SALES AND SECURED TRANSACTIONS
Clifford, Spring 2001

PART I. SECURED TRANSACTIONS IN PERSONAL PROPERTY

The Text for Secured Transactions is Jordan, Warren, and Walt, Secured Transactions in Personal Property (5th Ed.).

  1. Introduction.
    1. The plight of the unsecured creditor, pp. 1-12.
    2. Some of the History of Article 9, pp. 12-15.
    3. The nature of liens which may prejudice the security interest; attachment and perfection; the contest in bankruptcy, pp. 15-17; 532-33.
  2. Creation and Perfection of Security Interests.
    1. The Elements of the Security Agreement, pp. 22-29 (In re Bollinger Corp and notes and Problems). Scan Form, pp.18-22.
      1. Moving from "writing" to "record" and from "sign" to "authenticate" under R9, pp. 29-30.
    2. The Article 9 Categories of Collateral. Prepare the exercises on classifying collateral, p 1 of Supp. Mat.
    3. Collateral Description in the Security Agreement.
      1. Text, 30-32.
      2. Prepare problems, 32-33.
    4. Obtaining a security Interest in after-acquired collateral, pp. 33-41.
    5. Coverage of "proceeds" of described collateral, pp. 41-42.
    6. Rights in Collateral; power to transfer good title; entrusting; the secured party as "purchaser". pp.42-47 and § 2-403.
    7. The Filing System.
      1. Introduction, 47-53.
      2. Description of collateral; name problems; use of trade names; minor errors; change of business form; name changes. Text and problems 53-60 and supp. p.3; Pearson v. Salina Coffee House, Inc, and notes pp. 60-67; In re Scott and notes, pp. 67-77.
      3. Place and Mechanics of Filing (and critique of old and consideration of new filing system), 77-83.
      4. What Constitutes a Filing and When It Occurs, 83-89.
    8. Perfection by Possession.
      1. Escrow as possession; instruments and documents. In re Rolain and notes, pp. 89-92.
      2. Taking "possession" by giving notice to a bailee. Prepare problems, 92-93.
    9. Automatic Perfection for Consumer Goods, 93-95. Prepare problems, p. 95.
    OMIT pp. 95-127.
  3. Priorities
    1. Introduction, 128-29.
    2. The First-to-File Rule.
      1. First to file v. First to perfect, Case #1, p. 129.
      2. Future advances and options for SP2, Case # 2, p. 129 and Allis Chalmers Credit Corp. v. Cheny Investment, Inc., 130-38.
      3. Future advances with SP1 knowledge of SP2 advance. Problem 1, p. 138-39.
      4. S/p v. lien creditor Problem 2, p. 139.
      5. Assignment and Subrogation re higher priorities. Problem 3, p. 139-40.
      6. Future advances s/p v. lien creditor and buyer, Problem 4, p. 140.
      OMIT note 5 ("Advance") on p. 140.
    3. The super priority of the purchase money security interest.
      1. In equipment. Brodie Hotel Supply, Inc. v. United States, p.140-44 and notes.
        1. Defining the purchase money interest. Problems 1-3, 145-47. Defer the note on p. 147-48 ("The Transformation Rule") for discussion after Southtrust case on p. 150.
      2. In Inventory. Text, 148-49, Southtrust Bank of Alabama, Nat. Ass'n v. Borg-Warner Acceptance Corp., 150 and notes, 153-55.
        1. what are "cash proceeds"? Problem pp. 149-50.
      3. The Consumer Goods Special Case and Losing the purchase money status: the Transformation Rule. Note, pp. 155-56 and 147-48.
    4. The SP v. Buyers and lessees of collateral: does the security interest survive?; effect on priorities.
      1. Inventory. Text, 156-57.
      2. What security interests are cut off by what kind of sales? Gordon v. Hamm, p. 157 and notes, 162-63. (Be sure to read § 2-403.)
      3. Meshing with certificate of title statutes. 166-68.
      4. The "Double Debtor" problem. Text, 168 and Bank of the West v. Commercial Credit Financial Services, Inc., 169 and note, 174.
