SECURED TRANSACTIONS

INTRODUCTION a. Outright sale of accounts, chattel paper, payment intangibles, - Overview:

A. Placing secured transactions into perspective and promissory notes are covered by Art. 9. Mutually exclusive: Any particular item can be only one type of
1. Situation b. Ex.: Juan went to ONB and offered to sell bank his outstanding collateral.
a. You want to borrow money or obtain goods / services on credit, accounts receivable owned him by his customers who purchased Debtor’s use determinative: Classify collateral from debtor’s
i.e., you want become a debtor. computer equipment. As these accounts came due, he agreed to perspective.
2. Options of potential creditor collect from customers and turn money over to bank. Even though A. Goods
a. Outright refusal this is a sale and not a secured loan, Art. 9 applies and bank must 1. In general
b. Obtain a mere promise to repay comply with Art. 9 just as if it were a collateralized loan. a. Moveable items & fixtures.
i. This type of creditor is called unsecured or general 3. Consignments b. Specific inclusions:
ii. If debtor fails to pay, creditor must bring suit, get a judgment, a. Consignment is a bailment by owner / bailor / consignor under i. Standing timber.
and have sheriff seize enough of debtor’s non-exempt property which bailee / consignee has authority to sell. ii. Growing crops.
to satisfy judgment. This is expensive and time-consuming. b. To world, consignee appears to own goods and thus true owner iii. Unborn young of animals.
c. Obtain surety (consignor) may be required to comply with Art. 9 to gain c. Specific exclusions:
d. Obtain collateral protection over consignee’s other creditors. i. Money
- Creditor might require debtor to place some of debtor’s property ii. Minerals before extraction
at risk so that if debtor does not pay, creditor may take property. - Consignments which must comply with Art. 9: iii. Collateral that fits other categories.
i. Real property: Creditor may obtain a mortgage or deed of i. Consigned goods are worth a total of $1000+ AND 2. Classification of goods
trust over land. ii. Consignor did not use goods for personal / family / household a. Consumer goods – personal, family, or household purposes
ii. Personal property: Creditor may obtain security interest in purposes AND b. Equipment—business purposes
debtor’s personal property under Art. 9 of U.C.C. iii. Potentially deceptive consignee: Consignee must be in a i. Goods used / bought for use primarily in business (including
B. Basic approach position to deceive potential creditors with consigned goods. farming or a profession).
1. Is transaction within scope of Art. 9? (A) Consignee deals with goods of that kind under a name ii. Includes goods brought by a non-profit organization or a
2. Classify collateral. other than consignor’s name, governmental subdivision / agency.
3. Determine if a security interest has been created, that is, has (B) Consignee is not an auctioneer, AND iii. Equipment is in the default category; if a good does not fit
attachment occurred? (C) Consignee is not generally known by consignee’s within other 3 categories, then it is deemed to be equipment.
4. Determine if security interest has been properly perfected. creditors to be substantially engaged in consigned goods. c. Inventory
5. Determine persons who are making claims to collateral. 4. Agricultural liens created by statute i. Goods held for sale or lease in ordinary course of business.
6. Apply proper priority rules and rules regarding repossession. a. Art. 9 covers agricultural liens, i.e., nonpossessory liens on farm ii. Raw material and work in progress.
products such as crops and livestock created by state law in favor iii. Consumed materials.
SCOPE OF ARTICLE 9 of person who provides goods or services to a farmer. iv. Ex.: In a law office, office supplies are inventory even though
A. Subject matter of Art. 9 5. Lease-purchase agreements not sold. They are consumed in process of representing clients.
1. Collateralized transaction a. Art. 9 does not govern true leases of personal property in any d. Farm products – requirements:
- Any transaction (regardless of its form) which is intended to create manner. (Thus, when lease term is over, lessor can recover leased i. In possession of farmer engaged in farming operations AND
a security interest in personal property or fixture. property without complying with Art. 9 free of lessee’s creditors.) ii. In an unmanufactured condition.
