MEE SECURED TRANSACTIONS

Acme's rights to payment from customers for repair services obtained on credit

"Accounts" include the right to payment for goods sold, property licensed, or services rendered. Because Bank has an enforceable security interest in Acme's accounts, the rights to payment are subject to Bank's security interest.

Wood used in repairing violins

"Inventor y" includes not only goods, other than farm products, that are held for sale or lease, but also raw materials, works in process, or materials used or consumed in a business. Thus, the stock of wood Acme uses in repairing the violins would be classified as inventory and would be subject to Bank's security interest.

Used violins for sale in Acme's store

"Inventory" includes goods, other than farm products, that are held for sale or lease. Accordingly, the used violins held for sale are inventory subject to Bank's interest.

purchase money security interest (PMSI)

A PMSI is a security interest in goods that has priority over other security interests in the same goods. It arises when a creditor sells goods to a debtor on credit and retains a security interest in those goods, or the creditor advances funds, which are then used to purchase the goods and the creditor reserves a security interest in those goods. While, generally, a PMSI has priority over other security interests in the same goods, a PMSI in inventory has priority only if: (i) the PMSI is perfected by the time the debtor receives possession of the collateral; and (ii) the purchase-money secured party sends an authenticated notification of the PMSI to the holder of any conflicting security interest before the debtor receives possession of the collateral. Under the priority rules of Article 9, a perfected security interest has priority over an unperfected security interest. As a result, Lender has a superior interest in the clocks.

Red Rosa violin

A buyer in the ordinary course of business (BOCB) takes free of a security interest created by the seller. A BOCB is one who buys goods in the ordinary course of business from a merchant who is in the business of selling goods of that kind in good faith and without actual knowledge that the sale violates the rights of another in the same goods. Here, Bank had a security interest in the Red Rosa violin when Acme held it for sale or lease, at which time it would have been classified as inventory. The violinist bought the violin in the ordinary course of Acme's business, in good faith, and without knowledge that the sale violated Bank's rights in inventory. The violinist did not know the terms of Acme's agreement with Bank. Accordingly, because the purchaser would likely be considered a BOCB, he would take the Red Rosa violin free of the security interest.

At issue is whether Bank's perfected security interest would be superior to the rights of a subsequent judicial lien creditor.

A judicial lien creditor is a creditor who acquires a lien on the collateral by a judicial process, rather than by operation of law. A judicial lien creditor takes the property subject to a perfected security interest but generally has priority over an unperfected security interest. A security interest is perfected upon attachment of that interest and compliance with one of the methods of perfection. As noted above, the Bank's security interest had attached. A secured party can perfect a security interest by: (i) filing a financing statement; (ii) taking possession of the collateral; (iii) exerting control over the collateral; or (iv) automatic perfection. Bank's filing of the properly completed financing statement in the appropriate state filing office satisfies the requirements for perfection. Thus, the judicial lien creditor would take the property subject to Bank's perfected security interest and Bank's security interest would be superior to the rights of the lien creditor.

At issue is whether the $4,000 check constitutes cash proceeds.

A security interest in collateral automatically attaches to identifiable proceeds. Proceeds include whatever is acquired upon the sale of collateral. If the proceeds are identifiable cash proceeds (which includes checks) and the security interest in the original collateral is perfected, the perfected security interest in the proceeds continues indefinitely.

At issue is whether Bank has an enforceable security interest in the property described in the loan and security agreements, the inventory and accounts.

A security interest that is enforceable against the debtor with respect to the collateral is said to have attached to the collateral. To be enforceable against the debtor, three conditions must coexist: (i) value has been given by the secured party; (ii) the debtor has rights in the collateral; and (iii) the debtor has authenticated a security agreement that describes the collateral, or the secured party has possession or control of the collateral pursuant to a security agreement.

Vac's interest in the vacuum

A transaction in the form of a lease is treated as a security interest if the lessee must pay consideration to the lessor for the right to possess and use the goods for the term of the lease, the payment obligation cannot be terminated by the lessee, and the lessee has an option to become the owner of the goods upon completion of the lease agreement. Here, what the parties refer to as a lease is equivalent to a secured sale transaction because Decorator will have purchased the vacuum after making the "lease" payments. A PMSI in goods other than inventory or livestock prevails over all other security interests in the collateral, even if they were previously perfected, if the secured party perfects before or within 20 days after the debtor receives possession of the collateral.