      5. The special case of farm products. Text, 174-77. Notes on federal pre-emption, Supp. Mat. 4-5.
    5. Rights to Payment
      1. Distinguishing Accounts from General Intangibles: What is the difference and what difference does it make? 177-82
      2. Priority Rules Governing Competing Claimants for Accounts. Text, 182. Prepare problems 182-83. Supp.Mat.,p. 6.
        1. Resolving contests between prior inventory sps and later accounts secured parties.
        2. Resolving contests between prior accounts sps and later pmsi (or non-pmsi) inventory parties.
        3. Is a credit card slip an instrument or an account? Problem 2.
      3. Salvaging the assignment of accounts transaction when the assignee has failed to file. Supp Mat p. 6, 9-104(f) and 9-302(1)(e).
      OMIT THE "§ 9-302(1)(E) EXCEPTION FROM MID-PAGE 183 TO BOTTOM PAGE 187.
      1. Assertion of Defenses of Account Debtor Against Assignee of the Account. 187-93.
      2. Chattel Paper: what is it?; When is the security interest"merely as proceeds?"; Priorities between filers and possessors. 193; Rex Financial Corp. v. Great Western Bank and Trust, 193-197; Problems, 197-98; Notes, 198-202.
      3. Deposit Accounts, pp. 202-203. OMIT case and notes, 203-210. Take text, 210-13.
    6. Cash Proceeds.
      1. Priority rules governing competing claims for cash proceeds. 213-14; HCC Credit Corporation v. Springs Valley Bank of Trust, 214-22; Notes, 222-25.
      2. Identifying proceeds in a commingled bank account by the lowest intermediate balance rule. 225-31.
    7. Accessions. What are accessions? Priorities as between accession security interests and security interests in the goods. Relevance of perfection and knowledge. Text, 231-33. Focus on R9-335.
    8. The confusing situation and statutory provisions relating to commingled and processed goods. Text, 233-36. Focus on R9-336.
    9. Conflicting Interests Not Governed by Article Nine
      1. Subrogation, Cantor v. Schlager, 236-39. Omit problem 239-40. Take note, 240-41.
      2. Subordination, text 241-42.

      OMIT federal tax lien materials, 243-52.

    10. Fixtures
      1. What is a fixture? Text, 465-68 and Lewiston Bottled Gas Co. v. Key Bank of Maine, 468-. The special nature of a fixture filing. §§ 9-402(5) and 9-403(7). Supp.mat. 8 and 8A-B.
      2. How priorities relate to categories of fixtures. The fixture secured party v. prior real estate interest; v. purchaser of real estate; v. landlord; v. construction mortgagee. Lewiston Bottle Gas, supra, and problems 1 and 2, p. 473. Omit note 474-75.
      OMIT Construction Lending, 476-479.
  4. Enforcement of the Security Interest. Chapter 3.
    1. Overview, 253.
    2. Defining Default in the Security Agreement. Text, 254-55.
    3. Accelerating the due date of the debt upon default; Insecurity Clauses, 255-57.
    4. The Limitations of Good Faith and Fair Dealing. K.M.C.Co., Inc. v. Irving Trust Co., 258 and notes, 262-65.
    5. Election and Cumulation of Remedies under Article 9. Text, 265-66.
    6. Repossession.
      1. Self-help repossession; the cumulation of s/p's remedies. Text, 266-67; Penny v. First National Bank of Boston, 267, notes 271-73.
      2. Breach of the Peace. Text, 273-74; Williams v. Ford Motor Credit Co. 274; notes 277-79; Problem, 279; Problem 1 of "Some miscellaneous problems regarding breach of the peace and conversion," Supp. Mat., 9; Holloway v. Wachovia Bank & Trust, Supp Mat 10-11.
      3. Security agreement clauses re consent to entry and gold in the glove compartment (golden glove cases), Problems 2-6 in Supp. Mat., 9.
      4. Estoppel and Waiver of punctuality by acceptance of late payments. Moe v. John Deere Co., 279 and notes 285.
    7. Disposition of Collateral.
      1. Making a "Commercially Reasonable" Disposition: Notice to Whom and When; the General Standard. §§ 9-610(b) and 9-627; Text, 285-86; Matter of Excello Press, Inc., 286; notes 2-5, pp. 297-303; May v. Woman's Bank, 305.
