Hidden Liens Report, a project of the Commercial Transactions Committee of the Business Law Section of The State Bar of California
II. List and Discussion of Hidden Liens
A. Liens Arising in Sales Transactions

1. Interest of buyer in identified goods under Commercial Code Section 2501.3

Statutory Framework:

Subdivisions (1) and (2) of Commercial Code § 2501 provide as follows:

  1. The buyer obtains a special property and an insurable interest in goods by identification of existing goods as goods to which the contract refers even though the goods so identified are nonconforming and he has an option to return or reject them. Such identification can be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit agreement, identification occurs
    1. When the contract is made if it is for the sale of goods already existing and identified;
    2. If the contract is for the sale of future goods other than those described in paragraph c, when goods are shipped, marked or otherwise designated by the seller as goods to which the contract refers;
    3. If the contract is for the sale of unborn young or future crops, when the crops are planted or otherwise become growing crops or the young are conceived;
  2. The seller retains an insurable interest in goods so long as title to or any security interest in the goods remains in him and where the identification is by the seller alone he may until default or insolvency or notification to the buyer that the identification is final substitute other goods for those identified.

How the Lien Arises/Attaches:

This special property and insurable interest applies automatically upon identification of existing goods as goods to which a contract refers unless there is explicit agreement otherwise. The interest established under Section 2501 is a precondition for passage of title to goods under a contract.4 No distinction is made between goods in a deliverable state and those that require additional labor before delivery. Identification of goods occurs (i) when the contract is made if it is for the sale of goods already existing and identified per Commercial Code § 2501(1)(a), (ii) when they are shipped, marked or otherwise "designated" by the seller as goods to which the contract refers if the contract is for the sale of future goods other than those described in Commercial Code § 2501(1)(c) per Commercial Code § 2501(1)(b), or (iii) after they are planted with respect to future crops and after they are conceived with respect to unborn young, per Commercial Code § 2501(1)(c).

Perfection of the Lien:

The special property interest is not technically a "security interest" so it cannot technically be "perfected." Generally, it is the means by which California grants buyers the right to purchase insurance in goods identified to a contract and standing to sue third parties who tortiously interfere with goods identified to a contract. However, where a seller becomes insolvent within ten days of the first partial payment by a buyer with a special property interest under Commercial Code § 2501, that buyer may exercise its right to claim the identified goods by tendering the unpaid portion of the contract price.5 This limited right of a buyer to claim goods from an insolvent seller complements a seller's limited reclamation right when the seller discovers that an insolvent buyer has received goods on credit. See Commercial Code § 2702, described herein.

Priority of the Lien:

Section 2501(3) provides that "[n]othing in this section impairs any insurable interest recognized under any other statute or rule of law."

Unless and until the buyer tenders the unpaid portion of the contract price as stated above, secured parties are not likely to be harmed by this special property and insurable interest. 6

The Obligations Secured by the Lien:

Under Commercial Code § 2502, a buyer with a special property interest granted under Section 2501 may claim goods identified to the contract by tendering full payment where the seller has become insolvent within ten days following receipt of partial payment.

The Property Subject to the Lien:

Any goods that are subject to Division 2 of the Commercial Code may become subject to the lien. Commercial Code § 2105 defines "goods" as:

[A]ll things (including specially manufactured goods) which are movable at the time of identification to the contract or sale other than the money in which the price is to be paid, investment securities ... and things in action. "Goods" also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty.

The Classes of Secured Party/Debtor Subject to the Lien:

Secured creditors who take as collateral anything which might become "goods" as such term is defined in Commercial Code § 2105 are subject to the lien.

A seller of goods is subject to this lien.

How a Secured Party Can Maintain Its Priority or Protect Its Security Interest Against the Hidden Lien, Including Recommended Due Diligence:

Section 2501(3) provides that "[n]othing in this section impairs any insurable interest recognized under any other statute or rule of law." Therefore, claimants' rights under Section 2501 are junior to those of existing secured creditors who have perfected their security interests.

