Types of collatoral Secured Outline.docx.pdf

Classification of Collateral: 9-102(a)(12) Collateral is the property subject to a security interest. It serves to secure the

promise and pay the loan

It is the creditor’s (secured party) responsibility to ensure collateral is properly classified

Types of collateral: classify the collateral from the point of view of the debtor at the time of purchase

oGoods 9-102(a)(44): all things that are movable when a security interest attaches

Consumer goods 9-102(a)(23) bought for family or personal household use

Equipment 9-102(a)(33) goods that are not another category. Generally fixed assets with long

period of use (employee uniforms)

Farm Products 9-102(a)(34) debtor must be engaged in farm operation under 9-102(a)(35)

include crops, livestock, and supplies used in operation. If products are subject to

manufacturing, becomes inventory. Includes seeds, tractor fuel

i.e. if farmer grows raw tomatoes and sells canned, the raw will be farm products and

canned will be inventory

Inventory 9-102(a)(48) goods which (b) are held by a person for sale or lease… (d) consist of raw

materials, work in process, or materials used or consumed in a business

Cooperative Finance v. BJ Cattle cows are inventory bc they were intended to be resold

oIntangibles valuable types of personal property that often serve as collateral but that take no material

form

Accounts 9-102(a)(2) right to payment for property that has been sold for services rendered

For property that has been or is to be sold, leased, licensed, assigned, or otherwise

disposed of, services rendered or to be rendered, policy of insurance issued or to be

issued, secondary obligation incurred, energy provided or to be, hire of a vessel under a

charter, Arising out of the use of a credit or charge card or information contained on or

for use with the card, Winnings in a lottery or other game of chance

E.g: fry’s buys 100 box of trix with payment due in 30 days, dentist fills cavity with

payment due in 30 days, L allows H to take home brooch and send check when she gets

home bc she doesn’t have check now

Deposit accounts 9-102(a)(29) demand, time, savings, passbook, or similar account maintained

with a bank. Does NOT include investment property or accounts evidence by an instrument

General intangibles 9-102(a)(42) personal property, including things in action, other than

accounts, chattel paper, commercial tort claims, deposit accounts, docs, goods, instruments,

investment property, letter of credit rights, letters of credit, money, oil, gas, or other minerals

before extraction. Includes payment intangibles and software and any personal property that

isnt

Debtor 9102a28A: someone with an interest in collateral other than a

security interest

Obligor 9102a59 someone who owes payment/performance subject to a

security interest in collateral (debtors are commonly obligors)

Creditor 1201b13 obligor owes payment to this person

Hypo: T borrows 8K from the bank and signs a promissory note. His sister S also signs the

note and grants the bank a security interest in her car. T is obligor and S is a debtor and

obligor: The bank here is the secured party, T is obligated to pay off the loan so he’s the

obligor. S is the one who puts up car so she’s the debtor and in signing note she also

becomes obliged to pay off debt, but only her car is being put up as collateral, debtor.

TYPES OF COLLATERAL:

    Consumer Goods  

  Goods Farm Products  

    Inventory  

    Equipment  

    Instrument  

    Document  

  Quasi Int.  Chattel Paper  

    Investment Property

Letter of Credit Right

Commercial Tort Claim

    Accounts  

    Deposit Accounts  

  Intangibles   General Intangibles Software

      Payment Intangibles

      Other General

Intangibles

Fixtures

S Certificated Bearer Form

Registered Form

Investment

Property

S Entitlement

S Account

C Contract

C Account

Payment Intangible 9-102(a)(61) the account debtor's principal obligation is a monetary

obligation

Software 9-102(a)(76) computer program, patents, and any supporting information

provided in connection with a transaction relating to the program. The term does NOT

include a computer program that is included in the definition of good

Hypo : enter into an agreement with ASU, owns a field in Tempe. agreement is to run for

10 years, and I have the right to enter onto land and prospect for minerals. If I discover

valuable minerals, get to remove them as long as I pay a 10% royalty. end of 10 years, I

have option to buy land for a set price that ASU and I negotiate. I find valuable minerals

on the land, but I need equipment to extract. I go to bank for loan to buy equipment.

As collateral, I offer right to take ore from the land, as well as my option to purchase the

land at a previously negotiated price. How should the bank classify this collateral?

oIt is a general intangible 9-102(a)(42) - it is a "thing in action"-It cant be classified

as an account, and by process of elimination it doesn’t fit elsewhere. It is a Thing

in action because It is a right to do something, a right to use something

Lake Region Credit Union v. Crystal Pure a water permit counts as a general intangible

Commercial tort claims

Letter of credit rights

oQuasi Intangibles do have a physical form, occupy space, have to be present and

stored somewhere, and can be lost or stolen (e.g. record of who owes what, the

record has no value, but it describes those rights) 9-102(a)(70) Record: means

information that is inscribed on a tangible medium or which is stored in an

electronic or other medium and is retrievable in perceivable form. Need not be

permanent or indestructible, not including oral communication that is not stored in

another way. Any writing is a record

Investment Property 9-102(a)(49) a certificated or uncertificated security, securities account

Security 8-102(a)(15) an obligation of an issuer

o(1) Which is represented by a sec. certificate in bearer or registered form (2)

Which is one of a class or series of shares (3) Which is traded on securities

exchanges or is a medium of investment

oIssuer 8-201(a) an issuer is a person that (1) places its name on a sec. cert. to

evidence a share in its property (2) creates a share in its property that is an

uncertificated security (3) direct/indirectly creates partial interest in its property

if the partial interest is represented by a cert. security OR (4) becomes

responsible for another issuer

oCertificated security 8-102(a)(4) security represented by a certificate and

transferred through both (i) indorsement and (ii) delivery

Security certificate 8-102(a)

Bearer Form 8-102(a)(2) a form in which the security is payable to the

bearer or the security certificate according to its terms, but not by

reason of indorsement

Registered Form 8-102(a)(13) a form in which (i) the sec. cert. specifies a

person entitled to security AND (ii) the transfer of sec. may be registered

upon books maintained for that purpose by the issuer

In Re Estate of Washburn Valid transfer of a certificated security requires

both the endorsement and delivery of the certificate by its holder to the

transferee. Delivery occurs when transferee acquires possession OR

another person on their behalf does

oUncertificated security 8-102(a)(18) security with no certificate and transferred

through instruction to the issuer that registration be transferred to purchaser’s

name or someone on behalf or by acknowledgement by holder

Securities Investor Protection Corp v. First Entertainment For an

UNCERTIFICATED security, delivery occurs when the issuer registers the

purchaser as the registered owner OR when a person other than a

securities intermediary becomes the registered owner on behalf of the

purchaser OR having previously become the registered owner,

acknowledges that it holds it for the purchaser

oBroker 8-102(a)(3) specific person or bank

oSecurities intermediary 8-102(a)(14) a person, bank, broker that maintains

securities accounts for others

Security entitlement 8-102(a)(17) rights/property interest of an entitlement holder w.

respect to financial asset

oEntitlement holder 8-102(a)(7) person in records of securities intermediary

identified as having security entitlement against the securities intermediary (8-

501)

oHow to acquire a security entitlement: 8-501(b) you acquire one if a securities

intermediary (i) indicates by book entry that a financial asset has been credited

to securities account (ii) receives financial asset from the person and accepts it

for credit to securities account OR (iii) becomes obligated under other law to

credit a financial asset to the persons security account

Securities account 8-501(a) account to which a financial asset is credited

Instruments 9-102(a)(47) a check or note (3-104) any writing that evidences a right to the

payment of a monetary obligation, is NOT itself a security agreement or lease, and is of a type

that in ordinary course of business is transferred by delivery with any necessary indorsement or

assignment

Documents 9-102(a)(30) document of title or a receipt of the type described in 7-201(b),

warehouse receipt, bill of lading

Chattel Paper records that evidence both a monetary obligation (secured by the goods or owed

under a lease of the goods, with respect to software used in the goods) and a security interest in

specific goods

Electronic chattel paper 9-102(a)(31)  chattel paper evidence by a record or records

consisting of information stored in an electronic medium

Tangible chattel paper 9-102(a)(79) chattel paper evidence by a record or records

consisting of information that is inscribed on a tangible medium

oFixtures see below

oIn Re Estate of Silver paintings: equipment or consumer goods?

oIn Re Palmer whose job is it to determine how goods are used? When is that decision made?

Why Being Secured is Better than Unsecured

Under the Bankruptcy Code, unsecured parties generally share an insolvent debtor's available assets on a pro rata basis

oUnsecured is time consuming and risky, requires a judgement and sheriff involvement

Creditors who negotiate for special collateral rights in the assets of a debtor are secured parties

oAdvantages of secured creditor

Asset-based versus overall credit

Recover without litigation

Control after default

Priority in bankruptcy

The availability of secured credit reduces the cost of credit and makes credit more widely available

UCC values substance over form: “title retention” language is sufficient under 1-201(b)(35) the retention or reservation

of title by a seller of goods is limited in effect to a reservation of a security interest

9-201(a): secured parties "beat" unsecured parties A security agreement is effective: Between the parties,

Against purchases, Against unsecured creditors

Brown v. Indiana National Bank:

Attachment: 9-203(a) what occurs when a security interest becomes effective and enforceable against debtor

Under 9-203(b) 3 criteria must be met for attachment to have occurred

1. Debtor must have rights in the collateral or power to transfer rights (see below)

2. Secured party must have given value to another party (usually debtor) (see below)

3. One of the following conditions is met

(a) debtor has authenticated a security agreement that provides a description of collateral (see

sufficiency and authenticate)

(b) collateral is not a certificated security and is in the possession of the secured party under 9-

313 (see below)

(c) collateral is a certificated security in registered form and the cert. sec. has been delivered to

secured party under 8-301 pursuant to the debtors security agreement or

(d) the collateral is deposit accounts, electronic chattel paper, investment property… and the

secured party has control under 9-104(a)

Agreement 1-201(b)(3) bargain of parties in fact as found in language or inferred through 1-303. Can be oral

Signed 1-201(b)(37) any symbol adopted with present intention to accept a writing

Writing 1-201(b)(43) printing, typewriting, any other tangible form. Record replaces the term writing (com.9-9-

102(a)(70) and does not need to be permanent. Doesn’t include oral)

Security agreement 9-102(a)(74) Comment 3(b) whether an agreement creates a security interest does not

depend on intent, but whether the transaction meets 1-201

Authenticate 9-102(a)(7) to sign OR with intent adopt a record attach a sound, symbol or process (only the

debtor must sign, and it doesn’t have to be signed if there’s present intent)

