SECURED AS YA THINK. Cooperative finance Assoc. v. B & J Cattle: Is cattle a farm product or inventory?  Here, Bank had classified the cattle as “inventory”. When debtor defaulted, & they went after proceeds, argument was over whether the cattle was included with the inventory that they could collect on? (sell cattle for $ cash proceeds)



Here, cattle was inventory so Bank (SP) won---o Debtor (MRC) had the cow for immediate resell to buyer o He was not currently in cattle business: lacked facilities to raise, fatten, or graze livestock PROBLEM 2.5: (p. 35) Cashmore comes into Sarah’s store wanting to purchase various computer machines & components. While he marks checkbox next to personal use on payment plan, Sarah recognizes address as a major downtown office building.  Q: Does it matter what the debtor categorizes it as?  RULE: If SP knew/should have known that the representation of the debtor was incorrect then the SP cant rely on it .  SP takes steps to protect itself against rest of the world.  The risk is on them- so the SP ultimately has to decide if it’s reasonable to rely on labeling of the debtor (burden of inquiry) In Re Palmer: (consumer good v. equipment)  Palmers (debtors)filed bankruptcy and listed, among their assets, their utility tractor & front loader as “consumer goods.”  Whether it was perfected depended on whether they were consumer goods or equipment  B said they used it as equipment, & mischaracterized it on perfect to benefit them (avoid stricter filing requirements, etc.) but had no evidence of this (no genuine issue of material fact)  RULE: The classification is to be made at the time SI arises, at the time the agreement is entered into o doesn’t change later just b/c the manner it is used for changes later  CONCLUSION: consumer good--o Listed in SA as for personal use o Nobody is gonna monitor the use of it later to make sure CHAPTER 3: INTANGIBLES & QUASI-INTANGIBLES P. 41 & CHART  This chapter covers all collateral that is not a good (See chart on p. 28) o These terms are not official Article 9 categories  Goods  Investment property  Intangible: valuable types of personal property that often serve as collateral but that take no material form o Accounts o General intangibles (Software, Payment intangibles, Other general intangibles)  Quasi-tangibles: Valuable for what they represent. They have a physical form, occupy space, have to be present (and safely stored) somewhere, and can be lost or stolen but are not valuable THEMSEVES but for what they represent (personal check, chattel paper, warehouse receipt) o Instrument, Document, Chattel paper, Deposit account, Commercial tort claim  Difference: quasi have some physical embodiment (can be lost/stolen, need to take steps to safeguard) & true intangibles are a RIGHT and thus do not need a physical embodiment (value is in the right) Record: info inscribed on a tangible medium or which is stored in an electronic or other medium & is retrievable in perceivable form. first 2 paragraphs of Comment 9a Account (long definition): a right to payment of a monetary obligation (3) "Account debtor" means a person obligated on an account, chattel paper, or general intangible. The term does not include persons obligated to pay a negotiable instrument, even if the instrument constitutes part of chattel paper. Instrument: a negotiable instrument or any other writing that evidences a right to the payment of a monetary obligation, is not itself a security agreement or lease, and is of a type that in ordinary course of business is transferred by delivery with any necessary indorsement or assignment. The term does not include (i) investment property, (ii) letters of credit, or (iii) writings that evidence a right to payment arising out of the use of a credit or charge card or information contained on or for use with the card. Document: a document of title or a receipt of the type described in 7-201(b). Deposit Accounts: a demand, time, savings, passbook, or similar account maintained with a bank. The term does not include investment property or accounts evidenced by an instrument. Chattel Paper: a record or records that evidence both a monetary obligation and a security interest in specific goods, Electronic chattel paper: chattel paper evidenced by a record or records consisting of information stored in an electronic medium Tangible chattel paper: chattel paper evidenced by a record or records consisting of information that is inscribed on a tangible medium. General intangible: any personal property, including things in action, other than 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. The term includes payment intangibles and software Payment intangible: a general intangible under which the account debtor's principal obligation is a monetary obligation. Software: a computer program and any supporting information provided in connection with a transaction relating to the program. The term does not include a computer program that is included in the definition of goods Comments 5a-5d to 9-102 3-103(a) Order: a written instruction to pay money signed by the person giving the instruction. The instruction may be addressed to any person, including the person giving the instruction, or to one or more persons jointly or in the alternative but not in succession. An authorization to pay is not an order unless the person authorized to pay is also instructed to pay 3-104(a), (b), (e), and (f): https://www.law.cornell.edu/ucc/3/3-104

1-201(b) Bill of lading: a document evidencing the receipt of goods for shipment issued by a person engaged in the business of transporting or forwarding goods Warehouse receipt: a receipt issued by a personengaged in the business of storing goods for hire. Document of title: includes bill of lading, dock warrant, dock receipt, warehouse receipt or order for the delivery of goods, and also any other document which in the regular course of business or financing is treated as adequately evidencing that the person in possession of it is entitled to receive, hold, and dispose of the document and the goods it covers. To be a document of title, a document must purport to be issued by or addressed to a bailee and purport to cover goods in the bailee's possession which are either identified or are fungible portions of an identified mass. See 7-104: https://www.law.cornell.edu/ucc/7/7-104 Problem 3.1: L owns jewelry store. LC purchases broach. LC leaves the store, orally promising to send L a check for its full price when she gets home. How would you classify the promise as collateral in Louie’s hands?  (A) Classification of this oral promise to S? Account (2) (payment intangible)  (B) When S receives B’s check (order to pay) in the mail, what is check in S’s hands? Instrument (47) (quasi-intangible)  (C) Checking account that S deposits check into? Deposit Acct (29) (quasi-intangible)  Enforceable K but NOT a secured transaction Problem 3.2: Knifty manufactures sweaters for sale to Retailers. Retailer sends a purchase order to K, which responds by delivering sweaters to R with an invoice informing R of price and 60-...