Creditor remedies under state law for judgment creditors – have grant of jdgmnt for claims sec cred – status created via contract/statute foreclosure – this is typically mandatory; limit on strict foreclosure in §9-620 ucc §9-109(a)(1) applies to any ...
Creditor Remedies under State law for Judgment creditors – have grant of jdgmnt for claims Sec cred – status created via contract/statute Foreclosure – this is typically mandatory; limit on strict foreclosure in §9-620 UCC §9-109(a)(1) applies to any ...
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Hornbook Notes Overview
Remedies under State law for Judgment
– have grant of jdgmnt for claims
cred – status created via contract/statute
is typically mandatory; limit
on strict foreclosure in §9-620
applies to any trsxn creating sec interest; Cts look at the
actual econ of the transaction – Basile
v. Erhald Holding3
Intrst = interest in pers prop or fixtures that secures paymnt
or perf of an oblig §1-201(b)(35)
Conditional sales §2-401(1),
Leases intended as sec interst, Sale
of Accounts §
and asset securitization.
distgsh from sec intrst - §1-203(b)
Orig lease term ≥econ life of goods 2. Lessee must renew
lease for econ life or take ownership of goods 3. Lessee option
to renew goods for econ life for no new/nominal consideration.
4. Lessee option to buy for no new/nom consideration.
NOT a sec intrst simply b/c - §1-203(c)
PV of payments ≥ fair mkt val of goods 2. Lessee assumes risk
of loss 3. Lessee pays tax, ins, filing, record, reg feeds,
serv & maintenance costs 4. Lessee has optn to renew or buy
goods 5. Lessee option to renew at fix rent ≥ reas
predictable markt rent of goods 6. Lessee option to own ≥
reas predictable markt price of goods
(can also simply transfer prop via deed
in lieu of foreclosure.)
property power of sale – have a power
of sale cl
in sec agreement [ in 25 Sts]
foreclosure by sale in commercially reas manner- §9-610(a)
Possession Pending Foreclosure
to repossess immed on default unless otherwise specified -
subject to proced safegds of hearing before prop taken or
pre-seizure proced safegds w/ prompt post-deprivation hearing
before final judgment- Del’s
Big Saver Foods v. Carpenter Cook 5
breaching peace involves potential for immed violence AND
nature of premises (trespass is NOT automatic breach) -
cases on whether there was Breach – See Class
Accounts - §
9-607 and 9-406(a)
who knows account debtors can send written notices to them;
debtors can req a proof of assignment §9-406(c)
at their risk in determ whom to pay.
typically leaves this under Debtor control so goodwill of
business is preserved
rule – creditor can’t get it until Court foreclosure and
sheriff sells prop
of receiver – courts rarely grant this
of rents – also rarely granted.
Sale and Deficiency
not allowed. Most common is foreclosure of a contract
for deed, where
title for land transfers at the last mortgage payment.
may overturn the results of a sale if:
Disparity between $ and value of prop so great as to shock the
court’s conscience. “mere inadequacy” will seldom be
sufficient to justify vacating the sale but is possible if
sufficiently gross (this is defined as “very great”); (2)
make it inequitable to allow the sale to stand - Armstrong
v. Csurilla 9
can occur any time before the sale
statutes - Some states have these.
can credit bid up to the amount of the debt.
9 Sale and Deficiency
the same purpose as judicial method - UCC
§§ 9-602 (7) [points
procedre gov disposition of collateral ] and
outlines conditions [for consumer goods, debtor consents in
writing or by silence ONLY after repossess] - (1)
debtor consents (2)
no objection by pers req notice under §9-621,
subordinate debtors of collateral, (3)
for consumer goods, collateral NOT in debtor’s hands when
debtor consents (4)
not permitted if debtor paid ≥ 60% outstanding
outlines how debtor can consent. (2)
for non-consumer, auto consent in 20 d.
strict forclosure if 60% of loan paid off or debtor waives under
NOT available for partial satisfaction of consumer loans
for sale - §9-610
be commercially reasonable
primarily assessed by procedures employed - Chavers
v. Frazier 84
hasty sale, adeq of ads, distressed sale, regulatory investgn,
says don’t need best price (b)
some reasonable methods.
given notice - §9-611(c)(1);
of notice in
to contact lienors may shrink deficiency -
– incorporates common law right - §9-623
court determines case for consumer transactions
SC buys collateral, deficiency is calc assuming a 3rd
party payment- §9-615(f)
Art 9 is not complied w/ use sale price of complying sale -
for deficient sales
recovery explicitly specified for consumer goods
is barred, must get cop to levy on the property - Vitale
v. Hotel California 1
incur liability to 3rd
party for improper seizure
usu prevent foreclose on burial, bus/farm prop, consumr good, car,
net income, deposits accnt
you get hosed.
“w/ actual intent to hinder, delay, or defraud any creditor”
“w/o receiving a reasonably equivalent value in exchange for
Remedies in Bankruptcy
7 –surrenders all of the -exempt assets to trustee and gets all
dischargeable debt discharged.
11 – DIP
13 – ONLY for indiv δ w/ unsec debt < $337k and sec debts <
$1M. Diverts disposable income to unsec creditors.
