Article 9 of UCC Analysis

Article 9 of UCC analysis A. Assuming that every creditor filed timely, we have the case of secured parties. In other words 1. Supplier sold parts to manufacturer on November 1 2002. 2. Manufacturer sold refrigerators to Wholesaler on March 1 2003. 3. Wholesaler sold a large number of refrigerators to Retailer on credit on May 1, 2003. Example of the financing statement is below: • Debtor’s name_____ • Debtor’s address _____ • Secured party’s name _____ • Secured’ party’s address _____ • 1. This financing statement deals with the following types (or items) of property: o (specify) _____ • 2. (If collateral -- crops) The above depicted crops are growing or are to be grown on: o (Specify Real Estate) _____ • 3. (If applicable) The above items are to become fixtures on %uF0A7 Where suitable substitute either "The mentioned earlier timber is standing on ...." or "The mentioned earlier minerals or the like (including oil and gas) or accounts will be financed at the wellhead or minehead of the well or mine situated on ....

" • (Specify Real Estate) _______ and this financing statement is to be filed in the real estate records. (If the debtor does not have an interest of record) The name of a record owner is _______ • 4. (If products of collateral are stated) Products of the collateral are also enclosed. • (use whichever is applicable) • ....................................... • Debtor’s signature • ....................................... • Secured Party’s signature Article 9 of the Uniform Commercial Code is unusual in adopting a uniform framework for security over personal property. By contrast, almost all other systems of law, both common law and civil law, have a diversity of security types, each governed by its own rules as to creation, enforceability, and priorities. However, jurisdictions divide on how extensive security interests may be; whether security can cover non-specified and future property of the debtor, or indeed the debtor's future indebtedness; and whether intangible, as well as tangible property, can serve as collateral.

As a broad generalization, common law systems have been remarkably flexible in what security can be created, what it can cover, and how it can be enforced. Some civil law systems, such as Germany and Japan, have been reasonably sympathetic to new forms of security, but others, such as France, Italy, Spain, and many Latin American countries, have been hostile. Among the objections those jurisdictions have to extensive security is that a debtor can give the impression of wealth, even if its assets are subject to security. A registration system for security can obviate this objection. Taking security over future property is deprecated in these jurisdictions, because it is seen as preferring the creditor with an existing security. Again techniques such as purchase-money security -- which is over new property specifically purchased with an advance, but which is subordinated to existing security -- can reduce the force of this objection. But there are other social policies antipathetical to extensive security, like the pari passu principle alluded to previously, which are less easily refuted.

B. The case with the default on payment on Cool Guy’s part is simple. Since Buddy is the one whose name is on the credit agreement that was issued when the refrigerator was purchased, he is the one responsible for meeting these payments unless he sold the refrigerator to Cool Guy officially (meaning that he paid off his debt and the bank issued a new credit agreement to Cool Guy). Yet, as becomes evident from the case, Buddy didn’t pay off his debt to the lender and chose to rely on Cool Guy making the payments. Therefore the retailer has the right to confiscate the refrigerator or demand Buddy cover all expenses if he can’t return the refrigerator. Buddy, in turn may file a complaint against Cool Guy, but he will have difficulty winning the case in court since he has little evidence. That could change if retailer did not file when it sold the refrigerator to Buddy because there will be less evidence of the purchase made.

However, generally the law protects the retailer and it has the range of options even if it didn’t file when selling the refrigerator. C. If the manufacturer files for chapter 7 bankruptcy and the supplier has not filed when it sold goods to manufacturer earlier on, the supplier will have very difficult time making manufacturer either pay or sell the remaining equipment to cover its debts to supplier. If the chapter 7 bankruptcy is filed, the court will follow the rule of the “primary creditors”. In other words, those creditors that invested the biggest sums in the matter and obtained specific letters of credit and promissory notes entitling them to be first among the rest of creditors demanding their pay, will be first in line to receive benefits (if any from selling the existing equipment). Since the manufacturer never filed, it has no reliable evidence of its involvement in the case and, therefore, it will get the remaining of the equipment or land (anything that court will consider worth selling and anything allowed to be sold) among the last creditors.