Yea thru the valley of the debts meyer has led usTho I fear no evil

Because the debtor pays filing feesAnd file I must when cause is almost just.

I. INTRODUCTORY TERMS

A. Voluntary Credit Transactions1. Credit Sales – purchase but no payment (pay on time)2. Loans – borrow money to do something All definitions are found in either 9-102 or 1-201 and 9-102 trumps

in the case that there are any discrepancies between definitions in the two sections.

Start w/ Art. 9. Then go to other UCC provisions. If not in UCC, 1-103 says that common law controls.

Remember that Unsecured Parties can include those obligated through involuntary credit transactions. Such as Tortfeasor (D) and injured party (CR). A defendant in a patent infringement suit. If someone gets a

judgment, they are a creditor, they owe someone. If person has a positive balance in their bank account, the Bank is the

D (b/c they’re borrowing your money) and you are the CR. 3d parties include:

(a) Buyer #2 who buys from Buyer #1(b) Trustee in bankruptcy(c) Bank #2 who loans you money after Bank #1.

Credit Sale--

Bank #2 (can use good as collateral)Bank Borrower-D TIB (trustee in bankruptcy)

Buyer #2 (sells good to buyer)

3d parties to a loan – Bank #2

Bank Borrower-D TIB Buyer #2

If there is a D-creditor relationship created, what are the rights of that creditor as against third parties. That is where almost all of the litigation is. The very same issues apply to both above.

B. Difference B/W Unsecured and Secured CRs

Types of Credit –

UNSECUREDCREDIT REAL PROPERTY

SECUREDPERSONAL PROPERTY *****(this course)

D has given a specific interest in specific property by K to CR to ensure performance

1. Kinds of Unsecured Credit – Seller credit cards are for dealings only w/ that seller that allow

D to buy on time Bank Credit Cards Employment Services (medical, legal, dental, plumber, mechanic, etc . . .) Utilities (phone, electric, gas, water, cable, etc . . .) Student Loans are Signatory loans where we sign a promissory

note promising to pay but no interest in D’s property is established.

Hypo #1: Enforcement of Judicial Lien –

Car1/2/00 – CR D

$10K Prom. Note promising to pay in 8 mos.

8/2/00 – D defaults

CR is a “unsecured creditor”. Since the PN gave CR no interest in the car, the car is no longer CR’s and CR

cannot get it back upon D’s default. CR must sue D for unpaid debt, get a judgment (normally a default judgment), get a

writ of execution directing the sheriff to seize the non-exempt property of D, sell the property, and satisfy the amount of debt outstanding.

If CR would have had a security agreement, CR would have had the right to repossess the car.

Without a Security Interest, the CR has no right to get the property back on his own. K.S.A. § 60-2304(c) – Exempt property from seizure and sale. Includes

transportation regularly used and costing less than $20K. The car above is exempt from seizure and sale (not all states have exact, but all states have these exempting statutes). Attachment reference in statute is not to Article 9, but rather a pre-judgment creditor’s remedy.

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Same facts as hypo except for there was a security agreement signed. Does the exemption, like the Kansas one above, apply? NO, the exemption statute does not apply because the security agreement is created by contract.

Simply put, a perfected secured creditor is going to win against anyone in a claim in the property.

C. Difference B/W Security Interest, Judicial Lien, and Statutory Lien1. Lien Creditor (Judicial Lien) – 9-102(a)(52)(A) – CR has acquired a

lien on property involved by attachment, levy, or the like. CR in above example was a lien CR when the sheriff took

control of the car, but not before control over the property existed.

Non-consensual 2. Trustee in Bankruptcy – 9-102(a)(52)(C) – tib is automatically a lien

CR upon the date that the petition for bankr. is filed. Exemptions don’t apply to tib

3. Statutory Lien – Status liens created by operation of law. Example: Mechanics have a labor lien in services provided for your car. The law says you pay for the work done, or the mechanic has the legal right to keep the car until payment is made. Non-consensual.

4. Consensual Lien – Creation of SI by K pursuant to a SA.

D. Secured Creditors1. 9-201(a) – EFFECTIVENESS – Except as provided for elsewhere

in Art. 9, Security Agreement (SA) is good b/w the parties, agst purchasers of the collateral, and agst other CRs.

2. Not subject to exemption rules like Unsec. CRs are3. Sec. CR are usually protected in Bankruptcy4. Sec. CR are protected against 3d parties5. Sec. CR can obtain reimbursement easier and quicker.

Hypo. #2(a) –1/2/00 – S sells barrels on Unsecured Credit to D2/1/00 – D borrows $ from Bank PSI in all D’s assets6/1/00 – D files Bkcy petition

Bk’s PSI paid off in whole if D’s assets equal or are greater than the unpaid debt. S will receive little or nothing at all (b/c Unsec. CR) The absolute “safest” thing this seller could have done was make the sell a “cash

sell” The secured part of SC is the value of the collateral.

Hypo. #2(b) –1/2/00 – Bank loans money to D; D gives SI in all EQ and Inv.

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1/2/00 – Bank files proper FS in proper place2/1/00 – S sells to D on unsecured credit7/1/00 – D files Bkcy petition

Bk’s wins to extent the secured collateral covers the unpaid debt. Bk’s filing of the FS put the world on notice of its PSI and S could have found out that the D was being financed

Perfection puts the world on “notice”. S could have looked and called Bk to find out about financing and security agreement.

Hypo. #3 –Bank financing D’s production of implants; Bk has PSID was sued in tort by thousands of womanD files Bkcy petition

Bk. will be paid off first from D’s liquidated assets. The tort claimants will receive very little, they are classified as unsecured creditors.

There are no “choices” here in terms of credit decisions. There is no way to plan around the secured creditors. Employees would also fall into the realm of unsecured creditors in such a situation.

Article 9 does not make any judgments on priority of unsecured creditors. How should Article 9 respond this type of situation?

E. Consumer D (9-102(a)(22)) vs. Commercial D

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II. ATTACHMENT – § 9-203, § 9-204

A. Generally – When does CR get a SI that is enforceable against D’s property? Essential for SI to be enforceable b/w CR and D.1. Definitions

Debtor – 9-102(a)(28)(A) = Buyer Secured Party – 9-102(a)(72)(A) = Seller Security Agreement – 9-102(a)(73) = K creating SI Security Interest – 1-201(37)(first paragraph) = granting

interest to CR in property possessed by D Collateral – 9-102(a)(12) = D’s property that the interest is

created in

B. Three Requirements of Attachment under 9-203(b)1. CR must give value (1-201(44)); includes giving the D money or

allowing D to have access to a line of credit, and2. D must have rights to collateral or power to transfer rights in

collateral, and3. A SA must exist . (1-201(3); 9-102(a)(73)) (WHAT SATISFIES AS

WRITING)(a) D must authenticate the SA’s description of the collateral,

(Authenticate = to “sign” or signature by electronic device/e-mail 9-102(a)(7)) Has to be an appropriate authentication and have a sufficient description of the collateral.

EXCEPTIONS to non-authenticated security agreement which still fall under the statute in subsections (B)-(D)(b) CR must have possession of collateral (authentication not

required);(c) Collateral is a certificated (8-301) security and has been

delivered to CR, or(d) CR has control of the collateral that is a deposit acct,

electronic chattel paper, etc . . .

2 types of credit transactions – Credit Sales – 9-203(1), (2), (3)(B) occur at time of saleLoan – Bk won’t agree to extend credit until know whether other CR have interest in the collateral.

All 3 requirements may not happen at the same time, but they must all happen for Attachment to occur.

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Hypo. #1 – 1/1/00 FS filed – Coll. = “all widgets owned by D”

2/1/00 D’s manager sends letter to CR saying” I, debtor’s manager, enclose FS giving you a SI in all widgets owned by D.” Singed by D’s manager. 3/1/00 D signed PN and delivered to CR. PN stated that CR’s interest was secured by coll. described in 3/1/00’s SA which was never filed.

D has always had possession of widgets.

Assume 9-203(b)(1) is satisfied and value is given 9-203(b)(2) is satisfied b/c D was always in possession of the widgets 9-203(b)(3) Composite Document Theory

FS filed (9-502 says that D need not authenticate, only authorize the filing) PN signed referring to SA that never existed. PN’s strength is weak. LETTER is a much stronger argument for intent if the manager had the

authority to bind the D.

Hypo. #2 – SA covered Mach, EQ, Furn. and Fixtures; Unintentionally omitted inventory (Inv.) and accounts receivable (A/C).

Parties intended all to be covered.

FS covered everything

D filed bkcy petition.

Bk claimed SI in inv. And A/RSA and FS must be considered togetherParties intended inv and A/R

Can the composite document theory be used to bring in Inv. and A/R?

Composite document theory does not bring Inv. and A/R into the PSI. Need more than just the FS to bring it in. (If another CR saw a FS covering everything, they would ask to see the SA and would ultimately rely on what it said was covered.) The Ct. is unlikely to let other coll. in b/c the SA was unambiguous on its face. But, if both parties admit mutual mistake, the Ct. may reform the K to what the parties swear is the correct description.

(Look to see if Sec. CR has possession. If not, then is there some record in any medium that the terms of the SA could be found in. Then look to composite document theory)

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Ironically, compare this Illinois case to Bollinger where there was no security agreement at all and the creditor won. In this case, the creditor lost, even though a security agreement existed, but was insufficient in covering two entities.

C. Security Agreement1. Description

(a) Sufficient if it reasonably identifies what is described. 9-108(a)(b) Examples of reas. identification. 9-108(b)

Category = all furniture Types of Collateral = Accounts, Chattel Paper, Documents,

Instruments, General Intangibles, Goods (Consumer Goods, Equipment, Farm Products, Inventory) (See Old 9-102 for the list)

(c) “All D’s assets/personal property” does NOT reas. identify for SA purposes (although it is acceptable for FS purposes (9-504) because a financing statement gives notice and priority, not a contract like the SA) 9-108(c)

(d) Can’t describe coll. by type when it’s a commercial tort claim or consumer transaction, consumer goods, etc .. . 9-108(e) BUT description is sufficient if it satisfies 9-108(a) and contains descriptive component beyond the “type” alone. ALL equipment, or ALL farm products is sufficient. ALL crops is NOT specific enough, it is rather a category.

(e) 9-108 is not intended to be an exclusive list. The use of the word “example” in 9-108(b) shows that the test really is: “is it a reasonable identification of the collateral”.

Hypo #3 – SA makes specific reference to Internat’l Truck and has an omnibus clause. Does that clause encompass the 2 Oldsmobile cars?

In re Laminated Veneers Co., Inc. , 471 F.2d 1124 (2d Cir. 1973). The cars are not “here at the plant” (limited to property) or are going to be

“brought in or installed” later. And the SA specifically lists the truck but not specifically the cars. Cars aren’t covered. A reas. CR would see the SA and assume that the cars aren’t covered.

Strong dissent saying the majority was ludicrous because of the omnibus clause read “all equipment.

A way to redraft this correctly is including the wording “all vehicles”. They also could have said “all equipment, wherever located”. .

All equipment is not, in and of itself, a fatal error. Just because you use the buzz words does not mean you will be covered.

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Hypo #4 –SA covers Mach, EQ, and Fixtures. Includes specified molds. Does this cover only specified molds or also other Mach and EQ?

In re Sarex Corp. , 509 F.2d 689 (2d Cir. 1975). Same judge that ruled in previous hypo. The use of “including” allows reasonable CRs to understand that the coll. in this

SA isn’t limited to only those specified molds. Adequately covers all Mach and EQ even though the word “all” was not used.

The sure fire way to not miss anything: “All equipment of every kind including… but not limited to”

2. After-Acquired Property (a) It is a rebuttable presumption, based on the nature of

overturning assets, that a SI in inventory and accounts receivable includes AA Inv. and A/R. (Filtercorp and 9-204(a)) CR wouldn’t enter into SA for inv. and A/R when these

coll. don’t continue to exist. They assume that there’s a “floating lien” on the collateral, reasonably allowing them to assume that “all Inv. and A/R” includes present and AA goods.

The real issue is the construction and the interpretation of the contract.

(b) 9-108, Cmt. 3 says that SAs failure to explicitly include AA goods is not covered by UCC because it is a matter the Drafters punted and left to the courts. (K interpretation matter)

(c) The EXCEPTION is 9-204(b) AA Consumer Goods must be acquired by D w/in 10 days after secured party gives value. Otherwise, SA is unenforceable as to AA consumer goods. UCCC and federal rules that regulate lending also regulate after-acquired consumer goods. If you see after-acquired consumer goods, a red flag goes up. Federal law will trump UCC if applicable.

(d) There is no need for financing statements to include references to after-acquired property. 9-204, Cmt. 7; 9-502(a)(3); 9-504. FS is treated completely different than SA.

3. Proceeds (a) The security agreement does not need to specifically refer to

the proceeds of the collateral and is covered as long as it is (1) proceeds (9-203(f)); and (2) identifiable (9-315(a(2)).

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(b) 9-102(a)(12)(A) – Collateral includes Proceeds (c) 9-102(a)(64) – “Proceeds” includes anything exchanged for

the collateral. Very broad and simply put means “anything replaced for collateral”.

(d) 9-315(a)(2) – SI attaches to any identifiable proceeds of collateral

(e) Difference b/w Cash Proceeds (9-102(a)(9)) and Non-Cash Proceeds (9-102(a)(58)) Car dealer example handout:

PN and SA = Non-cash proceeds/chattel paper; Cash payment = Cash proceeds; Trade-in & Cash = Non-cash proceeds and Cash

proceeds(f) 9-203(f) – Attachment of SI in collateral gives Sec. CR rights

to proceeds provided by 9-315(a)(2) (any identifiable proceeds) “Identifiable” is not defined by the code. The closest

definition is that of 9-315(b)’s commingled proceeds identifiable.

Cash is hard to identify b/c it’s deposited into accts w/ other cash. Chattel Paper and Trade-in are identifiable.

C. Rights in the Collateral

THIEF------------------------------------------------OWNER

**The questionable rights facts fall within the above extremes

Swets Motor Sales

Cars & Clear TitleS Pruisner P defaulted on obl. to Chy.

Bad Checks PSI in P & S sought cars from PAA Inv. But Chy. intervened

Chy. Credit

The cars: 9-102(a)(48) – “Inventory” = Any good held by business for sale

In order to prevail, Chrysler must establish the three elements under 9-203.

Chy. must est. a SI in the cars 9-203(b)(3)(A) – Written SA 9-203(b)(1) – Value given?

“New Value” 9-102(a)(57) isn’t required

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“Value” 1-201(44)(b) Value given for pre-existing debt is enough.

9-203(b)(2) – P has rights in the collateral or the power to transfer rights in the collateral to a secured party. (the bolded was added in the 1999 revision and probably codified Swets).

Where does the power come from?2-507(2), Cmt. 3: between two parties, voidable title is recoverable by seller. However, when third parties are involved, 2-403(1) protects good faith purchasers. 2-403(1)– Chy. is good faith purchaser with good title. P bought the cars and obtained voidable, transferable title. P could create good title to good faith purchaser even though he paid with a bad check (2-403(1)(b)).

Good Faith def under 9-102(a)(43): “Good faith” means honesty in fact AND the observance of reasonable commercial standards of fair dealing. (This is broader than the good faith standard applied at the time of Swets)

1-201(32) & (33) – Purchaser includes CR “any other voluntary transaction creating an interest in property. Purchaser includes a “security interest”.

Chy. has SI under 9-203. S is an Unsec. CR.

Moral: S should have required certified funds. The overall reasoning of the harsh result to S is that S runs the risk of commerce as between S and Chrysler.