- Property used as collateral may be: But a lease which is actually an installment sale is covered.
b. Ex.: Evidence of secured transaction: TIP: One thing can be categorized in different ways depending on how
a. Already owned by debtor
i. Lessee cannot terminate lease AND debtor uses it.
b. To be acquired with loan, that is, purchase money security
interest. ii. Lease term is equal to / greater than remaining economic life e. Multiple uses – principal use determinative
i. Ex. #1: TV Specialists sells Susan a HDTV on credit and of goods OR i. Ex.: Lawyer buy s computer for law practice, but also uses it
retains a security interest in HDTV. Lender and seller are iii. Lessee owns property at end of lease term OR to play games. If attempt to use computer as collateral for
same entity. iv. Lessee has option to buy nominal consideration at end of lease loan, creditor will need to determine whether you use
ii. Ex. #2: ONB loans Susan money which she uses to buy a term. computer more for business (making it equipment) or more
HDTV from TV Specialists. ONB obtains a security in B. Exclusions from Art. 9 for personal enjoyment (making it consumer good).
HDTV. In this example, note that lender and seller are 1. Rights governed by federal law. B. Semi-tangible and intangible collateral
different. 2. Real property (except fixtures) 1. Instruments
(A) Important: With this type of purchase-money security 3. Tort claims a. Instruments represent money.
interest, lender must be able to trace exact money it lent to a. However, commercial tort claims, i.e., business claims that do b. Ex.: Promissory notes, checks, drafts, CDs, etc.
debtor into collateral. Thus lender typically makes loan not involve personal injury, are covered. 2. Documents
check payable to “seller” or “seller and debtor.” b. Ex.: Unfair competition. - Written of electronic representation of goods, i.e., documents of
iii. Note: PMSIs often have special (better) rules than other types 4. Deposit accounts in consumer transactions title under Art. 7.
of security interests. 5. Statutory liens a. Warehouse receipt: Goods in storage.
c. After-acquired a. Ex.: LL-tenant, mechanics and artisan liens. b. Bill of lading: Goods in transit.
i. Ex.: Juan owns a computer store. When he borrows money 6. Wage assignments 3. Chattel paper : Single / group of writing(s) evidencing two things :
from ONB, Juan give bank a security interest in inventory of a. Monetary obligation (e.g., promissory note) AND
his store including any inventory he acquires in future, i.e., CLASSIFICATION OF COLLATERAL b. Security interest in or lease of goods.
after-acquired inventory. - Importance of collateral classification: Many rules regarding perfection, c. Types of chattel paper:
2. Sale of receivables priority, repossession, resale, etc. depend on type of collateral involved. i. Tangible: Stored on paper.

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ii. Electronic: Stored electronically. any other method which is objectively determinable. d. Automatic temporary – attachment alone sufficient for short
4. Account Consumer goods / commercial tort claims may NOT be period of time
a. Any right to payment of money for 1) goods sold or leased or 2) describe by type alone. e. Control
services rendered not evidenced by an instrument of chattel c. Control f. Notation of security interest on certificate of title
paper. i. Security agreement may be demonstrated by control if B. Perfection by possession
b. Typical accounts receivable of business. collateral is nonconsumer deposit accounts, electronic chattel 1. Almost all collateral may be perfected by possession
c. Includes K rights which have not yet been earned by paper, or investment property. 2. Exceptions: Following types of collateral may not be perfected by
performance. ii. Control basically means creditor has right to sell / cash in possession: 1) Accounts, 2) Deposit accounts, 3) Nonnegotiable
d. Includes computer software license fees and credit card collateral without further action from debtor. documents, 4) Electronic documents, 5) Electronic chattel paper, 6)
receivable. C. R: Debtor has rights in collateral General intangibles.
5. Deposit accounts 1. Debtor cannot give a security interest in property without having 3. Loss of possession
a. Accounts with financial institution. rights in property such as ownership or identification to a K. a. General rule: If creditor no longer has possession of collateral,
b. Ex.: Checking, savings, etc., but NOT CDs. 2. Debtor cannot use another person’s property as collateral without perfection is lost.