Stay - Code
§ 362(a), 541 (a)(1)
to direct and indirect collection methods
the Stay - Code
§ 362(d)(1), (2)
362(d)(1) – for
lack of adeq protection
to insure SC gets in val essentl what he bargained for - In
re Craddock-Terry Shoe 20
has NO equity in property and it is not nec to an effective
of claim filed under Code
and if no objection, it is allowed – Code
of debt occurs to satisfy claims - §502(b)(1)
interest on unsecured debt - §502(b)(2)
of claim to sec and unsec portions done under - Code
Property under Ch
typically sells debtors eq in property subject to SC’s lien
some conditions may sell free & clear of liens - §363(f)
11 and 13
of plan dischrg old debt and subst new ones - Code
occurs when debtor makes all payments under plan
- § 1141(d)(5) and 1328(a)
entitles creditor to eq val of collateral but doesn’t have to
discounting of future payments use prime plus rate
V. SCS Credit Corp 24
prevents creditors from collecting though debt still exists - Code
for Attaching Art 9 Security Interests
requirements – §
Either collateral must be in possession of the SC (§
must have “authenticated a sec agmnt which contains a
description of the collateral”
agreements = auth records [incl email] - §9-102(a)(69)
electronic recording systems - §9-203(b)(3)
of sec agmnt does NOT need to be in formal wording- In
re Schwalb 136
doc” rule, sec agmnt made from several docs - In
re Ace Lumber Supply 138
stmnt alone is NOT enough
include docs incorp by ref even though non-existing at signing
of sec agrment - In
Longtree v. Resource Control 28
cts allow blank descript - In
re Allen 28
but not other cts - In
re Hewn 28
Value must have been given AND
very broadly in §
1-204 ; Past
considtn ok to sec already outstanding debt owed to creditor
Debtor must have rights in the collateral.
of good acqs all title which transferor had or had power to
transfer “- §2-403(1)
interst enforceable only at times the debtor’s rights vest
be liberally interpreted and must at a minimum “do the job
assigned” - §
of acceptable descript - §
listing, categ, type def in UCCC, quant, comput/allocational
formula or procedure, any other method if ID of collateral is
NOT Ok -
of parties obj expressed is supposed to control
terms may be too vague and broad to suff identify a
refrigerator, test is whether this would give notice to a third
party – In
re Shirel 29
can NOT use type to describe, comm tort claim, & for
consumer trxn – consumer goods, sec entitlement, sec accnt, or
acquired property §9-204(b)–
for two kinds of collateral
Consumer goods acq >10d after SC gives value
Commercial tort claims
“all inventory” will include after –acq but NOT equally
applicable to equip b/c of the lower turnover - Stoumbos
v. Klimnik 31
entire transxn circumstances to get meaning
any obligtn secured if parties make intention clear
Estate Mortgages – controlled by separate law
description such as all grantor’s prop in county OK
must execute separate mortgage doc each time debtor adds land BUT
can use after-acq title cl to get around.
states restrict future-adv dragnet cl – req strict proof of
intent, indic max amount sec, & restrict sec that can’t be
reduced to $
Tracing for Proceeds, Products
all proceeds of proceeds are included “rights arising out of
re Wiersman 32; proceeds
of proceeds are “proceeds” §9-102(a)(12)
covered/auto attachmnt even if not explicit in contract - §§
to “identifiable” -
intermed balance R.
- In re Oriental Rug 34
of collateral w/ express auth by SC in sec agrmnt or later or
implied by circumstnces, buyer takes free of sec intrst -
transfer by δ under §9-401
will allow SC interst in collateral to continue.
deposit acnnt funds, transferee takes free of sec intrst unless
collude w/ δ- §
is NOT liable for the sec debt unless he assumes debt -
prop cl are NOT valid.
soltn. but limit to proceeds, product, offspring, rents or
profts – no addit’l collteral- §552(b)
remedy lim to invtmnt costs and NOT profit from sale In
re Cafeteria Operators LP 35
Eqty of the case solution, where Ct makes own formula –
“Net proceeds” solution – expens deducted from rent to
calc $ collateral- In
re Gunnison Ctr Aptm 37
collateral req hearing before δ can use $ - §363(c)(2)
can grant lien against other property of the estate
on What can be collateral.
estate and insurance are EXCLD- §
prop cl to consumr gd limitd unless δ gets rights w/in 10 days
after SC gives value - §9-204(b)
lists unfair trade practices - 16
CFR 444, Case Notes p 38
9 does NOT apply to an assignment of wages –§9-109(d)(3)
income can be encumbered but they have an out via Code
provsn prevents pension rights to be sec collatrl – In
split on whether licenses can serve as collateral
to attch sec interest in liquor license b/c state legsl says NOT
prop – Jackson
look at nature of transaxn, consider SC as taking lien in
inherent val of franchise or gen intangibles - In
re SRJ Enterp 39
via st laws and contracts to restrict granting of sec interst in
gen intagibles gen NOT effctv- §9-408
state defines license NOT as property, then this exemption is not
applicable - In
re Chris-Don 40
Acceleration and Cure under St Law
law treats installments as separate obligations so contracts will
have accel cls.
cl only effect if SC believes in good faith that payment/perf
impaired - J.R.
Hald Contracting 42
behvr of parties may suggest waiver by estoppel - J.R.
Hald Contracting 42
to cure – debtor can pay only arrears before acceleration - Old
Republic Insurance Co v. Lee 43
interp to incl. implied oblig of gd faith [refusl to adv funds w/o
notice not OK]- KMC
co v. Irving Trust 43
conduct” means breach plus some advantage taking – this does
not include enforcing contracts to the letter. “good faith”
applies to conduct NOT expressly reserved in doc - Kham
& Nate’s Shoes No 2. v. First Bank of Whiting 44
Art I provides that “good faith” is “honesty in fact and the
observance of reas. commercial std of fair dealing” – Comment
where good-faith is used as a sword
default, SC can get Ct order for replevin to repo, also can
Acceleration and Cure under the
of items in the bankruptcy estate
legal or equbl intrst of the δ in prop as of the commencement of
the case.” §541(a)(1)
allows δ to modify rights of SC and (b)(3)
allows δ to cure their defaults – In
re Moffett 44
Stage 1: Protection of defaulting Debtor Pending Reorganization
gives adeq protection to SC can usu use colltrl pending case–
State 2: Reinstatement and Cure
11 Payments can occur over a time that is “fair and equitable”
which provides that a class of claims is unimpaired
if debtor’s treatment of class under its plan complies w/ 4
debtor must cure any default that occurred before or after the
commencement of the bankruptcy case. Basically a lump sum
payment for missed payments at effective date of plan
plan MUST reinstate the maturity of that part of the claim that
remains outstanding after cure, as such maturity existed before
debtor MUST compensate holder of sec claim for any damages
incurred through reas reliance on breached repayment contract
plan must NOT otherwise alter legal, equitable, or contractual
rights to which claim entitles its holder.
class is unimpaired, holder of claims is class is deemed to
automatically vote for the plan §1126(f).
