REVISED ARTICLE 9 OF THE
UNIFORM COMMERCIAL CODE IN TEXAS

Lorman Education Series Presentation, July 18, 2002
San Antonio, Texas
 
TABLE OF CONTENTS

I.  Introduction.............................1

 

II.  Security Agreements..........................1

 

III.  New Types of Collateral Under Revised Article 9.........2

 

A.  Deposit Accounts.........................2

 

B.  Electronic Chattel Paper......................3

 

C.  Letter of Credit Rights.......................3

 

D.  Investment Property....................4

 

E.  Payment Intangibles......................4

 

IV.  Financing Statements........................4    

V.  Perfecting the Lien and Priorities..............7

 

A.  Perfection by Filing........................7

 

B.  Perfection by Filing or Possession.................8

 

C.  Perfection Only by Possession.................8

 

D.  Perfection by Filing or Control....................9

 

E.  Perfection Only by Control...................10

 

F.  Automatic Perfection........................11

 

VI.  Duties of the Secured Party...................12

 

VII.  Enforcement of Security Interests................12

 

A.  Default........................13

 

B.  Rights After Default.........................13

 

C.  Lien of Levy After Judgment.........................13

 

 

F.  Notification of Disposition of Collateral.........15

 

G.  Disposition of Collateral.................18

 

H.  Rights of Transferee.....................19

 

I.  Application of Disposition Proceeds...................20

 

J.  Strict Foreclosure........................22

 

K.  Right to Redeem Collateral......................25

 

L.  Waivers...........................25

 

M.  Liability for Noncompliance..........................26

 

N.  Recovery of Deficiency.........................28

 

Revised Article 9 went into effect on July 1, 2001.  The revisions are intended to bring greater certainty to financing transactions and recognize emerging methods of engaging in electronic commerce. They present significant changes in scope, substantive rules, and procedure. 

 

Revised Article 9 clarifies the rules applicable to secured transactions by expanding the scope of personal property and transactions covered by Article 9 and simplifying the rules for creation, perfection, priority and enforcement of a security interest. 

In addition, the revision clarifies the rules that apply to consumer transactions. 

In expanding the scope of transactions covered under Article 9, the revisions have broadened the definition of "accounts."  Under old Article 9, "accounts" included payment obligations arising out of only the sale or lease of goods or the provision of services.  This definition left many kinds of payment rights within the definition of "general intangible."  While the sale of these types of payment rights often serve as financing transactions, old Article 9 does not apply to these transactions. 

 

Under Revised Article 9,  the definition of "accounts" is broadened to include payment obligations arising out of the sale, lease, or license of all kinds of tangible and intangible personal property.  This includes the right to receive payment under intellectual property licenses, software, credit card receivables, real estate sales, lottery winnings, and health care receivables.  Transactions which are specifically excluded include liens and leases or real estate (except fixtures), motor vehicles, life insurance assignments, tax liens, landlord liens, judgment liens, wage assignments, consumer Deposit Accounts, and sales of accounts, chattel paper, payment intangibles or promissory notes as part of the sale of a business or for the purpose of collection. 

 

In addition, Revised Article 9 clarifies that a seller of accounts and other property where the sale is an Article 9 transaction retains no interest in the property sold.In this paper, all references to "D" means a Debtor and to "SP" means a Secured Party.  Capitalized terms used in this paper without definitions have the meanings ascribed to them in Revised Article 9.

 

SECURITY AGREEMENTS

A creditor maintains his priority rights over the rights of other creditors by perfecting his security interest in the collateral.  A security interest is perfected when it has attached and the required steps for perfection have been taken. 

 

Attachment occurs when an agreement is made between the creditor and the Debtor.  When the SP has possession, the agreement may be oral.  Otherwise, most types of collateral require: (1) a security agreement signed by the Debtor, which describes the collateral; (2) tendering of value; and (3) the Debtor to have rights in the collateral. 

 

Under Revised Article 9, the Debtor may authenticate the security agreement instead of signing it, as under old Article 9.  "Authenticate" means to sign or to execute a symbol with the intent of identifying the person and adopting or accepting a record. 

 

In addition, a security agreement under the revision is referred to as a ¿record¿ rather than a writing.  This allows for inclusion of information inscribed on either a tangible medium or stored in an electronic medium. The security agreement requires a description of the collateral. Revised Article 9 clarifies the description requirements.  Under old Article 9, the description is sufficient if it reasonably identifies what is being described.  Under the revisions, a description of collateral by Article 9 "type," such as "equipment," is acceptable.  However,  a description may not use a "supergeneric" statement, such as "all my personal property." However, for consumer transactions, a description by "type" of collateral is insufficient to describe consumer goods, a security entitlement, a securities account, or a commodity account. 

 

The description is sufficient if it reasonably identifies what is described and contains a description beyond the "type" alone. In addition, the expanded scope of transactions includes new forms of collateral covered by Article 9 (see introduction above).  The revisions also clarify the distinction between goods and software.  If the software becomes so integrated into the goods that the software becomes part of the goods, then the software merges into the goods for purposes of the classification.  If the software retains its independence, it is classified as a general intangible.

 

NEW TYPES OF COLLATERAL UNDER REVISED ARTICLE 9

Deposit Accounts Sec. 9.102(29)
Old Article 9     Revised Article 9
 
As original collateral, are excluded from Art. 9.Covered Deposit Accounts as cash proceeds from the sale of other collateral. _ Applies to Deposit Accounts as original collateral.