Unless and until the buyer tenders the unpaid portion of the contract price as stated above, secured parties are not likely to be harmed by this special property and insurable interest.7

2. Security interest reserved by seller pursuant to Commercial Code Section 2505. 8

Statutory Framework:

Commercial Code § 2505 provides as follows:

  1. Where the seller has identified goods to the contract by or before shipment:
  2. His procurement of a negotiable bill of lading to his own order or otherwise reserves in him a security interest in the goods. His procurement of the bill to the order of a financing agency or of the buyer indicates in addition only the seller's expectation of transferring that interest to the person named.
  3. A nonnegotiable bill of lading to himself or his nominee reserves possession of the goods as security but except in a case of conditional delivery, (subdivision (2) of Section 2507) a nonnegotiable bill of lading naming the buyer as consignee reserves no security interest even though the seller retains possession of the bill of lading.
  4. When shipment by the seller with reservation of a security interest is in violation of the contract for sale it constitutes an improper contract for transportation within the preceding section but impairs neither the rights given to the buyer by shipment and identification of the goods to the contract nor the seller's powers as a holder of a negotiable document.

How the Lien Arises/Attaches:

The lien arises when a seller has identified goods to a contract and procured a bill of lading for shipment, except if a nonnegotiable bill of lading lists the buyer as a consignee. The lien lasts until the buyer has lawfully obtained possession of the goods.

Perfection of the Lien:

No further action is necessary to perfect the lien.

Priority of the Lien:

Commercial Code § 9110 subjects a security interest arising under Section 2505 to Division 9, and provides that, until the recipient obtains possession of the goods, the security interest has priority over conflicting security interests, including a security interest existing prior to the creation of the Section 2505 lien.

The Obligations Secured by the Lien:

The security interest is restricted to securing payment or performance by the buyer and does not affect the location of title generally.

The Property Subject to the Lien:

This lien pertains to any identified goods under shipment. Section 2105(1) defines "goods" as:

...all things (including specially manufactured goods) which are movable at the time of identification to the contract or sale other than the money in which the price is to be paid, investment securities (Division 8) and things in action. "Goods" also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (Section 2107).

The Classes of Secured Party/Debtor Subject to the Lien:

Secured parties are any party taking a security interest in the assets of a debtor that are used to purchase shipped goods.

Debtors are buyers of goods who have not received the goods.

How a Secured Party Can Maintain Its Priority or Protect Its Security Interest Against the Hidden Lien, Including Recommended Due Diligence:

Generally a secured party cannot maintain its priority over this hidden lien. However, the operation of this lien is not likely to place a secured party who has an all asset grant or where the security interest includes proceeds of such goods in a particularly bad position. Any payments made by the buyer to the seller for such goods will presumably become a component of the secured party's collateral. Because a large percentage of the lien amount will probably be allocable to payments made by the buyer, except in cases where the buyer incurred large amounts of expenses with respect to the goods, the payments made by the buyer should generally cover the damage to the secured party's position caused by the effective subordination of its security interest of the seller.

Secured parties can protect themselves against this hidden lien by requesting that shipment involve a nonnegotiable bill of lading naming the buyer/debtor as consignee.

3. Reclamation right of seller under Commercial Code Section 2702.9

Statutory Framework:

Commercial Code § 2702(2), (3) states as follows:

  1. Where the seller discovers that the buyer has received goods on credit while insolvent he may reclaim the goods upon demand made within 10 days after receipt, but if misrepresentation of solvency has been made to the particular seller in writing within three months before delivery the 10-day limitation does not apply. Except as provided in this subdivision the seller may not base a right to reclaim goods on the buyer's fraudulent or innocent misrepresentation of solvency or of intent to pay.
  2. The seller's right to reclaim under subdivision (2) is subject to the rights of a buyer in the ordinary course or other good faith purchaser under this division (Section 2403). Successful reclamation of goods excludes all other remedies with respect to them.

