Basic Uniform Commercial Code

Class Info

Law School: Liberty University School of Law

Course ID: LAW 637

Term: Fall 2019

Instructor: Prof. Chrisman

My Grade Earned: B+

Books Used

Commercial Transactions: Secured Financing Cases, Materials, Problems by Raymond T. Nimmerd, Ingrid Michelsen Hillinger, & Michael G. Hillinger
- 3rd edition (2002)
  - Hardcover (ISBN: 9780820557144)
  - Paperback (ISBN: 9781531014469)
  - Ring-bound (ISBN: 9781422472415)
Comprehensive Commercial Law: 2019 Statutory Supplement by Ronald J. Mann, Elizabeth Warren, & Jay Lawrence Westbrook
- 2019 edition
  - Paperback (ISBN: 9781543809435)

Section List

Just look at page 435.

Section #	Section Topic	Tab Color	Page #
2-401	Reservation for Security	Blue	___
7-201	Receipts	Blue	___
9-102	Definitions	Blue	___
9-103	Purchase-Money Security Interest	Blue	___
9-108	Sufficiency of Description	Blue	___
9-109	Scope	Blue	___
9-203	Attachment	Blue	___
9-308	Perfection	Blue	___
9-309	Automatic Perfection	Blue	___
9-310(a)	Filing	Blue	___
9-310(b)	When Filing Not Needed	Blue	___
9-311	Separate Notice Systems	Blue	___
9-312	Certain Collateral	Blue	___
9-313	Possession	Blue	___
9-314	Control	Blue	___
9-315	Disposition & Proceeds	Blue	___
9-316	Certain Changes & Effects on Perfection	Blue	510
9-320(b)	Buyer of Goods	Blue	510

Just look at page 435.

Credit

Credit is giving money, goods, or services in exchange for receiving something back later.

Credit can be either secured or unsecured.

Secure

Secured credit is when credit is given, but a security interest is given in return via a security agreement.

Security Interest

A security interest is an interest in collateral, allowing them to be repossessed if the borrower defaults.

Collateral

Collateral is property in which an interest is taken by the lender in a secured transaction or by an agricultural lien.

Collateral is divided into specialty sui generis property and the two basic other categories:

Sui Generis
Sui generis (of its own kind) property are special types that do not fit into the categories of goods and intangibles.
There are eight types of sui generis property:
- Commercial Tort Claim
- Deposit Account
- Investment Property
- Letter-of-Credit Right
- Money
- Oil, Gas, or Other Minerals
- Fixtures
- Proceeds
Good
UCC § 9-102(a) recognizes four different types of goods:
1. Farm Product
  
  UCC § 9-102(a)(34)
  
  "Farm products" means goods, other than standing timber, with respect to which the debtor is engaged in a farming operation and which are:
  
  crops grown, growing, or to be grown, including:
  
  crops produced on trees, vines, and bushes; and
  
  aquatic goods produced in aquacultural operations;
  
  livestock, born or unborn, including aquatic goods produced in aquacultural operations;
  
  supplies used or produced in a farming operation; or
  
  products of crops or livestock in their unmanufactured states.
  
  Copyright, The American Law Institute
  
  If processed, farm products turn to inventory.
2. Inventory
  
  UCC § 9-102(a)(48)
  
  "Inventory" means goods, other than farm products, which:
  
  are leased by a person as lessor;
  
  are held by a person for sale or lease or to be furnished under a contract of service;
  
  are furnished by a person under a contract of service; or
  
  consist of raw materials, work in process, or materials used or consumed in a business.
  
  Copyright, The American Law Institute
3. Consumer Good
  
  UCC § 9-102(a)(23)
  
  "Consumer goods" means goods that are used or bought for use primarily for personal, family, or household purposes.
  
  Copyright, The American Law Institute
4. Equipment
  
  UCC § 9-102(a)(33)
  
  "Equipment" means goods other than inventory, farm products, or consumer goods.
  