_ Covers demand, time, saving, passbook, or similar account maintained with a Bank; uncertificated CDS; certificated, non-negotiable CD if it is not of a type that in the ordinary course is transferred by delivery with an endorsement or assignment.  The definition excludes Investment property, accounts evidenced by an instrument or shares in a money market mutual fund.

_ Accounts qualifying as Deposit Accounts constitute a separate type of collateral, so a security agreement covering general intangibles will not cover Deposit Accounts.  A Deposit Account can not be pledged as collateral in a consumer transaction except where the Deposit Account represents "proceeds" of other collateral. 

 

 

 

Not included _ Electronic chattel paper:  chattel paper which is stored in an electronic medium.  This may be either a tangible writing that was converted to electronic form (e.g., by creating electronic images of a signed writing) or created initially in electronic form (e.g., a lessee may authenticate a lease that is then

stored in electronic form). 

 

Includes the right to payment under a Letter of Credit.  This does not include any right that the beneficiary has to draw on the Letter of Credit._ Letter of Credit rights may constitute ¿supporting obligations.¿  A supporting obligation means a Letter of Credit right or secondary obligation that supports the payment of an account, chattel paper, document, a general intangible, an instrument or Investment property. 

 

 

Investment Property ¿9.102(49)
Old Article 9     Revised Article 9 
 
Defined as a security, whether certificated or uncertificated, a security entitlement, a securities account, a commodity contract or a commodity account. _ Same as old Article 9.  A SP taking a security interest in Investment property must specifically state so.  A reference to ¿Instruments¿ or ¿general intangibles¿ will not be sufficient. 

 

Defined as the general intangibles under which an account debtor is obligated to the D  (e.g., promissory notes). 

 

 

FINANCING STATEMENTS

 

A financing statement is the form filed when filing is used as a method of perfecting the security interest.  A financing statement contains the names and addresses of the Secured Party and the Debtor, a description of the collateral and generally the signatures of both the Secured Party and the Debtor.  Once filed, a financing statement continues to be effective even if the original Secured Party assigns a security interest.  Revised Article 9 incorporates changes to the content and filing requirements for financing statements.

Old Article 9    Revised Article 9 
 
 
Location of filing:  financing statements are filed in the state where the collateral is located and in the state of the D¿s chief executive office for intangible collateral, such as accounts and general intangibles. Indication of collateral:  a ¿supergeneric¿ ¿all assets¿ description of the collateral is not permitted.Names: both the names of the SP and the D must be included in the financing statement.    Minor errors are admissible,

as long as they are not seriously misleading.  A new filing is required when the D changes his name.  There is a 4 month grace period where the existing filing will continue to protect the collateral acquired before the name change.  A new filing is not necessary when the D sells the collateral. Address:  the addresses of both the SP and the D are required.  Generally, an omission of either address will render the filing insufficient.

The D¿s address is critical at foreclosure when the SP is required to send notice.D¿s signature:  financing statement is invalid unless signed by the D.  The signature may include any symbol which expresses the party¿s intention to authenticate the writing.   The signature does not need to be witness or notarized. A copy of the security agreement is sufficient as a financing statement if it contains the information required in a financing statement.  The signature is still required.Duration:  financing statement properly filed is valid for 5 years.  Amendments may be made, but must be signed by both parties.  This requirement prevents either party from unilaterally altering the agreement to the detriment of the other party.  A SP may file a continuation statement within 6 months of lapse of the filing.  Only the SP must sign the continuation statement.  A properly filed statement will extend the original filing for another 5 years.  When the secured obligation has been fully met, the D can demand  a termination statement from the SP.  This termination statement concludes the secured transaction.   _ Location of filing:  financing statements are filed in the state where the D is located, except for fixture filings, and filings made to perfect a security interest in as-extracted collateral and timber to be cut.  ¿9-301._ A D that is a registered organization (corporation or limited partnership) is located in the state in which the registered organization is organized; a D who is an individual is located at the individual¿s principal residence; banks and other organizations registered under federal law are located in the District of Columbia unless the law permits another designation of location; a foreign D whose law does not provide for notice of non-possessing security interest is located

in the District of Columbia.  ¿9-307._ Indication of collateral:  the use of a supergeneric¿ ¿all assets¿ description is permitted, assuming that the description accurately describes the deal between the SP and the D.  ¿9-504._ Names:  both the SP¿s and the Ds names must be included.  The D¿s correct name is required.  A financing statement that provides only the D¿s trade name does not sufficiently provide the D¿s name.  Failure

to provide the D¿s correct name is considered to be ¿seriously misleading,¿ and will render the filing ineffective.  When the SP is a representative, it is sufficient to name the SP, without indicating any representative capacity.  It is also sufficient to name the representative of the SP, even if representative capacity is not indicated. 

 

¿¿9-502; 9-503._ Address:  same as old Article 9_ D¿s signature:  if the

D has signed a security agreement, the D is not required to sign a financing statement that covers the same collateral.  This facilitates electronic filing of financing statements and electronic searches. 

 

¿9-502._ A SP can file a financing statement (without the D¿s signature) only if authorized by the D to make the filing.  Article 9 provides for automatic authorization to file a financing statement consistent with the security interest granted by the D in the security agreement.  A SP needs express authorization or subsequent ratification to pre-file a financing statement if the D has not yet authenticated a security agreement. 

