Secured Transactions in a Nutshell
Author:
Hagedorn, Richard B.
Edition:
5th
Copyright Date:
2007
13 chapters
have results for secured transactions
Chapter 1. Introduction 87 results (showing 5 best matches)
- Article 9 does not place great emphasis on the form a secured transaction takes, with the exception of when the secured party has possession of the collateral (commonly referred to as a “pledge”), when the secured party has “control” of the collateral, and when a transaction produces by its form a “purchase-money security interest.” However, it is helpful from a practical standpoint to have some understanding of how secured transactions have been and still are structured.
- A number of non-uniform state statutes covering secured transactions are also superseded by Article 9. Those include chattel mortgage laws enacted in virtually all states, non-uniform statutes governing conditional sales and other non-uniform statutes governing assignments of accounts receivable and factor’s liens. The replaced statutes covered parts of the secured transactions area now covered comprehensively in Article 9.
- (8) Article 9 does not apply with respect to a transfer of an interest in or assignment of a claim under a policy of insurance. Such transactions are also special and do not fit easily into a general secured transactions statute. However, Article 9 provisions apply with respect to proceeds and priorities in proceeds of insurance policies. See 1999 § 9-109(a)(8). For example, if an automobile that is collateral in a secured transaction is destroyed in an accident, the secured party has a security interest in the payment made to the policyholder by the insurance company under a “collision” insurance policy.
- There are different classes of collateral under Article 9. The Article frequently treats secured transactions differently depending upon the class of collateral involved. Thus, it is important to understand which class of collateral is involved in a particular secured transaction.
- Under the Article, distinctions based on form or the label given a transaction are not controlling, unless the transaction takes the form of a “pledge” where the secured creditor is in possession of the collateral, or where the secured party takes “control” of some forms of collateral, or where the transaction produces a “purchase-money security interest” (all of which are discussed and defined elsewhere in this Nutshell), in which case the Article in some instances treats the transaction differently from other secured transactions. For some purposes ...constitutes the collateral – industrial and commercial equipment, business inventory, farm products, consumer goods, accounts receivable, documents of title and other intangibles. 1999 Article 9 also covers some additional kinds of property not covered in the 1972 version. Where appropriate, the Article states special rules applicable to financing transactions involving a particular type of property. Despite the statutory...
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Chapter 9. Default and Enforcement of Security Interest 88 results (showing 5 best matches)
- The 1999 Code does provide some secured parties with protection from liability described above in this section of the Nutshell. 1999 § 9-628 is an exculpatory provision designed to protect secured parties from liability that would otherwise result to unknown persons and under circumstances that would not allow a secured party to protect itself. See Comment 2 to 1999 § 9-628 and 1999 § 9-605. Additionally, if a secured party acts under the reasonable belief that the transaction is not a consumer transaction, the transaction will be treated as a non-consumer transaction for most purposes associated with liability of the secured party. However, the basis for the reasonable belief must involve a debtor’s or obligor’s representation. 1999 § 9-628(c). See also, Comment 2 to 1999 § 9-628.
- (2) The 1999 Code limits use of strict foreclosure in consumer transactions, that is, when the collateral is consumer goods. Where 60 percent of the cash price has been paid in the case of a purchase money security interest or 60 percent of the principal amount of the secured obligation has been paid, the secured party must sell the collateral within 90 days unless the secured party and the debtor otherwise agree. Additionally, in a consumer transaction, a secured party may not accept collateral in partial satisfaction of the debt it secures.
- When the debtor is in default, the rights and obligations of the secured party and the rights of the debtor are set forth in Part 6 of 1999 Article 9, §§ 9-601 through 9-628. The rights of the secured party in the collateral after the debtor’s default are of the essence of a secured transaction. They are the rights which distinguish the secured from the unsecured lender.
- This provision is intended to preserve the common-law right of subrogation of a surety or guarantor in a secured transaction. If such a surety or guarantor has to pay the debt and acquires the collateral, they become the secured party and the security interest against the original debtor remains. Moreover, such a payment by the surety or guarantor is not a sale or disposition of the collateral following default.