Send 9-102(a)(75) mail, deliver, or transmit but other means of communication

Sufficiency of Description 9-108 description should do the job assigned to it. Can be a specific listing, category

(all pianos), a type defined in the UCC (all inventory)(except consumer goods, security entitlement or securities

account)

Incorrect serial number is fine if there is only one and if its otherwise well described

A super generic description as “all debtors assets or personal property” is not sufficient

Description for investment property: security entitlement or securities account description is sufficient if

it describes (i) the collateral by those terms or as investment

When description by type is insufficient: description by UCC type insufficient for consumer goods, a

security entitlement or security account PP: prevents lenders from taking everyone’s personal property

In Re Southern Illinois Rail Car Wells Fargo's security agreement fails to include an adequate

description of the Equipment collateral. cannot introduce parol evidence when there is a defect

in description, the language must stand on its own

After acquired collateral 9-204(a) after acquired collateral can be in the description except for consumer

goods unless debtor acquires rights in them within 10 days after secured party gives value

Rice v Miller because general intangibles include intellectual property, under 9-108(b)(3) it’s a type of

collateral and thus a sufficient description category

In Re Yantz cannot link a bunch of docs together to create security agreement because a security agreement

requires a meeting of the minds

Shelby County State Bank ambiguous language will be construed against the drafter. A court may be included to

look at prior interactions to determine ambiguity

In Re Duckworth security agreement referenced wrong date Parol evidence cannot be used against a bankruptcy

trustee to alter an unambiguous security agreement. Parties can reform a contract but a reformation cannot

affect rights of a third party, once they enter the picture its too late

Value (has been given) 1-204 person gives value if the person acquires them

In return for a binding commitment to extend credit whether or not drawn upon

A security for satisfaction of a preexisting claim

By accepting delivery under preexisting contract OR

In return for any consideration sufficient to support a simple contract (look for value flowing from

secured party, peppercorn theory applies)

Debtor has rights to collateral (see 2-401) Naked possession will not suffice, creditor should take reasonable

efforts to ascertain true owner (Jerke Construction) however, the “right to transfer” is sufficient and holder of

voidable title can transfer to a good faith purchaser (National Pawn Brokers) does not depend on debtor holding

legal title, permission to use is sufficient (Zurita)

PMSI (purchase money security interest): 9-103(b) an SI is a PMSI if there exists purchase money collateral and a

purchase money obligation. It is an interest in goods taken as the collateral by a seller who then supplies the money for

purchase of those goods. Comment 3: PMSI requires a close nexus between acquisition of collateral and secured

obligation, an SI will not qualify as a PMSI if the debtor acquires property on unsecured credit and subsequently creates

an SI to secured the purchase

PMSIs ONLY apply to goods and software. No investment property, accounts, etc.

First: ask if a security interest has attached Second: decide if it’s a PMSI

oIf lender provides loan that is greater than cost of goods: 1. See case law for old approach below and

current consumer good approach 2. See 9-103 for non-consumer goods

Purchase money collateral 9-103(a)(1) goods or software that secures purchase money obligation w respect to

collateral

Purchase money obligation 9-103(a)(2) obligation incurred as all/part of the price of collateral to enable the

debtor to acquire rights in the collateral ONLY if the value is in fact so used. Lender must know how debtor is

using the money

Application of payment in non-cons. Good transaction (NCGT) 9-103(e) in NCGTs in order to have a PMSI the

payment must be applied: (i) according to parties’ agreement; (ii) if no agreement: to a reasonable method

intended or manifested by obligor at or before time of payment OR (iii) in the absence of above in the following

order: to obligations that are not secured and if more than one obligation is secured, to obligations secured by

PMSIs in the order they were incurred

No loss of status of PMSI in NCGT 9-103(f) NCGT PMSIs do not lose status even if: the PMSI secures obligation

that is not a PMSI; collateral that is not PMSI collateral also secures the PMSI obligation; OR the PMSI obligation

has been renewed, refinanced, consolidated or restructured

oLewiston State Bank parties refinanced a PMSI and the old loan was not reassigned, the lien was

released, because it was released, the PMSI status was lost after refinancing. If the lease had been

assigned rather than released, the PMSI status would not have been lost

oIn Re Huddle PMSI is lost when the original loan was refinanced and a portion of the proceeds was used

to bring a separate loan current

Burden pf proof in NCGT 9-103(g) in NCGT the *secured party* claiming PMSI has burden of establishing the

extent to which the SI is a PMSI

No inference of rules for Consumer Goods 9-103(h) up to courts to decide the rules for consumer good PMSI.

C.7: the law adopts DUAL STATUS RULE for NCGTs (unlike First National) dual status for NCGT means a SI may be

a PMSI to some extent and a Non PMSI to some extent. The Code rejects the “transformation rule”

Hypo: 10k loan secured by a PMSI is refinanced by original lender and as part of it the debtor borrows additional

2k. Under 9-103(f), the SI remains a PMSI but under 9-103(b) it is only a PMSI to the extent of 10K. For allocation

of payments, If that debtor makes 1K payment on the 12K obligation, does the SI remain a 10K PMSI or 9K?

under 9-103(e)(1) for NCGT freedom of contract decides, if there is no agreement, under (e)(2), it is up to obligor,

under (e)(3) if they cant decide, obligations that are not secured are paid first. Then, after unsecured debts are

paid off, payments go towards PMSIs in order they were incurred

PP: we have PMSIs bc they provide an incentive to creditors that they have collateral to look to in case the

debtor doesn’t pay up

Perfection: a security interest that has attained status so that third parties are deemed to have knowledge of its

existence 9-308(a) perfection occurs if it has attached and all applicable requirements for perfection under 9-301

through 9-316 have been satisfied. Time of perfection is when the security interest has attached and necessary steps for

perfection have been taken. If the steps have been taken in advance (i.e. when the secured party files a financing

statement before giving value) then the security interest is perfected when it attaches

9-201: an [unperfected] SI only provides rights in collateral against the debtor and unsecured parties

oPP: Perfecting a SI, on the other hand, provides additional rights in collateral against other secured parties (9-

322) and lien creditors (9-317)

oPP: as a searching creditor you want to know whether the debtor has any other obligations secured by the

same collateral that you are interested in

Continuous perfection 9-308(c) SI is perfected continuously if it is originally perfected by one method and later

perfected by another if there is no gap of unperfection between

Ways to perfect:

o1. File a financing statement (9-310(a)) [not for deposit account]

o2. Possession of collateral by secured party (9-313) [not for accounts or payment intangibles]

o3. Control of collateral * (9-314)

o4. Automatic Perfection * (9-309)

o*a secured party should perfect in as many ways as possible

oFiling: the default mechanism, required under 9-310(a) unless perfection is made another way. Does not

work for deposit account, letter of credit right, or money

THE SECURED PARTY IS THE ONE WHO FILES THE FINANCING STATEMENT

Requires delivery to appropriate government filing office (sec of state) along with the correct fee,

then accepted by the office, put into records, made public see below how we get it done

Financing Statement 9-102(a)(39) records composed of an initial financing statement and any filed

record relating to the initial financing statement

Filing Office to use 9-501(a): if local law of state governs perfection you file a financing statement at:

(i) the office designated under (9-301) OR (ii) any office duly authorized

General Rule 9-301(1) while a debtor is located In a jdx, that law governs perfection

o*when there is doubt to location, file in all possible places*

oDebtor’s location 9-307(b)

An individual is located at his principal residence

An organization (or partnership) that has only 1 place of business is located

at that place of business (9-307(a) place where debtor conducts its affairs)

An organization that has more than one place of business is located at its

chief exec. office (means where the debtor manages the main part of its

business operations--if unclear file everywhere)

A registered organization that is organized under the law of a state is located

in that state under 9-307(e)

oException to Debtor Location Rule 9-307(c) (b) only applies if the location is located

in a jdx whose law is the same as ours. If that requirement is not met, the debtor is

to be located in D.C. (if u don’t know if system is similar, file in country and in DC.

Canada is same as ours, Mexico is bad!!!!)

oContinuation of location after death 9-307(d) a person that ceases to exist continues

to be located in jdx under (b) or (c)

Sufficiency of contents of filing statement 9-502(a) financing statement (called a UCC1) is sufficient

only if:

1. Provides the name of debtor CANNOT JUST USE TRADE NAME, (can include it on UCC1 as

additional name)

o9-503(a) financing statement sufficiently provides this if:

If D is a registered organization, FS must provide name that is stated to be

the org’s name on the public organic record most recently filed

Public organic record 9-102(a)(68) means record that is public and is

a record filed w state to form organization and any amendment

If D is an individual

Alt. A: must be driver’s license (if no license, individual name or

surname and first personal name)

Alt. B: can be individual name, surname/first personal, or name on

drivers license

If D is an org/partnership, FS must provide org name and if they don’t have

one, the names of partners

9-502(a) requires:

- Name of debtor

- Name of secured party

- Indication of collateral

oIn Re Miller Name on Birth certificate: Ben Miller…. Name on Financing statement:

Bennie A. Miller Seriously misleading? No Doesn’t have to be a legal name, can be

name on drivers license

oIn Re CW Mining Financing statement: CW Mining Company …. Public Record: C.W.

Mining Company Seriously misleading? Yes. UCC1 filings that mistakenly left out the

periods and spaces in the corporations name did not serve to perfect. How might

this come out in Arizona? AZ ignores punctuation and spaces, so it would have come

out differently and it would have perfected

2. Provides name of secured party or their representative AND

oWhen the secured party is a representative, as Kenneth is here, a financing

statement is sufficient if it names the secured party, whether or not it indicates any

representative capacity. Also, a financing statement that names a representative of

the secured party is sufficient, even if it does not indicate the representative

capacity

3. Description of collateral covered by financing statement

o9-504 a FS sufficiently identifies collateral if it (i) provides a description according to

9-108 OR (ii) indicates that the FS covers all assets or personal property (unlike a

security agreement)

oIn Re Pickle Logging Under the ucc, a financing statement’s description of collateral

must be sufficient to notify a potential purchaser of the prior interest. A mistaken

serial number is not seriously misleading so long as there is an additional key that

can identify and distinguish the proper item (not the case here) Ask- does the

indication raise a red flag to the searcher?

oMaxus Leasing Correct serial number GD020106. Wells Fargo financing statement

GD02-016. 1 digit error is not seriously misleading. The accompanying collateral

description here would have put a party on notice that this crane served as collateral

for this transaction. The court must look at a totality of information, and based on

that, there is at least a starting point for investigation and based on the information,

the description of the collateral provided inquiry notice, despite it containing the

incorrect serial number

oMaxus and Pickle compared: Inquiry notice is paramount. In pickle logging the

provided information would not prompt one to file further whereas here it would

Effect of errors and omissions 9-506 insufficient D name=ineffective FS

(a) as long as a statement substantially satisfies it is effective

(b) a FS that fails to provide the name of the debtor under 9-503(a) is seriously misleading

(c) If a search reveals a FS, even if it doesn’t comply with 9-503(a), it is not seriously

misleading (if the jdx search tool has no search logic 9-506(c) is inapplicable and you must go

to (b))

If a secured party’s name is wrong, probably not misleading

The office cannot refuse to accept a UCC1 (9-521(a))

How do we actually get the filing done?