¿ 9-509._ Duration:  while filing continues to be effective for five years, there are new continuation rules.  A security interest properly perfected remains perfected until the earliest of:  (a) time perfection would have ceased; (b) four months after a change of D¿s location; (c) one year after a transfer of collateral to a person that thereby becomes a D and is located in another jurisdiction.  Ds have authority to file termination statements under some circumstances, such as if creditors fail to file the statements when required to do so.  A D¿s termination statement is only effective if the D was entitled to the termination by the creditor.  Termination statements will remain part of the record, which remains open until the lapse date of the original filing.  ¿9-515.

PERFECTING THE LIEN AND PRIORITIES

 
By perfecting the lien, a Secured Party can obtain the highest priority allowed by state law.  Revised Article 9 clarifies the application of some of the rules of former Article 9.  The revisions are designed to simplify procedures, reduce the costs of compliance, and reduce the risk of inadvertent errors.  The revision also permits the use of a financing statement to perfect a security interest in some kinds of collateral that under former Article 9 could be perfected only by other means.  Perfection is generally by filing, but may also be accomplished by possession or control.  Usually, the nature of the collateral determines the appropriate method of perfection.  The revision simplifies the choice of law rules governing perfection by providing a general rule that the law of perfection and priority will be the law of the Debtor¿s location.  The general rule is to file in the central office of the jurisdiction where the Debtor is located.  The Debtor¿s location for a Debtor

created by registration in a state is the state of registration.  The exception to the general rule is for security interests in fixtures and other real estate related collateral. Filing for this type of collateral is to be done in the jurisdiction in which the collateral is located.Under the revision, the priority rules for purchase money security interests (PMSIs) in non-consumer goods have been changed.  For PMSIs in non-inventory collateral, the grace period in which perfection must occur has been extended from 10 days to 20 days from the time the Debtor obtains possession of the collateral.  If the Debtor first has possession of the goods as a lessee under a lease and then exercises a purchase option to buy on credit, the 20-day time period does not start until the goods become collateral and subject to the security interest.  For PMSIs in inventory collateral, the rules remain unchanged.  Perfection must occur by the time the Debtor receives the collateral and holders of conflicting security interests must be notified within 5

years before the Debtor receives possession of the inventory.  The revision also provides priority rules for securities used as collateral.  The general rule to determine priority is that the first party to file a financing statement or to perfect its security interest has

priority.  There are exceptions based on the method of perfection, however.  Generally, control has priority over filing and possession has priority over control.  Thus, a Secured Party whose perfection by control is subsequent in time will prevail over a prior Secured Party that perfected by filing. 

 

File for all collateral and agricultural liens except as listed below.  _ File for agricultural liens, Investment property, payment intangibles._ Priority dates from the time of filing unless state statute give the agricultural lien superpriority.

 

 

 
Can file or possess tangible chattel paper, negotiable documents, tangible Investment property (certified securities only), and goods. Could only possess Instruments and Investment property. _ Can file or possess those items under Old Article 9, Instruments, and Investment property.  ._ Priority:  possession will beat filing.  It is recommended to both file and possess.  A SP that perfects by filing will not have priority over a second SP that perfects by possession, unless the second SP knows that its purchase violates

the rights of the first SP.  The decision of whether to depend solely on the filing of the financing statement to perfect depends on the SP¿s level of confidence in the D.

 

Instruments and Investment Property _ Same as old Article 9.  _ The law of the state of the location of the collateral governs the perfection by possession. _ Perfection is by taking physical possession of the collateral.  A SP may perfect a security interest in certificated securities by taking delivery of the certificated securities.  A SP may perfect a security interest in the goods covered by the certificate of title by taking possession of the goods.  Perfection when the collateral is in the possession of a third party (bailee) occurs when the bailee is in possession on behalf of the SP.  A D can not qualify as an

agent for the SP for purposes of the SP¿s taking possession.  In addition, if a person in possession is closely connected to a D, then the D may be deemed to have regained possession even though the person may have agreed to take possession for the SP.  In such a case, the person¿s taking possession would not constitute the SP¿s taking possession and would not be sufficient for perfection.

 

 

 

Control of Investment property served as a method of perfecting an interest  _ Can file or control Investment Property and Electronic Chattel Paper.  _ Investment Property:  the SP remains perfected by control until the party ceases to have control and the D receives possession of collateral that is a certificated security, becomes the registered owner of collateral that is an uncertificated security, or becomes the entitlement holder of collateral that is a security entitlement. 

 

¿9-106_ Priority:  perfection by control has priority over perfection by filing for Investment property.  A SP that perfects only by filing will not have priority against a party that perfects by control, even if the second SP knows of the prior perfected interest.  A SP that does not fear a D double-financing collateral can simply file to perfect and defeat a lien creditor, including a trustee in bankruptcy and D in possession.

 

¿9-328.  _ Electronicchattel paper:  control requires a unique ¿marking¿ of the Electronic chattel paper. This requires that a single authoritative copy exist which is unique, identifiable, and unalterable.  Unalterable means that revisions to add or change an assignee can be made only with the SP¿s participation and that any copies or

revisions of the authoritative copy are readily identifiable as unauthorized copies or revisions. 

 

¿9-105._ Priority: perfection by control has priority over perfection by filing. If perfect by filing, a good faith purchaser of the chattel paper may have a higher priority.

 

 

Perfection by control for Deposit Accounts and Letter of Credit Rights was under common law¿outside Article 9 Letter of Credit Right:  perfection is by possession of the original Letter of CreditPriority:  two SPs that each have control rank equally. 

_ Perfection by control for Deposit Accounts, Letter of Credit Rights.