- The 1999 Code devotes 1999 § 9-626 to rules applicable to an action in which deficiency or surplus is an issue. In non-consumer transactions, the secured party need not prove compliance with the default provisions of the 1999 Code unless their compliance is placed in issue, in which case, the secured party does have the burden of proving their compliance. If the secured party fails to prove compliance, their recovery of a deficiency judgment is limited to an amount by which the sum of the secured obligation, expenses and attorneys’ fees exceed the greater of the proceeds of collection (including disposition of the collateral) or the amount of proceeds that would have been realized had the secured party complied with the default provisions of the 1999 Code which amount is presumed to be equal to the secured obligation and related expenses unless the secured party proves otherwise. 1999 § 9-626(a)(3). If the commercial reasonableness of the conduct of the secured party is at issue,...
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Chapter 2. The Security Agreement 44 results (showing 5 best matches)
- The transactions purportedly agreed upon may so closely resemble secured transactions as to be considered secured transactions, no matter how “disguised” in terminology. Examples such as sales reserving title in the seller, bills of sale, leases and consignments are discussed below.
- Although a security agreement must meet the basic requirements described in § 2 of this chapter, certain kinds of transactions covered by written agreements or other records of agreements and purportedly not labeled as secured transactions may nonetheless be so regarded. In other words, some transactions may be cast in other forms in writings or other records but still fall within the category of secured transactions and thus within the scope of UCC Article 9.
- A secured transaction may arise under 1999 Article 9 where personal property is leased and the lease is intended as security. See 1999 § 9-109(a)(1). Some difficulty has arisen in cases where a lease is regarded as a secured transaction and where the lessor (secured party) failed to file under Article 9 and thus had an unperfected security interest. Leases of personal property often closely resemble installment purchases of goods with retention of title in the seller-“lessor” until payment is made in full.
- While it is necessary under the 1999 Code that a written security agreement be signed by the debtor or a record of security agreement be authenticated by the debtor, describe the collateral (and in one instance describe real estate) and perhaps have language that can be taken as evidencing an intent to grant a security interest, writings and other records purporting to evidence other kinds of transactions may nonetheless be considered as evidencing secured transactions. Such “disguised” secured transactions are discussed in § 5a of this chapter.
- This Code provision is based on the assumption that parties to a secured transaction intend to cover proceeds, unless otherwise agreed. There appears to be no purpose in requiring a specific reference to proceeds in a security agreement, and such a requirement would likely be a trap for a secured party who was careless in drafting a security agreement.
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Chapter 6. Choice of Law and Perfection in Multiple State Transactions 13 results (showing 5 best matches)
- Although general choice-of-law principles in commercial transactions are governed by pre-revision § 1-105 and revised § 1-301, those provisions have but limited application with respect to secured transactions. The reason is that most secured transactions questions do not settle rights as between the debtor and the secured party, but instead litigate claims to the collateral as between the secured party and third persons. Choice-of-law problems where the rights of third persons are at issue frequently involve the perfection of the security interest in multiple state transactions, or what law governs the effect of perfection or non-perfection. See pre-revision § 1-105(2) and revised § 1-301(g)(8).
- In pre-revision Article 1, the general choice-of-law rule is pre-revision § 1-105, which is applicable to various commercial relationships arising under different Articles of the Uniform Commercial Code. That general rule applies to secured transactions, at least as between the debtor and the secured party. See Comment 2 to 1999 § 9-301. Under pre-revision § 1-105(1), the parties may by agreement determine the law that governs their relationship, so long as the transaction “bears a reasonable relation” to the jurisdiction the law of which is selected. Failing such specification of the law of a particular state by agreement, a court in a Code state may apply its own law (the Code) to transactions “bearing an appropriate relation” to the state. This suggests the likelihood that, in the absence of an ...the state whose law shall govern, a court will follow general conflict-of-laws principles and apply the law of the state having the most significant relationship with the transaction...
- Under revised § 1-301, the general choice-of-law rules set forth therein also apply to secured transactions, at least as between the debtor and the secured party. See again, Comment 2 to 1999 § 1-301. Under revised § 1-301, the parties also may by agreement determine the law that governs their relationship. Such an agreement is generally effective whether or not the transaction bears a relation to the law of the state selected by the parties’ agreement. See revised § 1-301(c). However, if one of the parties is a consumer, such an agreement is effective only if the transaction has a reasonable relationship to the state whose law is selected, and the agreement may not deprive the
- For most secured transactions under the 1999 Code, the law governing perfection and priority issues will be the law of the location of the debtor. Specifically, in most transactions in which the secured creditor is not in possession of the collateral, a so-called “nonpossessory” security interest, the law of the jurisdiction in which the debtor is located governs. 1999 § 9-301(1). The exceptions to the debtor-location rule for nonpossessory security interests include fixture filings, timber to be cut, and as-extracted collateral. 1999 § 9-301(3), (4). See discussion at § 5 of this chapter. Additionally,
- The 1999 Code brings within its scope collateral in the form of some deposit accounts and letter-of-credit rights. 1999 §§ 9-109(a)(1), 9-102(a)(29), (51). See also discussion of these collateral types as falling within UCC Article 9’s scope at Chapter 1, § 7e and Chapter 7, §§ 12 and 13. Secured transactions involving such collateral fell outside the scope of the 1972 Code. The inclusion of these types of collateral necessitated some new provisions applicable to multistate transactions in which deposit accounts and letter-of-credit rights serve as the collateral.
