UCC Final Flashcards
Definition of goods
+ All things which are moveable at the time of identification to the contract for sale other than money, investment securities, and things in action
+ Must be existing and identified before any interest in them can pass
Definition of Fungible Goods
Undivided share but identifiable; goods that can be exchange because they are effectively identical and carry the same value (ex: basketball, barrel of oil)
Goods to be severed from realty rules
+ Has to be severed by seller to be a good within Article 2 if it would cause material harm to the realty (i.e minerals, removing cabinets in the house)
+ Can be severed by either seller or buyer if wouldn’t cause material damage (i.e timber)
Identification of goods: if goods existing, future goods, special future goods
+ If goods already existing & identified –> when the K is made
+ Future goods (other than crops or unborn young to be born within 12 months) —> When goods are shipped, marked or otherwise designated by the seller as goods to which the K refers
+ Special Future Goods —> When crops planted, once crops grow, young are conceived if they are to be birth within 12 months after contracting, or sale of crops to be harvested within 12 months or within the next normal harvest reason whichever is longer
Risk of Loss - merchant & non merchant
+ If seller is a merchant the risk of loss passes to the buyer upon receipt of goods
+ If seller is a non-merchant the risk passes to buyer upon tender of delivery
Shipment K
+ Seller gives goods to carrier then buyer assumes risk of loss
+ Presumption under A2 is that a K is a shipment K; IF K is silent then a shipment K is enforced
+ Risk of loss does not shift from the seller to the buyer upon delivery of the goods to the carrier if the seller fails to promptly notify the buyer of the shipment - whether notice is prompt is a case-by-case basis
Destination K
Parties Agree the goods must be delivered by carrier before risk passes from seller to buyer
Free on Board (FOB) K
+ Either shipment or destination K
+ Followed by the name of the place (FOB Pittsburg) means the risk of loss passes at the named place
Cost, Insurance, Freight (CIF) K
+ Means cost of item, insurance, premium, and freight charge are included
Cost & Freight (CF) K
Shipment K
Free Along Side (FAS)
Delivery term used for ships
Predominant Purpose Test
K language
Nature of supplier’s business
K’s purpose
Respective amounts paid for goods & services
Gravamen Test
+ The court looks at the basis of the complaint rather than the overall nature of the transaction
+ If the plaintiff is complaining about the goods component, Article 2 applies
+ If the plaintiff is complaining about the service component, Article 2 is inapplicable
Bifurcation Approach
+ Court applies UCC to the goods portion and contract law to the services portion of the contract
+ Do not have to find a purpose it does both UCC & Contract Law
Merchant Defin
A person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill
Entrustment Rule
+ Merchant who receives goods may pass good title to goods that were entrusted
+ Has to be a merchant of that particular good to which you have entrusted your belongings to
Definition of Warranties + Who Makes Warranties (& exception to this rule)
+ A warranty is a contractual obligation by the seller to remedy certain possible defects in the goods
+ §2-312(3) - The only time a buyer is the warrantor is when the buyer furnishes specifications to the seller (i.e the goods are to be made specially manufactured to the buyer’s order) then the buyer automatically makes a warranty to the seller that protects them from infringement claims
Warranties of Title
+ In every sale a warranty by seller that title is good, transfer rightful, goods will be free from S.I., lien or encumbrance which the buyer doesn’t know of
+ Applies to all kinds of sellers
EXCLUSION/MODIFICATION = Only be excluded with specific & unambiguous lang or circumstances which give buyer reason to know or seller is purporting limited title
Express Warranties
+ Any affirmation of fact, promise, description, sample or model which becomes the basis of the bargain becomes an E.W. requiring goods conform to that fact, promise, description, sample or model
- Basis = natural tendency to induce buyer
- Has to be more than mere puffery – must have substance
EXCLUSION/MODIFICATION = stfu
Exclusion/Modification of Implied Warranties
+ Must mention merchantability (ONLY for IWM) &
+ in writing conspicuous; Conspicuous = written in a way that attention can reasonably be expected to be called to it
+ NOT required if the buyer has actual knowledge of the waiver
Implied Warranty of Merchantability
+ In every K for sale there is a warranty that the good sold will be merchantable if the seller is a merchant of that kind of goods
+ Breach = product’s defect so fundamental it affects core functionality OR fails to perform in a way expected by a reasonable consumer
