Tole Do Outline

8/2/2019 Tole Do Outline

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Secured Transactions

PRIORITY (Secured Creditor against othersnot debtor)May 24, 1999 ClassI. Introduction (p. 1):

A) 20 to 30 pages for each classB) Contact him and he will meet on an as need basis.C) Exam will be multiple choice as well as essay questions. Can bring the code

into the exam and write in the code book. Bring the statutes to the class.D) Article 1, 9 and bankruptcy code. (Selected commercial statutes from

Commercial paper)E) Treatise by Aspen, Volume 4 is on Secured Transactions.

May 26, 1999 ClassII. Scope of Article 9 (p. 7): 9-102, 1-201(37), 9-104 and 9-105

A) Rules of construction and application ( 1-101, et. seq.)B) General definitions and principles of interpretation (1-201, et. seq.)

1) General Principles (9-102, 1-201(37), 9-104 & 9-105)(p. 7)A) Applicability and definitions( 9-101, et. seq.): The aim of Article 9 is to

provide a simple unified structure within which the immense variety ofpresent day secured financing transactions can go forward with less costand with greater certainty.

B) Subject matter of Article 9( 9-102) Transactions in which the partiesintendto create security interestsin personal propertyor fixturesincluding goods, documents, instruments are included within the scope ofArticle 9.(1) 9-102(1)(a): The scope of Article 9 is directed toward a discrete typeof encumbrance on property or fixtures. Security Interest is defined in

Article 1 as an interest in personal property or fixtures which securespayment or performance of an obligation.

C) Perfection of security interests in multiple state transactions ( 9-103)D) Article 9 (9-102): governs any transaction (regardless of its form) which is

intended to create a security interest in personal property or fixtures.E) 1-201(37): defines security interest as any interest in personal property

or fixtures which secures payment or performance of an obligation. Thetwo part test is that: (1) a transaction creates a security interest if theconsideration the lessee is to pay the lessor for the right to possessionand use of goods is an obligation for the term of the lease not subject totermination by the lessee; and (2) factors in the second part of the tests

are (a) that the original lease equals or exceeds the remaining economiclife of the goods, (b) upon compliance with terms of the lease, the lesseehas the option to become the owner of the goods or to renew the lease forthe remaining economic life of the goods.(1) The essential elements of secured transactions and leases are

distinguishable:


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(a) Secured party retains a security interest in goods sold essentiallypasses conditional title to the buyer/debtor; the buyer can retain thegoods if the payment obligations are satisfied.. In the event ofdefault the secured party can repossess the goods. The securedparty must disposes of the goods and applies the proceeds to the

outstanding indebtedness. Any surplus proceeds belong to thebuyer/debtor. A retained security interest is limited to a contingentinterest.

(b) Lessors always retain a residual interest in the leased goods. Alessor can also repossess the goods following a default by thelessee. Unlike the secured party, the lessor is not required todispose of the goods and need not distribute any proceeds fromtheir disposition to the lessee.

Secured Creditor v. Other Claimant Secure Creditor v. Debtor1) Scope of interest 1) Scope of interest2) Intent 2) Intent

3) Attachment (9-203) 2) Attachment (9-203)(a) Either possession by creditor w/ debtors agreement ora Written Security agreement which must contain:(1) Signature by debtor(2) Description of collateral or real estate

(b) Value given (creditor gives value)(c) Debtor must have rights in collateral

Problem 2-1 (p. 8)(a) Article 9 applies per 9-102(1)(a) and looking at the definition of a security

interest in 1-102(37).(1) There was personal property(2) There was an objective intent to create a security interest.

(b) Article 9 applies per 9-102(1)(a) and looking at the definition of a securityinterest in 1-102(37).(1) There are goods(2) Intent is objective test(3) 1-201(37) specifically states that security interest is created when the bill

says Seller retains title until the goods are paid forJester v. State of Alabama(p. 8) In this case the court looked to the intent ofthe father and son to whether there was a security interest. In this case, thefather had to show that he has a bona fide lienholders interest, (2) and whetherthe lienholder could not have obtained by the exercise of reasonable diligenceknowledge of the intended illegal use of the property so as to have preventedsuch use. The father showed this and he could hold the government from takingthe car.Questions(p. 13) The father has a security interest in personal property (thecar). This prevented the government from having first right on the car. (There


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may have been a federal statute preemption?) The father probably didnt haveany idea what his Article 9 rights were.2) Specific Exclusions From Coverage (p. 13)

A) Excluded transactions(see 9-104)(a) If in a federal court case and an Article 9 issue comes up, and it is a

state issue the court will decide which states version of Article 9should be used. However if no state issue then court would look atUCC Article 9 as Federal common law.

(b) Some areas that are preempted by government include: airplanes,federally registered ships, copyrights, etc. . The Federal governmentwill get involved in this because of interstate interests.

B) Definitions; account; purchase money security interest( 9-105, 9-106, 9-107)

C) Classification of goods( 9-109)D) Including sufficiency of description( 9-110)E) Including security interests arising under Article 2( 9-113)

F) Priority of consignments ( 9-114)Problem 2-2 (p. 14): No interest. The code only applies to interest in personalproperty. (9-102(a)) Limits to personal property. Also since this is real property(the farm), this would not come under Article 9 (9-104(j)). Same reason why themortgage on the real estate from the bank would not be covered by Article 9.Problem 2-3 (p. 15):(a) Yes it could under 9-109(3) farm products are goods if they are used or

produced in farming operations and are in the possession of thefarmer/debtor. This is only in effect if the farm products have not gone througha manufacturing process (9-109 Comment 4)

(b) I believe that Article 9 doesnt apply to landlord liens (9-104(b)), or to a liengiven by statute for services or materials (9-104(c)). If the landlord had hersign an agreement that specifically provides that the tenant agrees to givethe landlord an interest to secure payment then Article 9 could apply under9-102(2). Therefore Article 9 does not apply to liens arising from statutes orcommon law, but does apple under contract.

(c) 9-104(i): The right of set-off is explicitly excluded. Proceeds involve a furtherscope issue.

(d) 9-105(e) defines a deposit account and under 9-104(l) excludes depositaccounts.

(e) I9-104(g) excludes a transfer of an interest or claim in or under any poli cy ofinsurance.

(f) 9-104(k) does not allow a transfer in whole or in part of any claim arising outof tort.

In re: Berry(p. 15) This case involves a trustee in bankruptcy v. a creditor. Thetrustee in bankruptcy represents the unsecured creditors and he can knock out asecured creditor if the secured creditors interest was perfected before thebankruptcy. The trustee said this was a wage assignment by an employee (9-104(d)) the court did not agree because the bankrupt party was an independent


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contractor, not an employee. The commissions are a form a personal propertyinterests, and therefore they could fall under Article 9. Therefore it was notexcluded under 9-104(d).Note on Scope of Revisions (p. 22)

June 2, 1999 Class

III. Attachment and Classification of Collateral (p. 23)A) Introduction (p. 23) ((9-203, 9-204 both define attachment), 9-201, 9-104,9-105, 9-106, 9-109, and 9-110):1) 9-203: security interest can be created only if the parties enter into a

security agreement (9-203(1)(a). If the collateral is in possession ofsecured party then an oral agreement is sufficient. If the secured partydoes not take possession of the collateral (a non-possessory securityinterest), the security agreement of the parties must be embodied in awriting signed by the debtor (9-203(1)(a) that contains a description ofthe collateral. In some instances it must also describe any land that maybe affected. It must be signed by the debtor and the creditor must have

given value, and the debtor must have some rights in the property.

Secured Creditor v. Other Claimant Secure Creditor v. Debtor1) Scope of interest 1) Scope of interest2) Intent 2) Intent3) Attachment (9-203) 3) Attachment (9-203)

(a) Classification of collateral(1) after acquired collateral(2)

(b) Either possession by creditor w/ debtors agreement ora Written Security agreement which must contain:(1) Signature by debtor(2) Description of collateral or real estate

(c) Value given (creditor gives value)(d) Debtor must have rights in collateral

B) The Security Agreement (p. 23): (9-105) Regardless of the manner inwhich a transaction is structured an agreement which creates or provides fora security interest is called a security agreement. (9-105(1)(h))1) Formality and Form (p. 24)

a) Necessity of a Writing: Whether a written security agreement isrequired depends on whether the secured party has possession of thecollateral.(1) If the secured party has possession of the collateral to which the

security agreement attaches, a written security agreement is notrequired. A security agreement is still necessary for attachment butit may be oral since the collateral is pledged (9-203(1)(a).

(2) If the secured party is not in possession of the collateral, thesecurity interest will be valid only if there is a written security


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agreement signed by the debtor and containing a description of thecollateral (9-203(1)(a))

b) Financial Statements, by themselves are not enough to satisfy therequirement of a signed security agreement. The reason is that (1) thesecurity agreement is on that creates a security interest (9-105(1)) by

language granting the creditor an interest in the collateral and afinancial statement usually does not purport to create a securityinterest. It merely serves as notice to 3rd parties that a security interestis claimed. (2) Financial statements also are not sufficient becausethey are filed before the financing arrangements are complete.