    Inasmuch as the right to reclaim goods under § 2702(2) vests a seller with the right to specific goods on account of the buyer/debtor's obligations, i.e. the payment of the purchase price or damages for breach, the reclamation right operates like a lien on the goods.

How the Lien Arises/Attaches:

The reclamation right, which is effectively a lien, arises when a seller of goods sells goods on credit to an insolvent buyer. The right expires if no demand for return is made within 10 days of the buyer's receipt of the goods where buyer makes no misrepresentation with respect to insolvency, but the 10-day time limit does not apply if the buyer makes a written misrepresentation as to its solvency within 3 months of delivery of the goods. As discussed below, if the buyer files a bankruptcy petition before the 10-day period expires, Bankruptcy Code § 546 (c) will under certain circumstances extend the time to make a timely demand for return of the goods.

Perfection of the Lien:

A seller must demand the return of the goods by the buyer within 10 days of the buyer's receipt of the goods. No other filings or notices are required to create an enforceable reclamation right.

Priority of the Lien:

Section 2702(3) expressly states that a seller's reclamation right is subject to the rights of a buyer in the ordinary course or other good faith purchasers. Most secured creditors of a buyer will constitute "good faith purchasers" under the Commercial Code (Sections 1201(20), (29) and (30)), so the right of a seller to reclaim goods will typically be subordinate to the rights of a secured creditor of the buyer. See, e.g. In re Nitram, Inc., 323 B.R. 792, 797 (Bankr. M.D. Fla 2005). Lien creditors of the buyer are subject to a seller's reclamation rights.

The Obligations Secured by the Lien:

As the reclamation right is not truly a lien it secures nothing but the right to have the goods themselves returned. If exercised, the reclamation right is an exclusive remedy.

The Property Subject to the Lien:

Any goods which are sold to the buyer when the buyer is insolvent and which are actually received by the buyer. Section 2105(1) defines "goods" as:

...all things (including specially manufactured goods) which are movable at the time of identification to the contract or sale other than the money in which the price is to be paid, investment securities (Division 8) and things in action. "Goods" also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (Section 2107).

The right to reclaim goods only applies to goods that the buyer retains: the "lien" does not follow the goods into proceeds or other goods into which the goods may be incorporated.

The Classes of Secured Party/Debtor Subject to the Lien:

A buyer/debtor who buys goods while insolvent is subject to the reclamation right.

A secured creditor who takes as collateral anything constituting "goods" as such term is defined in Commercial Code § 2105 may have to contend with a seller's right of reclamation rights. As noted above, such secured creditors' lien, if valid and perfected, would not be subject to such reclamation right.

How a Secured Party Can Maintain Its Priority or Protect Its Security Interest Against the Hidden Lien, Including Recommended Due Diligence:

Generally, a secured party's priority will not be at risk when a seller asserts its reclamation rights because as a "good faith purchaser" those rights will not be subject to a seller's reclamation right.

Miscellaneous:

Prior to the 2005 amendments to the U.S. Bankruptcy Code § 546(c) preserves seller's state law reclamation rights, with a few minor alterations. The recent amendments to the Bankruptcy Code completely rewrote § 546(c), which now reads as follows:

  1. Except as provided in subsection (d) of this section and in section 507(c), and subject to the prior rights of a holder of a security interest in such goods or the proceeds thereof, the rights and powers of the trustee under sections 544(a), 545, 547, and 549 are subject to the right of a seller of goods that has sold goods to the debtor, in the ordinary course of such seller's business, to reclaim such goods if the debtor has received such goods while insolvent, within 45 days before the date of the commencement of a case under this title, but such seller may not reclaim such goods unless such seller demands in writing reclamation of such goods ---
    1. not later than 45 days after the receipt of such goods by the debtor; or
    2. not later than 20 days after the date of commencement of the case, if the 45-day period expires after the commencement of the case.
  2. If a seller of goods fails to provide notice in the manner described in paragraph (I), the seller still may assert the rights contained in section 503(b)(9) [giving administrative priority to sellers of goods sold to the debtor in the ordinary course of business in the 20 days prior to the commencement of the bankruptcy].

