Secured Transactions Outline - DOC by kmaghakhani

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									                                        SECURED TRANSACTIONS

         A. Obligor = one who is liable on the debt.         9-102(a)(59).

           B. Debtor = one with an (ownership) interest in the collateral. 9-102(a)(28). (Also, an A9
              consignor or a seller of certain intangibles.)

           C. Secured Party = one who holds a security interest. 9-102(a)(72). (Also, an A9 consignor or a
              buyer of certain intangibles.)

         A. 9-109 (a): Subsection (1) states that Art. 9 applies to: “a transaction, regardless of its form, that
            creates a security interest in personal property or fixtures by contract.”
                  1. This tells us that even if the parties describe their transaction as something else, A9
                      applies, if the parties are creating a SI.
         B. Subsections (2) – (6) state that A9 also applies to certain other transactions not normally thought
            of as A 9 SIs.

         A. 9-102(a)(20):
                 1. A person must deliver the goods to a “merchant.”
                 2. The merchant must deal in such goods under a different name than the person making
                     the delivery;
                 3. The merchant must not be an auctioneer;
                 4. The merchant is not generally known by its creditors to be substantially engaged in
                     selling the goods of others;
                 5. The goods must be worth at least $1000;
                 6. The goods were not being used as consumer goods before delivery; and
                 7. The transaction does not create a SI that secures an obligation. Ie, it is not really a
                     credit sale with the so-called consignor holding title to secure payment.

           B. Factors Indicating True Consignment
                   1. The consignor reserves title to the delivered goods until they are sold;
                   2. The consignor reserves the right to demand return of the goods at will;
                   3. The consignee has the right to return goods which are not sold;
                   4. The consignor exerts control over the sale price;
                   5. The consignee is obligated to segregate the consigned goods from its own inventory;
                   6. The consignee is obligated to hold the proceeds of sales and forward them to the
                   7. The consignee is required to keep separate books and records pertaining to the goods;
                   8. The consignor has the right to inspect the goods and the books, records, and premises of
                       the consignee;
                   9. Shipping papers and other documents refer to the transaction as a consignment;
                   10. The risk of loss remains with the consignor.

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        C. Why Consignments matters
                1. If you have a transaction that looks like a consignment, you need to know:
                2. Is it a true consignment?
                    i.    If no – if it’ a sale and SI disguised as a consignment -- the seller/”consignor” has
                          to perfect or risk losing all interest in the property.
                   ii. If yes, you need to know:
                3. Is it an A9 consignment?
                    i.    If it is, the consignor must perfect or risk losing the property.
                   ii. If it isn’t, no worries.
  IV. LEASES 1-203
        A. If:
                1. there is no right of early termination of the obligation to pay the lease amount, and
                2. the lease term equals or exceeds the economic life of the goods, or
                3. the lessee must renew for the remaining economic life of the goods or become their
                   owner, or
                4. the lessee may renew for the remaining economic life for little or no consideration, or
                5. the lessee may become the owner for little or no consideration, then
                    i.    It’s not a lease! It’s a sale disguised as a lease.
        B. Leases Distinguished from Sale/SI
                1. Does the lessee somehow end up paying for the goods? If the payments cover the
                   entire economic life of the goods – ie, if the goods are or may be worthless when the
                   lessee is through with them – then it’s probably a sale and not a lease.

                    2. Remember 2-401: when the seller delivers goods and purports to retain title, she creates
                       an A9 SI. Perfect or perish!

           C. Sale Distinguished as a Lease
                   1. ►2-401 & 1-201(b)(35): Retention or reservation of title by the seller in goods
                       delivered to the buyer is treated as merely creating a security interest in the seller. See
                       also 9-102(a)(72) (“secured party” includes “consignor”).
                   2. ∞ 9-109(a)(1): Any contractual transaction, regardless of its form, that creates a
                       security interest in personal property is subject to Article 9.
                   3. ∞ If you fail to perfect as A9 requires, you lose to most other creditors.

        A. 9-505: If you have a “lease”, “consignment’, or other transaction that some court somewhere
           somehow might construe as a secured transaction, file a financing statement to protect yourself.
           It won’t be held against you in interpreting the agreement.

           A. Security interest - 1-201(b)(35) says, basically, that a security interest is an interest in
              personal property or fixtures created to secure payment or performance of an obligation.
                    1. You can only enforce a SI that has “attached”. To say the SI has “attached” basically
                        means the SI is enforceable.
                         i.   Attachment” is all that is required to enforce an A9 SI against the Debtor.
                    2. “Perfection” is required, however, to enforce an A9 SI against third parties.
                         i.   Perfection” basically means giving notice of your SI, so that the Debtor’s other
                              Creditors are protected from fraud.
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           B. The Golden Rule 9-201
                  1. (a) “Except as otherwise provided in [the Uniform Commercial Code], a security
                      agreement is effective according to its terms between the parties, against purchasers of
                      the collateral, and against creditors.”

           C. Attaching SI – 3 Requirements – 9-203
                   1. (b)(1) The Creditor gives “value” to the Debtor in return for the SI.
                       i.   “Value” is defined in 1-204 very broadly -- any consideration that would support
                            a contract, a promise to extend credit, etc.
                   2. (b)(2) The debtor must have rights in the collateral or, the power to transfer rights in
                      the collateral to a secured party.
                   3. (b)(3) There must be a Security Agreement between the Creditor and Debtor.
                      Remember 9-109(a)(1).
                       i.   SP has control
                                a. Unless the Secured Party has possession or control of the collateral as
                                    provided for in A9, the agreement must be written.
                                          i. Like the regular SoF, we require written evidence of a security
                                             agreement or some sort of reasonable “part performance” type
                      ii. SP doesn’t have control 9-203(b)(3)(A) Record Requirement
                                a. If the SP doesn’t have possession or control:
                                          i. The Debtor must “authenticate” (see 9-102(a)(7) & (69)) a
                                             “security agreement” (9-102(a)(73)) that
                                         ii. “describes” (see 9-108) the collateral, and,
                                        iii. if the collateral covers timber to be cut, the SA must describe the
                                             land concerned.

                      iii. 9-203(B)(3) is basically a Statute of Frauds requirement.
           D. Attachment Basically
                   1. A SI is enforceable (“attaches”) when, and only when, all three of 9-203(b)’s
                       requirements are satisfied. (Except as otherwise provided in the rest of 9-203.)

                    2. It is when the last of these three elements is in place that the SI attaches.

         A. The financing statement is the document filed in the state’s Art. 9 filing office to give other
            creditors notice of your SI. ~Remember the recording act analogy.

                    1. Consequently, the financing statement need not mention the terms of the loan or other
                        elements of the transaction.
           B. Technical Requirements of FS
                    1. Several provisions in Part 5 of A9 (especially 9-502, 9-510, 10, 9-516, and 9-520) list
                        what constitutes a filing and what happens if the filing office refuses to accept or
                        mistakenly accepts a financing statement.
                    2. 9-502(a) roughly parallels 9-203(b). A FS must:
                         i.   Contain the Debtor’s name (see 9-503 & 9-506),
                        ii. contain the Creditor’s name (see id.), and
                       iii. indicate the collateral (see 9-504).
                    3. 9-521 contains a good sample financing statement.
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           C. Names
                 1. 9-503 elaborates on 9-502(a)(1)’s critical requirement that the Debtor be named in the
                    i.   What are 9-503’s requirements? Generally speaking:
                             a. Individual and Organization debtors – use individual and organization
                                names precisely.
                             b. If the Debtor does not have a name, use the names of its partners,
                                members, associates, or other constituents. See also 9-506.

        A. 9-308(a) SI is perfected if it has attached & requirements of 9-310 – 9-316 are satisfied

           B. Perfection by Filing Fin stmt [default] 9-310
                   1. a fin statement must be filed to perfect all SI unless find exceptions in 9-310(b) or 9-

                    2. Why Perfect? A Security Interest must be perfected for the Creditor to ensure that he
                       will have rights in the collateral that are superior to later creditors or others taking an
                       interest in the collateral.
                        i.   So Creditors that come after you have inferior rights to your
                    3. 9-501(a)(2): For almost all Security Interests that can be perfected by filing, the
                       Secured Party files in a central office, typically the Secretary of State.

                    4. 9-501(a)(1): For Security Interests in collateral that is closely related to real estate --
                       like minerals, timber, and fixtures -- filing in a local (County) office, such as the
                       Register of Deeds, is required.

