Secured Transactions Questions

(b) Store remains in CT, but Louie relocates to NY

"A SI perfected pursuant to the law of the jx designed in Sec 9-301(1) remains perfected until the earliest of (2) the expiration of FOUR months after a change of the debtor's location to another jx" 9-316(a)(2) -*SP must file a new initial FS in NY before the expiration of the four month period to avoid any gap in perfection*. -If the SP files in the 6th month; the FS will lapse in month 4, running the risk that another party might get priority. -This is a new FS in the new JX at this point, restarting the 5 year clock *The practical problem: how can the SP be sure that it learns of the debtor's relocation within the 4 month period?* -SA - could prohibit relocation without consent or require the debtor to notify of any more -But what if debtor, deliberately or otherwise, fails to do so? -Some monitoring system? -Visit? Check utility bills? How likely is this?

Law Firm typically sends a bill to each client for the services rendered during the preceding month. Those fees are due immediately, and most clients pay their monthly bill within 30 days. Law Firm applies to Lender for a loan to finance a renovation of its office space. Lender demands collateral to secure Law Firm's obligation to repay the loan, and Law Firm offers to grant a security interest in all its outstanding rights to payment for legal services provided to its clients. Assume the applicable law of Professional Responsibility permits an attorney to create a security interest in his or her right to payment of attorney fees. In the transaction between Law Firm and Lender, how should the collateral be classified under Article 9?

"Account" means a right to payment for property sold or leased or for services provided that is not evidenced by an instrument or chattel paper. § 9-102(a)(2). State law could prohibit a lawyer's using the right to payment of attorney fees as collateral, but - if it does not - the debts owed to the lawyer could be used as collateral for a loan to the lawyer. In that case, the client obligations owed to the lawyer will be accounts, and that will be true even if the lawyer has not yet performed the work necessary to earn them. Note: from the lawyer's position, the clients' obligations are (1) a right to payment for services provided and (2) that right is not evidenced by an instrument (clients have not signed a note) or by chattel paper (clients did not grant a security interest in anything to secure their obligation to pay fees). The client may well have signed an attorney retainer contract, but that contract document is not an instrument: it does not meet the definition of a negotiable instrument, and it is not transferred in the market the way negotiable instruments are.

(a) Springfield State Bank -Filed FS 7/11 -Security interest in equipment attached on 9/11. -Security interest in equipment became perfected on 9/11. (b) InstaCredit -Security interest in equipment attached on 8/16. -Security interest in equipment became perfected on 8/23. Priority?

"Conflicting perfected security interests ... rank according to priority in time of filing or perfection. Priority dates from the earlier of the time a filing covering the collateral is first made or the security interest ... is first perfected, if there is no period thereafter when there is neither filing nor perfection." § 9-322(a)(1). Priority is determined by the "first-to-file-or-to-perfect" rule. -Springfield filed on 7/11 and perfected on 9/11. -The earlier of the two is 7/11. -There was no time thereafter when it had neither a filing nor perfection. InstaCredit both filed and perfected on 8/23. -The earlier of the "two" is 8/23. -There was no time thereafter when it had neither a filing nor perfection. -*Therefore, Springfield has priority, because it was the first to have filed a financing statement.*

The following words and abbreviations at the end of an organization name that indicate the existence or nature of the organization are 'disregarded' to the extent practicable as determined by the filing office's programming of its UCC information management system." Tex. Admin. Code Rule § 95.503(E).

"Corporation" and "Incorporated" and "Inc" §"The character "&" (the ampersand) is deleted and replaced with the characters "and" each place it appears in the name." Rule § 95.503(C). "Knifty Knits and Knacks, Incorporated, a Delaware corporation" -The extra characters ("a Delaware corporation") will render the name not equivalent to the actual name. §"...[T]he search will reveal only names of debtors that are contained in active financing statements and ... exactly match the name requested...." Rule 95.503(J).

D grants Bank an interest in a deposit account kept with Bank as part of a loan agreement with Bank. What must Bank do to perfect its security interest in the checking account?

"Same bank rule" - the same bank that is the secured party is also the bank where the deposit account is located. Thus, it is perfected by control, and doesn't need to do anything else.

(1) Ed Orally promises to repay $20K from Alexandra at 7% interest in one year (2)Ed Delivers gold watch to Alexandra to hold until note paid in full (3) Ed gets $20k check from Alexandra Has a valid security interest in the watch attached?

(1) Has value been given? - yes $20k check (2) Does the debtor have rights in the collateral? - Yes, Ed owned watch (3) oral security agreement requirements met? (a) Is the collateral a certificated security? - NO (b) Is the collateral in the possession of the SP? - YES (c) Is that possession pursuant to the debtor's security agreement? - YES (d) Is the possession "under § 9-313"? In other words, a type of good that may be perfected by the secured party's possession of the collateral? - YES, consumer good. ALL REQUIREMENTS MET! A VALID SECURITY INTEREST ATTACHES! YIPEE!

Gabriella opens up a restaurant that is successful and she wants to expand to a new location. Fills out paperwork (including SA, loan documents, etc.) from bank for loan and returns it through mail and awaits approval. -Bank mails FS - July 8 -SOS office receives - July 11 -Loan officer approves loan - Sept 1. (A) when does the bank's SI attach? (b) When does the bank's FS become effective? (c) When does it become perfected?

(a) A security interest attaches when value has been given, the debtor has rights in the collateral, and the debtor has authenticated a security agreement describing the collateral. § 9-203(b). ◊ Debtor had rights in the collateral in July and earlier. ◊ Value was given when secured party made its commitment on Sept. 1 ◊ SA authenticated SA on Sept. 1 ◊ Therefore, attachment occurred on Sept. 1. (b) July 8, effective as a filing (c) Sept 1, can't perfect SI until SI exists However, it's *priority is back in July* under the first to file rule

Gabriella opens up a restaurant that is successful and she wants to expand to a new location. Goes to bank on Sept 1 and signs a SA granting bank SI in "equipment, now held and AA". Loan officer gives her a paper stating that the bank has granter her a line of credit up to 50k. She can call on anytime. Paper also sets forth her obligation to make monthly payments to the bank. Sept 10, bank sends FS to filing office. Sept 13 - filing office receives FS. (A) when does the bank's SI attach? (b) When does the bank's FS become effective? (c) When does it become perfected?

(a) Attachment takes place when all the elements are accomplished. Value, D's rights in the collateral, SA authenticated. Sept 1 is when the last of the elements are satisfied. Value given and SA authenticated (D had rights in the collateral before) ***APPROVING A LOAN IS NOT THE SAME AS COMMITTING TO GIVE VALUE*** (b) September 10 9-516(a); 9-102 - communication means to deposit in the mail Can make an argument it is effective when in the mail; but it not actually doing it's job of notice yet (c) 9/10. SI perfected upon mailing

2013 Gabriella gets $50k line of credit from Bank, grants SI in all equipment, AA. 7/8/13 - Bank files 7/11/13 - SOS accepts; 9/1/13 - SP commitment (a) Does the filing made by the bank in July 2013 ever serve to perfect its interest in G's equipment? If so, when? Does it perfect this interest indefinitely?

(a) filing perfects interest when it attaches on 9/1/13 because that's when all the elements for attachment/perfection. It is effective until from the date of filing 7/8/13. (might be 7/11 - Worley won't split hairs) Lasts through 7/8/2018. (5 years).

Brenda Burroughs borrows 50k from the firm of Ladbroke Credit in order to pay off some medical bills. In a written agreement she promises to repay the lender the sum of $2,200/month for 24 months. (a) What is this stream of payment assets, if used by Credit for collateral? (b) What if instead of just making the promise of periodic payments, she signed a paper stating that she promised to pay "to the order of Ladbroke Credit"? (c) What if she also gave Credit a SI in her collection of coins, a listing of which is given in Ex. A" which is attached to the paper she signed in (b)?

(a) general intangible (payment intangible) (b) note (c) chattel paper

2013 Gabriella gets $50k line of credit from Bank, grants SI in all equipment, AA. 7/8/13 - Bank files 7/11/13 - SOS accepts; 9/1/13 - SP commitment (b) Suppose that the bank files a proper continuation statement on May 13, 2018. What is the effect of its having made this filing?

(b) - if bank files continuation statement on May 13, 2018 9-515(b) - continuation statement may ONLY be filed in 6 month period before the original FS would expire. -Effective: extends the FS for another 5 year from the date that it would have extinguished, 7/8/23. (so, original filing date, NOT May) Can keep filing continuations indefinitely.

Where to mail UCC1 in TX?

(b) Mail delivery Secretary of State Uniform Commercial Code PO Box 13193 Austin, TX 78711-3193

Same facts but Carlos takes the bank check and cashes it at a check-cashing establishment. He then heads directly to the local casino, uses the bank loan to double his money, then goes to Spiffy where he gives $20k of his winnings to purchase car. PMSI

(b) No PMSI. The value given (the loan) is not "in fact ... used" to acquire rights in the collateral.

Carlos loses all his money from bank but his mom gives him money and he buys the car as planned. PMSI?

(d) No PMSI. The value given (the loan) did not enable him to acquire rights in the collateral; his mother's loan did. -In any case, it was not "in fact so used" to acquire rights in the collateral.

What practical measures might the bank take to deal with loans like those being offered to Carlos to avoid the kind of problems above?

(e) The bank needs to take steps to preserve its PMSI by assuring that the loan proceeds are used to acquire the collateral. -Direct disbursement to the seller (e.g., wire transfer) -Connecting disbursement to the seller (check payable to seller or to customer and seller jointly).

Debtor (Stillwater Petroleum), incorporated in OK, but the land drilling on is located in TX. Sooner State Bank considers making loan to D, collateral is oil drilled in TX, and accounts generated from sale of oil Where should Bank file UCC1?

***Remember Oil and Gas has a special rule*** Oil, gas and other minerals BEFORE extraction are treated as real property; but UPON EXTRACTION they become goods subject to Article 9. General Rule - debtor's location *Exception for "As Extracted Collateral"* - the oil, gas, mineral resources after they are removed, TOGETHER WITH THE ACCOUNTS from the sale of those resources. *Exception: the jx in which the wellhead or minehead is located governs perfection.* So, TX law applies. What does TX law tell the bank to do? -*File in the office where a mortgage on the real property would be filed*. 9-501(a)(1)A) See comment 3, 9-501: filing remains effective after extraction -Need to go to Texas County Real Estate Records in each county where the wells are found. Rationale: for the exceptions, the interested party is more likely to be thinking about the property, so it makes sense to connect to real property rules. *Three Real-Estate Related Exceptions* -1) Timber, As -2) Extracted Collateral, -3) Fixtures ---always file where you'd file mortgage, etc. under state law

What general lesson is learned by loser Pacific Coast. What could it have done?

*1) "Take out" loan* - if it searches, and finds a FS, and if there's anything owning, make a loan that also includes enough to pay off the first loan in addition to new proceeds. But require either a: -Termination statement -Assignment of original lender's SI to Pacific *2) Subordination agreement* - we'll loan you money, but only if 1st lender will agree to only have priority to a specified extent, and then agree that the rest of its interest will be subordinate to a later filer. -It may be wiling to do so if there's no expectation of making further extensions of credit to the debtor.

Lydia is a CPA, concerned she lost clients because her tech is out of date, goes to Chip's Computer Haven. Chip puts together the latest equipment for her. 3/9 - SA signed ; Chip sells on credit, fills out installment agreement, she agrees to purchase equipment; grants SI in the items being sold. 3/11 - computers delivered 3/18 - Lydia files for bankruptcy 3/22 - Chip files FS Remember, that on 3/18, bankruptcy filing, Trustee gets all the rights of a lien creditor. Chip wasn't perfected until 3/22 Outcome?

*CHIP WINS!* *Rights of the Bankruptcy Trustee* -A9 - BR Trustee is a lien creditor as of the filing of petition. -9-317(a) - a SI is subordinate to the rights of a person that becomes a lien creditor prior to SI perfection *Special Protection for a PMSI* -If a person files a FS with respect to a PMSI before within 20 days after the debtor receives delivery of the collateral, the SI takes priority over the rights of a lien creditor. Here, Chip has a PMSI in the computer. -Chip filed FS within 20 days after delivery of the computer equipment. -So, under A9 has priority over lien creditor, including Lydia's bankruptcy trustee, whose interest arises in the gap *Bankr Code 544(a)(1)* - trustee has the same rights as a lien creditor *BUT! 546(b)(1)(A)* - reference to A9; bankruptcy code explicitly vindicates the PMSI 20 day window; *Special Bankruptcy Issue* But what about the Automatic Stay - upon the filing petition, an automatic injunction starts against any creditor action you can think of, including perfection. -But BkrCode creates an exception. 326(b) of Bankruptcy Code - *filing of petition does NOT operate as a stay of rights from 546(b) - that trustee's powers are subject to A9 allows PMSI's 20 day window, EVEN IF POST PETITION*. -326(b) along with 546(b) creates exception that allows the priority rule from 9-317(e) to operate even after bankruptcy petition is filed.