_ Deposit Accounts:  SP has control over the Deposit Account if the SP is the bank where the Deposit Account is maintained; the SP enters into a control agreement with the third party bank; the SP becomes the bank¿s customer with respect to the Deposit Account.  As the bank¿s customer the SP has the right to withdraw funds or close the Deposit Account.

 

¿9-104._ Priority:  usually, a security interest held by the depository bank has priority over a conflicting interest held by another SP.  Also, a depositary bank¿s right of setoff against the D will have priority over a security interest in the deposit acct held by the SP other than the bank, unless the other SP has become the bank¿s customer with respect to the account. 

 

¿9-327._ Letter of Credit Right:  SP has control of a Letter of Credit right when the issuer of the Letter of Credit has consented to the assignment of proceeds of the Letter of Credit to the SP.  This does not give the SP the right to draw of the Letter of Credit.  If the Letter of Credit right is a ¿supporting obligation,¿ there is automatic perfection if the supported obligation is a perfected security interest.

 

¿9-107_ Priority:  priority between two secured parties that both have control is determined by temporal priority.  ¿9-329

 

No need to file.  There is automatic perfection of a security interest in a purchase money security interest in consumer goods, a sale of a payment intangible, a sales of a promissory note, a security interest in a supporting obligation, and in a security interest that secures an obligation that itself is collateral. 

_ Priority:  a subsequent SP that takes possession will have priority over a SP that perfects through automatic perfection, unless the subsequent SP knows that its security interest violates the rights of the first SP.  The buyer of a payment intangible can not lose priority, since automatic perfection is the only means of perfection.

 

DUTIES OF THE SECURED PARTY

 

A Secured Party¿s duties to creditors are limited to taking reasonable care of collateral in its possession.  Once there is no outstanding obligation and no further commitment, the Secured Party must terminate control of the collateral.  Since the revision extends the concept of ¿control¿ to Deposit Accounts, electronic chattel paper, Investment property and letter-of-credit rights, the duty to terminate control attaches to parties

secured by control of this collateral. 

The Secured Party must terminate control within 10 days of receiving demand of the termination notice from the Debtor.  Similarly, if the account Debtor has been notified of an assignment to another Secured Party, the Secured Party (assignee) has 10 days upon receipt of demand from the Debtor to send an authenticated record releasing the account Debtor from further obligation. ¿9.207.

 

ENFORCEMENT OF SECURITY INTERESTS

The revision has both added and clarified the rules for enforcing security interests after default.  For Deposit Accounts, a depository bank which is also a Secured Party perfected by control may take advantage of a self-help remedy.  The Secured Party may apply the balance of the Deposit Account to the obligation secured by the account.  Where the bank has a Deposit Account in which another Secured Party has perfected by control either (1) through an agreement that the bank will comply with the Secured Party¿s instruction, or (2) by the Secured Party becoming the bank¿s customer as to the account, the Secured Party may instruct the bank to pay the balance of the account to or for the benefit of the Secured Party.  However, if the security interest is

unperfected, the depository bank does not have an obligation to obey the instructions.  If a Secured Party has control over tangible collateral which it sells after default, the sale must be held in a commercially reasonable manner. 

The revision requires the Secured Party, as seller, to give the typical contract warranties of title, possession, and quiet enjoyment to the buyer.  However, the Secured Party is allowed to disclaim the warranties in a statement specifically stating that there are no warranties.The Secured Party is required to give notice of the disposition to the Debtor. 

For non-perishable goods that are not consumer goods, notice must be given to any person claiming an interest in the goods.  Notice must also be given to any other Secured Party of lienholder who, 10 days before the notification date, held a security interest in or other lien on the collateral perfected by the filing of a financing statement.  

If the collateral is sold to a person related to the Secured Party, in calculating any deficiency, the sale price shall be a commercially reasonable amount rather than the actual net proceeds. 

If the sale involves a consumer good, the notice to the Debtor must contain the specific information in the Form of Notification.  Any notice that lacks the required information is insufficient.  If the disposition of the consumer good results in the Debtor being liable for a deficiency, the Secured Party must provide the Debtor with notice as to how the

deficiency was calculated.  Furthermore, a Debtor in a consumer goods transaction may not waive the right of redemption.

¿Default¿ is not defined¿what constitutes default is left to the agreement of the parties _ Same as old Article 9. 

After default, the SP has rights under the UCC, those provided in the security agreement, and rights not covered by the UCC.  The rights after default are cumulative. _ Same as old Article 9.  _ Same as old Article 9.

 

If the SP reduces the claim to judgment, the lien made upon collateral by execution of the judgment relates back to the date of perfection of the security interest._ A judicial sale pursuant to such execution is a foreclosure of a security interest._ The SP may purchase the collateral at a judicial sale and hold the collateral free of other requirements of Article 9. Same as old Article 9.  Same as old Article 9.  Same as old Article 9.

 

SP¿s Collection Rights  ¿9-607
Old Article 9Revised Article 9
 
 
The SP may, to the extent provided in the security agreement and in any event after default, notify the account D (on accounts, chattel paper or general intangibles) or obligor (on an instrument) to make payment to the SP and not the D.No specific provision for collection rights of junior SP.The SP entitled to charge back uncollected collateral or has recourse against the D and attempts to collect from third parties must proceed in a commercially reasonable manner, but may deduct reasonable expenses of collection.Deposit Accounts not covered in old Article 9 since not characterized as original collateral. 

Same as old Article 9, but broader¿SP may enforce all claims against persons obligated on collateral and ¿supporting obligations.¿ _ SP who holds a security interest in a payment right may collect, even if the SP¿s interest is subordinate to a security interest in favor of another SP.   The junior SP must be a holder in due course in order to prevail

over a prior security interest.  