This revision was not accompanied by any significant legislative history, so it is unclear exactly how sweeping these changes were intended to be. Some commentators have speculated that there now exists a federal reclamation right, and that state reclamation rights, such as Commercial Code § 2702, no longer inform the exercise of reclamation rights when a buyer of goods is in bankruptcy. Sellers of goods, secured creditors who lend to buyers of goods, and their counsel are advised to track § 546(c) jurisprudence as it develops, which development may materially affect their rights in goods purchased by an insolvent buyer.

The subordination of the reclaiming seller's rights to the "prior rights of a holder of a security interest" (see § 546(c)(1)) does not employ the traditional language of priority used in the Commercial Code, and, while it appears to protect secured creditors to the same extent as Commercial Code § 2702, courts may interpret it as a less thorough protection than that given by § 2702.

4. Security interest of buyer in rejected goods pursuant to Commercial Code 2711.10

Statutory Framework:

Commercial Code § 2711(3) states as follows:

On rightful rejection or justifiable revocation of acceptance a buyer has a security interest in goods in his possession or control for any payments made on their price and any expenses reasonably incurred in their inspection, receipt, transportation, care and custody and may hold such goods and resell them in like manner as an aggrieved seller (Section 2706).

The comments to Commercial Code § 2711(3) provide the following interpretive aid:

... [T]he buyer may hold and resell rejected goods if he has paid a part of the price or incurred expenses of the type specified. "Paid" as used here includes acceptance of a draft or other time negotiable instrument or the signing of a negotiable note. [The buyer's] freedom of resale is coextensive with that of a seller under [Article 2 of the Commercial Code] except that the buyer may not keep any profit resulting from the resale and is limited to retaining only the amount of the price paid and the costs involved in the inspection and handling of the goods. The buyer's security interest in the goods is intended to be limited to the items listed in subsection (3), and the buyer is not permitted to retain such funds as he might believe adequate for his damages. The buyer's right to cover, or to have damages for non-delivery, is not impaired by his exercise of his right of resale.

How the Lien Arises/Attaches:

The lien arises when a buyer has rightfully rejected goods or justifiably revoked acceptance of goods, possesses or controls such goods and has either paid for such goods in whole or in part, accepted a draft or other negotiable instrument, signed a negotiable note or incurred reasonable expenses related to such goods.

Perfection of the Lien:

The buyer must possess or control the goods for the lien to attach. No further action is necessary to perfect the lien.

Priority of the Lien:

Commercial Code § 9110 subjects a security interest arising under § 2711(3) to Division 9, and provides that, until the seller/debtor again obtains possession of the goods, the security interest has priority over a conflicting security interest created by the seller/debtor, including a security interest existing prior to the creation of the § 2711(3) lien.

The Obligations Secured by the Lien:

The lien secures a seller's obligation to repay a buyer for the buyer's payments for, or reasonable expenditures with regard to goods with respect to which the buyer rightfully rejects or justifiably revokes its acceptance.

The Property Subject to the Lien:

Any goods which are subject to Division 2 of the Commercial Code may become subject to the lien. Section 2105(1) defines "goods" as:

... all things (including specially manufactured goods) which are movable at the time of identification to the contract or sale other than the money in which the price is to be paid, investment securities (Division 8) and things in action. "Goods" also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (Section 2107).

The Classes of Secured Party/Debtor Subject to the Lien:

Secured creditors who take as collateral anything which might become "goods" as such term is defined in Commercial Code § 2105 are subject to the lien.

A seller of goods is subject to this lien.

