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Secured Transactions

Creation of security interest

Association of
o Does Article 9 Apply? Does not apply to money, minerals before
excavation, collateral that fits any other categories
Farm Products
Consumer Goods
Intangibles (you cant hold acid)
Accounts receivables
Chattel paper


o Has a security been created called Attachment?
3 elements: VCR
o Has there been perfection
5 ways to perfect

Pretending to be
o Who has Priority?

o What are the remedies?
3 types
A security interest is a contingent right, which cannot be used unless the debtor
If the debtor does not default and continues to pay off the loan, then the
security interest never exercised. At the end of the loan the security interest will
expire and the collateral will be free of the security interest.

Makes the security interest enforceable. If the security interest is enforceable

then it is attached. The security interest always and only attaches to the
How to make security interest enforceable:
1. The secured party must give value either to the debtor or some other
2. The debtor must have rights (property rights) in the collateral **Future
property cannot be used for attachment until the property is acquired
3. There should be an authenticated security agreement with the description
of the collateral or you can have a security agreement with possession of
the collateral
a. In a non-possessory secure transaction the description of the collateral
is critical
b. You can be very specific, or in the terms of article 9 for description
(categories and types)
If youre a secure party and want to protect yourself against other lenders
and buyers and bankruptcy than you must perfect
4 methods of perfection recommended by article 9:
a. Filing (in designated jurisdiction) give financing statement, to give
notice to lenders and buyers **you can use super generic description,
Ex. All property
i. Give name of debtor, name of secured party, and description of
collateral, authorization by the debtor is critical

ii. Can be done even before a security agreement is made but

perfection can only come subsequent to attachment (priority can
be traced back to date of filing once attachment occurs meaning
perfection occurs0
b. Possession/Control the secured party possesses collateral or controls
c. Automatic Article 9 lists scenarios under which the security interest
is perfected upon attachment
d. Certificate of Title Certain goods are subject to a title statute
Possession (filing is possible):
o Promissory notes, which represent a promise to payment
Tangible Documents
o Commodity papers Commodity
Certified Securities (delivery)
o Investment papers stocks and bonds
Tangible Chattel Paper
o Can be electronic or tangible
Perfection-Control or Perfection-File
o Electronic Chattel paper
o Investment property (not in paper form)
o Electronic documents
Exclusive Perfection Methods (Dont have control under Article 9)
Collateral types:

Accounts Filing
Fixtures (Trade Fixture recognizable by jurisdiciton) Fixture Filing
Money Possession
Deposit Accounts Control

Article 9 Perfection-Automatic:
Purchase made in Security Goods not subject to statute
If it is not subject to a certificate of title, then automatic perfection occurs.
Priority Contest (Ranks of security interests regardless of time):
League Principle/ Temporality rule sorts out if in same league
a. Perfected Security Interest First to file
b. Lean Creditor (Bankruptcy trustee)
c. Unperfected Security Interest First to Attach
Special Rules of Priority (Ask yourself is there a special Article 9 rule , 322
only applies if the specific rule is unavailable)
o Chattel Papers (Art. 9-330)
o Investment Property (9-328)
o Deposit Accounts (9-327)
o Fixtures (9-334)
o Other Collaterals
PMSI (Purchase made in security interest)
Lenders & Buyers (Article 9 was created to protect Creditors, Lenders, and
Buyers in a free market)
Survivability Thesis
o The security interest survives if the collateral is sold
o The buyer will be subject to the security interest of the collateral

Free Alienation Thesis (you want to protect the buyer)

o 9-320(a) Pro Buyer rule for goods only
(Farm products not covered under this rule, however they are
covered under Food Security Act of 1985)
o Buyers if they buy in good faith in good value from someone who sells
those products if a merchant even if they know the goods are subject
to a security interest then they take free of security interests
o Contrast:
9-317(b) goods, chattel paper, tangible documents, instruments,
security certificates you cannot beat a Lender whose security
interest is perfected, only when the security interest is
unperfected you are not subject to the security interest,
knowledge is stricted.
The buyer must have possession of the collateral
o Article 9 wants to protect a market of Chattel Paper (Buyers)
Buyers as Merchants
Good faith
New Value
Takes free Perfected Security Interest (beats Lender)
New Debtors
Original Debtors (Merger with corporation or contract the original debtor
can assign to another the obligations of the original debtor)

Purchasers are Secured Parties (Absolute sale, Conditional Sale, and Secure
An Absolute sale of listed below are secured transactions: (Article 9 has special
Chattel Paper
Payment Intangibles
Promissory Notes
Buyers are Secured Parties
Sellers are Debtors
How to sort out the ranking if the Seller sells something twice (Under
Article 9 you can sell accounts and sell them again)
If a Buyer buys an account of Chattel Paper, and another buyer buys the
account of Chattel Paper, how do we sort out the priority?
The 1st Buyer to perfect wins
Article 9 tells the Buyer that if they buy these then they better Perfect!
Give notice and you will be protected.
Proceeds Generated when collateral is sold (broad definition) Article 9
defines as whatever is generated by the disposition of the collateral, in fact
disposition is not necessary to generate proceeds. For example, the
collateral is destroyed instead of sold but the Debtor gets insurance money.
So disposition is not essential for proceeds to be generated.
When you enter into a secure transaction as a Lender you can put a
covenant in the Security Interest saying that the Debtor will not sell the
collateral. Debtor may face criminal charges if he/she sells the Collateral.
However, the Buyer can still buy it.