Commerce Group extends loan to Fresno Furniture, a corporation based in CA -Lender gets SI in Equipment (AA) -Fresno creates new corporation. Transfers all assets to the new corporation, based in DE. -Original corporation from CA is dissolved. The DE now owns all the assets of the previous CA. -Reincorporation is accomplished by merging CA corporation into DE corporation into DE corporation and transferring assets to the newly-incorporated corporation. What effect on the CA FS?

*Continuity principle applies.* But the transfer of the collateral from the CA debtor to the DE debtor triggers "one year rule" requiring the SP to file a completely new initial FS. Does NOT relate back to original FS filing date.

Hypothetical Problem 13.6: Investment property D (JR Ewing) is shareholder in Ewing Oil. 1000 shares total outstanding. -JR has 334 shares evidence by certificate number 001. -JR wants to borrow money from L. Offers 334 shares in Ewing. Collateral type?

*Investment property(. In particular, it is a "certificated security" - a share in a corporation represented by a physical stock certificate (comparatively rare today, most common in "closely held" businesses that aren't publicly traded) *Perfect by filing an FS?* YES. 9-312(a) covers investment property This is NOT what the code calls control. There is a code priority rule that accords priority to a SI perfected by control over one perfected by filing. *Perfected by take possession to perfect?* SORT OF! Code *terminology is different* for investment property. -A SP may perfect a SI in certificated security by *TAKING DELIVERY* of the certificated securities under 8-301 -Delivery of a certificate when take possession *Perfection by control?* 9-314(a) -Control is one step above possession. -To take control, requires taking possession, coupled with either of two things that puts the secured party in almost an ownership possession. Person gets control of a certificated security when it is delivered, AND either 1) certificate is indorsed to the purchaser or "in blank" by an effective indorsement, OR 2) the certificate is in registered form is registered in the name of the SP The corporate books show that the registered owner is the SP Delivery of a CS to a purchaser occurs when: -The purchaser acquires possession of the security certificate, OR -when a third party takes possession on its behalf or acknowledges that it holds the certificate for the secured party. § 8-301(a). Thus, a standard case of "control" requires both the SP's taking possession and either the certificate's being indorsed to the SP or the certificate's being registered in the SP's name.

Lance gets loan from lender, putting up his collection of watches as collateral on June 15 6/16 - L files FS that is proper in all respects indicating watches are collateral. Next year, Best files lawsuit against Lance, gets a judgment for $80k. Best knows that Lance has possession of watches. Court issues writ of execution orders sheriff to seize property of debtor (watches) to satisfy the judgment. When watches are sold, who gets paid first? Lender or Best? Who has priority?

*LENDER (DFS)* Under most states, the creditor's lien is created/arises when the property is actually seized. Who are the rival claimants? DFS (L) and Best. -Collateral classification? -Consumer goods *Attachment - 9-203(b)* -Value was given: DFS made 110k loan -Debtor have rights in the collateral? - yes Lance owned watches -Debtor has authenticated a SA describing the collateral. *Perfection* -Perfection for goods: filing or secured party possession -Law governing: location of debtor; for individual, principal residence. -DFS files with SOS of IL a FS "proper in all respects" *Therefore, DFS (L) has a perfected SI in the watch collection.* *Lien Creditor Analysis* -After obtaining the judgment, Best becomes a 'judgment creditor" not an A9 term) -Upon the sheriff's seizure of the watches Best becomes a lien creditor - a creditor that has acquired a lien on the property involved by attachment, levy or the like. Secured Party (L) vs. Lien Creditor (Best) *General Rule: 9-201(a)* -A SA is effective according to it's terms between the parties, against purchasers of the collateral, and AGAINST CREDITORS *EXCEPTION*: a SI is subordinate to the rights of a person that becomes a lien creditor before the earlier to the time (A) the SI is perfected. -9-317 subordinates unperfected SI to lien creditor. -*However, here the L is perfected and will thus have priority over Best.* -9-201 makes the SI effective against creditors. On these facts, 9-317(a)(2) will not subordinate the L because the L is perfected prior to Best. *Priority Rule Applied* -L's security interest is perfected for $110k loan. -L (DFS) has priority over Best with respect to the watches -If watches sell for $150K, then 110 goes to lender, 40k goes to Best. Best is still owed $40k. Called a "deficiency" -Thus, not having priority means you're not going to get paid or not get paid in full.

Do-All Limited is a corporation organized under the laws of the Canadian province of Ontario. While it does have a small office in Toronto, its main HQ is in NYC. Bank lends to Do-All, taking as collateral "all equipment, now held or hereafter acquired" Where should lender file to perfect?

*What kind of entity is Do-All Ltd.?* -'Organization' means a person other than an individual." § 1-201(b)(25). -'Registered organization' means an organization organized solely *under the law of a single State or the United States* and as to which the State or the United States must maintain a public record showing the organization to have been organized." § 9-102(b)(70). *Where is a non-registered organization located?* -"A debtor that is an organization and has only one place of business is located at the place of business." § 9-307(b)(2). -"A debtor that is an organization and has more than one place of business is located at its chief executive office." § 9-307(b)(3). -The chief executive office appears to be in NYC, so the law of the State of New York will apply. -File in the Office of the Secretary of State of New York.

What if Do-All's main HQ is in Toronto instead? Where should the bank file?

*What kind of entity is Do-All?* -It's still a non-registered organization. *Where is it located?* -Chief executive office is in Toronto, Ontario, Canada. *What principle governs now?* -"Subsection (b) applies only if a debtor's residence, place of business, or chief executive office, as applicable, is located in a jurisdiction whose law generally requires information concerning the existence of a nonpossessory security interest to be made generally available in a filing, recording, or registration system as a condition or result of the security interest's obtaining priority over the rights of a lien creditor with respect to the collateral. If subsection (b) does not apply, the debtor is located in the District of Columbia." § 9-307(c). *Does Ontario have a legal regime with a UCC-like filing system?* -All provinces, except Quebec, have enacted the Personal Property Security Acts, modeled on the prior version of Article 9. -So, law of Ontario applies. -"Belt-and-suspenders": Could file in D.C., too. *But can't file only in D.C. and be safe. Why not?* -If law of Ontario applies, what should the secured party do? -PPSA provides, as to goods, for filing where the goods are located. *So, what does the secured party do?* -Follow the law of Ontario, and file in the U.S. states where the equipment is located? -File in Ontario in the office indicated by the PPSA? What does § 9-301(1) say? --->"the local law of that jurisdiction governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in collateral."

What if Gabriela and Raoul's NY restaurant is doing so well they open another location in CT and NJ. The bank agrees to extend more money and takes a SI in equipment in all locations. Where should bank file?

*Where is the restaurant located?* -"A debtor that is an organization and has more than one place of business is located at its chief executive office." § 9-307(b)(3). *Where is the restaurant's chief executive office?* -'Chief executive office' means the place from which the debtor manages the main part of its business operation or other affairs. This is the place where persons dealing with the debtor would normally look for credit information, and is the appropriate place for filing...." § 9-307, Comment 2. *May be obvious where the chief executive office is located.* -If not, it may be possible to narrow the likely options to two or three states. -"[W]hen a doubt arises, it would be rare that there could be more than two possibilities. A secured party in such a case may protect itself by perfecting under the law of each possible jurisdiction." § 9-307, Comment 2. *Belt-and-suspenders approach*

Louie operates small jewelry store. 2015 - Louie's gets line of credit from Bank giving SA in Inventory AAPC. Files FS in Inventory. 2016 - Opaline, dealer of jewelry, sells jewelry to Louie on credit, gets a SA in Jewelry; FS in Inventory Can Opaline get a SI with priority over the Bank in jewelry? If so, what must it do?

*Without a special priority rule, who has priority to the Opaline jewelry?* -BANK - because already filed FS -Bank's and Opaline's SIs perfect simultaneously. But Bank filed it's FS first *How can Opaline Obtain Priority Over Bank?* -Priority of PMSI in Inventory -This is a second PMSI exception to the first to file or perfect rule. *Requirements:* 1) PMSI in Inventory 2) Perfected when debtor acquires possession of inventory 3) Gives notice to prior financier within 5 years before debtor obtains possession of inventory. 4) Notice must indicate that it is taking a PMSI in inventory and must describe inventory

Boris Buyer decides to purchase a 72-inch HD television from Store for use in his home. He signs a "Consumer Installment Sales Agreement" (Agreement) under which he agrees to make a 10% down payment and to pay for the remaining balance in 36 equal monthly installments of principal and interest. The Agreement also provides that Store "retains title to all merchandise pending full and complete payment of the remaining balance." Which of the following statements most accurately expresses Store's rights in the television? It has

*a purchase-money security interest, because the television secures Buyer's obligation to pay the remainder of the purchase price of the television*. [a purchase-money security interest, because the Agreement enabled Buyer to acquire rights in the television. - Incorrect. This answer erroneously attempts to apply a part of the definition of a PMSI created in favor of a third-party lender to a transaction created in favor of a seller.]

*Why should taking possession of negotiable instruments be preferred over FS for perfection?*

-9-331(a) - *"holder in due course"* of SI by possession takes priority over FS -A holder in due course will cut off SP's security interest as long as takes without notice of claims or defenses. -9-331(c) - the filing of FS does NOT give notice to a holder in due course. *Holder in Due Course* - A3 equivalent of bona fide purchaser for value. -Takes notes free of prior SP's SI. Thus, if you only file a FS, you are taking a risk that a holder in due course will achieve superior rights.

Debtor's Name Change Louie has granted SI in inventory; Changes name from Louie Glitz, to Louie Williams-Glitz What is the practical effect of a name change?

-Now, if SP searches new name, won't find old FS statements. *Will the change in name be seriously misleading?* -YES. Search under new name WON'T find FS indexed under old name *How does A9 deal with changes that render the FS incorrect?* -General rule: FS NOT rendered ineffective. 9-507 -Name changes exception: But 9-507(c) is a special rule for name changes that become seriously misleading under 9-506 -General rule: FS NOT rendered ineffective. 9-507 -Name changes exception: But 9-507(c) is a special rule for name changes that become seriously misleading under 9-506 *Two things:* 1) the FS is effective to perfect a SI in collateral acquired by the debtor before, or within 4 months after the name change; AND 2) the FS is NOT effective to perfect a SI in collateral acquire by the debtor more than four months after the change, unless an amendment to the financing statement which rendered the FS not seriously misleading is filed within 4 months after the change ; 9-507(c) Focus is on when debtor acquired collateral. Thus, the old FS statement under the old name still works for collateral acquired under the old name and within 4 months after the name change. But after 4 months, the old name becomes "seriously misleading" to collateral acquired 4 months or later if no amended filing statement filed. Effective of name change: -Ineffective with respect to certain items of collateral, but NOT all collateral -If SP files an amendment updating the name of the debtor to reflect the new name change within 4 months of the change, then the FS statement can cover newly acquired collateral

Perfected Secured Party vs. Perfected Secured Party: Subsequent Advances 2010 - D borrows $400k from Lender CBC loan; SA: Equip, AAPC; FS: Equip. - To be paid back in monthly installments over 4 years. 2014 - Final payment to CBC. No termination statement. CBC extends additional $475 loan SA: Equip, AAPC; *No FS*. 2015 - D gets $240k loan from Lender PCB SA: Equip, AAPC; FS: Equip 2015 - CBC files proper continuation statement 2016 - Debtor files for BR. owing CBC: $350K and PCB: $200K with Equipment worth $400K

-Priority is a function of rank according to time of filing or perfection, priority dates from the earlier of the timing of the filing or perfection, as long as there's no gap. -Commerce's original 2010 FS was still effective; it continued it by filing a proper continuation statement in 2015. -Pacific attached and perfected in 2015, filing it's FS the same year. -Commerce has priority because it was the first to file it's FS with respect to equipment -It doesn't matter that the SI it now holds is pursuant to an entirely different loan; it doesn't matter that it in connection with an entirely new SA, one that was not in place when the first FS was filed. -*There need not be a new FS filed with respect to a subsequent advance*. It doesn't matter even if the subsequent advance is done in an entirely separate transaction, so long as the original FS is effective and covers the collateral in the 2nd transaction, it is sufficient to perfect the SI in the 2nd transaction and establishes the secured creditor's priority. -See EX 1: Comment 3, 9-323: when an advance is made plays no role in determining priority -"Under a proper reading of the first-to-file-or-perfect rule of Section 9-322(a)(1)..., it is abundantly clear that *the time when an advance is made plays no role in determining priorities among conflicting security interests*.... Thus, a secured party takes subject to all advances secured by a competing security interest having priority under Section 9-322(a)(1)." Comment 3, § 9-323.

