1

Chapter 6-7: Perfection
Assignment 16: Personal Property Filing Systems
Assignment 17: Financing Statements: The Debtor’s
Name
Assignment 18: Financing Statements: Other
Information
Assignment 19: Exceptions to Filing
Assignment 20: Real Estate Recording Systems
Assignment 21: Characterizing Collateral and
Transactions
2

Characterizing Promises to Pay Money
§9-102(a)(11). “Chattel paper” means . . . records that evidence both a monetary obligation and a security interest in specific goods . . . .”
3

Characterizing Promises to Pay Money
§9-102(a)(11). “Chattel paper” means . . . records that evidence both a monetary obligation and a security interest in specific goods . . . .”
Chattel
Paper
Chattel paper is chattel paper
4

Characterizing Promises to Pay Money
§9-102(a)(47). “Instrument” means a negotiable instrument
Chattel paper is chattel paper
Chattel
Paper
5

Characterizing Promises to Pay Money
§9-102(a)(47). “Instrument” means a negotiable instrument or any other writing that [1] evidences a right to the payment of a monetary obligation, is not itself a security agreement or lease and [3] is of a type that in ordinary course of business is transferred by delivery with any necessary indorsement . .
.”
Chattel
Paper
Chattel paper is chattel paper
6

Characterizing Promises to Pay Money
§9-102(a)(47). “Instrument” means a negotiable instrument or any other writing that [1] evidences a right to the payment of a monetary obligation, is not itself a security agreement or lease and [3] is of a type that in ordinary course of business is transferred by delivery with any necessary indorsement . .
.”
Instruments
An instrument is an instrument if it is not chattel paper
Chattel
Paper
Chattel paper is chattel paper
7

Characterizing Promises to Pay Money
§9-102(a)(2). “Account” means a right to payment of a monetary obligation . . . (i) for property that has been . .
.sold, (ii) for services rendered . . .
An instrument is an instrument if it is not chattel paper
Chattel paper is chattel paper
Instruments
Chattel
Paper
8

Characterizing Promises to Pay Money
§9-102(a)(2). “Account” means a right to payment of a monetary obligation . . . (i) for property that has been . .
.sold, (ii) for services rendered . . .
The term does not include (i) rights . . . evidenced by chattel paper or an instrument.
An instrument is an instrument if it is not chattel paper
Chattel paper is chattel paper
Instruments
Chattel
Paper
9

Characterizing Promises to Pay Money
§9-102(a)(2). “Account” means a right to payment of a monetary obligation . . . (i) for property that has been . .
.sold, (ii) for services rendered . . . The term does not include (i) rights . . . evidenced by chattel paper or an instrument .
An account is an account if it is not an instrument or chattel paper
Accounts
Instruments
An instrument is an instrument if it is not chattel paper
Chattel
Paper
Chattel paper is chattel paper
10

Characterizing Promises to Pay Money
§9-102(a)(61). “Payment intangible” means a general intangible
[that is] a monetary obligation.
An account is an account if it is not an instrument or chattel paper
An instrument is an instrument if it is not chattel paper
Chattel paper is chattel paper
Accounts
Instruments
Chattel
Paper
11

Characterizing Promises to Pay Money
§9-102(a)(61). “Payment intangible” means a general intangible
[that is] a monetary obligation.
An account is an account if it is not an instrument or chattel paper
An instrument is an instrument if it is not chattel paper
Chattel paper is chattel paper
Accounts
Instruments
Chattel
Paper other than accounts, chattel paper . . . instruments . . .

Characterizing Promises to Pay Money
A payment intangible is a payment intangible if it is not an account, instrument, or chattel paper
§9-102(a)(61). “Payment intangible” means a general intangible
[that is] a monetary obligation.
Payment intangibles
An account is an account if it is not an instrument or chattel paper
Accounts
Instruments
An instrument is an instrument if it is not chattel paper
Chattel
Paper
Chattel paper is chattel paper other than accounts, chattel paper . . . instruments . . .