           C. Perfection by Possession (Pledge)
                   1. Only collateral that is tangible can be perfected by possession. Perfection by
                       possession works because the world has notice of your security interest if you are
                       holding the property.
                   2. A secured party may perfect a SI in negotiable documents, goods, instruments, money,
                       or tangible chattel paper by taking possession of the collateral 9-313

           D. Automatic Perfection
                  1. AP occurs when a SI is perfected upon attachment w/o the creditor having to take any
                     additional steps
                  2. PMSI –Purchase Money Security Interest
                      i.   9-103 A buyer borrows money to purchase specific goods ie purchase money
                           from the seller or lender & gives them a SI in the goods purchased to secure
                           payment of the loan
                               a. Seller or Lender agrees to extend credit to Buyer
                               b. Buyer uses credit to purchase goods
                               c. Buyer gives Creditor (whether Seller or Lender) SI in goods purchased
                     ii. 9-102(a)(77) Supporting obligation – secondary obligation that supports payment
                           of performance
                               a. Perfect SI in supporting obligation the same way you attach ie

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                    3. Automatic Perfection for PMSI only for consumer goods
                        i. If and only if the goods securing the PMSI are Consumer Goods or software ,
                           the PMSI is automatically perfected under 9-109(a)(1)
                       ii. All other PMSI’s require the Secured Party to take the regular steps for
                               a. Note: SI in titled vehicles even if the vehicles are consumer goods are not
                                   automatically perfected

                    4. 9-204(b) Interest attaching
                        i.   A SI doesn’t attach to collateral acquired more than 10 days after secured party
                            gives value
                                a. So B grants SI to S for currently & after-acquired consumer goods, but
                                   later B gives PMSI to L to buy sewing machine & they buy it. S interested
                                   didn’t attach
                                b. Here if B went bankrupt – L would get the sewing machine not the
                                   bankruptcy lien b/c L is automatically perfected in consumer goods
                       ii. However If the B uses money borrowed from L for something else, there is no
                                a. Note: L could protect itself by making the check to B jointly payable

                    5. What happens to the interest of PMSI creditor who refinances his loan w/ debtor
                       i.  9-103 Non consumer transaction apply dual status rule –
                              a. 9-103(e)&(f) In a transaction other than consumer goods trans, PMSI
                                  doesn’t lose its status even though you consolidate …..
                                      i. If no allocation method given figure out the intent of the obligor if
                                         can’t do so then do FIFO method

                        ii.   If it’s a consumer transaction court can use the dual status rule or
                              transformation depending on its interpretation of the parties intent 9-103(h)

                       iii.   Whether PMSI survives merger of two debts will be determined by its validity
                                a. Transformation rule – PMSI lien is transformed into a non PMSI , b/c
                                    the new loan is not being used to purchase consumer goods , so PMSI
                                    interest may be voided by debtor

                                 b. Dual Status rule- PMSI portion of an obligation survives a consolidation
                                    of loans and the new lien is part PMSI & part non- PMSI
                                         i. Note: court will look at intent of the parties to determine which
                                            method to use

                       iv.    Note: 2 pg 91 can’t take a SI in household goods unless they are PMSI or you
                              have possession of the goods
                                 a. If it’s a possessory SI, creditor has possession of household goods, so this
                                     tells us that these are things that aren’ necessary for debtors household, so
                                     other stuff that would be important creditor enabled them to get it so that’s
                                     why they are PMSI creditor

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                     6. Floating Lien
                          i. A SI is a lien in personal property created by contract, Usually a lien will attach to
                             specific property
                         ii. However a floating lien attaches to the property and the class of after–acquired
                             property (as the req’s for attachment are met), so as you acquired property in that
                             class the SI attaches to the new property within that class.
                        iii. 9-204 – In order for a SI to attach to after acquired property you must state it in
                             the K except for inventory & accounts receivable don’t need to expressly say so
                                 a. So if there is an AAC – once debtor gets property meeting the description
                                     SI attaches, if no AAC the courts will infer the inventory as acquired w/b
                                     subject to the SI

                     7. 2-326(1) Items held “on approval” are not subject to claims of the buyer’s
                        i.   Existing floating lean covering their equipment, so the rug is a good, its either
                             inventory or equipment, so its equipment . Does SI attach:
                                 a. No because its sale on approval, they have possession of the rug but don’t
                                    have sufficient rights in the collateral that would give them title to the rug

                        ii.   They financed the balance of credit sale w/ fin Co & given them SI in the rug to
                              secure repayment of the credit

                                  a. What are requirement for PMSI?
                                         i. Not borrowing the money to purchase
                                        ii. PMSI arises when collateral secures an obligation & that ob is
                                             incurred to enable the debtor to acquire rights in the collateral
                                  b. Answer However here the debtor had rights in the collateral , b/c L money
                                     didn’t enable the debtor to acquire the collateral

                     8. Can PMSI exist when PM was paid to debtor after the debtor has received
                        i.    GECC v. Spartan Motors Facts- GECC had a floating lien in all of Spartan
                              Motors’ inventory and equipment. GMAC had a PMSI agreement with Spartan to
                              supply their auto inventory. Spartan bought 2 Mercedes with their own funds and
                              were then reimbursed by GMAC
                                 a. Holding- GMAC did have a PMSI in the two Mercedes, consequently they
                                     have priority over GECC.

                                  b. Reasoning- The proper test under the UCC to determine if a PMSI exists
                                      is the “closely allied” test. If the creditor is obligated to reimburse the
                                      debtor and does so within a close timeframe of the purchase, the creditor
                                      can hold a PMSI over the collateral.
                                           i. Factors Considered
                                                  1. Temporal proximity
                                                  2. Intention of parties
                                                  3. The knowledge of GMAC reimbursing them was a factor in
                                                      determine whether they would buy the inventory knowing
                                                      they would be reimbursed
                                  c. Court held that “enable” [read broadly] means w/o you they couldn’t have
                                      bought it, so they in broad sense made it possible, when they gave them
                                      the money (temporal) is not key, they did promise upfront to finance SP’s
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                                        purchase of inventory even though money wasn’t given upfront, SP
                                        believed that GMAC would replenish ie enable them to get reimbursed, or
                                        else they would have bought it if they didn’t know that GMAC would
                                        reimburse them

                    9. Exception to 9-310
                       i.  9-309 2-14
                               a. perfected automatically upon attachment
                               b. 9-309 (2) assignment of accounts or payment intangibles which doesn’t
                                   transfer a of significant amount
                                        i. if insignificant, then don’t have to file (exception to the rule below)
                               c. Article 9 applies to transaction & buyer must give notice & file FS to give
                                   creditors notice
                                        i. Even though sale of accounts there is a secret lien problem, so the
                                           buyer of accounts is a secured party
                                       ii. He must file FS stating the he has bought my accounts
                               d. If it’s a significant amount then you don’t have to file to perfect
                                        i. Note sates casual or isolated assignments are automatically
                                       ii. What if its isolated or casual but it’s a significant amount of
                                           accounts? Comments can guide a court but its not law the statue is,
                                           so the good idea is to file if not sure

                    10. In Re Wood 9-309(2) when in doubt file & don’t rely on this rule
                         i.  Larkin loaned Wood 10k then assigned rights to proceeds of cases to Larkin, W
                             went bankrupt
                        ii. Court’s Rule- Assignees may avoid filing their interest in accounts if they can
                             show that:
                                 a. The assignment is not a large portion of the debtor’s accounts. -and-
                                 b. The assignee does not deal account assignments in the ordinary course of
                       iii. Holding- The court takes no stance on whether this assignment was a large
                             portion of the debtor’s accounts, but it does overturn the decision below on the
                             second issue, stating that Mr. Larkin is not in the business of assigning accounts.

                    11. 9-309(4) Notes are automatically perfected upon attachment
                    12. 9-308(d) Surety is automatically perfected upon attachment
                         i.  L loaned P money for her office. P assings acts receivable to surety.
                                 a. They perfected interest in the account & as to the mothers surety, they
                                     don’t have to do anyting to perfect SI in supporting obligation as long as
                                     the SI collateral was perfected 9-308(d)
                        ii. When you take interest in obligation & you are automatically attached in the
                             sureity obligation & perfected in that account

           E. Perfection by Filing – Default method
                   1. 9-310(a) unless exception governs, a financing stmt must be filed to perfect all security
                        i.   so filing is necessary for perfection of SI’s & agricultural liens [comment 2]
                       ii. filing won’t perfect interest in deposit accts or in money

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                    2. Filing occurs when 9-516(a)
                       i.    Secured party prepares proper financing stmt & presents it to the filing officer
                             along with correct filing fee.
                                 a. Note: even if refused the time of proper presentation is the moment of

                    3. Misplaced/ Mistakes filings 9-517
                        i. Failure of filing office to index record correctly doesn’t affect the effectiveness of
                           the filed record.
                       ii. filing is deemed effective & state that runs the filing system may be responsible
                           for the loss once its established that a filing was duly made as required by 9-
                           516(a), but wasn’t properly placed in filing or index system
                                a. So creditors don’t bear the risk of mistake on the part of the filing office

                    4. Filing FS before SA is made or SI attached 9-502(d)
                       i.    FS may be filed before a SA is made or a SI otherwise attaches
                                a. Pre-filing protects lenders interest in collateral it later takes
                                b. If person doesn’t want to bus, Lender can just terminate FS

                    5. What to File 9-502(a)
                       i.  To perfect through filing the secured party must file an initial financing stmt
                           meeting the criteria for 9-502(a).
                               a. Once FS meeting req’s is filed w/ the office & office accepts it, the
                                   perfection by filing h/b accomplished

                        ii.   9-502(a) Initial FS is sufficient only if it provides
                                 a. Name of debtor
                                 b. Name of secured party &
                                 c. Indicates that collateral that is meant to cover

                    6. Include other info other than reqs under 9-502(a)
                        i.  Under 9-516(b) filing office doesn’t have to accept FS it can reject it for
                                a. (b)(4) FS not including name & mailing add of secured party
                                b. (b)(5) mailing add of debtor; state whether debtor is individual or org; if
                                   org provide jurdx of org & org id number
                                c. (b)(3)(C) individual debtor’s last name [or else c/b rejected for this]

                    7. Requesting Ack of filing 9-523(a)
                       i.  If person request ack of filing, the filing office must send ack showing their file
                           number & date and time of filing

                    8. Effect of accepting FS that s/h/b rejected under 9-516 or 9-520(a)
                       i.   9-520(c) : FS accepted that s/h/b rejected but still satisfies req’s of 9-502(a) is

                    9. Effect of refusal to file proper FS
                       i.   9-516(d) FS is still effective to perfect even if not filed
                                a. However despite this filer should still make sure that a correct one is
                                    actually filed & indexed in the office records

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                     10. Priority among conflicting SI’s in the same collateral 9-322
                          i.  (a)(1) If both creditors properly perfected their interests, then the rule is that first-
                              to-file or perfect
                         ii. (a)(2) If only one perfected , then that creditor wins
                        iii. (a)(3) If neither of the creditors perfected, then the one whose interest attached
                              attached first gets the SI

           F. Other Filings
                  1. 9-514: If the secured party assigns the security interest to another creditor, the creditors
                      have the option of filing an assignment statement, but it is not compulsory. Cf. 9-
                      310(c). Subsequent creditors would still have knowledge that there is a creditor, the
                      identity of the creditor is not important to a potential subsequent creditor, except for
                      information-gathering purposes.