13 payments can only extend over period of the plan – see
“provide for the curing of any default w.in a reas time and
maintenance of payments while the case is pending on any .. sec
claim on which the last payment is due after the date on which
the final payment under the plan is due.”
Cure default that occurred before or after the commencement of
bankruptcy case but this can be cured “within a reas time.”
Does NOT need to be in a lump sum at effective date of plan but
also can NOT extend beyond period of the plan.
must reinstate maturity of the claim as such maturity existed
before such default.
no express requirement for damages compensation incurred as a
result of breach but Court looks at applicable nonbankruptcy law
to determine the amount necessary to cure. §1322(e).
can’t alter legal equitable or contractual rights to which the
holder is entitled.
prohibit modification of rights of holder of a claim secured only
by sec interest in real property that is Debtor’s principal
residence. Reinstatement is the only way to save the family
NOT have to make advnce during or after bankruptcy- even
contracted to - §365(c)(2).
- By Filing
Prop Filing system - §9-308(a)
attachment, and all applcbl req of §9-310
share only in the order lien priority regardless of any competing
equities - Peerless
Packing Co v. Malone & Hyde Inc
systems are complicated – each county has real estate and Art 9
database - UCC
have system for patents, copyrights, plans and ships
fed sys for comprehensiv– copyright filing maybe recorded (C)
office - National
Peregrine 54 but
CONTRA In re Wold Aux Power Co 55
unanimous that for trademarks, fed filing is NOT suff to perfect
in Patents done via state filing even though register is federal
re Pasteurized Eggs 55
the Patent Act only deals w/ filings w/ respect to transfer in
ownership but NOT w/ regard to security interests.
components – Financing statmnts, Index
§ 9-519(c) mandates
filing by name, search system
name to use –
an indiv or ptnrshp, fin stmnt MUST provide the “individual or
org name of δ” - §9-503(a)(4).
use legal name - In
re. Kinderknect 57
use legal name; §
trade name neither nec nor suff.
the δ’s name on fin stmnt - if fails §9-503(a),
then seriously misleading §9-506(b)
shows up in search logic even if fails §9-503(a),
it is not misleading - §9-506(c)
for Effectv filing – Rs whether a fin stmnt has been filed -
of SC by δ needed under §9-509(a)(1);
signing sec agmnt is auth -
effective filing need the following -
Debtor name 2. SC name 3. Indic collateral covered.
errors/omissions oK unless seriously misleading §9-506(a).
descrip that renders the collateral “objtvly determinable”
– ref descript to the ACSC records in another gov office was
obtain access to records of dept store and exam those records
view that filer’s descript can req a searcher to make
inquiry of the secured creditor. “need not specify the
property encumbered by a SC’s lean but need merely notify
subsequent creditors that a lien may exist and that further
inquiry is necessary to disclose the complete state of
listed at an wrong loctn was OK b/c the searcher knew where SC
was located and is required to make further inquiry.
does NOT lose its secured status just because the description
has an inaccurate serial number BUT in this case, there MUST
be additional info that provides a “key” to the
collateral’s identity. If descript clearly does NOT incl
collateral of interest, searcher does NOT need to inq further
re Pickle Logging 61
be super general- can incorporate all of δ personal
refuses to accept unless it has 1&2 AND items below -
5. Δ mailbox -516(b)(5)(A)
Indic of δ as indiv or corp. -516(b)(5)(B)
debtor is an org, §9-516(b)(5)(C)
also req rejection unless also contains:
Type of organization. 8. Δ jurisdiction of org 9. Δ org
filing office Acceptance or Rejection
accepted filings it is still effective. - §9-338.
against lien creditors, bnkrpcy trustees, etc but NOT against
purchasers giving val and acting in reas reliance on wrong info
be the basis for subordination
rejected filings, underlying sec interest suff to defeat lien
creditors but NOT against purchasers giving val and acting in
reas reliance on missing info - §9-516(d).
Methods to Pefect
as perfection for “neg doc, goods, instrmts, $ or tangible
chattel paper.” §9-310(b)(6)
possess thru an agent as well §9-313(c)];
applies & contin only while SC has possn - §9-313
Cash is collateral, possession is ONLY way to perfct interst -
and instr have a narrow def under §9-102(a)(47)
mode for instrmnt , tangible chattel paper, neg doc and cert sec
still fully effctv against lien creditors and trustees in
doc applies to rights to A/R and gen intangibles embodied in a
as perfection for “deposit accnt, e-chattel paper, invstmnt prop,
letter of credit” - §9-310(b)(8).
mode of perfectn for invest prop, e-chattel paper
9-314, -328, -330
accounts are simply book entries that record ownership and the
securities in the accounts are called “securities entitlements”
– Check Art
to see exact type.
for deposit accnt, letter-of-credit rights - §
account” includes bnk account EXCLUDES CDs & A/R-
excludes assignment of deposit account in a consumer trxn -
by : 1. SC is bank at which accnt maintained 2. Debtor SC bank
auth a record instructing bank to comply w/ SC instruct for
accnt 3. SC becomes bank “custmer” by put account in its
name. - §9-104
sec account by taking control of all securities in the account -
details on Case
Perfection – List of elig transactions set forth in §9-309;
Money Sec Intrst (PMSI) ONLY for consumer goods- UCC
or retained by seller of collateral to secure all or part of its
purchase price or (2)
taken by a person who by making advances or incurring an
obligation gives value to enable the debtor to acquire rights in
or the use of collateral if such value is in fact so used.