The bank's security interest in the gramophone has priority over the lien of the judgment creditor because the bank's security interest was perfected before the judgment arose.

Among the ways in which an attached (i.e., enforceable) security interest in most collateral, including goods such as the gramophone, may be perfected is through possession of the collateral. As discussed above, the bank's security interest in the gramophone had attached and was therefore enforceable against the company. Since the bank gained possession of the gramophone in the process of the attachment of its security interest and retained possession of the gramophone until the bank sold it, the bank had a perfected security interest in the gramophone. In a contest between a perfected security interest and a judicial lien, a judicial lien creditor takes the collateral subject to an existing perfected security interest but generally has priority over an unperfected security interest. Here, since the judicial lien creditor obtained a judicial lien on the gramophone only last month, at a time that the bank had possession of the gramophone and hence a perfected security interest in it, the bank has the superior claim to the gramophone.

3. No, the bank does not have an enforceable security interest in any other personal property of the company because the bank failed to properly identify the property subject to the security interest. (40%)

As noted above, for a secured party to have enforceable rights in collateral, the secured party's security interest must have attached to the collateral. For attachment to occur, three conditions must be met: (i) value must be given by the secured party; (ii) the debtor has rights in the collateral; and (iii) the debtor authenticated a security agreement that describes the collateral (or the secured party has possession or control of the collateral pursuant to a security agreement). For the description of the collateral in the security agreement to be sufficient, it must reasonably identify the collateral. Supergeneric descriptions of collateral are not sufficient, such as "all of debtor's assets."

The bank has a perfected security interest in the manufacturer's present accounts that existed on March 15 and any future accounts.

As stated above, for a security interest to be enforceable against a debtor, the interest must first "attach" to the collateral. Here, the bank gave value in the form of a loan, and the manufacturer signed a writing describing the loan and collateral. However, since the manufacturer sold the accounts that existed on February 1 to the finance company, a question arises as to whether the manufacturer continued to have rights in those accounts. Since UCC Art. 9 treats a sale of accounts as creating a security interest in the purchaser, the seller (debtor) is deemed to retain rights in the accounts for attachment purposes until the purchaser perfects its security interest. Since the finance company did not perfect its security interest, the manufacturer is treated as continuing to have rights in the accounts that existed on February 1, even though the manufacturer sold the accounts to the financing company. Thus, the bank attached its security interest to the manufacturer's "present and future" accounts as of March 15, including those that were sold to the finance company that remained active on March 15. In addition, the bank filed a financing statement on March 15, perfecting its security interest in the manufacturer's present accounts that existed on that date and any future accounts.

Interests in the helmets (

As stated above, perfection of a security interest is generally necessary in order for the secured party to have rights in the collateral that are superior to those rights claimed by third parties. A perfected security interest has priority over an unperfected security interest. A judicial lien creditor takes the property subject to a perfected security interest but generally has priority over an unperfected security interest. In this case, Bank has a perfected security interest in the helmets as part of Recycled's inventory. In addition, Utility's judgment lien that attached to all of Recycled's personal property, including the helmets. Thus, priority in the helmets depends on Manufacturer's status as a secured party. UCC Article 9 applies if the substance of a transaction creates a security interest. The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer is limited in effect to a reservation of a security interest. Here, Manufacturer sold the helmets to Recycled on credit and retained title to the helmets. Consequently, though the parties did not call their agreement a security agreement, the substance of their transaction is to secure Recycled's payment for the helmets, and the transaction is thus governed by Art. 9. As stated above, a security interest must attach to the collateral to be enforceable. Here, Manufacturer's interest attached because it gave value by selling the helmets on credit, Recycled had rights in the helmets, and Recycled authenticated a security agreement (in substance) that described the collateral. Moreover, Manufacturer has a special kind of security interest called a purchase money security interest (PMSI). A PMSI arises when a creditor sells goods to a debtor on credit and retains a security interest in those goods, or the creditor advances funds, which are then used to purchase the goods and the creditor reserves a security interest in those goods. Here, Manufacturer has a PMSI in the helmets because it sold the helmets on credit and retained a security interest in them. Thus, Manufacturer has a PMSI in the helmets. While, generally, a PMSI has priority over other security interests in the same goods, a PMSI in inventory has priority only if: (i) the PMSI is perfected by the time the debtor receives possession of the collateral; and (ii) the purchase-money secured party sends an authenticated notification of the PMSI to the holder of any conflicting security interest before the debtor receives possession of the collateral. Here, Manufacture did not file a financing statement, nor did it send an authenticated notification of the PMSI to conflicting interest holders. Accordingly, Manufacturer's security interest is not perfected. Therefore, Bank's perfected security interest in inventory has priority over Manufacturer's unperfected PMSI in the helmets. As a judicial lien creditor, Utility also has priority over Manufacturer's unperfected security interest, but takes subject to Bank's perfected security interest.