6. Investment property that person’s consent. b. Twenty day exception for instruments, negotiable documents,
7. Commercial tort claims D. After-acquired property and certificated securities
a. Business claims that do not involve personal injury. 1. Using new property as collateral for old loan i. Discussed later with temporary automatic perfection
8. General intangibles a. Debtor can agree that new acquisitions of property will serve as C. Filing of financing statement – the UCC-1
a. Any other type of personal property, except money. additional collateral for an old loan. 1. Almost all collateral may be perfected by filing
b. Ex.: Patents, copyrights, liquor license, etc. b. This situation is often referred to as a floating lien and is very 2. Exceptions: Following types of collateral may not be perfected by
C. Proceeds common with inventory. filing:
1. Proceeds are whatever is received upon sale, exchange, collection, or 2. Consumer good exception – 10 day limitation from creditor a. Deposit accounts
other disposition of collateral or proceeds. giving value b. Cash as proceeds
2. Proceeds may include collateral creditor could not have security a. An after-acquired property clause will work only for consumer 3. Requirements of financing statement
interest in if originally used as collateral, such as money. goods acquired within 10 days of creditor giving value. a. Names and addresses of debtor and creditor
b. Ex.: Loan Co. loaned Consumer $5000 and him sign a security i. Exception: IF financing statement is accepted by filing office.
ATTACHMENT agreement giving it a security interest in Consumers’ TVs “now b. Debtor’s authorization in an authenticated record
- Attachment is process by which a security interest is created and owned or after-acquired.” A month late, Consumer purchased a i. Authorization cannot be oral.
becomes enforceable against debtor so creditor can repossess collateral big screen TV. If he fails to make payment, Loan Co. has no right ii. Authorization of financing statement is automatic if debtor
if debtor does not pay. to repossess the new TV because the security interest never authenticated underlying security agreement.
- Three elements (may occur in any order): VCR attached because it was not acquired within 10 days after loan. (A) Ex.: Doris borrowed $1000 from Larry and signed a valid
- No attachment until all elements satisfied. 3. Commercial tort claim exception security agreement giving Larry a security interest in
a. After-acquired property clauses will not work with commercial certain items of collateral. Larry then filed a financing
A. V: Creditor gives value tort claims. statement without obtaining Doris’s signature. The
B. C: K – security agreement E. Future advances financing statement is good even without signature
- K between debtor and creditor in which debtor gives creditor a 1. Debtor can agree that collateral will serve as collateral for a new because she authorized (signed) underlying security
security interest in collateral. loan, as well as current loan. agreement. Thus, filings may be paperless, i.e., electronic.
2. Basically, a line of credit arrangement. iii. Debtor may authorize financing statement after filing.
Methods of proving security agreement: c. Description of collateral
1. Oral PERFECTION i. May be in broader terms than security agreement such as “all
a. Security agreement may be oral only if collateral is in creditor’s - Debtor v. creditor: Go to default / repossession analysis. Creditor will assets.”
possession. a.k.a. “Pledge” usually prevail if creditor has attached. ii. After-acquired property covered by security agreement that
b. Creditor has a duty to take reasonable care of collateral while in - Creditor v. 3P: If claiming same collateral, perfection is relevant. fits within description is automatically included.
creditor’s possession. - Perfection is process by which creditor protects security interest from d. Description of land if collateral is timber, minerals, fixtures, or
2. Authenticated record – requirements: most other claimants to same collateral. crops.
a. Evidence of record: May be written or electronic as long as it is 4. Errors in financing statement
signed / marked electronically with present intent to identify A. Elements of perfection a. Minor errors that are not seriously misleading are excused.
debtor and adopt agreement. 1. Attachment 5. Designation of debtor
b. Description of collateral: Description must reasonably identify a. V: Creditor gives value - Very important as financing statement is filed under debtor’s
property, i.e., make it clear what property creditor may repossess b. C: K – security agreement name.
if debtor defaults. c. R: Debtor has rights in collateral. a. Individual = individual’s name
i. Ex. #1: “My computer” reasonably identifies if debtor only 2. Acts of perfection b. Registered organization (corp., p’ship) = name under which entity
has one computer. - Appropriate act of perfection depends on type of collateral. May is organized.
