Article 9 Scope and Exceptions
Unlock all answers in this set
Unlock answersquestion
Scope of Article 9
answer
1) Security interests in personal property; 2) Sales of: a) accounts, b) chattel paper, c) payment intangibles, and d) promissory notes; 3) Consignments; 4) Agricultural Liens (priority and perfection, not formation); AND 5) Lease-purchase agreements.
question
Exceptions from Article 9
answer
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.
question
Security interest
answer
Interest in personal property or fixtures that secures payment or performance of an obligation. 1-201(b)(35).
question
Collateral
answer
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).
question
Debtor
answer
(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).
question
Secured Party
answer
(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).
question
Obligor
answer
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).
question
Secondary obligor
answer
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).
question
Consumer transaction
answer
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).
question
Attachment (definition)
answer
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).
question
Attachment (requirements)
answer
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))
question
Evidence of security agreement requirement for attachment
answer
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. § 9-203(b)(3)(A)-(D).
question
Value
answer
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. § 1-204
question
Future Advances
answer
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.
question
Rights in the Collateral
answer
Typically governed by state law definition of property, although the code tells us that \"title\" to collateral is \"immaterial.\" § 9-202.
question
Good Faith Purchaser for Value
answer
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).
question
Prohibition on transfer of collateral
answer
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.
question
Security agreement (definition)
answer
An agreement that creates or provides for a security interest.
question
Security agreement (requirements)
answer
1. Must contain language evidencing an intent to grant a Security Interest. 2. Authenticated by Debtor 3. Reasonably describe collateral. § 9-203(b)(3)(A)
question
Collateral description in security agreements
answer
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).
question
Tangible Collateral
answer
Also known as goods. Four types: 1. Consumer Goods 2. Farm Products 3. Inventory 4. Equipment
question
Consumer goods
answer
goods used or purchased for personal, family or household purposes. § 9-102(a)(23).
question
Farm products
answer
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).
question
Inventory
answer
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).
question
Equipment
answer
Goods that are NOT consumer goods, farm products, or inventory are equipment. E.g. machinery used in a factory. § 9-102(a)(33).
question
Intangible Collateral:
answer
1. Accounts 2. Deposit accounts 3. Commercial tort claims 4. Investment property 5. Electronic chattel paper 6. Letter of credit right 7. General intangible
question
Accounts
answer
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).
question
Deposit Accounts
answer
Accounts maintained with a bank, such as savings and passbook accounts. § 9-102(a)(29). Rules: 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).
question
Chattel paper
answer
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.\"
question
Investment Property
answer
Includes such items as stocks, bonds, mutual funds, and brokerage accounts. § 9-102(a)(49).
question
Commercial tort claims
answer
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).
question
Letter of credit rights
answer
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)
question
General intangibles
answer
Defined by excluding the other categories also excluding money and letter of credit rights. Includes payment intangibles and software. § 9-102(a)(42).
question
Payment intangible
answer
A general intangible in which the principle obligation is the payment of money is called a payment intangible. § 9-102(a)(61).
question
Instruments
answer
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).
question
Quasi-intangibles
answer
1. Instrument 2. Tangible chattel paper 3. Document (of title) 4. Certificated security 5. Money
question
Documents
answer
Pieces of paper that represent the right to receive \"goods.\" Includes bills of lading, warehouse receipts, documents of title. § 9-102(a)(30).
question
Tangible chattel paper
answer
Chattel paper evidenced by a record or records consisting of information that is inscribed on a tangible medium. § 9-102(a)(78).
question
Certificated security
answer
Security that is represented by a certificate. § 8-102(a)(4)
question
Money
answer
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).
question
Proceeds
answer
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.
question
After-acquired property
answer
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). Exceptions: 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.
question
Ways to get a floating lien without after-acquired property clause
answer
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.
question
Commingled Goods
answer
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.
question
Accessions
answer
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.
question
Composite doctrine rule
answer
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.
question
SA evidenced by possession
answer
Available for (§ 9-313(a)): goods, instruments, money, certificated securities, tangible chattel paper, and tangible negotiable documents of title.
question
Rights and duties of SP in possession
answer
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).
question
SA evidenced by control
answer
Available for: 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)
question
Rights and duties of SP in control
answer
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.