Lender's interest in the vacuum

Decorator gave Lender a security interest in "all of Decorator's present and future inventory and equipment." The vacuum is equipment. The security interest is enforceable and attached to the vacuum because Lender gave value (the $10,000 loan), Decorator had rights in the vacuum, and Decorator signed the security agreement. Additionally, Lender perfected its security interest when it filed the completed financing statement. Because Lender has perfected its security interest and Vac has an unperfected security interest, Lender's security interest in the vacuum cleaner has priority.

Yes, the company has a claim against the bank with respect to the sale of the gramophone for failing to provide the company with notification of the sale.

For a secured party to have enforceable rights in collateral, the secured party's security interest must have attached to the collateral. For attachment to occur, three conditions must coexist: (i) value has been given by the secured party; (ii) the debtor has rights in the collateral; and (iii) either the debtor has authenticated a security agreement that describes the collateral, or the secured party has possession or control of the collateral pursuant to a security agreement. If the secured party has possession or control of the collateral pursuant to a security agreement, then a security agreement in the form of a record is not required; an oral agreement suffices.

The issue is whether the retailer's perfected security interest in the bicycle is enforceable against the friend who received the bicycle as a gift.

If collateral is transferred and the transferee of the collateral is not a buyer, the security interest generally continues in the collateral, unless the secured party has authorized its sale free of the security interest.

At issue is whether the retailer has an interest in the home entertainment system even though it did not file its interest.

If the substance of the transaction is the creation of a security interest, then Article 9 applies regardless of the form of the transaction. The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer is limited in effect to a reservation of a security interest. In this case, even though the retailer retained title to the system, the substance of the agreement was to create a security interest, which attached to the entertainment system. The retailer gave value by selling the entertainment system on credit, the buyer had rights in the entertainment system, and the buyer signed an agreement that recognized the retailer's retention of an interest in the system as security for payment of the remainder of the purchase price. A PMSI in goods exists when a secured party sold goods to the debtor, and the debtor incurs an obligation to pay the secured party all or part of the purchase price. A PMSI in consumer goods is automatically perfected upon attachment. Consumer goods are those goods acquired primarily for personal, family, or household purposes. Here, the retailer has a PMSI in the system because the buyer purchased the system from the retailer on credit and granted a security interest in the system. The system is a consumer good because the buyer purchased it for use in her home. Thus, the retailer's PMSI is automatically perfected without filing a financing statement. A buyer of collateral subject to a perfected security interest generally takes the collateral subject to that interest. However, a consumer buyer of consumer goods takes free of a security interest, even if perfected, unless prior to the purchase the secured party filed a financing statement covering the goods. A consumer buyer is a person who: (i) buys consumer goods for value; (ii) for his own personal, family, or household use; (iii) from a consumer seller; and (iv) without knowledge of the security interest. This is often referred to as the "garage sale" rule.

Gambretti plane

The Gambretti plane is neither held for sale or lease nor classified under any other types of categories of inventory. It would more appropriately fall into the catchall "equipment" class of goods, which includes goods or machinery used in the business. As equipment, the plane would not be subject to Bank's security interest.