First Nat’l Bank v. Pleasant Hollow Farm (p.48 cb)Production K ‘91

C PH ‘92K Assigned ’91 K

$Bk Min-Go

SI – ’92 Crop

The Ct found for the Bank and not for C who was the superior Sec. CR.1-103 Common Law provision allowed the court to estop C from defeating

Bk’s claim b/c C allowed Min-Go to hold itself out as if it owned the crop. C failed to act in good faith as a reas. business person.

Can’t go after Collateral until D defaults!!!!! 9-601(a) and 9-609

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Hypo #1 –P gives S a check and defaults on the check.

B/c it was a check given, this is a cash transaction and not a credit transaction 3-408 – Bank only has to pay S if the check is a properly payable check 2-507(2) – When ck is dishonored, S has right to get goods back so long as there’s

no 3d party. He doesn’t need a SI b/c he can reclaim the goods within a reas. time. 2-702(2) – Applies to credit transactions where Buyer says pay in 5 days (for ex.)

Can reclaim goods if within 10 days w/o suing Buyer. S has a right to the specific property of P if either of these two statutes apply.

Otherwise, he must get a judgment.

Owner watch Jeweler

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III. PERFECTION – 9-308

A. Generally – Puts world on notice that there may be a SI in the particular property. (9-502 Cmt 2) Essential for CR to be protected agst 3d parties.1. 9-308(a) SI is Perfected if Attached and Steps for Perfection are

completed.

B. Five Ways to Perfect1. Filing – works for almost all goods except those that require cert. of

title. It is usually an alternative way to perfect. Filing is only way to perfect for Accts and Gen. Intangibles Filing is permissible for goods, chattel paper, documents, and

instruments Filing not permissible for money 9-312(b)(3), Deposit Accts 9-

312(b)(1), goods subject to certificate of title 9-311(a)(1) & (d)2. Possession by the secured party3. Automatic upon attachment (limited)4. Notation of security interest on certificate of title5. Control

BASIC PERFECTION RULESStart with 9-310

(a) says that must file unless (b) exceptions apply. (b) exceptions include

(b)(2) perfected upon attachment (includes PMSI in consumer goods)(b)(3) property subject to other statutes such as cars subject to cert. of title(b)(5) certificated securities (stock certificates), securities, documents, goods or documents that can be perfected w/o filing or possession(b)(6) collateral in the possession of the secured party(b)(8) personal property such as deposit accts, and investment property which is perfected by control(b)(10) proceeds

(c) doesn’t require filing when a PSI is assigned to another CR.Go to 9-501 to determine where to fileGo to 9-502 to determine what FS must include

C. Filing1. D need only Authorize, NOT Sign (requirement Dropped from 9-

502; 9-509(a)(1) requires D Authorization.) Now there is no argument about whether a FS can stand alone

without a SA since D need not sign FS. A CR can file a FS and a SA may never be reached. No SA

may ever attach. And this is perfectly acceptable.

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2. What to File – 9-310 When filing is required and when it’s not3. Where to File – 9-501 Where to file financing Statement4. Contents of Financing Statement

(a) Need to look at two places: 9-502(a)(1-3) – Minimum Identification Requirements. Also see 9-516(b) for additional requirements including the “right to reject” without the mailing address of the secured party (4) or mailing address of the debtor (5)(a).

(b) The filing officer cannot practice discretion if the requirements (see below) are met. 9-520(a). If the filing officer wrongfully rejects, 9-516(d) provides that the filing is effective as a filed record EXCEPT as against a purchaser (includes a secured party under 1-201(32)-(33) (does not include TIB because lien creditors do not get an interest in property voluntarily) of the collateral which gives value (1-201(44)) in reasonable reliance (must show that they reasonably searched) upon the absence of the record from the files. There has been a bill introduced in Congress to change the rule in effect to a trustee in bankruptcy.

Filing Office’s Rejection of FS (a) 9-520(a) Shall refuse for reasons set forth in 9-516(b) and

only for those reasons.(b) Proper Refusal Reasons 9-516(b)

Incorrect communication or incorrect medium (b)(1); Incorrect filing amount (b)(2); Inability to file the record b/c of improper or missing

descriptions (b)(3); Failure to include name and address of Sec. CR (b)(4); Failure to include D’s address, identity as ind. or org., or

type of org (includes debtors name). (b)(5); If Incorrect, Go to 9-338

(1) Incorrect FS subordinate to conflicting PSI where CR gave value in reas. reliance upon incorrect information;

(2) Purchaser takes clear of PSI when he gives value in reas. reliance upon incorrect information, and in the case of some types of coll. takes delivery of the collateral.

Failure to include name assignee if assignment (b)(6); Failure to file a continuation statement w/in the final 6

mos (b)(7).(c) If Improperly Refused, FS is effective except agst purchaser

of coll. who gives value in reas. reliance upon absence of record from the files. 9-516(c)

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5. Description of Collateral 9-502(a)(3), 9-504(a) 9-504 – Sufficient to describe collateral according to 9-108

rules, or to simply state “all assets or personal property of the D” Personal Property = Goods (Consumer Goods, Inv., EQ,

Farm Products), Accts, Chattel Paper, Documents, General Intangibles, Letters of Credit, Money 9-102

Whether “consumer goods” are covered under 9-504(2)’s blanket provision is unclear. To be safe, if trying to cover consumer goods in FS, one should follow the specific type provision of 9-108(e).

(b) There is no need to refer to AA prop or Future Advances in FS. Only in SA does a need ever present itself. 9-204, Cmt. 7; 9-502, Cmt. 2

(c) D has some control over how the collateral is described. Under 9-509(a)(1), the D must authorize the FS filing. Under 9-509(b)(1), the CR must describe the collateral in the SA.

Hypo #1 – SA gives SI in “100 cows w/ @ brand”FS says “1000 cows w/ @ brand”

CR has PSI in 100 cows. The SA control whether you have attachment and must have attachment to achieve perfection. FS desc. cannot expand the amt designated in the SA. The FS’s language of “1000 cows” is no different than the broad language allowed under 9-504(2).

Hypo #2 –SA “1000 cows”FS “100 cows”

CR has PSI in 100 cows. Unperf. SI in 900 cows. FS controls the amt of the SA that is perfected.

Hypo #3(a) –SA gives SI in all new/used Buicks now or hereafter acquired. FS describes coll. as inventory.

“Inventory” satisfies FS description requirement. Indicates collateral included.

Hypo #3(b) – SA gives SI in all new/used Buicks now owned or AA.FS describes Coll. as “All Personal Property of D”

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9-502(a)(3) requires the FS to indicate the collateral covered. 9-504(2) states that the FS may sufficiently indicate the coll. covered if it indicates all assets or all pers. prop. of the D.

Hypo #3(c) – If this were a consumer transaction at issue.

9-108(e)(2) says that consumer transactions cannot describe collateral only by type. A more specific description is needed. “All Personal Property” would fail in the SA, but not in the FS. (9-504(2))

9-108(e)(2) Specificity; created mostly for SA 9-504(2) broad; serving notice purpose; reference to 9-108 is only for possible

types of descriptions, not for bringing in the (e)(2) restriction. It doesn’t matter is it’s a commercial or consumer transaction.

6. Assignment of PSI – 9-310(c) says that when PSI is assigned, another filing isn’t needed to continue PSI status agst other CRs and 3d parties. (See In Re Bollinger where Z & J pay of ICC’s $65K PSI – No new filing needed to give Z & J a PSI)

D. Minor Error Rule1. Name of D

FS are filed and indexed by D name 9-519(c) D’s name may depend on what kind of entity it is (Ask D for

name and documents supporting that name; What name do they file 1040 under)

9-503(a)(1) “Registered Organization”; 9-102(a)(70) Ways to find out? Ask, look at incorporation

documents, tax-returns, etc. 9-503(a)(4) “Sole Proprietorship” – D is the individual

Ways to find out? Ask, tax-returns, etc. Trade Name NOT Legal Name. Trade Name is insufficient. 9-

503(c). But you could file a “trade name” FS and a correct one to

cover your ass on a Kansas like search logic. 2. Primary function of FS To give Notice & To establish Priority3. Minor Error Rule 9-506

(a) Effective unless seriously misleading(b) Failure to sufficiently provide D’s name is seriously

misleading, except as provided for in (c)(c) Look at the system used by the filing office to see if seriously

misleading. If the office searches under the D’s correct name and finds FS Not seriously misleading. If doesn’t find FS Seriously misleading. “Standard Search Logic” is not defined. Assume that

most offices have a methodology to find D’s FS. If this

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methodology is used, it’s supposed to be a bright line test.

Don’t Find Seriously Misleading

D’s Correct Name Use standard search logicFind Not Seriously Misleading

E. D Changes His Name 1. Comment 2, 9-508 – A name change is not considered a “transfer”2. 9-507(a) Filed FS effective w/ respect to coll. that’s sold,

exchanged, leased, etc. if SI continues, despite Sec. CR’s knowledge or consent to the disposition.

3. 9-507(b) Except as otherwise provided for in (c) & 9-508, FS not ineffective if, after FS is filed, the info in FS become seriously misleading under 9-506.

4. 9-507(c) Change in D’s Name that becomes seriously misleading under 9-506(a) FS is effective to perfect a SI in coll. acquired by D before or

w/in 4 mos after the change and(b) FS not effective to perfect a SI in coll. acquired by D more

than 4 mos after the change, unless CR files an amendment to orig. FS that renders the name change not seriously misleading w/in the 4 mos. after the name change.

5. Editors of Rev. 9 probably “assume” that attachment is present based on the rules of 9-507.

Hypo #4 –“A Co.” gives SI in P and AA EQ (Computers) to Sec. CRProper FS filed in proper place

(a) – 1/2/00 A Co. changes name to B Co.

A Co. had 10 computers used in Business4/1/00 B Co. buys 5 new computersQ What computers are covered by Old FS?

Old FS still covers All Computers. 9-507(c) B Co. name would be seriously misleading under 9-506. But, the new 5 computers were bought w/in 4 mos after the name change. If CR files amendment to Old FS by 5/1/00, would remain PSI for B Co.

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(b) – 1/2/00 A Co. sells 10 computers to C Co.

FS still covers 10 Computers. 9-315(a)(1) says that PSI follows coll. unless Sec. CR authorizes the disposition of the coll. free of PSI. 9-507(a) says that FS remains effective despite sale . . . so long as SI continues.

6. 9-508 New D Rules(a) 9-508(a) New D is bound by FS naming Original D that

created a PSI in coll. that New D now has an interest in to the extent that FS would have been effective agst the Orig. D.

(b) 9-102(a)(56) “New D” is bound by SA previously entered into by another person

(c) 9-102(a)(60) “Original D” defined(d) 9-203(d)(2) Person becomes bound by SA entered into by

another person if, by law or K (not under UCC), the person becomes generally obligated for the obligations of the other person and acquires or succeeds to all or substantially all of the other person’s assets. (Typically what happens w/ mergers, etc.)

(e) 9-302 -- A transfer of collateral can include a sale, a merger, and an incorporation.

(f) 9-203(e) If New D becomes bound, Attachment Exists. 9-203(b)(3) is satisfied with respect to P & AA prop. of

New D to the extent the prop. is described in SA. No other SA is needed to make SI enforceable.

See 9-508 Cmt. 3 for Drafters interpretation as to how to handle these 9-203 provisions.

(g) 9-508(c) says that New D rules don’t apply if 9-507(a) Disposition rules apply. The transfer of property would have to be considered a disposition.

(h) 9-508(b) If New D’s name is seriously misleading as to Orig. D’s FS (under 9-506 test): FS effective as to New D’s coll. acquired before and w/in

4 mos. after New D becomes bound under 9-203(d) FS not effective as to coll. acquired by New D after 4

mos. unless an initial FS providing New D’s name is filed w/in those 4 mos.

Summary: Once you have a new debtor, as long as the original debtor had an “after acquired property” provision, the new debtor is bound pursuant to 9-203(e). This clearly changes the outcome of In Re Scott [4]. Is the financing statement still good? 9-508 leads us to 9-506’s “minor error rule” to determine if the name is seriously misleading. If the name is seriously misleading, the old finance statement is effective to assets prior

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to the change of entity, AND assets acquired 4 months after the change. You need to look at “pre-change” assets and “post change” assets. Assuming there was no specific authorization, under 9-315(a)(1), the bank security interest follows the collateral transferred to the new corporation. The only issue is whether incorporation is a transfer (no specific language but comments and courts indicate incorporation is so). Transfer of assets, security interest follows it.

Hypo #5 –1/2/00 A Co. gives PSI in P & AA EQ to CR 11/5/00 A Co. merges w/ D Co.

Under state law, D Co. is required to assume A Co.’s obligations2/1/00 D Co. PSI in P & AA EQ to CR 2. (Filed FS covering all equipment under D Co.)3/5/00 D buys EQ #38/4/00 D buys EQ #4

Question CR 1 and CR 2 have PSI in all of D Co’s EQ?

D Co. is a New D. 9-102(a)(56) defines New D. Attachment Exists. 9-203(d)(2) says that a New D, D Co., is bound by Original D’s,

A Co., obligations. 9-203(e) says that Attachment exists here regarding the New D’s existing and AA property to the extent that the property is covered by the Original SA and that no other agreements need to be made.

Perfection exists? 9-308(a) says that to perfect there must be a SA and the perfection plus steps must occur. Since this is EQ in the possession of the D, the plus step is filing. 9-310(a). 9-508(a) says that FS remains effective unless it is seriously misleading, 9-508(b), or this is a disposition of the property and not a new D situation, 9-508(c).

Since the name of the New D vs. name of Original D is seriously misleading under 9-508(b), FS perfects the SI of CR 1 for 4 mos after New D becomes bound, unless during those 4 mos. CR 1 were to file a new FS w/ D Co.’s name.

CR 1 has PSI in Original EQ and EQ #3. CR 2 has PSI in EQ #4. The Priority Rules in 9-322(a) support this b/c CR 1 was filed first.

Hypo #6 – D SA to CR in P & AA Inv. and Proceeds of Inv.CR perfected SI by filing in D’s name and describing Coll in same way.1/2/00 D sold assets (10 apple computers) to Buyer, subject to PSI of CR.Buyer gave SA to CR describing Coll in same wayCR did NOT file a new FS with Buyer.2/1/00 Buyer buys 10 IBM computersQ Does CR have PSI in Inv. now possessed by Buyer? In coll acquired after the transfer?

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Apples: Attachment 9-315(a)(1) SI continues after disposition of coll to Buyer. Perfection 9-507(a) If SI continues, then so does FS. (even if the public record is not corrected 9-507, Cmt. 3)

IBMs: Attachment Assume 2d SA meets the requirements set forth in 9-203(b)Perfection No PSI b/c CR didn’t file. Only attachment =

Unperf. SI

F. Place of Filing and Mechanics1. Correct classification of property 2. Type of perfection required or allowed

(a) Only file for Accts and Gen. Intangibles (b) Filing permissible for Chattel Paper, Goods, Instruments,

and Documents (c) Filing is not permissible for Money 9-312(b)(3), Deposit

Accounts 9-312(b)(1), letter of credit rights, and goods subject to cert. of title statutes 9-311(a)(1) & (d).

3. If Filing, then where to file(a) Central filing is typically required. 9-501(a)(2)(b) Local filing may be required for certain types of collateral

9-501(a)(1) real property such as as-extracted coll. or timber to be cut, fixtures filings for goods that are or are to become fixtures

If Inventory, perfect by:Question 1 –

Sells TVTV Manuf. ABC (TV Retailer)

SI in TV

Q How does TV Manuf. perfect?

Classify TV Inventory (9-102(a)(48)) How to Perfect 9-310(a) File unless an exception in (b) applies. No Exceptions

Apply. Where to File 9-501(a)(2) Central Filing What to File 9-502(a)(1-3) FS Required Information

If Equipment, perfect by:Question 2 –

Sells TVABC (TV Retailer) Doctor’s Office

SA, PNQ How does ABC perfect?

