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4
2-702(2): Reclamation...............................................................................................................4
Setoff............................................................................................................................................4
Unit 2: Basic Concepts and Terminology of Article 9.....................................................................4
Unit 3: Intro to SPs Remedies After Default; SPs Right to Possession of the Collateral...............4
Default..........................................................................................................................................4
Entering a dwelling:.....................................................................................................................4
Presence of Cop:...........................................................................................................................4
Reasonable Assembly...................................................................................................................5
What constitutes a breach of the peace?:......................................................................................5
Damages for Breach of Peace......................................................................................................5
Unit 4: Disposition of the Collateral by the SP (Foreclosure Sale)..............................................5
Waterfall of Application of Proceeds:..........................................................................................6
Surplus & Deficiency:..................................................................................................................6
Commercial Reasonableness of Sale:...........................................................................................6
Notice of Disposition:..................................................................................................................6
Unit 5: Rights of Guarantors and Other Secondary Obligors in a Foreclosure Sale.......................7
Exoneration..................................................................................................................................7
Subrogation..................................................................................................................................7
Reimbursement.............................................................................................................................7
Contract Modifications.................................................................................................................7
Release of P..................................................................................................................................7
Extension of time for P to perform...............................................................................................8
Notification of Sale......................................................................................................................8
Unit 6: Foreclosure Sale and Competing Liens...............................................................................8
Juniors Potential Liability to Senior............................................................................................8
Marshalling:..................................................................................................................................8
Unit 7: Redemption..........................................................................................................................8
Redemption..................................................................................................................................8
U3C one-time right to cure...........................................................................................................9
Unit 8: Strict Foreclosure.................................................................................................................9
Strict Foreclosure:........................................................................................................................9
Unit 9: Collection of Rights to Payment..........................................................................................9
Unit 10: Basic Consequences of bankruptcy to Creditors: The Automatic Stay: Distributions to
Creditors........................................................................................................................................10
DIP Debtor in Possession........................................................................................................10
Unit 11: Creation of a Security Interest (Attachment): The Baseline Rule................................11
1.
Value.................................................................................................................................11
2.
Debtor has rights..............................................................................................................12
3.
Authenticated SA.............................................................................................................12
Unit 12 & 13: Introduction to Resolution of Priority Contests; Perfection by Filing I: Intro to
Filing System; effective filing statements.....................................................................................12
PMSI...........................................................................................................................................13
Banktuptcy trustee has same rights as LC. 9-102(a)(52)(C)......................................................14
Unit 14: Perfection by Filing III: Effect of Post-Filing Changes..................................................14
For closer calls, consider Murray v. Ponti 980 NE 2d 1275, 2012 Ill App. LEXIS 1008 (Ill App
2012) factors.
1. officers arrival with repo man
2. intervening in more than one step of repo process
3. failing to depart before completion of the repo
4. standing in close proximity to the creditor
5. unreasonably recognizing the documentation of one party over another
6. telling the debtor that the seizure is legal
7. ordering the debtor to stop interfering or be arrested
REASONABLE ASSEMBLY: If collateral is scattered all about, SP may require debtor to
assemble collateral and make it all available to SP at a place which is reasonably convenient to
both parties. 9-609(c).
WHAT CONSTITUTES A BREACH OF THE PEACE?:
Cant contract around provisions regarding what constitutes a breach of the peace
Role of cop can differ based on whether he comes and participates, vs. when he
encounters repo after the fact and is just checking in.
Role of cop can differ based on whether he comes and participates, vs. when he
encounters repo after the fact and is just checking in.
9-629: Damages provision: "The damaged party is entitled to any loss" i.e., compensatory
damages
9-629c allows penalty in consumer transactions allows 10% of principled debt plus
finance charges
Marshalling is a common law notion that prevents SP1 from getting its hands on collateral that
SP2 has a right in, without first pursuing other collateral.
o
However, absent a court order, there is no affirmative duty for SP2 to behave in this way.