Violins in Acme's possession

The violins in Acme's possession that are being repaired for their owners are neither inventory nor accounts and so they are not subject to Bank's security interest. As noted above, "inventory" includes goods held for sale or lease, but these violins are being held for repair. Also, because the violins are not owned by Acme, but rather by owners who brought them to Acme for repair, Acme has no rights to them and so cannot meet all the conditions necessary for a security interest to be enforceable.

The issue is whether a creditor with a perfected security interest has priority over a consumer who purchased inventory in the ordinary course of business.

Under Article 9, for a security interest to be enforceable against a debtor, the interest must attach to the collateral. For attachment, three conditions must be met: (i) value must be given by the secured party; (ii) the debtor had rights in the collateral; and (iii) the debtor authenticated a security agreement that describes the collateral (or the secured party has possession or control of the collateral pursuant to a security agreement). Here, Bank's interest attached on March 1 because Bank loaned $100,000 to Recycled, Recycled had rights in the bicycle as inventory, and Recycled authenticated a security agreement for all present and future inventory. While attachment gives a secured party rights against a debtor, in order to have priority over a third party, perfection of its security interest is necessary. Here, Bank perfected its security interest in Recycled's inventory by properly filing a financing statement on March 5. A buyer of collateral subject to a perfected security interest generally takes the collateral subject to that interest, unless the secured party has authorized its sale free of the security interest. However, a buyer in the ordinary course of business (BOCB) takes free of a security interest created by the buyer's seller, even if the security interest is perfected and the buyer knows of its existence. A BOCB is a person who (i) buys goods, (ii) in the ordinary course of business, (iii) from a merchant who is in the business of selling goods of that kind, (iv) in good faith, and (v) without knowledge that the sale violates the rights of another in the same goods. Here, Consumer purchased the bicycle from Recycled (a business that sells bicycles and bicycle equipment), the parties conducted the transaction in good faith, and there are no facts to indicate Consumer was aware that the sale was in violation of Bank's rights. Therefore, Consumer is a BOCB and takes the bike free of Bank's perfected security interest.

Lender's interest in the clocks

Under Article 9, for a security interest to be enforceable against a debtor, the interest must attach to the collateral. For attachment, three conditions must be met: (i) value must be given by the secured party; (ii) the debtor has rights in the collateral; and (iii) the debtor authenticated a security agreement that describes the collateral (or the secured party has possession or control of the collateral pursuant to a security agreement). A debtor may also give a security interest in future rights. Generally, this type of interest is created by including an "after-acquired property clause" in the security agreement. The security interest for after-acquired property attaches as soon as the debtor obtains an interest in the property. In order to have priority over a third party who has a security interest in the same collateral, perfection of the security interest is generally necessary.

The first issue is whether the retailer has a perfected security interest in the bicycles.

Under Article 9, for a security interest to be enforceable against a debtor, the interest must attach to the collateral. For attachment, three conditions must be met: (i) value must be given by the secured party; (ii) the debtor has rights in the collateral; and (iii) the debtor authenticated a security agreement that describes the collateral (or the secured party has possession or control of the collateral pursuant to a security agreement). Here, the retailer's security interest attached on June 1st when (i) the retailer gave value by selling the bicycles to the man on credit; (ii) the man had rights in the bicycles; and (iii) the man signed a security agreement that identified the bicycles as collateral. Moreover, the retailer has a special kind of security interest called a purchase money security interest (PMSI). A PMSI is a security interest in goods that has priority over other security interests in the same goods. It arises when a creditor sells goods to a debtor on credit and retains a security interest in those goods, or the creditor advances funds, which are then used to purchase the goods and the creditor reserves a security interest in those goods. Here, the retailer sold the two bikes to the man on credit and retained a security interest in the bicycles. Thus, the retailer has a PMSI in the bicycles. While the retailer, as a secured party, has rights against the man, in order to have priority over a third party, perfection of its security interest is necessary. A secured party can perfect a security interest by (i) filing a financing statement; (ii) possessing the collateral; (iii) controlling the collateral; or (iv) perfecting automatically. A PMSI in consumer goods perfects automatically. In other words, a security interest in a consumer good is perfected as soon as it attaches. A consumer good is a good that is acquired primarily for personal, family, or household purposes. Here, the man purchased the bicycles for himself and his girlfriend to use on vacation. Since the bikes were purchased for personal purposes, they are consumer goods and the retailer's interest was automatically perfected. Thus, the retailer holds a perfected security interest in the bicycles as of June 1st.