Loan to Gabriella for her restaurant: Disbursed by $50K check given to debtor immediately. SA: "Equipment" AAPC $50K Note Is there a practical reason not to have the loan proceeds disbursed this way?

-She will pay interest on the full loan balance, even though she does not use the full $50K immediately. -She can "invest" the excess loan, but the interest rate for the loan will exceed the interest rate on her savings. BETTER WAY: Available line of credit -This is the preferred way to set up the loan; it avoids the problem.

What is the risk presented with filed Termination Statement? How confident can we feel?

-The termination statement could be bogus. Nothing prevents the debtor from filing the termination statement on it's own, even though that filing would be unauthorized and (hence) ineffective -But there's nothing that keeps a person from filing a bogus termination statement. Can't be certain genuine *What steps can secured party take?* -It must investigate further - not by asking the debtor, but by approaching the other SP N.B. 9-210 - "Request for accounting" - request collateral, obligation "Request for collateral" - list of the collateral "Request for a statement of account" - aggregate amount of secured obligations Subsection (b) - has 14 days -Thus a subsequent searcher of records that finds financing statement, must then find out genuine statement of affairs. Rather than rely solely on the debtor's word (who may not be reliable in their representations), you demand that the debtor file a formal request under 9-210 to get an accounting from previous SP to provide documentation showing that previous obligation has been satisfied and is no longer obligating the debtor. -In complex situations, such investigation may not be cost-justified.

CONTROL PERFORMS TWO FUNCTIONS

1) Attachment - under 9-203(b)(3)(D), control pursuant to the debtor's SA, may serve as a substitute for an authenticated SA as an element of attachment 2) Perfection - when a SP takes a SI in a deposit account as original collateral, the EXCLUSIVE METHOD by which it may perfect its SI is by obtaining control.

First Bank takes a SI in the D's accounts both presently owned and AA, but First Bank fails to file a FS. Later, 2nd Bank makes a loan, secured in accounts, present and AA, but DOES file a proper FS. *2nd bank in fact knows about 1st Bank's SI.*

2nd bank still wins. *The statute says nothing about knowledge or notice of a competing interest. § 9-322(a)(1) is a "pure race" priority rule.* It makes no difference whether A knew or B's security interest when A made it's advance. *Rationale:* -Fairness argument is undermined. -The pure race priority rule privileges efficiency in the grand scheme over fairness in particular cases. -In an individual case, it may be unfair to award priority to a party who is the first to file it's financing statement when it actually knows of the existence of a competing unperfected security interest -But eliminating any consideration of knowledge or notice makes resolving priority disputes much easier since there never is a question of who knew what and when -Thus, many priority disputes can be resolved without the necessity of litigation

Alex mades a loan to Ed in July; Ed orally grants SI in antique watch. Alex takes possession and extends loan. Later in Sept, Ed goes to Adams for a loan, also secured in the same watch; Adams files FS. Ed defaults on both, disputes arise between Alex and Adams.

9-322(a). Perfected SP on both sides. Adams - FS - first to file Alex Fuller - but she perfects through possession first before Adams filed; thus she has priority

Suppose that Both Otto and Emoticon were Lender PMSIs. Priority?

9-324(g)(2): between two lender PMSI holders, the first to file rule applies. Thus Otto wins What justifies that rule? Comments don't answer at all Where do the equities lie? No reason to prefer one over the other

Another variation of temporary perfection, but in a different setting Doctor is one location; SP L is in another location. One of Doctor's patients pays off obligation early. Patients wants notes themselves returned marked "paid in full" (this is good practice). Doctor calls bank, asks that bank return those two notes to her. Bank does so on August 30. Patient calls back, and reverses course, continues with monthly payments. Doctor returns notes to bank. Effect of temporary delivery?

A perfected SI in an instrument remains perfected for 20 days without filing if the SP delivers the instrument to the debtor for the purpose of 1) the ultimate sale or exchange; or 2) presentation, collection, enforcement, renewal, or registration of transfer Subsection 2 applies. "Presentation" Code recognizes that the D, as the payee of the instrument, if it's needing to collect, needs physical possession. Similarly, if the underlying obligor is going to pay off note, the D may need to get it back. Code recognizes this situation, and provides for temporary perfection in the meantime between possession.

Corporation formed in the 1950s. Corporate charter submitted to the state gave the name "Acme Telephony, Incorporated." The clerk working for the Dept of Corporations at the time recorded its incorporation under the name "Acme Telephones, Incorporated" and that is how its name still appears on the state's official listing of those corporations formed under the its general incorporation powers. In recent years, the corporation has gone under the name "Acme Smartphones". When this corporation grants a SI in certain of its assets, how should the lender render its name on the UCC1 to ensure the sufficiency of that filing?

Acme Telephony, Incorporated

SA: Untitled #1 and #2 FS: Untitled #1 and #2 Esse wants to substitute a piece of collateral (#3) for #1. What steps need to be followed? What further investigation and paperwork required?

Appraise the value of the collateral, make sure it's comparable -UCC search to make sure Untitled #3 is not already the subject of a SI -If there's no problem, must amend the SA to provide for a SI in "Untitled #3," the new collateral *What additional filing?* -Must file an *amendment to the initial FS*. See 9-521(b) -Can file amendment and include the Number of initial FS in Box 1a and a revised indication of Collateral in Box 8. -Check the 3rd box at the top of Box 8. *What legal consequences?* -No perfection as to #1 (indeed no SI if amended SA) -Perfected as of amendment as to #3. -Amendment does not extend lapse date of initial FS. § 9-512(b).

Louie's of Litchfield, small jewelry boutique has line of credit from Bank. SI in "all inventory now held or AA". Bucky comes in and sells brooch to Louie for $8k. When does Bank's SI attach?

As soon as Louie bought it. STEPS: 1) Has the debtor authenticated a security agreement describing the collateral? -Original security agreement described the collateral as "inventory." -Description included after-acquired property. § 9-204(a). 2) Has value been given? -Bank committed to the line of credit. -3) Does the debtor have rights in the collateral? -When Louie's acquired rights in the jewelry under the contract of purchase, the security interest attached to it. -Illustrates operation of the after-acquired property clause. -Typical of inventory and accounts financing.

Section 70.001(a) of the Texas Property Code provides that a worker who repairs an automobile may retain possession of it until the cost of the repairs is paid. Pursuant to this provision, Auto Repair retains possession of Donald's automobile when he fails to pay for the transmission work the shop performed on the vehicle. This transaction is not an Article 9 secured transaction because

Auto Repair retains possession of Car when he fails to pay for transmission work under S.70.001(a) of the Tx Property Code. This is NOT an A9 secured transaction because MUST ARISE BY CONTRACT; NOT by statute. Statutes are NOT article 9 issues. This is a mechanic's lien, not an Article 9 transactions

DFS (Lender) perfected when D's bankruptcy petition filed - Priority?

Bankruptcy trustee is a lien creditor. UCC § 9-102(a)(52). Security interest is enforceable against creditors. § 9-201. But unperfected security interest is subordinate to lien creditor. § 9-317(a)(2). DFS is perfected, so *DFS has priority over the bankruptcy trustee.*

DFS unperfected when bankruptcy petition filed Result?

Bankruptcy trustee is a lien creditor. UCC § 9-102(a)(52). Security interest is enforceable against creditors. § 9-201. But unperfected security interest is subordinate to lien creditor. § 9-317(a)(2). So, DFS is subordinate to the trustee. Bankruptcy trustee may avoid any avoidable by a lien creditor. Bankr. Code § 544(a)(1). So, the trustee can avoid the security interest. Effect: DFS has only an unsecured claim in Cashmore's bankruptcy.

DFS perfected when bankruptcy petition filed - Avoidability?

Bankruptcy trustee may avoid any transfer of debtor's property that would be avoidable by one who became a lien creditor as of petition date. Bankr. Code § 544(a)(1). Lien creditor can subordinate an unperfected security interest. § 9-317(a)(2). But DFS is perfected. *So bankruptcy trustee cannot avoid its security interest.*

Variation on the theme Still have Lydia (CPA); years ago borrowed money from Old Glory Bank secured in inventory, equipment, accounts, AAPC. Bank filed FS covering each. Back in present, purchases the computer from Chip's. 3/11 - computers delivered 3/22 - Chip files FS Who has priority between Bank and Chip?

CHIP! PMSI. Explanation: Bank has SI in the new computer equipment; SI attaches when she gets rights in collateral. We're assuming her FS is still up to date, so it perfects also. Chip's SI perfected 3/22 when it filed a FS. FS was filed on 3/22. Under the general rule, Bank would have priority, since it was the first to file a FS with respect to the computer. *But the first to file or perfect rule is subject to exceptions* 9-322(f)(1) *PMSI exception: 9-324(a)* - -perfected PMSI in goods other than inventory or livestock has priority over a conflicting SI in the same goods if the PMSI is perfected when the D receives possession of the collateral or within 20 days after. Chip has a perfected PMSI Collateral is goods other than inventory/livestock - it's equipment Chip perfects by filing on 3/22 - within 20 days of 3/11 when the equipment was delivered. Thus, Chip's has priority over the bank with respect to the computer equipment

Stewart borrows $170k from Venture Loans to start up an organic animal food business. Grants lender a SI in his personal savings account with Buchanan Bank that has approximately $80k in it. What would you counsel Venture Loans to do to perfect its interest in Stewart's saving account.?

CONTROL is the ONLY way to perfect a deposit account. Otherwise it's unperfected How should Venture take control? *By becoming a "customer" with respect to the account* By becoming a customer it assures having priority over Bank 3 methods of taking control 1) same bank 2) control agreement 3) customer - SP becomes owner or co-owner of account 9-327 establishes hierarchy 1) SP with control has priority over without control 2) among those having control, priority ranks according to time obtained control Exception 1: a SI held by the bank where the account is maintained has priority over others Exception to exception: a non-bank having control by becoming a customer has priority over bank

2010 - Fresno Furniture (D) gets 400k loan from Commerce who takes SI in equipment NOAA; files FS at that time. 2012 - D owns 4 pieces of equipment: A, B, C, D 2013 - Pacific makes loan, also SI in equipment in NOAA, perfected. 2015 - D buys with cash new equipment: X, Y, Z. Later files for bankruptcy. Owes Commerce $350k Pacific: $200 Equip value: ABCD = $50k XYZ = $400k Priority?

Commerce banks' SI in the new equipment X, Y, Z, doesn't attach until 2015, because that's when the D acquired an interest in the collateral. -But it's already filed FS regarding equipment, so attachment & perfection happen simultaneously in 2015 Same is true for Pacific Coast bank because it has a similar SA in equipment NOAA. When D gets rights in collateral, Pacific's SI attaches and perfects (because it has previously filed a FS). As between Commerce and Pacific, both SI perfect at the same time. *But the first to file or perfect rule means that Commerce wins*. Even though as to AA equipment both SIs attach and perfect at the same time Commerce has priority because it was the first to file its FS.

Andrew Auteur decides to become a film maker. Buys film gear from Emoticon Enterprices (EE). His father lends him down payment of $15k, signs a loan promissory note, with SA in equipment purchased. (Lender PMSI in Equipment) Otto files a FS. EE sells 30k of equipment on credit, payable over 36 months, granting Seller's PMSI in Equipment. Files FS quickly. D defaults on loan. Collateral now worth $25k. Who has priority?