Classify TV Equipment 9-102(a)(33) How to Perfect 9-310(a) File b/c no (b) exceptions apply

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Where to File 9-501(a)(2) Centrally What to File 9-502(a)(1-3) FS Required Information

If Consumer Goods, perfect by:Question 3 –

Sells TVABC Consumer (for home use)

SA, PN

Q Perfect?

Classify TV is a Consumer Good 9-102(a)(23). Also do not forget to look at 9-102, Comment 4(a) to verify.

How to Perfect 9-310(b)(2) Purchase Money Security Interest (PMSI) [defined in 9-103(b)]. 9-309(1) says that PMSI’s perfect upon Attachment. No need for filing. Referred to as a “secret lien”.

If you wanted to file anyway, you would file centrally for the “consumer good”. Remember, you must have a security interest (attachment) for the PMSI to apply.

Test to see if PMSI applies. Does the credit enable the debtor to require the collateral?

If Agricultural Crops, perfect byQuestion 4–

$Bank Farmer

Coll = crops

Q Perfect?

Classify Crops are Farm Product 9-102(a)(34)(A) & (a)(35). Not inventory under 9-102(a)(48) because inventory excludes farm products.

How to Perfect 9-310(a) File Where to File 9-501(a)(2) Central and/or 9-501(a)(1) Local What to File 9-502 – 9-504 Under the old rule, there had to be a real estate description in the SA and FS for

growing crops. This has been deleted from Revised 9. If you still put one in, don’t screw up.

If Accounts Receivable, perfect by:Question 5 – Bank perfect SI in A/R?

Classify Account 9-102(a)(2) (i.e. Doctors, Lawyers, Dentists, etc.) How to Perfect 9-310(a) Filing (9-313, Cmt. 2 – Accts generally require filing) Where to file

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What to file

If Certificate of Deposit, perfect by:Question 6 –Bank perfect SI in Certificate of Deposit?

Classify Instrument 9-102(a)(47) (A CD is a negotiable instrument, not a deposit account) See also 9-312, Cmt. 2.

How to Perfect 9-310(b)(5) & (6) – Can perfect by taking possession under 9-313(a) or by filing under 9-312(a). Taking possession is the “safest” avenue.

If Automobile, perfect by:Question 7 – Bank perfect SI in vehicles?

Classify Consumer Good: Good subject to certificate of title 9-102(a)(10). Note: If a vehicle is being used in a business, it is classified as equipment under 9-102(a)(33) but the same rules below apply.

How to Perfect 9-310(b)(3) send us to 9-311(a)(2) and K.S.A. 8-135(c), 8-127, and 8-128. Only way to perfect: Mark the SI on the cert. of title (notation on certificate of title is equated with “filing” 9-320, Cmt. 5) No need to file, just register. Note: The PMSI statute under 9-309 does not apply.

Exception: 9-311(d) if goods are held by D as inventory, then file. THERE WILL BE A QUESTION ON MIDTERM ABOUT A “VEHICLE” If Mobile Homes 9-102(a)(53)-(54): most states, like Kansas, treat subject to the

certificate of title statutes. You must follow the same rules as above for vehicles.

G. When Filing Occurs1. 9-516(a) Filing occurs when

(a) The record is communicated to the filing office and(b) Tender of the filing fee is made; or(c) When the record is accepted by the filing office

2. 9-520(a) Shall refuse for reasons set forth in 9-516(b) and only for those reasons.

3. 9-520(b) If rejected for any reason, must inform CR why and when4. 9-520(c) If FS meets requirements in 9-502(a) & (b) yet could have

been rejected for failing to meet a 9-516(b) requirement, still effective if filed EXCEPTION: Failure to meet 9-516(b)(5) is governed by 9-338

(when incorrect info given at filing)5. Incorrect refusal by filing office under 9-516(d) PSI effective agst

all but (a) a purchaser of coll. which (b) gives value (c) in reas. reliance upon absence of record from file.(a) “Purchaser” 1-201(32) Sec. CR is a Purchaser b/c it’s a

voluntary transaction creating an interest in D’s property

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Lien CR and TIB is NOT a purchaser b/c NOT a voluntary creation of an interest in D’s property.

6. Failure to properly index FS does not affect effectiveness of filed record. 9-517. (Based on the idea that the CR should know if FS improperly rejected, but may not know if FS improperly filed)

7. Some states shield filing officer immune to liability. Kansas 9-523(f).

8. A financing statement, incorrectly filed, is not perfected if not meeting the requirements of 9-502.

9. Bogus Filing 9-518 FS filed w/o D’s authorization(a) File Correction Statement 9-518(a) following either

Alternative A or B as to what the Correction Statement must say. Even though Correction Statement is filed, the effectiveness of the Bogus Filing is unaffected. 9-518(c)

(b) In order to eliminate the effectiveness of the bogus statement, 9-513(c)(4) requires CR to file a termination statement w/in 20 days from D’s request if D didn’t authorize the filing.

(c) 9-625 – CR is liable for $500 damages for such bogus filings10. FS effective for 5 years 9-515(a). It can be amended under 9-512.

Continuation statement can be filed and must be filed w/in the last 6 mos. before expiration 9-515(c)-(d).

11. Termination of finance statements. 9-513. 12. 9-625(b), 9-625(e)(4): very specific remedies for not complying with

the termination rules.

H. Perfection by Possession1. 9-310(b)(6) allows for perfection by CR’s possession of the

collateral under 9-313. Perfection by possession is referred to in the industry as a “pledge”.

Problems (pp. 93-94) – 1/1/00 Bank loaned D $10K.

D pledged 100K note. Indorsed and delivered to BankUpon payment, the note is to be returned to D. Upon default, the Bank is to sell the note and return the surplus to D

5/1/00 L loans D $15K.D gives L a SI in the $100K note.L and D send letter to Bank requesting Bank to send note to L if Bk is paid. If BK

is not paid, Bank is to send enough surplus to L to pay L off and rest of surplus back to D.

(a) Bk doesn’t reply to Letter. Does L have PSI in note Bk possesses?

Since the Note is a Negotiable Instrument, it can be perfected by either filing, 9-312(a), or by possession, 9-313(a).

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There is nothing to indicate that the Bank is L’s agent. This could be established through 9-313 Cmt. 3. This is not present here so we go to 9-313(c).

For L to have PSI, Bank must authenticate a record stating that it holds possession for L, 9-313(c).

9-313(f) – The bank is not required to acknowledge that it holds possession for L’s benefit. See also Cmt. 8.

9-313(g)(1) – If Bank does acknowledge possession for L, acknowledgment is effective even if it violates the rights of the D. 9-313(g)(2)-- UCC does not make the Bank L’s agent. The terms of bank’s obligations and duties to L are to be left up to the two parties to K into.

L has an unperf. SI. Should file under 9-312(a).

(b) Bk replies that it won’t represent L. When paid off, returns note to D. When does L have a PSI?

Unperf. SI before returned Unperf. SI after returned b/c neither filed nor possessed.

(c) Bk replies and agrees to hold note for L and to comply with the terms set forth in the letter. But, when Bk paid off, the note is returned to the D and not to L. What’s L’s interest?

PSI while Bk held the note. 9-313(c) Unperf. SI once Bank returns the note to D. 9-313(d) provides that the PSI

continues only while Sec. CR retains possession either personally or through an authenticated 3d party.

I. Perfection in Consumer Goods1. AA consumer goods treated differently. 9-204(b) gives the CR

rights to only those AA cons. goods acquired w/in the 10 days after the Sec. CR gives value.

Hypo #15 – 1/2/00 Bk gives Consumer a loan.

Consumer gives Bk a SA in P & AA cons. goods 1/8/00 Consumer buys new TV Covered2/1/00 Consumer buys new TV Not Covered

2. “Secret liens” No need to file if PMSI in consumer goods 9-309(1). The SI is perfected upon Attachment.

Hypo #16 (Holder in Due Course) –TV

Dealer ConsumerPN

PN $ TV breaks and C stops paying Bk. Bk says pay and C

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replies that he’s not subject to personal defenses C has agst Bank Dealer. Bk claims he’s a holder in due course

3-302 Who is a holder in due course3-305 What defenses are not good agst a holder in due course

This concept has essentially been destroyed in the context of consumer goods. Still exists in the commercial context.

Hypo #17 – Dealer sells instruments on credit to Amateurs as 75% of his businessDealer sells instruments on credit to Professionals as 25% of his business

Q What kinds of risk does D have? Unsec. CR has no remedies other than going to court to become a judicial lien CR.

9-317(a)(2) places Dealer’s SI as subordinate to PSI and to person who becomes a lien creditor before Dealer’s SI is perfected. Dealer would therefore lose to a tib.

Consumer may sell the instrument to another Buyer. 9-317(b) says that Buyer takes free of SI if he gives value and receives delivery of coll w/o knowledge of the SI before the SI is perfected.

Consumer could use instrument as coll. for another loan

Q What are D’s cost factors if he’s to begin creating PSI in sales? Forms, People to fill out forms and file them properly, Filing fees

Remember that Dealer must look to the purpose for which the good was bought when deciding whether the instrument is a consumer good (amateur) or equipment (professional).

With Consumer Goods, Attachment is enough to perfect if it’s a PMSI (9-103 & 9-309) so long as Dealer has a valid SA in record form.

With Equipment, (9-102(a)(33)) Perfection requires attachment and filing here

Hypo #18 – Q What if Amateur turns Professional and use of the instrument changes from consumer goods to equipment?

Rev. Art. 9 not clear on who wins. Looking at the old code, 9-401(3): the use can change. Meyer: the dealer is unperfected. The court would carry through the old notion that

the “secret lien” cannot be extended when the use changes.

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Hypo #19 – Dealer has PSI in instrument and Amateur sells it.

9-315(a)(1) says that the SI follows the Coll., except as provided for in 9-320 9-320 Buyer of Consumer Goods takes free of PSI if buys (a) w/o knowledge of

SI, (b) for value, (c) primarily for personal, family, or household purposes, and (d) before the filing of a FS covering the goods.

Perf. Dealer who didn’t file and relied on PMSI automatic perfection will lose to the Buyer. (A PMSI IS NOT GOOD AGAINST THE WORLD)

Hypo #20 – Furn.

Manuf. DealerSI, no FS

SI, no FS Furn.Consumer

9-310 – Furn to Dealer = Inventory. Manuf. has to file to Perfect. Manuf = Unperf SI CR

If Dealer sell furn, they get back something (cash, trade-in, A/R, chattel paper). 9-203(f) says that Proceeds are automatically covered as the replacement for the Inventory. Manuf. = Unperf for Orig. Coll and also Unperf for Proceeds

Dealer has PSI PMSI (9-103) under 9-309.

J. Multi-State Perfection Issues1. 9-301(1) – Location of D controls Perfection and Priority of

Nonpossessory (cmt. 5a.) SI (Secured party does not have possession of collateral)

2. 9-301(2) – Location of Collateral controls Perfection and Priority of Possessory (cmt. 5a.) SI (Secured party has possession of collateral)

3. 9-301(3)(C) – When Nonpossessory interest is in a Negotiable Doc., Good, Instrument, Money, or Tangible Chattel Paper, location of the collateral controls Priority

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Hypo #21 – State A State BCR 1, SI Inv. D locatedPoss. Of Inv.

CR 2, SI Inv. CR 2 files FS

Two prongs of inquiry (1) What state law governs? 9-301(1) or (2); (2) Is the collateral perfected? 9-310

PERFECTION CR 1 – Look to law of state A b/c loc. of coll. controls possessory SI – Perfected under 9-310(b)(6) and 9-313 by controlling the good; CR 2 – Look to law of state B b/c loc. of D controls nonpossessory SI. Both CRs PSI

PRIORITY Since it’s a good, State A law applies under 9-301(3)(C) – location of coll. CR 1 has priority – First to file 9-322(a)(1)

Hypo #22 – Kansas IowaCorp. registered Plant w/ EQPlantExec. Office1/1 BK PSI in EQ

Filed centrally3/1 EQ moved to Iowa plant4/1 D bkcy petition

Q Bk perfected as to all EQ? 9-301(1) says perfected because nonpossessory SI perfection is governed by law of

state in which D is located. 9-307(b)(3) says that D who is an organization w/ more than one place of business is located in the state where it’s chief executive office is located. 9-307(e) says registered org are located in the state registered in. D location = Kansas. Perfected b/c under 9-310(a), CR must file and he did so centrally as 9-501(a)(2) states he must. The key is if the debtor’s location changed. In this case, only collateral changed. If the debtor’s location had changed, 9-316(a) would have become relevant. It makes no difference in equipment or offices move if the organization is registered. It is the birth state of the organization pursuant to 9-307(e).

9-301(3)(c) Priority is governed by Iowa law since that’s where coll is located. This is an exception to 9-301(1)’s “except as otherwise provided” language.

4. 9-307 D Location Rules5. 9-316 PSI perfected until earliest of (1) when perfection would

have expired under state law, (2) 4 mos. after D changes location to another jurisdiction, and (3) 1 yr after transfer of collater to

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another person who becomes a D and is located in another jurisdiction (NEW D)

6. Multi-State Perfection regarding Automobiles(a) Applies only to goods covered by a certificate of title and

there is no requirement that the debtor or collateral be in the state in which certified. 9-303(a).

(b) 9-303(c) State who issued the cert. of title governs until 9-303(b) another state issues a new title or the title ceases to be effective under the law of the issuing jurisdiction. The law of the issuing jurisdiction still has to be dealt with. 9-316(d)

(c) 9-303, Cmt. 4: The fact that the law of one State ceases to apply under 9-303(b) does not mean that a security interest perfected under that law becomes unperfected automatically. In most cases, the security interest will remain perfected. See 9-316(d), (e).

Hypo #23 – Kansas IowaBk PSIC of TCar Car moved to Iowas

C of T issuedNo KS SI noted

Now Iowa law governs Perfection and Priority 9-316(d) KS PSI remains perfected until SI would have become Unperf. under KS

law had the C of T not been reissued in Iowa. 9-316(e) Iowa Buyer purchases car for value and KS Bk has not had its PSI noted

on new C of T or has not taken possession (9-313), then SI is unperfected. 9-316(e)(2) Has either 4 mos or until PSI would have been unperf in KS originally to reperf this SI.

9-337 If KS fails to have its PSI noted, whether w/in 4 mos. grace period or not – Buyer of goods takes free of SI if he gives value and receives delivery of goods after issuance of the C of T and w/o knowledge of the SI. And SI is subordinate to conflicting SI. And is perfected by 9-311(b), after issuance of C of T and w/o conflicting Sec CR’s knowledge of SI. (Even Buyer purchased w/in and violates the 4 mos grace period)

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Hypo #24 – 1/2/00 CR loans to D, SI in Ill. C of T2/1/00 D moves car to Tenn.4/1/00 Clean title showing no CR lien issued by Tenn.5/2/00 D sells car to Buyer who paid value, didn’t know of SI and relied upon the clean title

9-303(b)-(c) – Until Tenn. Issued a clean title, Ill. Law applied 9-316(d) – Still perfected until 9-316(e) says it’s not. 9-316(e)(2) – Gives CR four months grace period to have SI perfected and renoted

on cert. 9-337(1) – Buyer of goods here takes free of SI b/c he gave value, and received

delivery after clean title issued by Tenn. And w/o knowledge of SI.

Hypo #25 – 1/2/00 CR loans to D, PSI in Ill. C of T2/1/00 D moves to Tenn (9-316(e) 4 month time starts to accrue)4/1/00 Clean title issued by Tenn. w/ no mention of CR’s SI5/2/00 D files bkcy petition (w/in 4 mos grace period of 9-316(e))

tib does not = a purchaser. Look at 9-102 def. of purchaser. Tib isn’t holder of voluntarily granted interest. The 9-337 exception does not apply.