Marshalling and bankruptcy: unsecured parties have an interest in the SP1 going after smaller
(reverse-marshalling) collateral first (to leave more for the unsecured creditor)
Generally, because they're in a dilemma, bankruptcy courts avoid issuing any marshalling
order
Common English, any time the debtor pays off the loan
In UCC A9, when debtor pays off the loan after default, prior to dispo or strict foreclosure
Under non-Bankruptcy law, debtors may have to pay MORE to redeem than collateral is worth
o
Under 722, in Bankruptcy, SP can't collect more than the value of the collateral
P had contact with bank where bank said "don't worry about being late," and bank still repo'd car.
K has 'no oral modifications' clause.. So P/debtor out of luck. Default = default.
Business transaction. Late payments. No objection from bank after several late payments. Court
holds that bank can't accelerate b/c it waived its right to accelerate when it accepted late payments.
ii.
2
2
For full foreclosures, SP can send proposal to debtor, and if debtor doesn't object
in 20 days, then it counts as CONSENT
Send notices (9-621)
i.
Same at 9-611 (guarantor/secondary obligor; anybody who has told SP that they
have notice in collateral; conduct lien search and give those people notice too
SP must act in good faith
Senior has duty to give notice to junior during this process; BUT if notice is not given to junior
creditor, that does not prevent strict foreclosure from going through.
o
Junior's remedy for not getting notice: 9-625 = general remedies for junior who don't get
notice
Besides adequate protection, another way for SP to get the collateral back from DIP (trustee)
Under BC362(d)(2), Court lifts stay and give property to SP if:
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization;
Equity calculation:
Equity in an item of property = (FMV of the item) minus (amount of liens on it).
All of the applicable requirements for perfection at Sections 9-310 through 9-316
LC beats unperfected security interest. An unperfected security interest is subordinate to
the rights of a person that becomes a lien creditor before the security interest is
perfected; (9-317)
Continuous Perfection: 9-308: Perfected continuously if originally perfected one way, then
perfected in another, with no intermediate period of unperfection
9-310: Except as otherwise provided in subsection (b) and Section 9-312(b), a financing
statement must be filed to perfect all security interests.
- Filing is permissible for all types of collateral except money and deposit accounts
Four Ways to Perfect: 1. File; 2. Possession; 3. Automatic Perfection; 4. Control
9-301: Debtors Locations Law Governs: Except as otherwise provided in this section, while a
debtor is located in a jurisdiction, the local law of that jurisdiction governs perfection, the effect
of perfection or nonperfection, and the priority of a security interest in collateral.
9-516: What Consititutes Filing?
(a) What constitutes filing. Except as otherwise provided in subsection (b),
communication of a record to a filing office and tender of the filing fee or acceptance of
the record by the filing office constitutes filing.
(b) has reasons filing office can reject filing (acceptance of rejectable FS = effective FS,
Cmt. 9). No Ds address = rejectable.
(c) says that, if filing office rejects filing for reason not in (b), filing is effective
AUTHRORIZED FILINGS
If SP files without authorization on 5/15; then signs SA (for implicit authorization) on 7/1, filing
date is 5/15!!! (9-322 Cmt. 4)
9-517: SLOPPY FILING OFFICE does not effect effectiveness of filing
PMSI: 9-103: Grants Superpriority for Goods and Software
9-309(1) automatic perfection in consumer goods
9-317(e)
9-324 : PMSI priority
"purchase-money obligation" means an obligation of an obligor
[X] incurred as all or part of the price of the collateral or
[Y] for value given to enable the debtor to acquire rights in or the use of the
collateral if the value is in fact so used.
9-502(a) and 9-516(b): CONTENTS OF FILING STATEMENT:
9-502. Contents of Financing Statement. (UCC1)
(a) Sufficiency of financing statement. Subject to subsection (b), a financing statement
is sufficient only if it:
(1) provides the name of the debtor; (seriously misleading if any error;
except not seriously misleading if search for correct name would turn up
erroneously filed FS (9-506(a))
Alt A: Driv lic necessary if debtor has a driver's license; if not, then it can be individual name
OR debtor's surname and first personal name (majority of states)
Alt B: driver's license OK; individual name OK; debtors surname and first personal name OK
Corp trade name = insufficient. 9-503(c).