  Copyright, The American Law Institute
Something must fall into one of these categories to be a good.
In borderline cases, when a good is used for both business and personal reasons, it is classified according to its principal use.
- If split exactly 50/50, it is not a consumer good, as that requires "primarily" consumer use. 50% is not primarily.
Generally, changes in use after taking the secured interest, cannot unperfect the secured creditor's right.
Intangible
Intangibles can be either semi-intangibles or pure intangibles.
1. Semi-Intangible
  Semi-intangibles are physical, tangible papers that evidence or embody an intangible right. Semi-intangible is not a formal legal category, but encompasses three types of collateral:
  
  Chattel Paper
  Chattel papers are papers that give a right to payment coupled with a security interest.
  
  UCC § 9-102(a)(11)
  
  "Chattel paper" means a record or records that evidence both a monetary obligation and a security interest in specific goods, a security interest in specific goods and software used in the goods, a security interest in specific goods and license of software used in the goods, a lease of specific goods, or a lease of specific goods and license of software used in the goods. In this paragraph, "monetary obligation" means a monetary obligation secured by the goods or owed under a lease of the goods and includes a monetary obligation with respect to software used in the goods. The term does not include
  
  charters or other contracts involving the use or hire of a vessel or
  
  records 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. If a transaction is evidenced by records that include an instrument or series of instruments, the group of records taken together constitutes chattel paper.
  
  Copyright, The American Law Institute
  
  Mortgages are not chattel papers. They're probably usually instruments.
  
  Chattel papers can theoretically be perfected by either filing or possession. UCC § 9-313.
  
  Instrument
  
  UCC § 9-102(a)(47)
  
  "Instrument" means 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
  
  investment property,
  
  letters of credit, or
  
  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.
  
  Copyright, The American Law Institute
  
  E.g., checks, CDs, etc.
  
  Document
  
  UCC § 9-102(a)(30)
  
  "Document" means a document of title or a receipt of the type described in [UCC § 7-201(2)].
  
  Copyright, The American Law Institute
2. Pure Intangible
  Pure intangibles are rights that have no physical embodiment.
  
  Pure intangibles are either accounts or general intangibles:
  
  Account
  
  UCC § 9-102(a)(2)
  
  "Account", except as used in "account for", means a right to payment of a monetary obligation, whether or not earned by performance,
  
  for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of,
  
  for services rendered or to be rendered,
  
  for a policy of insurance issued or to be issued,
  
  for a secondary obligation incurred or to be incurred,
  
  for energy provided or to be provided,
  
  for the use or hire of a vessel under a charter or other contract,
  
  arising out of the use of a credit or charge card or information contained on or for use with the card, or
  
  as winnings in a lottery or other game of chance operated or sponsored by a State, governmental unit of a State, or person licensed or authorized to operate the game by a State or governmental unit of a State.
  
  The term includes health-care-insurance receivables. The term does not include
  
  rights to payment evidenced by chattel paper or an instrument,
  
  commercial tort claims,
  
  deposit accounts,
  
  investment property,
  
  letter-of-credit rights or letters of credit, or
  
  rights to payment for money or funds advanced or sold, other than rights arising out of the use of a credit or charge card or information contained on or for use with the card.
  
  Copyright, The American Law Institute
  
  Bank accounts are sui generis deposit accounts, not pure intangible accounts.
  
  General Intangible
  A general intangible is anything that is not another type of property. UCC § 9-102(a)(42).
  
  E.g., payment intangibles, non-embedded software, etc.
  
  Payment Intangible
  
  UCC § 9-102(a)(61)
  
  "Payment intangible" means a general intangible under which the account debtor's principal obligation is a monetary obligation.
  
  Copyright, The American Law Institute
  
  Such as a tax refund

A security interest will remain attached to the collateral through anything unless something specially removes it. UCC § 9-201(a).

It will even remain perfected.
- Unless the new debtor is in a new state. Then it will only remain perfected for one year. UCC § 9-316(a)(3).
If a security interest is removed, it is removed for good. Future holders are also sheltered from the security interest.
- Although if someone attached buys it back, it will still reattach.