It would make no difference if the bkcy was filed on 8/1/00. The Tib is not a purchaser (9-102) under the language of 9-316(e) and even if the four month period passes, it cannot get good title.

7. Multi-State Perfection and IntangiblesHypo #26 – Kansas IowaABC, Inc. Reg. BK ABCPlantExec. Office 1/1/00 KS Bk loans to ABC, gets SI in all EQ and Files centrally. RP2/1/00 KS EQ sold to R to pay in 90 days

Is this a transfer under 9-316(a)(3)? What is a transfer of collateral? Physically moving equipment is not a transfer. 9-316, Cmt. 2, Ex. 4. The transfer rule essentially only applies when you have a new debtor.

Now coll. = RP’s acct (9-102(a)(2)) that replaced the EQ RP just bought. RP is an account debtor under 9-102(a)(3). RP is an account debtor because he is obligated under an account. Account debtor is not included under the 9-316(a)(3) one-year rule.

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What law governs perfection and priority with regard to an account?

PERFECTION 9-301(1) D location for nonpossessory SI. Here we have a nonpossessory security interest in a proceed. KS law governs for both EQ and Acct.

PRIORITY An account is an intangible (can’t see, feel, taste, touch, hear). General intangibles governed by D location in 9-301(1). Tangibles governed by coll. location in 9-301(3)(C)

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IV. PRIORITY – 9-317 – 9-339

A. Generally – Determines whose claim is superior and whose is subordinate. 1. Perfected Secured Creditor [9-322 to 9-324]2. Lien Creditor ($ judgment from the court) [9-317(a)(1)]3. Tib [9-317(a)(1) and 11 U.S.C. § 544-551]4. Unperfected Secured Creditor [9-317]5. Unsecured Creditor [9-201, 9-317(a)(1)]6. Buyers of collateral subject to a SI [9-315(a)(1) buyer of goods 9-

320, buyer of farm products 7 U.S.C. 1631, purchaser of chattel paper and instruments 9-330, purchaser of instruments, documents and securities under other Articles 9-331]

The first issue of any priority conflict is to identify the status of the parties (see handout).

B. Lien Crs vs any conflicting SI – 9-317(a)1. Lien Cr (including tib) trumps any conflicting SI so long as become

Lien Cr beforea. SI is perfected ORb. SI is almost perfected: one of the conditions in 9-203(b)(3) is

met (such as SA exists but there’s no attachment yet) AND FS covering the collateral is filed.

Hypo 2/1/00 – Bk filed FS covering all EQ2/2/00 – L loaned $ to D, SA all EQ 2/5/00 – L files FS covering all EQ2/9/00 – Bk $ to D, SA all EQ5/1/00 -- Default

Who has priority? The Bk (9-322(a)(1))Would it make any difference if Bk knew about L’s advance when it loaned? No, Cmt. 4

to 9-322.What if L filed locally? The Bk (9-322(a)(2))

Hypo See Example 4, 3-222, Cmt. 5.

10/1 Bk loaned $35k to DSA (EQ #1) (P loan and FA’s)Proper FS filed correctly (no FA clause)

11/1 L $25k to D, SA (EQ #1)

12/1 Bk $35k to D, New SA (EQ #1) new FS

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12/30 D defaulted on both loansEQ #1 = $60k

How should the $60k be divided?

Two Issues: (1)When the original SP does not have a security agreement, the general rule is that future advances are not secured. What happens when you make a new advance and you make a new SA? Triggers the application of the first-to-file rule. As long as you have attachment, it makes no difference when it occurs. See also All-Chalmers [13]

(2) What impact does the filing of a new financing statement have? Bank does not terminate original financing statement. They simply filed a new one. There was no need for the bank to have filed a new financing statement. Remember, in FS you do not need a future advance clause, and FS are good for 5 years and will cover ANY SA created during that period of time so long as the description in the FS covers the description. In summary: if the FS is effective as to EQ #1, you do not need the another filing. The court’s that have looked at this have just ignored the re-filing and do not apply the first-to-file rule again.

Status of the parties at default: Lender is clearly perfected; Bank’s value (9-203(b)(1)) attached on 12/1 when the future advance was given. Bank did not become perfected until 12/1.

9-323 is labeled “future advances” but does not help us at all with this problem (drafters fucked up). This section applies to limited circumstances.

9-322 has no references to subsequent advances.

9-323, cmt. 3 “under a proper reading of 9-222(a)(1) it is “abundantly clear” that the time when an advance is made plays no rule except when the financing statement is not filed.

No doubt whether the first to file rule applies to future advances. Therefore, under these facts, the bank gets it all.

When L sees that the Bank has a filed FS for the collateral, they simply need to deal with the Bk.

Hypo (problem 1, p.141)

2/1 Secured Party A gives 30,000 Loan, SA in proceeds and equipmentNo future advances clause, FS filed centrally

6/15 Secured Party B gives 40,000 loan, SA Existing equipment

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Filed FS centrallyDebtor files 9-210 statementSecured party A said only 30,000

LoanedSecured Party B saw SA and No Future Advances clause

7/15 Secured Party A loaned 60,000, SA, P EQNo new FS filed

9/1 DefaultEq= 100,000SP A has 90,000 secured debtSP B has 40,000 secured debt

Both parties are perfected. Does 9-322(a)(1) apply? The loan made on 7/15 is a future advance, but 9-323 does not apply. 9-323, cmt.3 ex. 1 is exactly applicable. The winner: Secured Party A gets all the money.

Secured party B had debtor request 9-210 statement. This has NO impact on the priority rules, it is merely informational. The only way this would have had any impact is if B would have asked an agreement with A not to make any more loans (than you would have had a K issue). 9-210 is informational in nature and has not impact.

Pure Race to the Courthouse: unless you are dealing with a PMSI, 9-322 is a pure race statute. This is a “damn simple” rule.

Hypo 1/1/00 – Nat’l Bk loans $10K used to buy EQ 1, SI to Bk, Proper FS2/1/00 – Fin. Co. loan, SI in EQ 1, Proper FS3/1/00 – D defaults on Nat’l loan3/2/00 – D goes to State Bk to pay Nat’l $10K ($ directly to Nat’l), State SI, Proper FS5/1/00 – Default. State Bk possession of EQ – sold for $9K

Owed State Bk $11K; Fin. Co. $6K. [2 competing PSCrs]

Does Fin. Co. have priority as to the $6K?

9-322(a)(1) First-to-file has priorityState Bank could have taken an assignment of Nat’l’s interest under 9-310(c) and would not have had to file anything new. Priority would have then dated from Nat’l Bk’s 1/1/00 filing. Zero doubt: if an assignment would have been executed, State would have won.

State Bk could also have argued subrogation (common law assignment theory under 9-103).

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Fin. Co. knew another CR was out there when it loaned D the $ so it’s not unfair to place them 2d. State Bk was merely trying to keep D in business, not taking advantage of the situation.

C. First-to-File-or-Perfect-Rule1. If there are two PSCr, first ask if the 2d PSCr has a PMSI.

a. If he does 9-324 below. Different Rulesb. If he doesn’t, go to 9-322.

2. 9-322a. (a)(1) 2 PSI; Winner= earlier of 1st to file OR 1st to perfectb. (a)(2) 1 PSI vs. UnPSI; Winner = PSIc. (a)(3) 2 UnPSI; Winner = 1st to Attach

3. Future Advancesa. 9-204(c) allows FA clauses to be included in SAb. 9-323(a) Perfection of a FA occurs upon advance. BUT,

time of advance does not determine priority. Priority is determined by first filing (unless one of the limited exceptions apply). (Cmt 3)

c. A PSCr can claim priority as to a FA so long as (i) FA Clause is in 1st SA (see above Hypo), OR(ii) New SA (with FA) with 2d loan

Don’t have to file new FS, only new SA L would have searched and found FS for Bk and D. Should have understood that the FS applied to both P and FA. The only exception to this is a PMSI

d. If the collateral changes (1st loan: EQ 1; 2d loan: EQ 2), then would have had to describe new collateral in the original SA. Not likely to happen.

e. A 2nd in time lender can protect itself.(i) 9-210(c) request for accounting CR 1 must provide

a list of coll. claimed to the D upon D’s request. 9-602 D cannot waive rules in 9-210 9-625(f) imposes a $500 penalty if the SCr fails to comply with 9-210 w/o reasonable cause.

(ii) 9-310(c) CR 2 can arrange for an assignment of the SI and pay CR 1 off. 9-514 Assignment from BK, don’t have to re-file 9-513 Make sure that CR 1’s FS is terminated

(iii) 9-512(a) CR 2 could get release on part of collateral(iv) 9-339 CR 2 and CR 1 could execute a subordination

agreement, allowing them to contract around the priority rules.

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4. After-Acquired Collaterala. 9-322, Cmt 5 – Follow the first-to-file rule if 2 CRs are

perfected at same time as to the AA Coll. and neither has PMSI.

b. Follow FA rules don’t need to mention AA clause so long as new SA when AA coll. exists. FS doesn’t need to refer to AA

Hypo 2/1/00 – Bk filed FS in all of D’s EQ [No attachment]2/2/00 – L loans $ to D, SA in all EQ2/5/00 – L files FS in all EQ [PSI (9-308(a) attachment and filing)]2/9/00 – Bk loans $ to D, SA in all EQ [PSI]5/1/00 – Default as to both loans

9-322(a)(1) – Bk wins – filed first1-201(25) – “Notice” – when actual knowledge exists

Here, actual knowledge is irrelevant (Cmt 4). Dafters wanted to avoid factual inquires. Wanted efficiency, predictability, and workability. Therefore it makes no difference if BK knew of L on 2/9/00.

Both parties must file correct FS in the correct location to be perfected. (If Bk filed locally, then L would win because Bk would be UnPSCr)

Hypo 10/1/00 – Bk loans $35K to D, gets SA in EQ 1 to secure the Present loan and Future Advances (to be made after original SA and FS are executed), Proper FS in proper place

9-204(c) – allows FA clauses in SA11/1/00 – L loans $25K to D, SA in EQ 1, Proper FS12/1/00 – Bk loans $35K to D, no new SA (Bk now has an interest in $70K, Perfection occurred on 12/1/00 when the 2d $35K value was given)

Perfection in 2d $35K occurred after L loaned $25K12/30/00 – D defaults. EQ 1 = $60K

Bk can get the full $60 to offset its $70 loan to D. When collateral is gone, a PSCr turns into UnPSCr, must sue D to get a $ judgment

and seize unsecured collateral to get any $ back.

Variation on above Hypo 10/1/00 – Same except Bk does not include a FA clause11/1/00 – L makes loan12/1/00 – Bk loans $35K to D, New SA in EQ 1 to secure 2d $35K loan, New FS12/30/00 – Default

9-322(a)(1) First to file – Bk wins as to its first $35K loan

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Bk can claim priority as to 2d $35K loan (see FA rules above)

[2d loan is PSI 9-203 requirements met, 9-308 requires the 9-310 and 9-501(a)(2) filing plus steps]

Hypo 1/1/00 – Bk 1, $ to Car Dealer, SA (all cars, P and AA), FS (all Inv) filed centrally2/1/00 – Bk 2, $ to Car Dealer, Same SA, Same FS2/5/00 – 10 New Cars. No PMSI (AA Collateral)

Attachment is on 2/5/00 when D got right in the collateral. Both Bks are perfected as to the 10 cars at the same time on 2/5/00Priority goes to First-to-File Cmt 5, 9-322

D. PMSI in Non-Inventory (exception to First-to-File Rule) 9-3241. Comes into play when one or more CRs have a PMSI in the

collateral2. Ask:

a. Have PMSI? (established under 9-103)b. What kind of collateral is involved?

3. 9-324(a)a. Super priority as to any SCrs (perfected or not) if Perfected

PMSI is heldb. Carries over to Identifiable Proceeds also if Perfected within

20 days of when D receives possession.4. Don’t get to the 9-103 enabling PMSI language unless you first

establish 9-203 attachment. If you have a SI, this is a special kind of SI.

5. May also run into problems establishing a PMSI when a check is written out to the D, properly enabling him to purchase the good sought. However, the D deposits it into his bank account that already has a positive balance. The First in, First out Rule may make it impossible to trace the money to prove that the BK actually enabled the D to purchase the EQ. Can ensure your PMSI if the check is made directly payable to the Seller.

6. 9-324(g) – Conflicting PMSIs A SI securing an obligation incurred as all or part of the price of the collateral has priority over SI securing obligation incurred for value given to enable the D to acquire rights in the collateral. [Seller will probably always trump the Bank]

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Brodie Hotel Supply 6/64 – L possession of B’s EQ, B’s Restaurant

L and B negotiated about L buying EQ in restaurant11/2/64 – Bk $ to L; SA EQ11/4/64 – BK FS EQ11/12/64 – B Bill of Sale for EQ to L (=SA)11/23/64 – B filed FSDefault on both transactions

Status of parties at default?B PSI on 11/23 Bk PSI on 11/10

How do you get to the PMSI supermajority language? (remember this)9-322(a)’s “except” language 9-322(f)(1)’s “other provisions of this part(300s) lang. 9-324(a) B has a super priority over PSCrs if he has a PMSI, and super priority as to the collateral’s identifiable proceeds if file within 20 days after D receives possession.

The code does not define possession nor does it use the word “physical possession”. 9-313 Cmt. 3 speaks about possession. Reflecting on 9-324 Cmt. 3 “the twenty days do not commence until the collateral is subject to a security interest.” Looking at the comment, it appears the drafters definition of possession is that you have to have a security interest created. At what point in time did B have a SI in equipment? 11/12/64. At what time did B file? 11/23/64. Thus B filed eleven days later within 9-324(a)’s twenty day requirement for priority.

This problem is kind of “screwy” in that in 6/64 Lyon in effect had a lease on Brodie’s EQ and the time could have started running at that time. Just something to think about.

Hypo 1/1/00 – Bk SA (P and AA EQ), $, FS3/1/00 – Seller sold EQ 2 for $100K, financing $80K

Bk gave $20K for down paymentCk payable to Seller and D PMSISeller sold on Credit for $80K, SA EQ 2, FS PMSI

5/1/00 – Default on both loans; EQ 2 = $50K

9-324(g) – Conflicting PMSIs Winner = Seller. Bk gets nothing

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Problem 1, p. 147 Hypo 7/1 S sold goods on unsecured cr7/7 D borrowed $50K from Bk

Ck payable to D and S

Does Bk have a PMSI?9-103(a)(2): (1) the loan has to enable the debtor (the question in this case); and (2) was the money in fact so used. Did this money enable the D? The Bank has the burden to show this. If someone has the good, how can a loan made after the good enable the good. The money was sent directly back to the seller, but they already had the goods. 9-103, Cmt. 3 “thus a security interest does not qualify as a PMSI if a D acquires property on unsecured credit and subsequently creates the SI to secure the purchase price. From a planning standpoint, you want to loan the money before. It is a “tough job” for a Bk to establish 9-103(a)(2) when the debtor already has the collateral when the loan is made. To avoid this, the Bk could make it a policy that no loan money is available if the collateral is already in possession of the Debtor.

Problem 2, p. 147 Hypo 7/1 Bk $10k to D to buy machine, SA

Bk deposits $10K in D’s checking Acc’tBalance before deposit: $15KBalance after deposit: $25K

7/3 D buys and pays for machine with $10k check on checking account balance when check paid $22k.

Does Bk have a PMSI?9-103(a)(2): (1) the loan has to enable the debtor; and (2) was the money in fact so

used (the question in this case). Many states have a “first in, first out” (FIFO). All $15K has to go out before the $10K can be used (because the $15K was there before the loan).