Characterizing Goods
§9-102(a)(48)
“goods other than farm products”
§9-102(a)(48)
“not inventory or farm products”
§9-102(a)(48)
“debtor engaged in farming operations”
Consumer Goods §9-102(a)(48)
“personal family or household purposes”
This box represents the category of “all goods.”
14

Characterizing Goods
Inventory §9-102(a)(48)
“goods other than farm products which . . are held for sale”
§9-102(a)(48)
“not inventory or farm products”
Farm Products §9-102(a)(48)
“debtor engaged in farming operations”
Consumer Goods §9-102(a)(48)
“personal family or household purposes”
Inventory and farm products are goods held by businesses for sale.
15

Characterizing Goods
Inventory §9-102(a)(48)
“goods other than farm products which . . are held for sale”
Equipment §9-102(a)(48)
“not inventory or farm products”
Farm Products §9-102(a)(48)
“debtor engaged in farming operations”
Consumer Goods §9-102(a)(48)
“personal family or household purposes”
“Equipment” is goods held by a businesses not for sale.
16

Characterizing Goods
Inventory §9-102(a)(48)
“goods other than farm products which . . are held for sale”
Equipment §9-102(a)(48)
“not inventory or farm products”
Farm Products §9-102(a)(48)
“debtor engaged in farming operations”
Consumer Goods §9-102(a)(48)
“personal family or household purposes”
“Consumer goods” are goods used or bought for personal, family, or household purposes” – not business use.
17

Characterizing Goods
Inventory §9-102(a)(48)
“goods other than farm products which . . are held for sale”
Equipment §9-102(a)(48)
“not inventory or farm products”
Farm Products §9-102(a)(48)
“debtor engaged in farming operations”
Consumer Goods §9-102(a)(48)
“personal family or household purposes”
Fixtures
Equipment, farm products, or consumer goods may be fixtures.
18

Characterizing Goods
Inventory §9-102(a)(48)
“goods other than farm products which . . are held for sale”
Equipment §9-102(a)(48)
“not inventory or farm products”
Business builtins
Farm Products §9-102(a)(48)
“debtor engaged in farming operations”
Consumer Goods §9-102(a)(48)
“personal family or household purposes”
Fixtures
Equipment, farm products, or consumer goods may be fixtures.
19

Characterizing Goods
Inventory §9-102(a)(48)
“goods other than farm products which . . are held for sale”
Equipment §9-102(a)(48)
“not inventory or farm products”
Business builtins
Farm Products §9-102(a)(48)
“debtor engaged in farming operations”
Consumer Goods §9-102(a)(48)
“personal family or household purposes”
Fixtures
Crops, trees
Equipment, farm products, or consumer goods may be fixtures.
20

Characterizing Goods
Inventory §9-102(a)(48)
“goods other than farm products which . . are held for sale”
Equipment §9-102(a)(48)
“not inventory or farm products”
Business builtins
Farm Products §9-102(a)(48)
“debtor engaged in farming operations”
Fixtures
Crops, trees
Consumer Goods §9-102(a)(48)
“personal family or household purposes”
Home built-ins
Equipment, farm products, or consumer goods may be fixtures.
21

Basic Concepts
§9-109(a)(3). [Article 9] applies to . . . a sale of accounts, chattel paper, payment intangibles, or promissory notes
§1-201(b)(35). “‘Security interest’ includes any interest of a buyer of accounts . . . .”
§9-102(a)(72). “Secured party’ means . . . a person to which accounts . . . have been sold”
§9-102(a)(28). “Debtor’ means . . . a seller of accounts . . .”
Comment 5. “The principal effect . . . is to apply this article’s perfection and priority rules to these sales transaction”
22

Basic Concepts
Seller
Sale of accounts
Accounts owing
Account debtors
Buyer
Debt and equity
Investors
23

Basic Concepts
Seller
Sale of accounts
Accounts owing
Account debtors
Buyer
Debt and equity
Investors
Article 9 tells us to relabel.
24

Basic Concepts
Debtor
Security interest
Accounts owing
Account debtors
Secured party
Debt and equity
Investors
Article 9 tells us to relabel.
25