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Chapter 7. Priorities of Secured parties and Others 87 results (showing 5 best matches)
- Third persons, such as other secured parties or creditors of the consignee are in much the same position, whether a consignment is intended as a secured transaction or not. Accordingly, 1999 §§ 9-103(d) and 9-324(b) set forth additional steps to be taken by a consignor in a true consignment transaction in order to obtain priority over a secured party who has filed with respect to inventory, including the consigned goods. The steps to be taken are the same as those required of a secured party with a purchase-money security interest in inventory under 1999 § 9-324(b). In other words, the consignor must file before the consignee receives possession of the goods, and must give written notification to any other secured party who has filed. The notification must state that the consignor expects to deliver goods on consignment to the consignee, and describe the goods by item or type. The notification must be given within five years before the consignee receives the goods.
- In some instances, a consignment may be a secured transaction in the form of inventory financing and thus subject to Article 9 generally. Filing by such a consignor gives them a perfected security interest. Since the consignor has a purchase-money security interest in the consigned goods as inventory in the hands of the consignee, they may protect against claims of other secured parties with perfected security interests in the consignee’s inventory by taking the steps outlined in 1999 § 9-324(b), that is, by filing before the consignee receives the consigned goods and by giving appropriate notice to other inventory secured parties who have filed. See § 4b(2) of this chapter.
- In some other instances, a “true consignment” is not intended as a secured transaction, although the consignor may still file under Article 9 in order to protect their interest against creditors of the consignee. What are the rights of such a consignor who files, as against another person who has a perfected security interest in the inventory of the consignee, which inventory includes the consigned goods?
- The 1999 Code governs secured transactions when the collateral is a non-consumer deposit account. See 1999 §§ 9-109(a), (d)(13); 9-102(a) (29) and discussion at Chapter 1, § 7. As a result, priority rules are included to deal with priority disputes involving deposit accounts.
- The 1999 Code governs secured transactions when the collateral is a letter-of-credit right. See 1999 §§ 9-109(a), 9-102(a)(51), and discussion at Chapter 1, § 7 and Chapter 4, § 12a. As a result, priority rules are included to deal with priority disputes over letter-of-credit rights. It should be noted that the 1999 Code is inapplicable to the extent that the rights of a transferee beneficiary or nominated person under a letter of credit are independent and superior under § 5-114.
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Chapter 5. Perfection of Security Interest by Filing 31 results (showing 5 best matches)
- The debtor in secured transactions in which the collateral is not consumer goods may demand a termination statement when the debtor believes the secured debt is paid and the secured transaction is at an end. Within twenty days after a secured party receives an authenticated demand from the debtor, the secured party must send to the debtor a termination statement or file the termination statement. 1999 § 9-513(c). That duty of the secured party arises upon such demand from the debtor if there is no obligation remaining and no commitment to make an advance in the future. 1999 § 9-513(c)(1). The obligation to provide or file the termination statement also arises after debtor demand if accounts or chattel paper were sold but as to which the account debtor or obligor has discharged their obligation; or when the goods were subject to a consignment to the debtor but are not in the debtor’s possession; or the debtor did not authorize the filing of the initial financing statement. 1999 § 9-...
- This sets forth a special method of filing where a consignor or lessor desires to file without such a filing itself indicating an intent that the transaction be a secured transaction. In other words, a consignor or lessor may make a precautionary filing, although they may have good reason (such as a “tax” reason) to desire the transaction not be a secured transaction within Article 9. See Comment 2 to 1999 § 9-505. It should be noted that 1999 § 9-505 is an expanded version of former 1972 § 9-408. The 1999 Code provision “embrace[s] more generally other bailments and transactions” than just consignments and leases.