UCC § 9-320

Except as otherwise provided in subsection (e), a buyer in ordinary course of business, . . . takes free of a security interest created by the buyer's seller, even if the security interest is perfected and the buyer knows of its existence.

Except as otherwise provided in subsection (e), a buyer of goods from a person who used or bought the goods for use primarily for personal, family, or household purposes takes free of a security interest, even if perfected, if the buyer buys:

without knowledge of the security interest;

for value;

primarily for the buyer's personal, family, or household purposes; and

before the filing of a financing statement covering the goods.

Buyer in Ordinary Course of Business

UCC § 1-201(b)(9)

"Buyer in ordinary course of business" means a person that buys goods in good faith, without knowledge that the sale violates the rights of another person in the goods, and in the ordinary course from a person, other than a pawnbroker, in the business of selling goods of that kind. A person buys goods in the ordinary course if the sale to the person comports with the usual or customary practices in the kind of business in which the seller is engaged or with the seller's own usual or customary practices.

Financing Statement

A financing statement is a record that is publicly filed to put other people on notice of a security interest in the collateral.

A financing statement does not have to be very specific.

A financing statement does not have to be signed.

Security Interest Analyzing Framework

A retained interest creates a security interest. UCC § 2-401.

It attaches when value is given, the debtor has rights to the collateral, and something from UCC § 9-203(b)(3) occurs. UCC § 9-203.

Secured parties can collect the collateral via self-help or via sheriff.

Self-Help

A secured creditor has a right to go take property from his debtor as long as his doing so would not breach the peace. UCC § 9-609.

Bringing a police officer along does not make it not a breach of the peace. It is actually evidence that you did expect it to be a breach of the peace, and the uniform probably makes it a breach of the peace. To use the police, repossess it by judicial process, not self-help.
If someone tells you to leave, you have to leave. To do otherwise would be to breach the peace.
Lying and trickery is fine.

A creditor has a limited license to enter his debtor's property to enter property and retrieve the collateral, even cutting chains to do so. You cannot enter someone's dwelling house and probably not their fenced backyard however.

Courts are mainly concerned about preventing violence.

Secured transactions are much easier to collect upon as it does not require a lawsuit to collect.

Secured parties get higher priority than unsecured parties.

Unsecure

Unsecured credit is when credit is given without requiring a security interest.

To collect on a defaulted unsecured credit (or technically if secured too), the creditor must sue, obtain a judgment, and get a writ of execution issued to the sheriff, who would then take sufficient nonexempt personal property from the debtor. (Or real property if personal is insufficient)

This is expensive and time-consuming and therefore often not worth it.
- (This can be used to negotiate lesser payments. Often under 20¢ per dollar.)

Unfair Credit Practice

16 CFR § 444.2

... [I]t is an unfair act or practice ... for a lender or retail installment seller directly or indirectly to take or receive from a consumer an obligation that:

Constitutes or contains a cognovit or confession of judgment (for purposes other than executory process in the State of Louisiana), warrant of attorney, or other waiver of the right to notice and the opportunity to be heard in the event of suit or process thereon.

Constitutes or contains an executory waiver or a limitation of exemption from attachment, execution, or other process on real or personal property held, owned by, or due to the consumer, unless the waiver applies solely to property subject to a security interest executed in connection with the obligation.

Constitutes or contains an assignment of wages or other earnings unless:

The assignment by its terms is revocable at the will of the debtor, or

The assignment is a payroll deduction plan or preauthorized payment plan, commencing at the time of the transaction, in which the consumer authorizes a series of wage deductions as a method of making each payment, or

The assignment applies only to wages or other earnings already earned at the time of the assignment.

Constitutes or contains a nonpossessory security interest in household goods other than a purchase money security interest.

