Is the Transaction within the Scope of Article 9 - Assignment Example

USA COMMERCIAL LAW Name: Grade Course: Tutor’s Name: (09, August, 2010) USA Commercial Law A. IS THE TRANSACTION WITHIN THE SCOPE OF ARTICLE 9? 1. Subject Matter Covered by article 9 a.) Collateralized transaction in personal property or fixtures: Collateral means the property which is provided to guarantee the security as the interest or agricultural lien, this usually are personal property or fixtures which are owned by the debtor. Thus the transaction of the collateralized property or fixture thus means selling of the property which has been surrender to guarantee the interest when the debtor defaults payments. b.) Sales of receivables: This is the process of credit transaction which includes purchasing of chattel paper, promissory notes, account and intangible payment which collateral is placed for this transaction to be paid later (§ 9-323). c.) Deceptive consignments: Consignment is the process under which goods are conveyed to the consignee to be resold and paid by them. Thus deceptive consignment are good which are to be delivered but the lender bases their determination to expand credit and the information offered are deceptive not pertaining the account of the consignment. d.) Lease-purchase agreements: lease purchase agreement is that which simply imply to a from of agreement made to the purchaser where, they pay for a deposit which is mostly in terms of rent and this is the lease and they make an agreement on the date that the whole transaction would be made concerning the property so that the purchaser can own permanently the property this is mostly more like mortgage (U.C.C, 2005). Thus the deposit here is the security interest held by the person who is leasing out their property. 2. Exclusions from Article 9 a.) Rights governed by federal law: These are the rights under U.S federal laws concerning the validation of the designated law of each state which the debtor dwelling, occupation or executive office concerning any transaction Jurisdiction which involves no possessory security interest. b.) Real property (except fixtures): With the exception of the fixtures real property is owned estate by an individual and this only surmounts to land without any building just fast land. c.) Tort claims (except commercial tort claims): with the exception of commercial tort claims the term tort claims therefore is defined as litigation against any person (tortfeasor) who has committed any wrongful act through negligence or injury through failure to act to another’s wish and is rewarded through compensation. d.) Deposit accounts in consumer transactions: in consumer transaction deposit account is the security interest and is controlled under Section §9-104, §9-105, or §9-107, this is the security account which guarantees that the person holder of the account will be true to the transaction being executed. e.) Statutory liens: these are usually definite statutes which grant flaccid rights to keep property against the owners for security for the debt issued. f.) Wage assignments: This is usually referred to as the deduction which is cut from the person paycheck to facilitate a debt. B. CLASSIFY THE COLLATERAL 1. Goods: this is usually referred to us chattels which are delivered for sale or any other form of transaction. a.) Consumer goods: This term refers to goods which when purchased are mainly for personal, household or family functions. b.) Equipment: this are referred to items deliverable for sale and is distinguished from inventory, commercial goods or inventory. c.) Inventory: this term is referred to as list of raw materials and goods which are available and account in the stock. d.) Farm Products: this are all the item which are required by the debtor to engage in the operation of the farm this usually includes all the crop within the farm and their produce, all aquatic produces within the farm, all livestock within the farm and their offspring born or unborn, all the supplies which are to facilitate the operation of the farm and the products which are derived at after the framing operation either manufactured or not manufactured. 2. Semi-Tangible and Intangible Personal Property: personal property is defined as movable assets owned by an individual (s), thus personal property are classified in many variety of forms like tangible and intangible. Tangible personal property usually refers to as any form of chattel which can be generally moved and is not permanently attached to real property and can be touched and felt such as jewelry, vehicles and household goods. Intangible personal property is referred to as the personal chattels which cannot be moved neither felt nor touched, however their worth usually comprises high value which are essential for instrument of negotiations, securities and economic services (Ali.Org, 2010). a.) Instruments: usually this term is referred to as the financial security which is offered by the debtor to facilitate a debt; this includes chattel papers, bonds, negotiable documents and certificated securities. b.) Documents: this are instruments which are patterned to as marked up declaration which are used to rove facts as evidence which are usually delivered in established law form and are principally applied as witnesses testimony this includes title deeds, logbooks and promissory notes. c.) Chattel paper: Usually chattel paper takes many forms but the overall objective which summarizes the meaning of this medium is it characteristics are security instrument which are bound from monetary obligations. In other terms this is referred to as a form of evidential writing which facilitate both as security interest and monetary obligation for the lease of particular goods. This usually consist of negotiable instrument facilitated by a agreement of security, this form of evidence which constitute lease or security agreement through series of instrument or sole instrument thus this combined forms chattel papers. d.) Accounts: this is the arrangement in which facilitates the acceptance of the debtor financial assets as security or guarantee as for a certain monetary obligation or transaction and obtains