Basic Concepts
Debtor
Security interest
Accounts owing
Account debtors
Secured party
Debt and equity
Investors
Article 9 tells us to relabel.
Who owns the accounts? §9-623(c)
26

Basic Concepts
Debtor
Security interest
Accounts owing
Account debtors
Secured party
Debt and equity
Investors
Article 9 tells us to relabel.
Who owns the accounts? §9-623(c)
Octagon Gas: the debtor
27

Basic Concepts
Debtor
Security interest
Accounts owing
Account debtors
Secured party
Debt and equity
Investors
Article 9 tells us to relabel.
Who owns the accounts? §9-623(c)
Octagon Gas: the debtor
Bankruptcy Code §541(a). The estate owns “all legal or equitable interests of the debtor in property of the estate.”
28

Basic Concepts
Debtor
Security interest
Accounts owing
Account debtors
Secured party
Debt and equity
Investors
Article 9 tells us to relabel.
Who owns the accounts? §9-623(c)
Octagon Gas: the debtor
Bankruptcy Code §541(a). The estate owns “all legal or equitable interests of the debtor in property of the estate.”
§362(a). Bankruptcy stays “any act . . . to exercise control over property of the estate.”
29

Basic Concepts
Debtor
Security interest
Accounts owing
Account debtors
Secured party
Debt and equity
Investors
Article 9 tells us to relabel.
Who owns the accounts? §9-623(c)
Octagon Gas: the debtor
Bankruptcy Code §541(a). The estate owns “all legal or equitable interests of the debtor in property of the estate.”
§362(a). Bankruptcy stays “any act . . . to exercise control over property of the estate.”
§363(b)(1). “The trustee . . . may use . . . property of the estate”
30

Basic Concepts
Debtor
Security interest
Accounts owing
Account debtors
Secured party
Debt and equity
Investors
Article 9 tells us to relabel.
Who owns the accounts? §9-623(c)
Octagon Gas: the debtor
Bankruptcy Code §541(a). The estate owns “all legal or equitable interests of the debtor in property of the estate.”
§362(a). Bankruptcy stays “any act . . . to exercise control over property of the estate.”
§363(b)(1). “The trustee . . . may use . . . property of the estate”
§9-318(1). “A debtor that has sold an account . . . does not retain a legal or equitable interest in the collateral sold.” 31

Basic Concepts
Debtor
Security interest
Accounts owing
Account debtors
Secured party
Debt and equity
Investors
§9-310(a). A financing statement must be filed to perfect all security interests except: [9-
309(2), (3), and (4)].
Bankruptcy Code §541(a). The estate owns “all legal or equitable interests of the debtor in property of the estate.”
§362(a). Bankruptcy stays “any act . . . to exercise control over property of the estate.”
§363(b)(1). “The trustee . . . may use . . . property of the estate”
§9-318(1). “A debtor that has sold an account . . . does not retain a legal or equitable interest in the collateral sold.” 32

Problem 21.1, page 376
How should a secured party perfect in: a. Money owing from sale of liquor license (oral agreement)?
33

Problem 21.1, page 376
How should a secured party perfect in: a. Money owing from sale of liquor license (oral agreement)?
Chattel paper? §9-102(a)(11).
34

Problem 21.1, page 376
How should a secured party perfect in: a. Money owing from sale of liquor license (oral agreement)?
Chattel paper? §9-102(a)(11). No record.
35

Problem 21.1, page 376
How should a secured party perfect in: a. Money owing from sale of liquor license (oral agreement)?
Chattel paper? §9-102(a)(11). No record.
Instrument?
§9-102(a)(47).
36

Problem 21.1, page 376
How should a secured party perfect in: a. Money owing from sale of liquor license (oral agreement)?
Chattel paper? §9-102(a)(11). No record.
Instrument? §9-102(a)(47).
No writing.
37

Problem 21.1, page 376
How should a secured party perfect in: a. Money owing from sale of liquor license (oral agreement)?
Chattel paper? §9-102(a)(11). No record.
Instrument? §9-102(a)(47). No writing.
Account?
38