9-502(d) Filing before security agreement or attachment a financing statement may be filed

before a security agreement is made or a security interest otherwise attaches Comment 3

the signature requirement is no longer necessary, instead the debtor must authorize an

authenticated record of the filing of a finance statement

Who is entitled to file the financing statement: 9-509(a)

oAnyone authorized by the debtor via an authenticated record or if the debtor

becomes bound by a security agreement

 9-509(b) by becoming bound as a debtor in a security agreement the debtor

automatically authorizes the filing of an initial financing statement and

Filing in AZ:

-cost to file UCC1: 9$,

-misspelling D name

recorded exactly as

presented, they will not

help out,

-UCC1 effective for 5 years,

-cut noise words in search

like corp, inc, use suffix for

only titles of lineage,

-chill w spacing/punct.

amendment covering (1) the collateral described in agreement and (2)

property that becomes collateral whether or not the agreement covers

proceeds

Comment 3: if an amendment adds a new debtor, new guy must

authorize the amendment

9-510(a) a filed record is effective only if it was authorized under 9-509

9-518(c) A person may file in the filing office an information statement if the

person is a secured party of record and believes that the person that filed

the record was not entitled to do so under 9-509(d)

US v Reed 18 USC 1521 exists to deter people from filing bogus financing

statements The statute only protects certain federal officials not just

common citizens

9-516 What constitutes filing:

o(a) except under (b), communication of a record to a filing office and delivery of

correct fee or acceptance of the record by the office constitutes filing

o(b) Filing does not occur if the filing office refuses to accept because:

(1) record is not communicated by a medium of communication authorized

(2) filing fee is not tendered

(3) filing office is unable to index the record because:

(A) record does not provide name for debtor

(B) in the case of an amendment record

i. Does not identify the initial financing statement

ii. Identifies an initial financing statement whose effectiveness has

lapsed

(C) if the debtor is an individual and record does not identify his

surname

(D) record does not provide a sufficient description of the real

property to which it relates

(4) record does not provide a name and mailing address for the secured

party of record

(5) the record does not

(A) Provide a mailing address for the debtor

(B) indicate whether the name provided as the name of debtor is the

name of an individual or an organization

(6) in the case of an assignment, record does not provide a name and

mailing address of assignee

(7) in the case of a continuation statement the record is not filed within 6

moth period

o(d) if the filing office refuses to accept record for a reason other than above, it is still

effective except against purchasers

9-520(a) Mandatory refusal to accept record a filing office shall refuse to

accept for a reason set forth in 9-516(b) and may refuse to accept a record

only under 9-516(b)

oComment 3 Effectiveness of rejected record Neither this section or 9-520 requires or

authorizes filing office to determine accuracy of information provided in a record--

cannot check whether the name is spelled right

9-517 Effect of indexing errors. The failure of the filing office to index a record correctly does

not affect the effectiveness of the filed record

9-518(a) a person may file in the filing office a statement if the person believes that the

record is inaccurate or wrongly filed

Common reasons for subsequent UCC

filings

The debtor relocates to different

jdx 9-316(a)(2)

The debtors name changes 9-

507(c)

The parties desire to change the

collateral 9-512(a)

The debtors underlying obligation

is paid off or satisfied 9-513

9-520(b) Communication concerning refusal If a filing office refuses to accept a record it shall

communicate the reason for the refusal

9-520(c) a filed financing statement satisfying section 9-502(a) and (b) is effective even if the

filing office is required to refuse to accept it

Later Filings, Continuation and Termination

Continuations and terminations are both considered amendments

Reasons for amendments: See box above

oRelocation of debtor 9-316(a):

In this case, perfection is effective until the earliest of the following:

The time perfection would have ceased in the original jdx (5yr under

9-515(a))

If the debtor relocates to another jdx the secured party is given 4

months to refile new UCC1 in the new jdx (filings made in old jdx

during 4mo pd are ineffective) PP: creditors should monitor debtor

location every 4mo

a security interest perfected pursuant to the law remains perfected

until the expiration of one year after a transfer of collateral to a

person that thereby becomes a debtor and is located in another jdx

(i.e. a reincorporation, which is considered by the UCC as an entirely

new entity)(see transfer)

(b) if a security interest described in (a) is not amended within the 4mo time

period, it becomes unperfected and is deemed to never have been

perfected against a purchaser of collateral for value (a purchaser is anyone

who takes a security interest in the collateral (see 1-201(b)(29))

Ergo, if the original secured party fails to perfect during the 4mo

period, against a new secured party who took an interest in

collateral during those 4mo, the security interest never would have

been perfected, its retroactively lost. BUT against a party who is not

a purchaser, i.e. bankruptcy trustee, perfection continues during

those 4mo and is only lost at the end of it

oChange in name of debtor 9-507(c)

Secured party needs to file amendment with new name within 4 months if

the new name becomes insufficient such that the financing statement

becomes seriously misleading under 9-506 standard search logic (above)

PP: filing offices file financing statements in debtor name, and creditors

search by that name

Action is required by the filing creditor only if the FS becomes

seriously misleading:

if the filing cannot be found after the name change, and the filing

creditor takes no action to change the name, the original filing

protects only:

oCollateral existing at the time of the name change

oCollateral acquired within 4 month of the name change

(everything after that is fair game and can only be perfected

by amendment within 4 mo)

Unlike change of debtor location, perfection will not

be lost as to the originally covered stuff

oTransfer of collateral to new debtor

Under 9-201, the default rule with respect to a transfer of collateral is that

the SI remains attached despite the transfer

Perfection continues as well under 9-507(a)

But perfection can be lost if the transfer is to a new debtor in a new

jurisdiction:

9-102(a)(28) defines debtor as any person having interest in the collateral,

so the new debtor/transferee automatically becomes debtor

But under 9-102(a)(56) a new debtor truly becomes that when he

becomes bound as debtor under 9-203(d) by a security agreement

(this frequently arises in cases of reincorporation or M&A)

Because tracking down the transferee can be tricky, 9-316(a)(3) gives

creditor one year to file in new jdx in order to continue perfection

Just like with relocation of debtor, if creditor does not timely file

when collateral is transferred, perfection is retroactively lost against

purchasers for value (see 9-316(b) above)

9-316(i) clarifies what happens with respect to after acquired collateral

when new debtor is located in different jdx than the original debtor:

The original financing statement is effective against collateral

acquired by the new debtor before and within 4 mo of new debtor

becoming bound under 9-203(d)(above) , but after that when a new

debtor in a new jdx becomes bound the secured creditor has 4mo to

file in new jdx to continue perfection, failure to do so will result in

retroactive loss against purchasers for value (above)

oChange in location of collateral See transfer of collateral to a new debtor^

oTermination (below)

oContinuation (below)

oAdding or deleting collateral

oNote : amendment is not necessary when the character of collateral changes (i.e. car

goes from inventory to equipment)

Who may file amendments

o9-509(d) a person may file an amendment if:

(1) the secured party of record authorizes it OR

(2) The amendment is a termination statement that the secured party has

failed to file or the debtor authorizes the filing and the termination

statement says so (If secured party doesn’t file termination like they are

supposed to, under 9-509 the debtor can go ahead and do it himself)

9-512 Amendment of financing statement

oComments 2 if you are changing multiple things (adding collateral and continuing

effectiveness) single amendment can suffice

oComment 3 an amendment may identify only the information contained in a

financing statement that is to be changed. If the amendment adds collateral or adds

a debtor it must be authorized by the debtor or it will not be effective

o9-521(b) a filing office may not refuse to accept the official amendment form except

for a reason in 9-516(b)

Filing statements last for 5 years from the date of filing 9-515(a)

o9-515(c) Lapse and continuation of FS: effectiveness of a FS lapses on the expiration

period- unless before the lapse- a continuation statement is filed pursuant to (d)

upon lapse anything that was covered becomes unperfected

oThe Four County Bank v. Tidewater Bank filed continuation statements too late.

Under 9-515(c) if a security interest becomes unperfected via lapse, it is deemed to

have never been perfected against the purchaser for value (tidewater)

Continuation

oA continuation statement may only be filed within 6mo before lapse, not sooner 9-

515(d)

Continuation statements must be filed within 6 mo or it is ineffective 9-

510(c)

Under 9-522 when a FS

lapses the filing office

shall maintain a record

of it still for at least

one year. If a filing

office destroys a

written record it should

keep another version of

Comment 4: even if the FO fails to reject it the late continuation

statement will still be ineffective PP: this prevent zealous filers

Once a continuation statement is filed it is good for another 5 years starting

on the day the FS would have expired 9-515(e)

Termination

o9-513 If the obligation has been satisfied the secured party must file a termination

statement:

(a)/(b)Within one month when the collateral is consumer goods or within 20

days of demand

(c) Within 20 days of demand in all other cases

o(d) upon filing an [authorized] termination statement the financing statement ceases

to be effective

oIf the creditor does not comply with the demand/ requirements, the debtor is

authorized to make the filing (see 9-509(d) above)

oComment 3 Bogus filings: if an unauthorized filing is made 9-510(a)(above) provides

that the financing statement is not effective

But what can person do to convince those creditors that the filing is not

effective?