Possession
[9-313(a)]
Temporary
X
[9-312(a)]
Instrument
X
[9-312(a)]
X
[9-312(e), (g)]
X
[Same]
X
[Same]
Promissory Note
(Subset of Instruments)
General Intangibles
Payment Intangible
(Subset of General
Intangibles)
X
X
If collateral is money, then the only option is to have a sort of field warehousing
arrangement. For coin collector/warehouse, it might consist of pledge notices and SP
having keys to showcases
PERFECTION BY POSSESSION BY AGENT OF DEBTOR:
Minimum needed: letter from party acknowledging that it holds possession of collateral
for secured party's benefit
Consider whether there are implied duties arising under non A9 law
Perfection by possession of writing only if the writing is a negotiable instrument.
TEMPORARY PERFECTION:
The proper Jx is "where the debtor is located;" unless its where perfection is done by
possession, in which case its where the collateral is located.
AUTHORIZED FILERS
- 9-506(a) through (c) say who is allowed to file.
- FS filed by unauthorized person has no legal effect
- Must be authenticated by debtor OR by implication of authorized SA
- If SP files without authorization on 5/15; then signs SA (for implicit
authorization) on 7/1, filing date is 5/15!!! (9-322 Cmt. 4)
9-302 through 9-306 are special rules for special types of collateral.
UNIT 17: PROCEEDS
9-315(a)(2) sec interest attaches to all identifiable proceeds in the collateral
9-102(a)(4) definition of proceeds:
- Whatevers acquired from collateral
9-315(b) Commingled Proceeds
- Commingled proceeds, that are not goods, remain proceeds
AUTOMATIC PROCEEDS PERFECTION for 20 days!
3 WAYS TO CONTINUE PERFECTION 9-315(d)
1. Elephant Rule
a FS covers original collateral AND
b The proceeds are collateral in which a sec intr may be perfected by filing in the office
in which the FS has been filed AND
c The proceeds are not acquired with cash proceeds.
i ASK: "Has there been a cash interval?"
2. Identifiable cash proceeds. Cmt 13 = anything fundamentaly like cash or checks (liquid
assets) (incl. debit card transactions)
3. Sec interest in proceeds is perfected in ordinary way within 20 days
UNIT 21: SP VS. SP2, PART II: PMSIS; THE DOUBLE DEBTOR RULE
PMSI Privileges:
Grace period to file vs. lien creditors, buyers (9-317(e))
- 20 days
- Only applies to non-consumer goods (because consumer goods get automatic
perfection)
Automatic perfection in consumer goods 9-309
- Permanent.
9-324 Superpriority as against competing priority
- PMSI in goods (except inventory and livestock) is
- Perfected before debtor received possession or within 20 days thereof
- (b) and (c) say that SP on inventory written notice; no 20 day grace period
Checklist:
PMSI perfected at debtor receives possession of inventory
PMSI sends authenticated notice to previous SP
SP receives notice within 5 years before debtor receives possession
Notification states that person sending notification (will) have PMSI
interest
- 9-324 TWO PMSIs in same collateral DP (enabling loan vs. principal,
principal wins)
TWO enabling PMSIsrace to perfect under 9-324(g)(2)
- 20 days to file after debtor takes delivery. Debtor takes delivery when potential
lender that the debtor has acquired an interest in the goods taken as a whole.
Ostensible Ownership Test. 9-324 Cmt. 3.
- Trying equipment out isnt an A9 transaction.
PMSI In Inventory:
- No 20 day grace period
- Must be perfected at time of debtor receiving delivery
- Must notify all competing third parties before delivery (but no more than 5 years
before delivery). 9-324(b).