this assets keeping them and maintaining the client discretion. This also couples the summarized record of credit transaction. e.) Deposit accounts: this is interest earning account that usually is used as instrument to facilitate monetary obligations, this will mostly ensure that the transaction is safe guarded and the holder will clear out their payment the withdrawal from this account and interests are usually limited (Leong, 2010). f.) Investment property: this is usually referred to as a form of security or assurance which is whether uncertified or certified, commodity account or contract. This also refers to any form of assets which is purchased for the intent of future appreciation or income generation through security for monetary obligation this includes property such as land, collectibles, securities and art works. g.) Commercial tort claims: under article 9 within the scope of commercial tort claims it is articulated that this are tort claims which are garnered by the organization or if fostered by an individual they must pertain within the parameter of individual business, however they does not capacitate personal injury affliction nor wrongful death. The commercial tort claims must arise from the business losses incurred during certain transaction or extended credits, defaulting of monetary obligation. h.) General intangibles: the definition of general intangible has been revised and many facets such as commercial tort and deposit account would all together have their own meaning, this then arises to the article 9 narrowing the meaning of general intangible to will also foster some property and thus this equates to any personal property which are identifiable assets and are non-monetary which possesses element which cannot be felt, observed or measured physically and their creation is generated and accumulated through time and efforts usually specialized as separate assets 3. Proceeds: under the revised article 9 the definition of proceeds has been broadened to mean any property which s acquired through sale or collection, exchange or collateral disposition of any form, lease, license, and collateral damage or loss rights C. HAS A SECURITY INTEREST BEEN CREATED, THAT IS, HAS “ATTACHMENT” OCCURRED? 1. Requirements of Attachment A property interest formed by contract or by operation of law over property to protect the performance of an obligation, in most cases the payment of a debt; giving the recipient of the security interest definite preferential rights in the disposition of secured assets have been created and given only after certain requirement have been met. Among the requirements for the creation of a security interest are that, the creditor should give value of the property issued as security (collateral) in monetary terms, a valid contract or security agreement signed and finally the debtor has the absolute right in the collateral legally (U.C.C, 2005). A security agreement between the creditor and a debtor is usually the first step in a security interest. The agreement must be recorded for evidence, signed by the debtor, it also opt to be authenticated, contain language showing the creation of the agreement, a description of the collateral is also given for identification purposes (§ 9-103). There are instances where the debtor already owns a property and pledges it as security. Therefore the debtor has the right to the collateral when acquiring a new property, this is necessary before he/she pledges such property as security for a debt. Thus it is possible to execute security agreement in advance and affect it immediately the buyer owns property. a.) Creditor gives value via bidding commitment to extend credit. This is done in whichever way that would constitute consideration in the contact to be signed. When the issue includes fixtures the security interest is given as value. Once the other two conditions are met, the security interest is said to attach. This gives the creditor a number of rights over the property as compared to others who are not secured. Perfection then follows (U.C.C, 2005). b.) There are other issues related to attachment, these are after-acquired property and future advance. The former concerns with real/personal property to which an individual obtains ownership only after falsely transferring the ownership to another person when indeed the seller didn’t had proper title. The later relates to issues that arise when a debtor approaches the lender for additional money. 2. Other attachment Issues a.) After-acquired property clause is not effective when consumer good and not accession was used as a additional security unless it’s rights is acquired by the debtor within ten days after the secured creditor has given the value or claimant is an organization or an individual with claim arising during the course of the claimants’ business or profession and or the claim do not include damage that is as a result of personal injury to or the death of an individual. This is the application of principle of equity in property law aimed at bringing justice during transactions (§ 9-103). b.) The agreement also times provide that collateral secures the creditor over future advances by the debtor and the former doesn’t need to file a new financing statement. Subsequent advance under the second agreement is perfected by the original financing statement. This thus means that a debtor who goes for an advance pursuant to a subsequent security agreement that covers the same collateral, the creditors has a perfected security interest not only for the original debt but also for the later advance. D. IS THE SECURITY INTEREST PROTECTED AGAINST OTHER CLAIMANTS, THAT IS, IS THE SECURITY INTEREST “PERFECTED”? It is worth noting that the act perfection which aims at adding steps to the security interest so that it is effective against a third party (such as liquidator) or ensure retention of its effectiveness in case the grantor of the security interest defaults is important in security interest. The three types of perfection principles are possession of the collateral, notice to the debtor or the fund holder and statutory registration or filling. Consequently, attachment which