Problem 21.1, page 376
How should a secured party perfect in: a. Money owing from sale of liquor license (oral agreement)?
Chattel paper? §9-102(a)(11). No record.
Instrument? §9-102(a)(47). No writing.
Account? §9-102(a)(2) “right to payment of a monetary obligation (i) for property that has been sold.”
39

Problem 21.1, page 376
How should a secured party perfect in: a. Money owing from sale of liquor license (oral agreement)?
Chattel paper? §9-102(a)(11). No record.
Instrument? §9-102(a)(47). No writing.
Account? §9-102(a)(2) “right to payment of a monetary obligation (i) for property that has been sold.”
Payment intangible?
40

Problem 21.1, page 376
How should a secured party perfect in: a. Money owing from sale of liquor license (oral agreement)?
Chattel paper? §9-102(a)(11). No record.
Instrument? §9-102(a)(47). No writing.
Account? §9-102(a)(2) “right to payment of a monetary obligation (i) for property that has been sold.”
Payment intangible? Not if it is an account. §9-
102(a)(42)
41

Problem 21.1, page 376
How should a secured party perfect in: a. Money owing from sale of liquor license (oral agreement)?
Chattel paper? §9-102(a)(11). No record.
Instrument? §9-102(a)(47). No writing.
Account? §9-102(a)(2) “right to payment of a monetary obligation (i) for property that has been sold.”
Payment intangible? Not if it is an account. §9-
102(a)(42)
How does one perfect in an account? §9-310(a) and (b).
42

Problem 21.1, page 376
How should a secured party perfect in: a. Money owing from sale of liquor license (oral agreement)?
Chattel paper? §9-102(a)(11). No record.
Instrument? §9-102(a)(47). No writing.
Account? §9-102(a)(2) “right to payment of a monetary obligation (i) for property that has been sold.”
Payment intangible? Not if it is an account. §9-
102(a)(42)
How does one perfect in an account? §9-310(a) and (b).
File.
43

Problem 21.1, page 376 b. How does Secured perfect a security interest in this mortgage?
Secured
Security interest
Buyer
Sale
Mortgagee Mortgagor
44

Problem 21.1, page 376 b. How does Secured perfect a security interest in this mortgage?
Secured
Article 9 applies. §9-109(b).
Security interest
Buyer
Sale
Mortgagee Mortgagor
45

Problem 21.1, page 376 b. How does Secured perfect a security interest in this mortgage?
Secured
Article 9 applies. §9-109(b).
Security interest
Buyer
Secured perfects in the payment right. That perfects in the mortgage. §9-308(e)
Sale
Mortgagee Mortgagor
Payment right
46

Problem 21.1, page 376 b. How does Secured perfect a security interest in this mortgage?
Secured
Article 9 applies. §9-109(b).
Security interest
Buyer
Secured perfects in the payment right. That perfects in the mortgage. §9-308(e)
Sale
Mortgagee
Payment right
Mortgagor
47

Problem 21.1, page 376 b. How does Secured perfect a security interest in this mortgage?
Secured
Article 9 applies. §9-109(b).
Security interest
Buyer
Secured perfects in the payment right. That perfects in the mortgage. §9-308(e)
Sale
Mortgagee Mortgagor
The payment right could be:
48

Problem 21.1, page 376 b. How does Secured perfect a security interest in this mortgage?
Secured
Article 9 applies. §9-109(b).
Security interest
Buyer
Secured perfects in the payment right. That perfects in the mortgage. §9-308(e)
Sale
Mortgagee Mortgagor
The payment right could be:
1. An instrument, if it is negotiable note or rough equivalent
49

Problem 21.1, page 376 b. How does Secured perfect a security interest in this mortgage?
Secured
Article 9 applies. §9-109(b).
Security interest
Buyer
Secured perfects in the payment right. That perfects in the mortgage. §9-308(e)
Sale
Mortgagee Mortgagor
The payment right could be:
1. An instrument, if it is negotiable note or rough equivalent
2. An account, if it is not an instrument and the mortgage was given as the purchase price of the property
50