 

¿9-331._ Same as old Article 9.  _ If the SP holds a security interest in a Deposit Account that is perfected by control, the SP may apply the balance of the Deposit Account to the debt (assuming the SP is the bank with which the account is maintained) or instruct the bank to pay the balance of the Deposit Account to the SP.  

Unless the parties otherwise agree, the SP on default has the right to take possession of collateral and proceeds without judicial process if repossession is accomplished without breach of the peace. If provided in the security agreement, the SP may require the D to assemble collateral and make it available at a place designated by the SP that is reasonably convenient to both parties.Without removal, a SP may render equipment

unusable and may dispose of collateral on the D¿s premises.After default, if the SP¿s security interest in fixtures is senior to rights of all owners and encumbrances of real estate, the SP may remove the fixtures but must reimburse the owner or encumbrancer (other than the D) for cost of repair of any physical injury to the real estate.  The SP does not have to reimburse any diminution in value of the property due to the removal of

fixtures. SP may proceed by judicial process.  _ Same as old Article 9.  _ Same as old Article 9. 

_ Same as old Article 9._ Same as old Article 9.  ¿9-604._ Same as old Article 9.

Notification of Disposition of Collateral  ¿9-611 
Old Article 9Revised Article 9 
 
 
The SP must send reasonable notice of time and place of any public sale, private sale, or other intended disposition of the collateral to the D, unless after default, the D signed a statement waiving or modifying the right to notification.  In the case of consumer goods, no other notification needs to be sent.  In other cases,  the SP must send notification  to any other SP from whom the foreclosing SP received written notice of a claim

of an interest in collateral before he sent his notice to the D or before the D¿s renunciation of rights. No notice is required if collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market.Timeliness of notice before disposition of collateral decided by case

law.Form and content of notice of disposition of collateral not regulated by Article 9, except that notice must specify the time and place of any public sale or time after which any private sale is to be made  No approved form of disposition notice in old Article 9. 

_ The SP must send a ¿reasonable authenticated notification of disposition¿ to the D and any Secondary Obligor (surety) and, if the collateral is not Consumer Goods, any other person from which the SP has received, before the ¿notification date¿ an authenticated notification of a claim of an interest in collateral; any other SP of lienholder that, 10 days before ¿notification date,¿ held a security interest in or other lien on collateral, indexed under the D¿s name as of that date, and filed in the office covering the type of collateral as of that date; and any other SP that, 10 days before the ¿notification date¿ held a security interest in the collateral perfected by compliance with other applicable law.  The term ¿notification date¿ means the earlier of the date on which the SP sends to the D and any Secondary Obligor an authenticated notification of disposition, or the D and any Secondary Obligor waive the right to notification.  The SP satisfies its notification duty if it requests, in a commercially reasonable manner, a search from the property filing office at least 20 days, but not more than 30 days, before sending notification to the D and if it also sends a notification to all SPs (and other lienholders) reflected on the search report. _ Same as old Article 9. 

 

_ Whether a notification is sent within a reasonable time is a question of fact.  But, in a non-consumer transaction, notice of disposition sent after default and 10 days or more before the earliest time of disposition set forth in the notice is deemed to be sent within a reasonable time before the disposition.  The 10 day safe harbor for notification does not apply in a consumer transaction. 

 

¿9-612.  _ Content of notification must be reasonable, but is sufficient as a

matter of law in non-consumer transactions if the notification describes the D and the SP, describes the collateral, states the method of intended disposition, states that the D is entitled to an accounting of the unpaid indebtedness, states the charge, if any, for an accounting and states the time and place of a public disposition or the time after which any other disposition is to be made.  Notice containing the foregoing is adequate, even if the notice includes information not specified above or minor errors that are not seriously

misleading.  For consumer good transactions, notification must provide the same information specified above, as well as the description of any liability for a deficiency of the person to whom notification is sent, a telephone number from which the amount that must be paid to the SP to redeem the collateral is available, and a telephone number or mailing address from which additional information concerning the disposition and the

secured obligation is available. 

 

¿9-613._ In a consumer goods transaction, notification of disposition

must provide the information specified in

 

¿9-613(1); a description of any liability for a deficiency of the

person to which the notification is sent; a telephone number from which the amount owed to the SP can be obtained; a telephone number or mailing address from which additional information can be obtained concerning the disposition and obligation secured. 

¿9-614._ Contains ¿safe harbor¿ forms of notification.  ¿¿9-613 and 9-614.

Disposition of Collateral  ¿9-610
Old Article 9Revised Article 9
 
 
After default, the SP may sell, lease or otherwise dispose of collateral in its then condition or following any commercially reasonable preparation or processing.  Any sale of goods is subject to Article 2.Every aspect of a disposition, including method, manner, time, place, and terms, must be commercially reasonable.Disposition may be by public or private proceedings and may be made by way of one or more contracts.  Sale or other disposition may be as a unit or in parcels and at any time and place and on any terms, provided they are commercially reasonable.The SP may buy at any public sale and, if collateral is of the type customarily sold in recognized market or of a type that is subject of widely distributed standard price quotations, at a private sale.Any sale or other disposition of goods is subject to the Articles on sales, including the provisions of Article 2 relating to express or implied warranties and disclaimers thereof. No express authorization or prohibition for foreclosure sale by a junior SPIf the security agreement covers both real and personal property, the SP may proceed under Article 9 as to the personalty or may proceed as to both real and personal property in accordance