Household Good

16 CFR § 444.1(i)

Clothing, furniture, appliances, one radio and one television, linens, china, crockery, kitchenware, and personal effects (including wedding rings) of the consumer and his or her dependents, provided that the following are not included within the scope of the term household goods:

Works of art;

Electronic entertainment equipment (except one television and one radio);

Items acquired as antiques; and

Jewelry (except wedding rings).

Purchase-Money Security Interest

UCC § 9-103(b)

A security interest in goods is a purchase-money security interest:

to the extent that the goods are purchase-money collateral with respect to that security interest;

if the security interest is in inventory that is or was purchase-money collateral, also to the extent that the security interest secures a purchase- money obligation incurred with respect to other inventory in which the secured party holds or held a purchase-money security interest; and

also to the extent that the security interest secures a purchase-money obligation incurred with respect to software in which the secured party holds or held a purchase-money security interest.

Purchase-Money Collateral

UCC § 9-103(a)(1)

"purchase-money collateral" means goods or software that secures a purchase-money obligation incurred with respect to that collateral; and

Purchase-Money Obligation

UCC § 9-103(a)(2)

"purchase-money obligation" means an obligation of an obligor incurred as all or part of the price of the collateral or 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.

You have to have an obligation to use the money in that way.

TL;DR: Someone gave you money to buy something, and you used the money to buy it.

Purchase-money security interests in goods other than inventory or livestock take over previously-filed security interests as long as the PMSI perfects within 20 days of the purchaser taking possession. UCC § 9-324(a).

PMSIs only take over other security interests in inventory acquired after perfection. UCC § 9-324(b).

Sellers with PMSIs prevail over lenders with PMSIs.

Scope

What UCC Section 9 applies to is laid out in UCC § 9-109.

Basically it applies to consensual secured transactions and agricultural liens.

Attach

Attachment is when a security interest is actually created and becomes enforceable. UCC § 9-203(a).

A security interest attaches when value is given, the debtor has rights over the collateral he is providing, and one of the requirements from UCC § 9-203(b)(3) is met, usually the one requiring an authenticated security agreement. UCC § 9-203(b).

A deposit account, investment property, etc. can be attached by control instead. UCC § 9-203(b)(3)(D).

Control is not required. A security agreement can also attach to such goods.
- Control is still required to perfect in deposit accounts. UCC § 9-312(b)(1).

Security Agreement

An authenticated security agreement is a writing (or electronic record) that provides a description of the collateral, the debtor's intent to grant a security interest, and the debtor's signature.

Authentication

Authentication means signing something, including electronic signatures. UCC § 9-102(a)(7).

The description must be sufficient to describe the particular item, as defined in UCC § 9-108.

In a majority of states, inventory, accounts receivable, chattel papers, etc. are assumed to include future inventory, etc. However, this should not be relied upon.

A financing statement can also be a security agreement.

Financing Statement

A financing statement is a record that is publicly filed to put other people on notice of a security interest in the collateral.

A financing statement does not have to be very specific.

A financing statement does not have to be signed.

UCC § 9-108(c) says the very generic from the financing statement will not work.

A security agreement can be oral. An authenticated security agreement cannot.

A non-authenticated security agreement cannot satisfy UCC § 9-203(b)(3)(A). It can still show intent to attach if one of UCC § 9-203(b)(3)(B)–(D) are met.

Sometimes people may disguise a security agreement as a "lease," but this is ineffective if it works as a security agreement. (Like if the property can be bought for $10 after paying the value plus interest.) UCC § 1-203.

UCC § 9-203(b)(3)(B)–(D) do not require a writing.

Perfect

Security interests may be perfected, which gives the creditor priority over others.

To perfect a security interest, generally the creditor must either file a financing statement or possess the property. UCC § 9-308. (Or control if it is not physical property. UCC § 9-314.)

Physical goods are possessed. Intangibles are controlled. (Usually by getting your name added to the account or an agreement with the bank stating it will transfer according to the security agreement.)

Financing Statement

A financing statement is a record that is publicly filed to put other people on notice of a security interest in the collateral.

