The Scope of Article 9

Question 1

Security Interest

Answer 1

a right, or interest, in personal property or fixtures

Not ownership, rather a consensual encumbrance that secures an obligation’s payment or performance

A security interest protects the creditor, in case the debt is not paid when due, by allowing the creditor to foreclose on the property, sell it, and apply the proceeds to the debt

Question 2

Consignment

Answer 2

marketing procedure by which the owner of movable goods, the consignor, turns the goods over to a retailer, the consignee, for sale to the public.

Question 3

What Does Retailer Do?

Answer 3

Retailer does not buy the goods from the consignor; retailer is essentially the agent selling the goods on the consignor’s behalf; Goods are thus consigned to the retailer for sale; consignor retains control over the terms of the retail sale, such as the sale price

Question 4

True Consignment v. Secured Transaction

Answer 4

Some consignments are not true at all but are sales on credit (i.e., secured transactions) disguised as consignments to escape the filing requirements. If the retailer must pay for the goods whether or not able to resell them, this is not a true consignment, even if called that; it is the creation of a security interest in goods. If a security interest is intended, then it is not a true consignment at all. Article 9 must be complied with (perfection by filing, etc.)

Question 5

Requirements for Consignment

Answer 5

1. Delivery to Merchant Dealing in Goods of the Kind — Merchant and consignor must operate under substantially different names
2. Not an Auctioneer or Generally Known by Creditors to Sell Others’ Goods — Consignee must not be an auctioneer and its creditors must not generally know it to substantially engage in selling others’ goods
3. Minimum $1000 Value per Delivery — Aggregate value
4. Not Consumer Goods Before Delivery
5. No Security Interest

Question 6

Lease

Answer 6

a true lease is outside of the scope of article 9

Question 7

Distinguishing Lease From Secured Transaction

Answer 7

1. If at the end of the lease period the lessee becomes the owner of the property for little or no consideration, a secured transaction and not a lease has been created.
2. If the contract contains a clause that permits the lessee to terminate the lease at any time and return the leased goods, a true lease has resulted. Such a right of termination is not an attribute of a sale of goods.
3. If the lease is for the entire economic life of the leased goods, with or without renewal, a disguised sale has occurred. This is sometimes called the junk pile test because goods that are worthless at the end of the lease are simply tossed out.

Question 8

A Transaction is Likely a Secured Sale on Credit If:

Answer 8

1. There is an option to purchase the goods for a nominal sum at the end of the lease term
2. The total rental payment is approximately equal to the goods’ fair market value
3. The agreement gives the lessor remedies similar to those of a secured creditor, or
4. The term of the lease is roughly equal to the remaining useful life of the goods

Question 9

Exclusions From Article 9

Answer 9

Federal Statutes

Landlord Liens and Other Statutory Liens

Wage Assignments

Non-Financing Assignment

Real Estate

Other Exclusions