9-325:
(This rule can help: Sellers who were perfected afterwards)
(a) Subordination of security interest in transferred collateral. Except as otherwise
provided in subsection (b), a security interest created by a debtor is subordinate to a security
interest in the same collateral created by another person if:
(1) the debtor acquired the collateral subject to the security interest created by the
other person;
(2) the security interest created by the other person was perfected when the
debtor acquired the collateral; and
(3) there is no period thereafter when the security interest is unperfected.
(b) Limitation of subsection (a) subordination. Subsection (a) subordinates a security interest
only if the security interest:
(1) otherwise would have priority solely under Section 9-322(a) [FTFOP] or
9-324 [PMSI]; or
(2) arose solely under Section 2-711(3) or 2A-508(5).
Only applies to goods, so for, e.g., patents, buyer is much more vulnerable. There is no
limitation as to amount, knowledge.
If HDC of negotiable instrument (who may hold it as security or as outright owner), then take free of
ALMOST all claims and defenses
3-305(a)(1): list of defenses that can be asserted against all holders (even HDCs!)
o bankruptcy discharge, infant signed it, duress etc narrow set of defenses
3-305(b): says HDC not subject to defenses of 2-205(a)(2) and (3), but still subject to defenses of 3305(a)(1)
SP VS. RECEIVABLES
PURCHASER
File
CP
File or
possession
Promissory Note
Automatic*
(sales only!)
Automatic*
(sales only!)
Must reasonably idenfity rights assigned and to whom payment must be made
(identify assignee).
Assignability clauses
-
9-331: A3, A7, and A8 rules override any A9 rules that would govern preference. HDC and
HDC-esque parties win over A9 rules.
9-330(d)
PURCHASER OF INSTRUMENT HAS PRIORITY over sec. interest perfected
other than possession if:
o
o
o
o
o
o
o
Purchaser?
Instrument?
SP1 perfected by method "other than possession"?
SP2 give value?
Sp2 took possession?
SP2 GF?
SP2 "without knowledge that purchase violates rights of SP1"?
o Place a legend/stamp to protect against this!
9-330(c)
Purchaser has priority in proceeds, except as in deposit account, to the extent that:
9-322 provides for priority in proceeds, or
proceeds are specific goods covered by the CP or cash proceeds of specific goods, even if
purchasers security interest in the proceeds in unperfected
1. File
9-312(a)
2. Delivery
9-313(a) and 8-301
a. Possession; or
b. Another person acquired possession or holds it for purchaser; or
c. Securities intermediary holds it in registered form
3. Control (Delivery+) 8-106 (Delivery, indorsement, registered to purchaser)
The crux is the ability to sell without further consultation of D.
a. Certificated security bearer form
b. Certificated security registered form
c. Uncertificated Security (e.g., Mutual Fund)
d. Security Entitlements
c. Uncertificated Security (e.g., Mutual Fund [ under 8-106(c)(1)]) (at least control)
- Delivered to purchaser
OR
- the issuer has agreed that it will comply with instructions originated by the
purchaser without further consent by the registered owner.
d. Security Entitlement (file or control)
- The purchaser becomes the entitlement holder
OR
- The securities intermediary has agreed that it will comply with entitlement orders
originated by the purchaser without further consent by the entitlement holder
OR
- Another person has control of the security entitlement on behalf of the purchaser
or, having previously acquired control of the security entitlement, acknowledges
that it has control on behalf of the purchaser.
OR
- (e) Securities entitlement holder himself always has control
Including on margin cases. 8-106(e) Cmt. 6.
** Original owner can retain control under 8-106(f)
8-102(a)(9) Broker can treat anything as a financial asset (including Puppy Chow).
Choice of Law9-305
1. by filing = debtors location
2. cert = state of certificate
3. entitlement or security account = security intermediary Jx (by agreement) (by 8-110(e))
> PMSI
9-607: Enforcement
9-340: Right to Recoupment and Setoff
- When SP is banks customer. Bank cant enforce setoff as against
9-332(b)Transferees of Deposit Accounts take free except in cases where Debtor acts in
collusion with transferee
Non-control perfecters usually end up resorting to judicial process
Bank can exercise setoff/recoupment.