exp item yachts qual as consumr gds if 1er used as such -
Nat’l Bank v. Lockovich 63
& Payment intangibles - §9-309(2)
NOT be signfcnt portion of accnt/paymnt intangible in one SC.
from ART 9
insu policy/claims §9-109(d)(8)
real estate interests (11)
and non-commercial tort claims (12);
tort see Bluxome
Street Assoc v. Fireman’s Fund Ins 64
Land and Fixtures Recording systems
Prop Record Sys- Each county maintains a real estate recording
doc evdnc liens + deeds - Not self-purging so δ name errors not
create need: 1. Mortg doc 2. Δ signature and maybe 3. descript of
the debt secured and the collateral
- Permanent part of buildings so UCC filing basically useless -
->“fixtures” when “become so rel to particular real prop
that an interest in them arises under real prop law.”
Fixture text is very complex and dep on state law
be done under real estate law of state - §9-334(b).
– Perf In fixtures of a Transmitting Utility
with sec of state - §9-501(b).incl
radio and tv stations - §9-102(a)(80).
can do by personal prop filing but effect v limtd - §9-501(a)(2).
Pers prop intrst in real prop
create a corporation to own the property, stock covered by Art 9
of auth as to whether lessee’s grant of sec interst in rights
under lease is under Art 9 – §9-109(d)(11),
re Assoc Air Services68
applies) , versus In
re Hodge Forest Industries68
(UCC does not apply b/c excluded by §9-109(a)(1)).
interest in mortgage is a sec interst in a note – pers prop.
sec intrst to right of pay sec via sec intrst in real propis =
attchmnt of a sec intrst in mortgage- UCC
for assessing perfection - In
re Cliff’s Ridge Skiing Corp 65
use st law to assess whether prop is fixture
MI, there is a three part test (1) is prop annex or attached to
the realty (2) is attached prop adapted or applied to use of the
realty and (3) is it intended that the prop will be permanently
attached to the realty?
Check if can use real estate sys or UCC sys. For UCC
statement must (6) state covers this type of clltrl(7) recite it
is to be recorded in the real estate records (8) contain a
descrip of the real estate where the fixtures are located or to
be located, which is sufficient to provide constructive notice
under state real estate mortgage law and (9) if debtor does not
have an interest of record in the real estate, the owner of
record must be disclosed §9-502(b)(4).
see if Finc stment filed where mortgage recorded §9-501(a)(1)(B).
this happens, a “fixture filing” occurs - §9-102(a)(40).
After a proper fixture filing, a SC has perfected interest
a fixture filing from date of recordation provided four spec req
are met including that mortgage describes goods by “item or
has priorities resolving conflicts between real estate law and
fixture filing req “statement indic types or descr items of
Complying mortage filed in lieu of a financing statement must
also contain, among others, a description of goods “by item or
req that whether filing stmnt or mortgage used, info must be the
same, also allows valid sec interest in fixtures to be created
under state real estate law §9-334(b).
UCC req of adeq description ONLY applies to creation and
perfection of personal prop interest in fixtures under UCC but
NOT under real estate law.
sure to check st law on classification -
In re Renaud,
where legislature specifically made notation on certificate of
title on mobile home the exclusive method of perf interst.
Pers prop intrst in real prop
create a corporation to own the property, stock covered by Art 9
Perfctn thru change name, ident, use - §9-507
sets gen r that fin stmnt still effctiv even tho srsly misleading
perfctn impossible due to δ axn, intrst may be deemed perfected.
Bank of AK v. Erickson 75
in δ Name
stmnt remains effctv for : - §9-507(c)
collateral owned by δ at name change (2) colltrl acq by δ in the
first 4 mo. after the chnge
collateral to new δ [§9-102(a)(56)]
, fin stmnt still effctv under §9-507(a),
indicates that new δ will be bound by same terms that old δ was
bound by in the sec agmnt.
new δ’s name diff from δ’s name on finc stmnt, §9-508(b)
same rules of §9-507(c)
Chng affecting descript of collatrl
1– chngs circum that did NOT cntrl the place of filing, still
effctv even if srsly mislead - §9-507(b)
2– chng circum sufficient to affect the method of perfection of
initial filing, NOT effctv- - §9-311(b)
Exchange of the collateral
Barter transactions (NONCASH) –
0 – procds in decrip of colltrl in the already-filed fin stmnt.
it attchs no axn req- §9-203(f)
1- SC still perfected w/o new filing - §9-315(d)(1).
2 – SC must refile w/in 20 days from δ gets proceeds for
continual perfctn. §9-315(d)(3).
extent Art 9 governs, SC does NOT need any new auth to file
Collateral to Cash Proceeds to Noncash proceeds
SC can trace its value, sec interst reaches new prop as procds of
procds - §9-102(a)(12)
0 chan– orig fiing remains efftv to cover goods of same
1– Refile w/in 20d of δ receipt of non-$ collatrl for
continuous perfctn- §9-315(d)(3).
2 – treated like Type 1 change §9-315(d)(3).