He can requires the creditor to file a termination statement and

then file it himself if he doesn’t listen (9-513)

He can file an information statement (9-518(above))

He can attempt to recover damages:

o9-625(b) actual damages caused by creditors failure to

comply with A9

o9-625(e)(4) he can also recover statutory damages for $500

in each case

oPossession

Under 9-308(a) filing is just one way, albeit the primary way, to perfect

Under 9-310(b)(6) possession is another way to perfect (and does not require filing, though should

perfect in as many was as possible) under 9-313, so long as its allowed

9-313(a) says that a secured party may perfect a SI in tangible documents, goods, instruments,

money or tangible chattel paper by taking possession of the collateral. A secured party may perfect a

SI in certificated securities by taking delivery of the certificated securities under 8-301(see control

below)



Comment 2 A SI in accounts and payment intangibles can only be perfected by filing



In Re Equitable Financial Management: if the creditor is claiming perfection by possession in

the case of chattel paper, the documents must be the originals, not copies

9-313(c) it is possible for the secured party to have “possession” when the property is in the hands

of a third party (except for cert. sec. and goods covered by document) Steps that must be taken:

(1) the third party authenticates a record acknowledging that it holds possession for the

secured party's benefit OR

(2) the third party takes possession after having authenticated a record acknowledging that

he will hold possession of collateral for the secured party's benefit

Comment 4 in the case of goods in possession of third parties, perfection does not occur

unless the third p authenticates an acknowledgement that it holds possession. If it is

uncertain whether the person is a third party or an agent, obtain that persons

acknowledgement just in case

9-313(d) Time of perfection by possession; continuation of perfection: if perfection depends upon

possession perfection occurs no earlier than the time the secured party takes possession and

continues only while the secured party retains possession

Agents do not

count as 3P and

are considered

reg. secured p

National Pawn Brokers Unltd v. Osterman Perfection lasts only so long as possession is

retained (reciting precursor to 9-313) Possessions is continuous even if police seize it. Police

seizure of jewelry does not interrupt that possession because the police make no claim to

own the property

9-207(a) Duty of care when secured party in possession: a secured party shall use reasonable care in

the custody and preservation of collateral--includes taking necessary steps to preserve rights against

prior parties unless otherwise agreed

9-207(b) Expenses, risks, duties, and rights when secured party is in possession: if a secured party is

in possession of collateral:

(1) reasonable expenses, including taxes and insurance are chargeable to debtor

(2) the risk of accidental loss or damage is on the debtor

(3) the secured party shall keep the collateral identifiable AND

(4) the secured party may use or operate the collateral:

o(A) for the purpose of preserving it

o(B) as permitted by court order

o(C) except in the case of consumer goods (9-102(a)), in the manner and to the extent

agreed by debtor

Comment 2 Duty of care for collateral in SP possession: SP may satisfy duty of care by

notifying debtor of action and letting him do it himself

oControl

Not available for most types of collateral: reserved for intangible collateral:

9-314(a) Perfection by Control works for Investment property, deposit account, letter of

credit rights, electronic chattel paper, electronic documents

9-312(b)(1) Control under 9-314 is the ONLY method of perfection for deposit accounts

oComment 4: a SI in investment property may be perfected by filing but Perfection by

control is optimal for investment property and will beat perfection by filing

Control of investment property

9-102(a)(49) defines investment property: security whether certificated or uncertificated,

security entitlement, securities account, commodity contract, commodity account

A security interest in investment property may be perfected by filing under 9-312(a)(above)

but comment 4 to 9-312 says control is optimal

9-106(a) control for investment property is delineated in 8-106

o8-106

An agreement between debtor, secured party and broker (sec. intermediary)

authentication not required

(a) A purchaser has "control" of a certificated security in bearer form if the

certificated security is delivered to the purchaser.

(b) A purchaser has "control" of a certificated security in registered form if

the certificated security is delivered to the purchaser, and:

(1) the certificate is indorsed to the purchaser or in blank by an

effective indorsement; or

(2) the certificate is registered in the name of the purchaser, upon

original issue or registration of transfer by the issuer.

 (c) A purchaser has "control" of an uncertificated security if:

(1) the uncertificated security is delivered to the purchaser; or

(2) the issuer has agreed that it will comply with instructions

originated by the purchaser without further consent by the

registered owner.

(d) A purchaser has "control" of a security entitlement if:

(1) the purchaser becomes the entitlement holder; or

(2) the securities intermediary has agreed that it will comply with

entitlement orders originated by the purchaser without further

consent by the entitlement holder, or

Bearer form means a form in which

the security is payable to the bearer

of the security certificate according

to its terms but not by reason of an

indorsement

Registered form means a form in

which (i) the security

certificate specifies a person entitled

to the security; and (ii) a transfer of

the security may be registered upon

books maintained for that purpose

by or on behalf of the issuer, or the

security certificate so states

(3) another person has control of the security entitlement on behalf

of the purchaser or, having previously acquired control of the

security entitlement, acknowledges that it has control on behalf of

the purchaser.

(e) If an interest in a security entitlement is granted by the entitlement

holder to the entitlement holder's own securities intermediary, the

securities intermediary has control.

(f) A purchaser who has satisfied the requirements of subsection (c) or (d)

has control even if the registered owner in the case of subsection (c) or the

entitlement holder in the case of subsection (d) retains the right to make

substitutions for the uncertificated security or security entitlement, to

originate instructions or entitlement orders to the issuer or securities

intermediary, or otherwise to deal with the uncertificated security or

security entitlement.

(g) An issuer or a securities intermediary may not enter into an agreement

of the kind described in subsection (c)(2) or (d)(2) without the consent of

the registered owner or entitlement holder, but an issuer or a securities

intermediary is not required to enter into such an agreement even though

the registered owner or entitlement holder so directs. An issuer or securities

intermediary that has entered into such an agreement is not required to

confirm the existence of the agreement to another party unless requested

to do so by the registered owner or entitlement holder.

9-106(c) Effect of control of securities account: a secured party having control of all security

entitlements has control over the securities account

Control of deposit accounts

9-102(a)(29) deposit account means a demand, time, savings, passbook or similar account

maintained w a bank

 9-104(a) Requirements for control of a deposit account: a secure party has control of a

deposit account if:

o(1) the secured party is the bank where the deposit account is maintained

o(2) the debtor, a secured party and bank have agreed in authenticated record that

the bank will comply w instructions originated by the secured party directing

disposition of the funds in the deposit account without further consent of debtor OR

o(3) the secured party becomes the banks customer with respect to the deposit

account (this is the most powerful option)

Comment 2: Why control matters: has two functions, first, control may substitute for an

authenticated SI as an element of attachment Second, when a deposit account is taken as

original collateral the only method of perfection is obtaining control

Comment 3: requirements for control: the bank with which the deposit account is

maintained has control

oAutomatic Perfection

ONLY applies to PMSIs in consumer goods (PMSI-9-103(a)(2)(above)//Consumer good-9-102(a)(23)

(above))

Here, the secured party does not have to do anything in order for its SI to be perfected

PP: With automatic perfection there is less of a burden on secured parties, this encourages

the flow of goods, also this places less of a burden on filing offices. The notice function is still

served here because anyone who is interested in taking a non-pmsi interest can ask that

person how they got it and ask for a bill of sale



*Nothing prohibits a party from perfecting by filing as well just to be safe

9-309(1) A PMSI in consumer goods automatically perfects when it attaches (except those listed in 9-

311(b), such as automobiles)

Comment 3 goods that are subject to statute or treaty such as cars are excluded

9-310(b)(2) the filing of a financing statement is not necessary to perfect a security interest in those

which perfect under 9-309

Priority 9-201(a): Except as otherwise provided, a security agreement is effective according to its terms between the

parties, against purchasers of the collateral and against creditors. 9-308: In general, after perfection, the secured party is

protected against creditors and transferees of the debtor and against any representatives of the creditor such as the

trustee in bankruptcy. How a secured party fares in the priority game depends on whether it has effectively perfected its

interest and if so how and when.

The secured Party v. the Lien Creditor

o9-102(a)(52) Lien creditor means:

Creditor that acquired lein on property involved by attachment

Assignee for benefit of creditors from time of assignment

A trustee in bankruptcy from the date of the filing of bankruptcy petition

A receiver in equity from time of appointment

oFor a priority dispute in this case, see 9-317(a)

Under 9-201/308(above) secured party generally has priority, but there is an exception under 9-

317(a)

9-317(a) Conflicting security interests and rights of lien creditors: (A security interest perfected

before a person becomes a lien creditor, beats the lean creditors interest) A security interest is

subordinate to the rights of:

(1) a person entitled to priority under 9-322 AND

(2) a person that becomes a lien creditor before the earlier of the time:

The security interest is perfected or

One of the conditions specified in 9-203(b)(3) (attachment) is met and a

financing statement covering collateral is filed

Thus, under 9-317(a)(2)(A) a bankruptcy trustee beats a perfected secured party only if

the debtor's BK petition was filed before the secured party perfected its security interest

The secured party v. the Trustee in Bankruptcy

oWhen a bankruptcy petition is filed, a trustee in bankruptcy will be named

A trustee is deemed a lien creditor under 9-102(a)(52)(A) from the date of the filing of petition

Thus 9-317 applies

o544(a) of the Bankruptcy Code (Strong Arm Clause)

It’s the principal mechanism by which BK trustees invalidate Sis

Says that any security interest granted by debtor would be considered the subject collateral of

the debtor and thus a part of the bankruptcy estate

Gives the BK trustee power to avoid an unperfected security interest

The trustee will want to establish that the collateral is not only part of the estate, but that it is

unencumbered by any liens or SIs that would lessen value

Says that bankruptcy law refers to article 9

Secured Party v. Secured Party

o9-322(a) General Rule Except as otherwise provided,

priority among conflicting SIs in the same collateral is

determined according to the following:



(1) conflicting perfected security interests

rank according to priority in time of filing or

perfection, whichever comes first (first to file or

perfect) see 9-308(a)(above) for perfection

definition

Recall that filing does not require attachment.

Under 9-502(d) filing can be made at any

time, even before attachment so long as it is authorized

(2) A perfected security interest or ag lien has priority over unperfected

(3) The first security interest or ag lien to attach has priority if both are unperfected

o9-323 Comment 3 Intervening advances made make no difference in priority, continuous perfection is

required to retain your spot in line

US Claims Inc v. Flomenhaft the more diligent creditor wins

PMSI Priority

oPMSI may be granted a 20 day grace period to perfect its interest by filing

 9-317(e) if a person files a financing statement with respect to a PMSI within the 20 day window

after debtor receives delivery of collateral, the PMSI will have priority

o A PMSI can skip the line and gain priority over another interest that would otherwise have had priority

under the first to file or perfect rule

PP: Why do we have a 20 day grace period? Some sellers are able to make a sale only because

they are willing to extend credit to the buyer. If a seller is going to sell on credit, it is reasonable

that it be allowed to reserve a PMSI in the goods it is selling. The seller has to be able to get the

goods into the hands of the willing buyer as soon as possible. The grace period allows the seller

to be able to sell now, and file (within a reasonable time) later. In other words, the grace period

accommodates the way these PMSI transactions work in practice.

o9-324 Priority (PMSIs in goods (other than inventory or livestock) perfected within 20 days beat

conflicting security interests.) Trumps the 9-322 “first-to-file-or-perfect” rule. Inventory and Livestock have to

take an additional step and notify.

