UCC Article 9
Comprehensive flashcards for Secured Transactions
Terms in this set (50)
Scope of Article 9
1) Security interests in personal property;
2) Sales of:
b) chattel paper,
c) payment intangibles, and
d) promissory notes;
4) Agricultural Liens (priority and perfection, not formation); AND
5) Lease-purchase agreements.
Exceptions from Article 9
1) Transactions governed by other state or federal laws.
2) Most transactions involving interests or liens on land. (But "fixtures" do apply.)
3) Assignments of "tort claims" - except "commercial tort claims" or proceeds.
4) Assignments of Deposit Accounts in Consumer Transactions (except "proceeds".)
5) State statutory or common law liens - e.g. mechanic's liens, agisters liens, tax liens, etc.
6) Assignments of wage claims.
Interest in personal property or fixtures that secures payment or performance of an obligation. 1-201(b)(35).
Property subject to a security interest;
proceeds to which the security interest attaches;
accounts, chattel paper, payment intangibles and notes that have been sold;
and goods that are subject to consignment. § 9-102(a)(12).
(1) a person having an interest, other than a security interest or other lien, in the collateral whether or not that person is an obligor;
(2) a seller of accounts, chattel paper, payment intangibles or promissory notes;
(3) a consignee. § 9-102(a)(28).
(1) a person in whose favor a security interest has been created;
(2) a person that holds an agricultural lien;
(3) a consignor;
(4) a purchaser of accounts, chattel paper, payment intangibles or promissory notes;
(5) a trustee who holds a security interest;
(6) holder of other statutory liens. § 9-102(a)(72).
A person, with respect to an obligation secured by a security interest in or an agricultural lien on collateral, who:
(1) owes payment or other performance of the obligation;
(2) has provided property other than collateral to secure payment or performance of the obligation;
(3) is otherwise accountable in whole or in part for the obligation. § 9-102(a)(59).
An obligor whose obligation is secondary or the obligor has a right of recourse against the Debtor, another obligor or the property of either. § 9-102(a)(71).
A transaction in which:
(1) an individual incurs an obligation primarily for personal, family, or household purposes,
(2) a security interest secures the obligation, AND
(3) the collateral is held or acquired primarily for personal, family, or household purposes. The term includes consumer-goods transactions. § 9-102(a)(26).
The moment in time when the security interest attaches to the collateral which is when the security interest is enforceable against the Debtor with respect to the collateral. § 9-203(a).
1) Value is given.
2) Debtor has rights in the collateral or the power to transfer rights in the collateral.
3) Agreement authenticated by Debtor, or otherwise effected, in which the Debtor agrees to grant a security interest in the collateral.
(§ 9-203(b)(1) - (3))
Evidence of security agreement requirement for attachment
1) Security agreement authenticated by Debtor
2) Collateral in possession of Secured Party, if collateral not certificated security.
3) Security certificate delivered to Secured Party under 8-301 if certificated security.
4) Secured Party has control of Collateral, if Collateral is deposit accounts, electronic chattel paper, investment property, letter of credit rights, or electronic documents.
1) binding commitment to extend credit or for the extension of immediate credit.
2) as security for, or in partial satisfaction of, a pre-existing claim
3) by accepting delivery under a pre-existing contract for purchase, OR
4) in return for any consideration sufficient to support a simple contract.
UCC 9 allows for future advance clauses ("Dragnet Clause") but supposes they will be included in the security agreement (i.e. security agreement secures future loans, as well as previous/current, "secure this loan and any other amounts you now owe or will owe this financial institution", essentially value will come in the future as well). § 9-204(c). A matter of contract interpretation, although arguably strictly construed. Some courts have limited their application to various standards like the "same class" standard.
Rights in the Collateral
Typically governed by state law definition of property, although the code tells us that "title" to collateral is "immaterial." § 9-202.