Collateral to Cash Proceeds
has continuous perpetual perfection in identifiable cash
Perfection through relocation of debtor or collateral
file and search in §§9-301
to -307 – governs
perfection by possesn and cntrl & filing.
filers and searchers should go to the sec of state’s office.
location of collateral
sec interest - §9-301(2)
overrides and law of jurisd which collateral is located applies.
doc, goods, instrmnt, $, tangible chattle paper, then law of
location govrns - §9-301(3)
the Location of the debtor
sec intrst general rule via §9-301(1)
- while δ located in a state, local law gov perf
law of state applies, §9-501(a)(2)
req filie w/ st wide filling office for non-real estate colltrl
has more provision specifying locations of particular kinds of
δ located at indiv “principal residence”; not defined in
UCC but used in tax and bankruptcy to ref a building NOT a
jurisd. No Need to currently live in building to qual as
more than mere physical presence and something less than
org organized under law of stateis
located in that state - §9-307(e)
- “org organized solely under the law of one state of the US
and as to which the State or the US must maintain a public
record showing the org to have been organized - §9-102(a)(70)
keep corp records w/ its UCC debt records; reduced filing
which are NOT incorp - δ at place of business if only one
and at CEO office if >1 loction §9-307(b)(3)*.*D.C.
if this jurisd NOT req public filing to obtain priority.
of business” = “place where debtor conducts its affairs “
when filing against mobile goods and intangible prop under
formal Ar 9, location corp for purposes of diversity
jurisdiction in fed courts, determining proper venue for
corporate bankruptcies. – Nerve
is used here – organization is located in place from which it
is managed regardless of location of its operations.
the location of the collateral
file fixture filng in “office design for filing or recording of
a mortg on the real prop” to which fixture attached
filing location suitable
spec. law applicable to the perf and priority of sec interest in
deposit accounts (law of bank jurisd apply), invstmt prop , and
letters of credit (law of issuer/nominated person jurisd
applies); can only be by control of collateral - §9-314.
Perfection thru Relocation of the Debtor
indiv δ chg principal res, SC has 4 mo to file in destination
state - §9-316(a)(2).
For principal resdnce, δ MUST phys be in state sometimes; if
sometimes phys in mult states, intentions determ
makes orig filing ineffective against purchasers of collateral
for value §9-316(b);
but still effvtv against LC and Bnkr Trustee for 4 mo period but
NOT after that.
regtsr org , SC has 1 yr to discover the merger and perfect in
destin st- §9-316(a)(3)
of the Collateral
filing remains effctv under §9-507(a)
plus 1 yr grace period to discover transfer and perfect via filing
in destination state - §9-316(a)(3)
International Filing Systems -
Reg of Mobile Assets
Town Treaty, sec interest, leases and in some countries (NOT US),
other kinds of liens on airframes, aircraft engines, and
helicopters can be filed in International Registry.
29 (1)– reg intrst has priority over any other intrst reg later
and over unregistered interest.
Concept of Priority: State Law
Priority in Foreclosure – 2 principles
Absent contrary agmnt, any lien holder may foreclose while the
debtor is in default to him.
No lien holder is compelled to foreclose. But Sr lienholder can’t
refuse to forcls and prevent jr lienholder from exercising their
forecls rights- Frierson
v. United Farm Agency 84
procedr varies depending on the type of the lien – following is
Sale dischrgs the lien and all subordinate liens - §9-617(a).
it does NOT discharge prior liens.
Sale transfer the debtor’s interest in the collateral to the
purchase subject to all prior liens
Proceeds of sale first apply sale exp, then to lien, sub liens in
the order of their priority. §9-615(a).
Remaining surplus, if any, is paid to the debtor.
creditors do NOT share in the distribution, their remedy is to
levy on the surplus in the debtor’s hands.
Payment to lien holder from proceeds of sale reduces balance
owing. Lien holder is then entitled to judgment against the δ
for any deficieny unless statute provides otherwise.
above are NOT universal; Mortgages typically have priority over
statute carefully, Ct ya use is discretion to create equitbl
remedy if given powr in statute - Bank
Leumi Trust of NY v. Liggett82
Right to Possession between lien holders
cts req jr lien holders to surrender possession to senior lien
holders pending foreclosure-
Grocers Supply Co v. Intercity Investment Properties83;
Cmt 5 to §9-609.
Notice of Sale
SC MUST give notice to other lienholders who are easy to find
(those who properly filed) §9-611
9 - Competitions for Collateral
Against SC – The Basics
def to include “creditor who has acq a lien on prop involved by
attachment, levy or the like.”
jdmnt for $ damages (typcl for real propr)
in bankruptcy, is considrd LC w/ no debilt hist or knowledge&
has lien on all prop of the debtor at filing of case
gen found in state statutes (CHECK STATUTE)– use a first come
first served basis
awarded as of one of the following four dates
of levy – can be actual or constructive possn.
of delivery of the writ
of service of writ of garnishment
of recordation of judgment
Priority Between LC and SC
btwn LC and NON-purch money Art 9 SC dep on whether LC “becomes
a LC” before the SC either
perfects its SC or 2) files a financing stmnt and complies w/ §
9 def perfectn only after attchmnt & the “applcbl steps req
for perfection” have been taken- §9-308(a)
priority date is date on which he becomes a LC - §9-317(a)(2)
and demands are NOT enough to create rights in unsecured
creditors. Unsecured creditors MUST levy to become LC. - People
v. Green 86
between LC and mortgage Creditors
by real estate law.
usu to 1st
lien created ; reverses result only if failure to prfct offends
the st recording stat.
most states, judgment LC against real prop is NOT entitled to the
benefit of the recording statute.
principle is that liens rank in order which they become public.
prime LC’s intrst only if PMSI attaches before the creditor
obtains lien - §9-317(e)
SC has 20 d grace pd to perfect and defeat prior lien. Runs from
when δ gets colltrl
against SC – Future Advances
of Future Advances: Personal Prop
adv priority over the LC provided creditor making the adv NOT know
of the lien. UCC
future adv w/in 45 d after lien’s creation is entitled to
priority regardless of SC’s knowledge.
to commitment entered into w/o knwldg of the lien”
is protected - §9-323(b)(2)
Priority of Nonadvances [collection costs. attorneys fees, etc]:
in orig fin agmnt to reimburse fees gives ref back to orig agrmnt
when value is extended so restrctn imposed by §9-323(b)(2)
Imports v. Exch Nat’l Bank of Chicago 88
Priority of Future Advances and Nonadvances: Real Property
more tolerant of future adv made after a LC perfects an interest
so long as w/in eq credit line -Shutze
v. Credithrift of America
481 – someCts
go against this case and only allow priority for mandatory loans
in Bankruptcy Against SC
Security Interest Can be Avoided as Preferential?
must meet each element of the subsection Code
a “transfer of an interest of the δ in prop” can be avoided
as a preference.
def broadly in Code
= “each mode, direct or indirect, absolute, or conditional,
in/voluntary, disposing of or parting w/ property or w/ an
interest in prop…”
or for the benefit of a creditor
for or on account of an antecedent debt.
