Principles of Secured Transactions
Authors:
White, James J. / Summers, Robert S. / Barnhizer, Daniel D. / Barnes, Wayne R. / Snyder, Franklin G.
Edition:
2nd
Copyright Date:
2018
10 chapters
have results for secured transactions
Chapter 1 Scope of Article 9 108 results (showing 5 best matches)
- What of the other cases excluded from 9–102(a)(20) by 9–102(a)(20)(D), not because they are not sufficiently secured transactions but because they secure “an obligation”? The drafters here have preserved a distinction between a conventional commercial consignment, defined in 9–102(a)(20), which in almost all cases, is a “security interest,” and the unusual commercial consignment which creates a security interest “that secures an obligation.” But if all consignments under 9–102(a)(20) must be perfected and enjoy more or less the same priority as any other security interest, who cares whether a transaction is merely a consignment subject to Article 9 or whether it is a security interest “that secures an obligation”? If it secures an obligation, wouldn’t Article 9 apply, anyway?
- In addition, former Article 9 contemplated transactions where the parties used consignment language, but the deals were truly “secured transactions,” not conventional consignments. If, for example, a debtor borrowed money from a creditor, granted a security interest in inventory and promised to repay the sum , that transaction would be treated in all respects like a secured transaction even if the parties labeled it a “consignment.” The foregoing type of transaction differs from the usual consignment in which the consignee has no obligation to pay if it returns the goods. If a court concluded the transaction was in fact intended as security, then knowledge by the consignee’s creditors would not save it from the claim of a trustee or a judicial lien creditor, for it would be treated in all respects like a security interest. This division left some “consignments” entirely within Article 9 but some only partly there, and left the courts in doubt about what parts of Article 9 applied to...
- For these reasons, distinguishing between true leases and disguised secured sales agreements has been troublesome. The trouble has not abated over the years. As noted above, the road sign that directs traffic either to Article 9 (secured transactions) or to Article 2A (leases) is section 1–203.
- The application of this Article to a security interest in a secured obligation is not affected by the fact that the obligation is itself secured by a transaction or interest to which this Article does not apply.
- To summarize, if goods are consigned to a merchant in a conventional commercial transaction—where the merchant operates in its own name and not that of the consignor, is not an auctioneer, and is not “generally known by such creditors to be substantially engaged in selling the goods of others”—the transaction is a consignment, and the consignor’s interest is a security interest. The consignor must perfect a security interest under Article 9 to protect itself from the consignee’s trustee in bankruptcy and from other and later perfected secured creditors. If the transaction falls out of the definition in 9–102(a)(20) because the transaction creates a security interest “that secures an obligation,” the rules are practically the same. The consignor is still the holder of a security interest who must perfect it under Article 9. The only difference—probably, in our view, an insignificant one—is that on default this latter consignor must comply with Part 6 of Article 9. We suspect there...
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Chapter 5 Default and Its Consequences 121 results (showing 5 best matches)
- As we have seen in other contexts, one should understand that the line between a “sale” and a “secured loan” is indistinct. Nevertheless, different legal rules attach to each transaction under section 9–608, unless the parties agree otherwise. If the transaction is a loan with some form of recourse and not merely a sale, section 9–607(c) obliges the secured party “to proceed in a commercially reasonable manner” to collect its money. If there is no recourse, by hypothesis, the secured creditor will be spending its own money and can suit itself in the way it goes about collecting the money.
- In the case of non-notification lending—as where the creditor’s right to directly obtain payment depends on a prior default—section 9–607 gives the secured creditor the right to notify the account debtor upon default, and section 9–406 then obliges the account debtor to pay the secured creditor. The account debtor, of course, needs to make sure that payment made to the secured creditor will discharge its own liability to the debtor. As for the debtor itself, if the account debtor’s payments are insufficient to satisfy the debtor’s liability to the secured creditor, the debtor may or may not have liability for the deficiency. This depends entirely upon the terms of the agreement between the secured creditor and its debtor, and absent specific terms, on the form of the transaction. According to subsection 9–608(b):
- We should note that not all acceleration clauses involve Article 9 security interests. Article 1 has its own acceleration provision in 1–309, which (per Comment 1) applies to “clauses in many transactions governed by the Uniform Commercial Code, including sales of goods on credit, notes payable at a definite time, and secured transactions.” Under 1–309, such clauses are enforceable so long as the party “believes in good faith that the prospect of payment or performance is impaired.”
