Secured Trans Commercial Paper.txt

• 1. UCC-9: does it apply?
• 2. Attachment of S/I (hint: VCR)
• 3. Perfection of S/I (put world on record notice)
• 4. Priority of creditors
• 5. Default: remedies (statutory, judicial)

• Consensual (voluntary) security interests granted in personalty or fixtures. |
• Does not apply to: |
• - mechanics liens
• - statutory liens
• - real property (mortgages apply to these)

• 1. Consumer goods***
• 2. Equipment**
• 3. Inventory
• 4. Farm products
• 5. Fixtures (annexed to realty) |
• How to classify: focus on primary use of property in the hands of the debtor (subjective determination)

• - Promissory notes, drafts***
• - Patents, trademarks, copyrights
• - Stocks, bonds, mutual funds
• - Proceeds from sale of collateral
• - Accounts (right to payment for goods or services)

• 1. Requirements: "VCR"
• a. VALUE given by the creditor (e.g., loan of $5k)
• b. CONTRACT evidencing the S/I:
• i. "authenticated" by debtor (signed, electronically marked), and
• ii. reasonably identifies the collateral
• c. RIGHTS: Debtor has rights in the collateral he can confer |
• 2. After-acquired collateral clauses ("floating liens") are enforceable
• a. E.g., security interest "in all of debtor's inventory, whether now held or hereafter acquired"

Puts world on record or synonymously constructed notice of the secured party's existence and stake in the secured property.

Possession by secured party is perfection of the interest (synonymously-constructed notice to the world)

• Defined: S/I that enables the debtor to purchase the goods |
• Rule:Automatic perfection if PMSI is for consumer goods

• 1. Filing the security agreement ("VCR") or a financing statement provides record notice to the world |
• 2. Financing statement need only contain:
• a. debtor's name and address
• b. creditor's name and address
• c. description of the collateral (e.g., "all of debtor's assets" is sufficient)

• 1. File with the Secretary of State, in the state where the debtor is located. |
• a. Individuals: State of debtor's principal residence
• b. Registered entities: State under whose laws entity is organized |
• 2. Exception for timber, minerals, or fixtures:
• a. file locally, in county where annexed realty is located

• Creditors in general order of priority: |
• 1. BIOC: Buyer in Ordinary Course. Purchases collateral from debtor-merchant's inventory. |
• 2. PAC: Perfected Attached Creditor: UCC-9 creditor who both attaches ("VCR"), and perfects (puts world on notice)|
• 3. LC: Lien Creditor. General unsecured creditor who goes to court to get a judicial lien on the collateral |
• 4. NOCie: Non-Ordinary Course Buyer. Purchases collateral outside ordinary stream of commerce (debtor does not regularly deal with goods of the kind) |
• 5. AUPie: Attached Unperfected Creditor. UCC-9 creditor who has attached (VCR: Value given, Contract written, debtor has Rights in collateral), but has not properly perfected |
• 6. GUC: General Unsecured Creditor. Makes no attachment (no VCR)

• 1. Wins against
• a. debtor
• b. subsequent AUPies
• c. GUCs|
• 2. Loses against
• a. PAC
• b. LC
• c. any buyer (BIOC, NOCie) without knowledge of S/I

• PAC defeats all except: |
• 1. PACs who file first
• a. early-filing rule: priority relates-back to early filing |
• 2. PMSI holders (some):|
• a. AACF of financed equipment: PAC wins if filling occurs w/i 20 days of debtor taking possession. |
• b. AACF of financed inventory: PAC wins if both of the following occur before debtor takes possession
• i. proper filing, and
• ii. notification to PMSI of AACF

• PAC loses to BIOC.|
• A buyer in ordinary course takes free of a perfected S/I in debtor-seller's inventory

• When debtor has breached the Security Agreement|
• - terms of agreement control
• - "default" not defined in UCC-9

• 1. Self-help
• 2. Judicial action (writ of replevin)
• 3. Strict foreclosure
• 4. Sale of collateral
• 5. Deficiency action

• Creditor must not breach the peace. Breach occurs where creditor: |
• 1. Repossess, despite debtor objection, or |
• 2. Impersonates police (constructive use of force), or |
• 3. Uses actions likely to result in violence
• a. actual violence need not occur
• b. focus is on potential for violence

If secured creditor cannot use self-help (e.g., debtor objects), must seek judicial writ of replevin (sheriff repossesses)

• 1. Rule: Secured party retains collateral in full satisfaction of debt. |
• 2. Requires: Written proposal to retain collateral to: |
• a. consumer goods:
• i. debtor
• ii. secondary obligor |
• b. non-consumer goods:
• i. debtor
• ii. secondary obligor
• iii. other secured parties |
• 3. Not available: where
• a. any notified party objects w/i 20 days of notice (must proceed by sale), or
• b. debtor has paid at least 60% of collateral (must sell w/i 90 days)