A financing statement does not have to be very specific.

A financing statement does not have to be signed.

File

To file and perfect a security interest, you basically always file centrally in the state where the debtor is located. UCC § 9-301(1), UCC § 9-307, UCC § 9-501(a)(2).

For as-extracted collateral, timber to be cut, and fixtures, you file locally in the county where the property is located. UCC § 9-501(a)(1). (Because they are related to real estate)

Filing is generally required for everything except:

Money – UCC § 9-312(b)(3)
LoC Rights – UCC § 9-312(b)(2)
Deposit Accounts – UCC § 9-312(b)(1)
Some Certificate of Title Property – UCC § 9-311(a) & (d)

HO Some Guidelines Regarding Financing Statements and Filing

PMSIs in consumer goods automatically perfect. UCC § 9-309(1).

Some other types of goods automatically perfect as well. They're just kind of random, but they're listed in UCC § 9-309.

Certificate of Title

Some property like cars have titles. These goods often have separate perfection requirements, usually requiring the security interest to be listed on the title itself.

Certificate of title goods cannot be perfected by filing. UCC § 9-311. Also, just possessing the title is not enough. A creditor must get his name listed on the title.

If a business is in the business of selling certificate of title goods, any of that good sold or leased by them counts as inventory and must be perfected as such. UCC § 9-311.

Certificate of title property is governed by the law of the jurisdiction where the property is titled. This applies for both perfection and priority. UCC § 9-303.

If goods are perfected by certificate of title, they remain perfected in the other state as long as it would have remain perfected in the old state. (As long as the title lasts) UCC § 9-316(d).

If someone purchases the collateral for value, the perfection will expire and be deemed to have never had existed as against the purchaser four months after the goods were purchased. UCC § 9-316(e).
If someone moves to a certificate of title state from a state that filed for that type of good, he would need to file within four months to remain perfected. UCC § 9-316.

The only way to perfect money (including gold) or a deposit account (e.g., a bank account) is to control it. UCC § 9-312(b). (But you can still attach to it.)

Chattel papers can theoretically be perfected by either filing or possession. UCC § 9-313.

Investment Property

Investment property is, like, stocks and commodities stuff.

Investment property can be certificated or uncertificated, depending on whether or not they issued a certificate.

A security interest in investment property can be perfected by filing.

A security interest in certificated investment property can be perfected by taking delivery of the stock. UCC § 9-313(a).

A security interest in investment property can be perfected by taking control of the stock. UCC § 9-314(a).

Delivery

Delivery usually occurs when one acquires physical possession of a security certificate. UCC § 8-301.

Certificated securities can be controlled by delivery or by indorsement to the creditor or being registered in the name of the creditor. UCC § 8-106(a)–(b).

Uncertificated securities can be controlled by delivery or by having the issuer agree to comply with the creditor's instructions without the registered owner's further consent. UCC § 8-106(c).

The strength of methods of perfection of investment property goes: control, then delivery, then filing. UCC § 9-328.

Priority

When a debtor has insufficient assets to satisfy his creditors, those with priority take first.

Creditors generally take in the order:

Statutory lien creditors
Perfected PMSI creditors
Perfected creditors
Judgment lien creditors
Unperfected attached creditors

The default priority rule is that the first to file or perfect has priority. UCC § 9-322(a)(1).

Thus, in financing, unlike in real estate, the lender will always want to file a financing statement as the first thing they do.

You can even amend your filed statement to attach first to previously unperfected property. It doesn't change the filing date.

The original consideration is value enough to make another valid security agreement.

If no one is perfected, the first to attach wins.

An unperfected secured party beats an unsecured party.

If A files, then B does something, then A attaches...

If B takes a perfected interest, A still takes because of UCC § 9-322.
If B becomes a lien creditor, A still takes because of UCC § 9-317.
If B is secretly the IRS and becomes a tax creditor, B takes because the government gotta get its money.

Future Advance Interest

The code honors future advance interests the same as any other.

UCC § 9-323.