Cash Proceeds:
Deposit Accounts
Or the like
Non-Cash Proceeds
Goods (Sell Red car and get blue car)
Accounts (Electric company sells electricity and accounts are created)
Instruments (Sell and get promissory notes)
Chattel Paper (Sell and leasing goods can produce chattel paper)
1. If security interest was attached to original collateral than it will be
considered automatic attachment to proceeds. (Pro-lender rule)
2. Automatic Perfection of Security Interest in Proceeds if original Security
Interest was perfected
3. Continuation of Perfection of Security in Proceeds
a. Cash proceeds continuation is indefinite
b. Non-Cash proceeds have 20 days
If default occurs, the Lender can go after the original collateral or proceeds
based on convenience but cannot collect on both.
Non-recourse secured transactions
The Lender is confined to the collateral, the Lender cannot go after the
assets of the Debtor
Recourse secured transactions

The Lender can get what they can from the collateral and then go to court
to get a money judgment.
***Secured Transactions allows for the avoidance of the Court
***Filing is the preferred matter of Perfection
You must understand the changes that occur after you have filed
Article 9 states that you file where the Debtor is located
o If the Debtor relocates? If Debtor Changes name?
o Article 9 Gives 4 months to the Creditors, Lenders, or Secured
Parties to re-file in correct location and name. Also, if the Debtor
merges with another, you have 4 months to re-file. *****See revisions
The name of the Debtor is the most important piece of information
(Debtors legal name)
If name is wrong, financing statement is ineffective, and security
interest will not be perfected
UCC Article 9 2001 vs. 2013 Some key provisions of the Article that have
been revised in the 2013 version:
1. UCC 9-102(a)(68). -- Considered by many to be the most important
amendment, the purpose of this revision is to provide increased certainty
that the debtor name on the financing statement is the correct name for
purposes of UCC 9.
2001 Version: States that the name on the "public record" is the correct name
of the registered organization in a financing statement.
2013 Version: States that the correct name is now the name on the "public
organic record", which is defined as any record available for public inspection,
including those filed with or by the state to form an organization, e.g. articles of
incorporation, articles of organization, limited partnership agreements.

2. UCC 9-105 clarifies the rules pertaining to "control" of Electronic Chattel

Paper (ECP) to give secured parties more leeway for developing reliable
systems for keeping track of and controlling such documents.
2001 Version: Gives a six-factor test for determining whether a secured party
has control of electronic chattel paper.
2013 Version: Retains the six-factor test and adds a general test requiring that
the system employed to evidence the transfer of the ECP "reliably establish the
secured party as the person to which the chattel paper was assigned".
3. UCC 9-316: Makes it more likely that a secured party will remain
perfected if a borrower moves to another states or sells to (or merges with)
a debtor in another state.
2001 Version: States that perfected security interests that attach prior to a
debtor's move to another state remain perfected for four months after the
2013 Version: Adds a new subsection (h) that provides for continued
perfection of the newly acquired security interests that attach within four
months after the debtor moves, as long as the secured party has taken steps
that would have perfected the security interest in the debtor's original state.
The perfection extends until the end of the four-month period.
A new subsection (i) has also been added. It provides for automatic perfection
of security interests that attach within four months after a new debtor in
another state becomes bound by an existing security agreement with the
original debtor. Again, this applies as long as the secured party has taken steps
that would have perfected the security interest against the original debtor.
4. UCC 9-503 -- As with 9-102(a)(68), this section determines the correct
debtor name that should be included on the financing statement since
minor variations in the names of organizations and individuals has made it

difficult for secured parties to determine the proper name for a financing
2013 Version: For registered organizations, the correct name is as listed in 9102(a)(68). However, for individual debtors, there are two alternative provisions
provided. State legislatures can select the alternative that best meets the needs
of their constituents.
o "Only If" Option: If the debtor has a driver's license or other state
identification that has not expired, the name on that document may be
used for the financing statement. If the debtor does not have an
unexpired state ID, the secured party may use the debtor's first
personal name and surname.
o "Safe Harbor" Option: The debtor's name is sufficient for the
financing statement if it is (a) the debtor's individual name as
determined by state law, (b) the debtor's surname and first personal
name, or (c) the name on an unexpired driver's license or other state
5. UCC 9-516 revises the information required on the financing statement.
The Uniform Law Commission determined that the burden of providing the
information was not worth the benefit as it was relevant only to registered
organizations and the states already had laws precluding the use of
duplicate or deceptively similar names.
2001 Version: Required that the financing statement include the debtor's type
of organization, jurisdiction and organizational ID number.
2013 Version: Eliminated the requirement for these three pieces of
There were also changes to three UCC forms:
National UCC Forms (UCC-1 and UCC-3)
New National Forms that incorporate the revisions to Article 9.

UCC-5 Correction Statement

2001 Version: A debtor may file a UCC-5 Correction Statement when it wishes
to add a remark to the public record regarding the financing statement. The
Correction Statement has no legal effect.
2013 Version: The Correction Statement is renamed an "Information
Statement" and secured parties, as well as debtors, can now file them when
they feel clarification is required. They continue to have no legal effect.
To date, 29 states have enacted the 2010 revisions to UCC Article 9, and 6
states plus the District of Columbia have introduced the legislation. The new
version has also been endorsed by the American Bar Association.
States That Have Enacted Revised UCC Article 9
Colorado Connecticut Florida Hawaii Indiana Idaho Iowa Kansas Kentucky
Louisiana Maryland Michigan Minnesota Nebraska Nevada New Hampshire North
Carolina North Dakota Ohio Oregon Puerto Rico Rhode Island South Dakota
Tennessee Texas Virginia Washington West Virginia Wisconsin