      2. Who can buy at the resale? Wholesale or retail? Problems, 303-04, and text 304-05.
      3. Consequences for the Secured Party of Violating Part 5. Note 1, 296; Matter of Excello Press, supra, Supp. Mat. 13.
        1. Presumption the collateral is worth the amount of the debt.
        2. Denial of deficiency judgment.
        3. The "double whammy" in consumer cases. 9-625
      4. The debtor who has a breach of warranty claim regarding goods purchased on credit. Prepare worksheet on FTC HIDC rule in Supp. Mat, 16-17; Federal Trade Commission Holder-In-Due-Course Regulations in Statutory Supplement; Clark Excerpt §12.05[9][a] in Supp. Mats., 18-21.
      5. Retention of Collateral in Satisfaction of Debt ("Strict Foreclosure"). Text, 312; Lamp Fair, Inc. v. Perez-Ortiz, Inc., 313 and notes, 318-21 (focusing on R9-620).
      6. Rights of Junior Lienors. Text, 321-22; Louis Zahn Drug Co. v. Bank of Oak Brook Terrace, 322 and notes, 326-28.
      7. Rights of Purchasers at Foreclosure Sales, Text, 328, Lichty case and notes, 328-31.
      8. Issues relating to foreclosure by junior secured parties, text, 322-33.
      9. The Secured Party's Realization on Accounts Receivable and Chattel Paper. Text, 333-35; Major's Furniture Mart, Inc. v. Castle Credit Corp.,Inc., 335, notes 341-44.
      10. Redemption, text, 344-45.
  5. Security Interests in Bankruptcy: Chapter 7.
    1. Overview of Bankruptcy.
      1. Introduction, 505-06.
      2. Types of Bankruptcy, 506-08.
      3. Petition in Bankruptcy and the Automatic Stay, 508-09.
      4. Trustee in Bankruptcy, 509-10.
      5. Claims in Bankruptcy, 510.
      6. Distribution of Assets to Unsec. Creditors, 510-11.
      7. Discharge, 511.
    2. Secured Claims in Bankruptcy; Nature of the Claim & Survival of the Lien; comparison of treatment under Chapters 7 and 11 and of consumer and business debtors, 511-19.
    3. The Automatic Stay and Adequate Protection, 519-20;
      Omit: Timbers case, 520-25 and text 525-32.
    4. The Avoiding Powers of the Trustee.
      1. The Strong Arm Clause, 532-33 and 9-301.
      2. Fraudulent Transfers.
        1. Historical Origins, 533-35.
        2. Relationship of State Fraudulent Transfer Law and Bankruptcy, 535-37.
        3. Actual Fraud, Brown case, 537-47.
        4. Transfers for Less Than Reasonably Equivalent Consideration.
          1. Foreclosure sales, 547-49 and BFP case and notes, 549-61.
          2. Leveraged Buyouts, 561-62.
      OMIT Bay Plastics v. BT Commercial case, 562-580.
    5. Preferences.
      1. Concept and elements of a Preference, text, 580-81 and Problems 1 and 2, p. 581-82, text 582-84.
      2. The Preference Period and special insider rules, text, 584-85.
      3. Transfers to or for benefit of creditor, Text and problems 586-88.
      4. Contemporaneous Exchanges, text 588-89; problems 1-3, 589-90.
      5. Ordinary Course Payments, text, 590-93; problem, 593; Matter of Tolona Pizza case, 594-97.
      6. The Special Problems Involving Security Interests in Inventory and Accounts, text, 598-603. OMIT Ebbler case, 603-08.
      7. Security Interests in Cash Proceeds.
        1. What are Identifiable Cash Proceeds? Text 608-09.
        2. Cash Proceeds in Insolvency Proceedings, OMIT Matter of Guaranteed Muffler Supply Co., Inc., 609-12.
      8. False Preferences: Delay Between Attachment and Perfection, Text, 612-14.
      OMIT remainder of chapter.

PART II: SALES
The text for Part II is in materials reproduced from Jordan and Warren, Sales. The assigned portions have been reproduced with the permission of the authors and the publisher for use by UNC students in this course.