is the legal undertaking of which property is seized in ensuring that the judgment is satisfied is an element of perfection (§ 9-110). Perfection act govern security interests, agricultural liens, security interest in goods covered by certificate of deed, security interest in deposit accounts, investment property, letter -of- credit rights. Various security interest are perfected upon attachment and are a purchase-money security in consumer goods except as provided in section 9-311(b), an assignment of accounts that do not or in conjunction with others to the same assignee transfer outstanding accounts of the assignee, sale of a payment intangible, promissory note, an interest agreement of a bank arising from section 4-210, delivery of a financial asset under section 9-206(c), under section 2-401, 505, 711(3) or 2A-508(5) or till the debtor possesses the collateral among others (twelve in total) (§ 9-203). There are main methods of perfection are possession, filling financial statement, automatic permanent perfection, automatic temporary perfection, control, notation on a certificate of title. Perfection by possession 9-313 refers to actual physical possession of the collateral that may include money, negotiable documents, instruments or tangible chattel paper. The secured party cannot take possession of the collateral if it is a car, goods covered by a document such as warehouse receipt and when the property is not yet in possession of the debtor. Possession of collateral is also possible when the person in possession signs that he/she holds it for the secured party’s benefit (§ 9-110). Investment property, deposit accounts, letter-of-credit rights and or electronic chattel paper can be perfected by control (provision under section 9-104,105,106,107). All these can be done by physically delivered to the secured party or put in his/her name (investment property), being entitled to hold, the third party acquiring control; of the entitlement on behalf of the secured party or having the securities ageing to abide by the secured party (security entitlement), control over the deposit account (deposit account) (U.C.C, 2005) The secured party does not have control when the collateral is a certified security, if the collateral is uncertified security and or the collateral is a security entitlement. Automatic perfection can either be permanent or temporary and do not require the filling of financing statement. A PMSI in goods used or bought for use primarily for personal/family purpose is automatically perfected when it attaches. The exception is where a PMSI involving a car that need lien notation (§ 9-203). Some security interest are perfected only after filing financing statement (FS) is done in an office of secretary of state unless mineral, timber or fixtures are involved which is done in the county real estate office. FS usually last for five years although can be brought to termination earlier (by filing termination statement) and extend for another five years provided it is filed in the course of the last six months. Amendment can be done by addition or deletion of collateral, changing names of secured party and or debtor (U.C.C, 2005). It can be assigned by secured party of the record filing an amendment containing original financing statement number, name of assignor as well as name and address of the assignee. Similarly, perfection can be done through notification on a certificate of title; this is where a notice is to be given to a relevant third party owing the debt or holding the fund (U.C.C, 2005). Other perfection issues include proceeds which include property acquired after the sale, lease, license, exchange or deposition of the collateral, whatever is collected on or distribution on account of the collateral, rights due to the collateral, value of the collateral due to loss, nonconformity, interference with the use, defect or infringement of rights in or damage to the collateral. The issue involving multi-state transaction has also been covered as a perfection matter. Financing statement does provide names of debtors as well as secured parties. When various countries are in transaction, each is treated as a debtor separately (U.C.C, 2005). E. DETERMINE THE PERSONS WHO ARE MAKING CLAIMS TO THE COLLATERAL OTHER THAN THE DEBTOR AND APPLY PRIORITY RULES Other Creditors Unsecured -An unsecured creditor is a kind of individual or an institution that gives/lends money to an individual or an organization without obtaining any security from the person or institution its giving money, the security is required in order to provide the financial institutions with clear certainty that their money is in safe hands as the relevant documents will assure the creditor that the debtor is committed in offsetting the debt once it has been granted to him (§ 9-205). This kind of lending poses high chances of risks to the creditors as they will not have any asset to hold on incase the debtor decides not to offset the bill. Secured but unperfected- this is where an organization that lends the debtor with money have not taken all the necessary measures aimed at securing the financial assistance it will be providing to the lender, this may occur due to improper presentation of documents by the borrower, the lender may also fail to record the financial statements properly, the lender many also fail to discover any recent public records. If this occurs the lender will risk loosing the ability to fully claim for the amount of money it loaned the debtor therefore this poses a risk to the lender as he will not be able to secure the full amount it loaned the debtor (§ 9-210). Secured and perfected- this is a type of agreement between the debtor and creditor that is fully arranged and organized as the debtor provides the creditor with appropriate documentation, this ensures the creditor obtains valuable goods from the debtor prior giving them the loan, this is to assure the lender that incase the borrower fails to repay the loan the lender will sell the property in order to obtain the loan that the borrower have not been able to repay (Goodson, 2010). General rule: a) First to file- this is when a document belonging to the