                     2. 9-515: A financing statement is effective for 5 years unless a continuation statement is
                        timely filed.
                         i.  (c) &(d) If continuation stmt isn’t filed w/I 6 mths before expirationtion of 5yrs
                             then, the SI is deemed never to have been perfected
                                  a. Note: If continuation stm isn’t filed bf exp & later files new FS, L will
                                      have a new priority date

                     3. Upon repayment of loan who files termination of FS
                        i.  9-513 (a) if the FS covers consumer goods the Secured party must file a
                            termination FS w/I a specified period of time
                                a. (b) w/I 1 month after there is no longer an obligation to sure the collateral
                                   by the FS or w/I 20 days after the secured party receives written demand
                                   form a debtor

                        ii.   If consumer has repaid debt, she can make the bank clear up the records at the
                              filing office or she can do it herself under 9-509(d)(2) & can get damages under
                    4. Clearing up Falsely filed FS
                         i.   Consumer can get it cleared up under 9-509(d)(2)
                        ii. under 9-518 can file statement explaining story why it was filed
                       iii. Can sue the 3rd party who filed falsely for defamation & recover statutory
                              damages under 9- 625
           G. Perfection by Control 9-314(a)
                    1. Security interest in investment property, deposit accounts, letter-of-credit rights, or e-
                        chattel paper may be perfected by control of the collateral under 9-104 , 9-105, 9-106 or
                         i.   Control - secured party has taken steps described in the sections so that its
                              obvious to anyone investigating the state of the collateral that the secured party
                              has rights
                    2. Generally
                         i.   When creditor has possession, then possession is good for tangible collateral as a
                              method of perfection
                        ii. Control applies the same concept to the debtors intangible property
                                   a. If you are the customer then you have control over the bank account
                       iii. Recall that control over a DA can be a basis for attachment under 9-203(B)(3)(D).
                                   a. It is also the only method of perfection of a SI in a DA under 9-312(b).
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                    3. 9-104(a) Control over Deposit Accounts : 3 methods
                         i. Be the bank holding the account and take a SI in it.
                        ii. Get a three-party authenticated agreement that the bank will honor your
                            instructions regarding the DA.
                       iii. Become the bank’s customer with regard to the DA.

                    4. 9-327 Order of Priority in Deposit Accounts
                         i. Control through becoming a “customer” of the Bank where account held (see 9-
                            104(a)(3)). §9-327(4)
                        ii. Control though being the bank holding the account. §9-327(3)
                       iii. Control through agreement according to priority in time. §9-327(2).
                       iv.  A party who has control takes priority over one who has an interest in the DA but
                            no control. 9-327(1).
                                a. Note that these rules can be varied by a subordination agreement under 9-

                    5. 9-312(b) Perfect of Deposit accounts
                        i.  9-310 is base line rule stating must file to perfect unless there is an exception
                       ii. 9-310(b)(8) the filing of FS is not necessary to perfect a SI interest in deposit
                            accounts, E chattel, investment property or letter of credit rights which is
                            perfected by control under 9-314

                       iii. 9-312(a) a SI in chattel paper, negotiable documents, instruments or investment
                            may be perfected by filing
                    6. 9-312 (b) However a SI in a deposit account may be perfected ONLY by control
                       i.   Under 9-104 the only way to perfect a DA is control
                                a. Note: a consumer transaction assignment of DA is excluded from Art 9, so
                                   they aren’t subject to SI

                  7. Ex. C borrowed money from IBA secured by DA at LNB . IB can perfect Si only by
                     control, so IB should become customer of LNB’s on the account
                      i.   If C later borrows from LNB & grants LNB SI in accout there, Does LNB have
                           priority over IBA?
                               a. Under 9-104(a)(1) – LNB is automatically perfected
                                        i. IBA is a PSP too
                               b. Who has priority? 9-322(c ) – 9-327 IBA wins only if it’s a customer on
                                   the account under 9-104(a)(3)
  IX. Multi State Transactions
        A. Choice of Law refers to which state’s law will govern a transaction.
                  1. Section 1-105 (1-301) states that as a general principle, parties to transactions governed
                     by the Code can agree on which state’s law will govern.
                  2. There are important exceptions to this rule, however.

           B. Perfection & its Effects 9-301
                   1. What does 9-301 say?
                       i.   Except as otherwise provided in various other sections, the following rules govern
                            choice of law for perfection-related issues.

                    2. What does 9-301(1) say?
                         i.   Except as otherwise provided, the law of the Debtor’s location governs all
                              perfection issues.
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                    3. What does 9-301(2) say?
                       i.  The law of the collateral’s location governs all perfection issues regarding
                           possessory SIs.

                    4. What does 9-301(3) say?
                       i.  The law of the collateral’s location governs perfection of SIs in timber and
                           fixtures (A & B), and the effects of perfection for Sis in most other tangible or
                           quasi-tangible collateral (C).

           C. 9-301 Follow up
                   1. To successfully implement 9-301, you need to know at least two things:
                       i.   How do you determine where the Debtor is located?
                      ii. What are the differences between perfection, the effects of perfection, and

           D. Debtor’s Location 9-307
                  1. “Individual” = Principal place of residence

                    2. “Registered Organization” (most corporations, LLCs, and limited partnerships, 9-
                       102(a)(70)) = State of registration/incorporation.

                    3. “Organization” 1-201(b)(25) = place of business if only has one; otherwise, chief
                       executive office

           E. Key Terms 9-301
                  1. “Perfection” means what you think it means – ie, taking the steps set forth in 9-310 to
                     9-316 (usually filing a FS).
                  2. The “effects of perfection” is a mysterious term that has little practical impact. It refers
                     to the
                  3. legal status given to the secured creditor by perfecting; i.e., how do other laws affect an
                     Article 9 perfected creditor? Generally, you can lump it in with the most obvious effect
                     of perfection, which is …
                  4. “Priority”, which again means what you think it means.

           F. Which law controls
                  1. State where FS should be filed for corporation is state where corp is registered
                  2. If Corp registered in another Country – if that place has system similar to art 9 then
                      filing should occur there otherwise filing s/b done in DC
                  3. When in doubt file in both places

           G. Corporation moving or merging
                    1. Corp moves to another state – creditors of the copr have 4 mths grace period to refile
                        & not lose perfection 9-316
                    2. Corp merges w/ out of state firm & new firm assumes debts of copr
                         i.   9-316(a) the secured creditor has 1 yr to make a new filing
                    3. Corp w / 2 Creditors before moving
                         i.   C1 files 1st – C1 refiles w/I 9 months of move
                        ii. C2 files 2nd – C2 refiles in new state w/3 mths of move
                                  a. b/c C1 files outside of the 4mth period of 9-316(a) ,it is deemd never to
                                      have been perfected as against C2 under 322(a)(2)
                                  b. So C2 qualifies as “purchaser of the collateral for value”
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           H. Titled Vehicles
                   1. 9-303
                       i.   (a): Title coverage doesn’t require a reasonable relationship between the
                            transaction and the issuing jurisdiction.

                         ii.   (b): Coverage begins when one properly applies for a title; and it ends when
                               either the applicable law says so or when another jurisdiction issues a title
                               covering the goods, whichever is earlier.

                        iii.   (c): If a Creditor holds a SI in goods covered by a certificate of title, and the
                               goods aren’t inventory, then perfection is governed by the issuing jurisdiction’s
                               law until the goods cease to be covered by that certificate.