- A statement of release should not be used when the secured transaction is ended. A termination statement should be used. See § 10 of this chapter which follows.
- In certain instances, it may be desirable to file under Article 9 with respect to a lease or consignment of personal property, even where the lease or consignment is not intended to confer a security interest. For discussion of leases or consignments as secured transactions, see Chapter 2, § 5d and e.
- When the period of a filing is about to expire, the secured party may extend the time of perfection by filing a continuation statement. The continuation statement may be filed within six months prior to the expiration of the five-year period of the original filing. 1999 § 9-515(d). A special provision is added by the 1999 Code that applies to financing statements filed in connection with public-finance transactions or manufactured-home transactions which indicates that a continuation statement may be filed only within six months before the expiration of the 30-year effective period specified in 1999 § 9-515(b).
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Chapter 8. Bankruptcy or Insolvency of Debtor 48 results (showing 5 best matches)
- “Insider” problems should not affect most secured transactions where problems of preferential transfer exist. But an “insider” problem might arise where there is a relationship between the debtor and secured party falling within the Bankruptcy Code § 101(31) definition. Thus, delayed perfection taking place more than 90 days but less than one year before the filing of a bankruptcy petition might be upset if the secured party is an “insider.” A possible example of an “insider” secured party might include a controlling stockholder of a corporate debtor or a financer who has taken over the management of the debtor’s business.
- One of the reasons a creditor obtains a security interest in the debtor’s property is to better the creditor’s prospects of collection if the debtor ends up in bankruptcy. However, it may be said that the lot of the secured party in an Article 9 transaction is not always a particularly happy one, where the debtor files bankruptcy or an involuntary bankruptcy proceeding is filed by creditors against a debtor under the Bankruptcy Code. Bankruptcy has far-reaching effects on an Article 9 security interest. At the worst, the security interest may be set aside or rendered ineffective, with the secured party relegated to the position of an unsecured general creditor of the insolvent debtor. Even at best, as where the security interest is “impregnably” perfected, the secured party is usually subject to the jurisdiction of the bankruptcy court and sometimes to the whims of the debtor’s trustee in bankruptcy in dealing with the collateral. In short, the remedies of the secured party under...
- The Bankruptcy Code provision will apply to a secured transaction In general, Bankruptcy Code § 547(e) has the effect of fixing the time of transfer at the time of perfection of a security interest, rather than at an earlier time of attachment of the security interest. However, perfection within 30 days of attachment is deemed to relate back to the time of attachment. If the debt owed the secured creditor was incurred at that time, the transfer was not on account of an antecedent debt and is not avoidable as a preference. See Bankruptcy Code § 547(e)(2).
- Some knowledge of federal bankruptcy law is necessary when considering the impact of bankruptcy on a secured transaction. The summary here is necessarily brief; other sources should be consulted for general discussion of bankruptcy law. Among such sources, see Epstein, B
- § 3. General Effect on Secured Transactions
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Chapter 3. Relationship of the Parties Prior to Default 36 results (showing 5 best matches)
- Instead, Article 9 declares in 1999 § 9-202 that rights, obligations and remedies under Article 9 do not depend on the location of title in the debtor or in the secured party. In other words,
- The location of title may be relevant under other law for certain other purposes outside the scope of Article 9, as for example determining the owner of goods under a tax law. Where title is relevant, the use of a form traditionally regarded as determinative of title might be considered as evidencing the intention of the parties. Moreover, where a secured transaction arises in connection with a sale of goods, the location of title to the extent that it is relevant may be determined by resorting to § 2-401.
- A procedure is set forth in 1999 § 9-210 whereby a debtor may obtain from a secured party a statement of the amount due on the obligation and a statement of the collateral. Under 1999 § 9-210, the debtor can submit an authenticated record and request thereby a list of the collateral, a statement of account, or an accounting. The secured party has 14 days after receipt in which to respond. If the secured party fails to comply with the request for information, the secured party is liable to the debtor for $500 and for any damages caused by its failure. 1999 § 9-625(f). Additionally, to the extent a party is misled by the secured party’s failure to respond to a request for a list of collateral, the secured party may claim an interest only as shown on the debtor’s list. 1999 § 9-625(g).
- (1) to receive from the secured party statements of account of the indebtedness and of the collateral; and to recover any losses for failure of the secured party to furnish such;
- It should be repeated that the above rules apply only if the secured party knows that the collateral belongs to a third person. Short of such knowledge, the secured party may deal exclusively with the debtor who owes the obligation.