(b) Inventory Subject to (c) and (g), a perfected PMSI in inventory has priority if

(1) the PMSI is perfected when(before) the debtor receives possession of inventory

(2) the PMSI sends an authenticated notification to holder of conflicting SI

(3) the PMSI secured party sends notice within 5 years before debtor receives possession of

collateral to all other conflicting holders

(4) the notification states that the person sending the notification expects to acquire a PMSI in

inventory of debtor and describes inventory

(c) requirements for (b) b(2)-(4) apply only if the holder of the conflicting SI had filed a financing

statement covering the same types of inventory:

If the PMSI is perfected by filing--before the date of the filing OR

If the PMSI is temporarily perfected w/o filing or possession under 9-312(f) before the 20

day window

First Financial Bank v. GE UCC does not require a signature for a notification re inventory

to be valid; CDF’s PMSI notification was authenticated per the statute’s requirements.

[Note: could also argue that the notice was, in fact, “signed,” given the definition in § 1-

201(b)(37) and Comment 37.] CDF’s PMSI notification reasonably identified the collateral

by category (see § 9-108). Thus, CDF’s PMSI interest in the three boats had priority over

FFB’s previously-filed security interest.

 (d) Livestock Subject to (e) and (g) a perfected PMSI in livestock has priority if

(same as above but 6 month window instead of 5 years)

(e) requirements for (d)

(same as (b))

(f) Software except as noted in (g) a perfected PMSI in software has priority

(g) Conflicting PMSIs: (when debtor creates two PMSIs in the same collateral)

A PMSI (created in favor of the seller as opposed to financer) will have priority over SIs that

secure enabling loans

In all other cases, 9-322 applies

Comment 2 PMSIs can only be created in goods and software

Comment 3 buyer “takes possession” when, after an inspection of the portion of the goods in the

debtor’s possession, it would be apparent to a potential lender to the debtor that the debtor has

acquired an interest in the goods taken as a whole (drafters essentially adopted Brodie)

Brodie Hotel Supply v. US The {20} day time period in Uniform Commercial Code § 9-312(4) for

perfecting a purchase-money security interest begins to run when: (1) the debtor has possession

of the collateral and (2) the debtor is actually indebted to the creditor.

Comment 4 Inventory: to achieve priority, the PMSI must be perfected when the debtor receives

possession of the inventory -- the 20 day grace period does not apply

Comment 13 rationale behind (g): idea is that the equities favor the seller because the seller loses

personal property that it previously owned, while the enabling lender “only” risks being unable to

collect from an interest in personal property that never previously belonged to it.

Fixtures

9-102(a)(41) Fixtures are goods that have become so related to a particular real property that an interest in them

arises under real property law. The test is up to the relevant jdx

Comment 3 to 9-334 three categories of goods/fixtures: (1) those that retain their goods character and are not

part of any real property; (2) ordinary building materials that have become an integral part of the real property;

(3) intermediate class that is real property for certain purposes but as to which chattel financing may be

preserved

oEx: a single family home: Furniture and artwork: first category, remain separate from real property and

are chattel // Quantity of wall paper: prior to installation first category, upon installation second

category, it has become part of the home itself // Large marble fountain in yard: third category of

intermediates bc it is currently part of the home but could be easily detached and sold as a good

oTest for fixtures: How securely the goods have been affixed to the real property; How closely the distinct

uses to which the goods are to be put parallels the uses to which the estate is to be put (i.e. an electrical

generator is probably a fixture); The intention of the party brining the good to the land and affixing it

In the Matter of Bennett this case deals with outdated Article 9. Parties intent matters when

determining if something is a fixture. Here, the intent was to affix the mobile home to the

property, indicating that the home be permanently affixed.

When there is a contest between a party secured by personal property and party secured by real property:

oTo fully preserve its priority as a perfected secured party in fixtures [9-102(a)(41)], a party must file a

fixture filing [9-102(a)(40)]

Fixture filing: 9-102(a)(40) filing of a special financing statement covering goods that are to

become fixtures and satisfying 9-502(a) and (b)

Under 9-501(a)(1)(B) a fixture filing must be filed in the real property records-file w local

office, not sec. of state

Where to file: In the case of fixture filing, the law governing perfection and

priority is the state in which the fixture is located 9-301(3)(A)

Comment 5(b) If fixtures are located in more than one state, filing in all

states is necessary

9-502(a) a financing statement is only sufficient if it (1) provides the name of debtor (2)

provides name of secured party or representative (3) indicates type of collateral covered

by financing statement AND must also meet reqs in (b)

9-502(b) real property related financing statements: a financing statement that covers a

fixture or things that are to become fixtures must meet (a) and also:

(1) indicate that it covers fixtures

(2) indicate that it is to be filed in the real property records

(3) provide a description of the real property and

(4) name the real property owner if different from debtor

Comment 5 description of real property must be sufficient to identify it

Comment 6 a record of mortgage may also create a security interest and

constitute the filing of a financing statement as to the fixtures

oPriority in fixtures

9-334 Priority of SIs in Fixtures

(a) SI in fixtures under Article 9: a SI under A9 may be created in fixtures, but a SI does

not exist in ordinary building materials incorporated into land

In Re Adkins priority exception to 9-334(a) depends on whether it is an ordinary

building material. A luxury bathtub is not an ordinary building material but

To be safe, a secured party

should file both a

conventional financing

statement under 9-521(a)

and also a fixture filing (9-

502 cmt 6)

ordinary windows will be a building material and will lose their protected fixture

status once they are installed and the SI in them will be lost

(b) SI in fixtures under real property law: A9 does not prevent creation of encumbrance

on fixtures under real property law

(c) General rule: subordination of SI in fixtures: except in d-h, an SI in fixtures is

subordinate to a conflicting interest of a real property encumbrance of owner other than

the debtor

Tustian v. Schriever Schriver has interest in the property over Deere because the

home has become part of the real estate as a whole, which was then sold as a

whole and Deere had no interest in the real property, just the home itself

(d) PMSI fixtures: a perfected SI in fixtures has priority over a conflicting, esrlier

interest of real property if the debtor has an interest of record or is in possession

of the real property AND

The SI is a PMSI

The interest of the encumbrancer arises before the goods become

fixtures and

The SI is perfected by a fixture filing before the goods become fixtures or

w/In 20 days

(e) Priority of SI in fixtures over interests in real property: a perfected SI in

fixtures has priority over real property if (if there are two fixture filed

encumbrancers, it is first to file)

(1) The debtor has an interest of record or is in possession of the real

property and the SI:

(A) is perfected by a fixture filing before the interest in the

encumbrancer is of record AND

(B) has priority over any conflicting interest of a predecessor in

title of the encumbrancer

(2) before the goods become fixtures the SI is perfected under A9 and

the fixtures are readily removable …

Damages for issues caused during removal of a fixture: 9-604 says that a party who removes collateral shall

promptly reimburse the owner of the real property for the cost of repair, but not for diminution in value caused

Encumbrancer under 9-102(a) means right other than an ownership including mortgages and other liens on real

property

Mortgage under 9-102(a) means consensual interest in real property, including fixtures which secure payment

Accessions 9-102(a)(1) means goods that are physically united with other goods in such a manner that the

identity of the original goods is not lost (i.e. a trunk that is bolted to the back of a pickup truck)

oSecurity interests in accessions (9-335(a): a SI may be created in the original good, and that SI will

continue when the good becomes an accession. Under 9-335(b), If an SI in the original good is perfected

when the good becomes an accession, the security interest will remain perfected afterwards.

oPriority in accessions (9-335(c)-(d)): the ordinary rules of priority (see 9-322(above)) govern in most

cases. **keep an eye out for PMSI priority

Exception: if the accession becomes part of a larger good and a SI in the larger good is perfected

by compliance with certificate of title, then the SI in the larger, overall good will take priority in

the accession alone (9-335(d)) Ex: tires on a car that has title

oRemoval and Reimbursement after default (9-335(e)-(f): after default a secured party may remove the

accession from other goods if it has priority. If he removes the accession, he must reimburse

encumbrancer or owner of the whole (other than debtor) for cost of repair or injury, but not for dim. In

value. A person entitled to reimbursement may make the secured party give assurance of $ before rem.

Commingled Goods 9-336(a) are so combined with other goods that it is impossible to distinguish the original

good from the other goods

oSecurity interests in commingled goods (9-336(b)-(d)) a SI cannot exist in commingled goods, but a SI

may attach to a resulting product or mass. If the SI in the original good was perfected before the

collateral became commingled, the SI in the resulting mass remains perfected.

oPriority of SI in Mass (9-336(e) the ordinary rules of priority (see 9-322(above)) generally apply

Exception (f): if more than one Si attaches to the mass then

(1) a SI that was perfected before the goods became commingled has priority over an SI

that was unperfected at the time

(2) If more than one SI was perfected before the goods became commingled the Sis rank

equally in proportion to the value of the collateral when it became commingled

EX: debtor is baker. B1 had perfected SI in d’s eggs (worth $300) and B2 had

perfected SI in d’s flour (worth $500). When d commingled, a cake was produced

(a mass) worth $1,000. BC each good was perfected before comingling, each

ranked equally in proportion to the value. Thus, the value of the eggs was 3/8 of

the cakes value ($375/1000) and the value of the flour was 5/8 of cakes value

($625/1000)

Sale and Disposition of Collateral 9-201(a) tells us that a security agreement is effective according to its terms between

the parties, against purchases of the collateral and creditors. Comment 2 extends this protection against third parties.

The general rule under 9-315(a)(1) is that a SI continues in collateral notwithstanding sale, lease, or other disposition

unless the secured party authorized the disposition free from SI. (Under 9-315(a)(2) the SI will also attach to identifiable

proceeds (9-102(a)(64) of that collateral (see below))

Exceptions

oAuthorized Disposition 9-315(a)(1) When secured party authorizes the disposition/sale

oGeneral Exception 9-317(b) a buyer of tangible chattel paper, documents, goods, instruments, or a

certificated security takes free of SI if buyer (i) gives value (ii) receives delivery of collateral (iii) without

knowledge of the SI (iv) before it is perfected

Knowledge under 1-202(b) means actual knowledge

Snow Machines Inc v. South Slope snow machines wants to take snow machines back

from transferee. 9-317 does not apply bc the buyer knew about the SI before delivery

and therefore he did not take free and clear from SI.