How a Secured Party Can Maintain Its Priority or Protect Its Security Interest Against the Hidden Lien, Including Recommended Due Diligence:

Generally, a secured party can't maintain its priority over this hidden lien. However, the operation of this lien should not place a secured party who has an all asset grant or where the security interest includes proceeds of such goods in a particularly bad position. Any payments made by the buyer to the seller for such goods will presumably become a component of the secured party's collateral. Because a large percentage of the lien amount will probably be allocable to payments made by the buyer, except in cases where the buyer incurred large amounts of expenses with respect to the goods, the payments made by the buyer should generally cover the damage to the secured party's position caused by the effective subordination of its security interest to that of the buyer.

A secured party lending to a seller of goods might require the seller to include in all of its sales contracts a buyer waiver whereby the buyer agrees to immediately return goods that are rightfully rejected or the acceptance of which is justifiably revoked and to waive its security interest in such goods. This is an onerous provision for buyers, and it is unlikely that a seller, afraid of the aversion buyers might have to such a provision, would agree to include such a provision in all of its sales contracts.

A secured party could require its debtor (the seller) to give prompt notice of any rejection or revocation of acceptance. This would enable the secured party to monitor the creation of § 2711(3) liens. Sellers of goods will sometimes have cure rights under Division 2, and, if the problem that led to the buyer rightfully refusing goods or justifiably revoking its acceptance of goods is cured, then the lien will cease to exist. A secured party with notice of a rejection or revocation may be in a position to exert influence on its debtor to cause it to effectuate such a cure.

Secured parties who lend to sellers who scrupulously honor their sales contracts will have the most success in avoiding § 2711(3) liens.

5. Lien of seller of real property under Civil Code Section 3046.11

Statutory Framework:

Civil Code § 3046 provides as follows:

Lien of Seller of Real Property. One who sells real property has a vendor's lien thereon, independent of possession, for so much of the price as remains unpaid and unsecured otherwise than by the personal obligation of the buyer.

How the Lien Arises/Attaches:

The vendor's lien under California Civil Code § 3046 arises in transactions for the sale of real property where the purchaser does not furnish full consideration. An explicit contractual provision is not necessary, as the vendor's lien arises by operation of law. Cain v. Hunter, 161 Cal. App. 2d 808, 812 (Cal. App. 1 Dist. 1958). No recording or other further action is necessary in order for the lien to be valid. The vendor's lien arises and is operational upon transfer of title when the purchaser becomes a debtor for an ascertained fixed consideration of money that is not otherwise secured. McGreevy v. Constitution Life Ins. Co., 238 Cal. App. 2d 364, 368 (App. 5 Dist. 1965).

Priority of the Lien:

Civil Code § 3048 provides as follows:

The liens defined in sections 3046 and 3050 are valid against every one claiming under the debtor, except a purchaser or incumbrancer in good faith and for value.

If a purchaser sells the real property or grants a deed of trust to a third party for value and without notice of an existing vendor's lien, the third party has priority. A deed of trust given to secure a pre-existing debt grants the secured party, who had no notice of the vendor's lien, the status of a bona fide purchaser for valuable consideration and priority over a vendor's lien. Valley Vista Land Co. v. Nipomo Water & Sewer Co., 266 Cal. App. 2d 331, 340 (App. 2 Dist. 1968); Schut v. Doyle, 168 Cal. App. 2d 698, 701-702 (App. 4 Dist. 1959).

Further, regardless of whether it has notice of a vendor's lien, a secured party has priority when a purchase-money mortgage or deed of trust in favor of the secured party and a vendor's lien in favor of the seller arise out of a single sale transaction. Brock v. First South Savings Assn., 8 Cal. App. 4th 661, 665 (App. 3 Dist. 1992). Thus, if a secured party extends credit to a purchaser for the acquisition of real property and the purchaser does not pay full consideration, the deed of trust in favor of the secured party takes priority over a vendor's lien. Id.

On the other hand, the vendor's lien takes precedence over claims and liens of judgment and attachment creditors of the debtor. Schut v. Doyle, 168 Cal. App. 2d 698, 703 (App. 4 Dist. 1959).

The Obligations Secured by the Lien:

The vendor's lien secures any amount of the purchase price of real property that remains unpaid by the purchaser and is otherwise unsecured.