ii. Ex. #2: “Megalon computer serial number 5B574” reasonably be just one method or several. c. Trade name = not sufficient, unless extremely similar to debtor’s
identifies even though debtor owns “Megalon computer serial a. Possession of collateral by creditor name.
number SB574.” b. Filing of financing statement by creditor i. Ttrade name will work only if name is so similar to debtor’s
iii. Ex. #3: “All my equipment” is adequate because description c. Automatic permanent – attachment alone is sufficient name that financing statement would be discovered in search
may be by category / type, quantity, computational formula, or of SoS’s records in response to a request using debtor’s name.

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6. Change in debtor’s name 2. Assignment of insignificant amount of debtor’s accounts d. Agricultural liens
a. Collateral debtor has at time of name change – perfection E. Automatic temporary perfection i. Law of state where farm product covered by the lien is
continues 1. Proceeds: Automatically perfected for 20 days from debtor’s receipt located.
b. Collateral debtor obtains within four months of name change – of proceeds. 4. Other exceptions
perfection continues 2. New value for instruments, negotiable documents, and certified a. Certificate of Title Items
c. Collateral debtor obtains after four months of name change – securities i. Law of state which issued most recent certificate of title.
perfection ends unless refiled under new name within four month a. Creditor is automatically perfected for 20 days (a grace period to b. Deposit Accounts
period. perfect using normal methods) from time of attachment if creditor c. Law of state in which bank has its chief executive office.
d. Ex.: In 2009, Repairs-R-Us granted ONB a security interest in all gave new value. 5. Debtor or Collateral Changes States
its equipment, now owned or after-acquired. ONB properly b. Ex.: On May 1, Debbie grants ONB a security interest in a a. General Rule
perfected by filing. On January 3, 2010, Repairs-R-Us owned promissory note she owns and bank lends her $100. ONB is i. If debtor moves, perfection continues for 4 months.
Machine A. Also on that day, changed its corporate name to We automatically perfected for 20 days. ONB must file or take b. Perfection by Possession
Fix It. ONB did not refile under debtor’s new name. On February possession within 20 days or its security interest will become i. Perfection continues as long as perfected under new state’s
14, 2010, We Fix It purchased Machine B. On June 1, 2010, We unperfected. law.
Fix It purchased Machine C. ONB would still be perfected w.r.t. 3. Delivery of instrument, negotiable document, or certified c. Certificate of Title Items
Machines A&B because debtor owned Machine A at time of security to debtor for 20 days for certain purposes i. Perfection continues for as long as it would have under the
name change and obtained Machine B within four months of a. Ex.: Include sale, exchange, or presentation of collateral original certificate of title.
name change. However, ONB is not perfected w.r.t. Machine C F. Control
because debtor acquired Machine C more than 4 months after 1. Investment property, nonconsumer deposit accounts, electronic ***PRIORITIES***
name change. documents, and electronic chattel paper. -Two-step process:
7. Place of filing 2. Def.: Creditor has right to sell / cash in collateral without further (1) Classify persons claiming collateral (secured; unsecured, etc.)
a. General rule: SoS office in Austin. action from debtor. (2) Determine who prevails.
b. Fixtures, minerals, and timber to be cut: County where a. If deposit account, secured party has control if secured party is -If more than 2 claimants:
mortgage on real estate would be filed. bank in which deposit account is maintained. -pick any 2
8. Duration G. Notation on certificate of title -determine who has priority,
a. Financing statement is effective for 5 years from date of filing. 1. Items covered: Motor vehicles, boats, manufactured housing -then pit the winner against one of the remaining claimants.
b. Important exception: Recorded real property mortgage covering 2. Perfection if collateral consumer goods or equipment: Noting of -Continue in a similar manner until you determine who has priority. Repeat
fixtures continues until mortgage is release or satisfied. security interest on certificate of title. the process to determine number two, three, etc.