- Dispositions are usually made to unrelated third party buyers, but they are sometimes made to parties related to either the creditor or thee debtor. Particular problems come up when the disposition is made to a person or entity connected to the secured creditor. It is fair to suspect, for example, that when a secured creditor sells the assets to a close relative or a wholly owned subsidiary, the transaction may not be entirely fair and disinterested. Thus, for dispositions to “persons related to the secured party” or secondary obligors, section 9–615(f) has a special rule that reduces the deficiency in any case in which the debtor proves that the “value of the proceeds of the disposition is significantly below the range of proceeds that a complying disposition . . . would have brought.” Unlike the usual deficiency case, here the closeness of the parties and the low price is enough—the debtor need not go through the normal ritual of attacking notice and other aspects of the sale....
- The rights of the secured creditor are triggered by “default.” So what is “default?” Article 9 does not define the word. Instead, it leaves the meaning to the agreement of the parties and to any scraps of common law lying around. Apart from the modest limitations imposed by the unconscionability doctrine (2–302) and the requirement of good faith (1–304), default is “whatever the security agreement says it is.” ...default is only the starting point for a well-drawn default clause. A default clause should also take into account the possibility that the debtor will suffer financial reverses (i.e., bankruptcy or assignment for benefit of creditors). When the collateral is goods, the default clause commonly includes provisions on the loss, damage, destruction or removal of the goods and a debtor’s breach of covenant to maintain insurance on them. Of course, the content of these clauses varies with the facts of each transaction and with the foresight of the lawyers doing the...
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Chapter 4 Priority Conflicts 128 results (showing 5 best matches)
- Section 9–324 grants priority to purchase money security interests over prior conflicting security interests even though the purchase money security interest is later perfected; we sometimes call this “super priority.” The purchase money secured creditor is often the seller of a product who has retained a security interest to secure its purchase price; however, a bank or other financing agency can also be a purchase money secured creditor. The priority of purchase money secured creditors has long been recognized in real estate transactions and in pre-Code rules for personal property. What is the justification for this special priority?
- Subsection (e)(4) states a special rule for the perfection and priority of a security interest in fixtures consisting of “manufactured homes.” If the fixture qualifies as a manufactured home, as that term is defined in 9–102(a)(53), if the transaction is a “manufactured home transaction” as that term is used in 9–102(a)(54), and if the perfection is by means of compliance with the certificate of title law, the secured creditor enjoys priority over the mortgagee on the real estate (both those who came before and those who come after), over owners, and over buyers.
- The term “manufactured home transaction” includes only: 1) purchase money security interests in manufactured homes that are not held as inventory and, 2) secured transactions in which the manufactured home (not as inventory) is the “primary collateral.” The definition encompasses both purchase money loans made to a consumer upon the consumer’s purchase of the manufactured home and “home-equity loans” against the manufactured home after it has been purchased. The exclusion for inventory will cut out purchase money loans made to dealers in such homes.
- What justifies giving priority to the first to file even though that person does not hold a perfected security interest? Think about it; the rule makes sense. The rule seeks to encourage Bank 2 to check the records before making a loan to the debtor. Had it done so in this instance, it would have discovered Bank 1’s filing and would have prevented the debtor’s fraud. Since the negotiation of a significant secured transaction may take days or weeks, it makes sense to allow the secured creditor to examine the files at the outset and to make its own filing even before it advances money.
- Consider first the most important sections and their coverage: section 9–201—the secured creditor wins unless the competitor finds a rule that says otherwise; section 9–317—secured creditors vs. lien creditors (as well as buyers and lessees); section 9–322—secured creditors vs. secured creditors; section 9–324—purchase money secured creditors vs. other secured creditors (see also section 9–317, purchase money secured creditors vs. lien creditors, buyers and lessees); section 9–334—security interests in fixtures and crops; and section 9–320—secured creditor vs. buyer of goods from the debtor in the ordinary course. Most of the remaining priority rules are particular applications of those listed above or, in some cases, deal with quite narrow areas. We cover most of them in this Chapter.
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Chapter 2 Creation and Perfection of Enforceable Article 9 Interests 138 results (showing 5 best matches)
- We suspect the questions inherent in the word “authenticate” and the definition of a “record” will be slow in rising to the surface in secured transactions. Secured creditors are nothing if not careful and conservative. We suspect they will be slow to abandon signed, written documents. On the other hand, many lenders will soon store most of their agreements and other documents in electronic form, and it is easy to imagine a case in which the secured creditor loses or, by mistake, destroys the original written document and will have to rely upon the electronic copy in case of litigation.
- The rapid development of blockchain-based smart contracts and similar technologies, for example, suggest that in many contexts electronic agreements based entirely or partly in self-executing code will likely become a dominant mechanism for making, monitoring, and possibly even recording secured transactions.