Problem 3, p. 147 Hypo Two PMSI’s1/1 Bk SA (P & AA EQ), $, FS

3/1 S sold D EQ #2 $ 100kBk advanced $20k to enable down payment

Ck payable to D and endorsed to S

S sold on credit for $80k, SA EQ#2, FS

5/1 Default on loan and S’s contractEQ#2 = $50k

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Who is entitled to priority to $ and EQ#2?Two issues:

(1) First Issue: Who wins between two PMSIs?a. 9-324(g)(1)

i. gives priority to the seller. If you have two PMSI’s that is lenders, then it is the first to file rule under (g)(2). But if it is between a seller and a lender, the seller wins.

1. The significance of this: the seller is out $30k ($80k - $50k), but the lender is out entire $80k. Also, remember that the value of the collateral is the amount of the SI, not the amount of the original value of the collateral.

a. Under this rule, why then would a bank ever loan any money?

i. The bank says to the seller that “you finance it” unless we can get a subordination agreement under 9-339.

b. 9-324, Cmt. 13:(2) Second Issue: Whether the bank’s use of a SI, including a AA Prop clause,

prevents the bank from having a PMSI?a. 9-103(b)(1) “to the extent that goods are purchase money collateral”, and

then to go 9-103(f): a PMSI is good the extent of the PMSI is good. You simply have to establish that you have a PMSI, it makes no difference if it is clouded by AA Prop. and FA.

9-324(a) on its face looks pretty simple. If you look at 9-324(b), there are two major differences from (a): (1) you have to search the records; (2) there is no requirement to give to notice to anybody; and (3) the finance company does not have to be filed “before” the debtor gives possession. Not as simple as it seems: (1) the finance company has to establish the PMSI; (2) you have to file within 20 days the Debtor gains possession of the collateral. Simply, no seller should release a good before you have filed, and as far as a lender, never make a loan until you have filed and until you know the debtor has bought the good.

Hypo 1/1/00 BK SA (All EQ, P & AA, FA), $, FS

D owns EQ #12/1/00 Fin. Co. $ used to buy EQ #2

SA, FS covered EQ #25/1/00 Default on both loans

Who has priority as to EQ #2?

Start at general priority:

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Go to 9-322(a) which states “except as otherwise provided in this section” which then sends us to 9-322(f)(1) which states that (a) is subject to (g) and the “other provisions of this part (300s) which then sends us to 9-324(a).

9-324(a) tells us that other than (g) conflicting pmsi’s; inventory or livestock; or in deposit accounts under 9-327, that a PMSI takes priority over a conflicting security interest and the same goods and identifiable proceeds if the PMSI is perfected when the debtor receives possession of the collateral or within 20 days thereafter.

Finance Co. must establish that it has a PMSI in non-inventory or livestock; they were perfected at the time the D got possession or within 20 days of possession. If these requirements are satisfied, they take first (even though they are not the first in time to file).

E. PMSI in Inventory and Livestock (exception to First-to-File Rule) 1. If collateral is Inventory 9-324(b)

a. Perfected PMSI in Inventory has priority over conflicting SI in same inventory, over conflicting SI in Chattel Paper or an Instrument constituting proceeds of the inventory, in Proceeds of the Chattel Paper, and in identifiable cash proceeds of the inventory that are received on or before delivery of the inventory to the buyer.

b. PMSI must be perfected when D receives possessionc. PMSCr must send authenticated notification to the holder of

the conflicting SI, within 5 years before D receives possession, stating that the PMSCr has or expects to acquire a PMSI in the D’s Inventory, and a description of the Inventory is included.

2. Cross-Collaterizationa. 9-103(f) and Cmt 4 [Item 1 can secure Item 2’s (now sold

off) unpaid price. Had a PMSI in 1 and 2 was subject to PMSI.]

3. Transformation Rules (addressing two situations in ways PMSI can be altered)a. 9-103(f)(3) Refinancing – No transformation here (so long

as it’s not a consumer good; if it’s consumer goods, it’s up to the courts to determine whether still a PMSI or not) (this rule applies to “all” transactions, including consumer goods, in Kansas).

b. 9-103(f)(1) Seller sells additional goods – “Dual Status” Rule. Presence of a non-PMSI does not destroy the purchase money aspect so long as PMSI secures the price of the goods even though it secures the price of other items as well. Burden of Proof is on the party claiming PMSI (9-103(g)).

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4. Inclusion of FA and AA clause does not necessarily destroy the PMSI. Under 9-103(b)(2), it looks like an argument can be made either way. But you’re best off not risking it.

5. The security interest of a consignor in goods that are the subject of a consignment is a purchase-money security interest in inventory. 9-103(d).

Zoro hypo 1/1/00 – Bk PSI (Inv P and AA, FA), $, FS

D in computer businessOwns 10 IBM Computers

2/1/00 – Comp. Manf. Sells D 5 Zoro Computers on credit transactionSA, FS and gives Bk good proper notice

2/5/00 – Zoros delivered2/10/00 – 1 Zoro sold and paid for by Visa2/11/00 – 1 Zoro sold and B given 90 days to pay2/12/00 – Default on both debts; 10 IBMs and 3 Zoros, visa slip, and account

Classify Collateral Account – 9-102(a)(2) includes both the 90 days to pay arrangement and the credit card transaction. The IBM’s and Zoros are inventory (9-102(a)(48)(B))

Classify Parties Bk – PSI in P and AA Inv. (IBMs and Zoros)

Includes PSI in the Account and visa slip as Identifiable Proceeds9-203(f) Automatically Covered9-315(c) Perf. of SI in Proceeds if Orig. Coll. Perfected9-315(d) Automatic 21 days to perfect in proceeds. Perfected if

Orig. FS in same place as Proceeds would require a FSAccounts require filing centrally as does Inventory! 9-313, cmt. 2

Manuf – PSI in the 5 Zoros. Look to 9-203(b) and Manuf. Had all three which constitute a valid SA. (SA description refers to Zoros, no attachment to IBMs). The Zoros are inventory 9-102(a)(48) and to be able to have priority, you must perfect by filing centrally under 9-501(a)(2). Includes PSI in the Account and visa slip as Identifiable Proceeds (same analysis)

Has PMSI as to the Zoros (9-103)

9-103(b) … to the extent that goods are purchase money collateral. Falls under 9-103(a)(2) seller provision.

Therefore, manuf. clearly has a PMSI which sends us to the general priority rules found in 9-322(a)(1) which send us to 9-322(f)(1) which sends us to 9-324’s priority rules when dealing with PMSI’s. The key in knowing where to go in 9-324 is classifying the collateral of the PMSI. In this case, the collateral under the PMSI is inventory (9-102(a)(48)(B)). Because the PMSI is inventory, this sends us to 9-324(b) which specifies the

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general requirements of a PMSI having priority when the collateral is classified as inventory. Note the inventory collateral section of 9-324(b) contains greater requirements to attain priority then PMSI’s which collateral fall under 9-324(a)’s general PMSI priority rules in which the PMSI collateral is classified as anything but livestock or inventory.

Clearly Bk wins as to the 10 IBMs9-324(b) Requirements met by Manuf. who wins as to Zoros9-322(b)(1): the first-to-file rule applies to proceeds.Superpriority (very limited) for PMSI does not carry over to the visa slip and account because they’re not identifiable cash proceeds (9-102(a)(9): “money (1-201(24)), checks, deposit account (9-102(a)(29)) or the like”.) See also, 9-324 comments 8-9 which states: an account is not an identifiable cash proceed. An account is not considered cash and does not fit under the “or the like” language. Therefore, only Money and Checks would fit here, not the visa slip or an account. Cross-Collateralization and Transformation Southtrust Bank 1/1/00 – Bk PSI Inv. (P and AA, FA), FS, $2/1/00 – inventory Buyer 1

Seller invoices DBuyer 2

$ to pay offinvoices SA (FA, AA) Inv., FA. Only Inv. that

BWAC BWAC provided money for.

Agreement D pays off a percentage of invoice each month whether the item in the invoice is sold or not. If an unpaid item is sold, other inv. coll. secures the remaining debt for the sold item.

Example:2/1 Seller sells 3 computers to D

Comp. #1: $2000Comp. #2: $3000Comp. #3: $5000

BWAC provided all the $ to buy

3/1 Comp. #1 sold and D received $2,000.Paid BWAC $200Computers #2 and #3 became collateral for $1800 unpaid on #1.

5/1/00 – Default on both loans

Revised Art. 9 would find that the FA and AA clause did not destroy BWAC’s PMSI.

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9-103(b)(2): If the security interest is in inventory that is or was purchase-money collateral, also to the extent that the security interest secures a purchase-money obligation, incurred with respect to other inventory in which the secured party holds or held a purchase-money security interestSee also 9-103(b)(2) Cmt. 4

What the effect is: so longu u as this was originally a purchase money loan, and the collateral that is not substituted it purchase money collateral, the lender is considered to have a PMSI to the extent of the unpaid balance (including the $3K and the $5K.).

All items in example (all computers) had to have been subject to a PMSI and are. That is the key. They had to be in one time in time subject to a PMSI.

This is Cross-Collaterization and Transformation

F. Buyer of Goods subject to Perfected Security Interest1. Is buyer “a buyer in the ordinary course” (BIOC) under 1-201(9)

[amended def. on p. ----]a. If buyer is “a buyer in the ordinary course” 9-320(a). (See

also 9-315(a)(1), 9-317(b))

2. 4 common situations

Goods are inventorya. Bk Appliance Dealer Inv. Buyer

PSI Inv. $Day after sale, A.D. defaults w/ Bk

9-315(a)(1) – SI follows Coll. unless CR authorizes sale free of SI. If the Bk says to sell free of SI, we’re just interested in proceeds, never get to BIOC in 9-320(a) because if CR authorizes sale free of SI, then SI attaches to identifiable proceeds

EXCEPTION to 9-315(a)(1): 9-320(a) – (1) BIOC and (2) SI was created by Buyer’s Seller. Takes free even if Buyer knows of SI and SI is perfected. The mere knowledge that the good is subject to a SI is not enough to prevent BIOC. Must know that there’s an SI and that Seller can’t sell that good

Amend. 1-201(9) (p. ----) – BIOC (typically this applies if individual buys and it’s not an extraordinary event, like buying the entire inventory)

(a) Buys a good (b) in good faith

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(c) w/o knowledge that sale violates rights of a 3d person in the goods

(d) from person in business of selling goods of that kind

9-102(a)(43) Good Faith – (a) Honesty in fact (good heart, w/o knowledge)(b) Observation of reasonably commercial standards

(the seller is a seller who sells such goods)

Goods are equipmentEQ

b. Bk PSI EQ Appliance Dealer Buyer$

9-315(a)(1) – SI follows because not BIOC 9-320(a) – requires seller to be seller in goods of the

kind. 9-320(b) – Requires the seller to have used or bought the

good as a consumer good Bk can go after Buyer b/c not BIOC and not a consumer

good in the hands of the seller

Goods are Farm Products

c. Bk PSI Farm ProdFarmer Farm Prod Buyer$

9-320(a), Cmt 4 – This provision does not apply to Farm Products. Look instead to Food Securities Act of 1985: 7 U.S.C. §1631

Goods are Consumer GoodsCons. Good

d. Bk Consumer BuyerPSI Cons Goods

9-315(a)(1) – SI follows unless CR authorizes it free 9-320(b) –

(a) Consumer good in hands of the Seller and Buyer(b) Bought without knowledge of SI(c) For value(d) For consumer good purpose, and (e) Before filing of FS covering the goods

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Gordon v. Hamm Sold Coach PSI Coach (noted on C of T)

Seller Hamms J.D. Credit[kept title, copy to Hamms]

$ $entrusted Coach Hamms

entrusted the CoachSunset Motors to SM to try to sell it, but

Coach Sold $ trade was not complete SM didn’t pay off J.D. w/

Gordons Gentra $ from Gentra. SM bkcy pet.No title, PN, SIHave Coach (buying Coach on time)

The lawyers for the Gordons attempted to find exceptions to 9-315(a)’s general language that SI follows the collateral. They first tried to argue 9-320(a) and then entrustment under 2-403(2). 9-320(a) argument fails for the Gordons because the SI was not

created by SM (the seller) even though they were a buyer in the ordinary course; it was created by J.D. Credit. Therefore 9-315(a)(1) applies. An argument could be made that the Hamm’s were using SM as an

agent to sell. This would probably still fail because this would probably not be in the ordinary course.

The Gordon can still sue SM under 2-312 breach of warranty. SM is in bankruptcy and this would probably get Gordons anywhere.

Entrusting Coach to SM not a sale.2-403(2) – Entrusting to a merchant in goods of the kind gives him power to transfer ALL rights of the entruster (Owner/Hamms) to the Buyer (Gordons) in the Ordinary Course of Business.

Transferring all rights means that since Hamms interest was subject to J.D.’s SI, Gordons bought an interest subject to J.D.’s SI.

Entrustment generally not a disposition under 9-315. (If CR knew of entrustment and did nothing to prevent it, may be able to estop CR from enforcing their SI based on the 9-315(a) language “unless the secured party authorized.” 9-315, Cmt. 2 makes a reference to PEB commentaries (pg. 913-) which help in defining and arguing meanings of 9-315.

Look at 9-320, Cmt. 3, Example 2 for an interesting example of how the drafters were trying to provide a little bit of protection for the buyers in a Gordon v. Hamm type situation.

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Garage Sale Hypo chair

Dealer ConsumerPN, SA, no FS Sells chair for cash at garage sale

NeighborDealer is PSCr – 9-309(1) – Automatic perfection with consumer goods in PMSI (9-103), except as otherwise provided in 9-311(b): C of T.

9-320(b) – Exception to 9-315(a)(1). Seller must be using good as a consumer good. If he is, then sells free of SI, even if perfected, so long as all 4 requirements exist.

Hypo $ TV

Bk Dealer Consumer 1PN, PSI Inv. PN, SA, FA $ TV

Consumer 2Dealer defaults and C2 has the T.V.

1-201(9) – C1 was BIOC (meets all requirements) 9-320(a) – C1 takes free of Bk’s SI

Dealer and C1 default.

Dealer has a PSI. C2 has no Special Buyer Protection under 9-320(b) because Dealer filed FS.Because Dealer defaulted, Bk can step into his shoes and since Dealer has right to recover the T.V., so does the Bk.

G. Buyer of Inventory subject to C of T

BIOC and the New Car (**Read 168, #1)

Manuf.$ MSO Car

Fin. Co. Dealer$ Car, no C of T, Dealer will apply for C of T

Buyer

If Dealer doesn’t apply before default, Fin. Co. will claim it has the Manufacturer’s Statement of Origin (MSO) and Buyer can’t get Certificate of Title.

Art. 9 trumps C of T Buyer in Ordinary Course wins Some states say can’t get rights in vehicle with Certificate of Title

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BIOC and the Used Car (**Read 169, Case #2) $

Bk Dealer OwnerPSI Inv, FS car, C of TGet C of T’s and Car, Promise to get new title issuedgive back if $ paid Buyer

H. Double D

1. 9-325(a) – SI created by a D is subordinate to SI in same coll. created by another person if:a. D acquired Coll. subj. to SI created by the other person,b. SI was Perfected when D acquired the Collateral, andc. There’s no period when the SI is unperfected

2. 9-325(b) – You reach this section only if the interest being subordinated would have priority under 9-322 (First-to-File) or 9-324 (PMSI).