Comment 6: if delivery comes in stages its considered complete when after inspection it would

be apparent to a lender of the seller that another person might have an interest in the goods

o the Ordinary Course of Business 9-320(a) takes free of SI created by the buyer’s seller even if the SI is

perfected and the buyer knows of its existence (a sale from inventory, except farming, is presumed to be

authorized, i.e. sugar from a grocery store)

Buyer in OCOB 1-201(a)(9) means person who buys in good faith without knowledge (see def of

knowledge above)

Indianapolis Car Exchange v. Alderson knowing that a SI exists is not equivalent to

knowing that the sale would violate the rights of another person. You have to know that

the sale is going to violate the rights of the secured party in order to lose status as a

good faith buyer

International Harvester v. Glendenning A buyer in the ocob is one who purchases goods

with good faith, meaning with honesty in fact, and with no knowledge that the

transaction violates the ownership or security interest of another. A purchaser who acts

dishonestly is absolutely disqualified from buyer in the ordinary course status, and a

party who buys goods with knowledge of the violation of another’s security interest is

committing a “type of dishonesty.”

In re Western Iowa Limestone Perfection by Possession can mean actual or constructive

possession in Iowa. Constructive possession: both parties agreed that one party would retain

physical control but do so for the benefit of another party, therefore that other party retained

constructive possession. In Iowa, notice of the sale is not a requirement of constructive

possession.

oBuyer of Consumer goods 9-320(b) if bought from a person who also considers them consumer goods

will take free of SI even if perfected if:

If it is

perfected

before

disposition

you will

need to

have a buyer

in ocob

under 9-

320(a)

The buyer does not have knowledge of SI

Buyer buys for value

Buyer buys for personal consumer good use AND

Buyer buys before the filing of a financing statement covering the goods

Comment 5 Because PMSIs in consumer goods perfect automatically upon attachment,

there is no need to file, but a secured party will want to file a FS here bc if they don’t, a

buyer will take free of SI. For Sis where perfection step is required (unlike PMSI CGs) as

long as the required perfection step has not been taken (remember 20 day grace period

for PMSI), the buyers and purchasers of 9-317 will take free of security interest

Proceeds 9-102(a)(64) includes whatever is acquired upon sale, lease, license, exchange, or other disposition of

collateral. Proceeds of proceeds are proceeds. Insurance payout is a proceed. Rights arising out of collateral.

oNo matter how many times proceeds change form, so long as they are identifiable they are still proceeds

othe general rule under 9-315(a)(2) is that a secured party’s interest automatically attaches to any

identifiable proceeds of collateral. Perfection is also automatic under 9-315(c) if the original collateral

was also perfected

o9-315(d) a perfection in proceeds can lapse after 20 days unless certain requirements set forth in 9-

315(d) are met:

A filed financing statement covers the original collateral

The proceeds are collateral in which a SI may be perfected by filing AND

The proceeds are not acquired with cash proceeds (sell collateral and use money from sale

for new item)

oCash proceeds that are identifiable in (d)(2) will remain perfected indefinitely

oThe SI in the proceeds is perfected [other than under (c)] when the SI attaches to proceeds or within

20 days after (new parts are inventory, and National Bank has a filing against inventory)

o9-315(e) If a filed financing statement covers original collateral and proceeds it will become unperfected

at the later of (i) time of FS lapse under 9-515(above) or is terminated under 9-513(above)

oPriority 9-322(b)(1) time of perfection for an SI in collateral is the same for proceeds

PMSIS and Proceeds 9-324(a) (except inventory or livestock) have priority so long as 20 day

window is met (see above)

oHow to identify commingled proceeds 9-315(b):

If proceeds are goods: see 9-336 (commingled goods above)

If proceeds are not goods, to the extent the SP can identify proceeds by tracing

Van Diest Supply the burden of identifying/tracing the proceeds is on the party seeking

to identify the proceeds. Van Diest attempt to use the pro rata method of tracing, rather

than lowest intermediate balance, which is fine if allowed by state law

Lowest intermediate balance rule: deposits of proceeds always go to the bottom of the

account, deposits of nonproceeds go to the top and withdrawals come off the top. If the

account balance drops below the amount of the proceeds, the security interest in the

funds on deposit abates accordingly.

Scope of Article 9

Lease v. Secured Sale

o9-109(a)(1) article 9 values substance over form, thus we cannot take a lease agreement at face value,

we need to see what the parties are actually doing

oA9 does not apply to a true lease of goods

Sale 2-106(1) consists in the passing of title and possession from the seller to the buyer for a

price. In a true sale, *the seller does not expect to get the property back once the buyer has

made all payments

Lease 2A-103(1)(j) means a transfer of the right to possession or use for a term in return for

consideration, the lessor never plans to give up title, it plans to get the collateral back and it

Filing should be

made in jdx

where seller is

located under

9-316a,b

To avoid the

commingling issue,

tell debtor to

deposit amounts

received in a special

escrow account

*should still be economically useful when it does PP: (lessors are treated better in bankruptcy

which is why people do it)

Comment j: if the transaction is a SI disguised as a lease, it will be governed by Art.9 and

fake Leased goods are included in lessee's bankruptcy estate

Distinguishing a lease from a SI 1-203: a factual inquiry is required to determine whether a lease

is actually just a sale w reservation of a security interest. (b) It is a sale w. reservation of an

interest if:

The lease is not subject to termination by the lessee and any of the following is satisfied:

Original lease term greater to or equal than useful life of goods

Lessee is bound to renew for remaining life or become owner

Lessee has an option to renew for rest of life at nominal cost or

Lessee has an option to become owner at the end of lease at nominal cost

Nominal (d) is less than reasonably predicted cost

If these arent met, look at (c) to determine if it is a lease, although it is not dispositive,

and look to the economic realities test:

A lease will not create a security interest just because:

(1) the value of the consideration paid is substantially equal to or greater

than fair market value

(2) lessee assumes risk of loss

(3) lessee agrees to pay taxes, insurance, filing, etc

(4) lessee has option to renew lease or become owner for consideration

(5) lessee has option to renew for a fixed rent that is equally or greater

than the fair market rent

(6) lessee has option to become the owner of the goods for fixed price

equal or greater than fair market value

Economic Realities Test: In Re Grubbs Guy had 3 shitty options at the end of his

lease term: either pay some and then own the equipment, pay a ton and then

probably own, or pay even more and not own. So In reality he didn’t have much

of a choice, the only economically sensible one is to do the first option. The

economic realities test says: if at the end of the term of lease, the only

economically sensible course for the lessee is to exercise the option to purchase

the property, then the agreement is a security interest . If (1) at the outset, the

parties expected the goods to retain some significant residual value at the end

of the lease term and (2) the lessor retains some possibility of gain or risk of loss

of the goods at the end of the lease, then it’s a true lease. If not, it may be a sale

with reservation of a security interest, even if it falls outside of 1-203(b)

Precautionary filing for leases

Just in case a lease is in fact held to be a sale with SI the owner should file a

precautionary filing under 9-505 Comment 2

Under 9-505 using lessor/lessee instead of secured party and debtor is fine

Things A9 applies to

o9-109(a)(2-4) Article 9 applies to:

An agricultural lien

Sale of accounts, chattel paper, payment intangibles or promissory notes

A consignment

oAgricultural Liens 9-102(a)(5)

mean an interest in farm products:

(A) which secures payment or performance of an obligation for

Goods or services furnished in connection with debtor's farming operation or

Rent on real property leased by debtor in connection with farming operation

(B) which is created by statute in favor of a person that

In the ordinary course of business furnished goods or services to a debtor in

connection with debtor farming operation or

Don’t confuse ag

lien with. SI in farm

products. Si in farm

products must be

intentionally

created, ag lien

comes naturally via

statute

Leased real property to a debtor in connection with the debtor faming operation

AND

(C) Whose effectiveness does not depend on the persons possession of the personal

property

Ag liens are created by statute, not A9

But once that lien is created, the enforcement (perfection/priority) of that lien is

governed by Article 9:

Perfection: An ag. Lien may be perfected under 9-308(b)(above) when it is

effective and the requirements for perfection in 9-310(above) have been

satisfied

A filing will be required

The filing must be done in the state where the farm products are located

(where the farmland is)

Priority: in ag. Liens:

Under 9-317(a) and 9-322(a) an ag lien is treated the same as a SI

oSales of Accounts

Buyers of accounts hold a security interest (1-201(b)(35)) Article 9 applies here

The buyer is a secured party (9-102(a)(73(D))

The accounts are collateral (9-102(a))

The seller is a debtor (9-102(a)(28(B))

Article 9's attachment, perfection, and priority rules generally apply to security interests from

sales of accounts

Failure to file a financing statement will leave the SI unperfected

If its unperfected it will be subject to the bankruptcy estate (9-318 comment 5 )

(the trustee can take priority over an unperfected interest and it can do so using

9-317(a)(2) to avoid the other party's interest in the accounts)

If you want to be fully protected, craft a security agreement and file a financing

statement just like you normally would

Use regular A9 terminology

oConsignments

Under a consignment, a person delivers goods to a merchant (consignee) for the purpose of sale

Consignments falling within A9 [see 9-102(a)(20)] are treated like PMSIs in inventory [see 9-

103(d)]

Once you determine you have a consignment under 9-102(a)(20) you need to take the

proper steps to perfect the inventory as you normally would (filing etc)

9-102(a)(20) consignment means a transaction regardless of form in which a

person delivers goods to a merchant for the purpose of sale and

(A) The merchant:

Deals in goods of that kind under name other than name of

person making delivery (Louie cannot have the same business

name as Goldie) ,

It is not an auctioneer AND

It is not generally known by its creditors to be substantially

engaged in selling the goods of others, must be unusual for him

RayField Investment 9-102(a)(20) dispute between

lender and consignee--who has priority? When the

consignee put the painting in the gallery he didn’t

provide any notice to the lender. Consignee trying to

argue that he is outside scope of A9 because he doesn’t

satisfy requirements under 9-102(a)(20)(A)(iii) What

consignee has to do is prove that a majority of the

gallery's creditors knew it was substantially engaged in

consignment sales. Majority is determined by the

amount of creditors, not the amount of claims

(B) with respect to each delivery, the aggregate value of the goods is 1K

or more at the time of delivery

(C) the goods are not consumer goods immediately before delivery AND

(D) the transaction does not create a SI that secures an obligation

Consignments in consumer goods are outside A9

If A9 doesn’t apply, look to state law to govern

In Re Music City A9 didn’t apply here because the RVs were consumer goods

prior to the delivery to music city What law applies to consignments outside the

scope of A9? None of the UCC applies and consignments are governed by the

common law

1K minimum threshold (if they don’t meet this minimum, this is not governed by A9)