9. Continuation statement 3. Perfection if collateral inventory: File or take possession. -Note: By K, the competing parties may agree to a priority order
a. To extend effectiveness of a filing, creditor should file H. Special Rules for Proceeds different from the normal rules. Called subordination.
continuation statement within 6 months prior to expiration date 1. General Rule
and before 5 years expires. a. Perfection continues for 20 days automatically. A. Secured Creditor vs. Unsecured/General Creditor
10.Termination statement 2. When Perfection continues Beyond 20 Days 1. A.k.a. “any pig house” vs. “homeless”
a. Consumer goods = required: Creditor must file termination a. Same Office 2. Secured creditor prevails.
statement in a timely manner, i.e., earlier of: i. Original security interest perfected by filing and a financing 3. Perfected status of secured creditor is irrelevant.
i. Within 20 days after debtors written demand; or statement covering the proceeds would be filed in the same B. Secured Party vs. Secured Party
ii. Within 1 month after there is no outstanding secured place as the original collateral. 1. Both Creditors Unperfected:
obligation or commitment to make advances, even without a b. Identifiable Cash Proceeds a. First to attach prevails.
demand from debtor. c. Proceeds Perfected w/in the 20 day Period b. a.k.a. “first to build straw house.”
b. Non-consumer goods = only upon debtor’s request: i. The perfection could occur w/o further action on the creditor’s 2. One Creditor Perfected
i. Creditor must provide debtor with termination statement part or the creditor might need to take action to perfect. a. Perfected creditor prevails.
within 20 days of written demand. Debtor has responsibility I. Multi-State Transactions b. “wood beats straw”
of filing termination statement and must incur cost. 1. Issue 3. Both Creditors Perfected [make a timeline]
11.Fraudulent filing a. What State’s Version of the U.C.C. is used to determine whether a. General Rule: first creditor to EITHER file OR perfect.
a. Person may not file financing statement person knows is forged, a creditor is perfected? i. First creditor to do the first of filing or perfecting prevails
contains material false statement, or is groundless. 2. General Rule (NOT both).
b. Minimum penalty = $500 plus court costs and reasonable a. Law of the state where the debtor is located ii. Doesn’t matter which creditor first had a security agreement
attorney’s fees. b. Individual = principal residence w/ debtor.
D. Automatic permanent perfection c. ***Registered Organization = Law of the state where iii. Doesn’t matter which creditor attached first.
1. Purchase money security interest in consumer goods organized. iv. Doesn’t matter which creditor perfected first if one creditor
a. Ex.: ONB loans Conrad money to buy a refrigerator. If he signs a d. Unregistered Organization = Place of business, but if more file before that perfection.
security agreement giving ONB a security interest in the than one place of business, chief executive office. v. Knowledge of Creditor A who filed first that Creditor B has
refrigerator, ONB is perfected without having to file a financing 3. Exceptions where creditor must follow law of the collateral’s subsequently filed and perfected, but before Creditor A
statement assuming money is actually used to buy collateral. location perfects, is irrelevant.
b. Warning: This special purchase money security interest is only a. Security Interests perfected by possession b. Exception #1 [5 exceptions, 3 of which are tested often]
for consumer goods that are not either certificate of title items or b. Fixtures i. If one creditor has PMSI in goods (other than inventory and
fixtures. c. Timber livestock)...

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ii. The PMSI creditor prevails (even though second) if it is (A) Purchase must be from a person in the business of selling H. Fixtures—Secured Party vs. Holder of Real Property Mortgage
perfected: goods of the kind, e.g., CPU from Best Buy, NOT a pawn 1. Fixture defined:
(A) at the time debtor receives possession of the collateral, shop. a. Ordinary building materials (e.g., brick, lumber, nail, siding,
OR, v. Security Interest Created by the Seller shingles, wiring, pipes, etc.) cease to be goods when incorporated
(B) within 20 days of when the debtor received possession vi. Creditor Not Perfected by Possession into a structure and are real property.
of the collateral. 5. Consumer Purchasers of Consumer Goods (garage sale or Ebay b. Thus, a creditor with a security interest in these ordinary building
c. Exception #2 exception). materials loses its security interest once construction occurs.
i. If one creditor has PMSI in Inventory... a. Purchaser prevails IF: c. A fixture is a good which is not completely integrated into the
ii. PMSI creditor prevails if: i. Consumer goods in seller’s hands. building although it is so related to the real estate that an interest
(A) PMSI creditor perfected at time debtor receives ii. Consumer goods in buyer’s hands. in it arises under real estate law.
possession of inventory, AND iii. Buyer has no knowledge of security interest. d. A fixture can be removed but some damage will occur to the
(B) Proper notice to holders of conflicting security interests. iv. Buyer pays value. realty.