δ solvent at transfer time, NOT avoidbl for that reason alone.
δ INsolvnt 90 d before filing. Creditor must affirm prove
preference period –
90 d for transfers to most creditors and 1 yr for inside
The Improvement test –
to be avoidable, transfer must have improved creditor’s
position, recovered more than under Ch 7 w/o making the transfer.
NOT avoid transfer intended to be a contemp exchng for new val and
in fact a subst contemp exchng - §547(c)(1)
does the “transfer” of a sec interest occur? Highly technical –
precise time is important b/c:
rule from Code
– transfer of sec interest is made when it is perfected
(remember δ needs to get rights in prop). Refers to state law.
rules for personal prop and real prop
prop perfected when too late for bona fide purchaser to acq a
and personal prop perfected when too late for LC to acq a
superior interest, which under §§9-317(a)(2)
is when it sec interest is “perfected” under Art 9 or such
earlier time that sec agreement is executed and a fin stmnt is
to avoidance : A/R
and Inv - §547(c)(5);
b/c of attchmnt timing
a safe harbor for sec interest in A/R and inventory for inventory
A/R and inventory as a single item of collateral – only
increase in value of A/R and inv as a whole that are > the
increase, if any, in the SC claim can be pref avoided.
*basically if the inventory SC gets a better recovery, then that
can transfer can be voided.
re Ebbler, Furniture and Appliances92
1- determ amnt of loan outstanding 90 d before filing and
“value” of the collateral on that day. Difference between
figures is tallied
2 – the same calcs are made as of the date of the filing
there is a reduction during 90 d period of amt by which
initially existing debt exceeded sec, then a preference for
by mix of state and fed law.
allows if SC perfects its sec interest w/in 30 d after the
interest takes effect between δ and SC, the interest is deemed
perfected as of the time it took effect between δ and SC under
which is the broadest of the exceptions.
a grace period for perfection of a PMSI.
to that same SC protection against preference avoidance.
32: Secured Creditors Against Secured Creditors: The Basics
Basic Rule: first to File or Perfect - §9-322(a)(1)
sec intrst perfctd angst transferee subord to that perf against
transferor - §9-325(a)(1)/(2)
of Future Advances
fin stmnt “covers the collateral” all adv have priority as of
the filing of the fin stment –§9-322(a)(1);
validates filing of sec interest before attachment.
lenders can protect themselves by contracting with 1st
in After-Acq Property
lender’s priority dates from the time of orig fin smnt filing -
Genrl (NOT invntry) - priority over cnflict SC if perfected ≤20
d aftr δ obtain - §9-324(a)
than one creditor may have a valid PMSI in the same collateral
seller’s PMSI priority over $-lender PMSI( $ used to buy equip
from another party).
both lenders, §9-314(g)(2)
reverts to the “race” scheme of §9-322(a)
in inventory - *20 d grace period of §9-324(a)
rules which allow PMSI priority only in the conditions below:
Purchase money financer MUST perfect no later than the time δ
gets possession AND
Must give adv notice to the inv lender that it expects to acq a
PMSI in the inventory. To give this notice, Purchase money
lender first searches filing for names and addresses of all SC
w/ a filing against inventory of the type it plans to sell. Then
sends notice to each of the inventory lenders. Like financing
stmnt, notice expires at end of 5 yrs.
have purch-money priorty over compete sec intrst perf by an
earlier filing against δ §9-324(a)
purch-money status in inv flows ONLY to chattel paper,
instruments and cash proceeds. §9-324(b)<-this
is itself limited by §§9-327,
-330(a) & (d).
in Comingled Inventory - sec interest continues in product or mass
more than one sec interest attaches interest rank equally and
share in proportion to total cost.
installed in a machine it is an accession and §9-335
will apply and SC priority over later-perfctd intrst in whole.
may be sevrly impaired by §9-335(e),
SC w/ priority over the accession-secured party to prevent
removal of accession from whole.
33: Priority in Land and Fixtures
against Mortgage – These are merely DEFAULT rules
Statute – Rules of Priority
embedded in statute gov recording and specify its effect EXCEPT
r. gov priority among unrecorded mortgages
recording stat protect ONLY good faith purchasers for value
must be more than nominal consideration & be voluntary
states recognize some kind of priority for purchase-money
Liens against Mortgages
rules btwn jdmnt lien and mortgage are similar to those gov
priority between mortgages.
jdmnt both creates and perfects the judgment lien.
recording statue changes result, first created wins; St law
varies a lot on this
Lien against Construction Mortgages – statutory in all 50 states
is the lien that the construction/landscaping people get on prop
to secure their payment
assoc w/ construction BUT many state stat provide liens for
anyone improving real property
of Mech Liens
btwn construct (priority date of commencement of construction)
from casual alteration or repair of a building (priority as of
recording the claim of lien) - In
re Skyline Properties Inc95
of the visible commencement
upon the ground of the work - PA
determ if “erection and construct” or “alterations or
repairs” see whether a substantial change to existing structure
has occurs such that a 3rd
party would be on notice that potential lines could exist
date of mech lien is date of visibl work on land, not just
surveying - Ketchum.