with real estate foreclosure laws. _ Same as old Article 9, but the SP is authorized to ¿license¿ collateral and any sale of goods is not expressly made subject to Article 2.  _ Same as old Article 9.  _ Same as old Article 9.  _ Same as old Article 9.  _ A contract for sale, lease, license or other disposition includes warranties relating to title, possession, quiet enjoyment and the like, except to the extent disclaimed or modified.  The SP may disclaim or modify warranties in a manner that would be effective to

disclaim them in a voluntary disposition of property or by communicating to the purchaser a ¿record¿ evidencing the disposition contract and including an express disclaimer or modification of warranties.  A record is sufficient to disclaim warranties if it indicates ¿there is no warranty relating to title, possession, quiet enjoyment, or the like in this disposition¿ or words of similar import.  _ No express authorization or

prohibition on dispositions by a junior SP, but application of proceeds disposition implicitly authorized.  ¿9-615._ Same as old Article 9.  ¿9-604.

Rights of Transferee  ¿9-617
Old Article 9Revised Article 9
 
 
The disposition by the SP transfers to the ¿purchaser for value¿ of collateral all of the D¿s rights, discharges the security interest under which it is made or liens subordinate thereto, and purchaser takes free of all such rights even through the SP fails to comply with the requirements of Article 9 or of any judicial proceeding, but only if (i) in a public sale, purchaser has no knowledge of any defects in collateral and does not buy in collusion with SP, other bidders or person conducting the sale, and (ii) in any other case,

purchaser acts in "good faith." "Good faith" means honesty in factChange of ownership on title certificate or ownership registry not covered. _ Same as old Article 9, but ¿good faith¿ transferee for value takes free of all interest even if the SP fails to comply with Revised Article 9 or the requirements of any judicial proceeding, regardless of whether the disposition was by public or private sale.  An aggrieved person (e.g., the holder of a subordinate security interest to whom a  required notification was not sent) has a right to recover any loss.  If a transferee does not take free of the rights and interests of other parties (because the transferee does not act in good faith), the transferee takes collateral subject to the D¿s rights, the security interest under which the disposition is made, and any other security interest or other lien.  _ "Good faith" means honesty in fact and the observance of reasonable commercial standards of fair dealing.  _ After foreclosure, the SP or transferee may file a "transfer statement," which entitles the transferee to transfer of record of all rights of the D in the collateral specified in the statement in any official filing, recording, registration or certificate-of-title system covering the collateral, subject to presentation of the applicable fee.  A "transfer statement" is a record authenticated by the SP stating that the D has defaulted, the SP has exercised its remedies with respect to the collateral, and a transferee has acquired the rights of the D in the collateral, and the name and mailing address of the SP, the D and the transferee.  ¿9-619.

Application of Disposition Proceeds  ¿9-615
Old Article 9Revised Article 9 
 
 
The SP must account to the D for any surplus after satisfaction of indebtedness from collection of accounts and other intangible collateral.  Proceeds from any disposition of tangible collateral are applied first to reasonable expenses of repossession, preparation for sale, selling, leasing and the like and, if provided for in the security agreement and not prohibited by law, reasonably attorney¿s fees and legal expenses incurred by the SP; then to the satisfaction of the underlying secured indebtedness; and last to satisfaction of any indebtedness secured by a subordinate security interest in the collateral if written notification of demand thereof is received before distribution of the proceeds is completed.  Holder of a subordinate security interest must, on senior SP¿s request, seasonably furnish reasonable proof of junior SP¿s interest in the collateral.  Any surplus remaining is to be remitted to the D. No express provision in existing Article 9 made for distribution of proceeds derived by the SP from a disposition to another SP holding a senior security interest or lien in the collateral.No differentiation between cash and non-cash proceeds of a disposition in the context of the sharing of proceedsIf the security agreement secures a debt, the SP must account to the D for any surplus and, unless the security party provides otherwise, the D is liable for any deficiency. If the underlying transaction is a sale of accounts or chattel paper, the D is not entitled to any surplus, nor is the D liable for any deficiency, unless provided for in the security agreement.No provision dealing with the calculation of a surplus or deficiency with respect to dispositions in which the transferee is the SP or a person related to the SP. _ Same as old Article 9, but, if a consignor has an interest in the collateral, the SP does not turn over the proceeds to a subordinate security interest or other lien unless it is senior to the interest of the consignor and the SP must distribute any remaining proceeds to a consignor if the SP receives from the consignor an authenticated demand for proceeds before distribution of the proceeds is completed. A consignor means a person that delivers goods to a consignee in a consignment. _ A junior SP who collects from account Ds must turn over proceeds to a senior SP, unless the junior SP obtains priority on the proceeds.  The SP that receives cash proceeds of a collateral disposition in good faith and without knowledge that receipt violates rights of SP holding senior lien takes the cash proceeds free of the security interest or other liens; is not obligated to apply the proceeds to satisfaction of the senior security interest; and is not obligated to account or pay over any surplus to the SP holding the security interest.  _ The SP does not need to apply or pay over non-cash proceeds of disposition unless failure to do so would be commercially unreasonable.  The SP that applies or pays over for application non-cash proceeds must do so in a commercially reasonable manner.  _ Same as old Article 9.  _ If the underlying transaction is the sale of accounts, chattel paper, payment intangibles or promissory notes, the D is not entitled to any surplus and no Obligor is liable for any deficiency.  _ If proceeds of a disposition of collateral to a SP, a ¿person related to¿ the SP, or a Secondary Obligor are significantly below the range of proceeds that a complying disposition to a  person other than the SP, a person related to the SP or a Secondary Obligor would have brought, then, instead of calculating a deficiency (or surplus) based upon actual net proceeds, it is based on the amount that would have been received at such a commercially reasonable disposition. (This section recognizes that when the foreclosing SP or a related party is the transferee of the collateral, the SP may lack the incentive to maximize the proceeds of the disposition.  Thus, the deficiency will be calculated based on the amount that would have been received at a commercially reasonable disposition, rather than on the actual net proceeds).