In re: Hance(p. 24) The key to a security agreement is intent. In this case thedebtor claimed that Sears was an unsecured creditor. The Court found that inorder to create a security agreement there must be (1) a writing, (2) signed bythe Debtor, (3) containing a description of the collateral or the type of collateral.The court found that the sales-check or invoice by itself created this kind ofsecurity agreement in the merchandise listed on it and is evidence of intent to

create a security interest.Questions (p. 26):Hoffman v. Schlegel(p. 27): What qualifies as a security agreement? Thedebtor signed two documents, one was an UCC-1 financial statement filed withthe state and the other was an agreement between the parties. The Financialstatement identified the corporation as the debtor, the D as the secured party,and all fixtures and equipment owned by the Debtor as collateral. The states 9-105(1)(l) defines security agreement as an agreement which creates or providesfor a security interest. 9-203(1) requires for it to be enforceable if the collateralis not in the possession of the secured party (the case here) for it to be in writingsigned by the debtor and containing a description of the collateral. P argued thatthe Financial statement and agreement alone do not constitute a securityagreement because the language in both was not explicitly granting a securityinterest in the Debtors fixtures and equipment. D said it was the intent of theparties by the Agreement that she would acquire a security interest in thedebtors equipment. You cannot have a security interest unless there is adocument that the debtor intent grants a security interest in the collateral. Youdont have to have just one document if there are more than one document thatshows the intent (composite document rule). The court found that intent wasenough, and that they looked to the transaction as a whole in order to determinea security interest.

Gibson Co. Farm Bureau Cooperative Assn v. Greer(p. 29): As long asdebtor has signed a writing (financial statement) which contains description ofcollateral and, if collateral consists of crops or timber, of land concerned, it isquestion of fact for trier of fact whether parties intended the writing to create asecurity agreement (9-203(1)). Although financial statements alone will not, as amatter of law, qualify as security agreement, and although use of bare-bonesfinancial statement as security agreement is not encouraged, as long as


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financing statement contains description of collateral and is signed by debtor, it isquestion of fact for jury whether parties intended to create security interest (9-203(1)). The finding of the trial court was upheld and the appellate courtoverturned. This S.C. of Indiana found that the financing statement alone will notsuffice, but the intent in the whole deal (other documents (e.g. promissory note,

loan contract, probably showed this).Question and Note (p. 36):2) Signature Requirement (p. 36) The debtor must sign the security agreement.

(9-203(1)). This may be done by any means satisfying the requirements of 1-201(39). Any symbol used by a party to authenticate a writing is sufficient e.g.a typed signature if affixed with the requisite intent to authenticate the writing. Itis not necessary that the secured party sign the security agreement.

Problem 3-1 (p. 36): In order to make it a valid security agreement the courtwould have to find that If the secured party is not in possession of thecollateral, the security interest will be valid only if there is a written securityagreement signed by the debtor and containing a description of the collateral (9-

203(1)(a)). In order to validate the security agreement that in order to create asecurity agreement there must be (1) a writing, (2) signed by the Debtor, (3)containing a description of the collateral or the type of collateral.

Secured Creditor v. Other Claimant Secure Creditor v. Debtor1) Scope of interest 1) Scope of interest2) Intent 2) Intent3) Attachment (9-203) 3) Attachment (9-203)

(a) Either possession by creditor w/ debtors agreement ora Written Security agreement which must contain:(1) Signature by debtor(2) Description of collateral or real estate

(b) Value given (creditor gives value)(c) Debtor must have rights in collateral

4) Types of collaterala) 4 Goods (9-109)

(1) Consumer Goods(2) Equipment(3) Farm Products(4) Inventory

b) 5 Intangibles(1) Chattel paper: (you either have 2 secured creditors or 1 creditor and 1

lessor/ or2 debtors or 1 debtor and 1 lessee). There has to be a writingthat evidences a monetary obligation and a security interest in specificgoods.

(2)3) Description of Collateral (p. 37): 9-402(l): A financial statement must

contain a statement indicating the types, or describing the items of collateral.The test for determining the sufficiency of a property description required under


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Article 9 is in 9-110: Any description of personal property or real estate issufficient whether or not is specific if it reasonably identifies what is described.

(a) Classification of Collateral(p. 37) 9-109 Classification of ConsumerGoods, Equipment, Farm Products, Inventory. Where uses are mixed,it is classified as its primary use.

Problem 3-2 (p. 38):(a) Inventory 9-109(4)(b) Inventory 9-109(4)(c) Consumer Goods 9-109(1)(d) Equipment (look to debtor) 9-109(2)(e) Inventory 9-109(4)(f) Farm Products 9-109(3)(g) Inventory 9-109(4)(h) Inventory 9-109(4)(i) Equipment 9-109(2)(j) Farm Products 9-109(3)

(k) Equipment 9-109(2)(l) Inventory 9-109(4)(m)Equipment 9-109(2) Not to 3rd parties, there is an estoppel theory that would

kick in. As between an innocent 3rd party.(n) Equipment 9-109(2)(o) Inventory 9-109(4)Problem 3-3 (p. 38): Azar would have collateral in chattel paper. Retailinstallment contract contained a writing that evidences a monetary obligation anda security interest in specific goods. The first debtor in this case was CD whoagrees to purchase and gives a security interest in the front end loader to Azar inthe retail installment contract. This is a property interest in the hands of Azar. Thevalue (property right) to Azar is the payment and interest because of CDsagreement.This is a contract right. This (the property right in the retail installment) can beassigned or kept by Azar. Azar could sell or assign the property right to someoneelse, or give a security interest in this piece of paper (retail installmentagreement). The outright sale will create an Article 9 right under 9-102(1)(b).The sale of a chattel paper creates an Article 9 security interest. Azars bank would have a security interest in the retail installment. It is only chattel paperwhen a 3rd party takes interest in the monetary obligation and the interest inspecific collateral. ONLY BECOMES RELEVANT WHEN A DEBTOR BECOMESOBLIGED TO A CREDITOR AND A CREDITOR SELLS IT OR USES IT ASCOLLATERAL TO ANOTHER CREDITOR.Problem 3-4 (p. 39): Bank takes a security interest in an account. An accountdebtormeans a person who is obligated on an account, chattel paper or generalintangible. CD construction has a contract to serve (construct) and the city ofNewport has a contract to pay. The contractor could sell the promise to pay byNewport, assign it or grant a security interest and get a loan. 9-203(1)(b) says thesale of an account creates a security interest. 9-106 says it is an account


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because it is any right to payment for goods sold or for services renderedwhether or not it has been earned by performance. The 3rd party has no greaterright than the party they received the account from.

THE ABOVE ARE TWO TYPES OF COLLATERAL THAT ARE USED QUITEHEAVILY BY CONSTRUCTION COMPANIES, RETAILERS, MANUFACTURERS.

June 7, 1999 ClassChattel Paper (9-105(1)(b): This is a security agreement and a right in specific goodsIntangible Personal Property No Writing(1) Account (9-106): Is a security agreement in intangibles. Any right to payment for

goods sold evidenced by an instrument or chattel paper whether or not it has beenearned by performance.

(2) General Intangibles (9-106): Personal property, that is not goods, accounts, chattelpaper, document and instruments. (a negative category, if not in the others, it is inthis).(a) Liquor license, trademarks, copyrights, patents, royalties, right to money from

real estate sold, etc.Problem 3-5 (p. 39): General IntangiblesProblem 3-6 (p. 39): (Bill of lading tells who has the rights to the goods that arebeing held by a carrier)Chattel Paper under 9-105(1)(f)Problem 3-7 (p. 40): (Promissory note (payable to order/on demand of a specificsum evidences right of payment and is not itself a security interest) Chattel Paperunder 9-105(1)(f):Sloppy Descriptions (p. 40):

9-203: says must have description of the collateral9-110: says only need to have enough description to reasonably identify:

(1) All debtors property; All consumergoods; All personal property;All debtors assets. = too broad

Address of place must be sufficient to describe or creditor out of luck.Problem 3-8 (p. 40): No. This does not reasonably identify the collateral (9-110).Change in Usage (p. 41):See page 4 of outline (CL estoppel) also see 1-103 which says where the codedoesnt say you can use CLProblem 3-9 (p. 41): The estoppel theory makes a lot of sense.Problem 3-10 (p. 42): Both descriptions (if true) are adequate under the UCC.The test for determining the sufficiency of a property description required underArticle 9 is in 9-110: Any description of personal property or real estate issufficient whether or not is specific if it reasonably identifies what is described.C) Debtor Must Have Rights in the Collateral (p. 42): Before a security

interest can attach, the debtor must have rights in the collateral. This makessense since a debtor can hardly grant a security interest in property in whichthe debtor has no interest. 9-203(1)(c)). Right of collateral is not defined bythe code, but it seems to mean that the debtor must have some ownership


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interest or right to obtain possession. The term rights is defined to includeremedies 1-201(36).

Trust Co. Bank v. Gloucester Corp. (p. 42): Scallops were sold by Sigma toGloucester. The invoice was assigned to the Bank. The sale was conditional onthe terms of net 30 days after FDA approval. Sigma went belly up. Bank filed to

recover interest against the secured creditors of Sigma for conversion. The buyer(Gloucester) had rights in the scallops when they were identified there weresufficient rights in the credit buyer in those scallops. 2-501(1): When an item isidentified to the K, then there are rights in the collateral.After Acquired Collateral 9-204(1): (p. 44): If intend to have security interest inafter acquired collateral (any collateral that the debtor gets after attachment, thenmust state this in the security agreement.(1) Financial Statement: does not need description of the after acquired

collateral in the financing statement. Exceptions:(a) Minority view: dont need description of after acquired collateral for some

types of collateral (rationale: SI in this type of collateral is presumed to

include after acquired collateral because it is assumed that the debtor willregularly be acquiring new collateral w/I this description): Account Inventory (a few courts) Farm products

(2) Security Agreement: can attach by saying: all (equipment) now owned andhereafter acquired by debtor NOTE: never need a description of an after-acquired collateral in the financing statement (9-204)

(3) Proceeds: 9-306(1):(a) = whatever is received by the debtor when the debtor disposes of the

collateral. 2 types:

Cash proceeds: 9-306(1) = money, checks, deposit accounts and thelike (money from leasing of collateral) Non-cash proceeds: i.e. trade truck for boat.