(1) Authenticated notification to all creditors who have v. Creditor not perfected by possession. i. Ex. hot water heater, furnace, a/c, toilet.
already filed w/r/t the collateral. This notice MUST: vi. Creditor’s interest is unfiled prior to purchase. 2. General Rule
(i) Explain that the creditor is obtaining a PMSI in b. Basically, Best Buy automatically perfects PMSI on TV. BUT it a. Secured party may win if:
inventory, can still file to prevail over Ebay or garage sale purchaser of TV. i. Perfected before real estate interest recorded, AND
(ii) describe the collateral, AND 6. Buyers Not in the Ordinary Course of Business vis-a-vis Future ii. Perfected with a fixture filing.
(iii) be given before the debtor receives Advances. (A) A fixture filing is a financing statement which meets the
possession of inventory. a. The creditor gives more money to the debtor based on collateral following requirements:
(2) The notice is effective for deliveries of the same type of that the debtor has already sold to a purchaser who does not (1) Describe the real property
collateral for 5 years. qualify as a buyer in the ordinary course of business. (2) Filed in office where a mortgage on the real property
d. Exception #3 b. A non-buyer in the ordinary course of business can prevail over a would be recorded.
i. Investment Property secured creditor for future advance amounts (not the prior 3. PMSI Exception
(A) Secured party who has control over investment property advances) made after the first of these events occurs: a. PMSI creditor, even though perfected after real property interest
has priority over a secured party who does not have i. Secured creditor obtains knowledge of the purchase, OR is of record can prevail IF:
control (e.g., a secured party who perfected by filing). ii. 45 days have elapsed from the date of the purchase. i. PMSI creditor perfected by fixture filing,
e. Exception if one creditor has a PMSI in Livestock: 7. Holder in Due Corse of Negotiable Instrument ii. Perfected within 20 days of good becoming a fixture (i.e.,
i. Basically, apply the same rule as for PMSI in inventory. a. A holder in due course will prevail over earlier perfected installation), AND
f. Exception for Deposit Accounts: interests in the negotiable instrument. iii. Competing real estate interest is NOT a construction
i. Secured party with control prevails. E. Secured Creditor vs. Lien Creditor mortgage.
C. Secured Party vs. Donee 1. Lien Creditor definition: (A) Construction mortgage is the loan which enabled the
1. If debtor makes a gift of the collateral to a donee, the collateral a. General, (unsecured creditors who have acquired a judicial lien whole building process to begin and thus it is not defeated
remains subject to the security interest in the donee’s hands. [donee by a levy on the debtor’s property. by a later PMSI.
is toast]. b. The term also includes the bankruptcy trustee. 4. Readily Removable Collateral
D. Secured Party vs. Purchaser 2. General Priority Rules a. Sometime, there is a debate whether an item is a fixture or merely
1. General Rule: secured party prevails a. If Secured Creditor Unperfected at Time Lien Attached: a good. Generally, if the good is readily removable, it will be
2. BUT if debtor has permission to sell, purchaser prevails. i. Lien creditor prevails. treated as a regular good, rather than a fixture, and thus may be
3. Secured party unperfected at time of purchase: b. If Secured Creditor Perfected at Time Lien Attached: perfected without a fixture filing.
a. General rule: Purchaser wins IF: i. Secured Creditor prevails. b. Ex. refrigerator in house, copy machine in office.