Bank of West $

1982 Bk (CR1) Allied (D1) PSI Inv. & A/R, P & AA w/o consent of CCFS,

$ BCI sold Inv. & A/R to Allied1984 CCFS (CR2) BCI (D2)

PSI Inv. & A/R

9-315(a)(1) CCFS did not authorize disposition so SI continues to attach9-315(a)(2) Not only does this cover the Inv., but also covers the Identifiable Proceeds of the Collateral (A/R)

2-403(1) Allied gets the same rights as BCI had (remaining subject to a SI)

The Court rejects the Bk’s First-to-File argument. Allowing that argument to stand would defeat the Notice Function of 9-310

Allied is not a Special Buyer, not in ordinary course when buying all of another’s inventory.

Apply 9-325(a) and CCFS wins.

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9-507(a) – Effectiveness of FS for assets that are sold will continue as to the assets transferred.

I. Purchaser of Farm Products

1. Food Securities Act of 1985, 7 U.S.C. § 1631 – sale of farm prod are subject to SIa. UCC governs Attach, and Perf.b. Fed. Stat. governs priority only Opposite of 9-320(a), §1631(d) (pg 1383) presumes that you

buy free of SI(i) BIOC buys FP from Seller engaged in Farm Operations,

takes free of SI “created by the seller,” even though SI is perfected and BIOC knows of it.

(ii) (e)(1) – Buyer takes subj. to SI if written notice received by Buyer from SP within 1 year before sale of FP. “written notice received” should be taken seriously, and a bank should send receipt requested or certified as a simple matter of proof.

(iii) (c)(1): BIOC does not have a good faith requirement. The other major difference is “without knowledge” requirement is not present. The significance is illustrated by the hypothetical below where the bank had actually given the elevator notice by phone. Under the UCC definition, the elevator could never be a buyer in the ordinary course because they had knowledge. Under this definition, knowledge is irrelevant.

(iv) The definition of “farm products” is not the same in this federal statute.

(v) Upshot: If you have a sale of a farm product that is subject to a SI, look to the federal rule because Art. 9 has been preempted (under 9 it would survive). Under 7 U.S.C. § 1631(d), the presumption is that the SI is cut off. The only exception is if the buyer has received “within one year of the sale” an appropriate notice ((e)(1) “appropriate written notice”. Who has to give the notice? The SP has to give an appropriate written notice. If the bank does not give a notice, the SP’s interest is cut off when sold. The significance is that if the buyer’s proceeds cannot be found (bank has right in them) (99% of time, the proceeds will be gone), the bank’s only real possibility is to sue the elevator in conversion.

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Bk Farmer PN, PSI in all 8/1 – sells wheat

7/15 – cropsphone call to elev. Elevator – despite agreement to write jt. ck., elevator writes singleto request jt. ck. for party ck to FarmerFarmer’s wheat when sold

9/1 – F defaults on PN to Bk. Bk sues elevator in conversion.

In the real world, the result is that the elevator ends up having to pay twice: the farmer, and the bank. This is called “double jeopardy.”

That concludes are discussion of priority in relation to buyers.

We are now going to talk about accounts, general intangibles including payment intangibles, and deposit accounts.

J. Rights to Payment on Accounts and General Intangibles

1. 9-102(a)(2) – Account right to payment of a monetary obligation (i) property that has been or will be sold (includes both personal and real property); (ii) for services rendereda. If a Plumber has three acc’ts and needs the money now, she

can either sell the acc’ts or put them up as collateral to secure a loan for the needed money.(i) Sale the accounts Bk acquires all rights and

immediate access to the acc’ts(ii) SI in accounts Bk gives $ for SI in Acc’ts and gains

access and rights to those acc’ts upon the Plumber’s default to Bk.

b. 9-109 covers both creation of SI in personal property (a)(1) and sales of accounts (a)(3), etc . . . This means that all of the article applies to both of these transactions. (d)(4) restricts, but only applies to the sale of a business.

c. 9-309(2) Automatic perfection in limited circumstances. 2. 9-102(a)(3) – Account D Person who owes = account D

a. Account Ds are 3d parties whose rights are protected under the 9-400s (See Artoc/Apex Hypo below) If someone is asserting a defense to the original SP and the SP has assigned, the 9-400s assert rights. (not on exam)

3. 9-102(a)(42) – General Intangibles Includes Software and Payment Intangibles. Cannot be an account. If you satisfy the definition of an account, it cannot be a general intangible. 9-102(a). Comment 5(b) includes examples of general intangibles. Additional ones are a partnership interest, tax refund (payment

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intangible as a subset). Sale of general intangibles is not covered by Article 9, BUT the sale of payment intangibles (below) is covered by Article 9.

4. 9-102(a)(61) – Payment Intangibles general intangible under which Acc’t D’s principal obligation is a monetary obligation. Are a subset of general intangibles, but are covered by Article 9, whereas general intangible sales are not.

5. 9-102(a)(72)(D) – Secured Party includes someone who buys accounts, payment intangibles, etc.

6. 1-201(37) (amend. p. 1267) – SI includes Buyer of Acc’ts7. 9-322 – First-to-File rule governs priority no special protections

for Buyers of Acc’ts

Hypo (pg. 184)

2/1 – $ to buy new Inv. 2/15 – Goods soldBk D Retailer

PSI P & AA A/R 90 days to pay (A/R) 9-102(a)(2)(i)4/1 – sells A/R

Factor – Files FS5/1- Default

Classify the Parties Bk: PSI in D’s accounts as of 2/1. Proceeds of inventory were automatically covered notwithstanding the accounts language in FS.Factor: PSI in D’s accounts as of 4/1 because accounts can be sold. Factor’s interests

9-109 applies to sale of A/R. Factor is a Secured Party under 9-102(a)(72)(D)

To perfect, Factor must file(9-310(a)) centrally (9-510(a)(2))

Conflict between two perfected secured parties.

Priority governed by 9-322 – First-to-File; Winner = Bk (Factor should’ve searched FS). There are no special priority protections for buyers of accounts. The first to file rule governs priority. 9-322(b)(1): priority, as to proceeds, dates from first filing.

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Hypo (pg. 184)1/2 – Bk loaned D $, SA in P & AA Inv.; FS centrally, same descrip; No reference to proceeds in SA or FS (Don’t need to refer to proceeds, automatic coverage and protection under 9-203(f) and satisfaction of 9-315(c)-(d).)2/1 – Lender $ to D; SI in all P & AA Acc’ts; FS centrally; No reference to proceeds in SA/FS

Bk = PSCr in both Inv. and Acc’ts that are proceeds from sale of Inv. (9-203(f), 9-315(a)(2), (c), (d)).Lender = PSCr in Acc’ts, including those that are proceeds from sale of Inv.

9-322(b) – Since 2 PSCr, first-to-file rule controls, covering not only original collateral, but also proceeds. Winner = Bk

Hypo (pg. 185)1/2 – Bk loaned $, SA in P & AA Inv.; FS centrally in St. A, no reference to proceeds2/1 – L loaned $, SI in Accounts; FS centrally in St. B, no reference to proceeds

State A State BInventory located Executive OfficeBank FS Lender FS

9-301(1) – D location governs perf. and priority9-307(b)(3) – D located where Exec. Office is located = State B determines perf. and priority

Bk = UnPSCr as to inv. and proceedsLender = PSCr because he filed appropriately9-322(a)(2) PSCr wins over UnPSCr

Accounts as original collateral, you have to file. There is a different priority rule between 301(1) and (3) depending on whether you have tangible or intangible collateral.

Hypo (pg. 185)Customers allowed to pay in 25 days or in monthly installments with a finance charge – Retailer retains these sales slips with customer agreeing to pay. What kind of collateral is the promise to pay sales slips?

The kicker is that you have something signed. It is arguably an instrument. The problem is, it has to satisfy 3-104.

How do you perfect a SI in an account? FilingHow do you perfect a SI in a instrument? Filing (new under Rev. 9) or Possession

Therefore, in this situation, don’t take possession, and file a FS with a broad description. This saves warehouse space.

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9-102(a)(2)(vii) – Account from use or credit or charge card (Doesn’t fit cleanly but it’s where the Drafters intended it to fit).Since it’s an account, a Bk must perfect by filing a FS centrally.

Artoc/Apex Hypo SI in all A/RUni (D) (Assignor) Artoc (Bk) (Assignee)

Sold Gas ($10K)EQ Invoice subj. to Artoc SI Apex to pay to Artoc, Not Uni($5K) Pay to Lockbox 9-404(a)(2) – If Apex got Notice of Artoc’sApex Oil (Account D) interest, can’t set off the $5K of debt

Lockbox security arrangement (pg. 1173) SP controls PO Box. This is a way that the bank controls the proceeds. A very common way in situations where there is a troubled financial debtor, and banks do this to make sure that the proceeds are not commingled. So the check is made payable to the debtor at a certain PO Box which is in the possession of the Bank and then the bank has instant and ensured access to proceeds.

K. Buyers of Chattel Paper (exception to First-to-File Rule)

1. 9-330 (See also, PEB Comm. pg. 933 explaining special rule)(a) CP purchaser has priority over CP SI claimed merely as

proceeds of inventory subj. to SI if:(1) in good faith AND in ordinary course of purchaser’s

business, the purchaser gives new value AND takes possession of CP; AND

(2) CP doesn’t indicate that it’s been assigned (no legend)

(b) CP purchaser has priority over CP SI claimed other than merely as proceeds of inventory subj. to SI if:(1) Purchaser gives new value AND takes possession of

CP OR obtains control of CP in good faith AND (2) without knowledge that purchase violates the rights of

the secured party Cmt 6, 7 (c) Have priority in CP as a purchaser, also have priority in its

proceeds (d) Instrument purchaser has priority over instrument SI

perfected by filing if (1) purchaser gives value and takes possession in good faith

AND (2) without knowledge that purchase violates rights of the

secured party. Cmt 6, 7

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(e) Separate and distinct definition of “new value” if dealing with PMSI. Go to 9-324(b) bracketed language. Does the super priority carry over to proceeds? If the chattel paper replaces inventory subject to a PMSI, the bracketed language says that the super priority carries over to the chattel paper. Summary: The super-priority in inventory can carry over to chattel paper if the PMSI holder can satisfy the requirements of 9-330. What this section does is it takes care of the new value requirement in the context of a PMSI.

(f) If CP or Instrument indicate that it’s been assigned to an identified secured party other then purchaser (legend), purchaser of CP or Instrument has knowledge that purchase violates the rights of the secured party. Cmt 6, 7

Rex Financial [20]$ RVs for CP Buyer (SA, PN=chat. pap)

R Fin RV Dealer Buyer (SA, PN=chat. pap)PSI in all Inv. Buyer (SA, PN=chat. pap)

CP $D sold CP to GWD defaulted to R FinR Fin and GW both want CP GW

Buyers are Acc’t Ds 9-102(a)(3)

R Fin PSI in Inv.If CP are Proceeds (9-102(a)(64)) then 9-203(f) says SI attaches to CP. 9-312 says that filing is permitted for perfecting CP. 9-313 allows CR to perfect

with possession. 9-315(c), (d) allow R Fin to have PSI in CP as Proceeds because filed in same place

GW PSI in Proceeds b/c 9-203 value, rights and SP possession; 9-313 possession perfectsGW has priority (exception to first-to-file) under special rule: 9-330(a). R Fin could have protected itself by

(a) Taking possession of CP (GW can’t win if no possession)(b) Stamping R Fin has an interest on the CP in the CP’s legend

Hypo (problem 1, pg. 199)1/1 – Bk gave $ to Dealer

Dealer gave Bk PSI in P & AA Inv. and CP2/1 – D sold Fridge to B for CP (installment sales K and PN)2/4 – D assigns B’s CP to Bk, Bk gave new value (no possession)3/1 – D sold B’s CP to Fin. Co. who took possession, gave new value and had actual knowledge of Bk’s FS but did not know D had assigned B’s CP to Bk

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Bk = PSI in Inv. and CPFin. Co. = PSI in CP

9-330(b) Bk not claiming CP as mere proceeds (Bk gave new value)(c) requires “actual” knowledge that purchase violates the rights of the SP.

Hypo (problem 2, 199)$

Bk App. Dealer APSI in Inv. & Proceeds Acc’t

BSells all PN, SA CP (9-102(a)(11))and poss. Cexcept Negotiable PN Instrument Acc’t & DCash Lease (chattel paper)

Fin. Co. PSI AD’s Acc’ts, CP, Instrument

App. Dealer defaults and conflict between Bank and Finance Company.

Bk = PSI as to all proceeds from sale of inventory (Includes Neg. PN which can now file to perfect).

How? Attachment: 9-203(f), 9-315(a)(2))Perfection: 9-315(c)-(d), automatic perfection for 21 days and will continue forever if you can show that requirements of (d) are satisfied.

All the proceeds (accounts: got to file centrally) (chattel paper: can take possession or file centrally) (promissory note (negotiable instrument): 9-312(a) tells us that a SI in instrument may be perfected by filing centrally) (lease: chattel paper (9-102(a)(11)) treated the same way).

Fin. Co. = Acc’ts PSICP and Instrument PSI

9-330 First-to-File Rule applies to Acc’ts, 9-330 does not.Winner = Bk

9-330 CP and Instrument special priority protections(a) Bk is claiming CP merely as proceeds. Bk’s interest/name not stamped on

CP legend. Winner = Fin. Co. (same analysis for the lease)(d) Bk perfected interest in Instrument by filing for proceeds (not by possession).

Winner = Fin. Co.

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Hypo $ TV

Bk App Dealer Buyer Defaults to AD ORPSI all Inv. CP Buys TV and returns it

9-330(c) – Good that comes back is treated as a proceed of CP Bk still has an interest in it.

L. Deposit Accounts

1. 9-109(a)(1) – Deposit Accounts covered so long as they are commercial accounts. Personal property. a. 9-109(d)(13) – Art. 9 does not cover consumer transaction

deposit accounts. 2. 9-102(a)(29) – Deposit Account accounts maintained with a

bank. (Both savings and checking accounts fit in here)3. A deposit account is not a general intangible, and it must be

referenced as “deposit accounts” in a FS to be able to perfect as original collateral.

4. 9-314(a), 9-312(b)(1) – Perfection of a Deposit Account only by Control (do not need a written agreement under 9-203(3)(D) and filing has nothing to do with the perfection of deposit accounts. Control is the method needed to perfect).

5. 9-104 – How to Control Deposit Accounts(a)(1): SP is the Bank where the Deposit Account is maintained(a)(2): D, SP, and Bk have authenticated record of agreement that Bank will comply with SP’s orders(a)(3): SP becomes the customer of the account(b): D can maintain the right to direct disposition of the funds from the deposit account without destroying SP’s control.

6. 9-327 Priority of SI in Deposit Accounts go to the SP having control of the deposit account under 9-104

7. 9-340 – Set-offs a. Bank can set-off against SP that holds a SI in Deposit

Accountb. Bank cannot set-off against SP that has perfected their SI in

the Deposit Account by Control under 9-104(a)(3)c. Major exception to first-to-file rule. Get here by 9-322(f)(1).

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Hypo SI – Inv. and Sav. Acc’t in Bk

Cap Fed Lander Nursery

CF files FS covering all dep. acc’ts and Inv., sends written notice to Bk of its SI

Cap Fed did none of the requirements for control of a Dep. Acc’t in 9-104, so UnPSCr as to the Savings Acc’t

The Checking Acc’t wasn’t included in the SA, so it’s inclusion in the FS does not create an interest in it, as a Dep. Acc’t on behalf of Cap Fed. However, since only proceeds went into that Checking Acc’t, Under the proceeds attachment and perfection provisions, Cap Fed has a PSI in the Checking Account as Proceeds

Hypo Cap Fed Landers

SI in Inv. and savings account at Bank1/2 – Cap Fed files FS (All Dep. Acc’ts and Inv)2/1 – Landers opens in Bank a Checking Account w/ $ from Sale of Inventory

Bk loans $ to L on unsecured basis3/1 – Default on both loans

Assume there are only proceeds in the bank account.