(b) Rule SI attaches in proceeds upon disposition of the collateral (ifcollateral identifiable). Has to be shown that the proceeds are traceable back to the original

collateral (identified). Identification can sometimes be a problem (i.e.cash proceeds in an account w/ other funds).

D) Creditor Must Give Value (p. 46): The security interest cannot attach untilthe creditor has given value (9-203(1)(b). This is usually an advance of

money or a delivery of goods, but may be anything satisfying the definition ofvalue in 1-201(44). Under this section, a person gives value for rights incollateral by acquiring them:1) In return for any consideration sufficient to support a simple contract;2) As security for a preexisting claim or in partial or total satisfaction thereof;3) By accepting delivery under a preexisting contract for purchase; or


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4) In return for a binding commitment to extend credit whether or not thecredit is ever drawn upon.

Page 5 of outline ends at Future Advance (p. 48 of book)

June 9, 1999 Class (pp. 50-72)

IV. Perfection (p. 50): A creditor or seller retaining a security interest in some of thedebtors personal property may later learn that other parties claim a competinginterest in the same property. The step that a secured party can take to enhancetheir position with respect to other potential competing claimants is calledperfection.A) Introduction (p. 50): The methods for attaining perfection are in 9-302

thorough 9-306. In most cases the secured party may obtain perfectioneither by filing (i.e. with Secretary of State) or by taking possession of thecollateral. When the collateral is held by a bailee who has not issued anegotiable document of title, perfection by notification is possible; e.g. thesecured party may obtain perfection by notifying the bailee of the secure

partys interest. For a few special situations the Code provides that a securityinterest is perfected w/o any of the above actions on the part of the securedparty. Such perfection is called automatic perfection, or perfection byattachment.

B) Perfection by Filing Under Article 9 (p. 51):9-303: Perfection = attachment + applicable perfection steps: A securityinterest is perfected when it has attached and when all of the applicable stepsrequired for perfection have been take.Perfection=

(1) Attachment (9-203) (SaVeD)(a) Signed writing w/ description of collateral (unless collateral in

possession of the creditor).(b) Value given. (1-201(44))(c) Debtor has rights in the collateral

(2) + Applicable steps for perfection. 3 types of steps (FAP):(a) Filing of financing statement (most common)(b) Automatic (rare, because it gives no notice) (one case this is

allowed under 9-302(1)(d) purchase money security interest inconsumer goods)

(c) Possession of creditorApplicable steps for perfection described in:

(1) 9-115: Investment Property(2) 9-302: When filing is required to perfect security interest; security

interests to which filing provisions of Article 9 do not apply.(3) 9-305: When possession by secured party perfects security interest

w/o filing.(4) 9-306: Proceeds; secured partys rights on disposition of collateral.

9-304(1): provides that no security interest in money or instruments may beperfected by filing.


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9-302: (assuming 9-203 attachment) a financing statement (commonlycalled a UCC-1) must be filed to perfect all security interests except thefollowing:

(1) a security interest in collateral in possession of the secured party

under 9-305.(2) A security interest in consumer goods, but filing is required for motorvehicle required to be registered; and fixture filing is required forpriority over conflicting interests in fixtures to the extent provided in 9-313.(a) Only have to file UCC-1 for motor vehicles which are not yet titled.

9-302: Relevance of perfection to Disputes (steps needed to make securityinterest binding:

Creditor/Debtor PriorityScope ScopeAttachment Attachment

Perfection

1) When to File (p. 51):2) What to File (p. 51):9-402: A financing statement is sufficient if it gives the names of the debtorand the secured party, is signed by the debtor, gives an address of thesecured party from which information concerning the security interest may beobtained, gives a mailing address of the debtor and contains a statementindicating the types, or describing the items, of collateral. A financingstatement may be filed before a security agreement is made or a securityinterest otherwise attaches. When the financing statement covers cropsgrowing or to be grown, the statement must also contain a description of thereal estate concerned9-402(7): What debtor name needs to be in the financing statement? Afinancing statement sufficiently shows the name of the debtor if it gives theindividual, partnership or corporate name of the debtor, whether or not it addsother trade names or names of partners(1) If debtor is:

(a) individual, then need individuals name(b) partnership, then need partnership name(c) corporation, then need corporation name

9-402(2): Both debtor and creditor need to sign the UCC-1 unless:(1) debtor moves to another state(2) after name change of debtor, for new financing statement for after-

acquired collateral.(3) Proceeds under 9-306 if the security interest in the original collateral was

perfected. This financing statement must describe the original collateral.9-402(8): Financing Statement Saving Clause (like 9-110 is for the securityagreement).


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(1) A financing statement substantially complying with the requirements of thissection is effective even though it contains minor errors which are notseriously misleading.(a) Address, Name on UCC-1 Minor errors which are not seriously

misleading not fatal

(i) Definition of minor errors1) mistake in address if debtor well known, not as serious2) TEST: the more the court feels that someone could find the

debtors name, the more it will let the error slide3) NOTE: no address at all is fatal.4) Rationale: the financing statement is there to allow other

potential creditors know that there is a Security Interest in thecollateral. The potential creditor must at lest be able to find aUCC-1 on file regarding the potential debtor.

(b) Description of Collateral in the financing statement(a) RULE: description of the collateral on the financing statement does

not need to be as specific as the description on the securityagreement (See American Restaurant below)Problem 4-1: (p. 51)Notes: (p. 51) Revised Article 9s Treatment of Debtors Signature:Problem 4-2: (p. 52):Problem 4-3: (p. 52):Notes: (p. 52) Revised Article 9 and Address Requirement:Problem 4-4: (p. 52):Notes: (p. 52): Revised Article 9s Treatment of Name Requirement:

American Restaurant Supply Co. v. Wilson: (p. 52):Thorp Commercial Corp. v. Northgate Industries, Inc.: (p. 54): In this case FranklinNational Bank made several loans to Northgate pursuant to a security agreementbetween them. There was a future advance clause in the security agreement whichserved as a basis to establish that Franklin National Bank was a secured party in thesame collateral with respect to future loans. Because the bank had already filed afinancing statement with the Minnesota Secretary of State with respect to the collateraland it preceded the filing by Thorp Commercial Corp., Franklin National Bank prevailedeven with respect to future advances (9-312(7)).Description on the UCC-1 can be very broad, only has to contain a description of thetype of collateral (here assignment accounts receivable) Only warns subsequentcreditors, not identify the collateral exactly. Only has to identify the type of collateral 9-110.Note: attempt to limit collateral in the UCC-1 may fail. (Holding that the description ofthe collateral of assignment accounts receivable did not limit the collateral to excludeafter acquired collateral.

Questions: (p. 61):Notes on Revised Article 9: (p. 61):

3) Where to File (p. 62):9-401: Where is the proper office(s) to file a Financial Statement?


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(1) 3rd alternative subsection (most common one used)(a) Identify type of collateral, then use (a), (b), or (c) category:

(i) For all other types of collateral, category (c). 1) If place of business in only one county = dual (Sec. Of State and

local county)

2) If places of business in more than one county, In Sec. Of Stateoffice (no local filing if more than one place of business)Problem 4-5: (p. 62):Problem 4-6: (p. 63):4) Mechanics and Duration of Filing (p. 63):

(1) filings by clerk 9-405, 9-406, 9-407, 9-403, 9-404(a) Rule: if creditor does everything correctly and filing officer messes

up, creditor not liable (used to sue filing officer, but now there areimmunity statutes). Subsequent creditors bear risk (Like a racestatute).

(2) Filing lapse What causes a filing lapse?

(a) 9-403: expiration of 5 year period(b) 9-404: filing of a termination statement by the secured party.(c) Removal of the collateral from the state.

(3) If debtor changes location w/I the state, no new filing required w/regard to original collateral. If debtor changes name, no new filingrequired to continue perfection of the security interest of the originalcollateral. BUT:(a) After Acquired Collateral: (received by the debtor after attachment)

New filing of financial statement necessary to prevent lapse ofperfection in cases where the security interest covers after-acquiredcollateral.

(b) 9-407(7): Where the debtor so changes his name or in the case ofan organization its name, identity or corporation structure that afiled financing statement becomes seriously misleading, the filing isnot effective to perfect a security interest in collateral acquired bythe debtor more than 4 months after the change, unless a newappropriate financing statement is filed before the expiration of thetime.

(c) 9-402(7): A finalized financing statement remains effective withrespect to collateral transferred by the debtor even though thesecured party knows of or consents to the transfer.

(d) Problem: Often have transfer and name change at same time whena new corporation is formed (see Taylorville)

Problem 4-7: (p. 65):In Re: Taylorville Eisner Agency, Inc. (p. 65): Use (b) or (c) above in this case?Majority rule: apply (c), and thus no new financing statement needed to keep perfection.NOTE: Prof. Disagrees w/ the rule, in that if the secured party knows of the namechange, 1-103 should be allowed to estopp the creditor from asserting that it did not


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need to file a new financing statement in a priority dispute (because other creditor didnot get notice to its detriment when it relied on the lack of action, w/ knowledge of thesecured party).Minority Rule: should require new financing statements in these dual cases where thesecured party is aware of the change in name.