+ The presence of a foreign substance in food that ultimately injures the plaintiff will constitute a breach of the implied warranty of merchantability
- EXCEPTION = Where the presence of a foreign substance is reasonably foreseeable and should be expected given the nature of the food
Implied Warranty of Fitness for a Particular Purpose
a. Seller @ contracting has reason to know any particular purpose for which the goods are required and
b. Buyer is relying on the seller’s skill or judgment to select or furnish suitable goods
Warranty Defenses
1) NOTICE - buyer loses all rights if they fail to give seller notice of the breach within reasonable period of time after breach was/should have been discovered
2) PRIVITY
Vertical - how far back up the distribution chain the buyer can go (manufacturer, wholesaler, retailer)
Horizontal = identifying to whom they are liable other than the immediate purchaser (Alt 1 = houseguest, Alt 2 = Foreseeable Persons)
Magnusom Moss Act (Qualifications)
To qualify for MMA
i. New CONSUMER product
ii. Minim of $10
iii. No privity required
iv. Not unilateral services or products sole for resale/commercial purposes
Magnusom Moss Act & Warranties
i. Doesn’t require them but if given it must be in writing
ii. Limited warranties must conspicuously state “limited”
iii. A warrantor may not disclaim implied warranties to a consumer in a written warranty
iv. For a breach of a full warranty MMA allows a consumer to seek a refund of the purchase price
Lease v. Sale
i. 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
ii. If the contract contains a clause that permits the lessee to terminate the lease at any time and return the leased goods (the so-called walk away test), a true lease has resulted
iii. If the lease is for the entire economic life of the leased goods, with or without renewal, a disguised sale has occurred
Strict Product Liability - what is it
Allows an injured consumer to recover in a suit against the manufacturer if they can prove that the manufacturer distributed into commerce a product that contained a dangerous defect
Strict Product Liability - economic loss doctrine & 3 approaches
+ Under the economic loss doctrine, a plaintiff may not recover in tort for a purely economic loss
+ In a SPL case a purely economic loss = a reduction in the product’s value, because the product does not work for the purposes for which it was manufactured and sold
- Bright Line Rule (MAJ) - Recovery is always precluded when a defective product only damages itself without causing personal injury or damage to other property
- Minority approach - Allows recovery for economic loss despite a lack of personal injury or damage to other property, because such damage is still caused by the defendant’s conduct
- Intermediate Approach - Allows tort recovery for damages to a defective product if the damages are the result of a sudden, calamitous event, rather than a reduction in value from a defective product that simply does not function properly
Exemption from A9
- Anything non-consensual is not under A9: artisan lien, judicial lien, statutory lien (except an agricultural lien is under A9)
- Anything that covers items other than personal property & fixtures
- Real estate
3 categories of classification of collateral
Goods = all things moveable when the S.I. attaches
Quasi-tangible Property = Typically paper recording obligations or value
Intangible property = has no significant physical form, cannot be touched or moved
Classification of Collateral - Goods subcategories
Consumer Goods = goods that are used or bought for use primary personal, family, or household
Equipment = goods other than inventory, farm products or consumer goods; catch all term
1.Goods that are not for sale but are used by a business for a relatively long period of time are equipment
Farm Products = goods other than standing timber with respect to which the debtor is engaged in a farming operation and which are
+ Crops grown, growing or to be grown
+ Livestock, born or unborn
+ Supplies used/produced in farming operations
+ Products of crops or livestock in their unmanufactured state
Inventory = goods other than farms products which
Classification of Collateral - quasi-tangible property subcategories (ICDIL)
Instruments = negotiable instrument or any other writing that evidences a right to the payment of a monetary obligation
Chattel Paper = record(s) that evidence both a monetary obligation & a security interest in specific goods
iii. Investment Property = a security, security entitlement, securities account, commodity account or K
Ex: stocks & bonds
Documents = document of title or a receipt
Ex: warehouse receipt
Letter of Credit Rights = means a right to payment or performance under a letter of credit
Classification of Collateral - intangible subcategories
Accounts = a right to payment of a monetary obligation, whether or not earned by performance
Commercial Tort Claims
Deposit Accounts = bank accounts
General intangibles = any personal property; Ex = software
Healthcare
Payment intangibles = monetary obligation