Good Faith Purchaser for Value
Person with voidable title can transfer good title to good faith purchaser for value, § 2-403(1), thus giving the transferee greater rights than the Debtor. Secured Party can qualify as a good faith purchaser for value, thus allowing Debtor to transfer to Secured Party greater rights than the Debtor has. § 1-201(b)(20), (29), (30).
Prohibition on transfer of collateral
Contractual prohibition on transfers will not impact efficacy of the transfer, i.e. subsequent grant of a Security Interest. § 9-401(b). But it can still amount to a default. See § 9-401, comment 5, example 2.
Security agreement (definition)
An agreement that creates or provides for a security interest.
Security agreement (requirements)
1. Must contain language evidencing an intent to grant a Security Interest.
2. Authenticated by Debtor
3. Reasonably describe collateral.
Collateral description in security agreements
1. Can be specific (like VIN of vehicle).
2. The use of UCC collateral descriptions are acceptable, EXCEPT (§ 9-108(e)) a) Commercial tort claims, b) Consumer transaction/consumer goods, c) Security entitlement or securities or commodity account.
3. Can use formula that makes identification of the collateral subjectively ascertainable.
4. Use of "all Debtor's personal property" or "all Debtor's assets" DO NOT reasonably describe collateral. § 9-108(c).
Also known as goods. Four types:
1. Consumer Goods
2. Farm Products
goods used or purchased for personal, family or household purposes. § 9-102(a)(23).
Crops, livestock, unmanufactured products of livestock (e.g. eggs), and supplies used or produced in farming operations are farm products IF they are in possession or used by a farmer. § 9-102(a)(34).
Goods that are leased or that are held for sale or lease. Goods that are furnished or are to be furnished under a contract of service, supplies used in manufacturing, materials that are used up quickly or consumed in a business, and work in progress. §9-102(a)(48).
Goods that are NOT consumer goods, farm products, or inventory are equipment. E.g. machinery used in a factory. § 9-102(a)(33).
2. Deposit accounts
3. Commercial tort claims
4. Investment property
5. Electronic chattel paper
6. Letter of credit right
7. General intangible
Any right to payment for goods, services, real property, use of credit card or lottery winnings that is NOT evidenced by an instrument or chattel paper. DOES NOT include deposit accounts, investment property, commercial tort claims or rights to payment for funds advanced or loaned. Proceeds from repayment of a bank loan are not accounts. §9-102(a)(2).
Accounts maintained with a bank, such as savings and passbook accounts. § 9-102(a)(29).
1. UCC 9 excludes the assignment of a deposit account in a consumer transaction. § 9-109(d)(13).
2. UCC 9 will apply to an assignment of a personal deposit account in a non-consumer transaction. § 9-109(d)(13).
3. UCC 9 will also apply to deposit accounts that represent proceeds from other collateral. § 9-109(d)(13).
A record or records evidencing both 1) a monetary obligation; AND 2) a Security Interest or lease in specific goods. § 9-102(a)(11).
Note: A Security Interest in a note and a security agreement that does NOT cover specific goods is not "chattel paper." Consequently, second priority Security Interest in a note and security agreement in goods is not chattel paper. If a note, probably an "instrument."
Includes such items as stocks, bonds, mutual funds, and brokerage accounts. § 9-102(a)(49).
Commercial tort claims
Tort Claims filed by business entities are "commercial tort claims." Tort claims by individuals arising out of their business and which are not personal injury claims are also "commercial tort claims". § 9-102(a)(13).
Letter of credit rights
A right to payment or performance under a letter of credit, whether or not the beneficiary has demanded or is at the time entitled to demand payment or performance. Does not include the right of a beneficiary to demand payment or performance under a letter of credit. § 9-102(a)(51)
Defined by excluding the other categories also excluding money and letter of credit rights. Includes payment intangibles and software. § 9-102(a)(42).
A general intangible in which the principle obligation is the payment of money is called a payment intangible. § 9-102(a)(61).
Pieces of paper that represent the right to be paid "money." They include promissory notes, drafts (checks) and certificates of deposit. § 9-102(a)(47).