Question and Note: (p. 70):How long does financing statement last before it lapses?(a) 9-403(2): 5 years(b) 9-403(3): Continuation statement: if filed w/I 6 months prior to expiration of the 5 yr.

Period, secure party can file a continuation which will renew the financing statementanother 5 years.

(c) 9-404(1): Termination statement:Problem 4-8: (p. 70):C) Perfection by Possession (p. 71):

(i) not possible for accounts or general intangibles(ii) the secured party can only perfect by taking possession w/ the consent of

the debtor.(iii) possessory security interest are rare.D) Automatic Perfection (p. 71):

9-302(1)(d): a PMSI in consumer goods is automatically perfected9-302(1)(e): an assignment of accounts which does not alone or inconjunction with other assignments to the same assignee transfer asignificant part of the outstanding accounts of the assignor.

E) Defining Purchase Money Security Interests (p. 71):(i) Critical to determine if SI is a PMSI in priority disputes (automatic

perfection if PMSI in consumer goods).(ii) 9-107: PMSI two types:

(1) Seller If a SI taken or retained by the seller of the collateral to secureall or part of its price; or

(2) Creditor If SI taken by a person who by making advances or incurringan obligation gives value to enable the debtor to acquire rights in or theuse of collateral if such value is in fact so used.(a) NOTE: If creditor lends money to pay for something already

purchased and takes a SI, this is not a PMSI.(b) NOTE: IF creditor lends money to help debtor purchase, and

another creditor does the same, they both have a PMSI.(c) NOTE: Money lent to buy something which is already in the

possession of the debtor is still PMSI if the item not purchased untilthe creditor gives value.Example 1: May has possession of a dozer on 10/22/98 onapproval, but had not agreed to buy the dozer until 12/1/98, atwhich time she obtained the secured loan from the Bank = PMSIMinority Rule: pre-possession + agreement to buy = purchase, sowould be no PMSI in above example.

(iii) Assignment of PMSI:


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(1) Any time a purchase money security interest is assigned, it retainsPMSI status (assignee retains what the assignor has).

Problem 4-9: (p. 71):June 14, 1999 ClassReview:

I. Secured Creditor v. Other ClaimantsA) Status of secured creditor B) Status of otherClaimant

1) Attachment (same questions ifa) 9-203 also secured creditor)b) Classification of collateral

(1) after acquired collateral C) If other than secured cred.(2) Future Advances (must ask other quest.)(3) PMSI(4) Proceeds of Collateral D) Resolve priority dispute

2) Perfection 9-303

a) Filingb) Poss.c) Auto.

V. Introduction to Priorities (p. 73):Problem 5-1: (p. 73) The dentist (as a creditor who failed to take all the stepsrequired by law to create or protect his interest in the office equipment) might stillprevail under the theory that the creditor has an equitable lien (i.e. one thatwould be recognized by courts of equity). However, under 9-203, Comment 5,equitable liens are not recognized. 9-201 explains the dentists position.Problem 5-2: (p. 74) In this case, Molly would be a unsecured general creditorwho acquired a lien on Sallys property by judicial process and she is now a

judicial lien creditor. The variable to look at here is when did the lien creditorsinterest arise? It typically arises at the time the sheriff levied (the sheriff seizedthe property). In some states the levy could be construed as being when thecourt clerk issued the writ of execution. since Mike is an unperfected securedcreditor he wont have a protected security interest against Molly per 9 -301(1)(b). 9-312(5)(a): [for two secured, perfected creditors] first to file orperfect winProblem 5-3: (p. 74) For the trustee in bankruptcy, a judicial lien wasautomatically created on all the Sallys nonexempt property at the moment thebankruptcy petition was filed. 9-301(1)(b) (Same as above) 1) Was trustee alien creditor? (9-301(3)and 544(a) of the Bankruptcy Code tells status oftrustee; 2) 9-301(1)(b).Problem 5-4: (p. 74) The general rule would be that the priority would go towhichever secured party is the first either to file or perfect the security interest(whichever is earlier), provided there is no period thereafter when there is neitherfiling nor perfection. 9-312(5). This would give the party who files first top priority

even though a Mike, as the first creditor, perfected later by taking possession


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after Franks filing. Conversely the interest perfected by Mike, by possessionrather than filing is entitled to priority over a filed interest only if the non-filingcreditor in fact perfected before the other creditors filing.Problem 5-5: (p. 74) The interest perfected by Frank, by possession rather thanfiling is entitled to priority over a filed interest only if the non-filing creditor in fact

perfected before the other creditors filing.Problem 5-6: (p. 74) In this case John advanced money to Marvin so that Marvincould acquire an interest in a crane. John would have a purchase moneysecurity interest (9-107) and would stand in a different position than FirstFinance. The Code states that a purchase money security interest (in collateralother than inventory) takes priority over conflicting security interests in the samecollateral if the interest (as it was done in this case) was perfected when Marvintook possession of the crane or within 10 days (20 days in some states)thereafter. 9-312(4).

Perfection=(1) Attachment (9-203) (SaVeD)

(a) Signed writing w/ description of collateral (unless collateral inpossession of the creditor).

(b) Value given. (1-201(44))(c) Debtor has rights in the collateral

(2) + Applicable steps for perfection. 3 types of steps (FAP):(a) Filing of financing statement (most common)(b) Automatic (rare, because it gives no notice)(c) Possession of creditor

VI. Equipment Financing (p. 76):A) Introduction (p. 76)B) Basic Priority Rules: (p. 77): First in time; first in right general section =

(a) 9-312(5)(a): [for two secured, perfected creditors] first to file or perfectwins.

(b) 9-312(5)(b): if two unperfected creditors, first to attach wins.(1) Winner takes all = one who has priority will get enough pay what the creditor

owed him + expenses, and whats left goes to the next creditor in line ofpriority.

(2) 9-401(2): If good faith mistake in filing financing statement(a) if more than one type of collateral, the filing is sufficient to satisfy any of

the types as to which the filing did comply.(b) The filing is effective against any person who had knowledge of the

contents of the filing statement


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i. Knowledge = (definition in 1-201 Notice = subjective, reason toknow) Knowledge = subjective, really knew.1) must have knowledge of the contents of the financing

statement = have to know more than just that there is a SI,need to know contents FS as stated in 9-402(1), which is 1)

description of the collateral; 2) names and addresses of theparties.2) Knowledge of the contents of the security agreement is not

knowledge of the financing statement, BUTa) if prospective party knew debtor by name, and say SA w/

description of collateral, could be enough (may not need toknow the addresses) 9-401(2).

b) Good faith = subjective test throughout Article 9.Problem 6-1: (p. 77)(a) The general rule would be that the priority would go to whichever secured

party is the first either to file or perfect the security interest (whichever is

earlier), provided there is no period thereafter when there is neither filingnor perfection. 9-312(5). This would give the party who files first toppriority even though a Friendly Finance, as a later creditor, perfectedfirst by filing on 8/1 and Bobs Bank did not file properly until 9/15.Therefore Bobs interest is perfected. (Friendly = $1MM / Bob = $500K)

(b) 9-401(2)A filing made in good faith, but not in every place required iseffective as to any collateral for which the filing did comply with therequirements of the Code. If is also effective against any person who hasknowledge of the contents of the improperly filed statement. In this caseBobs Bank has a perfected security interest, and Friendly Finance hadknowledge of the incomplete filing. Therefore Bob would have an interestof $1MM in SDIs equipment. If Friendly Finance had no knowledge ofBobs filing, then they would have the larger security interest.

(c) 9-312(5)(b): So long as conflicting security interests are unperfected, thefirst to attach has priority. Friendly had a signed agreement, gave value,and debtor had rights in property on 8/1/ where Bobs has a signedagreement, gave value and debtor had rights n the property on 7/1.Therefore Bob would win the priority battle

C) Future Advance Issues (p. 78): FA = advances of value by the creditor thatoccur subsequent to the creditors initial advance of value that is, the initialadvance of value necessary for initial attachment of the security interest.

(1) 9-204: must have a FA clause in the SA, or if want to get FA later the debtormust execute another SA to show intent to give up interest in the collateral.(a) RULE: w/o FA clause, the SA only provides an interest in the original

collateral.(b) After acquired collateral clause indicates the intent to extend the SI to

collateral acquired by the debtor after the date of the original attachment.(2) As between two secured creditors, who will have priority as to future

advances?


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(a) 9-312(7): As between two secured creditors, whoever has filed orperfected first has priority IF:i. there was a FA clause in the SA, orii. the debtor issued a new SA at the time of the FA

1) w/ no FA clause in the original SA, the alter agreement would be

necessary to document the debtors intent to extend the SI inthe collateral beyond the initial extension of value by thecreditor.

iii. If there was a FA clause in the original SA, some courts hold thatthe SA is only effective if the FA covers the same class of collateral(i.e. consumer goods, then FA on equipment would not beacceptable.

(3) Secured Creditor v. Lien Creditor: 9-30(4):(a) w/ knowledge of the lien creditor, the secured creditor has 45 days to

make advances as long as there is a FA clause or a new SA.(b) After that, no protection as to the future advances if he has knowledge of

the secured creditor (see 9-301(4)).Allis Chalmers Credit Corp. v. Cheney Investment, Inc. (p. 78) There was afinancing purchase at Ochs who sold a tractor to a farmer (Katlin). Katlin entered intothe agreement, there was a security agreement and the contract was assigned to AllisChalmers. They filed a Financial Statement and carried the paper. A month later, Katlinenters into another transaction to borrow money from Chenney Investments who to a SIinto the tractor. Katlin then purchased a new piece of equipment, which AC combinedboth financing agreements together. Katlin defaulted. AC must prove that they had thesame status in the future advance as they had in the initial advance. Cheney is trying toshow that AC only has priority in the amounts of the initial advance.Question: Does a SC have to have a FA clause in a SA to establish theyRule: As between two secured creditors, who will have priority as to future advances?