                     2. 9-337
                         i.  (a) A buyer of goods, other than a dealer, who gives value in good faith, takes free
                             of the SI
                                 a. EX. S buys car in NY financed thru C who notes lien on the title, S moves
                                     to GA gets new title but state doen’s not the lien on new title . M buys S’s
                                     car C wants to reposses it. C can’t since M is buyer (not dealer) who gave
                                     value & in good faith purchased it
                        ii. (b) the SI is subordinate to conflicting SI in the goods that attached & were
                             perfected as long as the conflting party didn’t know of the SI
                                 a. 1-201(25) Knowledge = Actual knowledge

        A. Priority Conflict
                1. E signed SA’s w/ FNB & SB; FNB files on 9/25 but doesn’t loan money until 11/10
                2. SB loans money on 10/2 & files FS. E defaults on both
                     i.  Both banks have a perfected SI
                    ii. But FNB has priority b/c by filing first they placed SB on notice
                   iii. Even if SB had knowledge of the transaction btw E & FNB it doesn’t affect
                         priority b/c knowledge is irrelevant

           B. 9-201 Secured Creditor wins unless the competitor finds a rule that says otherwise
                   1. The Secured Creditor even an unperfected one has greater rights in its collateral than
                      any other creditor unless the Code provides otherwise

           C. 9-317 applies to: Lien Creditors & Secured Creditors
                   1. (a)(2) subordinates an unperfected secured creditor to a lien creditor [prior JLC takes
                      priority over an unperfected secured creditor
                       i.   except as otherwise provided in subsection (e), an unperfected SI is subordinate
                            (secondary) to a judicial lien creditor who’s interest arises before perfection of
                            the SI or agricultural lien or Statute of Fraud is satisfied under 9-203(b)(3) & a
                            financing statement covering the collateral is filed
                                a. Note: In order to beat a JLC must perfect or file FS & meet SOF
                   2. (a)(1) SP v SP go to 9-322

                    3. (e) Exception: Holder of PMSI has 20 days to file. If secured creditor files w/I 20 days
                        after the debtor receives delivery of the collateral, the SI takes priority over the rights
                        of a lien creditor that attaches to the collateral between the time the SI arose & the time
                        of the filing
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           D. 9-322 applies to: Perfected & Unperfected Creditors - Priority in conflicting SI & agricultural
              liens in the same collateral
                    1. 9-322(a)(1) PSP v PSP
                         i.   Secured party who either files or perfects before the other wins
                                 a. If both parties perfected by filing – first to file gets priority
                                 b. If both parties perfected by other than filing – first to perfect or file

                    2. 9-322(a)(2) PSP v. USP = PSP wins
                       i.   a perfected SI has priority over conflicting unperfected SI
                                a. Ex. P pledged stamp collection to CNB for a loan , SI was oral no FS was
                                    filed ; P borrowed $ from Dad giving him a signed SI & Dad files FS
                                b. CNB has priority b/c they were first to perfect [by possession]
                                c. Ex. If P takes the stamps home to add new ones but doesn’t rtrn them
                                d. CNB loses perfection b/c perfection based on possession is lost when
                                    possession is lost unless 9-312’s temporary auto perfection exception
                                e. 9-312 – A perfected SI in goods in possession of the bailee remains
                                    perfected for 20 days w/o filing if the SP (bank) makes the goods available
                                    to the debtor (P) for the purpose of sale or exchange; or in a way
                                    preliminary to their sale or exchange: loading, unloading, storing,
                                    shipping, manuf, processing
                                f. If CNB had P sign SA b/f giving stamps bk but doesn’t file – Dad wins b/c
                                    CNB s/h filed b/f handing over collateral

                    3. 9-322(a)(3) USP v USP = first to attach
                       i.   the first SI to attach or become effective has priority if conflicting SI’s are

           E. 9-323 Effect of Future Advances
                   1. (a) Future advances related back to the initial time of perfection or filing as long as the
                      first to file or perfect maintains filing or perfection
                       i.    So a secured party takes subject to all advances secured by a competing SI having
                             priority under 9-322(a)(1) – first to file or perfect

                        ii.  Ex. FNB loans makes first loan to E & files FS
                                 a. E then borrows from SB using same inventory as collateral
                                 b. E pays off FNB doesn’t file TS, 1 mth later FNB loans more money to E
                                    but doesn’t file new FS
                                 c. FNB prevails over SB & doesn’t need to file new FS
                    2. (c ) however (a) doesn’t apply to a SI held by a secured party that is a buyer of
                       accounts, chattel paper, payment intangibles or promissory notes or a cosignor

           F. 9-204 After-Acquired Property & Future Advances – Cross Collateralization
                    1. (a) except as other wise stated in (b) , a SA may create or provide for a SI in AAP
                    2. (b) An after acquired property clause is ineffective if it covers consumer goods
                        acquired more than 10 days after the SP gives value
                         i.   except for accessions for additional security
                    3. (C) Collateral may secure future as well as past or present advances if he SA states so
                         i.   Ex. R borrowed $ from BNB & signed SA w/future advance clause using cattle as
                              collateral. 2 yrs later R got CC from BNB & used to finance cattle bus trip. He
                              defaulted on CC BNB repossessed cattle
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                                  a. The CC agreement would breach the SI in the cattle however many courts
                                      adopted the “relatedness test” where cts look to whether the parties
                                      intended to cross classify
                        ii.   Note: if used $ to go surfing its unrelated to cattle so cattle w/n/b in the dragnet
                       iii.   Ex. If FNB’s SA also covers future advances & 6mths after first loan, loans
                              money again & bank has P sign another promissory note
                                  a. The original SA & FS don’t have to be altered b/c they used a future
                                      advance clause

           G. 9-324 PMSI
                   1. Generally
                        i. A PMSI creditor receives superpriority under Article 9 b/c his money was used to
                           purchase the collateral.
                       ii. Without this PM credit, the debtor would not have the collateral for the other
                           creditor to claim an interest in.
                      iii. Because the other creditor’s potential claim of security comes at the expense of
                           the PMSI creditor, it is only fair to deny that claim in favor of the PMSI creditor.
                      iv.  Otherwise, PMSI creditors would refuse to lend to debtors whose property of that
                           type is already encumbered.

           H. 9-324(a) PMSI Superpriority : Goods
                   1. GR: PMSI in goods (other than inventory & livestock) has priority over a conflicting
                       SI, if the PMSI is perfected when the debtor gets possession or within 20 days
                        i.    Note: PMSI creditor has priority in the collateral as well as “its identifiable

                    2. PMSI m/b filed w/I 20 days of debtor receiving collateral in order to get priority over
                       other perfected creditor
                       i.    2-326(2) goods held on approval aren’t subject to the claims of buyers creditors
                             until acceptance & only after buyer has possession

                    3. Important Note: Even if you don’t meet 9-324, so priority doesn’t apply to creditors
                       before you; however, you still have PMSI as to Later creditors
                    4. Important Nuance: this rule applies when another creditor has an AAC or else there
                       won’t be any conflict w/ the other creditor if they don’t have an after acquired clause in
                       the same inventory you are financing

                    5. Ex. P bought furniture from S’s interiors signing SA on 6/8. S didn’t know that P’s
                        equip including AAP was collateral for a loan from SNB. S didn’t file FS
                         i.   Note: most furniture purchases are “consumer goods” which are perfected
                              automatically however here furniture is equip so its not auto perfected
                        ii. S will have priority for 20 days b/c it can perfect w/I that time , however after 20
                              days SNB will have priority if S hasn’t perfected its interest
                    6. Galleon Industries
                         i.   G wanted to buy machines from L who refused to sell on credit
                                  a. Manufacturer mistakenly shipped to G bf payment
                                  b. L then sent G invoice for mach. G defaults to a loan it had with CNB & it
                                      repossesses machinery.
                        ii. L sending invoice created a credit sale to G, so G had rights in the machine b/c L
                              didn’t file w/I 20 days grace period CNB wins as the first to file or perfect
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                     7. Ex. LNB has floating lien on V’s inventory & equip which is perfected by filing
                          i.   V buys guard dog from A making monthly payments
                         ii. 2mths later V defaults on LNB’s loans, it seizes assets including dog
                        iii. So the agreement to make payments over time is a loan so a PMSI exists because
                               it’s a conditional sale
                                    a. Conditional Sale = where seller purports to sell but later will deliver the
                                        goods, seller has created a SI,
                        iv.    So A must perfect by filing w/I 20 dyas from when the debtor gets possession –
                               here didn’t do so
                     8. Ex. H leased equip to B w/ option to buy. B’s equip already subject to perfected
                         floating lien of ONB. 3 mths later B aged to purchase equip. H files FS next day
                         claiming PMSI
                          i.   Buyer who has goods in his possession but hasn’t approved it, the creditor can’t
                               get rights until approval
                         ii. Must file or perfect when the debtor receives possession of the collateral, only
                               when the debtor agrees to buy it on credit is when it equip becomes a piece of
                               euip securing an obligation – so at that point it becomes collateral & 20 days
                               begins to run