The Collateral Subject to the Lien:

The interest in real property for which full consideration was not paid by the purchaser, even if such interest is less than a fee interest, is the only property of the purchaser that is subject to the vendor's lien. Rogers Development Co. v. Southern California Real Estate Inv. Co., 159 Cal. 735, 740 (Cal. 1911).

The Classes of Secured Party/Debtor Subject to the Lien:

  1. The purchaser of the real property.
  2. Secured parties or creditors taking a lien in the real property in transactions subsequent to its purchase, except for any party who is a bona fide purchaser or encumbrancer for value and without notice of the Vendor's Lien.

How a Secured Party Can Maintain Its Priority or Protect Its Security Interest Against the Hidden Lien, Including Recommended Due Diligence:

When lending money for the purchase of real property, a secured party is not adversely affected by the vendor's lien as the secured party's security interest is superior to any vendor's lien that may arise from the transaction.

When lending money to a real property owner, a secured party is a bona fide encumbrancer for value and is not affected by a vendor's lien so long as it has no notice of the lien. If a secured party has any reason to believe that a vendor's lien might exist on real property collateral, it may be prudent to undertake one or more of the following due diligence actions: (i) obtain copies of the purchase agreement and escrow agreement pursuant to which the real property owner acquired the property; (ii) obtain evidence that full consideration has been paid by the real property owner to the seller or that any deficiency in consideration is otherwise secured; and/or (iii) obtain a vendor's lien waiver executed by the seller.

Miscellaneous:

The vendor's lien can be waived by the seller without following any particular formality, however, the burden of showing waiver is on the asserting party. McGreevy v. Constitution Life Ins. Co., 238 Cal. App. 2d 364, 368 (App. 5. Dist 1965). Any action which shows intent to waive the vendor's lien is sufficient to do so, including taking independent security for unpaid consideration or entering into an agreement pursuant to which the seller waives the lien.

6. Lien of purchaser of real property under Civil Code Section 3050.12

Statutory Framework:

Civil Code § 3050 provides as follows:

Purchaser's Lien On Real Property. One who pays to the owner any part of the price of real property, under an agreement for the sale thereof, has a special lien upon the property, independent of possession, for such part of the amount paid as he may be entitled to recover back, in case of a failure of consideration.

How the Lien Arises/Attaches:

The vendee's lien in the amount paid to the seller arises in favor of a real property purchaser when such purchaser has entered into a contract and paid money towards the purchase price of real property and the seller fails to meet its obligations under the contract. Benson v. Shotwell, 87 Cal. 49, 54-55 (1890). No recording or other further action is necessary in order to perfect the lien.

Moreover, when a seller refuses to convey per the terms of a contract, the purchaser can elect to treat the contract as terminated and foreclose on the vendee's lien for any money paid towards the purchase price of the real property. Moresco v. Foppiano, 7 Cal. 2d 242, 247 (1936).

However, the vendee's lien arises only when the purchaser was not first in breach of the contract. Benson v. Shotwell, 87 Cal. 49, 54-55 (1890); Wilson v. Smith, 69 Cal. App. 211, 214 (App. 2 Dist. 1924).

Priority of the Lien:

Civil Code § 3048 provides as follows:

The liens defined in sections 3046 and 3050 are valid against everyone claiming under the debtor, except a purchaser or incumbrancer in good faith and for value.

A subsequent purchaser or encumbrancer for value and without notice is not subject to the vendee's lien. In contrast, a deed of trust granted subsequent to the date of the purchase contract does not have priority over a vendee's lien when the secured party has notice of the lien. Lockie v. Cooperative Land Co., 207 Cal. 624, 628-29 (1929). Additionally, even if a secured party holds a deed of trust prior to the date of a purchase contract, optional additional advances secured by the deed of trust but made after the date of the purchase contract are inferior to the vendee's lien if the secured party was on notice of the purchase contract. Garcia v. Atmajian, 113 Cal. App. 3d 516, 519-21 (App. 5 Dist. 1980).