- Under the predecessor of 9–502 (9–402(1)) a financing statement had to include the addresses of the debtor and secured parties, and had to be signed by the debtor to be effective. The drafters of Revised Article 9 apparently concluded that the debtor’s signature was an unnecessary technicality and that the addresses of the parties were useful but not critical, since a searcher could find the address of any earlier secured creditor and presumably the searcher has the address of its debtor. (The requirement for addresses now appears in 9–516(b) where, as we will see, their omission has only limited adverse consequences for the secured creditor.) The section allows the use of a mortgage as a financing statement in certain real estate transactions and, like the former law, requires a financing statement that is to be filed for record in the real property records to contain a description of the real property and to state to the filing officer that it must be filed in those records. The...
- For most secured transactions, to maximize rights against third parties a secured creditor must enter an enforceable security agreement that attaches to the collateral
- calms the lawyers’ fear that the name of the lead creditor as a representative of other secured parties in a loan participation arrangement might not be adequate as the “name of the secured party.” In a transaction in which one
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Chapter 3 The Bankruptcy Trustee vs. the Article 9 Claimant 52 results (showing 5 best matches)
- Buyers are going to buy “Target.” They propose to grant a security interest in all of Target’s assets to secure the loan from the bank to buy out the shareholders of Target. When the transaction is completed, the pre-existing creditors of Target will be in a manifestly diminished position. The cumulative effect of the transaction is to take money out of Target and pay it to the shareholders. Thus, in effect, elevating them over the corporation’s creditors to whom they should have been subordinate. Assume that Target goes into bankruptcy a year after the transaction. To the bank’s argument that it gave value in the form of a loan, the trustee will argue that the bank was a knowing conspirator in a smelly transaction. Will the bank’s security interest be avoided?
- Even though a security interest is enforceable against the debtor under Article 9, it still may be unenforceable against the debtor under other state law. Thus, it is elementary that one party to a consensual transaction may rescind for fraud, for mutual mistake, for duress, or for undue influence. The trustee succeeds to powers of rescission that the debtor has against a secured creditor upon bankruptcy. The trustee similarly succeeds to any defenses or rights that the debtor may have against the secured creditor under the doctrine of unconscionability or under the expanding reach of consumer credit protection acts.
- The court rejected the creditor’s argument that, in receiving money under the letter of credit, it was receiving no property that belonged to the debtor. Although the creditor had a perfected security interest in the debtor’s goods, the goods proved to be of little value and the creditor’s interest was subordinate to others’ interests. The court concluded that the transfer of the security interest to the issuing bank was a preference since it met all elements of 547(b). This seems a correct outcome when the entire transaction occurs within 90 days of bankruptcy; it differs from in that respect. The transaction in is tantamount to a debtor’s granting security to a preexisting unsecured creditor within the preference period. That this was done in a roundabout way, i.e., security to a new issuing bank whose promise secures the existing creditor, does not render it any less a preference.
- to be persuasive. Consider some examples. First, the courts have recognized a secured creditor as a good faith purchaser entitled to the protection of 2–702(3). But the courts have disagreed about the consequences when bankruptcy keeps the secured creditor from seizing the collateral. How does the incipient but unexercised right of the secured creditor affect the competition that ensues between the trustee, on the one hand, and the reclaiming buyer, on the other? The secured creditor might not assert its claim for a variety of reasons. It might be fully secured or it might have waived its claim as part of the confirmation of the plan.
- In general, a perfected secured creditor is entitled to his collateral or the value of his collateral in a debtor’s bankruptcy. Unsecured creditors, on the other hand, generally share pro rata in the non-exempt assets that are not subject to perfected security interests. That is not to say that the secured creditor is happy to see his debtor go into bankruptcy. While the debtor must often give his secured creditors “adequate protection” against the decline in value of their collateral during the bankruptcy, secured creditors generally earn no interest during the pendency of the bankruptcy and they often complain that the “protection” offered by the debtor is truly not adequate to maintain the value of their collateral.
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Table of Contents 8 results (showing 5 best matches)
Index 11 results (showing 5 best matches)
Summary of Contents 4 results
- 4–2Rights of Unperfected Secured Creditors vs. Unsecured Creditors
- 5–5Collection Rights of the Secured Party, Sections 9–606, 9–607
- 5–13Remedies for Secured Creditor’s Failure to Comply with Part Six of Article 9
- 2–15Perfection in Multiple State Transactions, Sections 9–301 Through 9–307
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- Publication Date: May 4th, 2018
- ISBN: 9781683285175
- Subject: Commercial Law
- Series: Concise Hornbook Series
- Type: Hornbook Treatises
- Description: Secured transactions in personal property are ubiquitous in modern business practice and make up a key part of modern commercial law. This volume, a streamlined version of the famous White & Summers Uniform Commercial Code practitioners text—the standard reference relied on by courts and business lawyers for nearly half a century—offers a succinct but in-depth introduction to Article 9 of the UCC. It is specifically designed to help students in the law school Secured Transactions course navigate through the Article 9 maze. This new edition incorporates the new amendments to Article 9 and related Code provisions, and updates the text in light of modern practice.