  1. Acceptance and Rejection of Goods and Contract Cancellation.
    1. Introduction. Text, 59-61. Read cited UCC sections.
    2. Rejection, Acceptance, Revocation of Acceptance and Cure.
      1. Time within which to reject; installation and use as acceptance. La Villa Fair v. Lewis Carpet Mills, 62-66; Note, 67; Askco Engineering Corp. v. Mobil Chemical Corp. 68-70.
      2. Adequate and timely notice of rejection; notice of breach to preserve damage claims; duties of buyer after rejection. Askco Engineering, supra. Supplementary problems 1-4.
      3. What constitutes substantial impairment of value to permit revocation; use after rejection or revocation as acceptance or "re-acceptance". Erling v. Homera, Inc., 70-75; note, 75-76; Zabriskie Chevrolet, Inc. v. Smith, 77-81; note, 81-82; Supp. Problem 5.
      4. What constitutes cure so as to preclude revocation? Zabriski case, supra. Is cure available after revocation? Brief of Johannsen, supp. materials.
      5. Contract limitations on the right to reject or revoke. Note, 82-83.
      6. Interpreting §2-508(2): When does the seller have reasonable grounds... Brief of T.W. Oil, supp. materials.
      7. Right to inspect before payment. Note, 83.
      8. Buyer's rights and duties after rejection. Borges v. Magic Valley Foods, Inc., 84-87, Sullivans Island Seafood Co. v. Island Seafood Co., 87-88.
      9. The different standards applicable to installment contracts. Graulich Caterer, Inc. v. Hans Holterbosch, Inc., 89; Flood v. M.P. Clark, Inc., 94 and Note, 97.
      10. The interplay between the rejection-revocation rules and the statutory right to demand adequate assurance of performance Cherwell-Ralli, Inc. v. Rytman Grain Co., Inc., 97; Note, 100; National Farmers Organization v. Bartlett and Co., Grain, 103.
  2. Warranty.
    1. Introduction, 112-14.
    2. The Express Warranty and the Implied Warranties of Merchantability and Fitness for a Particular Purpose.
      1. The context in which express warranties will arise; fact v.opinion; puffing; basis of the bargain. Sessa v. Riegle, 115; Supplementary Problems 1 and 2 and puffing note, pp W1-2; notes, 123-26; Article Excerpts in supplementary materials, p. W3-12. Individual issues covered by these materials include:
        1. Fact v. Mere Opinion and puffing;
        2. Significance of factual context;
        3. Relevance of seller-buyer expertise;
        4. The mysterious "basis of the bargain";
        5. Pre and post contract conduct.
      2. The implied warranty of merchantability.
        1. Scope of merchantability. Bethelehem Steel Corp. v. Chicago Eastern Corp, 126; note, 132-34.
        2. Who is a merchant? Treat note 3 on 134 as problems 1 and 2.
      3. Warranty of Fitness for Particular Purpose. Text, 134; Bethlehem Steel, supra; Lewis v. Mobil Oil Corp., 135.
    3. Warranties in Finance Leases of Goods. Text, 140-42; Comment (g) to 2A-103.
    4. Contractual Limitations on Warranties.
      1. Justification for the standard warranty. Supplementary materials (excerpt from CLE Outline), p.W14-15.
      2. The roles of "merger" or "integration" clauses and the parol evidence rule in precluding proof of express warranties and the implied warranty of fitness. Text, 142-45.
      3. Contractual limitation of warranties and remedies for breach. Text, 143.
      4. Reconciling express warranties and disclaimers. 2-316 and Comment 1. Treat paragraph starting at bottom of 144 as a problem for discussion.
      5. Disclaiming the implied warranties of merchantability and fitness. Text, 145; Cate v. Dover Corp., 145. Treat Notes 1-2, pp. 153-54 as problems for discussion.
      6. The "Exploitation" Theory of Warranty Limitation. Henningsen v. Bloomfield Motors, Inc., 154.
      7. Avoiding disclaimers on the grounds of unconscionability. Henningsen, supra; Martin v. Joseph Harris Co., Inc. p.165; Carlson v. General Motors, supp. mat's W16-19 (focus on the unconscionability analysis; the Magnuson-Moss issues will be taken up later.) Problem, pp. 171-72.
