I. Definitions
a. After-Acquired Property Clause: grants the secured party an interest in property that the debtor will obtain in the future. “…and hereinafter acquired.”
b. Attachment: steps legally required to give the secured party a security interest in the collateral that is effective ...
I. Definitions
a. After-Acquired Property Clause: grants the secured party an interest in property that the debtor
Page will obtain in the future. “…and hereinafter acquired.”
|1 b. Attachment: steps legally required to give the secured party a security interest in the collateral that
is effective as against the debtor. A creditor is not a secured creditor until attachment!
c. Collateral: property subject to a security interest. May be repossessed by the secured party upon
default.
d. Debtor: the person who owes money or performance.
e. Financer-Financed PMSI: (1) loan to a debtor that (2) enables the debtor to buy specific collateral,
(3) the creditor takes a security interest in the specific collateral, and (4) the credit or loan is actually
used to acquire the specific collateral.
f. Financing Statement: document generally used to provide public notice of the security interest, and
thereby perfect the security interest.
g. Future Advancement Clause: preserves the creditors right to loan more money [or credit] to the
debtor within executing a new security agreement.
h. Perfection: steps legally required to give the secured party an interest in the collateral that is
effective as against the world. Gives public notice to the world of creditor’s security interest.
i. Proceeds: whatever is received upon the sale, exchange, collection, or other disposition of collateral
or proceeds. Includes “any claims arising out of damage to collateral.”
j. Secured Agreement: the agreement between the debtor and the secured party that creates the
security interest.
k. Secured Party: person to whom money is owed, who also has a security interest in collateral.
l. Security Interest: dormant property interest attached to the collateral. It is worthless until the
debtor defaults on payments, and then it springs to life.
m. Seller-Financed PMSI: secured party (1) sells debtor collateral on credit and (2) retains a security
interest in the item sold.
II. Types of Collateral: Debtor-Perspective Test – how is the debtor using the collateral?
a. Goods: “Tangible, moveable, personal property.”
i. Consumer Goods: used or bought for use primarily for personal, family, or household
purposes.
ii. Equipment: used or bought for use primarily in business. [fall back category!]
iii. Farm Products: crops, livestock, or supplies used or produced in farming operations (or
products thereof). [Look for a farmer!]
iv. Inventory: held by a person who holds them for sale or lease
1. Or to be furnished under service contracts; or
2. Materials used or consumed in a business in a short period of time.
b. Intangibles
i. Instruments: negotiable instruments and any other writing which evidences a right to the
payment of a monetary obligation. [promissory note]
ii. Documents: product which, in the regular course of business, is treated as evidencing that
the person in possession of it is entitled to receive, hold, and dispose of the document and the
goods it covers. [bill of lading]
iii. Chattel Paper: record or records which evidence both a monetary obligation and a security
interest in or a lease of specific goods. [promissory note + security interest]
iv. Investment Property: includes items such as stocks, bonds, mutual funds, and brokerage
accounts containing such items.
v. Accounts: right to payment (1) for goods, (2) for services. [accounts receivable]
vi. Deposit Accounts: an account maintained with a bank. Only applies to business deposit
accounts – not personal.
vii. Commercial Tort Claims: (1) A claim arising in tort with respect to which the claimant is an
organization; or (2) Where the claimant is an individual and the claim arose in the claimant’s
business or profession and does not include damages for personal injury or death.
viii. General Intangibles: any personal property not coming within the scope of the other
definitions. Usually intellectual property. [fall back category]
III. Scope of Article 9
a. Agricultural Liens: a statutory lien upon farm products to secure payment of an obligation for
providing goods or services or leasing real property to a debtor engaged in farming operations.
i. Effect: to require the lien holder to file a financing statement to protect its lien from
avoidance in the event of the debtor’s bankruptcy.
ii. §9-102(a)(5): “Agricultural Lien” means an interest in farm products:
1. Which secures payment or performance of an obligation for:
a. Goods or services furnished in connection with a debtor’s farming operation;
or
, SC: UCC Article 9: Secured Transactions 2023
b. Rent on real property leased by a debtor in connection with its farming
operation;
Page 2. Which is created by statute in favor of a person that:
|2 a. In the ordinary course of its business furnished goods or services to a debtor
in connection with a debtor’s farming operation; or
b. Leased real property to a debtor in connection with the debtor’s farming
operation; and
3. Whose effectiveness does not depend on the person’s possession of the personal
property.
b. Sale of Monetary Obligations: applies to sale of accounts, chattel paper, payment intangibles, or
promissory notes.
i. Effect: to require a buyer of a covered monetary obligation to perfect its interest in order to
establish priority over parties who subsequently receive a transfer of the obligation from the
debtor.
c. Consignments:
i. Common law: a transaction in which the owner of goods retains title to goods, but transfers
possession of the goods to a bailee for the purpose of sale.
ii. Article 9: a transaction in which a person delivers to a merchant for the purpose of sale and
the merchant deals in goods of that kind under a name other than that of the person making
delivery.
1. Excludes:
a. Deliveries to an auctioneer or to a merchant generally known by its creditors
to be substantially engaged in selling goods for others; and
b. Transactions in which the goods were consumer goods immediately prior to
the delivery.
iii. Mackela v. Bentley (S.C. App. 2005): Bentley was an automobile dealer, Automotive Finance
Corporation held a security interest on Bentley’s current and after acquired inventory of
automobiles. Mackela, a consumer, sought to sell his family car. Bentley agreed to allow
Mackela to place his car on Bentley’s lot, to show Mackela’s car, and receive offers to buy the
car. While Mackela’s car was on Bentley’s property, Bently defaulted on his obligations and
Automotive Finance took possession of all the vehicles on Bentley’s lot, including Mackela’s
car. Mackela sued Automotive finance claiming ownership of his car.
1. Automotive Finance argued that the transaction between Mackela and Bentley was a
consignment and was within the scope of Article 9. Mackela’s interest in the car was
an unperfected security interest and was subordinate to Automotive Finance’s
perfected security interest.
2. Court of Appeals rejected Automotive Finance’s argument:
a. The definition of a consignment excludes a transaction in which the goods
delivered were “consumer goods” immediately before the delivery.
b. Mackela’s car was used for family purposes, and therefore a consumer god.
3. Court held that Mackela was the owner of the car when Automotive Finance took
possession and Automotive Finance was liable to Mackela for conversion.
iv. In re Georgetown Steel Company, LLC (Bankr. 2004): Progress entered into an agreement
with Georgetown Steel labeled “Consignment Agreement,” in which Progress delivered hot
briquette iron to Georgetown. Progress would retain title to the iron that it delivered until
Georgetown used it in manufacturing steel products that it sold to customers. Progress did
not file a financing statement covering the iron it delivered to Georgetown. October 20,
Progress demanded reclamation of the unprocessed iron. Georgetown refused and on October
21, filed for relief under Chapter 11.
1. Georgetown argued that the transaction was a consignment and subject to Article 9.
Progress’ interest in the iron was an unperfected security interest voidable by the
debtor-in-possession asserting its status as a lien creditor under the “Strong arm”
clause of the Bankruptcy Code.
2. Progress argues that the transaction was not a consignment because Progress did not
deliver the iron to Georgetown “for the purpose of sale” and Georgetown was not a
merchant that “deals in goods of that kind.” Progress delivered the iron to
Georgetown for processing into steel and that Georgetown was in the business of
selling steel products, not unprocessed iron.
3. Court found that the transaction was a consignment.
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