Obligation Upon Default

Upon default, a secured party may notify an account debtor (the person obligated on an account) to make payment to the secured party. In addition, the secured party may exercise any rights of the debtor with respect to the obligation of the account debtor. In a commercially reasonable manner, the secured party may collect from the account debtor, and, if the account debtor does not pay, the secured party may enforce the obligation of the account debtor.

Upon default, one of the alternatives generally available to a secured party once in possession of collateral is to dispose of the collateral at a sale, which may be public or private, in order to satisfy the obligor's outstanding obligation.

Upon default, one of the alternatives generally available to a secured party once in possession of collateral is to dispose of the collateral at a sale, which may be public or private, in order to satisfy the obligor's outstanding obligation. In addition to conducting the sale in a commercially reasonable manner, the secured party is generally required to send an authenticated notification of disposition to, among others, the debtor. This notice must be given sufficiently far enough in advance of the disposition (e.g., at least 10 days) to allow the notified party to act on the notification. A secured party is not required to send a notice of disposition when the collateral is perishable, threatens to decline speedily in value, or is of a type customarily sold on a recognized market. A person entitled to notification may waive the right to notification. If a secured party fails to comply with these requirements, then the debtor or other secured party may seek damages for any loss caused by the secured party's failure to notify. There is also a rebuttable presumption that the secured party is not entitled to collect a deficiency. The secured party can rebut this presumption in whole or in part by showing that the deficiency would have existed even had the secured party complied with Article 9.

With regard to the manufacturer's pre-February 1 accounts, the Bank's perfected security interest has priority over the finance company's unperfected security interest

When there are two or more perfected secured parties with rights in the same collateral, the first to file or perfect has priority. If only one security interest is perfected, and the other is not, then the perfected interest takes priority over the unperfected one.

Whether the finance company has an interest in the home entertainment system depends on the status of the buyer.

Whether the finance company has an interest in the home entertainment system depends on the status of the buyer. (40%) Generally, a security interest that is enforceable against the debtor is said to have "attached" to the collateral. Attachment requires that: (i) value has been given by the secured party, (ii) the debtor has rights in the collateral, and (iii) the debtor has authenticated a security agreement that describes the collateral, or the secured party has possession or control of the collateral pursuant to a security agreement. Perfection of a security interest is generally necessary for the secured party to have rights in the collateral that are superior to any rights claimed by third parties. A security interest in goods can be perfected by filing a financing statement. Here, the finance company perfected its interest in the inventory by properly filing a financing statement. A buyer of collateral subject to a perfected security interest generally takes the collateral subject to that interest. However, a buyer in the ordinary course of business (BOCB) takes free of a security interest created by the buyer's seller, even if the security interest is perfected and the buyer knows of its existence. A BOCB is a person who: (i) buys goods; (ii) in the ordinary course of business; (iii) from a merchant who is in the business of selling goods of that kind; (iv) in good faith; and (v) without knowledge that the sale violates the rights of another in the same goods. In order to qualify as a buyer, the purchaser must give new value, which in addition to paying cash for the goods includes purchasing the goods on credit. If a buyer obtains goods under the BOCB exception free of the security interest in the goods created by the buyer's seller, the buyer may, in turn, sell the goods to a second buyer who also takes the goods free of that security interest. The second buyer is not required to qualify as a BOCB. Consequently, the friend takes the home entertainment system free of the finance company's security interest.

The second issue is whether the buyer is a consumer buyer that takes free of the retailer's perfected security interest in the bicycle.