Consignor is the secured party and will retain title until sale where it will pass to buyer

Once that happens go through proceeds as normal

Consignee (9-102(a) merchant) is the debtor (9-102(a)(28))

Consignors (deliverer) can perfect their PMSIs and secure superiority under 9-324(b)

9-319 Rights and Title of Consignee with Respect to Creditors and Purchasers

(a) Consignee has consignor's rights: Except as noted in (b), while the goods are in the

possession of the consignee, the consignee is deemed to have rights and title to the

goods identical to those the consignor had or had power to transfer

(b) Applicability of other law: for purpose of determining the rights of a creditor of a

consignee, law other than Article 9 determines the rights and title of a consignee while

goods are in the consignees possession if, under this part, a perfected SI held by the

consignor would have priority over the rights of the creditor

Things A9 does not apply to

oLeases (above)

oReal property (see fixtures)

oFederally preempted things

oUnder the IRS federal tax liens may have priority over liens or SI held in the taxpayer's property arising

under other law such as A9

o6321: a lien attaches to all of the property of a taxpayer who fails to pay taxes owed

o6323: Once the IRS files a notice of its lien, the lien has priority over all Sis that are unperfected

on the date the IRS notice is filed

Tax lien notices are to be filed in state where property is located

(d) Where a SI covers future advances a perfected SI takes priority over the lien only if

the advance was made without knowledge of the lien during the 45 days after the lien

was filed

oIn Re Spearing "Tool": standard for judging whether a tax lien filing is made under the correct

name. For purposes of establishing lien priority, a federal tax-lien notice sufficiently identifies the

debtor if a reasonable and diligent search would reveal the existence of the lien. This standard is

not the UCC standard, it is closer to federal law. You should really search all possibilities.

o9-109(b) the application of A9 to a SI in a secured obligation is not affected by the fact that the obligation

itself is secured by a transaction or interest to which this article does not apply

oExtent to which A9 does not apply:

o9-109(c)(1): A9 does not apply to the extent that a statute, regulation or US treaty preempts it

i.e. the Federal Aviation Act (here, filing a UCCI in the normal way will not perfect the

interest)

o9-109(c)(2): A9 does not apply to the extent that a statute of this state governs the creation,

perfection or priority of a SI created by this state

o9-109(c)(3): A9 does not apply to the extent that a statute of another state or foreign country

expressly governs the creation, perfection or priority of a SI created by the state

o9-109(c)(4): A9 does not apply to the extent that the rights of a transferee beneficiary or

nominated person under a letter of credit are independent and superior under 5-114

oA9 is inapplicable to:

o9-109(d)(1) a landlord's lien other than an ag lien

o9-109(d)(2) a lien, other than an ag lien given by statute for services or materials but 9-333

applies to its priority

oNorth Valley Bank A9 does not cover nonposessory liens arising out of state law. An attorney's

lien has priority over a perfected security interest. A9 can have a say in the priorities, but that is

not the case here bc the lien here was not a possessory lien, it was a charging lien

o9-333: Priority of Certain Liens Arising By Operation Of Law

o(a) ["Possessory lien."] In this section, "possessory lien" means an interest, other than a security

interest or an agricultural lien:

which secures payment or performance of an obligation for services or materials

furnished with respect to goods by a person in the ordinary course of the person's

business;

which is created by statute or rule of law in favor of the person; and

whose effectiveness depends on the person's possession of the goods.

o(b) [Priority of possessory lien.] A possessory lien on goods has priority over a security interest

in the goods unless the lien is created by a statute that expressly provides otherwise.

Premier Community Bank Possessory liens have priority over perfected security interests

so long as they satisfy 9-333

oMechanic's Liens and Article 9

oUnder 9-333(b), statutorily-created mechanic's liens (i.e. "possessory Liens") have priority over

security interests unless the mechanic's lien statute expressly provides otherwise

o9-333(a) provides what kinds of characteristics a possessory lien must have

o9-333(b) provides how we decide priority

Perfecting security interests in Intellectual Property:

Security interests in patents are perfected by filing a financing statement in sec. states office

In Re Coldwave filing to perfect on a patent put up as collateral must be done in the A9 system of

the appropriate state. If the creditor perfects on its security interest within 90 days of the debtor

filing for bankruptcy, the trustee can avoid it

Security Interests in registered and unregistered trademarks are also perfected by filing a financing

statement in sec. states office

Security interests in unregistered copyrights are perfected by filing a financing statement in sec. states

office

BUT if it’s a registered copyright, you must file with the US Copyright Office for perfection instead

Default Under 9-203 if a SI has attached to collateral, it is enforceable against that collateral. Although default is not

defined in the UCC, under 9-601 after default a secured party may exercise certain rights against the collateral (see

below). It is left to the parties to specify via agreement what events will constitute default

1-309 Option to accelerate at will: a creditor exercising rights under an acceleration clause tied to a general

insecurity clause can do so only in good faith. The debtor bears the burden of showing a lack of good faith See 1-

201(b)(20) for definition of "good faith"

o1-201(b)(20) Good faith means honesty in fact and the observance of reasonable commercial standards

of fair dealing (9-102(a)(43) Good faith (same as above))

Regions Bank v. Thomas security agreement required LGT maintain insurance coverage for the

plane. Failure to secure insurance (as outlined in a security agreement) constitutes a default.

Generally, Secured parties who repeatedly attempt to resolve the issue of default but get no

response sufficiently meet the good faith requirement

oA security agreement will often include an acceleration clause and a general insecurity clause

Acceleration clause : In the case of default by debtor, the entire amount he owes to the secured

party will be come due

General insecurity clause : D has not actually missed payments but situation makes secured party

believe that D’s collapse is imminent

oWaiver of right to accelerate:

Minor v. Chase when the contract does not contain [no/non-waiver and a no-unwritten-modification

provisions], the creditor's previous acceptance of late payments in the past from the debtor waives

the creditor's right to demand strict compliance from the debtor in the future".

oHowever, we announce today that, if a contract does include non-waiver and no-unwritten-

modification clauses, the creditor, in accepting late payments, does not waive its right under

the contract to declare default of the debt, and need not give notice that it will enforce that

right in the event of future late payments

Monarch supports courts view in Minor but distinguishable bc it’s a commercial

contract. We do draw a line at creditors who actively mislead the debtor as to how much

is due or when payment is due and a non waiver clause will not give them license to fuck

around with the debtor, in a sense no waiver clauses benefit both parties bc it

encourages creditors to work with debtors before defaulting

oHypo : Farmer buys tractor from T. agreement says monthly payment $500 for 7 years. PMSI. T includes a

very broad insecurity and acceleration clause. F fails to pay and T says hes in default. In return F offers to

pay for the missing payments but not the whole payments entirely. Must T accept F's offer?

No, under an acceleration clause he is technically entitled to the whole payment

Secured Party’s Rights Upon Default 9-601

(a) right of secured party after default: after default a secured party has the rights listed as well as

those they agreed to. A secured party may:

Enforce the claim by any available judicial procedure

If the collateral is documents, may proceeds via the documents or as to the goods they cover

(b) right of secured party in possession/control: a secured party in possession/control has the rights

listed in 9-207 (see above)

(c) rights under (a) and (b) are cumulative

(d) Rights of debtor and obligor: except under (g) after default a debtor and obligor have the rights

provided in this part and by agreement

(e) lien of levy after judgement: if a secured party has reduced its claim to judgement the lien relates

back to the earliest of:

The date of perfection of the security interest or agricultural lien in the collateral

The fate of filing a financing statement covering the collateral OR

Any date specified in a statute under which the agricultural lien was created

(f) Execution Sale: a sale pursuant to execution is a foreclosure of the SI. A secured party may purchase

at the sale and thereafter hold the collateral free of any other requirements of this article

(g) No duties upon a secured party that is a consignor or buyer of accounts

Repossession of Collateral

o9-609 Secured Party’s Right to Repossess Upon Default:

(a) Upon default a secured party may:

Take possession of collateral

Without removal, may render equipment unusable and dispose of collateral

(b) a secured party may proceed under (a):

(1) Pursuant to judicial notice OR

PP: This may be expensive and time consuming

(2) Without judicial notice, through self help, so long as it doesn’t breach the peach

See case law for definition of breach of the peace (Deception will constitute

breach of peace) (*Parties may not waive or vary rule on BOP)

Callaway causing risk of injury (jumping on truck) is BOP. The closer you

get to physical altercation the more likely it is that secured party will be

found to BOP and may be responsible for damages under C4 (below)

No notice required

to repossess

Chrsyler debtor ran outside while car was towed and said "don’t take it!"

court found that was not a breach of the peace, this did not meet the

threshold of physical

If other personal property (not belonging to secured party) is in the car when its

repossessed you must promptly return it (see Eley)

Ely v. Mid East during repossession secured party took her car, which

inside contained water melons and a jacket and the watermelons

spoiled while they repossessed it and she deserved damages. The

plaintiff was not allowed a reasonable amount of time to get her

personal items from the car

Comment 3: does not authorize a party who goes without judicial notice to use law

enforcement. Secured parties may use independent contractors, but this will not shield them

from liability if the independent contractor breaches the peace (Murray v. Poani)

Comment 4: party who breaches peace may be responsible for damages

oJames v. Ford once the owner has gained enough dominion and control over the collateral, repossession

is complete I.e. once a tow truck picks up the wheels of the car off the ground, the repossession is

complete, even if the vehicle is still nominally in the driveway. Thus, if someone jumps on the car once

its already on the tow truck , there can be no breach of peace bc repo will have already occurred.

oRights in Accounts and Deposit Accounts After Default

9-607(a)(1) Secured parties can instruct an account debtor to make payment on an account

directly to them

9-607(a)(3) Secured parties can step into the debtors shoes and enforce an account debtors

obligations

When a deposit account was perfected collateral:

9-607(a)(4)-(5): secured parties may instruct the bank to apply the balance of the

deposit account to the debt obligation or to pay the balance directly to the secured

party

Foreclosure upon default, under 9-610(a) the secured party has broad discretion to prepare and dispose of the

collateral after they repossess it—the purpose of doing so is to generate cash proceeds

oUnder 9-610(b) every aspect of the disposition must be commercially reasonable

if the secured party fails to meet criteria set forth in A9 during disposition, the debtor may be

entitled to relief (9-625) or protection (this is a factual inquiry, plus 9-627)

9-627 determining commercially reasonable

(a) The fact that a greater amount could have been obtained at the disposition

sale is not itself sufficient to prove unreasonable conduct

(b) dispositions are commercially reasonable if made:

In the usual manner on any recognized market

Comment 9 to 9-610- recognized markets are narrowly

construed (NYSE is an example of a recognized market)

At the price current in any recognized market

Otherwise in conformity with reasonable commercial practices

(c) Approval by court: disposition is commercially reasonable if it has been

approved:

In a judicial proceeding; By a bona fide creditors committee; By

representative of creditors OR; An assignee for the benefit of creditors

(d) the fact that disposition has not been approved has no effect on

reasonableness

Center Capital D arguing that sale of the aircraft was not commercially

reasonable. Sold plane for 1.3 M, court said sale was commercially reasonable

bc they did everything they could be reasonably expected to do, they hired a

salesman with experience, they advertised the plane, and they received multiple

offers.

