Basic Uniform Commercial Code

outline


Class Info

Law School: Liberty University School of Law

Course ID: LAW 637

Term: Fall 2019

Instructor: Prof. Chrisman

Books Used
  • Commercial Transactions: Secured Financing Cases, Materials, Problems by Raymond T. Nimmerd, Ingrid Michelsen Hillinger, & Michael G. Hillinger
  • Comprehensive Commercial Law: 2019 Statutory Supplement by Ronald J. Mann, Elizabeth Warren, & Jay Lawrence Westbrook

Section List

Just look at page 435.

Section #Section TopicTab ColorPage #
2-401Reservation for SecurityBlue___
7-201ReceiptsBlue___
9-102DefinitionsBlue___
9-103Purchase-Money Security InterestBlue___
9-108Sufficiency of DescriptionBlue___
9-109ScopeBlue___
9-203AttachmentBlue___
9-308PerfectionBlue___
9-309Automatic PerfectionBlue___
9-310(a)FilingBlue___
9-310(b)When Filing Not NeededBlue___
9-311Separate Notice SystemsBlue___
9-312Certain CollateralBlue___
9-313PossessionBlue___
9-314ControlBlue___
9-315Disposition & ProceedsBlue___
9-316Certain Changes & Effects on PerfectionBlue510
9-320(b)Buyer of GoodsBlue510

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:

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

  1. 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.
  2. 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:
    1. without knowledge of the security interest;
    2. for value;
    3. primarily for the buyer's personal, family, or household purposes; and
    4. before the filing of a financing statement covering the goods.
Buyer in Ordinary Course of Business

"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.

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 doing so would not breach the peace.

A creditor has a limited license to enter his debtor's property to enter property and retrieve the collateral.

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
  1. ... [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:
    1. 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.
    2. 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.
    3. Constitutes or contains an assignment of wages or other earnings unless:
      1. The assignment by its terms is revocable at the will of the debtor, or
      2. 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
      3. The assignment applies only to wages or other earnings already earned at the time of the assignment.
    4. Constitutes or contains a nonpossessory security interest in household goods other than a purchase money security interest.
Household Good
  1. 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:
    1. Works of art;
    2. Electronic entertainment equipment (except one television and one radio);
    3. Items acquired as antiques; and
    4. Jewelry (except wedding rings).
Purchase-Money Security Interest
  1. A security interest in goods is a purchase-money security interest:
    1. to the extent that the goods are purchase-money collateral with respect to that security interest;
    2. 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
    3. 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

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

Purchase-Money Obligation

"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.

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

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's given, and one of the requirements from UCC § 9-203(b)(3), usually the one requiring a security agreement. UCC § 9-203(b).

Security Agreement

A 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.

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.

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

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

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.

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:

Consumer goods automatically perfect. Equipment does not.

  • 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.

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.

The only way to perfect money (including gold) or a deposit account (e.g., a bank account) is to control it. (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.

The default priority rule is that the first to file or perfect has priority.

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

Mortgage
Remedy