• Secured creditor may sell collateral and apply proceeds to the debt. Sale may be public or private. |
• 1. Ever aspect of the sale must be "commercially reasonable," and |
• 2. Prior to sale, reasonable notice must be sent to debtor and
• a. Consumer goods: Secondary obligor
• b. Non-consumer goods: Other secured parties, secondary obligor |
• 3. The notice must specify:
• a. Public sale: time and place of sale
• b. Private sale: time after which sale will be made
• c. Consumer goods: how to calculate deficiency, and redeem |
• 4. Secured party may buy at a public sale, but not at a private sale

• Secured creditor can sue for deficiency, if proceeds from sale do not fully satisfy the debt.|
• Low price insider: Calculate deficiency based on price that an independent 3P would have paid

• 1. Right of redemption cut-off by
• a. sale, or
• b. strict foreclosure|
• 2. Redeem by paying
• a. amount owed, and
• b. any interested accrued, and
• c. creditor's reasonable expenses (inc. atty's fees) |
• 3. Acceleration clauses: redeem by paying:
• a. full balance of remaining debt
• b. accrued interest
• c. creditor's reasonable expenses (inc. atty's fees)

When negotiable instrument is duly negotiated to a holder in due course, the holder takes the instrument free of all claims to it, free of personal defenses and subject only to real defenses

• 1. Is the instrument Negotiable? |
• 2. Theory of liability?
• a. contract or signature liability
• b. warranty or transfer liability |
• 3. Transfer proper, i.e., duly negotiated? |
• 4. Is transferee a holder in due course? |
• 5. Defenses to enforcement?

• 1. Promissory Note: "I promise to pay" |
• a. contains affirmative promise to pay
• b. parties
• i. promisor: "maker"
• ii. promisee: "payee" |
• 2. Draft: "Pay to the order of X"
• a. contains an order or command
• b. e.g., personal check
• c. 3 parties
• i. drawer: gives the order
• ii. drawee: ordered to do the paying
• iii. payee: beneficiary of order

In context of negotiable instruments (promissory notes, drafts), the indorser signs on the back of the instrument

• WOSSUPP|
• W: Writing
• O: payable to "Order," "Bearer," or "Assigns"
• S: Signed by maker or drawer
• S: Sum certain
• U: Unconditional promise to pay, with no additional promises
• P: Payable on demand, or definite time
• P: Payable in currency

• 1. Rule: When you sign it, you promise to pay it, and that's how you get sued|
• 2. Who can be sued: |
• a. Maker: signs promissory note
• b. Indorser: signs back of instrument
• c. Drawer: signs check ordering payment
• But not the drawee: only pays the order, does not sign anything |
• 3. "Without Recourse" added to signature:
• a. term of art used by indorsers and drawers
• b. disclaimer of liability

• 1. Who can be sued: Any transferor who is not a donor |
• 2. Who may sue:
• a. Indorsed:
• i. any π in possession of instrument
• ii. when ∆ indorses, warranties run with the instrument
• b. Not indorsed: Only ∆'s immediate transferee can sue |
• 3. Warranties made by ∆:
• a. π has good title to instrument
• b. all signatures are genuine and authorized
• c. no material alteration
• d. instrument is enforceable
• e. ∆ has no knowledge of any bankruptcy or insolvency action against maker or drawer

• 1. Payable to Order:
• a. Payable to specific payee: deliver to specific payee
• b. Further negotiation: payee indorses, and delivers to transferee |
• 2. Payable to Bearer: indorsement not required

• 1. Special Indorsement:
• a. indorsement names particular indorsee
• b. named indorsee must sign in order to further negotiate
• e.g., indorsement on back reads: "Pay to X, /s/ Y" |
• 2. Blank Indorsement:
• a. no particular indorsee named
• b. may be negotiated by delivery alone |
• 3. Restrictive Indorsement:
• a. "For deposit only, /s/ X"
• b. drawee liable for conversion, if wrong payee transfers

• Holder (transferee) who takes the instrument is HDC when (all 3): |
• 1. Gives value
• a. mere promise not enough
• b. old value is good value |
• 2. Acts in good faith: subjective test |
• 3. Takes w/o objective notice that instrument is
• a. overdue, or
• b. dishonored, or
• c. subject to any claim or defense |
• NB: the "Shelter Rule" applies to transferees from a HDC

• 1. HDC takes free from Claims
• a. Claim: right to negotiable instrument b/c of superior ownership
• b. HDC defeats superior owners |
• 2. HDC takes free from Personal Defenses
• a. defenses available in ordinary K actions
• b. e.g, lack of consideration, estoppel, fraud in inducement, unconscionability |
• 3. But takes subject to Real Defenses: MAD FIFIIII
• nb. Material alteration is not a defense if maker was negligent (e.g., left blanks or wide spaces)