debtor is taken in and placed on record in a particular order. b) First to perfect- this is where the documents that belong to the debtor are taken in and in every bit and are correctly entered in order ensure that the debtor offers the appropriate security for the loan they will be granted and they will be able to repay once they are c given the loan. Exceptions PMSI in equipment or consumer goods-Purchase Money Security Interest in equipments is this is the kind of security that enables the lender of the money to check and obtain a product from the debtor from the seller, in this case the lender will obtain the property from the seller and own it on behalf of the debtor by obtaining the newly acquired item from the debtor till the day that the debtor will have offset the loan that was granted to him by the lender. PMSI in inventory-this is where the lender of the money will decide on the ways that he can be able to send money directly to the seller of a product as instructed by the debtor, this is after evaluating the product the debtor wants to purchase and then offset the debt of the debtor from the seller of the product, and owning or controlling the property on the behalf of the debtor as he offsets the debt offered to him by the lender before being given the property back. Investment property and deposit accounts-this is where a debtor is granted with the opportunity to purchase a product that will in the future provide the buyer with the opportunity invest in the property of his own liking , while deposit accounts is the lender will provide the buyer with the money that will enable him to purchase the property. Donee: Is a person who is on the end in order to benefit from a property or a gift that is not rightfully theirs, this is where the lender may decide to take a property of the debtor who cant offset he bill and sell it at a cheaper cost to anybody who is willing to offset the bill of the debtor. Purchaser: Is a person or party that purchases a property without the notice of the other party that claims to be he owner of the property, therefore in order for the person to acquire the property he/she must buy the property other than wait to be given the property as a beneficiary. Creditor unperfected- this is where the individual that is lending the money to a debtor has not made the correct documentations with the debtor that will shown some for of commitment incase the debtor will fail to offset the debt that he will have received from the lender, the lender will not be able recover his money incase the debtor fails to repay the debt as a result of poor documentation of the lender. Buyer in the ordinary course of business-this is an individual that is willing to obtain a product or service from a seller at a given cost, this individual may be obtaining this product for sale or even for final consumption or use. Consumer purchaser of consumer goods-this is the sturdy that is aimed at checking at the behaviors of the final consumers of a product, this sturdy enables the manufactures to know the things that the customers need in a product. Lien Creditors: is a person that is seen as the beneficiary of a property belonging from a debtor who has become bankrupt, the property was initially being held by the lender, and it has to be sold off in order to offset the debt the bankrupt debtor owed the lender. Statutory Mechanics Lien-this is a form security that is entitled to laborers, materials and other commodities that were used in order to improve the quality of a firm or a real property, it consist from any individual that helped in the realizing of the company’s success ranging from the professionals to manual laborers that helped the organizations attain the remarkable improvement and was dismissed by the owner of the property prior to being paid of the services and goods they offered in the success of the property (Federal Financial Institutions Examination Council, 2001). Proceeds: this is the amount of money that is raised after the sell of a property that belonged to a debtor who failed to offset a loan that was initially granted to him, regardless the commissions and fees involved during the transaction. Fixtures: It is where a particular property is linked to another property to the extent of not being able to distinguish the interest generated by the property from the real property aligned to them (§ 9-334). Crops- Is a type of credit system that was introduced in order to facilitate the farmers is granted loans that would facilitate them before the growing season in order to improve the productivity of the farmers. F. DETERMINE RIGHTS BETWEEN DEBTOR AND CREDITOR UPON DEFAULT Repossession- is a financial institution that takes back a property that was either leased, rented, or was a security in a given transaction, this kind of action is actually conducted without the intervention of the court this is where the property is taken from the rightful owner and the property is then sold § 9-326. Collateral disposition Resale-This is the process where a financial institution is liable of taking an already sold property and selling it at a price that will suit the debt that the institution needs Strict foreclosure- This is a fixed amount set giving out the limited amount of time supposed to be used when repaying a mortgage, and if the person fails to meet the expected time the property belongs to the lender and can’t be able to sell it later. References Ali.Org. (2010). Publications Catalog: UCC 2007 Edition. Retrieved on August 09, 2010 from http://www.ali.org/index.cfm?fuseaction=publications.fpage&node_id=86&product_code=1UCCOTC07 Federal Financial Institutions Examination Council. (2001). FFIEC Statement on Revised Ucc Article 9. http://www.ffiec.gov/pdf/pr022801_statement.pdf Goodson, M. (2010). Uniform Commercial Code (UCC). Retrieved on August 09, 2010 from http://www.law.duke.edu/lib/researchguides/pdf/ucc.pdf Leong, K. (2010). Uniform Commercial Code (UCC). Retrieved on August 09, 2010 from http://www.law.duke.edu/lib/researchguides/ucc U.C.C. (2005). Article 9: Secured Transactions. Retrieved on August 09, 2010 from http://www.law.cornell.edu/ucc/9/article9.htm#s9-701 Read More