Priorities - general rule
First in time (first to file or perfect) first in line, secured prevails over general unsecured always
- Several exceptions: fixtures, PMSIs,
Fixtures DEFINITION
goods that have become so related to particular real property that an interest in them arises under real property law
Trade Fixtures Definition
items of personal property necessary to the conduct of tenant’s business but not permanently affixed to the reality
Recognized by some courts
Three traits contribute to fixture categorization:
a. Annexation to the realty
b. Application to the use or purpose of the attached property and
c. Actual or apparent intent by the owner for the asset to be permanently part of the property
Accessions Defintion
When goods are affixed to other goods (as opposed to realty) an accession occurs
Accessions + S.I. Priority Rules
- A S.I. may be created in an accession & continues in collateral that becomes an accession
- If the S.I. is perfected when the collateral becomes an accession it remains perfected
- S.I. in an accession is second to a S.I. in the whole which is perfected in compliance with UCC 9-311(b)
Commingling defintion
When goods are combined with other goods that they cannot be later recovered from that is commingling
Commingling S.I. Priority Rules
- A S.I. may only exist in the product or mass that results when goods become commingled but not in the commingled goods individually
- If collateral becomes commingled goods, a S.I. attached to the product or mass
- If a S.I. existed before the collateral becomes commingled the S.I. that attaches to the product or mass is perfected
Perfection of a S.I. definition
Process by which the creditors S.I becomes effective against the rest of the world
Perfection by Possession
- Perfection occurs no earlier than the time they take & continues only while they have possession
- Goods, instruments, negotiable documents, money, and tangible chattel paper are the only types of collateral that may be perfected
Automatic Perfection
+ Means the secured party need only make sure that it’s S.I has attached & perfection is accomplished without need for any further steps
+ Happens in 13 situations
- Purchase Money Security Interest (PMSI) in Consumer Goods
- Payment intangibles, promissory notes & accounts
Perfection by Control
For quasi-tangible or intangible - only legitimate method to perfect a security interest in deposit accounts or letter-of-credit rights
Perfection by Filing a Financing Statement
To be proper =
+ Debtor’s name
- If not the debtor’s correct name it is seriously misleading & therefore ineffective
+ Secured party’s name
+ Indication of collateral
- General language is fine - easier burden then the S.A.
- Effective for five years & needs a continuation statement to remain perfected and can be filed from 6 months before expiration
Types of Perfection overview
Perfection by Possession
Perf by Control
Automatic Perf
Perf by Notation on Title
Perf by Filing a financing statement
Relation Back Provision for Perfection
- When a transfer is made for the purpose of preference avoidance ==
+ Transfers are on the date of actual transfer if perfection occurs within 30 days after
+ If perfection occurs more than 30 days after transfer then it is deemed transferred on the date of perfection - Relation back provisions determines timing of transfer based on when a S.I. is perfected
Priorities - FARM PRODUCTS
A buyer of farm products generally takes free from any security interest unless certain conditions are met
i. Receives written notice from secured party within 1 year before sale
ii. Notice has a copy of S.A., names/addresses of secured party & debtor, debtor’s SS, description of collateral, buyers payment obligations
Creation of a PMSI & perfection rule
A creditor provides the credit to buy the collateral being used to secure the debt
PMSIs for everything other than livestock, inventory & consumer goods become super priority if perfected within 20 days of debtor receiving priority
PMSIs - Livestock & Inventory rules
1) Debtor has possession
2) PMSI holder sends authenticated notification to creditors
3) Notification is within 5 years before possession if inventory or 6 months for livestock
4) Notification must describe collateral & clearly state they have or expect to have a PMSI
BOCP
BOCP takes free of S.I if they meet reqs
BOCP Definition –
i. Buying in good faith (GF = actual honesty & observance of commercial fair dealing standards that are reasonable)
ii.Without knowledge that the sale violates another’s rights in the goods
iii. Seller is someone in the business of selling goods of the kind NOT A PAWNBROKER
iv. Sale comports with the usual customary practice of the seller or the kind of business in which the seller engages
v. Buyer takes possession or has right to recover the goods and
Constructive possession counts
vi. Buyer cannot acquire in goods in bulk transfer or as a security for or satisfaction of a money debt
Time reqs for Filings for a S.I.