Purchase-money security interests have priority over conflicting security interests in the same goods if the PMSI is perfected within 20 days of the debtor taking possession. UCC § 9-324.

Mortgage

A mortgage is a security interest in real property which secures a mortgage note.

Mortgage Note

A mortgage note is a promissory note to repay a loan secured by a mortgage.

A mortgage note is not a negotiable instrument and therefore is not covered by UCC § 3.

Mortgages are real estate interests and are perfected by filing the mortgages and associated notes in the county where the property is located.

The only UCC section to apply to mortgages is UCC § 9.

Remedy

Seriously Misleading

Errors or omissions that make the financing statement seriously misleading is ineffective. UCC § 9-506(a).

If the name on the financing statement is not exactly right, it is seriously misleading unless a search on the state's using has logic that will still find it. (Usually they strip endings like "Inc." or "Corporation".) UCC § 9-506(3).

A financing statement that does not provide the name of a debtor is seriously misleading.

If one changes his name, the financing statement will remain effective for four months afterwards. UCC § 9-507(c)(1).

After four months after a name change, the financing statement is not effective for perfection. UCC § 9-507(c)(2). You must amend the financing statement.

If a debtor moves to a different state, the security interest will become unperfected after four months. UCC § 9-306(a)(2).

If a security interest transfers to a new debtor in a different state, perfection will expire after one year. UCC § 9-316(a)(3). It will not expire if perfected in the new jurisdiction. UCC § 9-316(b).

If debtor companies merge, UCC § 9-508 applies.

If the new company is located in a new state, UCC § 9-316 applies.
- The old assets go under UCC § 9-316(a)(3)–(b).
- The new assets go under UCC § 9-316(i).

Continuation

Lapse

Perfection lapses five years after filing. It is then treated as if it never perfected. It is retroactively unperfected. UCC § 9-515.

Someone who perfects within the last five years therefore has priority over someone who perfected before.

Continuation Statement

To prevent an interest from lapsing, a continuation letter must be filed.

UCC § 9-102(27)

"Continuation statement" means an amendment of a financing statement which:

identifies, by its file number, the initial financing statement to which it relates; and

indicates that it is a continuation statement for, or that it is filed to continue the effectiveness of, the identified financing statement.

Continuation statements must be filed within six months before the expiration of the five years. UCC § 9-515(d).

Continuation statements renew the perfected security interest for another whole five years, not just five years from when the continuation statement was filed.

Termination

Location

Debtor's Location

Individuals are UCC § 9-307(b)(1).

Organizations are UCC § 1-201(b)(25).

Regulated organizations are UCC § 9-102(a)(71) & UCC § 9-307(e).
Other organizations are UCC § 9-307(b)(2)–(3).

If special provisions apply, location is determined by UCC § 9-302 through UCC § 9-306.

This won't be tested except maybe fixtures.

If the property is intangible, location is determined by UCC § 9-301(1), where the debtor's location matters for both perfection and priority.

If the property is tangible and the security interest is possessory, location is determined by UCC § 9-301(1) & UCC § 9-301(3)(c), where perfection is determined by the debtor's location and the priority is determined by the collateral's location.

If the property is tangible and the security interest is not possessory, location is determined by UCC § 9-301(2), where the collateral location matters for both perfection and priority.

Lien Creditor

UCC § 9-102(a)(52)

"Lien creditor" means:

a creditor that has acquired a lien on the property involved by attachment, levy, or the like;

an assignee for benefit of creditors from the time of assignment;

a trustee in bankruptcy from the date of the filing of the petition; or

a receiver in equity from the time of appointment.

People with statutory liens are not lien creditors. They have to be judgment liens.

Just getting a judgment does not make you a lien creditor. Even getting a write of execution does not in most states. You usually have to have the sheriff go out and take the property.

Tax liens do not make the IRS a lien creditor.

Lien creditors take free of security interest if they become a lien creditor when the lien is not perfected. UCC § 9-317(a)(2)(A).