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Chapter 4. Perfection of Security Interest 31 results (showing 5 best matches)
- There are essentially two methods of structuring a secured transaction in investment property. One method does not involve taking possession or control of the investment property by the secured party; rather the secured party, after attaching the security interest, will file a financing statement. See 1999 § 9-312(a). Under the second method, the secured party takes “control” of the investment property. See 1999 § 9-314(a). There are different ways to take control of the investment property. For example, a secured party has control over a certificated security by taking possession of it, along with any necessary indorsements. See §§ 8-106(a), (b) and 8-301(a). As to uncertificated securities, the secured party takes control by being registered as the owner of the stock in the records of the issuing corporation or takes other steps to make certain that it can reach the rights of the debtor in the event it needs to enforce the security interest. The other steps include, for example,...
- Although a secured transaction perfected against the original debtor by filing need not be further filed by an assignee of the security interest, it should be noted that 1999 § 9-514 provides for the disclosing of an assignment in a financing statement and also provide for the filing of a separate written statement of assignment. Such filings as to an assignment are generally permitted on an optional basis, but are necessary when a continuation statement, statement of release, or termination statement is presented for filing signed by one other than the secured party of record. For discussion of filing when there is an assignment, see Chapter 5, § 9.
- The 1972 version of Article 9 was significantly amended regarding security interests in investment securities and the like in 1994. These amendments changed the method by which secured transactions in such collateral are structured.
- Various methods exist for the perfection of a security interest. In all cases, perfection cannot take place before the security interest has attached under 1999 § 9-308(a), and additional steps often must be taken to perfect before or after the security interest has attached. The particular method which is effective to perfect a security interest depends on the kind of personal property serving as collateral in the secured transaction, and sometimes on the nature of the transaction itself. The various methods of perfection under the 1999 version of Article 9
- A significant change regarding consignment transactions was made under the 1999 version of Article 9. The 1999 Article flatly states that the Article applies to consignments. See 1999 § 9-109(a)(4). The 1999 Article § 9-102(a)(20) defines “consignment” as a transaction, regardless of its form, in which a person delivers goods to a merchant for the purpose of sale. The merchant must deal in goods of this kind under a name other than the name of the person making delivery and must not be an auctioneer and the merchant must not generally be known by its creditors to be substantially engaged in selling goods of others. See 1999 § 9-102(a)(20)(A). The aggregate value of the goods must be $1,000 or more at the time of delivery. See 1999 § 9-102(a) (20)(B). The goods must not be consumer goods immediately before delivery [1999 § 9-102(a)(20) (C)] and the transaction must not create a security interest that secures an obligation [1999 § 9-102(a)(20)(D)].
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Preface 3 results
- The discussion is comprehensive in scope, but necessarily limited in coverage of particular features of the law of secured transactions as embodied in Article 9 because this Nutshell is presented for use by students who seek a discussion of the basic elements of secured transactions law under the Code. The book should also be of aid to practicing attorneys who face problems in this area but lack experience in handling this particular area of law.
- Perhaps a fitting student reaction to a course in Secured Transactions may be found in the following, which was supplied by an anonymous (presumed) student:
- The purpose of this Nutshell is to discuss the law embodied in Article 9 of the Uniform Commercial Code on Secured Transactions, primarily as set forth in the 1999 version. Since the fourth edition of this Nutshell, all states have enacted the 1999 version. That version of Article 9 was actually approved in 1998 by the co-sponsoring bodies of the Uniform Commercial Code, the American Law Institute and the National Conference of Commissioners on Uniform State Laws. However, it is known as the 1999 version and shall be referred to as such throughout this Nutshell.
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Title Page 1 result
Index 32 results (showing 5 best matches)
- Publication Date: August 6th, 2007
- ISBN: 9780314172518
- Subject: Commercial Law
- Series: Nutshells
- Type: Overviews
- Description: Hagedorn’s Secured Transactions in a Nutshell provides extensive coverage of the 1999 version of UCC Article 9, now enacted by all states. Coverage of the 1972 version of Article 9 and pre-code law is included to provide historical perspective. The text covers: The scope of Article 9 The security agreement and attachment of the security interest Relationship of the debtor and secured party prior to default Perfection of the security interest by filing and other means Multistate choice of law and perfection issues Priority of the secured party and others in and out of bankruptcy Default and enforcement of the security interest