           I. 9-324(b) PMSI priority : Inventory & Livestock
                    1. Generally
                         i.    A creditor who has a SI in inventory has a floating lien and often a FA clause.
                                   a. If the debtor then gives a PMSI in inventory to another creditor, the first
                                       creditor’s interest could be seriously impaired.
                        ii. Therefore, Article 9 requires the PMSI creditor to be perfected when the debtor
                               receives possession and to notify existing inventory creditors who have filed. See
                               9-324(b & c).
                       iii. Livestock is treated essentially the same. See 9-324(d & e).
                                   a. Except: notice that you give for inventory PMSI is good for 5 yrs
                                       however for the livestock its only good for 6 moths
                    2. 9-324(b) In order for a PMSI creditor to get priority over an existing creditor who has
                        filed in the same inventory , PMSI creditor must perfect [file FS] & notify the
                        existing creditor of the conflict before debtor takes possession
                         i.    Comment : PMSI creditor achieves priority over conflicting SI only if the holder
                               of the conflicting Si receives notification w/I 5 year before the debtor receives
                               possession of the PMSI collateral
                                   a. Mailbox rule – some courts state that as long as notice is sent before
                                       debtor receives delivery, it suffices a notification of previous creditor
                                   b. “Inventory” refers to that which is in dispute not the first acquired
                                   c. Possession - means actual possession
                                   d. Goods in stages - When goods are received in stages “possession” occurs
                                       when after inspection of the portion of the goods in debtors possession, it
                                       would be apparent to a potential lender that the debtor has acquired an
                                       interest in the goods taken as a whole
                                            i. Notice must state that creditor wants to acquire PMSI & describe
                                               the inventory
           J. 9-324(g) Conflicting PMSI Interests
                    1. A creditor vendor of goods prevails over a lender of purchase money
                         i.    Ex. H buys auto parts from S & borrows half of the cost from MB & gets rest on
                               credit from S giving them both PMSI . Both have notice of each other
                                   a. Here the creditor vendor S will prevail – seller is favored over lender
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           K. 9-103(d) Consignors
                   1. The SI of a consignor in goods that is the subject of a consignment is a PMSI in
                        i.  Ex. B gave pottery to T to display & sell in the store, ONB took floating lien over
                            T’s inventory & seized B’s potter when it foreclosed on T’s loan
                                 a. b/c B didn’t perfect her interest she loses to ONB
                                 b. B didn’t file the FS in debtors name to perfect
                                 c. However she could possibly prevail if the consignment doesn’t fit into art
           L. Statutory Lien Priority
                   1. 9-333(a):
                        i.  The services or materials must be furnished in the ordinary course of the
                            repairperson’s business.
                       ii. The lien must arise by statute or common law, not by agreement or judicial
                            process; AND
                      iii. The lien must be possessory.
                                 a. Note: For an artisan’s lien, loss of possession means loss of perfection &
                                    priority. If you have a possessory artisans lien and regain possession you
                                    regain lien , but as to priority you restart priority when he repossesses.
                      iv.   If those requirements are met, the priority rule in subsection (b) is activated, i.e.,
                            the lien has priority unless the statute creating it provides otherwise.

           M. SI in Fixtures & Crops
                    1. 9-102(a)(41) Fixtures are goods that have become so related to particular real property
                        that an interest in them arises under real property law
                         i.   However state law defines what a fixture is. The test is where the party attaching
                              the good intended the good to become part of the realty, it’s a fixture. Annexation
                              and Adaptation are usually the main objective indictors of this intent
                        ii. Lewis Bottled Gas Co v Key Bank
                                  a. Facts- DiBiase gave Key Bank a mortgage on his GBI property.
                                            i. DiBiase then incorporated GBI, Inc to run the property.
                                           ii. GBI, Inc bought 90 AC units on credit from LBG, giving a PMSI.
                                          iii. LBG filed under GBI, Inc., but DiBiase still owned the realty.
                                          iv. Key Bank foreclosed.
                                           v. LBG claims superior interest in the AC units, arguing they are not
                                               fixtures in which Key Bank might claim an interest, but personalty,
                                               as the contract provided.
                                  b. Issue- Are the air conditioners fixtures subject to Key Bank’s mortgage?
                                  c. Rule- The fixtures test consists of three parts: (1) Whether the purported
                                      fixture is annexed to the property, (2) whether the purported fixture is
                                      adapted to the property’s use; and (3) the intent of the parties.
                                  d. Holding #1- The air conditioners are fixtures.
                                            i. Reasoning- The air conditioners were:
                                                   1. bolted to the wall and their removal would leave holes in
                                                       the property,
                                                   2. integral to climate control, and
                                                   3. objectively viewed as part of the realty.
                                  e. Holding #2 – Because they were fixtures covered by Key Bank’s
                                      previosuly recorded mortgage, the only way Lewiston could take priority
                                      is through 9-334(d), which requires a proper fixture filing. Having failed
                                      to make one, Lewiston loses
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                    2. 9-334(a): Same as 9-109(a)(1) – a SI may be created in goods that are or may become
                         i.   however SI in doesn’t apply to building materials that are so incorporated into the
                              building that you can’t take them out w/o having the real proprety
                        ii. SI continues in goods that continue to be fixtures not those that become real estat
                       iii. 9-334(b): Fixtures may also be encumbered under realty law.

                    3. Perfection of Fixtures -2 ways to perfect
                        i.  9-502(a)(2) – Regular A9 filing or
                       ii. 9-501(a)(1)(B) – Fixture Filing ,which must include 9-502(a) & (b):
                                a. (a) name of debtor, name of SP, collateral and
                                b. (b) statement that it covers goods that are or will be fixtures
                                        i. statement that it will be filed in realty records
                                       ii. description of the realty where the fixture is located and
                                      iii. name of realty owner if the debtor has no recorded interest
                                               1. Note: A recorded mortgage that meets these requirements
                                                  suffices if there is a SA or equivilant language in the
                                                  mortgage covering the fixtures 9-502(c ):
                                               2. Must record a record in the Register of Deeds office stating
                                                  the goods it covers
                                               3. Goods are or will be fixtures related to property
                                               4. Record satisfies requirement for FS and \

                    4. Priority under 9-334(c) Default rule, except for (d-h)
                       i.    Unless an exception applies, Real Estate Creditor beat A9 creditors.
                                a. So SI in fixtures loses to conflicting interest of owner or encumbrancer

                    5. Exceptions to Default Rule
                       i.  PMSI Super-priority 9-334(d):
                               a. An A9 PMSI beats a REC only if:
                                        i. the SI is perfected by a fixture filing at count registrar of deeds
                                       ii. no later than 20 days after the goods are affixed; and
                                      iii. the debtor is in possession of the realty, or has a recorded interest
                                           in it ,but PMSI will loses if (h)

                        ii. Construction Mortgagee Super-Super Priority 9-334(h)
                               a. the holder of a construction mortgage (including refinancings); that is
                                   recorded before affixation ( bf goods became fixtures), prevails as to
                                   fixtures attached before completion of construction, except as provided in
                                   (e) & (f)
                      The Race Rule
                       iii. 9-334(e)(1): An A9 creditor beats a REC’s interest in fixtures if:
                               a. the debtor has possession of realty, or a record interest in the realty; and
                               b. the A9 creditor perfects by fixture filing;
                               c. before the REC interest is recorded.

                    6. “Readily Removable Fixtures”
                       i.  9-334(e)(2): An A9 SP beats a REC’s interest in fixtures if:
                               a. he perfects by any method;
                               b. before certain readily removable assets become fixtures (affixed):

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                                 c. factory or office machines, equipment not primarily used in the realty’s
                                    operation, or replacement consumer appliances.
                                        i. Ex. Tenant replaces fridge finances from Easy who takes PMSI but
                                            doesn’t file. State law allows Bank who has Aftr Acq prop mortg
                                            to reach fixtures. Will Easy have priority to repossess? Refrig is a
                                            replacement of a consumer appliance so 9-334(e)(2)(C) should
                                            give Easy priority

                    7. A9 SP v Real Estate Judicial Lien Creditor
                       i.  9-334(e)(3): An A9 SP who perfects by any method (interest arises before)
                           defeats a later JL
                               a. Note: Notice not required b/c JLC doesn’t rely on real prop records as RE

                    8. Manufactured Home Priority
                       i. 9-334(e)(4): If the fixtures is a manufactured home & the transaction is a
                          Manufactured Home Transaction, perfection by noting the lien on the Homes title
                          gives priority to the Secured Party over prior & subsequent real estate claimants,
                          owners and buyers

                    9. Consent 9-334(f)
                        i. (f)(1): If the owner or encumbrancer who has priority consents in writing to the
                           SI or disclaims its interest in the fixtures, the SP takes priority.
                       ii. (f)(2): If the debtor has a right to remove the fixtures, a SP with an interest in the
                           fixtures takes priority, regardless of perfection

           N. Review of 9-334 Priority Rules
                   1. If there is a conflict regarding fixtures between an Art 9 SP and a real estate claimant,
                      first see if the A9 claimant wins under the general “race” rule of (e)(1)
                       i.    If he does the inquiry is done
                      ii. If he doesn’t look for an exception
                                 a. PMSI perfected by fixture filing before affixation or w/I 20 days beats a
                                      prior real estate claimant, if the debtor has a realty interest in (d) wins
                                 b. The Real estate claimant is a construction mortgagee & the goods are part
                                      of the construction project he has Super-Super priority under (h), or
                                 c. readily removable realty in (e)(2) however this is subject to (e) & (f)
                                 d. where if manufactured home transaction (e)(4) will beat Construction
                                      mortgagee or
                                 e. consent or subordination agreement or other legal permission to remove
                                      free of encumbrances (ex under statute) (f)
                                 f. Also an A9 creditor who perfects by any method prevails over a later
                                      judicial lien creditor under (e)(3)

        A. Default Rules: Buyer beware
               1. 9-201: a SA is enforceable against everyone including buyers of the collateral unless
                   the Code provides otherwise
               2. 9-315(a)(1): unless otherwise provided in A9 or 2-403(2), a SI in collateral continues
                   despite debtors disposition of the collateral unless the SP agrees to release the SI

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           B. Protections for buyers
                   1. If Unperfected → Tangibles 9-317(b) Subject to 9-317(e),
                        i.   a buyer (other than a SP) of tangible chattel paper, documents, goods,
                             instruments, or a security certificate,
                       ii. who gives value and
                      iii. receives delivery
                      iv.    without (actual, see 1-202) knowledge of a SI,
                       v.    before it is perfected
                      vi.    takes free of the SI.
                                 a. so buyer beats SP unless SP is PMSI then go to (e)
                   2. Intangibles 9-317(d) A buyer (other than a SP) or licensee of general intangibles,
                       accounts, electronic chattel paper, or investment property other than a certificated
                        i.   who gives value
                       ii. without (actual, see 1-202) knowledge of a SI,
                      iii. before it is perfected
                      iv.    takes free of the SI.