9-312(7): As between two secured creditors, whoever has filed or perfected firsthas priority IF:(1) there was a FA clause in the SA, or(2) the debtor issued a new SA at the time of the FA(3) w/ no FA clause in the original SA, the alter agreement would be necessary to

document the debtors intent to extend the SI in the collateral beyond theinitial extension of value by the creditor.

(4) If there was a FA clause in the original SA, some courts hold that the SA isonly effective if the FA covers the same class of collateral (i.e. consumergoods, then FA on equipment would not be acceptable.

Finding: The priority was with AC up to the amount still owed on the initial agreement.A financing statement that was valid and ongoing can be used to set the date as to setthe date as to the perfected secured creditors priority against another perfected securedcreditors claim. In this case, AC used the original security agreement to show this.

Note: (p. 87)Problem 6-2: (p. 88): In this case, since the initial security agreement showed thecontemplation of the debtor to pay the debt to AC. AC was the first to file and would be


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seen as the first to perfect based on the filing of the initial agreement. Therefore under9-301(b)the lien creditor would not take priority over the perfected secured interest ofAC. There is a cutoff time on lien creditors under 9-301(4) but this would not berelevant if both creditors were secured creditors.

June 16, 1999 ClassASPEN SERIES ON SECURED TRANSACTIONS BY CRANDALLD) Superiority Rights of Certain Purchase Money Security Interests (p. 88):

i. Two types of PMSI described at 9-107ii. 9-312(4) PMSI in collateral other than inventory

(1) has priority in the collateral (or its proceeds) over a conflicting security interestwhere the other party filed first in cases where:(a) The PMSI is perfected at the time the debtor receives possession of the

collateral, or w/i 10 days thereafter(b) When does 10 day period start?

(i) No problem usually, debtor buys at same time gets possession.

BUT2 views for sale on approval-(defined in code):1) of courts say in sale on approval agreement the 10 days donot start until buyer gives approval and agrees to buy.

2) of the courts say in sale on approval agreement the 10 daysstarts as soon as the buyer gets possession.

3) See In re Prior Brothers.(c) PMSI can be assigned assignee gets exactly what the assignor has(d) PMSI as to future advances? NO!!! Value is not given there to purchase

anything 9-107 says you are a PMSI to the extent that you meet thedefinition.

(e) What if money given to buy something, there is a PMSI intended, and thenthis money is put in bank and other funds go to buy the item?(i) This is factual question money going in the bank is always being

shifted around. Probably will not say the money did not in fact goto allow the debtor to get value in the collateral, unless significanttime lapse.1) Ultimate protection for secured creditor, to see that the value

given goes to in fact allow the debtor to get the collateral, thencreditor can make check out directly for the collateral, or debtorbring bill over and have it paid directly.

(2) Proceeds does the secured creditor w/ super-priority have that priorityextended to proceeds?(a) 9-314(4): - PMSI in collateral other than inventory = yes(b) 9-314(3): - PMSI in inventory only extends to cash proceeds.

In Re: Prior Brothers, Inc. (p. 89)Note (p. 95)Problem 6-3: (p. 95)Problem 6-4: (p. 96)

VII. Inventory (p. 98)


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A) General Principles (p. 98)1) Different from other types because the inventory has to be sold, involves a

shifting pool of collateral.2) Floating Lien = a SI in a type of generically described type of collateral,

which attaches to whatever property of that type the debtor happens to

have at any given time. (Accounts and chattel paper use this type also.)B) Basic Priority Rules (p. 100)3) Basic Priority Rules:

(1) 9-312(1)(a)for the non PMSI SIs in inventory(2) 9-312(3) for PMSIs in inventory (most SIs in inventory are PMSIs).

Rules for inventory PMSI to have priority over another securedcreditor:(a) the PMSI must be perfected at the time the debtor receives

possession of the inventory.(b) Notification in writing must be given to the holder of the other SI IF

that person has filed a financing statement.

(c) The holder of the conflicting security interest must receive thenotification before the debtor receives possession of the inventory(if his does occur, the notification will be good for 5 years); and

(d) The notifier must state that he has or expects to acquire a PMSI inthe inventory of the debtor, and describe the inventory by item ortype (must be a specific description, not enough to just say I amgoing to get a PMSI in the debtors collateral)(i) What is notification? --1-201(26) (Defines notification and

receive)1) 1-201(26)notificationa person notifies or gives a

notice or notification to another by taking such steps as maybe reasonably required to inform the other in ordinary coursewhether or not such other actually comes to know of it.

2) 1-201(26)receivesa person receives a notice ornotification when:(a) it comes to his attention; or(b) it is duly delivered at the place of business through which

the contract was made or at any other place held out byhim as the place for receipt of such communications.

Revision Note: (p. 101)

Secured Creditor v. Buyers and Lessors of Inventory(p. 101)(1) Relevant Sections are: 9-307(1), 9-306(2), 9-307(2), 9-301(1-c),

9103(2), 9-308, 9-309, 9-201 (default section).(2) Biggest problem for financier of inventory is: What happens to the SIwhen the goods are sold or leased?

Fleetwood Credit v. RI Hospital Trust(p. 101)(3) 9-306(2): starting pointSI continues in collateral not withstanding

sale, exchange or other disposition (see problem 7-8) UNLESS:(a) the disposition was authorized


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(i) 9-306(2): will give basic rule on whether the SI continues.This is true regardless of who has priority (e.g. under 9-307(1). Example: A finances Bs inventory and takes a SIwhich is perfected. B sells some of the inventory to C, andthe sale is not authorized (this, under 9-302(2), the SI

continues). However, C is s BOCB, and takes free of the SIunder 9-307(1). D, a BOCB buys the collateral cannot use9-307(1),since the SI was not created by his seller.

(ii) If the transfer is authorized, then the SI is gone for good.(iii) 3 kinds of buyers protected under 9-306(2):

1) NON-BOCB2) Buyer of Farm Products (excluded from 9-307(1)),3) Buyers who are BOCB but who do not buy from a seller

who created the SI (A BOCB takes free of a SI createdby his seller If SI not created by his seller, then BOCBdoes not take free of the SI.)

Note and Questions: (p. 104)C) Rights of Buyers and Lessees (p. 104)(4) 1-201(9) Definition of BOCB (KNOW FOR EXAM)

(a) a person who in good faith(b) without knowledge that the sale to him is in violation of the

ownership rights or security interest of a 3rd party in the goods(c) buys in the ordinary course of business(d) from a person in the business of selling goods of that kind, (but

does not include pawnbroker. All persons who sell minerals and thelike [including oil and gas] as well-head or mine-head shall bedeemed to be persons in the business of selling goods of that kind)

(e) Buying may be for cash or by exchange of other property or onsecured or unsecured credit and includes receiving goods ordocuments of title under a pre-existing contract for sale but doesnot include a transfer in bulk or as security for or in total or partialsatisfaction of a money debt.(i) bulk transfer does not apply to sales of inventory (these

usually indicate that the seller is in trouble, so no BOCB inthat situation. However, it is normal to have bulk transfers ininventory, so these are excluded from the definition).

(5) 9-307(1) Protection of Buyers of Goods(a) A BOCB (other than a person buying farm products from a person

engaged in farming operations) takes free of a security interestcreated by his seller (even though the SI is perfected and eventhough the buyer knows of its existence.)(i) Does not protect any BOCB who does not buy from seller

who created the SI (A BOCB takes free of an SI created byhis seller

Problem 7-1: (p. 105)


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Sears Consumer Financial Corp. v. Thunderbird Products(p. 106)(ii) Any way to protect the remote BOCB?

1) 2-403(2)saysAny entrusting of possession ofgoods to a merchant who deals in goods of that kindgives him power to transfer all rights of the entruster to a

BOCB.(a) Only applies in context of where the Secured Creditorhimself entrusts the collateral.

(b) Example: A has a SI in Bs boat. B defaults and Aasks C, a seller of boats, to repo the boat and store it.C puts the boat up for sale, and D buys it. Can A repoboat? Held: No. The SI continues under 9-306(1)because the sale was not authorized. However, D isnot protected by 9-307(1), because D did not buy theboat from a seller who created the SI. D is a remoteseller. But A, the secured party, entrusted the boat to

B, so under 2-403(2), A must bear the risk of loss.RULE: Where the Secured Party itself entrusts thecollateral, or acquiesces in it entrustment, as occurredhere, 2-403(2) governs.

(c) Example: A purchases a motorboat with moneyborrowed from Bank. Bank takes a SI in the boat. Asells the boat to C, a Marina boat seller, who thensells it to D. A defaults and Bank traces his boat to D,and sues him for conversion. Ds lawyer points to 2-403 and requests that the case be dismissed. Whowins? Held: Bank does. 2-403(2) does not applyexcept where the secured creditor himself entruststhe collateral to a seller of items of that kind.