Konkel, Barrett, Nickel & Austin v. Heritage Mountain
of Art 9 Fixture Filings - §9-334.
Priority of Fixtures incorporated during construction
btwn fixture filing made during construction (encumbers the whole
prop) and mech lien that arises during same period (encumbers
only fixtures described in it) is important.
9 sec intrst has priority as of the time the fixture filing is
made - §9-334(h).
interest will be subordinate to construction mortgage even if
the sec interst is a PMSI and the mortgage is NOT a purchase
money mortgage - §§9-334(h)
over construction loan can ONLY happen if First bank agrees to
subordinate – §9-339.
Priority in Fixture incorporation w/o construction
rule is priority is according to first to record in real estate
record system - §§9-334(c)
Fixture filing has priority over mortgages if δ has right
under mortgage to remove fixtures
Fixture filing will have priority over mortgages if PMSI in
goods affixed after the mortgage is in place and the fixture
filing is filed w/in 20 d after the goods become fixtures -
financier may seek mortgagee’s consent to sec interest -
fixture-SC has priority over owners and emcumbrancers of real
estate, can remove the fixture §604(c);
otherwise must hope for liquidation of collateral
in Real Prop Based on Personal Prop filing – auth by §9-501(a)(2)
effect against later mortgagee or fixture filer filing in the real
estate recording system §9-334(e)(1)
priority over lien creditors including the trustee in bankruptcy
fully effective against certain types of fixtures (as defined
under real estate law) - §9-334(e)(2)
confers priority over later fixture filings against the property
of After-Acq Property Cl -> §9-203(b)(2)
does NOT req debtor be the owner of collateral in order to grant a
valid sec interst in it. Debtor only needs to have “rights in
Rs. governing title to personal prop
– outright thief obtains no title to the property and can
tru owner entrusts to person who then sells as his own, can pass
good title to buyer in ord course of bus -§2-403(2);
owner who loses car in transaction of purchase loses to 3rd
party buyer, even if defrauded.
intermediate buyer has a voidable title but can pass off a good
title to a good faith purchaser for value. - §2-403(1);
governing sec intrst in personal prop
SC are purchasers, even for after-acq property
“value” is loosely defined as “any consideration sufficient
to support a simple contract - §1-204
of good faith purchaser covered by §2-403.
Against Inventory-Secured Lenders
typically extend credit in the form of a float.
typically unsecured creditors if δ defaults.
weapons against the After-acquired property cl
PMSI – but many lenders prevent debtors from granting PMSIs
Retention of Title
NOT get tripped on a transaction that §2-401(1)
creates a sec trxn
recognizes 3 types of consignments
Group excluded from Art 9 coverage ; §9-109(a)(4)
excepts them from the definition of “consignment” under
consignees do business under name of consignor (largely
small consignments, def where no single delivery of goods
exceeded $100k in value
consignments by consumers
any other consignment that doesn’t create a security
some of the consignments are regulated by laws other than Art
Consignment that is a disguised security interest -
to see if consignee is entitled to return the goods – if so,
it is NOT a sec interest.
“consignments” under §9-102(a)(20)
allows creditors of consignee to acq judicial liens and sec
interests in the good.
Sellers’ Right of Reclamation
buyer gets goods while insolv, seller can reclaim them but
this is subject to rights of buyer’s SC attach to goods while
in the hands of the buyer.
Methods below usu don’t work
version in §2-702(2),
where sellers’ demand may be made agnst any insolv buyer and
MUST be made w/in 10 d buyer gets goods; does NOT need to be in
can enforce contract to the letter as good faith buyer
if w/in clear terms of sec agmnt and expectn of parties -
In re M. Paolella & Sons 99
– must be made w/in 45 days of δ gets goods and NOT later
than 20 d after start of bankruptcy
to reclaim under Code
lacks even the good faith requirement
present in both state and bankruptcy law but only the bankruptcy
eq subord is an extraord departure from the usual prncpl of
equality of distrib & pref for SCs - In
re M. Paolella & Sons99
prong test for applying Code
which codified equitable subordination practices
claimant must have engaged in some sort of inequitable conduct
by either (1) fraud, illegality, or fiduc breach (2) undercap
(3) claimant’s use of debtor as mere instrumentality or
misconduct MUST have resulted in injury to creditors or
conferred an unfair advantage
eq subordination must NOT be inconsistent with the provisions
of the Bankruptcy Act.
further distinguish between insider and non-insider claimants
of fact and subject to review under the “clearly erroneous”
def by 11
but court look beyond stat def and exam whether party has
attain fiduciary status by exercising virtually complete
control of δ
did NOT state std for insiders, but less stringent than
“gross or egregious.”
non-insider cases, degree of misconduct “gross
SC initiates of encourages trsaxn between δ and supplies of
goods/services and benefits from goods/services supplied to
produce such debts, equitable principles req that the SC
compensate even an unsec creditor to avoid being unjustly
enriched. Equitable claim strongest when goods or services are
necessary to preserve the security - Ninth
District Production Credit Assoc v. Ed Duggan 102
36: Buyers Against SC
of Personal property
rule - buyers take subject to pre-existing sec interests §9-201
sec itnerst continues in collateral notwithstanding sale.”
- buying is in the ordinary course only if “from persn in bus
of selling goods of that kind”
Buyer’s knowledge of sec intrest not important unless know it
will violate sec agmnt-
takes item free only of “ a sec interest created by [its]
go two levels up to a previous SC.