Cap Fed clearly has a SI in the proceeds under 9-203(f) and 9-315(a)(2). The question is then: Is Cap Fed perfected? Go to 9-315(d)(2) which sends us to identifiable cash proceeds (9-102(a)(64)(a)). Are they cash proceeds? 9-102(a)(9) defines cash proceeds and one of the possibilities is a cash account. The question that remains then is: are these cash proceeds identifiable? We have no direct definition of identifiable. Cmt. 3, 9-315 talks about the concept and subsection (b)(2) is relevant when you are dealing with commingling. The negative inference is that under (b)(2), if you do not have anything commingled, you have identifiable cash proceeds if this account is set up only to take proceeds from the sale of inventory. Cap Fed has the burden of showing this, and once they show it, they have identifiable cash proceeds and they are therefore perfected.

The Bank has a SI, so they have attachment. The Bank perfected by control (9-312(b)(1). If you look at 9-104(a)(1), the deposit account is maintained in the bank that has the SI, therefore they are perfected.

We now have a conflict between two perfected secured creditors. Cap Fed (based on proceeds), and the Bank (SI in deposit account as “original collateral”)

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What rules do we look to decide who wins? 9-322(a)(1) is normally where we start: “the first to file, whichever occurs first, controls.” Under (b)(1), the time of filing covers proceeds as well. If we look just at this, Cap Fed wins. But, we cannot stop. Under 9-327 (priority of SI in deposit accounts). How do we know if 9-327 controls 9-322? 9-322(f)(1) tells us that you have to look to other provisions “of this part” (300s). This gets us to 9-327. 9-327(3) says that the bank wins: “except as otherwise, a SI held by Bank in which the deposit account is maintained, has priority over a SI held by another secured party.” Under this, Bank defeats Cap Fed, even though Cap Fed filed first, the rules were different in the past. The Bank is going to win. 9-327 TRUMPS 9-322. This is the garden variety case that 9-327 deals with, and Bank wins. It means that Cap Fed needs to police it’s collateral pretty darn closely.

Bank reduces amount in bank account to offset the unpaid debt owed to the bank (Set-Off)

HYPO$

Bk D

PN, no SACk

Ck

Cking BuyerAcc’t

D defaults on unsecured loanCking account has positive balance

Bk=debtor, D=debtor.

M. Cash Proceeds 9-322(b)

1. 9-332 – Transferee of $ takes free of SI unless in collusion with D in violating the rights of the SP. The same is true of transfers of funds from a deposit acc’t.a. Collusion today requires more than awareness. Cmt 4. The

CR has more of a duty to control the proceeds (lockbox, require a separate acc’t, etc.)

b. 9-332 deals with $ and dep. acc’t funds. Cks are covered under “holder in due course” rules in 9-331

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For a CR to have a PSI in a bank acc’t, must have:(1) Control (9-104) OR(2) Identifiable Cash Proceeds

Hypo Cash Proceeds and Bank Accounts

PSI Inv. and Proceeds TV for CP-ck BuyerBk AD

Fridge for ck Buyer All cks

Cks for repairsCkg Acc’t

AD Repair Shopck

Supplier of goods to AD

You know have two commingled proceeds going into checking account under 9-315(b)(2).

Lowest Intermediary Balance RuleUpon AD’s default, Bk wants to claim ckg acc’t.Bk = PSI in Inv. and Proceeds

9-315(a)(2) – the proceeds must be identifiable to continue. Common law and equitable tracing principles. (lowest intermediate balance, first-in first-out, constructive trust theory).

Salad Dressing Rule for Tracing Proceeds (majority rule)(non-proceeds go out first)

**Look at what exactly goes in and what exactly goes out and apply this rule:So long as the lowest intermediate balance of the commingled account > the amount of the proceeds, those proceeds are deemed to remain in the account. The presumption is that non-proceeds go out first.

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Non-proceeds

Proceeds

Transfer of Funds From Deposit AccountThe drafters added 9-332 to answer many of these questions. There are two subparts and (b) deals with a transfer of funds from a deposit account (check), while (a) deals with you actually going to the bank and getting the money. (b): “a transferee from a deposit account takes the funds free of a SI in the deposit account unless the transferee acts in collusion with debtor in violating the rights of the secured party.” “Collusion” is not defined in the code. It is clear that this rule is not very effective to PSP.

HCC Credit Bk

$212K Ck $ - on unsecured basis(Balance $22K PSI in Tractors and proceedsBefore $199K)Dealer HCC

Dealer is paying off a junior creditor

$199K ck before PSI with Priority. So long as

Buyer no collusion is apparent, there should be no problem with the jr. CR taking the money

Chrylser Credit [227cb]Cks went into the general acc’t and then to cash coll. acc’t Problem arose because the general acc’t had a negative balance that D kept drawing on. That resulted in comingling proceeds and the bank’s money. The PSI in identifiable proceeds isn’t destroyed so long as you can trace and lay claim to any proceeds at all that might be left in an acc’t. (lowest intermediate balance tracing is the norm)

Chrysler should have had debtor deposit proceeds directly into cash collateral account.

On pg. 230, the second paragraph contains the general wording of the “lowest intermediate balance” rule.

Must trace, and then look at what has gone out of that account. This tracing rule is probably the most favorable for a secured party. This rule essentially is this:

So long as the lowest intermediate balance of the commingled account > the amount of the proceeds, those proceeds are deemed to remain in the account. The presumption is that non-proceeds go out first.

These issues can come up in bankruptcy, the battle between creditors, and transfers from a bank account that contains proceeds.

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V. DEFAULT

A. Enforcement of a Security Agreement

1. Upon default, a SP (no requirement that SP be Perfected, only need attachment) may enforce his SI in the collaterala. D voluntarily turns collateral overb. No consent but peaceable repossession (9-609)c. Judicial replevin action to enforce SI (need to give notice)d. Judgment, writ of execution, seizure and execution sale (9-

601) (need to give notice)2. “Default” Not defined in UCC (9-601) left to the parties to K

a. U.C.C.C. § 5.109 defines default as(i) failure to make a payment(ii) anticipatory missed payment (even though D is still

current)3. Default occurs when

a. There’s a missed paymentb. There’s an acceleration clause

(i) Acceleration Default occurs, CR demands payment of the entire debt.

c. There’s an Insecurity clause 1-208(i) Insecurity clause CR anticipates that D will default

and demands payment of entire debt.(ii) Insecurity clauses have a good faith requirement 1-

201(19), 9-102(a)(43) (this good faith definition has a subjective and objective requirement).

4. Cumulative Remedies 9-601(c) – May proceed simultaneously with 2 different remedies (But you’ll only get one satisfaction)a. Cmt 5 – can do this if acting in good faithb. 1-203 – implied duty of good faith

When and how5. 9-601 General rights of secured party after default 6. 9-602 Certain rights cannot be waived7. 9-604 If security interest covers real property or fixtures8. 9-607 Account D9. 9-609 Self-Help Repossession.

a. 2 aspects: (i) Obtaining Collateral(ii) Disposing of Collateral

Surplus or Deficiency Issues D response 9-625

Commercially Unreasonable Sale remedies OR

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CR did not seek commercially reasonable resolution

b. Penney Rule: Unless SA says otherwise, SP can seize property without notice to D, when default occurs (There’s no such thing as a bad seizure of collateral)

c. No notice needs to be given. Not required in 9-609, not required in Art. 9 anywhere. Parties can put a notice requirement into the K.

d. U.C.C.C. 5.110, 5.111 Notice required 30 days prior for commercially reasonable standard in consumer cases(i) Have to wait 10 days b/t default and Notice to Cure(ii) Have to wait 20 days between Notice to Cure and

Repossessione. Breach of Peace – 9-609(b) SP may proceed without

judicial process if not in breach of peace. (U.C.C.C. 5.112). An agent or independent contractor of the SP is also held under breach of peace. Cmt. 3. Failure to comply with Art. 9 remedies: 9-625(b), (c) damages for D and also common law remedies.

Waiverf. 9-602 – D may not waive any of the rules in the sections

listed9-624: permissible waivers: a limited exception to 9-602’s prohibition of waivers by debtors and obligors. Permits some post-default waivers in limited cases.

g. Cmt 3, 9-601 – K terms and Common law determines whether default has occurred or has been waived If CR has waived default, he must make it explicitly clear to D that he intends to find D in default the next time (Ex. SP has accepted late payments. At this time, the SP is considered to have waived enforcement, and must specifically tell debtor that this late shit is over and the next late payment is their ass).

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10. Disposition of the Collaterala. 9-610

(i) (a) After default, a SP can dispose of the collateral in its present condition or following any commercially reasonable preparation or processing.

**The proceeds are then required to be applied in the order set forth in 9-615(a).

(ii) (b) Every aspect of disposition must be commercially reasonable, and can be sold as a unit or in parcels.

“Commercially reasonable” is not defined in the code.Look to factors of 9-627 to help determine if “commercially reasonable”

(iii) (c) The sale of the collateral can be by public sale (auction) or private sale. Cmt. 2: Private sells are encouraged. Cmt. 7: There are two distinctions between private and public: (1) the secured party can normally buy at public, but usually not at private (only if collateral is of a type customarily sold in recognized market or is of a type which is the subject of widely distributed standard price quotations ((c)(2)); (2) the debtor is entitled to notice of time and place in a public sale, but only time at a private sale. Also, some form of advertisement must precede a public sale.

(iv) (d) (e) warranties are included in the sale price and may be disclaimed

b. 9-611, 9-612 Notification before Disposition of Collateral (i) Who is to be notified and by what date. The

reasoning is to let the debtor/guarantor have sufficient time in attempting to secure parties to bring price up to help stop or limit potential deficiency.

(ii) 9-611(a)(2) D’s waiver right to notice post-default is allowed

(iii) 9-611(b) CR shall send reasonable authenticated notification Requires a writing (oral is not enough) under 9-102(a)(74) “Send” and also “Authenticate” and “Record”.

(iv) 9-611(c) Who is to be notified including the debtor (9-102(a)(28)) and the secondary obligor (encompasses a guarantor) (9-102(a)(71)).

The notice to the debtor and secondary obligor can be waived under 9-624(a).

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9-611(c)(3)(B): (v) 9-611(e) Safe Harbor – If between 20 and 30 days

before notification date, SP requests a search of records under D’s name and gets no response or sends notice to all those who appear, CR has complied with (c)(3)(B)’s ten day rule. There is no safe harbor for searching the records.

(vi) 9-612: Timeliness of notice (a) the notification must be sent within a reasonable time which is a question of fact.(b) In a non-consumer transaction, notice sent after default and at least 10 days before disposition is considered reasonable. (10 days is the norm)

If creditor deposits in mail, courts indicate that this may toll the ten days until received.

c. 9-613, 9-614 What must be contained in the Notification.9-613(1): general requirements. 9-613(3)(A): minor errors are tolerated9-613(5): model form9-614: special revisions for consumer goods

d. 9-615, 9-616 Proceeds, Deficiencies and Surpluses9-615(a): governs proceed distribution. 9-615(d): If the SI secures indebtedness, the secured party must account to the debtor for any surplus and, unless otherwise agreed, the debtor is liable for any deficiency. 9-316: In a consumer goods transaction, the secured party must provide the debtor or obligor with an explanation of how the deficiency or surplus was calculated.

e. 9-627(a) Just because a greater amount could have been obtained doesn’t preclude SP from establishing that the disposition was done in a commercially reasonable manner

f. Value of the Collateral 9-610, Cmt 10 (low price is questionable), 9-627, Cmt 2, 9-615(f) (how to calculate a deficiency when the purchaser at disposition is a relative of SP)

g. Rebuttable Presumption Rule 9-626(a)(4)(i) Presume that it’s commercially reasonable(ii) If D puts this in question, SP has burden of proving

commercially reasonable(iii) Depending on what SP proves or fails to prove is a

commercially reas. price, the deficiency will be adjusted accordingly.

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(iv) U.C.C.C. § 5.103: rebuttable presumption not applicable for consumer transactions.

11. Strict Foreclosure – keep the collateral in satisfaction of the debt

Account DebtorSkim 9-615(d)-(e)9-607- 9-608

9-109(a): if it is a loan secured by accounts, it is a secured transaction covered by Article 9.9-109(a)(3): sale of accounts is also covered by Article 9.

This means that all the rules apply: attachment; perfection; priority.

What difference does it make whether transaction is sale or transaction?

The key difference deals with deficiencies in surpluses. 9-607(a): we have here an exception to the general rule that you have to have default before the secured creditor can enforce the security interest. (a) “if so agreed, and in any event after default (you can have an agreement that provides that a secured party can move against collateral before technical default.) Situations, (a)(1): “may identify an account debtor” (the customer: the person who is obligated on the account). What this provides is that even before default, can notify customer. “Lock-box agreements are very common (payments go to a PO box). In effect, that avoids giving specific notice. 9-608(b): this is the significant difference between a secured transaction (i.e. loan) and the sale of an account. Under (b), it says that if the underlying transaction is a sale of accounts, the debtor is not entitled to any surplus and the obligor is not liable for any deficiency.

9-615(d) – (e): (d) general rule with regard to non-sales: the secured creditor has to account for any surplus, and the debtor is liable for any deficiency.Under (e)(1): the debtor is not entitled to any surplus and the obligor is not liable for any deficiency. ***The important distinction between this and what we have learned so far, secured creditor does not have to account for a surplus and has no right to go back after the debtor for a deficiency.

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Example:

Plumber $5000 worth of accounts Customers

Sell accounts For $4000

Bank

Suppose Bank notifies customers to pay and the customers only pay $3000. The question is, can the Bank go back against the plumber? The answer is NO, they have no right to seek any deficiency. On the other hand, suppose that all the customers pay and they get $5000. That is a surplus and they do not have to account for it back to Plumber. If you take the same transaction and make it a loan instead of a sale, the plumber is liable for deficiency and is also due surplus under 9-615(d).

That is the significant difference between surplus and deficiency in secured transactions in sales or loans.

VI. MISCELLANEOUS

A. Leases (read pg. 348-350 of text)

1. If a Sale/SI is created and not a Lease – 9-109(a)(1) says that Art. 9 governs “regardless of form”: a. 1-201(37)(2 ¶) How to determine if it’s a real lease or a SI.

Based on facts of each case; however a transaction creates a SI: if requirement; and requirement (one of (a)-(d)).

b. 9-505(a) Consignor/Lessor may file FS2. If it’s a lease, B.C. § 365, 544 say tib can assume or reject it if it

wants. (C of T, no FS, tib can avoid)

B. Consignment

1. Art. 9 covers all of the consignment issues except for the 9-600s enforcement provisions

2. Treated as a PMSI in Inv. 9-103(d)3. Definition of Consignment: 9-102(a)(20)

Delivers (1-201(14)) goods to a merchant (2-104)(A) Who deals in goods of that kind

(i) different names; (ii) not an auctioneer; and (iii) not generally known by its creditors to be substantially engaged in selling goods of others

(B) Goods greater than $1000(C) Not Consumer goods immediately before delivery

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(D) Transaction not create SI that secures an obligationSee also the following relevant sections:4. 9-109(a)(4)5. 9-102(a)(20)6. 9-103(d): says a consignor is treated as having a PMSI in

inventory.7. 9-3198. 9-322(a)(1)

Statutory LiensHow to deal with statutory lien/bank conflicts: start at 9-109(a) which applies to the bank’s SI. The garage’s claim is a “statutory lien” (status lien: involuntary creation, there was never an agreement; K.S.A. 58-201). 9-109(d) suggests that involuntary liens not created by an agreement that Article 9 does not cover. Comment 10 to 9-109 (very important to read) …with few exceptions, they are not covered. General proposition, general involuntary liens are not covered. EXCEPTIONS (9-109(d)) (1): does not apply to an agricultural lien (non-possessary) (the state of KS is the only state that did not adopt this 9-109(d)(1); (2) it is possible to have a common law lien and it is not covered except for priority rules under 9-333; for personal property, it is not a mechanic’s lien even though the garage is a mechanic (you must find a state statute that gives the garage a right in this car.