Question and Note: (p. 113)Problem 7-2: (p. 113)Problem 7-3: (p. 114)

(b) 9-307(2) (Crandall says this is one of the most common sectionsthat students dont understand)(i) In the case of consumer goods (as held in the hands of the

debtor, not buyer),(ii) A buyer takes free of a SI even though perfected if he buys

w/o knowledge of the SI (w/o knowledge of it period)(iii) for value,(iv) for his own personal, family, or household purposes (the

buyer here, not the debtor)(v) unless prior to the purchase the secured party has filed a

financial statement covering such goods.


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1) called the garage sale section because have to look atboth the way the collateral is being held by the debtor,and used by the buyer.

(c) 9-201 default section(i) If buyer loses under 9-306 and 9-307, this section

controls. Says that the holder of the SI takes priority over thepurchasers of the collateral.(d) 9-306(2) What is Authorization?

(i) Especially in sales of inventory, the SC will authorize somesale of the collateral, because the sales will be needed toallow the debtor to pay the SC.

(ii) 9-306(2) SI continues despite transfer, sale or otherdisposition of the collateral UNLESS the disposition wasauthorized in the SA or otherwise.1) If SA is silent as to authorization, this does not mean that

there is no authorization. The courts will look to see if

authorization is implied (CD, CP, waiver, etc.)Production Credit Assn of Baraboo v. The Pillsbury Co. (p. 114)2) Can be explicit authorization, but usually this is not the

case. Most of the time there is a condition under whichthe sale will be authorized. Split opinion as to these:a) Majority Rule = If there is any type of condition on

the sales at all, this must be met or no sale isauthorized.

b) Minority Rule = look at the type of condition. If it is:(1) One in which the seller is obligated to do

something (i.e. seller must get prior approval, orseller must get prior approval, or seller must paythe proceeds to the SC) then if the condition doesnot occur, the sale is still authorized, becausecondition is not in the control of the buyer. (Thepurchaser pays the debtor, but cannot controlwhat is done with the proceeds.)

(2) One in which the buyer has to do something (i.e.the SP notifies all buyers of the collateral that theyshould make the check out directly to the SC.) Inthat case, the condition is in the control of thebuyer, and if the condition not met, there is noauthorization.

(3) Rationale is to not make the buyer an insurer forthe actions of the debtor.

Question: (p. 116)Northern Commercial Co. v. Cobb(p. 116)

(a) Validity of Summary Judgement Based on Authorized Sale (p. 117)1) Based on Security Agreement and Financing Statement(p. 117)


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2) Based on Other Evidence in the Record(p 119)Questions: (p. 120)

(iii) Analysis for authorization under9-306(2)1) Is there a condition?

a) Majority says no authority period unless fulfilled.

b) Minority says if condition no fulfilled, will still findauthorization unless condition was in control of buyer(buyer had to fulfill condition).

2) If not authorization in SA (silent on matter, or says noauthorization), then look to see if there has been animplied authorization or waiver (intentional relinquishmentof a known right).

Gretna State Bank v. Cornbelt Livestock Co. (p. 120)a) waiver occurs after the SCknowingly allows the

condition to slide maybe 3-4 or more times. Example:a bank finances all of a farmers cows, and takes a SI

in them. The SA says that there is no authorization tosell without prior written consent of the SC. However,the SC never enforced this, and the debtor sold cowsmany times, with the full knowledge of the SC. Held:this is a wavier of the condition, and there wasauthorization for the sale.

b) What if SA had anti-waiver clause? Majority view isthat this can also be waived.

c) How can you re-establish the condition after waiver?Person already affected under a SA, would be hard tochange, because already waived. But, send out letterto those not yet affected , say condition will be strictlyenforced, and hold to it. And for other already affectedunder their SA, at time of new SA reasserts condition,must hold to CP which sticks to the condition.

d) Absence of authorization the absence itself is onlyone factor. Look to the CP and CD of the parties tosee if authorization implied.

Notes and Question: (p. 125)Problem 7-4: (p. 125)

June 18, 1999 ClassD) Commingled Goods, Processed Goods, and Accessions (p. 125)

Farmers Cooperative Elevator Co. v. Union State Bank(p. 126)Problem 7-5: (p. 129)E) Article 2 Rights (p. 129)

In Re MacMillan Petroleum (Arkansas), Inc. (p. 130)Questions: (p. 134)F) Consignment (p. 134):

(4) Secured Creditor v. Consignor


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(a) 2-326(3)Consignment = a sale or return K, since the goods aredelivered primarily for resale. If goods are sold, they are paid for; ifthey are not sold, they are returned.Consignor retains title:(i) Not a SI in theory, because does not fit 1-201(37) definition

a property interest that secures payment or performance ofan obligation. Because delivered for sale, and because theconsignor retains title, acts in a way like a SI (1-201(37))says the retention or reservation of title by a seller of goodsnot withstanding shipment or delivery to the buyer is limitedin effect to a reservation of a security interest

(ii) 2-326consignees creditors may seize the goods despitethe consignors ownership unless certain requirements met:1) sign law (put up sign notifying customers of the

consignment) not in use much today.2) Demonstrate that the consignee was generally known by

his creditors to be substantially engaged in selling thegoods of others.3) Comply w/Article 9 filing provisions:

a) filing provisions are 9-114. Basically identical w/9-312(3). Must file a financing statement and give priornotice to the inventory financier of the consignment.

b) As practical matter, t be totally protected, treat theconsignment as if it were an inventory PMSI. Follow9-114.

In Re: Creative Goldsmiths of Washington, D.C. (p. 135)Notes and Questions: (p. 139)Problem 7-6: (p. 139)

June 21, 1999 ClassTitle of a Vehicle: This is a means of knowing and proving ownership of the motorvehicle. The creditor keeps the title until you have paid for the motor vehicle. In order toget a new title you have to prove that the motor vehicle is paid for.Registration of a Vehicle: This is a taxing instrument for the state. This can take place inmore than one state.VIII. Motor Vehicles and Other Title Goods (p. 141):

A) Introduction (p. 141):How to perfect a motor vehicle.If titled perfection must be by lien noted on the certificate of title.1) Filing a financing statement will not suffice when the vehicle is covered by2)

B) Ohio new car vehicles use 9-401 (Alternative 3)C) 9-302(3)(b): If cars should be titled when new and inventory or not.D) When buying a new car the owner will get a certificate of title andE) Buyer in the Ordinary Course v. Article 9 Secured Creditor (p. 144)

1) Where titling and reg. is in a state


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DBC Capital Fund, Inc. v. Snodgrass(p. 144):Is one who buys a vehicle but does notget title not

Problem 8-1: (p. 147): To prove the subjective test of honesty, you canonly prove this indirectly by using objective evidence. This is basicallydone by what a group of reasonable persons would think in the same

circumstances. 1-201(9) states that the buyer is not a BOCB because thebuyer is not buying because it is for the partial satisfaction of debt. ABOCB must give new value. The new value could be argued the $15K hepaid in cash. The person in this case is a BOCB to the extent of $15K andthe creditors would get priority of $700, the BOCB to $15K, and creditorsfor anything beyond this.

Schultz v. Bank of the West, C.B.C. (p. 147): 1987, the Muirs bought a MH. In 1988Muirs took a loan out from Bank and gave the Bank a SI, which the bank perfected.1992 Muirs put MH on consignment w/Gatley Motors. Gatley was in the business ofselling goods like this. Schultzes bought the MH from Gatleys, and did not know of the

SI, not what that the MH was being sold on consignment. Gatley did not forward anymoney to Muirs. Gatley then filed for bankruptcy. Schultzes learned of the SI at thattime, and brought suit to declare that they took free of the SI. 9-201: says that unlessotherwise provided security creditor wins against all others unless we look atexceptions. Issue: can the Shultzes claim 9-307(1) and take free from the Bank?Held: Yes. 1-201(9) does not require the person the buyer is buying from andanticipates that this may be an agent of the one holding title. The Schultzes bought fromone in the business of selling goods of that kind. The Schultzes bought from a sellerwho created SI (created by his seller) because in 9-307, the seller is the one whoholds title. The Schultzes take free of the SI created by his seller. Dissent: argues thatthe seller has to be the same person in both 9-307 and 1-201(9).Professor agrees with majority on this case.IX. Statutory Liens (p. 156)

X. Security Interests in Agricultural Transactions (p. 166)1)2)

June 23, 1999 Class (pp. 169-202): How is this section set up to preserve the rights ofthe secured creditor and the buyer (Food Security Act in the back of UCC book).

3) Buyers of Farm Products v. Secured Creditor (p. 169)A) Problem: 9-307(1) excluded buyers of farm products from that section.

Such persons could not claim BOCB (Buyer in the Ordinary Course ofBusiness) and take free of a SI.(1) Meant that buyers of farm products often had to pay twice : 1) for

the products; 2) to the holder of SI, when that secured creditor suedthe buyer for conversion, UNLESS: 9-306(2): the sale was authorized(then the SI would not continue, and the buyer would not be liable)(a) Auctioneers or other parties selling for the seller were also liable for

conversion against the superior security holder.


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(b) filing for farm products was also local, and buyers would thereforehave to check the county in which they were grown in order to seeif there was a SI.

(2) Food Security Act, 7 USC 1631: response to problems w/ excludingbuyers of farm products from 9-307(1). Congress passes act to

protect farm product buyers.(a) Policy: why shouldnt entire Article 9 be a matter of federal law?Professor thinks that:

(b) Purpose of Act: to provide protection of buyers in the ordinarycourse of business against secured creditors whether their interestis perfected and whether or not the buyer knows of the existencesof such an interest (like 9-307(1). Also applies to auctioneers.