Conflicts between two PMSIs *Does either Otto and Emoticon have perfected SIs?* -Both do. Absent any special priority rule, - -Otto is first to file, so he has priority 9-322(a)(1) *Does either Otto or Emoticon have a PMSI?* -Emoticon: 9-103()(2) - Seller's PMSI - "all or a part of the purchase price" -Otto - Lender's PMSI - "to enable the debtor to acquire rights in the collateral if the value is in fact so used" *How do we resolve the priority between two conflicting perfected PMSIs?* 9-324(g): If more than one SI qualifies for priority in the same collateral under 9-324(a): *The Seller's PMSI has priority over the Lender's PMSI, so Emoticon has priority over Otto.* *Rationale: Why prefer the seller's PMSI over the lender's PMSI?* -9-324, Comment 13: in real estate equities favor the vendor over the lender, because vendor never would have parted with the real estate unless it could satisfy debt out of the property. *How persuasive is that explanation?* -Can't the same thing be said for the lender? -Alternative? Equal priority; share pro rata?

Knifty Knits Incorporated in sweater manufacturer located in OR, NV, AL, and ME. Organized in DE, has main HQ in CA. Borrows money from bank, granting SI in "all accounts, now owned and AA". Where should the lender file? Would answer change if collateral were equipment?

Delaware; and no, doesn't change if collateral was equipment. *What kind of entity is a corporation?* -'Organization' means a person other than an individual." § 1-201(b)(25). -'Registered organization' means an organization organized solely under the law of a single State or the United States and as to which the State or the United States must maintain a public record showing the organization to have been organized." § 9-102(b)(70). *Where is a registered organization located?* -"A registered organization that is organized under the law of a State is located in that State." § 9-307(e). *Where should the bank file?* -Debtor is incorporated in Delaware, so it is located in Delaware. File in the Office of the Secretary of State of Delaware. § 9-501(a)(2). *Any different result if the collateral were "all equipment, now held or hereafter acquired"?* -No.! The rule of § 9-301(1) is that the law governing perfection of security interests is the law of the jurisdiction where the debtor is located. The type of collateral is not relevant. -"Under Section 9-301(1), the law of a single jurisdiction governs perfection with respect to most types of collateral, both tangible and intangible." Comment 4 (emphasis added). -This approach departs from that of the former Article 9. -The former Article 9 stated different rules for different kinds of collateral. -But collateral might move after FS was filed, causing a change in governing law. -Presented difficult collateral classification issues.

D buys stuff from Sarah's Computers, claiming it's for personal use; but it looks like business equipment. A bunch of computers heading to an office. Does Sarah have to file a FS?

Depends on how we classify collateral. If computers really are consumer goods, she can rely on automatic perfection -But if they are used in business, they are equipment. If she doesn't file FS, she'll be unperfected. *Majority rule*: SP can rely on D's representations regarding collateral. But might not want to take that chance. *Is Sarah barred from filing a FS?* No. Even if automatic perfection applies, there's nothing that prevents her from filing a FS because the D signing a SA automatically authorizes SP to file a FS. *What advice would you give?* -She must assess the risks of being unperfected if she does not file a FS. If those risks are great enough, she should file. -If customer strenuously objects, perhaps there's a reason to pass on the deal. At least, she must monitor the transaction. -Might be a sign something funny is going on, might not want to do that deal.

Ed offers Alex watch as collateral for loan, but Alex just places it upon her desk, not in a locked drawer. When she returns to her office the next day she discovers the watch has been stolen. (a) Is Alex responsible to Ed for the value of the watch? (b) What if she had put the watch in a locked drawer but then a hurricane hit and sweeps away the watch. Is Alex liable to Ed for the watch?

Duty of care when SP has possession: a SP shall use reasonable care in the custody and preservation of collateral in the SP's possession. (9-207(a)) (a) Failure to exercise reasonable care by leaving watch in plain view and not locking the door (b) No failure to exercise due care for loss caused by hurricane or flood.

Abe borrows 100k from Lender, putting up 200 shares of stock as collateral. Stock is publicly traded. Abe's shares a represented by a certificate. Abe gives this certificate indorsed in blank to the bank, which puts the certificate in a locked file cabinet. Value of the stock drops sharply. Lender informs Abe he will have to put up additional collateral to secure the loan. (a) Abe argues that the Lender's failure to notice the dropping value of the shares it held as collateral and sell them when it could have gotten a higher return is a failure on the Lender's part to use reasonable care in the preservation of the value of the collateral. Will this argument succeed? (b) Would it matter if Abe were to show that he had left an urgent message for his loan manager at the Lender's office teller her to sell off the stock and use proceeds for other investments (loan officer never responded to the message)?

Duty of care when secured party has possession -"[A] secured party shall use reasonable care in the custody and preservation of collateral in the secured party's possession...." § 9-207(a). *(a) Loss in value of the collateral* -SP doesn't have duty to monitor market value, to sell to prevent losses. *(b) Loss in value coupled with direction of debtor to sell* -D is in better position to judge, better argument for lack of due care

The concept of control in deposit accounts

Each of these three methods of obtaining control puts the secured party in a position empowering it to dispose of the funds held in the deposit account without obtaining any further consent or approval of the debtor. But the secured party does not need to exclude the debtor's having access to the funds. "A secured party that has satisfied subsection (a) has control, even if the debtor retains the right to direct the disposition of funds from the deposit account." § 9-104(b).

Paradise Candy maintains a deposit account with FNB. In 2017 it borrows a large sum of money from DFS granting that lender a SI in much of its personal property, including its deposit account at FNB. DFS gets a control agreement signed by itself, Paradise, and FNB. Later, Paradise borrows from FNB, granting a SI in the deposit account it maintains at that bank. Does FNB or DFS have priority?

FNB has priority under the "same bank rule" Procedure for resolving priority: 1) classify collateral 2) describe the status of each party 3) apply the collateral rule *What kind of collateral?* -Deposit Account *What is the status of DFS's and FNB's interests?* -DFS has a PSI in Deposit Account [go thru Attachment, and then Perfection] -Control agreement FNB has a PSI in Deposit Account - Attachment - Perfection through control under same bank rule *Will DFS or FNB have priority?* -FNB is second in time, but it has priority. -It has control as the bank maintaining the deposit account. *What could DFS have done?* -It could have arranged to become a "customer" on the deposit account.

What type of collateral is Tractor fuel stored on the farm?

Farm products: "...goods, other than standing timber, with respect to which the debtor is engaged in a farming operation and which are (C) supplies used or produced in a farming operation...." § 9-102(a)(34)(C).

(c) Filed correctly but indexed under incorrect name

Filing office makes a mistake, indexes incorrectly. Uncommon. Difficult question as a policy matter to decide on whom to place the risk of loss arising from an error by the filing office. UCC choice: 9-517 - failure of the filing office to file correctly does NOT affect the effectiveness of the FS. *Still treated as effective.* -Could pose a risk that a subsequent searcher will be misled and adversely affected

This question raises issues presented in National Pawn Brokers Unlimited v. Osterman, Inc. (p. 87) Dealer Co. is a retail automobile dealership selling new and used motor vehicles. Credit Corporation (Credit) agreed to finance Dealer Co.'s inventory of motor vehicles under a revolving "floor planning" credit arrangement (that is, it agreed to extend credit from time to time, up to a maximum of 75% of the wholesale price of its current inventory), and Dealer Co. granted to Credit a security interest in "all Dealer Co.'s presently owned and after-acquired inventory." In March, Dealer Co. bought several used Audi automobiles from Superior Motor Sales (Superior), a used vehicle wholesaler. Dealer Co. paid Superior for the Audis with a check drawn on its general checking account, took possession of the cars, and placed them into its sales inventory. Superior deposited Dealer Co.'s check, but Dealer Co.'s bank dishonored it for insufficient funds. Dealer Co. files for bankruptcy in October, and the trustee asks the court for permission to sell the Audis for the benefit of unsecured creditors. Credit opposes the motion, claiming a security interest in the Audis. For whom should the court rule?

For Credit. Credit's security interest attached to the Audis under its after-acquired property clause when Dealer Co. bought them, even though the check was subsequently dishonored. Did Dealer Co. have rights in the Audis, so that Credit's security interest could attach? § 2-403(b) provides that a person with voidable title to goods has the power to transfer good title to a good faith purchaser for value, and that is so even if the goods were taken in exchange for a check that is later dishonored. That's what happened here. Therefore, Dealer Co. could pass good title to Credit if Credit is a good faith purchaser for value. *"Purchaser" includes someone who takes by means of a voluntary transaction creating an interest in property, including a security interest*. §§ 1-201(b)(30), (29). Since there's no reason to think Credit was not in good faith, Dealer Co. had the power to transfer good title to it and so had rights in the Audis.

D "Makes u More, Inc" sells variety of stuff in TX manufacturing facility to entities around the country. Gives L interest in all accounts, now held or hereafter acquired. Can L perfect by possession of accounts?

General rule: filing FS is required Exception: some things can be perfected by possession. BUT NOT ACCOUNTS BECAUSE THEY ARE INTANGIBLE! You might evidence it through invoices, but the account itself is an abstract right to payment. Thus, there's nothing the SP can take possession of. Where collateral is intangible, (accounts, general intangibles), since there's nothing legally significant to take possession of, perfection by possession is NOT an option.

Where to hand deliver UCC1 in TX?

Hand delivery -Secretary of State Uniform Commercial Code 1019 Brazos, Room B-05 Austin, TX 78701 Filing Office is open Monday through Friday, except for state holidays, 8:00 a.m. - 5:00 p.m. (CT).

Alex made a loan to Ed in July; Ed orally grants SI in antique watch. Alex takes possession and extends loan. Later in Sept, Ed goes to Adams for a loan, also secured in the same watch; Adams files FS on 9/1. In August, Alex Fuller returns the watch to Ed; takes diamond ring in exchange. Ed returns watch on 9/10. Priority?

Here, Adams has priority because he filed on 9/1. 9-322(a)(1) - priority is first to file or perfect, *so long as there is no period thereafter when there is neither filing nor perfection* Fuller's SI was perfected by possession earlier than Adam's SI, but there was a period following that initial perfection during which there was neither filing nor perfection Thus, Fuller's new priority date is when the watch is redelivered to her, and that date is later than the date Adams filed his FS, so Adams is the first to file and has priority *How could Fuller protect herself?* -Refuse to return the watch She could just refuse to engage in the transaction -File a FS before releasing the watch -A SI in goods may be perfected by filing, so by filing she could prevent any gap in perfection -Agree only to permanently to exchange ring as collateral.

Big Bank of CA makes a loan to Irving's Autos of Irvine. It takes as collateral all of the dealership's "inventory, now held or hereafter acquired." Big Bank files an initial financing statement in the proper place giving the debtor's name and other info required on the UCC1 form correctly and indicating the collateral as "all inventory." Has Big Bank properly perfected on the autos in Irving's inventory?

How does a SP perfect a SI in motor vehicles which are the debtor's inventory? -9-311(d) during any period in which collateral subject to COT is INVENTORY HELD FOR SALE OR LEASE by person in the business of selling goods of that kind, then it doesn't apply. -TX Transportation Code 501.111(b) Person in biz of selling motor vehicles can perfect vehicle inventory may be perfect by filing a FS (instead of notating on each car's COT) *Perfection ONLY by Filing a FS* *so YES! Bank properly perfected* "During any period in which collateral subject to a statute specified in subsection (a)(2) is inventory held for sale or lease by a person or leased by that person as lessor and that person is in the business of selling goods of that kind, this section does not apply to a security interest in that collateral created by that person." § 9-311(d). "A person may perfect a security interest in a motor vehicle held as inventory by a person in the business of selling motor vehicles only by complying with Chapter 9, Business and Commerce Code." Tex. Transportation Code § 501.111(b).

Essie Cashmore lives in IL. Gets a bank loan secured by artwork. Bank is corporation organized under DE law with sole office in CA. Where should bank file to perfect it's loan to Cashmore?

IL SOS office. STEPS: 1) Is this a possessory or non-possessory security interest? -Non-possessory. DFS will not take possession of the collateral. 2) What jurisdiction's law controls perfection of a non-possessory security interest? -Debtor's location - § 9-301(1) 3) What fact determines a debtor's location? -Individual -Non-registered organization -Registered organization 4) She is an individual. -"A debtor who is an individual is located at the individual's principal residence." § 9-307(b)(1). -See Comment 2. 5) Cashmore lives only in Illinois. -Her principal residence is in Illinois. 6) The law of Illinois applies. -What will the law of Illinois tell DFS to do? -- 9-501(a)(2): make a "central filing" in the Office of the Secretary of State of Illinois.