Products exception -
provides parallel protection under 7
– but exceptions to that in (e)
provide farm lenders w/ various ways of notifying prospective
buyers of their sec interests. The sec interest of lenders who
do give notice continue in the collateral notwithstanding sale.
does a buyer become a buyer (for future goods not yet produced)?
retail purchasers, as of date goods identified-
Daniel v. Bank of Hayward103
case, which established that purchasers became buyers when title
to goods is taken) ,
special rights when goods identified.
customer buyers the right to recover from the seller goods that
have been identified to the sale contract. Does NOT apply to
business so recov is problematic.
efforts to control titling doesn’t work as well - First
National Bank of El Camp v. Buss 104
of goods in the possession of the sec party
fabrics corp v. Deering Milliken104
OVRLD by §9-320(e)-Ruled
that buyer = buyer in ord course of business and Tanbro
therefore took free of banks sec interest, even tho bank, the
SC, possessed rugs
do not affect a sec interst in goods which SC possess under
9 expln that this section along w/ §9-317(b)
prevents a buyer of collateral from taking free of a sec
interest if the collateral is in the possession of the sec
party can posess through an agent so revision bad – KDsavis
say need public notice
The Buyer-Not-in the-ordinary-course exception - §9-323(d)
and (e) and
exemption. Buyer takes colltrl free only of unperfct sec intrst -
and (e) and
intrst does NOT continue in collateral if “sec party authorize
the disposition free of the sec interest”
does NOT depend on equities in favor of the buyer
auth can be implied - Gretna
State Ban k v. Cornbelt Livestock105
conditions imposed on δ by SC, must fulfill SC req to get
Capital v. EarthLink
other Cts say that only conditions w/in the buyer’s control
Consumer-to-Consumer Sale Exception : §9-320(b)
MUST be consumer goods in hands of seller before sale (b)
and consumer goods in hands of buyer after the sale (b)(3);
Exception also applies against PMSIs.
of Real Property
rule is first in time but Recording statutes may reverse results
37: Statutory LC Against SC
Variety of Statutory Liens in Personal Property
Artisans’ Liens – people skilled in some kind of trade,
craft, or art requiring manual dexterity
Garage Keepers’ Liens – commonly referred to as “mechanics’
Attorneys’ Charging and Retaining Lines
lien” attaches to clients’ recovery in an action against a
lien” attaches to docs and records that the client delivered to
the lawyer for use connection with the representation
Hospital lien – hospital treats on credit has lien agnst the
recovery in the negl action of the patient.
Landlord’s Lien –most state recognize a landlord’s lien in
some landlord-tenant contexts
commonly between landlord and tenant-farmer growing crops on the
prop, in most states against personal prop of tenant on the
premises but in others it extents against all personal property
of the debtor.
Dry Cleaners’ and Launderers’ lines – usually under general
artisans’ lien law
lien is typically used to determine the right to possession
lien is used to determine priority between competing claimants to
numerous and chaotic – just an absolute mess.
Art 9 applies to agricultural liens - §9-109(a)(2)
must file financing statements to perfect §9-310(a);
priority is at time of filing - §9-322(a)
the agricultural lien to prime other sec interests if the state
statute allows it to do so. But if case law is untested or is
inconsistent, Art 9 reverses it.
9 has two reqs for priming
agricultural lien holder MUST file financing statement
Art 9 strips priority from all agricultural liens that have
priority from a source other than the “statute creating the
agricultural lien” §9-322(g).
lien holder NOT entitled to purchase money status under §9-310
states cam enact Model Provisions for Production-Money
Priority to grant analogous protection - §§9-103A
Perishable Agricultural Commodities Act
imposes “statutory trust” that gives suppliers of
perishable agri commod, priority in payment even over SC of
- Royal Foods Co v. LR holdings107
you don’t filed you are unperfected and subordinate to
perfected SC, LC, Trustees in bankruptcy, and buyers -
-310(a), and 9-322(a).
Statutory liens in Bankruptcy
general, bankruptcy law gives effect to statutory liens
exceptions – Code§545
lien that becomes effective only after δ is in financial
difficulty – Code
lien that was at the time of the filing of the bankruptcy case,
not sufficiently perfected to be effective in the abscnce of
bankr against a hypothetical bona fide purchaser. - Code
statutory liens for rent and distress for rent - Code
trustee avoid a stat lien in bankr, lien is “preserv for the
benfit of estate” – Code
gets the rights of the holder of the avoided lien, including
Priority of Statutory Liens
the priority specified in the law that creates it.
types of rules governing priority between statutory lines and
gives priority based upon which is first in time
gives priority to statutory lien regardless of order in which
give priority to sec interest regardless of order in which liens
interests usually dated as of perfection; stat liens dated as
time lienholder gives value, contracts to give value, files a
claim of lien, or takes some other action.
states follow first in time, first in right regarding landlord’s
liens but some states give priority to landlord regardless of
order priorities arise, some give rights to SC regardless of
allow avoidance of landlord’s liens in bankruptcy – Code
get around this, landlords now grant themselves Art 9 interest
in stuff on the property.
address priority between sec interest and liens arising by
operation of law.
no lien, just determine relative priority of a statutory lien
only if statute or rule of law creating line does not
rule that lien by operation of law has priority over even an
earlier perfected Art 9 sec interest BUT applies only to limited
liens, which must be
in favor of person who furnishes services or materials in the
ordinary course of business
for the purchase price of services and materials
on goods in the possession of the lien holder.
holder MUSt have furnished the services or materials “w/
respect to the goods” against which the lien holder claims,
essentially possessory artisans’ liens.
liens NOT affected and are excluded from coverage of Art 9 by
interp statute that gives wage
claimants a lien, not merely a preferred claim and moreover sets
forth no exclusion or limitations
- Myzer v. Emark Corp108
Statutory Liens as a Challenge to the First-in-time rule
of particular statutory lines changes from state to state.
Secured Creditor Responses to Statutory Lien priority
Covenants – pretty much just adds alternative of unsecured debt
stat liens that have priority over earlier perf sec interest are
relatively small and predictable- i.e. Real prop taxes
lines that prime prior perfected mortgages and security interests
can arise in substantial amounts in favor of creditors who have
no reasons to give waivers. See NJ
cleanup and removal of Hazardous Substances