Priority Exceptions:
- HDC, Protect Purchaser, HTWANDOTHBDN
- Purchasers of CP and Instruments per 9
- Deposit Accounts
- Securities intermediary with automatic control
- PMSI and proceeds, loses to bank with control over deposit account
- Proceeds per 9-322b proceeds relate back to original collateral perfection date
(a)
Assume C7 Bankruptcy;
Liquor license NOT property per state law, so "you don't get off the ground"
So, no security interest in the liquor license; but it will have a security interest of FFE
(fixtures, furniture, and equipment)
No SI in liquor license = bank is unsequred for price paid for bundled assets ABOVE cost
of FFE
State law says that SI is not permitted because license right is not transferrable
SO you can get a security interest in a general intangible, but you can't do
anything with it
T1
D
SP1
SP2
T2
Bond - file
Bond - control
T3
*cash out* (traceable)
SP1 would WIN in proceeds under strict FTFOP; but SP2 should win in
proceeds because it would win in bond.
T2
T3
D
SP1
SP2
Dep Acct
Control
T4
Dep Acct money
Item X of inv
Inv FS
Inv FS
Under Strict FTFOP, SP1 would win because it perfected first and was continusously perfected
(not that without T3 filing statement in inventory, it would have been unperfected after 20 days.
9-322(d) and (e) allow SP2 to win because 1. SP1s collateral is of a type not perfected by filing
(i.e., control); and 2. Proceeds are of a type typically perfected by filing. This outcome protects
the integrity of the filing system.
Example 2: At time T1, D grants SP-1 a security interest in debtors deposit
account, which SP-1 perfects by control. At T2, D grants SP-2 a security interest
in debtors existing and after- acquired inventory, which SP-2 perfects by filing.
At T3, SP-1 files a financing statement covering inventory (with authorization
from D). At T4, D withdraws funds from the deposit account and uses them to
buy item X of inventory. Each SP has a security interest in X (in the case of SP-1,
as proceeds; in the case of SP-2, as original collateral). Because each has filed
against inventory each security interest is perfected. (Notice that if SP-1 hadnt
filed at T3 its proceeds security interest in X would have become unperfected
after 20 days.) Under the FTFOP priority rule, as extended to proceeds by 9322(b), SP-1 would have priority in X because it perfected in the deposit account
before SP-2 filed. That seems rather subversive of the filing system, as SP-2 filed
first.
In response to such situations, Revised Article 9 added new subsection (d) and (e)
to 9-322. These apply a first-to-file (not first-to-file-or-perfect) priority rule to
proceeds consisting of property of a type for which filing is the usual method of
perfection. By virtue of 9-322(d) and (e), SP-2 is given priority in X in this
Example 2.
9-322(d) [First-to-file priority rule for certain collateral.] Subject to subsection (e) and
except as otherwise provided in subsection (f), if a security interest in chattel paper, deposit
accounts, negotiable documents, instruments, investment property, or letter-of-credit rights is
perfected by a method other than filing, conflicting perfected security interests in proceeds of the
collateral rank according to priority in time of filing.
(e) [Applicability of subsection (d).] Subsection (d) applies only if the proceeds of the collateral
are not cash proceeds, chattel paper, negotiable documents, instruments, investment property, or
letter-of-credit rights.
(a) Whether a transaction in the form of a lease creates a lease or security interest is determined
by the facts of each case.
(b) A lease should be recharacterized if:
- the consideration that the lessee is to pay the lessor for the right to possession and use of
the goods is an obligation for the term of the lease and
- is not 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; [lease term uses all economic life of goods]
(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;
(3) the lessee has an option to renew the lease for the remaining economic life of
the goods for no additional consideration or for 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 for nominal additional consideration upon compliance with the lease
agreement.