Now suppose the eye doctor debtor is slow in getting notes transmitted. Don't get transmitted until March 3. How does this affect the Bank's interest in the notes?

If bank does not obtain possession of the notes until after the 20 day window has expired, then it's SI becomes unperfected until it does obtain perfection If it never obtains possession, then it's perfection lapses SP takes a risk - depends on the D transmitting notes in a timely way. *How can the Bank deal with these risks?* -The SA could make it an event of default if the instruments are not received within 15 days -Provides SP with leverage to get the instruments delivered timely or to require substitute collateral -Make certain that the value of the other collateral exceeds the debt before extending additional credit -Make sure the collateral pool is greater than the outstanding debt before extending new credit -File a FS (but only protects against some risks) -N.B. - these risks explain why SP require immediate surrender of notes at the inception of the transaction

Gabriella and Raoul enter a common law partnership to start a restaurant. When they get $50k loan from Bank and grant a SI in equipment, how should the name of the debtor appear?

If the partnership has a name, it probably appears in the partnership agreement. If the partnership doesn't have a name, you record under the names of the partners. For a two person partnership, no big deal. File 2 statements, one for each (then list the other partner 2nd). But what if there are 100s of partners? Like a law firm. Usually it will have a name. The lender will ask for a copy of the partnership agreement to try to confirm. ***Be careful using the "name" of the business as listed on the front of the biz, on the website, etc. because that might only be a trade name. -A trade name alone is insufficient. 9-503(c) (a) Here the partnership has no name, so how should the name of the debtor appear? -Box 1b. --Dominquez, Gabriela --Riviera, Raoul (b) "Gabriella's Place" -If the FS provides only the trade name, as if it were the name of the organization, then it is clearly deficient. § 9-503(c). -If the debtor's name is otherwise rendered correctly, the absence of the trade name does not undermine sufficiency. § 9-503(b)(1).

What if Do-All was organized under the laws of Mexico and had its main HQ in MX City? What if HQ was in NYC?

Incorporated in Mexico; headquartered in Mexico City. What do we need to know? Why? -Does Mexican "law generally require information concerning the existence of a nonpossessory security interest to be made generally available in a filing, recording, or registration system as a condition or result of the security interest's obtaining priority over the rights of a lien creditor with respect to the collateral"? §9-307(c). -If not, then § 9-307(c) says the debtor is deemed located in the District of Columbia, so the secured party must file in D.C. -Dayca & Hackett, LLC v. Del Monte Fresh Produce, Inc., Ariz. Appeals, 1/25/12: holds that in 2007 and 2008 Mexican law did not meet that test, so filing in D.C. was proper. -N.B. Mexican federal law amended in 2009. It now more closely approximates the UCC (but with national filing), so this holding may be limited to pre-2009 transactions.

2013 Gabriella gets $50k line of credit from Bank, grants SI in all equipment, AA. 7/8/13 - Bank files 7/11/13 - SOS accepts; 9/1/13 - SP commitment (c) what if continuation statement wasn't filed until 7/15/18?

Ineffective. Won't work as continuation or FS. Too late. Must be in 6 month window prior to expiration

Eye doctor who is serving patients with laser eye surgery. Expensive, so many patients purchase on credit. Doctor seeks to borrow against the patient promissory notes. Grants SI in "certain notes made payable to doctor, as listed in EX A attached hereto, and as that EX may be amended from time to time" Classification of collateral?

Instruments, in particular Note - an instrument is a note if it is a promise *How to perfect SI in instruments?* 1) Possession - (9-313(a) includes instruments), OR 2) Filing a FS - 9-312(a)

Antique Coins Ltd. operates a retail store specializing in ancient coins from Greece, Rome, Byzantium, Persia, Babylon, Egypt, and other great ancient empires. Lender agrees to make a loan to the store, secured by all of the coins the store has for sale. How should the collateral be classified?

Inventory

JR is a shareholder of the Ewing Oil Co. Ewing Oil Co. has a 1000 shares outstanding. Ewing has issued Certificate #001, that represents 334 Shares. The other 666 shares are issued to members of the Ewing family JR wants a loan; and offers to lender the certificate as collateral. What is the form of collateral here?

Investment property - represents a piece of ownership in a business. EX: right of a partner as a co-member of a partnership EX: common stock in a company

Problem 10.9 SA: "all musical instruments, now owned or hereafter acquired" FS: "all pianos...." What's the status of the creditor's SI?

It has a security interest in all musical instruments, including tubas and trombones But it's SI is perfected only as to the pianos.

Security Agreement: "all pianos, now held or hereafter acquired." Financing Statement: "all musical instruments, now owned or hereafter acquired." What is the status of Friendly's security interest?

It has a security interest in the pianos, and that security interest is perfected. It has no security interest in the tubas and trombones. The broader description in the FS cannot enlarge the scope of the security interest.

FS identifies SP as "loan star" rather than "Lone Star." Filing office accepts. Effect? Will the FS be effective?

It is probably NOT seriously misleading if the SP's name has a typo. The address is already there, it's not too hard to find. *The accuracy of the SP's name is NOT as important as accuracy of the D's name.*

Assume Mexican law is not like UCC. What law?

Law of debtor's location governs. § 9-301(1). -This debtor is an organization, but not a registered organization. -'Registered organization' means an organization organized solely under the law of a single State or the United States ...." § 9-102(b)(70). -Non-registered organization with multiple places of business is located at its chief executive office. § 9-307(b)(3). -Main headquarters appears to be the chief executive office, and that is located in Mexico City. Thus, the law of Mexico would apply. -But § 9-307(c) overrides § 9-307(b) where the latter directs to a jurisdiction without a UCC-like registration system. -Since the chief executive office is NOT located in a UCC-like jurisdiction (Mexico), the override applies. -*So debtor is deemed located in D.C., and that is place to file.*

Debtor, an individual, seeks to borrow $50,000 from Lender 1 and agrees to grant it a security interest in her diamond ring to secure repayment of the loan. On January 2, Debtor signs a security agreement granting a security interest in her ring, and she delivers the ring to Lender 1 on January 5. Lender 1 does not make any loan or commitment to loan at that time. On January 15, Debtor obtains a $40,000 loan from Lender 2 and grants it a security interest in the same diamond ring to secure her obligation to repay the loan. On January 20, Lender 2 files a proper financing statement with respect to the ring. On January 30, Lender 1 loans Debtor $50,000. If Debtor should default on her obligations to both Lender 1 and Lender 2, which creditor will have priority to Debtor's ring?

Lender 2, because it filed its financing statement on January 20. This problem presents a question of priorities between two perfected security interests. Since the ring is goods, Lender 1 could perfect by taking possession of the collateral, which it did on January 5. But it also is permissible to perfect a security interest in goods by filing a financing statement, which Lender 2 did on January 20. Under § 9-322(a)(1), between two perfected security interests, the one who is the first to file a financing statement or the first to perfect its security interest, whichever occurs first, has priority. Thus, Lender 2 has priority. Some may be tempted to say that Lender 1 has priority, because it took possession of the ring before Lender 2 filed its financing statement. But Lender 1's taking possession of the ring did not perfect its security interest in it, because that interest had not yet attached. When Lender 1 made its advance, its security interest simultaneously attached and perfected. Thus, Lender 2 filed on January 20, and Lender 1 perfected on January 30. Thus, Lender 2 was the first to file, while Lender 1 was the first to take possession. But taking possession of the collateral, in and of itself, is not the event on which § 9-322(a)(2) focuses. Since Lender 2 filed its financing statement before Lender 1's security interest perfected, its security interest will have priority.

Gabriela gets $50k line of credit for her restaurant (based in NY) from Bank, putting up her restaurant's equipment as collateral. Gabriela lives in NJ. Bank is organized under NY and CEO in NY. Where should bank file?

NJ Gabriella's Place is an individual, viz. Gabriella. -The business is a sole proprietorship, so Gabriella is the debtor. -"A debtor who is an individual is located at the individual's principal residence." § 9-307(b)(1). -"An individual debtor is deemed to be located at the individual's principal residence with respect to both personal and business assets." Comment 2 (Emphasis supplied). -Gabriella lives only in New Jersey. -Her principal residence is in New Jersey, so the law of New Jersey applies. -What will the law of New Jersey tell the bank to do? - 9-501(a)(2): file in office of New Jersey Secretary of State

Knifty Knits Inc. gets loan from Large Lenders, grants SI in all accounts present and AA to secure the loan. SA also provides that Knifty will open up a new account at CA Bank, and that D will deposit all checks that it gets into only this bank account. Can Large Lenders also perfect on the deposit account into which Knifty has agreed to make deposits by adding a description of the particular bank account to the UCC1?

NO! "Accounts" does not seem to cover the collateral since a Deposit Account does NOT equal Accounts Receivable (which is what Accounts means in A9 language) Checking Account is NOT an A9 Account. It is a Deposit Account If LL wishes to take interest in deposit account as original account, it will have to amend SA to include that particular deposit account or all deposit accounts. *BUT! Can't perfect an interest in a deposit account by filing a FS.* 9-314(b) - SI interest in deposit account can ONLY be perfected by CONTROL.

Dean of law school makes deal with library to move his rare collection of law books into library on loan for indefinite period when he retires. Dean decides later that he needs more money to travel the world. Contacts L to get loan secured by law books in the library. L sends letter to law library saying that it has SI in the books. (a) Will L's notification to Library perfect it's SI?

NO! 9-313(c) "bailee" section. This is different from agency possession. The library is NOT the L's (SP)'s agent. Library is the bailee of the books, holding them for the dean, the true owner. 9-313(c) allows SP to perfect by possession when a 3P is holding the collateral, but where that 3P is a non-agent bailee. The only for this to be effective is for that 3P bailee (here, the library) to sign/authenticate a record acknowledging that it will hold possession of collateral for the SP's benefit. 9-313(c) requires the 3P's consent. The SP cannot unilaterally compel the 3P to accept. Must agree *Suppose the D and SP authenticate the notification?* -Doesn't matter. 9-313(c) requires the *non-agent bailee to sign the record,* not the D or the SP. (under the old A9, this type of notification would work, but not under the new A9)

Leah Cashmore, a woman of fashion, arranges for a loan from Bank and grants that firm a SI in her jewelry, now held or hereafter acquired. A month later, she is given a diamond bracelet by a family member. Does Bank SI's attach to the bracelet?

NO! *NO AAPC IN CONSUMER GOODS* § 9-204(b): "A security interest does not attach under a term constituting an after-acquired property clause to : (1) consumer goods ... unless the debtor acquires rights to them within 10 days after the secured party gives value." *What is the rationale for this limitation?* -Comments provide no explanation. -Presumably the drafters believed a secured party had no legitimate expectation in after-acquired consumer goods, unless the debtor expected to get them very shortly after the loan. -Contrast inventory and accounts financing where ordinary commercial expectations would extend to AAP.

Tanya buys living room furniture on credit from Fred's Furniture. Signs note promising to pay in 12 months, grants SI in the furniture she's purchasing. Does Fred have to do anything to perfect?

NO. The collateral is consumer goods. While you could perfect filing or possession, but Fred doesn't need to do either because 9-309(1) - a PMSI in consumer goods perfects as soon as it attaches. Fred's SI is a PMSI because the furniture secures Tanya's obligation to pay all or part of the purchase price The furniture is consumer goods because she buys it for personal, family, or household purposes. When both of these are true (PMSI & consumer goods), automatic perfection.

Can a secured party rely on automatic perfection where it has a PMSI in a motor vehicle which qualifies as consumer goods?

NO. 9-309(1) PMSI in consumer goods automatically attaches EXCEPT COT Automatic perfection is NOT available even though this is a PMSI in consumer goods because it's a motor vehicle.

Issue: can a written security interest agreement get out of Article 9 by saying it is governed only by "common law" not statutes?

NO. Remember Article 9 applies "regardless of form..."; so the interest in machinery is governed by Article 9 (but not the real estate). What effect should we give to the final clause? "The contract is governed solely by NY Law" - parties are trying to opt out of Article 9. *It is NOT permissible to try to opt out of Article 9*. Article 9 doesn't care about the intentions of the parties if the transaction creates a security interest in personal property.

FS fails to indicate the debtor's mailing address 9-516(b) - FS should have debtor's mailing address. must the filing officer accept this filing?