           C. 9-317(e) PMSI Priority against buyers and LC’s
                    1. Except as provided in 9-320 and 9-321,a PMSI creditor
                          i.    takes priority over
                         ii. a buyer
                       iii. or lien creditor,
                        iv.     whose interest arises between the time the PMSI attaches and the creditor files,
                         v.     if the creditor files within 20 days of delivery of the collateral to the debtor.
                                     a. so if PMSI creditor have 20 days to perfect and beat the buyer
           D. If Perfected → Covers Buyers in the Ordinary course of business 9-320(a)
                    1. Subject to (e), A BIOC of goods (except farm products)
                          i.    takes free of a SI created by his seller,
                         ii. even if the creditor of SI is perfected
                       iii. and the buyer knows of it.
                                     a. Note: if you know that all inventory is subject to bank, buyer takes free &
                                         clear of this SI
           E. Who is 9-320(a) Buyers in the Ordinary Course of business
                    1. He must be a buyer in the ordinary course of the seller’s business, 9-320(a) and 9-
                    2. Who does not buy in bulk, 1-201(b)(9);
                    3. Who does not take his interest as security for a pre-existing debt (ie, he must give
                         “new” value) 1-201(b)(9);
                    4. Who buys from one in the business of selling such goods (eg, cars from a car dealer,
                         ie, inventory), who is not a pawnbroker, 1-201(b)(9);
                    5. Who buys in good faith and without knowledge that his purchase is in violation of
                         others’ rights, 9-320(a);
                    6. Who does not buy farm products from a person engaged in farming operations, 9-
                          i.    Because they have their own rules
                    7. Where the competing SI m/b “created by his seller,” 9-320(a)l;
                    8. The seller’s creditor parts with possession, 9-320(e); and
                    9. The buyer has possession or the right thereto, 9-320(a).
                          i.    Note - a BIOC must have good faith, which requires honesty – so if they know a
                                deal is fraudulent they can’t be buyer in the ordinary course of business
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           F. If Perfected → 9-320(b) Consumer to Consumer Sales - “Garage Sale Rule”
                    1. Subject to (e),
                         i. a buyer of consumer goods,
                        ii. who buys for consumer use,
                      iii. takes free of a PSI, if seller hasn’t filed FS
                       iv.  if the buyer doesn’t actually know of the SI,
                        v.  gives value, and
                       vi.  buys before the SP files.
                                 a. Different than 9-320(a) where they can’t know that they are violating

           G. 9-320(e) If the SP has possession,
                   1. A buyer has no protection under 9-320(a) or (b).

           H. 9-331 HIDC of a Negotiable Instrument
                   1. A HIDC of a negotiable instrument takes free of the PSI’s in such property

           I. 9-302 Holder in Due Course
                   1. Subject to some exceptions, the holder of an instrument who gives value for it, in good
                      faith, w/o notice of any claim to the instrument or other noted impediment to its
                      validity is a HIDC

 XII. Art 2 v Art 9 CLAIMANTS
         A. SCOPE
                  1. Article 2 gives parties SI and Article 9 states how to deal with them
                  2. 9-109(a)(5) Article 2 claimants who have possession of the goods in dispute will have
                     priority over Art 9 claimiant
                     i.    Exception
                               a. 2-702 Sellers right to reclaim

                    3. The priority of SIs that arise under these non-A9 provisions is governed by 9-110.

                         i.   9-110 Until the debtor obtains possession of the goods the
                                 a. SI is enforceable even though 9-203(b)(3) SOL hasn’t been satisfied
                                 b. Filing isn’t required to perfect the SI
                                 c. The rights of the Sp after default by the debtor are covered by Art 2 or 2A
                                 d. The SI has priority over a conflicting SI created by the debtor

           B. SI by Art 2 Claimants
                   1. Buyer who rejects defective goods, and Buyer who accepts defective goods then
                      revokes, obtain a possessory SI to secure return of payment. 2-711(3); cf. 2-601, 2-602,
                      2-608, 2-612.
                   2. Seller who delivers goods but “retains title” has a SI. 2-401.
                   3. Seller who ships under reservation. 2-505.

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           C. Priority Rule Btw Art 2 & Art 9 Claimants
                   1. Article 2 claimant takes priority over Article 9 SP if A2 claimant has possession. See 9-
                       110; 9-309(6) (auto perf until Debtor gets possession).

                        i.   Exceptions:
                                a. 2-702: if insolvent buyer orders goods on credit, seller has reasonable
                                    time to demand return unless:
                                        i. Buyer is bankrupt, in which case seller generally has 20 days for
                                            demand. 11 U.S.C. §546(c).
                                b. Seller’s right to reclaim is subject to rights of GFPV (including A9
                                    creditor). 2-702(3).

        A. If a creditor has a SA with a future advance clause and later gives the debtor an advance,
           does the creditor need a new SA? A new FS? Generally, “no” as to both; but better to state it
           in the SA, some courts have required it

           B. Will the creditor’s priority as to that advance date from the time it is made or some other
                    1. Future Advances are prioritized from the earlier time of filing FS or perfection Under
                        9-322(a)(1) and 9-323
           C. If a creditor is perfected by possession and it gives up possession, is it still perfected?
                    1. Only if one of the temporary automatic perfection provisions of 9-312 apply or the
                        creditor is otherwise perfected before surrendering possession. If any break they start
           D. What is the priority rule for SP v. JLC? 9-317(a) a SP who files first & has SI or perfects will
              beat the JLC

           E. SP1 takes a SI in D’s “office machinery,” including AAP, and files a proper FS. SP2 sells D
              new office machine on credit and takes a SI in that machinery, filing to perfect on the same
              day. Who has priority in the new machinery? It depends on whether SP2 complied with 9-
                    1. For SP2 to prevail under 9-324 under the rule it depends on whether the machinery is
                         equip or inventory, if equip SP2 wins
           A. Future Advance & BUYERS (BNIOC)
                    1. 9-323(d) Buyer not in ordinary course takes free of SI to extent it secures advances
                         made after the earlier of knowledge or 45 days of the purchase (knowledge kills SP’s
                    2. Therefore, the creditor has at most 45 days to make advances free of Buyer’s interest.
                    3. But, under § (e), (d) does not apply if the advance is made pursuant to a commitment
                         that was entered without knowledge and before the expiring of the 45 days.
           B. Future Advance & Lien Creditors
                    1. 9-323(b) A SI that secures an advance will take priority over a JLC if the advance is
                          i.   up to 45 days after the lien,
                         ii. any time, if it is made without knowledge of the lien, or if it is made
                       iii. pursuant to commitment made without knowledge. (No knowledge, no time
                               limits; and, even with knowledge, 45 day safe haven.)
                        iv.    Therefore, the creditor has at least 45 days to make advances free of a JLC’s
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       A. Types
              1. Chapter 7 Liquidation Bankruptcy- taking all debtors debts & assets up that point in
                 time & sell them to pay off as many of the debts as possible

                     2. Chapter 9 Rehabilitation Bankruptcy- allows the party to continue operating & keep
                        assets, helping them rehabilitate

           B. Bankruptcy Trustee [BT]
                    1. BT can get interest in the debtors property
                    2. Bankruptcy code is set up to cut off claims against the bankrupt person
                         i.   Purpose : Allows debtor to be relieved from existing creditors , give him a chance
                              to start over & treating debtors creditors as fairly as possible
           C. Process
                    1. Bankruptcy is an action field in Federal Bank Court : 2 different ways Bnk arises
                         i.   Voluntary – where debtor files petition in federal court
                        ii. Involuntary – where Creditor files against the debtor
           D. When it arises – when you file a Bank petition then at that time The BT gets rights of JLC
                    1. The BT has the rights of a JLC \
                         i.   GR: so the JLC will take priority to unperfected creditors
                        ii. perfected creditors by the date of the bankruptcy will beat the JLC – or else will
                              be a general creditor of the estate
           E. What happens to assets
                    1. The assets as placed in Bank account & they try to pay off the creditors
                         i.   Under the Bankruptcy code - An unsecured ie unperfected creditor = general
                                  a. So they go to the back of the line & must wait until the estate is liquidated
                                       , once the perfected Parties paid and BT paid then they will get something
                                       is anything is left over
                        ii. The trustee will have certain tools to build up the bankruptcy estate in order to
                              pay themselves and the unperfected ie general creditors – since the perfected ones
                              are already taken care of
                                  a. they want fewer PS creditors so more is left for the general creditors ,
                                       which is who the BT is trying to protect
                                  b. So BT is trying to find problems with PS creditors either in attachment or
                                       perfection stage
           F. Powers to attack creditors claims
                    1. They can use any defense that that the debtor would have against creditors
                    2. They can void certain transfers of debtors property even before the bankruptcy filed
           G. Automatic Stay 262
                    1. When the petition is filed we want to stop claims of creditors against the debtor
                    2. It stops all activity as to the debtors property – so creditors cant take an interest or
                        enforce existing interest of the property
                         i.   that’s what the code does, it states that fed Bank court has taken jurx over debtors
                              assets so creditors don’t have access- since all activity is frozen
           H. Then the trustee tries to build up the estate : weapons it has in its possession:
                    1. First took 544(a) Strong arm- try to wrestle away
                         i.   Trustee has power of a hypo JLC under state law
                                  a. JLC can beat unperfected SP’s , if it can show that interest in debtors
                                       assets in the property isn’t properly perfected by the Date of Ban the
                                       trustee defeats the interest
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                        ii.   However this is subject to exception 544(b)
                                a. PMSI exception: Unperfected SC can beat a JLC , if the state law says you
                                   can prevail over JLC
                                        i. Only time you can do this is when you are a PMSI and have a
                                           grace period to perfect