(3) 2 options given in the Food Security Act:(a) Central Filing:

1) must be filed in addition to the Art. 9 financing statement. File w/Secretary of State. Has more extensive requirements than

financing statement.2) statement must contain(b) Debtor to Provide the Secured Creditor w/ a list of Prospective

Buyers (and selling agents of the debtor)[other States adopted thisoption];

(c) NOTE: 9-306(2) still has effectif creditor authorizes a sale inthe security agreement or otherwise the buyer would take free ofthe SI even if the buyer had notification.

(d) NOTE: nothing in the Food Security Act affects 9-301(1)(c):Buyers of farm products take free of unperfected SIs.

(e) Only one protected under the Food Security Act = 1) buyers of farmproducts; 2) auctioneer (seller) of farm products (commissionedmerchants:

Food Services of America v. Royal Heights, Inc. (p.170)Facts: Royal ran an orchard and agreed to deliver its crops to America to process andsell. America is a commission merchant who sells farm products on commission.America loaned royal $100K and obtained a perfected security interest in Royals cropsas collateral on the loan. Later Zirkle leant $100K to Royal and filed a financingstatement 6 months after America and claimed they had a secured interest in Royalscrops. Zirkle sold the crop and applied the proceeds against the loan. America arguesthat Royal failed to repay the loan, and later sued both Royal and Zirkle. The trial courtgranted a summary judgment in favor of Zirkle, basing its decision on the Food SecurityAct. Court of Appeals reversed and remanded for trial. Court of Appeals felt Zirkle wasboth a commission merchant and a junior lienholder. Said the Federal Act did notprovide Zirkle in its capacity as a lender with priority over a prior perfected lienholder.Findings: The Food Security Act, in this case, does not preempt the state law rules oncreation, perfection, or priority of a security interest. In this case there was no protectionfor a commission merchant (or auctioneer, who acts as one) if that merchant also lends


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to the seller of the farm products. In such case, the lender who takes a SI is competingagainst any other secure creditor under 9-312(5)(a) (first to file or perfect wins).

4) Revised Article 9. (p. 178)

XI. Possessory Security Interests (p. 180)

1) Introduction (p. 180):a) Types of collateral which may be perfected by possessionb) Types of collateral which cannot be perfected

In re: Allen(p. 180): Allen sold his interest in some real property to Partnership. Hetook a promissory note and Deed of Trust as payment. TCA title company held the noteand Deed of Trust, with Allen as the beneficiary. TCA was the collection agent for thedebtor (Partnership). Later, Allen assigned his interest in the note and Deed of Trust toCasa Grande. Casa Grande notified TCA, and recorded its interest in the CountyRecorders Office. Allen filed for bankruptcy, and Casa Grande asserted priority in thenote and Deed of Trust against the bankruptcy trustee (who is treated as a lien creditorstatus 9-301(3) as of the time of filing of bankruptcy or in 544 of the bankruptcy

code). The trustee asserted that the SI was not perfected (under 9-301(1)(b)); becauseCasa Grande did not take possession., and therefore, it had priority over theunperfected SI under 9-301(1)(b).Issue: Was there possession?Held: Yes. Because the 3rd party had possession and Casa Grande, the newbeneficiary, notified the 3rd party. Therefore, TCA was a proper agent of Casa Grandeunder 9-305, and there was perfection by possession. (of which an instrument,according to 9-304, can only be perfected by possession).

Problem 11-1 (p. 183): The Rolex is probably perfected by Hank under 9-305where goods, may be perfected by possession. However, in the case of the limo,is not perfected by possession. A Motor Vehicle must be perfected by lien notedon the title. There still could be perfection on the watch if there had been a filingof financing statement.Hank would have automatic perfection for 21 days. If Johnny does not give thewatch to Hank, Hank must refile (9-304(5)). Under 9-304(4) Hank would alsohave21 days temporary automatic perfection after attachment to take possessionor file.3) Care of Collateral in Creditors Possession (p. 184)Problem 11-2 (p. 184): 9-207(1) Maria had duty of reasonable care. Theburden would be on Maria and she must show that the loss could not beforeseen or prevented by her returning on the day the note was due. In this caseMaria probably would lose the money she loaned Miguel. She knew that themoney was due on 3/1 and opted for a vacation.Problem 11-3 (p. 184): 9-207(1) Fluctuating values of collectibles, the generalrule would be that the credit union is not responsible for the ring that Bill (debtor)wanted back because the market was volatile. There is no liability on the part ofthe credit union and they cannot be forced to give the ring back (except by payoffof the SI).Problem 11-4 (p. 184): 9-201(1) & 9-201(2)(b). In this case First Federal Loan


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would have to show that they exercised reasonable care. They would have toshow that the loss could not be foreseen or prevented by the exercise ofreasonable precautions.Problem 11-5 (p. 185): 9-201(1) The Bank took the plane (collateral( by filingsuit and having the sheriff levy execution on the plane. Rebecca may be within

her rights, because the Bank has the duty to show reasonable care was takenwith the collateral. Creditor cannot absolve itself from liability by possession of a3rd party.

XII. Fixtures and Realty-Related Interests (p. 186):3 issues:

a) What happens when we have a Real Estate document, and then usethat as collateral?

b) What is the definition of Fixture?c) What are the limits of the priority disputes in fixtures? (9-313)

1) Borderline Collateral (p. 186)a) Real Estate is excluded from Article 9.

b) Use of a note secured by a mortgage as collateral for a loan is governedby Article 9.c) Types of borderline transactions:

Buyer ---------------------------promise to pay-----------------------SellerCan be: Note + Deed of Trust; Note + Mortgage; or Land Contract

d) 9-104(j) says Article 9 does not apply to the creation or transfer of anylien on real estate, including a lease or rent.

Rodney v. Arizona Bank(p. 186): Vasquez gave a promissory note to Clonts and alsoa Deed of trust to secure the mortgage. Vasquez and Clonts agreed that State Titlewould hold the agreements. Clonts wants to get paid now, so he sells his interest to theFidlers. Fidlers assigned their interest to Security Pacific Bank. Security Pacific notifiedState Title that they have they have Fidler (Clonts) interest. Fidlers sold their interestagain (a big no no) to Rodney. Rodney files an interest in the Deed of Trust with thecounty recorders office. Security Pacific has a priority dispute between them andRodney. The question here is was Rodney perfected? Rodney argues they perfectedunder real estate law, and Security Pacific has a perfected security interest under Article9 (the payments by Vasquez). When Fidlers gave an interest in the note = the deed oftrust to secure the repayment of loan from Security Title created a security interest andtherefore an Article 9 interest. At this stage there was the creation of an article 9security interest. The right of payment from real estate (in the form of a promissory note)creates a security interest 1-201(37). Rodney had an outright sale. You dont perfectunder Article 9 by filing in the real estate court. Possession is the only way to perfect theinstrument (promissory). Where the holder of evidence for the right of payment for realestate uses the right to secure payment, he has created a security interest under Article9. The definition of collateral is the property (in this case the instrument) subject to asecurity interest, and includes accounts and in this case it is a general intangible bydefault.


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e) Land Contract = general intangible, 9-304, cannot perfect bypossession.

Problem 12-1 (p. 191)2) What on Earth is a Fixture ? (p. 191):

a) what is a fixture?

In re: Gain Electronics Corp. (p. 192) (IGNORE THIS CASE):Lewiston Bottled Gas Co. v. Key Bank of Maine(p. 196):Problem 12-2 (p. 199) see the book3) Perfection in Fixtures/Fixture Filing (p. 199):

b) 9-313: Only applies to the holder of real estate + fixture v. holder of SI infixtures.

4) Priorities in Fixtures (p. 200)c) 9-313: Priority disputes:

(1) 9-313(7): Default rule: A fixture filing is not generally needed. In casesnot covered by 9-313(1-6), a SI in fixtures is subordinate to theconflicting interest of an encumbrancer or owner of the related real

estate who is not the debtor.(a) Exceptions: 9-313(1-6)(2) 9-313(8): one who has priority in fixtures can repossess them, but

cannotJune 25, 1999 Class (Friday) (pp. 201-239)

Problem 12-3 (p. 201): Buyer buys furnace, installs seller retains a SI. Bankhas the mortgage on the house (mortgage states it covers fixtures).(a) Under 9-313(4)(d) If the central air conditioning system is considered an

appliance, described as replacement appliances used by the debtor or hisfamily , then OHara, as the secured party financing the replacement (sincethis is new AC it is assumed that there was old) of domestic appliances innon-commercial owner-occupied contexts need not concern himself with realestate descriptions or records. The priority of a mortgage would have noeffect on the perfection by OHara. This is a PMSI 9-107(a)

(b) 9-313(7): (DEFAULT RULE) OHaras security interest would not havepriority over any conflicting interest by Kennedy, as predecessor in title of theowner and he would continue to have an interest of record in the RE. (Therewas no fixture filing so Kennedy would win. If there had been a fixture filing )

(c) 9-313(4)(c): OHara would win in this case.

REVIEW THIS PROBLEM IN DETAIL: Problem 12-4 (p. 201): If this canbe considered a fixture under 9-313(1)(a) then 9-401(3):does not affect this

case if the property can become a fixture and is classified as such. 9-201 wouldreally gives validity of the security agreement over any other section. Use 9-313(4)(b) for a fixture filing 9-401(2) and 9-401(5) and 9-313(1)(b) would givethe details of how to file. Even though the mobile home was attached andbecome part of real estate in the transaction the filing on the certificate of titlecontinues effective even though the use of the collateral (mobile home) haschanged (permanent structure), which controlled the original filing has changed.