NO. The filing office is supposed to refuse to accept it. Obliged to refuse it. 9-520(a) if the FS fails to meet 516(b), must refuse. BUT, if the filing officer screws up and accepts, then the FS is still effective, so long as it meets the minimum requirements of 9-502.

"Certain equipment ... as listed in Exhibit A hereto." Exhibit A is not attached, but SP can show the document prepared at that time. Perfected?

NOT sufficient. But if the FS had just said "equipment"; as an article 9 type that would be fine because it would put 3Ps on inquiry notice What is the purpose of the "identification of collateral" requirement in the FS? How does it differ from the "description of collateral" requirement in the SA? Would the FS sufficiently identify the collateral if it said only, "Equipment"? Is this description any different?

What is Gabriela and her friend Raoul started the restaurant as a partnership. Gabriela lives in NJ; Raoul in Vermont. Restaurant based in NY. Bank is organized under NY and CEO in NY. Where should bank file now?

NY SOS What kind of entity is a partnership? -" 'Organization' means a person other than an individual." § 1-201(b)(25). -'Registered organization' means an organization organized solely under the law of a single State or the United States and as to which the State or the United States must maintain a public record showing the organization to have been organized." § 9-102(b)(70). *Where is a non-registered organization located?* "A debtor that is an organization and has only one place of business is located at the place of business." § 9-307(b)(2). -Since the restaurant has only one place of business, it is located at that place of business. -Therefore, the law of New York will apply. -What will the law of New York tell the bank to do? - 9-501(a)(2): file in office of New York Secretary of State

Scope of article 9 Suppose Carla Consumer applies for a loan from Consumer Credit Co. and offers to provide a security interest in her savings account at First Bank as collateral. Will Article 9 apply to this transaction?

No! "This Article does not apply to: ... (13) An assignment of a deposit account in a consumer transaction...." So what law does apply? §The common law. See Comment 16, § 9-109. ("The common law is non-uniform, often difficult to discover and comprehend, and frequently costly to implement.") *CANNOT USE DEPOSIT ACCOUNTS AS COLLATERAL IN A CONSUMER TRANSACTION*

Gabriella owns a restaurant. She contacts Restaurant Supply and orders large number of new tablecloths and matching napkins. All this linen is delivered to her restaurant along with an invoice that calls for her to pay a given amount within 60 days of her receipt of the merchandise. Upon Gabriela's receipt of the new linens, does Restaurant Supply have a PMSI in what it has just delivered to her restaurant securing her obligation to make the payment as stated in the invoice?

No! It does not have any kind of security interest, much less a PMSI. Nothing indicates that Gabriella's granted a security interest in the goods it was purchasing. This is just a sale made on unsecured trade credit. An unpaid seller of goods does not have a security interest just because it sold the goods on credit. *NEVER ASSUME THERE'S A SECURITY INTEREST OF ANY KIND!*

Theo steals sapphire pendant from Sarah's store when she isn't looking. He leaves the store and goes to Bank where he borrows $14k, putting up pendant as collateral. Gives bank possession of pendant. Attachment?

No! The derivative title doctrine: Nemo dat non quod habet. The thief acquires no rights in the stolen personal property and, so, he has no rights to convey. No security interest can attach, because debtor does not have rights in the collateral!

Bonnie Buyer goes shopping for a new car and finds just what she wants at Arnie's Autos. After haggling with Arnie's for several hours on a Saturday, she signs a purchase agreement calling for her to pay a cash price of $30,000 for the automobile. She tells Arnie's she will return the following week to pay for and pick up the vehicle. On Monday, Buyer takes a copy of her purchase agreement to Credit Union and applies for a $25,000 automobile loan. Credit Union approves her application, and Buyer signs a Consumer Vehicle Loan Agreement in which she promises to repay the $25,000 loan in 48 monthly installments of principal and interest and grants to Credit Union a security interest in the specific automobile identified in her purchase agreement with Arnie's. Credit Union wire transfers $25,000 to Buyer's checking account at First Bank. Before the wire transfer, Buyer's checking account had a balance of $30,000; after the wire transfer, the account had a balance of $55,000. On Wednesday, Buyer returns to Arnie's and delivers a personal check drawn on her checking account at First Bank in the amount of $30,000. Is it likely that Credit Union will have a purchase-money security interest in Buyer's new automobile?

No, because it is not possible to determine whether in fact Buyer used Credit Union's loan proceeds to purchase the automobile, since the loan proceeds were commingled with her personal funds in her First Bank checking account.

Same transaction, with tweak: instead of getting seller financing, she does lender finance PMSI to get furniture. Does L have to do anything to perfect?

No, because it is still a PMSI in consumer goods. Thus, automatic perfection. First Friendly's SI is a PMSI. The furniture serves as collateral for the loan. Second, the furniture is consumer goods. Tanya bought the furniture for personal use Note: the automatic perfection principal operates for both seller and lender PMSIs.

Bank makes loan to Florist. Gets SI in all E now owned AA. Does the security agreement cover the van? -YES. The van is equipment, and the SA describes the collateral as "equipment" Has the bank perfected its interest in the van by filing a FS covering equipment?

No. Didn't note it on the certificate of title, which is required for a motor vehicle. In Texas this is the ONLY way to perfect interest in motor vehicle. Filing a FS is NOT a proper method to perfect SI in a van.

What happens if you file a FS but the corporation name is NOT listed in the state corporate records? Can the state filing officer reject the filing?

No. § 9-516(b)(5)(A) requires the FS to contain the debtor's mailing address. 9-516(b). Should only refuse to accept for reasons set out in that section. This is NOT one of the reasons. It says if you don't have ANY name, the filing officer should refuse. But the SOS is NOT obliged to do any checking. If there's a name there, they accept it.

(a) Corporation name not listed in corporate records - may filing officer reject?

No. § 9-520(a) provides that the "filing office shall refuse to accept a record for filing for a reason set forth in Section 9-516(b) and may refuse to accept a record for filing only for a reason set forth in Section 9-516(b)." -Thus, the filing office must refuse a record for any of the § 9-516(b) reasons. -But it may refuse a record only for one of the § 9-516(b) reasons. -9-516(b) does not include this reason. Cf. § 9-516(b)(3)(A).

Louie, DBA as "Louie's of Litchfield" located in CT. Financier has SI in all of Louie's inventory, NOAA. Louie moves store from CT into NY and renames himself "Louie's of Millbrook". Louie still lives in CT What implications?

Notice: Sole Proprietorship. (a) Store relocates, changes name. -But there's NOT any need to amend FS because it's the location of the DEBTOR that matters, NOT the collateral. -This is a significant change from the prior version of A9 Debtor is Louie, and he hasn't changed his address, so there's no need to refile in NY. He also hasn't changed his name, so no need to change. -N.B. A well-drafted SA still will prohibit relocation of the collateral without the SP's consent. -"Debtor represents, warrants, and agrees that ....except as otherwise provided herein, the Collateral shall be kept at the Debtor's address set forth herein...." -If Debtor moves, then Debtor is in default and SP can call in the loan. -SA probably will have provision that enables inspection of the collateral to ensure that the value of the collateral is still sufficient to cover the obligation

*Effect of Payment* -What if the patient pays it off, and the Doctor writes "paid in full" on Notes and gives to patient?

Of course, notes can't be returned to the bank. Bank will probably require that she remit some portion of the payment Doctor received from the patient to the bank. The rest of the money goes into Doctor's pocket. Thus, the transaction has played out exactly as each party would have expected. Some went to doctor, some went to lender.

Joshua Tillers is a farmer, owns a tractor, under state law a COT law covers farm tractors. At the time he gets the tractor, he obtained from the state a COT indicating that he was the owner. Later needs funds, pawns it to Paula's Pawn Shop. Tillers declares bankruptcy. Can Paula perfect her SI by taking possession of the tractor?

Ordinarily goods can be perfected through possession, BUT 9-319 says goods covered by COT can perfect thru possession under circumstances 9-316(d) [covers weird circumstances that don't apply to normal transaction here] *Thus, NO this is NOT a way to perfect.* SP possession is NOT permissible to perfect COT items *Can she perfect by taking possession of the COT?* NOT in Texas! Perfection will depend on what the state's COT statute requires for perfection In Texas (and most states), the step for perfection is NOT taking possession of COT, it is noting the SI on the face of the COT. There are a small minority of states that allow perfection by possession of COT, but Texas is not one of them.

First Bank takes a SI in the D's accounts both presently owned and AA, but First Bank fails to file a FS. Later, 2nd Bank makes a loan, secured in accounts, present and AA, but DOES file a proper FS. Dispute arises. Priority?

Perfected vs. Unperfected = Perfected has priority Perfected will be fully paid before anything is paid to unperfected.

(b) What if SOS office accepts a mistaken filing?

Permissible, indeed obligatory, to accept But FS insufficient if name erroneous 9-502(a) and that error is seriously misleading 9-506(c)

(b) Corporation name not listed in corporate records - What effect if accepted?

Permissible, indeed obligatory, to accept. § 9-520(a). -But FS insufficient if name is erroneous, § 9-502(a), and that error is seriously misleading, § 9-506(c). -(c) Filed correctly but indexed under incorrect name. -"The failure of the filing office to index a record correctly does not affect the effectiveness of the filed record." § 9-517.

What are the possible options for classifying the computer equipment, and why might it matter?

Personal use: consumer goods; OR Business use: equipment Why does proper classification matter? *In re Palmer*: An unperfected security interest may be "avoided" by a debtor's trustee in bankruptcy. -If the computer equipment is "consumer goods," the seller's purchase-money security interest will be automatically perfected. -If the computer equipment is "equipment," seller-financer must file a financing statement to perfect its security interest.

(1) Ed in E-mail message promises to repay the loan and "grants to Alexandra a security interest" in the watch. (2)Alexandra saves message to computer hard drive. -$20K Loan -Disbursed by check

SCENARIOS *1) Legal name is "Edwin Owens," but email message is signed "Ed."* -Execute or adopt a symbol? -With present intent to identify the person and adopt the record? -Like a manual signature, authentication does not require any particular form, so long as the symbol is executed with the required intention. *2) No signature appears on the message, but it is sent from [email protected].* -Execute or adopt a symbol? -Has Ed adopted this symbol with present intention to identify himself as sender and to adopt the message? YES under both scenarios most likely

*Suppose Lionel, the buyer of the art that is subject to a SI, resides in another state*? What then?

Security Interest: still continues due to the "continuity principle" into the hands of buyer (Lionel) Perfection: -Remains perfected for a year after the transfer the collateral to a person that becomes the debtor -Lionel is a debtor, because debtor is defined as someone with an interest in the collateral - even though he's not the obligor on the loan *Lionel "becomes a debtor," because a "debtor" is one with an interest in collateral and "collateral" is property subject to a security interest*

Similar problem. Suppose now that when Chip delivers the coputer system on 3/11 he realizes a part is not working and needs to get it replaced. He repackages the computers and stores them at Lydia's place. 3/15 - Chip brings replacement part and sets up computer system. 3/18 - Lydia files BR 4/2 - Chip files FS Question is when does counting of 20 day window start? If you count from delivery, it's outside 20 day window and untimely. On the other hand, the defective part isn't replaced until 3/15, which would be within 20 day window. Trustee argues possession on 3/11; outside of 20 day window, so trustee can avoid the SI unperfected. Chip's argument the possession didn't start until 3/15 when the system was complete. Which argument wins?

Statute isn't much help. Comment that gives a hint. 9-324, commence 3, paragraph 2. Sometimes a D buys goods in stages, which is then assembled in stages at D's location. In that case, the D has acquired an interest when an outside observer/potential lender to the debtor that the debtor has acquired an interest in the goods taken as a whole. Creates a highly fact-intensive inquiry. -Is that fact-intensive test met here on March 11? -A potential lender would see a lot of apparently valuable computer equipment. -But why is it packaged and stored in a closet? -Would a potential lender notice that one crucial component was missing?

Continuation of previous fact pattern with eye doctor and promissory notes from patients used as collateral for loan from bank. Doctor asks for a credit extension which occurs on 2/1; doctor mails new notes Feb 4 *Attachment* -After-acquired property clause: SI attaches when debtor acquires rights in the collateral. *Perfection* -"A security interest in ... instruments is perfected without filing or the taking of possession ... for a period of 20 days from the time it attaches to the extent that it arises for new value given under an authenticated security agreement." § 9-312(e). *'New value'* means (i) money, (ii) money's worth in property, services, or new credit, or (iii) release by a transferee of an interest in property previously transferred to the transferee." § 9-102(a)(57). *When is the Bank's interest perfected in the new notes?*

The Bank's interest is temporarily perfected for 20 days commencing on February 1 when the new value is given.