                    2. 2nd weapon: 547(b) Avoidance of Preferential Transfers
                        i.  if they don’t prevail under 544(a) where they can’t completely cut off your
                            interest b/c creditor perfected then 544(b) will be used
                                 a. GR there is a period of insolvency before bankruptcy is filed, so it doesn’t
                                    occur over night
                                 b. Bank code recognizes that before bank is filed debtor will be insolvent so
                                    they will look at pre-petition transfers to determine if they were preferring
                                    certain creditors over others
                       ii.   under 547(b)
                                 a. Provision allows trustee to wipe out certain pre-petition transfers that
                                    unfairly deplete the assets of the estate, in a way that would be unfair to
                                    some creditors v other creditors – so trustee can void out the transfer of
                                         i. So if creditor is benefiting more during this pre-petition period
                                             than they would if there was no bankruptcy looming then that
                                             transfer of interest will be cut off –
                                 b. GR: all transfers are suspect during this period

                       iii.   547 (b) Unless an exception applies (see §547(c)), the Trustee may avoid the
                              transfer of an interest in the debtor’s property:
                                  a. to a creditor (even a PSP),
                                  b. for an antecedent debt, [pre-existing debt not one that’s given
                                      contemporaneously w/ SI]
                                  c. while the debtor is insolvent (see §547(f)),
                                  d. within 90 days of the DOB (1 year for an “insider”: someone of close
                                      relationship w/debtor),
                                           i. during 90 days bf bankruptcy there is a presumption of insolvency
                                              so creditor has burden of proving that debtor wasn’t insvolent , so
                                              wasn’t treating the creditor preferentially
                                          ii. so Bank Trusty is only looking at transfers w/I 90 days prior to
                                              DOB filed – so this interest can be avoided, BT can get those funds
                                              back if these 547(b) req’s are met
                                  e. by which the transferee receives more than it would in bankruptcy without
                                      the transfer.
                                           i. If pursuant to that transfer w/I that period on account of that prior
                                              that the trnasfeer would receive more than it would if it went thru
                                              bank w/o the interest

                       iv.    How to determine the last requirement : More than Requirement
                                a. Pretend there was no transfer. Run the transferee through the bankruptcy
                                    process and determine what it gets.
                                         i. What would they get thru bankruptcy
                                b. Run the transferee through bankruptcy with the transfer and see what it

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                                  c. Compare the two outcomes. If the transferee gets more with the transfer
                                     than without, the “more than” test is met. & bankruptcy can wipe out
                                  d. If they win under 547(b) got to 547(c) to see if exception that creditor can

           I. Creditor’s Countermeasures – the Preference Exceptions of 547(c)
                  1. Weekend Exception to 547(b) is 547(c)(1) list of exceptions that creditor has opp to
                      prove to prevent voiding the interest
                       i.  If: (1) the debtor and creditor intended the debt to be secured when it was made,
                      ii. (2) the debt and the transfer were substantially contemporaneous, then,
                     iii. the Trustee cannot avoid the transfer as preferential

                    2. When does a “transfer of a SI occur?
                       i. §547(c)(1), like numerous BC provisions, hinges on the date of “transfer”.

                        ii.   § 547(e)(2) defines that date as follows:
                                  a. Upon attachment if it is perfected within 30 days (subject to the PMSI
                                     rule of § 547(c)(3)(B)), or
                                  b. Upon perfection if it is perfected more than 30 days after attachment, or
                                  c. On the DOB if it is unperfected by that time or 30 days after attachment.

           J. Black Letter Rule #1
                   1. If, on the 90th day before the DOB, there is full collateralization (i.e., the debt is equal
                      to or less than the value of the collateral). the Trustee will not be able to void transfers
                      of after-acquired collateral SIs or money to creditors during those 90 days.

           K. Black Letter Rule #2
                   1. If, on the 90th day before the DOB, there is under-collateralization (i.e., the debt is
                      more than the value of the collateral). the Trustee will be able to void transfers of after-
                      acquired collateral SIs or money to creditors during those 90 days (if all 547(b)
                      requirements are met).

           L. 547(c)(2) Conventional Debt Payment Exception
                   1. The Trustee cannot void a transfer as preferential if:
                        i. The debt being paid was made in the parties’ ordinary course of business or
                           financial affairs; and
                       ii. The payment is made in the parties’ ordinary course of business or financial
                           affairs; or
                      iii. The payment is made according to ordinary business terms.

           M. 547(c)(3) PMSI Exception
                   1. The Trustee cannot void a transfer as preferential if:
                        i. The SI was obtained for new value;
                       ii. The SP gave the new value to enable the debtor to acquire the collateral securing
                           the SI;
                      iii. The debtor used the value to obtain the collateral; and
                      iv.  The SP perfects no later than 30 days after the debtor gets possession.

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           N. 547(c)(4) “Net Result” or “Subsequent Advance” Rule
                   1. The Trustee cannot void a transfer to a creditor as preferential if:
                        i.  To the extent that after such transfer, the creditor gave new value to the debtor,
                       ii. The debtor didn’t give the creditor anything of value in exchange for the
                            creditor’s new value.

           O. 547(c)(5) Floating Lien Exception
                   1. The Trustee cannot avoid as a preference the transfer of a PSI if:
                        i.  The collateral is “inventory”, “receivables”,* or their proceeds, and
                       ii. The SP’s secured position is not improved between the DOB and 90 days prior (1
                            year for insiders) due to the addition of the new security.

                    2. * Note that the BC defines these terms more broadly than their A9 counterparts. See 11
                       USC 547(A)(1). “Inventory” here includes farm products; and “receivables” includes
                       accounts, instruments, chattel paper, and payment intangibles.

           P. Floating Lien Test
                   1. Compare:
                        i.   The debt to collateral ratio at DOB-90 to
                       ii. the debt-collateral ratio on the DOB.
                   2. If there has been no improvement in the ratio, the addition of collateral is not voidable
                       as a preferential transfer.
                        i.   Conversely stated, any reduction in the SP’s unsecured status during the
                             insolvency period indicates a preference the Trustee can avoid.

       A. Section 544(b): The Trustee can assert the state law rights of any exiting unsecured creditor.
               1. The UFTA and related acts typically allow attacks on transfers four years prior.

           B. Section 548: The Trustee may avoid a conveyance within two years before the DOB if:
                   1. It is intended to defraud creditors; or
                   2. The debtor receives less than reasonable equivalent value for the transfer and it is made
                       while insolvent or it makes the debtor insolvent.

           C. 547(c)(6) Statutory Lien Exception
                   1. The Trustee cannot avoid statutory liens that:
                        i.  Are enforceable under state law against a BFP, and
                       ii. Do not arise only upon insolvency of the debtor.

           D. In Re Smith Home Furnishings
                   1. Facts- TCFC held a floating lien over Smith’s inventory.
                             TCFC foreclosed and sold off Smith’s inventory for slightly more than Smith
                             owed TCFC.
                              The bankruptcy trustee sought to avoid the transfer as a preference.
                   2. Issue 1- Was TCFC under-secured, such that payments it received were unfairly

                    3. Holding 1- The Trustee failed to meet his burden of proving TCFC was ever under-

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                    4. Issue 2- Does the commingling of assets create a problem when TCFC is paid
                       “proceeds” that are not readily identifiable as such?

                5. Holding 2- The Trustee must show TCFC got more in proceeds from the than they
                   were entitled to. The mere fact that they received money from a commingled account
                   is not enough.
        A. Proceeds
                1. When a debtor disposes of collateral, whatever is received in exchange is “proceeds” of
                   the collateral. See 9-102(a)(64).
                2. A SI in collateral attaches to identifiable proceeds automatically. See 9-203(f); 9-
                3. Whether a SP’s perfection of a SI in collateral continues in proceeds is a separate
                   question, dealt with in 9-315(c)-(e).

           B. Perfection In Proceeds
                   1. If the SP was perfected in collateral, it is automatically perfected for 20 days in the
                       proceeds of that collateral under 9-315(c).

                    2. To remain perfected after that 20-day period, the SP must satisfy one of the conditions
                       in 9-315(d).

           C. 9-315(d)(1) “Same Office” Rule
                   1. If: (A) The SP did file regarding the original collateral,
                   2.       (B) The SP could perfect in the proceeds by filing in the same office, and
                   3.       (C) The proceeds were not obtained with cash proceeds,
                   4. then perfection continues in the proceeds beyond the 20-day grace period. (Under 9-
                       315(e), it lasts as long as the original FS or 20 days, whichever is longer.)
                       i.   Eg: A SP with a PSI in inventory files in the Secretary of State’s office where the
                            debtor is located. If the debtor sells the inventory and receives chattel paper as
                            proceeds, perfection continues in the CP.