Strict Foreclosure  ¿9-620
Old Article 9Revised Article 9 
 
 
If the D has paid 60% of the cash price of a purchase money security interest in consumer goods, or  60% of a loan for any other security interest in consumer goods, and has not renounced or modified his rights after default, the SP who has possession of the collateral must dispose of it in a reasonably commercial manner by public or private sale.  If the SP fails to do so within 90 days after repossession, the D may recover in conversion or obtain a court order restraining the collection, enforcement, or disposition of the collateral.  Rationale In any other case involving consumer goods or any other collateral, the SP who is in possession of tangible personal property may, after default, propose to retain the collateral in satisfaction of the entire indebtedness.Written notice of the proposal by the SP must be sent to the D if he has not signed a statement renouncing or modifying his rights after default.  In the case of consumer goods, no other notice must be given.  In other cases, notice must be given to any other SP from whom the party has received (before sending his notice to the D or before the D¿s renunciation of his rights) written notice of a claim of an interest in the collateral.  If the SP receives objection in writing from a person entitled to receive notification within 21 days after the notice was sent, the SP must dispose of collateral in a commercially reasonable manner.  Absent such a written objection, the SP may retain the collateral in satisfaction of the entire debt. The effect of acceptance of collateral is to discharge the underlying obligation of the SP and to transfer ownership of collateral to the SP.  Article 9 is unclear whether junior interests in the collateral are discharged. Involuntary strict foreclosure, which results from the SP¿s unexplained delay in disposing of the collateral in his possession may occur Same as old Article 9, but the SP must dispose of the collateral within 90 days after taking possession or within any longer period to which the D and all Secondary Obligors have agreed in writing after default.  _ Except in the case of Consumer Goods, the SP may accept collateral (including tangible or intangible collateral and whether or not the SP is in possession) in full or partial satisfaction of obligations secured.  _ The SP¿s acceptance of collateral is effective only if:  (1)  the D consents to the acceptance, (2) the SP does not receive a timely objection from an interested party to whom the SP was required to send notice of the SP¿s proposal to accept the collateral or from any other person holding a subordinate interest in the collateral; (3)  if collateral is Consumer Goods, collateral is not in possession of the D when the D consents to the acceptance; and (4) the collateral is not Consumer Goods subject to mandatory disposition or the D waives the requirement of notification of disposition of collateral, the right to disposition of collateral, or the right to redeem collateral. The D is not deemed to have consented to a partial satisfaction of the obligation unless he agrees to the terms of such acceptance in writing, after default.  The D is not deemed to have consented to an acceptance in full satisfaction of secured debt unless the D agrees to the terms in writing after default or the SP send the D a proposal that is unconditional (or subject only to a condition that collateral not in the possession of the SP be preserved or maintained), proposes to accept the collateral in full satisfaction of the secured debt, and does not receive a written objection within 20 days after the proposal is sent.  The SP is required to send written proposal to accept collateral in full or partial satisfaction of the debt to (i) any personal from whom the SP has received, before the D consented to acceptance, written notification of a claim of an interest in the collateral; (ii) any other SP of lienholder that, 10 days before the D consents to acceptance, held a security interest in or lien on the collateral perfected by filing of a financing statement; and (iii) any other SP that, 10 days before the D consented to acceptance, held a security interest in collateral perfected by compliance with other applicable law.  The SP must also send a proposal to any Secondary Obligor.  A notification of an objection to the SP¿s proposal, to be effective, must be received by the SP within 20 days after the notification was sent or if notification was not sent, before the D consents to the acceptance of the collateral.  

 

¿9-621._ The SP¿s acceptance discharges the obligation, transfers all of the D¿s rights in the collateral to the SP, discharges the security interest and any subordinate liens, and terminates any other subordinate interest.  ¿9-622._ An apparent acceptance of collateral is ineffective unless the SP consents in writing or sends a proposal to the D. 

Right to Redeem Collateral  ¿9-623
Old Article 9     Revised Article 9
 
 
The D, or any other SP may redeem the collateral, unless agreed otherwise in writing after default.To redeem the collateral, the D or another SP must pay the remaining obligation as well as the expenses reasonably incurred by the SP in retaking, holding and preparing the collateral for disposition, and  in arranging for a sale.  The SP¿s reasonable attorneys¿ fees and legal expenses must also be paid to the extent provided in the security agreement and not prohibited by law.

Redemption may occur at any time before the SP has disposed of the collateral or has entered into a contract for its disposition or before the secured obligation has been discharged. _ The D, any Secondary Obligor (e.g., guarantor) or any other SP or lienholder may redeem the collateral.  _ To redeem the collateral, the redeeming party must pay the remaining obligation and all reasonable expenses and attorney¿s fees required.  _ Redemption may occur at any time before the SP has collected, disposed of, entered into a contract to dispose of, or has accepted collateral in full or partial satisfaction of the secured obligation. 

 

The D may sign a statement after default, renouncing or modifying his rights to notification of a disposition of collateral.No provision in old Article 9 for the D¿s waiver of mandatory disposition of consumer goods.