2. Tangible chattel paper
3. Document (of title)
4. Certificated security
Pieces of paper that represent the right to receive "goods." Includes bills of lading, warehouse receipts, documents of title. § 9-102(a)(30).
Tangible chattel paper
Chattel paper evidenced by a record or records consisting of information that is inscribed on a tangible medium. § 9-102(a)(78).
Security that is represented by a certificate. § 8-102(a)(4)
A medium of exchange currently authorized or adopted by a domestic or foreign government. The term includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more countries. § 1-201(b)(24).
1. A Security Interest automatically attaches to identifiable proceeds of collateral. § 9-203(f).
2. Must be "identifiable proceeds." § 9-315(a)(2). Proceeds commingled with other property are considered "identifiable proceeds" if identifiable by using another applicable law (state law) for method of tracing. § 9-315(a)(2)
3. Includes cash and non-cash proceeds, including insurance proceeds and second-generation (changed form twice) proceeds.
UCC 9 allows a Secured Party to take a Security Interest as against property that the Debtor subsequently acquires, but usually only if "after-acquired property clause" included in the authenticated security agreement. § 9-204(a).
1. Consumer goods. Except for accessions, after-acquired clauses are ineffective to consumer goods UNLESS Debtor acquires rights in the goods within 10 days after the creditor gives value. § 9-204(b)(1). Note that the limitation is for "goods."
2. Commercial tort claims. Not allowed. § 9-204.
Ways to get a floating lien without after-acquired property clause
1) New inventory is "proceeds" of the old inventory and thus subject to lenders' Security Interest. §§ 9-203(f), 9-315(c).
2) Creating a rebuttable presumption that inventory financing includes after-acquired property that may be rebutted. In re Filtercorp.
3) The "course of dealings" of the parties.
Commingling is when goods are physically united to make another good and identity of the original goods is lost. § 9-336. They are either "mass" (more of the same) or "product" (egg+flour=cake). UCC 9 provides there can be no Security Interest in the original good when they are commingled. § 9-336(b). However, Security Interest attaches to the product or mass. § 9-336(c). See 9-336(f) for treatment of conflicting Security Interests.
Like commingled goods, but the identity of the original good is not lost. 9-102(a)(1). Perfection remains in the good even after it becomes an accession.
Composite doctrine rule
Although no single document evidences a Security Interest, Court's will interpret documents together to determine whether the parties intended to create a Security Interest. Not based on the code, but on the concept of contractual interpretation. Some courts apply a two-part test:
1. Is there a written agreement or agreement that objectively indicates an intent to create a Security Interest - a question of law, AND
2. If such documents exist, the fact finder must find if the parties intended to create a Security Interest - a question of fact.
SA evidenced by possession
Available for (§ 9-313(a)):
tangible chattel paper, and
tangible negotiable documents of title.
Rights and duties of SP in possession
Duty of reasonable care in storing and preserving. § 9-207(a).
Right for reimbursement for expenses including insurance. § 9-207(b)(1).
Risk of loss is on Debtor to the extent there is no insurance. § 9-207(b)(2).
Accounting for profits. § 9-207(c)(1)-(2).
The SP can "re-pledge" the collateral. § 9-207(c)(3).
SA evidenced by control
Deposit accounts (def of "control of deposit account" - § 9-104)
Investment property (§ 9-106 & § 8-106)
Letter of credit rights (§ 9-107)
Electronic chattel paper (§ 9-105)
Electronic documents of title (§ 7-106)
Rights and duties of SP in control
Secured party in "control" of collateral must account for profits and can "re-pledge" the collateral. § 9-207(c).
If no outstanding obligation and no commitment to provide financing, the Secured Party must do the following within ten days of authenticated demand from Debtor:
1. If SP has control of non-consumer deposit account or has control of securities account, must release intermediary.
2. Pay the balance of the depository account.
3. Return electronic chattel paper or otherwise follow Debtor's orders.