K.S.A. 58-201: the key is that after the comma, …”the first and prior lien on such property is hereby created”: covers the reasonable cost of labor and parts and material. It goes on, 2nd paragraph goes on…classic mechanic lien.

9-333: Priority of Certain Liens Arising by Operation of Lawtrumps the bank unless the statute provides otherwise.

In short, statutory liens are involuntary liens. We start with the proposition that they are not covered by Art. 9. We have some exceptions including ag. Liens, and have 9-333 with deals with priority.

C. Investment Property 9-102(a)(49)

Classify Collateral

1. Security 8-102(a)(15)a. Certificated 8-102(a)(4)

(i) Bearer Form 8-102(a)(2)(ii) Registered Form 8-102(a)(13)

2. Securities Entitlement 8-102(a)(17), (7), (9)3. Securities Account 8-501 Account in which a financial asset is or

may be credited. Get a securities entitlement if a securities intermediary receives a financial asset from the person or acquires

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one on their behalf, and accepts it for credit to their securities account

Attachment 9-203(b)

1. Value2. Rights3. Authenticated Agreement with appropriate description under 9-

108(d), (e)OR

4. Registered Certificated Security and delivered to SP under 8-301 and pursuant to D’s SAa. 8-301 “Delivery”OR

5. Investment Property and SP has control pursuant to SA.a. 9-106, 8-106 “Control”

Perfection

1. 9-314 Perfection by Control under 9-106, 8-106a. 8-106(a) Purchaser has control of certificated security in

bearer form upon delivery (possession) 8-301b. 8-106(b) Purchaser with possession of registered

certificated security and it’s indorsed or registered in purchaser’s name

c. 8-106(d) Purchaser of security entitlement who is an entitlement holder or a securities intermediary who has agreed to act at direction of the purchaser

2. 9-313(a) Possession of certificated security – Automatic upon attachment

3. 9-328 Control trumps Filing

Hypo E owns 1000 shares of A Inc. = $200K; has cert. registered on A’s books. Bk loans $100K pursuant to oral K granting BK a SI in stk and Bk takes possession

of cert. that E indorses in blank on back of cert. Bk not registered with A Inc.; Bk has possession of cert.

Attachment met under 9-203(b)(3)(C)Perfection established through control under 8-106(b)

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D. Real Estate related collateral

Fixtures9-109(a)(1): applies to personal property and fixtures. The question then becomes, “what is a fixture?”

Fixture (9-102(a)(41)): we have a definition that is not very helpful. What you have to think about is that it is a former chattel that has been affixed to the real estate in such a way that a reasonable person would think they are part of the real estate, but they maintain a separate identity. There are other definitions to look at: 9-102(a)(44)(i); and 9-334(a): in effect a definition: building materials incorporated into improvements into the land are not fixtures (lumber, glass, bricks, etc.) A classic example of a fixture is a furnace. By in large, you must to look to state law to determine if you have a fixture or not (do not need to know for exam);Other sections needed to be aware of: there is a special fixture filing defined at 9-102(a)(40) and is a special kind of FS that is referred to as a fixture filing. There is a direct reference to 9-502(b)-(c) and there are some very “specific” requirements to a fixture filing (legal description and who owner is). Where do you file it? 9-501(a)-(b). You file it locally where the real estate is located (one of the few exceptions to the central filing rule).

The classic conflict is between a real estate mortgage and a holder of a SI in the fixture. Fixtures are included in the sale price of real estate unless excluded in the sales contract. Carpets, light fixtures, dishwashers are probably fixtures. Washer/dryer, stove, fridge are not fixtures. Other illustrations of fixtures: built-in range, curtain rods (not drapes); window air-conditioning units.

Fixture PriorityKind of like the first-to-file rule. The first to record is going to win unless you can find an exception. A major exception is 9-334(d) which is very similar to PMSI in 9-324.

9-334(d): a perfected interest in fixtures has priority over if the debtor has possession if: (1) PMSI; (2) the interest of the encumbrancer or owner arises before the goods become fixtures; AND (3) the security interest if perfected by a fixture filing before the goods become fixtures or within 20 days thereafter.

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9-109(a)(1) tells us that Article 9 applies to personal property and fixtures. We know that collateral is defined under 9-109(a)(12) and is extremely broad. How do we classify (payments to debtor on loan) under Article 9: 9-102(a)(11): you have to have a monetary interest and a security interest in specific goods. The payments for Green Acre is not a security interest in specific goods. The payments for Green Acres is an account. What happens if we have a default on both A and B?

***********Issue arises in the real world whether accounts on real property are general intangibles or accounts. They are accounts, plain and simple.

9-102(a)(2) … for property that has been or will be sold. The definition of account is much broader than it was before the revision of the code.

9-109(d)(11)…does not apply to the creation or transfer of an interest in or lien on real property, including a lease or rents thereunder. Cmt 7.: talks about promissory notes (obligation to pay for is secured by real estate).

The payments are person property thus the bank must comply with Article 9.

Pure real estate interests are not covered by Article 9. 9-109(d)(11)

E. Bankruptcy

Two of the “so-called” avoidance powers, and a little bit of background§547(b) (507 text): Bankruptcy is a federal statute 11 U.S.C. § 101. You file in a federal court system. By in large, in regards to priorities, Congress has in effect said that Article 9 will determine priority for most things. There will be a new bankruptcy code introduced in Congress next year and there is good chance it will pass.Bankruptcy is about financial failures. We are giving people and opportunity to have a “fresh start.” The second rationale is creditor equality, puts everyone on the same field. There are also costs to bankruptcy, social and economic. The prize is a discharge from debts, and someone has to pay (lose money) from this. Taxpayers pay for it. You “do not” walk away from security interests and valid liens. That is the importance of being a secured creditor.

In the material, there is a discussion of secured claims (pg. 512cb). Secured claims can be secured either by personal property or real estate. We are looking at personal property. Obviously, unsecured creditors fair badly.

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Two types of Bankruptcy: 1. liquidation (Chapter 7): debtor says “I quit”2. reorganization (Chapter 11)

Unsecured creditors share in property that is not subject to liens. Therefore, it is of prime importance that these liens be attacked by a trustee. (read pg. 11)In all liquidation bankruptcies, a trustee will be created. A trustee will marshal assets together and if you are going to claim a PSI, you have to submit it to the trustee. The trustee will attack those b/c they are trying to get as much money for the unsecured creditors as he can.

Extremely important concept: Stay (pg. 511-512)Incredibly important power of bankruptcy court. Once it is filed, all things stop. NO one can do anything without approval. The stay effects all the debtors property, any action, or anything without court approval.

Discharge (pg. 513)A valid lien survives bankruptcy.

What is the value of a SI?Controlled by two things: 1. amount of unpaid debt; and 2. value of collateral.

The value of the collateral controls the value of the lien. You can be oversecured or undersecured. If the value of the property exceeds the value of the unpaid debt, you have an oversecured creditor and they can only give the value of the debt (no windfalls). If undersecured, they have a secured claim for value of collateral and an unsecured claim for the remaining. In liquidation, unsecured creditors get from least (nothing) to most 10 cents on the dollar.

Avoidance Powers of the TIB§ 544(a)(1); Lien creditor (9-317(a)(2))

Strong-arm clause: the TIB becomes a lien creditor on all property immediately when bankruptcy petition is filed. The importance of the avoidance power as a lien creditor is that it always defeats unsecured creditor.

Certain statutory liens are avoidable. § 548(a) is an “amazing power” that Congress gave the TIB. Two things about it: 1. one-year statute of limitations (TIB can go back one year and look at any transfer debtor has made and essentially any gift made for not “reasonable equivalent value” the TIB can come get it back. Don’t have to show any fraudulent intent;

§ 547(b) Preferential transfers by debtor (pg. 2055)gives TIB, under certain circumstances, to set aside. First thing is we are not covering sub(c) which is the exceptions to the TIB claims. That is there, we are not covering.

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Basic RequirementsFive Elements (+ two other requirements)

§ 547 Threshold RequirementsBefore you get to the elements: the trustee may avoid any transfer of an interest in the debtor in property (must be a transfer and that transfer must involve interest in property)A “transfer” is defined at 11 U.S.C. § 101(54): incredibly broad definition

Can be voluntary/involuntary; gift, sale.

Of the interest in any property of the debtor.Property can be cash, specific goods, personal property, real estate

§ 547(b) Requirements

1. the transfer has to be to or for the benefit of the creditor;a. unlike § 548, the transfer does not have to be to a creditor.

2. The transfer must be for or on the account of an antecedent debt owned by the debtor before such transfer was made;

3. the transfer must be made when the debtor was insolvent;a. §547(f) says for purposes of this section, that if the transfer occurs within

90 days there is a presumption of insolvency (very important presumption)i. definition of insolvency is found 7 U.S.C. § 101(31) and it is not

always easy to determine. ii. Importance is that under (g), the TIB has the burden of establishing

each requirement, and establishing insolvency would be hard for TIB without (f)

4. transfer is made on or within 90 days before the debt of the filing petition; or between ninety days and one year before the date of the filing of the petition , if such creditor at the time of such transfer was an insider (7 U.S.C. § 101(31))

a. first part before “or”: look at the day petition was filed and count back 90 days and see if the transfer occurred within that period

b. second part: under 7 U.S.C. § 31(a) insider language, if debtor is individual, it talks about who this “insider” language is applied to: relative 7 U.S.C. § 101(45)

c. Essentially, the transfer can go back one year if an “insider” but only 90 days if by someone else

5. the transfer enables such creditor to receive;a. more than such creditor would receive under Chapter 7; andb. the transfer had not been made; andc. such creditor received payment of such debtor to the extend provided by

the provisions of this title** simply put, what would this creditor have gotten in the liquidation if the transfer had never been made. If the creditor gets more than they would have gotten without transfer, it is satisfied.

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Problem 1, p. 583

5/1 D owed Cr $20, $20,000 unsecuredD paid Cr in cash $20KNot paid other creditors

7/15 Bkcy pet filed

1a. Can TIB avoid the payment?What we are looking at is 547(b). Has there been a transfer? Yes, the money, under 101(54), we have a voluntary transfer of money. Payment of cash is a transfer. Then we look at the five enumerated requirements. #1: yes; #2: the debt pre-existed the payment; #3: 547(f): there is a presumption if 90 days before bkcy, this is less than 90 (76 days); #4: yes; #5: key question: did this transfer enable the CR to get more than this CR would have gotten if the transfer never would have been made? YES, chapter 7 no one ever gets 100% on the dollar. If they would have gotten 10%, preferential would have been 90%.

Does it matter if Cr knew about D’s financial condition?NO, under 547(b), knowledge is irrelevant.

Who has the burden of proving insolvency? §547(f & g)

1b. Would your answer be different if petition was filed 8/15? (insider)look at § 547(f): says that for purposes of § 547, the debtor is presumed to be insolvent during the 90 days before. (g) says that TIB has presumption of proving elements. BUT, the presumption does not result if you have insolvency outside the 90 days.

1c. p.583

5/1 D owed Cr $20,000 unsecuredCr obtained judicial lien and sheriff seized prop. = $20KNot paying other creditors

7/15 Bkcy pet filed

Can TIB avoid the seizure under § 547(b). Is this a transfer?

Transfer is defined at 101(54). Here the debtor is getting an interest “involuntarily”. This is covered as well. The seizure of the property gives the creditor a specific interest in the debtors property. We then go through the rest of the five requirements under 547(b). 1? Yes; 2? Yes; 3? Yes; 4? Yes; 5? Did this transfer enable creditor more than it would have gotten had the seizure never occurred. They would have been an unsecured creditor and %99.99 time, less. Element are required. TIB can avoid it.

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Problem 2, p. 584Looks at whether the creditor is “preferentially treated”

9/1/90 Bk 1 year $10K loanDr gave PSI to Ks in EQ = $15K

11/1/91 Dr pd BK $10K + InterestDr was insolvent

12/1/91 Dr filed Bcky pet

12/1/91 Dr filed Bkcy pet

Can TIB avoid the payment under § 547(b)?

There was a transfer ( a payment). Requirements 1-4 are met. The 5th requirement: did this transfer (payment) enable the creditor to get more than it would have gotten had the transfer not been made? What would the bank have received in a chapter 7 liquidation?Look at the value of the collateral and the amount of the unpaid debt. They would have received $11K had the transfer never occurred. Therefore element #5 is not satisfied because it did not prefer this creditor (this creditor did not get more if the transfer would have never occurred.) If the collateral was only worth $9 and the unpaid debt was $11K, we would now have $2K which is a preferential transfer. So if the collateral is worth less than the unpaid debt, and the bank received 100% of the payment, they would have a $2K preferential treatment.

§ 550(a)“to the extent that a transfer is avoidable, the trustee may recover for the benefit

of the estate, the property transferred by the initial transferee to the transferor.”

A couple more transfer issues:

§ 547(b) transfer

1/2 Bk loand $ to D on unsecured CR

5/1 Bk learns D in financial difficultyD grants Bk PSI in EQ#1

6/1 D files Bkcy pet

Can TIB avoid Bk’s PSI?

544(a)(1): the answer is no. The TIB can defeat a PSCr. A lien creditor loses to a PSI. look at 9-317(a)(1).

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What about 547(b)?What is the issue? The transfer occurred on 5/1 because that is when the SI

(voluntary interest of property of debtor). Then you go through the rest of the requirements: 1-5: are fulfilled. All 7 requirements are satisfied, thus avoid. This is an example of where perfection does not help. Ethical question: will the bank try to keep the operation afloat for 90 days at least to get out of 5?

547(b) Transfer

1/2 Bk loans $ to DD grants Bk PSI in EQ#1

1/3 D files Bkcy pet

Can TIB avoid this transfer?Under 544(a)(1) (lien creditor 9-317(a)(2)) cannot use.

What about § 547(b)?Was their a transfer? Yes, when the SI was created. What about the second requirement? Yes, because it is for the benefit of the creditor. What does not happen is this is not a transfer on an account of an anacedent debt. When the debt and transfer occur at the time, there is no transfer. The debt had to pre-exist the transfer in property, therefore this transfer cannot be avoided and you cannot satisfy 547(b)(2).

AFTER-ACQUIRED PROPERTY

2/1 Bk PSI in D’s P and AA EQ

3/1 D buys new EQ without $ from BK

5/1 Bankruptcy

Can TIB avoid Bk’s PSI in new EQ?Under 9-203(b), there are three requirements for attachment. Under Article 9, the priority date occurs on 2/1 because filing or perfection whichever occurs first. Under Article 9, priority dates at 2/1

**CONGRESS changed this rule in respect to Bkcy. This represents a major difference between Article 9 and the bankruptcy code.

When did the transfer occur under § 547? (e)(3) (pg. 2059). 1-2 relate to where a transfer occurs, do not need to know them. We are looking at (e)(3) which says “a transfer is not made until a debtor obtains rights in the collateral” Not until 3/1 for purposes of ). 1-2 relate to where a transfer occurs, do not need to know them. We are

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looking at (e)(3) which says “a transfer is not made until a debtor obtains rights in the collateral” Not until 3/1 for purposes of §547(b). You can then acquire all the requirements of § 547(b).

In short, § 541(a)(1) will not work for TIB because you have a perfected secured CR at the date of BKCY.

§ 547(b) will work because of (e)(3), therefore a TIB beats a PSCR. The key to remember in addition is that you have to have the transfer within the 90 days. If the equipment is purchased before, will not work.

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