 

The D and SP may agree in writing to waive redemption rights. 

_ The D or Secondary Obligor may waive the right to receive notice of the disposition of the collateral in an agreement signed after default. 

 _ The D may waive the right to require disposition of collateral for Consumer Goods only by an agreement signed after default.   

_ Except in Consumer Goods transactions, the D or Secondary Obligors may waive the redemption rights by an agreement signed after default.

Liability for Noncompliance ¿9-625
Old Article 9     Revised Article 9 
 
 
The SP may be restrained on appropriate terms if the disposition is not proceeding in accordance with Article 9.If a disposition has occurred, the SP may be liable for a loss resulting from the failure to comply with Article 9.  Old Article 9 is silent on whether damages recoverable for the SP¿s non-compliance when collateral is worth less than the secured obligation.Damages may be recovered by the D, any person entitled to notification of the SP¿s proposed disposition of collateral or any person whose security interest has been made known to the SP prior to the disposition of the collateral.If the collateral is consumer goods, the D has a right to recover an amount not less than the credit service charge plus 10% of the principal amount of the debt or the time price differential plus 10% of the cash price. The fact that a better price could have been obtained by a sale at a different time or in a different method from that selected by the SP is not sufficient to establish that the sale was not made in a  commercially reasonable manner.The SP sells in a commercially reasonable manner if he sells collateral in the usual manner in a recognized marked, sells at the price current in such market at the time of sale or has otherwise sold inconformity with reasonable commercial practices among dealers in the type of property sold.A conclusive presumption of commercial reasonableness arises in connection with a disposition approved in any judicial proceeding, by any bona fide creditors¿ committee or representative of creditors, but such approval need not be obtained nor does the absence of approval indicate any disposition not so approved was not commercially reasonable.No existing limitations on liability of SP of the type in Revised Article 9 _ Same as old Article 9.  _ Same as old Article 9, except that a loss caused by a failure to comply may include loss resulting from the D¿s inability to obtain, or the increased cost or, alternative financing.  The D or Secondary Obligor (i.e., obligation is secondary to that of the D) whose deficiency is eliminated or reduced may recover damages for the loss of any surplus, but may not otherwise recover if no surplus would have resulted from a commercially reasonable disposition.  _ Damages may be recovered by a person that at the time of non-compliance was a D, an Obligor, or holder of a security interest in or other lien on the collateral.  Same as old Article 9, but a Secondary Obligor as well as the D may recover.  _ Same as Article 9.  ¿9-627._ Same as Article 9.  ¿9-627._ Same as Article 9.  ¿9-627. _ Unless the SP knows that a person is a D or an Obligor, knows the identity of the person and knows how to communicate with the person, the SP is not liable to the person, or to another SP or lienholder that has filed a financing statement against the person, for failure to comply with Revised Article 9 and SP¿s failure to comply does not affect the liability of the person for a deficiency.  The SP is not liable because of its status as a SP to a person that is a D or an Obligor, unless the SP knows that the person is a D or an Obligor, the identity of the person, and how to communicate with the person; nor is the SP liable to another SP or lienholder that has filed a financing statement against a person, unless the SP knows that the person is a D and identity of the person.  The SP is not liable to any person, and a person¿s liability for a deficiency is not affected, because of any act or admission arising out of the SP¿s reasonable belief that the transaction is not a Consumer-Goods Transaction or a Consumer Transaction or that goods are not Consumer Goods, if the SP¿s belief is based upon its reasonable reliance on the D¿s representation concerning the purpose for which the collateral is to be used, acquired, or held, or an Obligor¿s representation concerning the purpose for which a secured obligation was incurred.  The SP is not liable to any person relating to a minimum statutory damages in consumer goods transactions, for its failure to provide an explanation in writing of the calculation of a surplus or deficiency in a Consumer Transaction.  ¿9-628.

Article 9 is silent on burden of proof in actions to recover a deficiency Although existing Article 9 is silent on the effect of noncompliance on a deficiency claim, case law is split between the so-called ¿absolute bar rule¿ and the ¿rebuttable presumption rule.¿  Under the former rule, noncompliance bars a deficiency without exception.  Under the latter rule, a rebuttable presumption arises that value the collateral equals the debt, with the result that the SP must overcome the presumption in order to recover any deficiency.  Case law generally requires the D to put an issue the question of commercial reasonableness, after which the burden shifts to SP to demonstrate compliance with Article 9. _ Unless the D or a secondary Obligor places compliance with Revised Article 9 in issue, the SP does not need to prove compliance, but has the burden of establishing compliance when noncompliance is placed in issue._ If the SP fails to prove compliance, the liability of the D or a Secondary Obligor for a deficiency is limited to amount by which the sum of the secured debt, expenses and attorneys¿ fees exceeds greater of the disposition proceeds or the amount of the proceeds that would have been realized had the SP preceded in compliance with Revised Article 9. The amount of the proceeds that would have been realized in a complying disposition is presumed to be equal to the sum of the secured debt, expenses and attorneys¿ fees, unless the SP proves that the amount is less than that sum. 

 

¿9-626(a)(4).  If a deficiency or surplus is calculated, the D or an Obligor has the burden of establishing that amount of proceeds is significantly below the range of prices that complying disposition to a person other than the SP, a person related to the SP or a Secondary Obligor would have brought. The foregoing rules apply only to commercial transactions, and Revised Article 9 leaves to the courts the determination of the property rules to apply in a Consumer Transaction.