The Obligations Secured by the Lien:

The vendee's lien secures any amount paid towards the purchase price of the real property including money spent by the purchaser towards improvements, taxes and insurance. Garcia v. Atmajian, 113 Cal. App. 3d 516, 521 (App. 5 Dist. 1980); Lockie v. Cooperative Land Co., 207 Cal. 624, 628 (1929).

The Collateral Subject to the Lien:

The real property for which purchase money is rendered is the only property of the seller subject to the vendee's lien. Newcomb v. Title Guarantee & Trust Co., 131 Cal. App. 329, 333 (App. I Dist. 1933).

The Classes of Secured Party/Debtor Subject to the Lien:

  1. The seller of the real property.
  2. Secured parties or creditors taking a lien in the real property subsequent to the date of the purchase contract, except for any party who is a bona fide purchaser or encumbrancer for value and without notice of the vendee's lien.

How a Secured Party Can Maintain Its Priority or Protect Its Security Interest Against the Hidden Lien, Including Recommended Due Diligence:

When lending money to a real property owner, a secured party is a bona fide encumbrancer for value and is not affected by a vendee's lien so long as it has no notice of the lien. If a secured party has any reason to believe that a vendee's lien might exist on potential real property collateral, it may be prudent to undertake one or more of the following due diligence actions: (i) obtain copies of the purchase agreement and all related documents under which it believes a vendee's lien might arise; (ii) obtain evidence that any payments towards the purchase price have been repaid by the real property owner; and/or (iii) obtain a waiver executed by the holder of the suspected vendee's lien.

Similarly, if a secured party holds a deed of trust securing future obligations and obtains notice of a vendee's lien, it should strongly consider taking one of the above actions before making additional optional advances to the real property owner.

7. Gift Certificate as Trust Property under Civil Code Section 1749.6.

[TO BE ADDED IN SUBSEQUENT DRAFT]

Endnotes

3 This analysis last updated on 12/1/2010. Back

4 Section 2401(1) of the Commercial Code provides as follows:

  1. Title to goods cannot pass under a contract for sale prior to their identification to the contract (Section 2501), and unless otherwise explicitly agreed the buyer acquires by their identification a special property as limited by this code. Any retention or reservation by the seller of the title (property) in goods shipped or delivered to the buyer is limited in effect to a reservation of a security interest. Subject to these provisions and to the provisions of the division on secured transactions (Division 9), title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed on by the parties. Back

5 Section 2502 of the Commercial Code provides as follows:

  1. Subject to subdivision (2) and, in pertinent part, (3), and even though the goods have not been shipped, a buyer who has paid a part or all of the price of goods in which he or she has a special property under…[section 2501] may on making and keeping good a tender of any unpaid portion of their price recover them from the seller if either: (a) In the case of goods bought for personal, family or household purposes, if seller repudiates or fails to deliver as required by the contract, or (b) In all cases, the seller becomes insolvent within 10 days after receipt of the first installment on their price.
  2. The buyer's right to recover the goods under paragraph (a) of subdivision (1) vests upon acquisition of a special property, even if the seller had not then repudiated or failed to deliver.
  3. If the identification creating his special property interest has been made by the buyer, he or she acquires the right to recover the goods only if they conform to the contract for sale. Back

6 See also the priority rules that apply to Commercial Code § 2702, a complementary section that establishes sellers' reclamation rights where an insolvent buyer has received goods on credit. Back

7 See also the priority rules that apply to Commercial Code § 2702, a complementary section that establishes sellers' reclamation rights where an insolvent buyer has received goods on credit. Back

8 This analysis last updated on 5/1/2008. Back

9 This analysis last updated on 5/1/2008. Back

10 This analysis last updated on 5/1/2008. Back

11 This analysis last updated on 5/1/2008. Back

12 This analysis last updated on 5/1/2008. Back

II-B. Liens for Performance of Services/ Table of Contents