           D. 9-315(d)(2) Cash Proceeds
                    1. For what it’s worth, perfection continues beyond the 20-day grace period in
                        “identifiable cash proceeds.” 9-315(d)(2).
                    2. Cash proceeds” include “money, checks, deposit accounts, or the like.” 9-315(b)(2).
                    3. You know what happens to money.
                    4. Good faith transferees of checks (aka “instruments”) generally take free of any SIs in
                        them. See 9-331(a) and 9-330(d).
                    5. The same is true of one who takes money or deposit account funds in good faith. See 9-
                        332(a) and (b).
                    6. Moreover, to continue perfection in cash proceeds, they need to be “identifiable”.
                        LIBR is a common tracing method.
           E. 9-315(d)(3) “Same Type” Rule
                    1. If the SP is perfected in proceeds by virtue of a rule other than 9-315(c)’s grace period,
                        it will remain perfected beyond the 20-day grace period.
                         i.    Eg: SP perfects in Debtor’s equipment by filing. Debtor sells the equipment and
                               uses the cash proceeds to buy more equipment (therefore, (d)(1) won’t work). If
                               the original FS described “equipment” it perfects the SP in the proceeds
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                    2. Farmers Coop Elevator v Union State Bank
                       i.  Facts- CO-OP and USB were both creditors of Cockrum. CO-OP had a PMSI in
                           grain that Cockrum fed to his livestock. CO-OP claims that their interest is
                           superior to USB because the livestock is proceeds of the grain.

                        ii.   Issue- Is livestock considered proceeds of grain?
                       iii.   Holding- No. A case “on all four hooves” rejected CO-OP’s approach.
                       iv.    Reasoning- When the livestock consumes the food, the rancher does not receive
                              anything of value in exchange. The collateral is consumed and nothing of value

           F. Priority In Proceeds
                   1. The general rule of 9-322(b) is that priority in proceeds follows the first to file or
                       perfect rule of 9-322(a)(1).
                   2. However, under 9-322(c)-(f), exceptions to the first to file or perfect rule also generally
                       apply to proceeds.

           G. Proceeds Priority General Rule
                   1. Under 9-322(b)(1), the “first to file or perfect” priority rule governs not only original
                      collateral, but proceeds as well.
                   2. Thus, when two PSPs claim priority in the same collateral – one as original collateral
                      (eg, accounts) and the other as proceeds (eg, the accounts arose form the sale of
                      inventory in which that creditor was perfected) -- whoever filed or perfected first wins.

           H. Special (non-temporal) Priority for “non filing collateral” proceeds
                   1. Certain types of collateral are typically perfected by non-filing methods, ie, possession
                       or control.
                   2. This non-filing collateral includes chattel paper, deposit accounts, negotiable
                       documents, instruments, investment property, and letter of credit rights. See 9-322
                       Comment 7.
                   3. Priority in proceeds of such collateral is generally governed by a “first to take
                       possession or control” rule.

           I. Proceeds Priority – Special Rules
                   1. Under 9-322(c), a SP who has priority based on perfection by possession or control in
                      non-filing collateral generally has priority in the (non-filing) proceeds of that
                      collateral if:
                       i.   It is perfected in the proceeds and
                      ii. The proceeds are either cash or proceeds “of the same type” as the original
                   2. Even if a SP has priority by possession or control in non-filing collateral, if the
                      proceeds of that collateral are “filing collateral,”* a “first to file” rule governs priority
                      in the proceeds. See 9-322(d), (e); Comment 7.

                    3. *”Filing collateral” includes accounts, commercial tort claims, general intangibles,
                       goods, nonnegotiable documents, and payment intangibles. Comment 7 to 9-322.

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            J. PMSI Proceeds Priority
                  1. When non-inventory PMSI collateral is disposed of, the secured party’s priority in the
                      collateral generally continues in the inventory. See 9-324(a).

                     2. When inventory PMSI collateral is disposed of, the PMSI creditor’s priority generally*
                        continues only in “identifiable cash proceeds received on or before delivery of the
                        inventory to a buyer.” See 9-324(b).

                     3. *PMSI priority may also continue in chattel paper and instrument proceeds under the
                        conditions of 9-330 if a “purchaser” of the paper is involved, but this is not likely -- the
                        purchaser generally prevails. Against the prior PSP that the PMSI creditor took
                        superpriority over, however, the PMSP retains superpriority in the paper.

            K. LIBR
                   1. First: Proceeds of the sale of collateral remain in the account (commingled) as long as
                      the account balance equals or exceeds the amount of the proceeds.
                   2. Second: If the account balance drops below the amount of the proceeds, the SI in the
                      funds on deposit abates accordingly.”
                   3. Third: This lower balance is not increased if funds are later deposited into the account.

         A. State Bank of Piper City
                  1. Facts- State Bank wants to enforce its security agreement against A-Way after it
                     received a judgment against A-Way and inadvertently collected much less than was due
                     because it botched the bill.
                  2. Issue- Is State Bank barred from seeking to enforce the SA (an Article 9 remedy) after
                     getting a judicial remedy?
                  3. Holding- The UCC gives creditors several remedies against default debtors. Election
                     of one remedy is not a bar to the subsequent (or even simultaneous) enforcement of
                     another remedy.

            B. Klingbiel v Commercial Credit Corp
                    1. Facts- Klingbiel bought a car on credit and the contract was assigned to Commercial.
                         i.   Commercial decided to accelerate the loan and repossess before the first payment
                              came due.
                    2. Issue- Can CCC repossess without giving notice to Klingbiel that it has accelerated the

                     3. Holding- Not here, though not because of the Code. According to the agreement of the
                         parties, CCC had to inform Klingbiel that it was accelerating his loan because there
                         were two options for how to proceed.
            C. Damages
                     1. (a) Court can force or prevent the disposition
                     2. (b) Actual damages
                     3. (c)(2)         Punitive Damages formula to encourage compliance in consumer
                                            i. Loan: Credit charge and 10% of principal.
                                           ii. Sale: Time-price differential + 10% of cash price
                     4. Subsection (e) and (f) add additional $500 penalties for the specified violations.
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           D. Williamson v. Fowler Toyota

                   1. Facts- Williamson, a mechanic, received a car without knowledge that it was
                       encumbered by Fowler. McGregor, an independent contractor, repossessed the car for
                       Fowler by cutting a lock at Williamson’s dealership.
                   2. Issue- (1) Is cutting a lock to repossess a vehicle breaching the peace?
                             (2) Is an employer liable for a breach of the peace caused by an independent
                   3. Holding- (1) Destroying property like this (B&E) is a breach of the peace.
                                 (2) A creditor owes a non-delegable duty to a debtor to not breach the peace,
                                     so he is liable for an agent’s breach.
           E. Hillman v. Cobado
                   1. Facts- Hillman and/or Szata bought cows from Cobado. Cobado repossessed the cows
                       and caused a bit of a ruckus. Sheriffs threatened to arrest Mr. Szata, and then arrested
                   2. Issue- Did Cobado breach the peace?
                   3. Rule - Acts that are likely to produce violence or that cause consternation or alarm
                       breach the peace.

           F. Possible Elimination of Deficiency
                   1. Non-consumer goods:
                        i.  If creditor not commercially reasonable in sale or fails to give proper notice:
                            rebuttable presumption that following the rules would have eliminated deficiency.
                            See 9-626 and Comment 4.
                       ii. If objection to sale, creditor must prove reasonableness.
                   2. CG/CT - Courts decide

           G. Creditors Remedies
                  1. Remedies are cumulative. See 9-601(c).
                  2. Three basic remedies:
                       i.  Action for Debt -- 9-601(a)
                      ii. Repossession -- (9-609) and
                     iii.   either:
                               a. Retention -- 9-620, 9-621 (need debtor consent; notice not waiveable).
                               b. Sale/Disposition -- 9-610 (no consent; notice waiveable after default)
           H. Repossession 9-609
                  1. No notice required (unless security agreement provides -- Klingbiel).
                  2. Recall duties of secured party in possession.
                  3.       See 9-207.
                  4. No breach of the peace allowed, so:
                  5. Be careful or,
                  6. get the court to do it.

           I. Sale 9-610
                    1. Must be “commercially reasonable” in all respects, see 9-610(b); 9-627, and this right
                        cannot be waived in the SA.
                    2. Generally, the debtor is entitled to surplus proceeds after the debt and expenses have
                        been satisfied, and
                    3. The debtor is liable for any deficiency if the sale doesn’t satisfy the debt and expenses.
                        See 9-615.
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           J. Notice
                   1. Contents -- See 9-613 and 9-614.

                    2. Timing -- reasonable time” is general rule. See 9-612(a)
                       i.  Safe Harbor -- 10 days before sale for non-consumer goods. See 9-612(b).

                    3. Mailbox Rule –Notice need only be sent.

                    4. Recipients -- notice of sale to debtor and any sureties in consumer transactions; and, in
                       non-consumer transactions:
                        i.  --to other creditors who have filed or claimed an interest. See 9-611(c).
                       ii. –unless perishable or recognized market (e.g., stocks; not cars). See 9-611(d).

                    5. Waiveable – only after default. See 9-624.

           K. Waiver 9-602
                  1. Many important debtor’s rights cannot be waived.
                      i.   Eg:
                               a. The duty of reasonable care fro collateral. See 9-602(1), and
                               b. The right to hold the creditor liable for failure to comply with the Code.
                                  See 9-602(13).

           L. Post-Default Waivers 9-624
                   1. There are limited conditions where some debtor’s rights can be waived. However,
                      these can be waived only after default, in an authenticated agreement:

                    2. Notice of disposition. See 9-602(7) (no waiver); 9-624(a) (post-default exception).

                    3. Right of redemption under 9-623. See 9-602(11) (no waiver); 9-624(c) (post-default

                    4. Right of mandatory disposition under 9-620(e). See 9-602(11) (no waiver); 9-624(b)
                       (post-default exception).

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