Friendly Finance will lend to just about anyone if it can get the right collateral. Assuming that in each case the firm has a valid SA describing the collateral sufficiently, do you see any problem for FF if it indicates the collateral in the initial FS as follows: (f) " one tractor, International Haybaler, serial # 1234576," when the serial number of the debtor's sole tractor is actually #1234567

The collateral is described improperly. *But is it seriously misleading?* § 9-506(a). NO -Debtor has only one tractor, and it is an International Haybaler.

Leasing Co. (Leasing) is in the business of leasing construction equipment to residential and commercial construction companies. Leasing entered into a seven-year lease with Builder Co. (Builder) under which Leasing gave Builder the right to use a 2019 Volvo EC 300DL track-mounted excavator for $3,500 per month. Leasing seeks to borrow from Commercial Credit Co. (Credit), and to secure its obligation to repay the loan it will grant to Credit a security interest in all it customer leases (like the one made with Leasing). In the transaction between Leasing and Credit, how should the collateral be classified?

The leases will be chattel paper. We already have seen that chattel paper is a record or records that evidence both a monetary obligation and a security interest in specific goods. § 9-102(a)(11). But that definition also includes a monetary obligation and a lease of specific goods. Thus, when used itself as collateral, a personal property lease will be chattel paper. It cannot be inventory, because the chattel paper is not goods. It is not an instrument, because the right to payment is not contained in a negotiable instrument or a document transferred like a negotiable instrument. § 9-102(a)(47). The lease is not an "account," although it is a right to payment for property that has been leased. § 9-102(a)(2)(i). But "account" excludes "rights to payment evidenced by chattel paper...," and the lease qualifies as "chattel paper."

Consumer Credit Co. loaned $25,000 to Tara for her to pay past-due federal income taxes. In return, Tara signed a promissory note in which she promised "to pay to the order of Consumer Credit Co." the $25,000 principal amount of the loan plus annual interest of 5%. The due date was no later than one year from the date of the promissory note. Tara provided Consumer Credit Co. with no collateral to secure her obligations under the promissory note. Later, Consumer Credit Co. needed cash and borrowed from Bank, granting to Bank a security interest in Tara's promissory note. How should the collateral be classified in the transaction between Consumer Credit Co. and Bank?

The promissory note is an instrument. Section 9-102(a)(47) defines an instrument to include a "negotiable instrument" (i.e., an instrument as defined under Article 3) and "any other writing that evidences a right to the payment of a monetary obligation" that "is not itself a security agreement or lease, and is of a type that in the ordinary course of business is transferred by delivery with any necessary indorsement or assignment." Here, the promissory note appears to be an Article 3 instrument, i.e., "an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it: (1) is payable to bearer or to order at the time it is issued...; (2) is payable on demand or at a definite time; and (3) does not state any other undertaking or instruction...." § 3-104(a). The facts mention no conditions to the promise to pay; the amount payable is fixed (the loan amount plus interest); it is payable to order ("pay to the order of Consumer Credit Co."); it is payable at a definite time (no later than one year after its date); and the facts do not mention any addition promises made by Melody. Therefore, the document will be a note under Article 3, § 3-104(e), a negotiable instrument under Article 3, § 3-104(a), and thus an instrument under Article 9.

Ford Motor Credit Corporation (FMCC) provides "floor plan" financing for Friendly Ford (Friendly), an automobile dealership selling new Ford automobiles in Houston, Texas. FMCC takes a security interest in Friendly's entire stock of Ford cars and trucks, both now owned and after acquired, as collateral for the loan. By which of the following methods may FMCC perfect its security interest in the automobiles? I. By noting its lien on the face of the certificates of title for each automobile. II. By filing a financing statement in the Texas Secretary of State's Office. A. I only. B. II only. C. Both I and II. D. Either I or II.

The right answer is B - only by filing a financing statement. "During any period in which collateral subject to a statute specified in subsection (a)(2) is inventory held for sale or lease by a person or leased by that person as lessor and that person is in the business of selling goods of that kind, this section does not apply to a security interest in that collateral created by that person." § 9-311(d). §"A person may perfect a security interest in a motor vehicle held as inventory by a person in the business of selling motor vehicles only by complying with Chapter 9, Business and Commerce Code." Tex. Transportation Code § 501.111(b).

Friendly sells a new Ford F-350 pick-up truck to Bubba Buyer for a total price of $36,000. Buyer will use the truck for personal, family, and household purposes. Buyer gives Friendly a check for $7,200 and signs a Motor Vehicle Installment Sales Contract under which Buyer promises to pay the remaining balance of $28,800 in 60 equal installments of principal and interest. Buyer also agrees that Friendly will retain a security interest in the truck until he makes full payment under the agreement. What steps should Friendly take to perfect its security interest in the truck? A. Nothing, because it has a purchase-money security interest, and the truck will be consumer goods in Buyer's hands. B. File a proper financing statement in the Office of the Secretary of State. C. Take possession of the certificate of title for the truck. D. Have its interest recorded on the certificate of title for the truck.

The right answer is D - have the security interest recorded on the certificate of title. "Except as provided by Subsection (b), a person may perfect a security interest in a motor vehicle that is the subject of a first or subsequent sale only by recording the security interest on the certificate of title as provided by this chapter." Tex. Transportation Code § 501.111(a). No automatic perfection for PMSIs in consumer goods: "The following security interests are perfected when they attach: (1) a purchase-money security interest in consumer goods, except as otherwise provided in Section 9-311(b) with respect to consumer goods that are subject to [a certificate of title] statute described in Section 9-311(a)." § 9-309(1).

Ben buys new lawnmower from Sarah's store. Fills out Monthly Payment PA. Describes goods being sold, has Ben's name and address. States that "the parties agree that title is retained by seller until Buyer pays in full." Ben takes lawnmower home. PMSI?

The title retention language only creates a security interest. § 1-201(b)(35). That security interest is a PMSI, because it secures payment of all or a part of the purchase price of the collateral. § 9-103(a)(2).

2013 Gabriella gets $50k line of credit from Bank, grants SI in all equipment, AA. 7/8/13 - Bank files 7/11/13 - SOS accepts; 9/1/13 - SP commitment (d) files continuation statement January 5, 2018

Too early, fails.

What if in the last problem DFS (L) forgets to file FS?

Unperfected. Thus, Best will win. 9-317(a)(2) - an unperfected SI is subordinate to a lien creditor whose interest arises before the SI is perfected. So if watches sell for $150k, the first $80k will go to satisfy the judgment for Best; the remainder ($70k) applied to DFS (L); DFS left with $40k deficiency still owning DFS as an unsecured claim.

Lance Cashmore has a Chicago penthouse. He gets a loan from bank secured by his large collection of watches. How should bank go about determining where to file to perfect this interest?

What information will help determine Lance's principal residence? -Driver's license? -Income tax returns? -Voting records? Is there a better way to handle the problem? -"...[W]hen a doubt arises [concerning the choice of law], prudence may dictate perfecting under the law of each jurisdiction that might be the debtor's 'principal residence.'" § 9-307, Comment 2. -Economics of the transaction -Expense and risk minimized -*"Belt-and-suspenders" approach*

Ed borrows $20k from Alex. Promises to pay back at 7% interest in a year. Delivers gold watch to her to secure possession. Does she have perfected security interest in the watch?

When Perfection Occurs - 9-308(a) - when two things happens 1) attachment 9-203(a) Value; debtor has rights in the collateral Oral SA Not certificated security, in possession pursuant to SA 2) perfection - 9-313(a) SP may perfect a SI in tangible goods, instrument, documents, money, chattel paper by taking possession. Thus, Alexandra's possession is playing two roles: 1) creating the SI in meeting SA requirement for attachment because she has possession pursuant to SA to hold as collateral. It is part of oral SA requirements 2) a permissible method for perfecting SI in goods that SP take possession of the goods.

Lance borrows 110k from DFS on 6/15/16, granted SI in his watch collection. DFS perfected by filing on 6/16/16 6/1/17 - files for bankruptcy.

When the D files bankruptcy, the trustee gets the same rights as a lien creditor; treated as a judgment creditor that gets lien as of petition date.

Jonathan Stringer visits Essie Cashmore and notices an old cello. Stringer offers to buy which she agrees to but he wants to see if it is encumbered by any SIs. Where should he check?

Where should the "searcher" of the records perform his search? -A "searcher" should search where the secured party should file. -Since Cashmore is an individual whose principal residence is Illinois, a secured party should file in the Office of the Secretary of State of Illinois. -So, Stringer should search the filings in the Office of the Secretary of State of Illinois. -In short, the searcher should search for a possible filing only in those filing systems where a filing would have to be made if it were to be effective.

Louie Glitz operates jewelry store as sole proprietor under name "Louie's of Litchfield" in CT. Gets loan from Bank, grants SI in inventory. When that bank files a UCC1, what name should it use as the name of the debtor, and where should this name appear on the form?

Who is the debtor? -Louie Glitz, because the business is a sole proprietorship What name should appear on the FS? -Glitz, Louie But which version of 9-503 has been adopted? -Alternative A (and Texas) -The name appearing on a state DL or state-issued ID If don't have either, it gets tricky Alternative B -More flexible choices Where should it appear? -Box 1B

Ed Owens asks Alex Fuller for a loan of $20k, promises to pay back with 7% interest in a year. His Cousin John offers 1842 gold watch as collateral that a collector says is worth more than $20k. Identify the debtor, obligor, and secured party.

Who is the debtor? Cousin John - the party with an interest in the collateral OTHER THAN the security interest. He is NOT a guarantor because he has no obligation to pay the note if Ed defaults. Who is the obligor? Ed - the party that owes payment or performance. Who is the secured party? Alex - the person in whose favor a security interest is created. THIS IS AN EXAMPLE OF WHEN THE DEBTOR AND OBLIGOR ARE NOT THE SAME PERSON. Thus, Article 9 doesn't define debtor in the same way as other areas of law.

Homer and Wilma, husband and wife, get a divorce and enter into an agreement, approved by the court, under which Homer is obligated to pay Wilma $5,000 per month as spousal support. Once their divorce is final, Wilma decides to start her own business and seeks to borrow start-up funds from Alamo State Bank. Having no other property with which to secure the loan, Wilma agrees to grant the bank a security interest in her court-ordered right to receive the spousal support payments. How should that collateral be classified?

Wilma's right to receive spousal support payments will be a general intangible; in fact, it will be a "payment intangible," §9-102(a)(61), -- a specific type of general intangible - but that option is not available. Wilma's right cannot be an "account," because it is not a right to payment for property that has been sold or for services that have been rendered. § 9-102(a)(2). It is not "chattel paper," because chattel paper contains both a monetary obligation and a security interest or lease of specific goods. § 9-102(a)(11). It is not an "instrument," because her right to payment is not embedded in a negotiable instrument or a document transferred like a negotiable instrument. § 9-102(a)(47). It is not a security, because it is not an obligation of an issuer or a share in the issuer. § 8-102(a)(15). See § 8-201(a)("issuer"). Thus, it will be a general intangible, since it is personal property fitting into none of the other categories. § 9-102(a)(42).

Individual debtor grants SI in her art collection. -D wants to sell one of the items in her art collection that is subject to SI and transfer it to her friend Lionel. What effect does the sale of collateral have?

With respect to the existence of the SI, 9-315(a)(1) - "*continuity principle*" SI: a SI continues in collateral notwithstanding sale, lease, license, exchange, or other disposition thereof (there are exceptions) but in general, SI continue in collateral despite the D selling the collateral. Here, when D sells collateral that was subject to lender's collateral, that SI continues into collateral as it goes into Lionel's hands Perfection issue: -9-507(a) - Filed FS statement remains effective with respect to collateral that is sold, exchanged, leased, licensed, or otherwise disposed of ....it SI continues, even if the SP knows of or consents to the disposition." -NO NEED TO FILE A NEW FS STATEMENT AND SI CONTINUES! Note the effect on later party dealing with the buyer! -If someone wants to take a SI or purchase artwork from Lionel, a search of the records under Lionel's name will NOT reveal the FS filed as against Esse (the original D). -There's always a risk in dealing with a D that has used property, that the property will be subject to someone else's outstanding claim. -So, part of lender's due diligence is to ask "how did you get this? Who did you buy it from?" so they can check records as to previous owners.