a. 4 months to re-file if debtor moves
b. 1 year to re-file if new debtor assumes debt of OG debtor
Multistate Trxx choice of law rule
Typically where the debtor is located
1. If registered org = state of registration
2. If unregistered org = place of business; if multiple then where chief executive offices are located
3. Natural person = principal residence
If collateral has physical form diff from individual location then where the collateral is located will govern priority
Consignment Defin
Consignment = a transaction, regardless of its form, in which a person delivers goods to a merchant for the purpose of sale and
i.the merchant:
1.deals in goods of that kind under a name other than the name of the person making delivery;
2. is not an auctioneer; and
3.is not generally known by its creditors to be substantially engaged in selling the goods of others;
ii. with respect to each delivery, the aggregate value of the goods is $1,000 or more at the time of delivery;
iii. the goods are not consumer goods immediately before delivery; and
iv. the transaction does not create a security interest that secures an obligation
45-day rule for fed tax liens –
a. Protection for future advances made without knowledge of the tax lien in the 45 days after its filing if the advance is collateralized by a perfected S.I. in existing property of the taxpayer
b. Creditor cannot know of the tax lien for the 45 days
c. “Safe harbor” for after acquired property
Proceeds defin & S.I. rules
- Property or money derived from collateral
- A S.I in proceeds is perfected if the S.I in the original collateral was perfected but after 20 days a new financing statement needs to be filed unless in the same office of the F.S. of the OG collateral
Four types of Bankruptcy
a. Chapter 7 - discharge all debts
b. Chapter 11 - businesses seek assistance in paying debt
c. Chapter 12 - farmers and fishermen
d. Chapter 13 - payment plan
Preference Defin
Preference = a transfer made or suffered by the bankrupt to pay or secure a pre-existing debt within the 90 day period preceding the filing of the bankruptcy petition
i. Which has the effect of giving the transferee (creditor) a greater payment then they would get under the bankruptcy distribution
For a creditor to be given a preference they must meet 5 req
i. Antecedent debt
ii. Debtor was insolvent
iii. Payment was made for benefit of creditor
iv. Made within 90 days before date of filing or if the creditor was a family member/insider it is 1 year
v. Enabled the creditor to receive more than such creditor would receive if
1. The case was under chapter 7
2. Transfer had not been made and
3. Such creditor received payment of such debt to the extent provided by provisions of this title
Preferences - relation back provision
When a transfer is made for the purpose of preference avoidance ==
1. Transfers are on the date of actual transfer if perfection occurs within 30 days after
2. If perfection occurs more than 30 days after transfer then it is deemed transferred on the date of perfection
Relation back provisions determines timing of transfer based on when a S.I. is perfected
Defenses to Preferences (3)
Contemporaneous exchange of value = excuses any payment or other transfer that
1. Debtor & creditor had intended as a contemporaneous exchange for new value and
2. Substantially contemporaneous exchange
Ordinary course of business = creditor must show that the debt was incurred in the OCB and transfer was made in the OCB or on ordinary business terms of the industry
New value = the creditor gave new value to or for the benefit of the debtor not previously secured
1. Subsequent new value can offset creditor’s preference liability