This can lead to a circular lien situation, where a secured party files a perfected interest, then someone becomes a lien creditor (which the secured creditor has priority over), then the secured party's perfection lapses, and another person becomes a lien creditor, having priority over the secured party. Then SP1 > LC1 > LC2 > SP1 > LC1 and so on.
This can sometimes apply if even if the security interest has not actually attached if the debtor gives rights to the collateral and something from UCC § 9-203 happens. Value does not have to be given. It actually just matters when the financing statement is filed. UCC § 9-317.

People become lien creditors at the time of the levy. That is also the the priority date.

Tax Lien

An IRS tax lien has priority over an Article 9 security interest except to the extent that the Article 9 secured party has a valid perfected security interest and has actually extended value.

This is basically the same as a lien creditor, but the security interest has to actually attach.

Proceeds

Proceeds are what arise out of the disposition of property. The definition is meant to be broad.

To have a claim the proceeds from the sale of collateral, you have to have had an interest in the collateral and then be able to identify (prove) the proceeds. You don't have to specifically contract for proceeds anymore. You stay attached. UCC § 9-203, UCC § 9-315.

You are perfected in proceeds if you are perfected in the original property. UCC § 9-315(c). It will then become unperfected in 21 days unless it is cash proceeds or unless, like in a trade-in, a financial statement has been filed (then it lasts as long as the filing statement). UCC § 9-315(d)–(e).

If more than one claimant exists, you must have priority.

If proceeds are comingled with nonproceeds, the proceeds must be identified with the lowest intermediate balance test.

Lowest Intermediate Balance Test

The lowest intermediate balance test identifies proceeds out of commingled funds. It comprises three assumptions:

Funds withdrawn from a commingled account will first deplete nonproceeds.
Proceeds are deemed to be withdrawn only if no nonproceeds remain in the account.
Subsequent deposits of nonproceeds do not replenish proceeds.

I.e., the proceeds remaining in a commingled account are the lowest the account got after getting those proceeds.

Fixture

Fixtures are goods that are part of real property. (As determined by state law) (On both Chrisman's exam and the bar exam, they will be very obviously permanent.)

Generally, a real estate encumbrancer or owner will take over someone with a security interest in a fixture. UCC § 9-334(c).

A purchase-money security interest will prevail over the property encumbrancer or owner. UCC § 9-334(d).

A fixture filing locally where the debtor is located gives priority in fixtures over property encumbrancers or owners. UCC § 9-334(e)(1).

A normal financing statement can still perfect and give priority over others.

A perfected secured party has priority in goods that became fixtures after perfection over a property encumbrancer or owner if the goods are: factory or office machines; equipment that is not primarily used or leased for use in the operation of the real property; or replacements of domestic appliances that are consumer goods. UCC § 9-334(e)(2).

UCC § 9-334(f)

A security interest in fixtures, whether or not perfected, has priority over a conflicting interest of an encumbrancer or owner of the real property if:

the encumbrancer or owner has, in an authenticated record, consented to the security interest or disclaimed an interest in the goods as fixtures

Construction Mortgage

A construction mortgage holder beats everybody as long as the mortgage indicates that it is a construction mortgage. UCC § 9-334(h).

Crops

UCC § 9-334(i)

A perfected security interest in crops growing on real property has priority over a conflicting interest of an encumbrancer or owner of the real property if the debtor has an interest of record in or is in possession of the real property.

Accession

UCC § 9-102(a)(1)

"Accession" means goods that are physically united with other goods in such a manner that the identity of the original goods is not lost.

E.g., like tires being put on a car.

Security interests remain attached and perfected in an accession. UCC § 9-335(a)–(b).

However, security interests in accessions are subordinate to security interests perfected by certificate of title. UCC § 9-335(d).

Commingled Goods

UCC § 9-336(a)

"[C]ommingled goods" means goods that are physically united with other goods in such a manner that their identity is lost in a product or mass.

I.e., things like corn or oil that's just mixed in with a lot of other similar goods.