While a PMSI in consumer goods automatically perfects, that perfection does not guarantee priority in a dispute over the same collateral. A consumer buyer of consumer goods takes free of a security interest, even if perfected, unless prior to purchase, the secured party filed a financing statement covering the goods. In other words, the holder of a PMSI in consumer goods could lose to a consumer buyer if he/she does not file a financing statement. A consumer buyer is a person who: (i) buys consumer goods for value; (ii) for his own personal, family, or household use; (iii) from a consumer seller; and (iv) without knowledge of the security interest. This is often referred to as the "garage sale" rule because that type of sale would qualify.

Finance company has an unperfected security interest in the manufacturer's accounts that existed on February 1.

While generally UCC Art. 9 does not apply to a sale, there is an exception for the sale of rights to payment, such as accounts, chattel paper, payment intangibles, and promissory notes. The sale is treated as creating a security interest in the rights to payment with the purchaser of the rights being the secured party. An account includes the right to payment for property sold, leased, licensed, or for services rendered (such as a company's accounts receivable). Here, the manufacturer sold its outstanding rights to be paid by the retail stores to which it had sold clothing. As such, the collateral is characterized as an account, and the transaction is subject to Art. 9. A security interest is enforceable against the debtor with respect to the collateral if the interest has attached to the collateral. Attachment requires that value be given by the secured party, the debtor has rights in the collateral, and the debtor has authenticated a security agreement that describes the collateral, or the secured party has control of the collateral pursuant to a security agreement. The basic rule is that a security interest attaches only to rights that the debtor has. Perfection of an attached security interest is generally necessary for the secured party to have superior rights over third parties that have security interests in the same collateral. A secured party can perfect a security interest by (i) filing a financing statement; (ii) possessing the collateral; (iii) controlling the collateral; or (iv) perfecting automatically. A security interest in accounts may be perfected only by filing. Here, the finance company did not file a financing statement. Consequently, the finance company's security interest was unperfected.

Clockwork's interest in the clocks

While the agreement between Clockwork and Decorator does not appear on its face to be a secured transaction, the essence of their transaction was in fact a secured transaction. UCC Article 9 applies if the substance of a transaction creates a security interest. Under the UCC, the retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer is limited in effect to a reservation of a security interest. Consequently, though the parties did not call their agreement a security agreement, the substance of their transaction is to secure Decorator's payment for the clocks, and the transaction is governed by Article 9.

Inventory

nventory includes goods that are held for sale or lease. Equipment, a catchall class, consists of goods that are not consumer goods, farm products, or inventory (typically goods that are used primarily in a business). Here, Bank's security interest attached to Recycled's inventory. However, the computer was not held for sale or lease by Recycled, but was rather being used in its business. Therefore, it would be classified as equipment and not inventory. Nevertheless, a security interest in collateral automatically attaches to identifiable proceeds. Proceeds include that which is acquired upon the sale, exchange, or other disposition of collateral. Here, the computer was acquired in exchange for a bike (an item of inventory), and is therefore deemed identifiable proceeds of the exchange. Accordingly, Bank's security interest in the collateral automatically attached to the used computer. If the security interest in the original collateral is perfected, then a security interest in proceeds is temporarily perfected for 20 days from the time it attaches. Here, Bank's security interest in the used computer as proceeds was automatically perfected for 20 days after it was acquired on March 15. Under the same office rule, a perfected security interest in proceeds may continue indefinitely when: (i) the filed financing statement covers the original collateral, (ii) the proceeds are collateral in which a security interest may be perfected by filing in the same office as the financing statement, and (iii) the proceeds are not acquired with cash proceeds. First, Bank's financing statement covered the bicycle as part of Recycled's inventory. Second, the financing statement for the used computer, which is equipment, would be filed in the same office as the financing statement for the bicycle. Third, Recycled has not received cash proceeds, but instead acquired the computer in exchange for a bicycle. Thus, Bank's security interest in the used computer remained perfected when Utility's judgment lien attached to the computer on April 29. A judicial lien creditor takes the property subject to a perfected security interest, but generally has priority over an unperfected security interest. Because Bank had a perfected security interest in the used computer when Utility's judgment lien attached on April 29, Bank's interest is superior to Utility's judgment lien.