2013 Gabriella gets $50k line of credit from Bank, grants SI in all equipment, AA. 7/8/13 - Bank files 7/11/13 - SOS accepts; 9/1/13 - SP commitment (e) What if bank files entirely New financing statement on May 13, 2018?

Works as a FS, but the perfection only works as a new FS only, NOT a continuation statement. Might lose priority.

Friendly Finance will lend to just about anyone if it can get the right collateral. Assuming that in each case the firm has a valid SA describing the collateral sufficiently, do you see any problem for FF if it indicates the collateral in the initial FS as follows: (d) "all inventory"

YES § 9-108(a): "reasonably identifies"; § 9-108(b)(3): "by: (3) ... a *type* of collateral defined in the Uniform Commercial Code."

Friendly Finance will lend to just about anyone if it can get the right collateral. Assuming that in each case the firm has a valid SA describing the collateral sufficiently, do you see any problem for FF if it indicates the collateral in the initial FS as follows: (e) "all of debtor's assets"

YES § 9-504(2): "A financing statement sufficiently indicates the collateral that it covers if the financing statement provides:...(2) an indication that the financing statement covers all assets or all personal property."

What if Ed temporarily takes back the watch, substitutes diamond pinky ring, then comes back and picks up the ring and gives back the watch as collateral. Has Alexandra lost perfected status in the watch?

YES. If perfection of a SI depends upon possession of the collateral by a SP perfection occurs no earlier than the time the SP takes possession and continues ONLY while the SP retains possession. 9-313(d) Perfection lapsed upon loss of possession. Perfection was regained when possession was restored, but now perfection dates ONLY from the date the watch was returned.

Suppose that Alex decides that Ed's watch is cluttering her drawer, decides to take it to office of friend Arnold who has a safe, asks to store it in a safe. He agrees, closes it up in safe. She can get back whenever she wants with notice. Arnold's possession sufficient to perfect?

YES. In determining whether a particular person has possession, the principles of agency apply. EX: if collateral is in possession of the agent of a SP, and if the agent is not an agent of the debtor, the secured party has ACTUAL possession, and subsection (c) does not apply What someone can do on their own, they can do thru an agent. Comments 3 and 4 contemplate either 3P holding collateral as a *bailee* for SP, OR 3P holding collateral as an *agent* for the SP Not always easy to tell if an agent or a bailee as a factual matter. Good idea to go ahead and comply with (c)

What if Carlos finances the car from a loan from a Bank. Loan application has same terms, describes the particular car (make, model, VIN); signs SA to secure his obligation. Receives check from band "to order of Carlos" for $20k. Carlos takes check to Spiffy and indorses it over to the dealership. PMSI?

YES. Elements: 1. Is the car "purchase money collateral"? YES 2. It is, if it secures a "purchase money obligation"? YES 3. The car secures Carlos's obligation to pay the loan he received to buy the car. 4. One kind of purchase-money obligation is an obligation for value given to enable the debtor to acquires rights in the collateral, if it is in fact so used.

Ben buys lawnmower for home use on credit. Title retention clause in PA. Is Sarah's security interest in the lawn mower automatically perfected?

YES. PMSI in consumer goods - SI in lawnmower secures D's obligation to pay. Thus SI is perfected automatically upon attachment. -The title retention language only creates a security interest. § 1-201(b)(35). -The lawn mower will be consumer goods. § 9-102(b)(23). -The security interest is a PMSI, because it secures payment of all or a part of the purchase price of the collateral. § 9-103(a)(2). -Therefore, the security interest is perfected upon attachment. § 9-309(1).

Carlos enters into an agreement to buy a new car from Spiffy. Signs a note promising to pay 48 monthly payments. Signs a SA granting Spiffy a SI in the car he is purchasing to secure his monthly payments. PMSI?

YES. the car serves as collateral securing Carlos's obligation to pay the financed portion of the purchase price. GO THRU ELEMENTS: 1) The goods are purchase-money collateral with respect to that security interest? ---Yes 2) Purchase-money collateral is goods that secure a purchase money obligation. ---Yes 3) A purchase-money obligation means an obligation of the obligor---YES, The car secures Carlos's obligation to pay the financed balance of the purchase price *4) Incurred as all or part of the price of the collateral* ---YES

Does an immediately available line of credit constitute value even if not drawn upon?

YES: "...[A] person gives value for rights if the person acquires them: (1) in return for a binding commitment to extend credit or an extension of immediately available credit, whether or not drawn upon...." § 1-204(1).

Eunice "Lovey" Wentworth Howell, a Texas resident, purchases from Jeweler a $25,000 diamond and emerald ring on secured credit: she makes a $5,000 down payment and signs a Retail Installment Sales Agreement in which she promises to pay the financed $20,000 balance and grants to Jeweler a security interest in the ring to secure her obligation. The name appearing on Howell's driver's license is "Eunice Wentworth," but Jeweler files in the proper office a financing statement - correct in all other respects - naming the debtor as "Lovey Howell," the name by which she is regularly known. If Howell files bankruptcy six months later, will Jeweler be entitled to enforce its security interest?

Yes. Jeweler's financing statement is not effective, but its security interest is nevertheless perfected and therefore enforceable against the bankruptcy trustee. ALWAYS LOOK FOR PMSI IN CONSUMER GOODS This question also presents a priority dispute between a secured party and a lien creditor, the bankruptcy trustee being among the parties included within the scope of "lien creditor." § 9-102(a)(52)(C). The basic principle appears in § 9-201(a): "Except as otherwise provided [in the Uniform Commercial Code], a security agreement is effective according to its terms between the parties, against purchasers of the collateral, and against creditors." But § 9-317(a) provides for an exception: "A security interest ... is subordinate to the rights of: ...(2) ... a person that becomes a lien creditor before the earlier of the time: (A) the security interest ... is perfected...." Thus, priority turns on whether Jeweler's security interest is perfected. Because the jewelry will be consumer goods in the debtor's hands (she evidently is buying them for personal use) and Jeweler's security interest is a PMSI (it secures the debtor's obligation to pay the financed purchase price), Jeweler's security interest is automatically perfected upon attachment. § 9-309(1). The first and last responses are wrong, because under the Texas version of § 9-503(a)(4), a financing statement contains the debtor's name for an individual having a state-issued driver's license only if it contains the name appearing on that license. The third response is wrong; although it correctly states that the financing statement is defective, it overlooks automatic perfection of PMSIs in consumer goods.

Gabriella buys ovens on credit for her restaurant from Oven Boys, granting a SI in the oven. Does seller need to file FS?

Yes. While this is a PMSI, it is NOT consumer goods. So must file FS. MUST have BOTH PMSI and CONSUMER GOODS to get automatic perfection.

Essie Cashmore takes a loan from DFS, granting lender a SI in her artwork. Need DFS file or take some other action to perfect its interest in the art?

Yes; it must file a FS or take possession of the collateral. -The collateral is consumer goods. -*But the security interest does not qualify as a PMSI.* -The paintings do not secure an obligation incurred as all or a part of their purchase price. -They also do not secure an obligation for value given to enable Essie to obtain rights in or use of the paintings. -Therefore, the automatic perfection rule for PMSI's in consumer goods is not applicable. *Does DFS Violate the FTC Rules?* -No, the statute specifically excepts works of art, electronic entertainment, items acquired as antiques, and jewelry (except wedding rings)

Alex doesn't want to hold Ed's watch. Calls Ed, he recommends his cousin Gary hold it. Writes a note saying "I, Gary, will act as an agent for Alex in holding watch" Gary possession sufficient to perfect?

if a person is so close to the D that the D has effectively retained possession, even though the person may have agreed to take possession of behalf of the SP. Will not constitute taking possession. [also the D himself cannot keep the watch as agent for SP] Here, Gary, as Ed's cousin, is too close to Ed. This defeats the notice function. The cousin's possession does not clearly deprive Ed of dominion and control; thus a 3P lender wouldn't be put on notice of the Alex's SI. ***ESCROW is not close enough to defeat the notice function*** Thus, the escrow agent gaining possession CAN be a step in perfection of the SI

Parent Co. owns 100% of Subsidiary Co.'s stock. Subsidiary Co. borrows $5 million from Lender and signs a promissory note evidencing its obligation to repay the loan. Parent Co. grants to Lender a security interest in all its equipment to secure Subsidiary Co.'s obligations under the note. Under Article 9, Subsidiary Co. will be characterized as the

obligor

Store, Inc. owns and operates a retail store selling women's clothing, shoes, and accessories. In need of funds for operating expenses, Store obtained a loan from Bank. To secure repayment, Store signed a security agreement granting to Bank a security interest in "all of Store's furniture and all of Store's women's shoes, whether now owned or hereafter acquired." Store authorized Bank's filing a financing statement listing the collateral as "all existing and after-acquired inventory and accounts." Assuming Bank properly files the financing statement, Bank will have a perfected security interest in

only the women's shoes, existing and after-acquired.

Momentum Computing, Inc., a corporation organized under Texas law and whose name appears as such on its certificate of formation, obtains a loan from Bank secured by a security interest in its inventory and accounts. Bank files a financing statement in the Office of the Secretary of State of Texas naming the debtor as "Momentum Computer Company" and identifying the collateral as "All Assets." The responsible employee in the Secretary of State's UCC records office inadvertently fails to record the financing statement. When the debtor files for bankruptcy, the bankruptcy trustee seeks to avoid Bank's security interest because it is unperfected. The trustee's action likely will

succeed, because the debtor's name on the financing statement is incorrect, and that error is seriously misleading.

Where to email and fax UCC1 in TX?

¡(c) Electronic filing §SOSDirect on-line system. §Requires setting up an account either on-line or by making a telephone request for an application for an account. §No fee is required to open an account. §Received and processed 24 hours/day, 7 days/week §Telefacsimile. §(512) 475-2812 §Received 24 hours/day; processed during regular business hours.

Fact change: Carlos goes to casino loses all $20k. He doesn't get car, but pays back the bank as promised. PMSI?

¡(c) The bank does not have any kind of security interest in the car, much less a PMSI.

What are the filing fees in TX for UCC1?

¡(d) Fees §Paper filing §2 pages or less - $15 §3 pages or more - $30 §In person §2 pages or less - $15 §3 pages or more - $30 §Fax §2 pages or less - $32 §3 pages or more - $47 §Electronic filing through SOSDirect §$5. ¡

Friendly Finance will lend to just about anyone if it can get the right collateral. Assuming that in each case the firm has a valid SA describing the collateral sufficiently, do you see any problem for FF if it indicates the collateral in the initial FS as follows: (a) "all pianos owned by the debtor"

§ 9-108(a): "...sufficient, whether or not it is specific, if it reasonably identifies what is described." § 9-108(b)(2): "...a description reasonably identifies the collateral if it identifies the collateral by: (2) category."

Friendly Finance will lend to just about anyone if it can get the right collateral. Assuming that in each case the firm has a valid SA describing the collateral sufficiently, do you see any problem for FF if it indicates the collateral in the initial FS as follows: (b) "all equipment"

§ 9-108(a): "...sufficient, whether or not it is specific, if it reasonably identifies what is described." § 9-108(b)(3): "...a description reasonably identifies the collateral if it identifies the collateral by: (3) ... a *type* of collateral defined in the Uniform Commercial Code."

Friendly Finance will lend to just about anyone if it can get the right collateral. Assuming that in each case the firm has a valid SA describing the collateral sufficiently, do you see any problem for FF if it indicates the collateral in the initial FS as follows: (c) "all inventory, now held or hereafter acquired"

§ 9-108(a): "reasonably identifies"; § 9-108(b)(3): "by: (3) ... a *type* of collateral defined in the Uniform Commercial Code." *The after-acquired property clause is permissible but unnecessary*

How does one obtain control over a deposit account?

§ 9-314(b) directs to § 9-104. It sets out 3 methods for obtaining control. *1) "Same Bank" Rule*: If the deposit account is maintained with SP, then SP has control. (a)(1) *2) Control Agreement*: A 3-party agreement among debtor, SP, and depositary bank under which depositary bank agrees to follow SP's instructions without further consent of the debtor. (a)(2) *3) SP Becomes the Customer*: SP becomes the depositary bank's "customer" with respect to the deposit account. (a)(3) § 4-104(a)(5) - "customer" § 9-104, Comment 3 - SP need not be exclusive customer *Can Large Lenders allow Knifty Knits to use the account?* --Yes. § 9-104(b).