    5. Failure of the Essential Purpose of Contractually Limited Remedies Clauses (repair, replacement, refund). Milgard Tempering, Inc. v. Selas Corp. of America, 173; note, 177-79; Waters v. Massey-Ferguson, Supp. Mat's, pp. W20-22; Canal Elec. v. Westinghouse Elec.excerpt, Supp. Mat's, pp.W23-24.
    6. The requirement that a claimant be in privity to assert a warranty claim against an immediate or remote seller. Supp. Mat's, (titled "Privity and §2-318." Prepare problems 1-5. Morrow v. New Moon Homes, 179; Alberti v. Manufactured Homes, Supp. Mat's,; Note, 190-91.
      1. Privity as a requirement for the remedy of revocation against a remote seller. Alberti, supra.
    7. Notice of breach problems. Note, 191.
    8. Relationship Between Warranty and Tort. East River Steamship Corp. v.Transamerica, Delaval, Inc., 196-206.
    9. Statute of Limitations.
      1. Personal Injury. Davidson Lumber Sales, Inc. v. Bonneville Investment, Inc., 207-15.
      2. Warranty of Future Performance. Safeway Stores, Inc. v. Certainteed Corp., 215-18.
    10. Non-Code Remedies for Breach of Warranty.
      1. The Federal Magnuson-Moss Warranty Act. (The Act and applicable rules are in the statutory supplement.)
        1. Coverage under the Act; the concept of "written warranty." Skelton v. General Motors Corp., 219; notes 1-2, 231-32.
        2. Federal Lemon-aide. Problem, 229-30. Study cited Magnuson-Moss provisions (both statutes and rules).
          1. The "full warranty" remedies of Replacement or refund. What is a "full warranty"? Question 1, 230.
        3. Using UCC remedies under MM; overcoming privity; revocation against the manufacturer? attorney fees. Question 2, 230.
        4. Damages. Are consequential damages available under MM? See §104(a)(3) and Rule 701.3(a)(8). Question 3, 230.
          1. A federal claim in state courts. Question 4, 230.
        5. Other provisions.
          1. Must a MM plaintiff be a consumer? §101(e), Rules 700.1(a), 701.1(b) and 702.1(b).
          2. Pre-sale availability of written warranty. §102 of Act, Rule 702.3 (in stat. supplement); MM Supp Problem 1.
          3. Limitation of duration of limited warranties. Carlson v. General Motors, MM Supp Problem 1. §108(b), Rule 701.3(a)(7).
          4. Standing to assert claims (privity). MM Supp Problem 1; Supp Mat's "Is Privity Required in a Magnuson-Moss Action Rooted in Implied Warranty?"
          5. Disclosure requirements. Read Part 701 (§§701.1--701.4 in statutory supplement. MM Supp problem 2.
          6. Imposition of duties on consumer under a full warranty. §104; MM supp problem 2.
          7. The local dealer's obligations. Supp Problem 3.
            1. Handling the manufacturer's warranties. Part 702.
            2. Making own "guarantee." Rule 700.3(b),700.4-700.5.
            3. Dealer claims from manufacturer for repairs. §107.
      2. State "Lemon Laws." Text, 1068; NC Lemon Law, supp mat's.
        1. Scope; statutory duty to repair. §§20-351.1(1) and (4); 20-351.2.
        2. The right to replacement or refund; defining a lemon. 20-351.3-20-351.5.
        3. Notice and cure. 20-351.7; 20-351.(a)(2).
        4. Impact on local car dealer. 20-351.9.
        5. Treble damages and attorney fees. 20-351.8.
    11. Imposing warranty obligations in services and mixed goods andservices transactions. Newmark v. Gimbel's Inc., 1068; problems 1-3, pp. 1073-74; Advent Systems Limited v. Unisys Corp., 1074.
      1. The Implied Warranty of Title.
      2. How the warranty is breached. Jefferson v. Jones, 1079 and note, 1084-85.
      3. Computing damages. Itoh v. Kimi Sales, Ltd.,1085; note, 1087 and Problem, 1088.