(c) A transaction in the form of a lease does not create a security interest merely because:
(1) the present value of the consideration the lessee is obligated to pay the lessor
for the right to possession and use of the goods is substantially equal to or is greater than
the fair market value of the goods at the time the lease is entered into;
(2) the lessee assumes risk of loss of the goods;
(3) the lessee agrees to pay, with respect to the goods, taxes, insurance, filing,
recording, or registration fees, or service or maintenance costs;
(4) the lessee has an option to renew the lease or to become the owner of the
goods;
(5) the lessee has an option to renew the lease for a fixed rent that is equal to or
greater than the reasonably predictable fair market rent for the use of the goods for the
term of the renewal at the time the option is to be performed; or
(6) the lessee has an option to become the owner of the goods for a fixed price
that is equal to or greater than the reasonably predictable fair market value of the goods at
the time the option is to be performed.
(d) Additional consideration is nominal if it is less than the lessee's reasonably predictable cost of
performing under the lease agreement if the option is not exercised. Additional consideration is
not nominal if:
(1) when the option to renew the lease is granted to the lessee, the rent is stated to
be the fair market rent for the use of the goods for the term of the renewal determined at
the time the option is to be performed; or
(2) when the option to become the owner of the goods is granted to the lessee, the
price is stated to be the fair market value of the goods determined at the time the option is
to be performed.
(e) The remaining economic life of the goods and reasonably predictable fair market
rent, fair market value, or cost of performing under the lease agreement must be
determined with reference to the facts and circumstances at the time the transaction is
entered into.
TERMINABLE LEASES
TO BE A9 CONSIGNMENT:
2
3
4
Consignment rules require consignor to create sec interest in consigned goods. Must perfect to
beat creditors of consignee.
Consignee gets same rights as consignor (can transfer them).
To recharacterize assignment to ST, must have 9-203(b) requirements (i.e., security agreement).
If the CONSIGNEMENT IN QUESTION IS RECHARACTERIZED as a true A9
consignment (i.e., meets the requirements above), then in order for consignors interest to beat
the interest of a creditor of the consignee that would otherwise have priority, the consignor must:
1. Perfect its PMSI before consignee receives possession
2. Notify consignees creditors
3. Within 5 years before consignee receives possession of collateral, and
4. The notification must clearly spell out consignors interest.
These are the 9-324(b) PMSI in Inventory requirements.
SALE-OR-RETURN counts as consignment!
UNIT 33: FIXTURES
iii. Sec interest perfected by fixture filing before goods become fixtures or
within 20 days thereafter
ENFORCEMENT
9-604(c) If a party beats all RE claimants, that party can go remove fixture; but it has to fix
whatever it dings up on the way out.
9-604(b)(2) alludes to fixture SP getting proceeds of fixture from sale of fixture (e.g., at
foreclosure sale)
B.5: transfer has preferential effect -- i.e., transferee is better off as a result of the transfer
o
The transfer has preferential effect if and only if:
EXCEPTIONS :
1. Substantially Contemporaneous Exchanges
a. 547(c)(1)(B) provides an exception for "substantially contemporaneous exchanges"
b. knowledge is totally irrelevant
2. De Minimis Exception at 547(c)(8) and (9)
a. Consumer transaction: $600
Oversecurednot preferential.
Undersecuredprobably preferential. Debtor only gets back the difference between debt and
securedness.
DELAYED PERFECTION -- TIME OF TRANSFER
Consumer Goods
(a)(23)
Farm Products
(a)(34)
Goods
(a)(44)
Documents
(a)(30)
(e.g., warehouse receipt (perf of doc =
perf of goods 9-312(c)); bill of lading)
+/- negotiable
Inventory
(a)(48)
Equipment
(a)(33)
Collateral
(a)(12)
Instrument
(a)(47)
Chattel Paper
(a)(11)
(evinces monetary obligation AND sec
intr)
(e.g., retail sales agreement)
Investment Property
(a)(49)
Deposit Account
(a)(29)
Account
(a)(2)
The "Intangibles"
General Intangible
(a)(42)