i. Buyer gives value. 3. PMSI Exception [special rule] 5. Judicial Liens
ii. Buyer receives delivery of the item, AND a. If PMSI creditor perfects by filing within 20 days after debtor a. A security interest in fixtures that is perfected in any manner
iii. Buyer has no knowledge of security interest at the time of receives possession, the creditor will defeat lien creditors who prevails over a later-acquire judicial lien, even if the perfection
delivery. obtained their liens in the gap period. was not done vial fixture filing.
b. Exception: PMSI 4. Future Advances [special rule] I. Crops
i. If PMSI creditor perfects within 20 days after debtor receives a. The secured creditor will lose priority to a lien creditor for future 1. A perfected security interest in crops has priority over a conflicting
the collateral but after debtor sells collateral to purchaser, advances after both interest in the land on which the crops are growing. It does not
creditor will prevail over the “gap” purchaser. i. the secured creditor obtains knowledge of the lien, AND matter who filed or perfected first.
4. Buyers in the Ordinary Course of Business (BiOCoBs) ii. 45 days elapse from the date of the lien. J. Impact of Bankruptcy
a. can prevail even over a perfected creditor if the following F. Secured Creditor vs. Statutory Mechanics Lien 1. Bankruptcy of the debtor may change the normal priority rules.
requirements are met: 1. Statutory lien prevails if following conditions satisfied: Refer to your Bankruptcy materials on preferences (likely area for
i. Good Faith a. Person furnished services or materials (i.e. parts & labor) w/r/t cross-over issue).
(A) Honesty in fact and observance of reasonable the goods covered by the security interest,
commercial standards. b. Furnishing was in ordinary course of business, AND REMEDIES OF SECURED PARTY UPON DEBTOR’S DEFAULT
ii. Without Knowledge of a Security Interest Violation c. collateral is in the possession of the statutory lien holder. A. Remedies Triggered by Debtor’s Default
iii. Purchase of Goods that are Not Farm Products G. Proceeds 1. “Default” not defined in UCC. Clearly default means not paying,
iv. Ordinary Purchaser 1. Priority for the proceeds is the same as the priority in the original but the term may include other things specified in the security
collateral as long as the security interest in the proceeds is perfected.

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agreement such as taking the collateral out of state w/o permission or i. Notice must be sent a reasonable amount of time before the i. The creditor automatically liable for amount equal to finance
not keeping the collateral insured. sale. charge plus 10% of the principal.
B. Repossession ii. It is a fact question as to what is reasonable time but in a c. Effect on Creditor’s Ability to Recover Deficiency
1. Upon default, creditor may repossess. nonconsumer transaction, 10 days or more before the sale is i. Consumer Transactions = absolute bar to recovery of
2. No judicial process needed—self-help remedy! considered reasonable. deficiency
3. Creditor need not give debtor notice. e. Who receives notice ii. Nonconsumer transactions = not a bar, but rebuttable
4. ***Limitation on repossession—no breach of the peace. i. ***Debtor—UNLESS debtor has waived notice in an presumption that value of collateral was equal to amount of
a. No definition of breach in code. authenticated agreement after default. debt.
b. Fact question to determine whether peace was breached. ii. Sureties (A) Secured Creditor may prove otherwise and still recover a
c. Examples: iii. If collateral not consumer goods—notice to creditors who deficiency.
i. Permissible: car repossessed in parking lot while listening to have perfected by filing, notation on certificate of title, or 9. If Collateral is Accounts or Instruments
BarBri. who have given notice to reselling creditor a. The creditor directs the obligor to make payments directly to the
ii. Permissible: car repossessed from your driveway while eating 2. Debtor’s Right to Redeem (hard to do—5 elements) creditor, rather than to the debtor
dinner (even though it’s trespass). a. Debtor has the ability to cure the default and regain the collateral D. ***Strict Foreclosure
iii. Impermissible: during repossession of my car, I run outside if certain requirements are satisfied 1. Creditor Retains Collateral
and scream, “Don’t take my car.” (even though it’s me b. Elements: a. The creditor may retain the collateral in total satisfaction of the
breaching peace by yelling). i. Creditor has not yet sold or entered into a K to sell collateral. debt.