9-602 debtor

cannot waive the

following rules:

9-609 BOP

9-610(b) com.reson

9-611 notification

9-613 type of n.

9-614 cons.g.notific

9-620 strict forecl.

SEE 9-624

Commercial Credit v. Barber sale was not commercially reasonable because they

did not adequately advertise, they marketed at a bad time, they provided no

competitive bidding opportunity

Deere Credit v. Spitler repossessed golf course equipment. Private sale was

commercially reasonable. In this case, the private sale excluded any potential

bidder that wasn’t wholesale and the debtor was excluded. But Court said that

for a private sale this is reasonable because there was still competitive bidding

despite its exclusivity

o9-610(c) a secured party may purchase the collateral himself at (1) a public sale OR (2) at a private one

only if collateral is of a kind that is customarily sold on recognized market (see c.9 above for rec. market)

Comment 7: public sale means public has a meaningful opportunity for competitive bidding

However, under 9-615(f) if SP purchases itself for price lower than someone else would have, the

proceeds may be calculated as amount that would have been realized had that happened

oNotification is Required Before Disposition 9-611 and cannot be waived (except 9-624)

(a) Is said to be given on date secured party send it to debtor OR date on which debtor waives it

(b) Except under (d) notification shall be sent to everyone in (c)

(c) authenticated notice must be sent to (1) debtor and (2) any secondary obligor

(d) notice is not required for goods customarily sold on rec. market or perishable goods

oFor commercial transactions Notice must be sent at least 10 days prior to disposition (9-612) AND under

9-613 a form notification is sufficient for commercial transactions

Brunswick Acceptance Company whether the substance of what is communicated to debtor

meets requirements of 9-613 even if nothing was sent in a formal package: it doesn’t have to be

sent out together to satisfy 9-613. This is not a consumer goods case, if it were it would be

construed more strictly under 9-614 and there would be less flexibility

Bc this time limit rule does not apply to consumer transactions, consumers are free to argue that

any amount of notice was unreasonable

Under 9-614 notice requirements are stricter for consumer transactions:

(1) notice must provide the following:

Info specified in 9-613(1); description of liability for deficiency; phone

number; number and mailing address where they can get more info on

the disposition

(2) particular phrasing not required

(3) example notification (see actual rule)

(4) its ok if there is extra info than what is necessary

(5) its ok if there are errors as long as they are not misleading

Auto Credit of Nashville D's car got repossessed and she now claims she didn’t have

sufficient notification of the sale of collateral. Auto credit is seeking deficiency from D bc

they didn’t get enough from the sale and D files counterclaim arguing they failed to

comply w notification requirements. As long as secured party sends that notification,

they don’t really need to do anything further to verify that the notification has been

received

oHow to apply disposition proceeds (9-615)

First applies to reasonable expenses of disposition including prep and refurbishment if

reasonable

Next to satisfaction of the obligation secured

If any amount is left over it will go to parties claiming a subordinate interest

After that the residual amount is considered a surplus (9-615(d)(1)) or the amount not sufficient

to pay secured party is a deficiency (9-615(d)(2)) (The obligor is liable for any deficiency)

9-616 requires that when the initial transaction was a consumer goods one, the secured

party is required to provide the debtor an explanation of how the deficiency has been

calculated

9-615(f) provides special method of calculating if collateral is sold to a relative of SP

o9-625 Damages from secured party for failure to comply

(b) a person is liable for damages in the amount of any loss caused by failure to comply

(c) in consumer transactions, statutory damages are also available

(e) $500 statutory damages are available under this provision for all transactions

o9-626 Rule for When Debtor Wants to Argue about Deficiency Owed

If debtor raises the issue of incorrect deficiency, the creditor has the burden of proof (9-626(a)

(2))

If creditor fails to substantiate this burden, there are three rules which courts use to determine

relief (see comment 4, described in case below)

Coxall v. Clover court found that secured party didn’t provide d’s with proper notification

of the sale and that sale was not commercially reasonable. There are three different

options in this situation:

Absolute bar rule , if the secured party messes up the disposition, they are

completely barred from recovery

Offset rule , the secured party can get deficiency recovery, but that deficiency is

set off by the amount the debtor can prove resulted from improper disposition

Rebuttable presumption rule , (Modern 9-626(a) uses this rule for all non-

consumer transactions!!) collateral at issue is presumed to have been sold for an

amount equal to debt owed at the time of default (assumes secured party

cannot make a deficiency claim) and then secured party has the option to rebut

that presumption and make a showing that a deficiency amount is warranted

*for consumer transactions, the UCC leaves it to the state courts (in this case

Coxall applied the absolute bar rule)

Strict foreclosure creditor agrees to discharge the debt in return for D agreeing to let C keep the collateral

o9-620 Retention must be agreed to after default

In non-consumer goods transactions, a secured party may accept collateral themselves in full or

partial satisfaction of a debt if:

Partial: The debtor consents [after default; writing required -- see 9-620(c)] OR

(c) must be authenticated record made after default (see authenticate 9-102(a)

(7) above)

In re CBGB strict foreclosure was valid because debtor consented via

authenticated agreement

Full: Above option OR The debtor makes no timely objection to a proposal for strict

foreclosure

(d) If the debtor objects but the secured party does not receive it the debtor is

deemed to have consented

In consumer transactions, "full" strict foreclosure (above)is permitted but:

Secured parties must dispose of collateral under 9-610 if 60% of the cash price (if a

PMSI)/principal has been paid [9-620(e )]

The disposition under 9-620(e ) must be within 90 days of repossession unless otherwise

agreed after default [9-620(f)]

No "partial" strict foreclosure [9-620(g)]

(b) [Purported acceptance ineffective.] A purported or apparent acceptance of collateral under

this section is ineffective unless:

(1) the secured party consents to the acceptance in an authenticated record or sends a

proposal to the debtor; and

(2) the conditions of subsection (a) are met.

(c) [Debtor's consent.] For purposes of this section:

(1) a debtor consents to an acceptance of collateral in partial satisfaction of the

obligation it secures only if the debtor agrees to the terms of the acceptance in a record

authenticated after default; and

Upon disposition the

security interest is

discharged

The debtor hopes seller

will work to get the best

price it can for collateral

so there is no left over

deficiency for him to

have to pay

The notification rules

are not waivable(above)

You cannot agree

to strict

foreclosure as a

debtor and then

go back on your

word and ask for a

surplus. Under 9-

622(a) after the

secured party

accepts the

collateral, they

have all rights to

the collateral and

debtor cannot

change his mind.

But you might be

able to bring a bad

faith claim under

9-620 cmt 11

Both parties need to

consent to strict

foreclosure

(2) a debtor consents to an acceptance of collateral in full satisfaction of the obligation it

secures only if the debtor agrees to the terms of the acceptance in a record

authenticated after default or the secured party:

(A) sends to the debtor after default a proposal that is unconditional or subject

only to a condition that collateral not in the possession of the secured party be

preserved or maintained;

 (B) in the proposal, proposes to accept collateral in full satisfaction of the

obligation it secures; and

(C) does not receive a notification of objection authenticated by the debtor

within 20 days after the proposal is sent.

(d) [Effectiveness of notification.] To be effective under subsection (a)(2), a notification of

objection must be received by the secured party:

(1) in the case of a person to which the proposal was sent pursuant to Section 9-621,

within 20 days after notification was sent to that person; and

(2) in other cases:

(A) within 20 days after the last notification was sent pursuant to Section 9-621;

(B) if a notification was not sent, before the debtor consents to the acceptance

under subsection (c).

oCIT Group You cannot force a debtor nor a secured party into strict foreclosure, must be consensual

oJust because a secured party repossesses and holds onto collateral for a long time, debtor cannot argue

that strict foreclosure has occurred (Com 5 to 9-620)

o9-621 Notification of proposal to accept collateral (sent from secured party) should be sent to any other

secured party, or anyone who claims an interest in the collateral

o9-622 a secured party acceptance of collateral as satisfaction discharges debtor obligation, transfer’s all

of debtors previously existing rights, terminates any subordinate interest

Redemption [right of]: under 9-623 once a secured party has repossessed, debtors can get their repossessed

collateral back by fulfilling all secured obligations (plus repossession costs) prior to the secured party’s

disposition of the collateral or acceptance of it in partial/ full satisfaction of the debt

o9-623 Right of redemption

(a) a debtor or secondary obligor or any other secured party may redeem collateral

(b) to redeem, a person shall tender:

Fulfillment of all obligations (payments under acceleration clause) secured by collateral

AND

Reasonable expenses and attorneys fees described in 9-615(a)(1)

9-615(a)(1) expenses recovered automatically, but attny fees can be recovered

only to the extend agreed to

(c) when can someone redeem:

Before a secured party has collected the collateral under 9-607

Before secured party has disposed of collateral under 9-610 OR

Before secured party has accepted collateral in full or partial satisfaction foreclosure

under 9-622

o9-602(11) Debtor cannot waive or vary his right of redemption under 9-623 BUT SEE 9-624

oUpon default- if there is an acceleration clause the debtor cannot redeem by making up for missed

payments, they need to pay the full amount

Automotive Finance v. Smart Auto in order to redeem collateral the debtor must tender the

payment in full

9-624 Waiver (EXCEPTIONS TO 9-602)

Right to

redemption

terminated when

collateral is

disposed of

o(a) what 9-602 says, a debtor may waive the right to notification of disposition under 9-611 if he

authenticates an agreement after default saying as much

o(b) debtor may waive the mandatory disposition requirement of 9-620(e) by authenticated agreement

after default

o(c) 9-624(c) except in a consumer goods transaction, debtor may waive right to redeem the collateral if it

does so in an authenticated agreement after default

Students also viewed