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Therefore Acme Bank would still have priority9-307(2) is not applicable becausea consumer buyer from a consumer cannot win.Problem 12-5 (p. 202): 9-313(4)(a): Since the SI is a PMSI, and the interestwas perfected by a fixture filing within 10 days (6/7 to 6/15 = 8 days), HelpfulHardware has an interest in the RE. That Perfected Interest in the furnace has

priority over the conflicting interest of Chaste Bank. If the mortgage was aconstruction mortgage, the SC would lose under 9-313(1)(c), and 9-313(6).5) Rights of the Secured Party Upon Default (p. 202):Default Rule: 9-313(7): (In cases not covered by 9-313(1-6), a SI in fixtures issubordinate to the conflicting interest of an encumbrance or owner of the relateestate who is not the debtor. Exceptions are 9-313(1-6)9-313(8): one who has priority in fixtures can repossess them, but cannot justbarge in and breach the peace.

a) must pay for any damages done to the buildingb) do not have to pay for the lowered value of the RE which occurs

because the fixtures are removed.

c) No right to the proceeds of the fixtures (Capital Federal) Cant get cutout of proceeds on the sale of the fixtures, only have a right torepossession. Rationale: to give an interest in the proceeds of fixtureswould give an interest in RE, and that is outside the scope of Article 9.

Capital Federal Savings & Loan Association v. Hoger(p. 202)

Problem 12-6 (p. 210): Use 9-313(4)(b) for a fixture filing 9-401(2) and 9-401(5) and9-313(1)(b) would give the details of how to file. Based on the rights under 9-313(8)that when the secured party in fixtures and accessions has priority over other interestsin the real property and the secured party is entitled to remove the collateral, I wouldadvise that they enter into a negotiation or Western Resources should remove itscollateral. The effect would be that they would be liable for any damages or repairnecessitated by removal, but not for any diminution of the value of the property causedby removal (9-313). Practically (in Kansas) the house could not be sold without anfurnace and AC and therefore of less value to the Bank.

XIII. Accounts (p. 211)1) General Principles (p. 211)(1) 9-106: Account means any right to payment for goods sold or lease or for

service rendered which is not evidenced by an instrument or chattel paper,whether or not it has been earned by performance.Non-recourse Financing: This is an outright sale. (Credit Card Issuer is thecreditor and the Business which allows the credit card use is the seller).Recourse Financing: 30 day line of credit, this could be sold to a bank, butthe right to payment could be purchased back.(a) If someone takes an interest in someone elses right to receive a stream of

payments, this may be an account.


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(i) if the right to payment is embodied in a note, then not an account,but a promissory note, or instrument (commercial paper rules wouldapply)

(ii) If the right to payment is embodied in chattel paper, then not anaccount, but chattel paper(9-105) (a writing or writings which

evidence both a monetary obligation and a security interest in or alease of specific goods)(iii) If it is a right to payment for real estate sold or leased, then not an

account, because account is only a right to payment for goodssold or leased, and real estate is not a good.

2) Applicability of Article 9 Rules (p. 213)(2) Attachment of accounts:

(a) 9-203: signed writing w/ a description of the collateral, value given,debtor has to have rights in the collateral.(i) if intent to have SI in after acquired collateral, should put an after

acquired collateral clause in the SA, but if fail to put this in for an

account, it may be OK (financing statements never need after acquiredcollateral clause).

(3) Perfection of Accounts:(a) cannot be perfected by possession, 9-305 (nothing to possess, since not

represented by a writing)(b) account must be perfected by filing, 9-401, 3rd section, 1(c) central

and local filing.(c) Automatic Perfection of an Account:

(i) 9-302(1)(E): Can have automatic perfection of an account if theassignment of the account does not alone or in conjunction withother assignments to the same assignee transfer a significant partof the outstanding accounts of the assignor.

(ii) How to tell if the assignment account is not a significant part of theoutstanding accounts of the assignor, and therefore automaticallyperfected? Majority Rule: Must satisfy two tests:1) casual or isolated test: if the creditor is not the assignee of

many accounts, and the assignment in issue is a fairly unusual,or casual or isolated occurrence, then this test satisfied (hardto have a bank meet this test)

2) percentage test: the $$$ amount of the debtors overallaccounts assigned (numerator) compared to the total amount ofthe outstanding accounts (denominator). If below 10% thenthere is no problem, most say 20% no problem. Over 20% isdefinitely considered a significant amount, and you would haveto file a financing statement.a) Note: some courts do not allow accounts which the creditor

knows to be uncollectible to be part of the overall part of thedebtors outstanding accounts and they knew that they were


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uncollectible. (e.g. if the debtor has a total amount ofoutstanding accounts of $1MM, but only $300K are known tobe collectable, then the denominator would be $300K)

(d) 9-104(f): Article 9 does not apply to the following types of accounts:(i) accounts that are a part of a sale of a business

(ii) accounts which are assigned for purposes of collections.In re: B. Hollis Knight Co. (p. 214): Trustee in Bankruptcy (status of lien creditor 544of Bankruptcy Code, 9-301(1)(b)). Was the bank perfected as to the accounts. Thebank filed a finance statement and the issue was that the SCs mistake in attempting tofile the finance statement failed to list BHK as a creditor and had no valid local filing.(Local and General filing were required in this state). Was there automatic attachment.Where there is attachment and there is no necessity for filing then there is automaticattachment. This is applicable under 9-302(1)(b) where the accounts assigned are nota significant part of the assignor (debtor). If the debtor assigns/sells accounts to anArticle 9 Secured Creditor the transaction is not required to file. The tests used was twopart in this case: casual or isolated test: if the creditor is not the assignee of many

accounts, and the assignment in issue is a fairly unusual, or casual or isolatedoccurrence, then this test satisfied (hard to have a bank meet this test) and percentagetest: the $$$ amount of the debtors overall accounts assigned (numerator) comparedto the total amount of the outstanding accounts (denominator). If below 10% then thereis no problem, most say 20% no problem. Over 20% is definitely considered asignificant amount, and you would have to file a financing statement. The bank got intoproblems because they screwed up in the filing of the financing statement. This casesaid you only have to meet one of the tests, but majority says to meet both tests.

June 28, 1999 Class (pp. 217-254)3) Subrogation Rights of 3rd Parties (p. 217):

1-103: Supplementary General Principles of Law Applicable: Unless theUCC displaces them, the principles of law and equity apply.9-104 (h) (i) (j):Judgements, setoffs, rights, and tort claims generally do notserve as collateral in commercial transactions.

National Shawmut Bank of Boston v. New Amsterdam Casualty Co. (p. 218): Caseinvolves a contractor who took out a surety bond for a government contract pledgingearnings from the contract. This assignment was not recorded. Then the Contractorobtained a line of credit from the bank and the bank filed a financing statement coveringthis assignment in compliance with various laws. No written notice was given to thesurety, even though the Assignment of Claims act required it. Contractor defaulted onthe project and loan, bringing the performance bond into play and defaulted on the loan.The Bank filed a complaint naming the surety as D when both tried to satisfy theirrespective claims. Trial court in Mass., w/o a jury dismissed the complaint by the bankand ordered judgement for the surety.Issue: What extent, if any does the doctrine of subrogation survive the passage ofArticle 9 of the UCC.Holding: Under the UCC the surety is looked at as an insurer of the contractor, andlogically it would be looked at as one of the contractors creditors and would be subject


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1) If sale of Chattel Paper, the buyer is secured creditor, since getsrights in equipment.

2) If sale, usually the buyer has to follow the terms of the writing(CP) that he buys (i.e. must follow terms of the originalinstallment K.) Usually the new assignee collects payments, but

the assignor can still do this upon agreement.3) If Chattel Paper 2 SIs exists:a) the original one in the original installment K (which is the

chattel paper) +b) the security interest the subsequent secured creditor has in

the chattel paper.(b) When does a SI arise in Chattel Paper?

(i) Document: (When it is sold or used as collateral)(ii) Lease --

(3) How does one perfect a SI in chattel paper?(a) Filing: 9-401

(b) Possession: 9-304(c) NO AUTOMATIC PERFECTION IN CHATTEL PAPER(4) Priority Disputes in Chattel Paper:

(a) Dispute arises where there are two buyers of the chattel paper whowins in the situation?(i) 9-312: first to file or perfect

1) Do chart if both perfected by filing, whichever was first to file orperfect.

2) If one perfects by possession, one by filing, then look at theearliest date of perfection earliest one to perfect wins.

Problem 14-1 (p. 235) Payments on account and payments on chattel paper areproceeds. Bank has no security interest on the accounts, only on the chattelpaper. Another way to argue this might be that under 9-312 Marshall was thefirst to file and perfect they would win. Even though Tarp perfected by possession

earliest to perfect would win. If both parties had taken a security interest inchattel paper and Marshall Bank had priority as to the Chattel paper. IfSouthfence took the checks in as payment on the chattel paper and paid Tarpwith the checks then Tarp would be a HIDC as long as they had no notice of anyclaims or defenses. 3-302(6) and 9-309 (Rights of a HIDC) NOT TESTABLEAREA.Problem 14-2 (p. 236): 9-306(5)(a) If the table was collateral at the time of salefor an indebtedness of Merry Belles which is still unpaid, the original securityinterest attaches again and continues as a perfected SI.

General Motors Acceptance Corp. v. Third National Bank in Nashville(p. 236): Pickup truck was sold by dealer and received a promissory

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