iv. Impermissible: repo man breaks into garage to repossess. ii. Strict foreclosure has not yet occurred b. In non-consumer situations, the creditor may retain the collateral
v. Impermissible: repo man says “if you make one sound, I will iii. Debtor has not waived the right to redeem after default. in total or partial satisfaction of the debt.
break your knees.” iv. Debtor must tender fulfillment of all obligations secured by 2. Requirements to Use Strict Foreclosure
vi. Impermissible: repo man dresses as police officer and carries the collateral. a. Debtor Consents
gun. (A) Not enough just to tender the late payments. Watch out i. Express, or
vii.Permissible: car dealer asks for my car for maintenance and for acceleration clauses. (A) The debtor agrees in an authenticated record made after
repos it while it’s getting fixed (trickery allowed). v. Debtor must tender creditor’s reasonable expenses. default, or
5. ***Creditor Cannot Delegate Duty Not to Breach Peace. (A) Ex. repo fee, storage costs, make-ready costs for car. ii. Implied
a. Thus, if repo person breaches peace, the creditor is strictly liable 3. Standard of Care (A) The debtor fails to object to the creditor’s proposal to
even if repo person is independent contractor. a. all aspects of the sale, that is, the method, manner, time, place, strictly foreclose within 20 days of when the creditor sent
b. This liability could be for conversion of the repossessed item, and terms, must be commercially reasonable. notice.
actual damages, and even punitive damages. b. It is a fact question whether the sale was commercially b. Creditor Sends Authenticated Notice to Retain Collateral to:
6. Creditor now has choice after proper repo: reasonable. i. Debtor: UNLESS the debtor has waived notice in an
a. Resell collateral—sue for deficiency, give surplus to debtor (see c. Merely because a better price could have been obtained does not authenticated agreement made after default.
C. below). make sale unreasonable but if the difference in price is ii. If collateral not consumer goods—Notice to creditors who
b. Strict foreclosure—keep collateral and call things quiet. (see D. substantial, the sale will be closely analyzed. have perfected by filing, notation on certificate of title, or who
below) d. Burden of proof is on the creditor to show commercial have given notice to creditor.
C. Sale of Collateral by Creditor reasonableness of the sale in a deficiency suit. c. No Timely Objection
1. Notice of Sale 4. Ability of Creditor to Purchase at Resale i. If the debtor or another creditor objects in writing within 20
a. General Rule = Notice Required. a. Public Sale (auction) = yes days, the creditor may not keep the collateral AND must
b. Exceptions b. Private Sale = ONLY IF conduct a resale.
i. Perishable Collateral i. Collateral is customarily sold in a recognized market, OR 3. Exception (consumer protection) for High Equity (debtor has paid
ii. Collateral Threatening to decline speedily in value, e.g., ii. Collateral is subject to widely-distributed standard price 60% of price)
concert tickets for the next night! quotations a. Consumer goods—resale necessary w/in 90 days of
iii. Collateral is customarily sold on recognized market. 5. Title of Purchaser at Resale repossession.
c. Contents of Notice a. The reselling creditor warrants title, possession, and quiet
i. Description of debtor and secured party. enjoyment of the collateral by the purchaser unless the creditor
ii. Description of the collateral takes steps to disclaim the warranties.
iii. Method of sale (either public auction or private sale) 6. Application of Resale Proceeds (Priority Order:)
iv. Statement that debtor is entitled to an accounting and the a. Reasonable expenses of reselling creditor
charge, if any b. Satisfaction of debt
v. Time and place of public sale; time after which a private sale c. Satisfaction of Subordinate Creditors
will be made (earliest date of sale) d. Surplus, if any, to debtor
vi. If the collateral is consumer goods, the notice must also: 7. Deficiency
(A) Explain that debtor liable for deficiency a. The creditor is unsecured for the deficiency amount
(B) Telephone number of person from whom debtor can 8. Penalty for Not Complying With Resale Requirements
obtain amount needed to redeem the collateral a. Creditor Liable for Actual Damages
(C) Telephone number or address from which debtor can get i. This liability could be to the debtor or to other creditors
additional information about the sale. b. Consumer Goods
d. Timeliness of Notice

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