Security interests in collateral that becomes commingled attach and perfect to all the commingled goods. UCC § 9-336(c)–(d).

All perfected security interests have equal priority in commingled goods. If there are multiple perfected secured parties, they are perfected in proportion to the value of each's collateral that became commingled goods. UCC § 9-336(f)(2).

Default

As defined by common law, a default is a failure to pay a debt as it comes due.

Default can be contractually defined however wished. (Requiring insurance, certain handling instructions, etc.)

After default, a secured creditor has a right to repossess and dispose of the collateral to satisfy the outstanding indebtedness.

If the loan terms or standard commercial dealings allow for a grace period, a failure to pay within the grace period does not constitute default.

Acceleration Clause

Typically, an unpaid balance only causes a debtor to default as to that payment. Any other planned payments would have to default and be sued over separately.

Acceleration clauses solve this by saying that the whole debt is due whenever the debtor defaults on any payment.

An acceleration clause will prevent the debtor from having a right to redeem.

On the bar, you should probably assume that there is a valid acceleration clause.

Insecurity Clause

Insecurity clauses allow the creditor to declare a default and to accelerate at will when he "in good faith believes that the prospect of payment or performance is impaired." UCC § 1-201(9).

Demand Note

A demand note is due whenever the lender demands the payment at any time for any reason.

Technically, this does not even require good faith in demanding the note.

For obvious reason, debtors do not often sign these.

Time Note

A time note is a normal loan where payments are scheduled ahead of time to be due on a fixed date.

Repossess

After a default, a secured party may repossess the property by judicial process or by self-help. UCC § 9-609.

Self-Help

A secured creditor has a right to go take property from his debtor as long as his doing so would not breach the peace. UCC § 9-609.

Bringing a police officer along does not make it not a breach of the peace. It is actually evidence that you did expect it to be a breach of the peace, and the uniform probably makes it a breach of the peace. To use the police, repossess it by judicial process, not self-help.
If someone tells you to leave, you have to leave. To do otherwise would be to breach the peace.
Lying and trickery is fine.

Courts are mainly concerned about preventing violence.

A secured party may deduct attorney's fees and collection costs from the value of the collected property. UCC § 9-607.

Having a security interest in a car does not give the creditor a right to keep any personal property in the car. That would be conversion.

You can take it temporarily as long as it make it easy to reacquire.
However, it can be contracted for.

Right to Redeem

Almost anybody who has an interest in the property has a right to redeem it by paying off all obligations, even after default. UCC § 9-623.

A redemption can occur at any time before a secured party has collected collateral under UCC § 9-607, disposed of the collateral, or accepted property in satisfaction of the security obligation.

Before disposing of collateral property that was repossessed, the secured party must give reasonable notice of his intention to do so.

Negotiable Instrument

HO Requirements of Negotiability

Loss Allocation Rules of Thumb

If someone signs an instrument as a representative with actual or apparent authority, the represented person is liable for it. UCC § 3-402(a).

Negotiable instruments are heavily dependant on agency law.

If someone signs a check payable from his principal's account, the principal is liable for it. UCC § 3-402(c).

If it's unambiguous that an instrument is signed on behalf of someone else named in the instrument, the representative is not liable. UCC § 3-402(b)(1).

Otherwise, the representative is liable "to a holder in due course that took the instrument without notice that the representative was not intended to be liable on the instrument. With respect to any other person, the representative is liable on the instrument unless the representative proves that the original parties did not intend the representative to be liable on the instrument." UCC § 3-402(b)(2).

Accommodation

Another party can sign the front of a note as guarantor to make himself an accommodation party, making himself liable for the note as well.

If a PETE (person entitled to enforce the note) who is owed money in an instrument does something to compromise the value of the collateral or otherwise does something to contribute to the accommodation party or surety party bearing a loss, the accommodation party is not liable for the amount of the loss.

A PETE has to exhaust his remedies against the primary person before he can go after an accommodation party.