Problem 21.1, page 376 b. How does Secured perfect a security interest in this mortgage?
Secured
Article 9 applies. §9-109(b).
Security interest
Buyer
Secured perfects in the payment right. That perfects in the mortgage. §9-308(e)
Sale
Mortgagee Mortgagor
The payment right could be:
1. An instrument, if it is negotiable note or rough equivalent
2. An account, if it is not an instrument and the mortgage was given as the purchase price of the property
3. A payment intangible, if it is not an instrument and not an account. E.g., the mortgage secured repayment of a loan.
51

Problem 21.1, page 376 b. How does Secured perfect a security interest in this mortgage?
Secured
Article 9 applies. §9-109(b).
Security interest
Buyer
Secured perfects in the payment right. That perfects in the mortgage. §9-308(e)
Unperfected sale
Mortgagee Mortgagor
The payment right could be:
1. An instrument, if it is negotiable note or rough equivalent
2. An account, if it is not an instrument and the mortgage was given as the purchase price of the property
3. A payment intangible, if it is not an instrument and not an account. E.g., the mortgage secured repayment of a loan.
interest in a perfected mortgage.

Problem 21.1, page 376
How should secured party perfect in: d.
The lessee’s interest in a lease?
Secured
Party
Security interest
Lessee Lessor
53

Problem 21.1, page 376
How should secured party perfect in: d.
The lessee’s interest in a lease?
Secured
Party
Security interest
Article 9 probably doesn’t apply Lessee
§9-109(d)(11). “This article does not apply to . . . the transfer of an interest in . . . real property.”
Lessor
54

Problem 21.1, page 376
How should secured party perfect in: d.
The lessee’s interest in a lease?
Secured
Party
Security interest
Article 9 probably doesn’t apply Lessee
§9-109(d)(11). “This article does not apply to . . . the transfer of an interest in . . . real property.”
Lessor e. Wheat growing in the farmerdebtor’s field?
55

Problem 21.1, page 376
How should secured party perfect in: d.
The lessee’s interest in a lease?
Secured
Party
Security interest
Article 9 probably doesn’t apply Lessee
§9-109(d)(11). “This article does not apply to . . . the transfer of an interest in . . . real property.”
Lessor e. Wheat growing in the farmerdebtor’s field?
Step 1. Does article 9 apply?
56

Problem 21.1, page 376
How should secured party perfect in: d.
The lessee’s interest in a lease?
Secured
Party
Security interest
Article 9 probably doesn’t apply Lessee
§9-109(d)(11). “This article does not apply to . . . the transfer of an interest in . . . real property.”
Lessor e. Wheat growing in the farmerdebtor’s field?
Step 1. Does article 9 apply?
§9-109(d)(11). Are crops “real property?” No, because they are not permanently affixed
Comment 12 to §9-334. Article 9 overrides real estate law
57

Problem 21.1, page 376
How should secured party perfect in: d.
The lessee’s interest in a lease?
Secured
Party
Security interest
Article 9 probably doesn’t apply Lessee
§9-109(d)(11). “This article does not apply to . . . the transfer of an interest in . . . real property.”
Lessor e. Wheat growing in the farmerdebtor’s field?
Step 1. Does article 9 apply?
§9-109(d)(11). Are crops “real property?” No, because they are not permanently affixed
Comment 12 to §9-334. Article 9 overrides real estate law
Step 2. What does Article 9 require?
58

Problem 21.1, page 376
How should secured party perfect in: d.
The lessee’s interest in a lease?
Secured
Party
Security interest
Article 9 probably doesn’t apply Lessee
§9-109(d)(11). “This article does not apply to . . . the transfer of an interest in . . . real property.”
Lessor e. Wheat growing in the farmerdebtor’s field?
Step 1. Does article 9 apply?
§9-109(d)(11). Are crops “real property?” No, because they are not permanently affixed
Comment 12 to §9-334. Article 9 overrides real estate law
Step 2. What does Article 9 require? Filing. §9-310(a)
59

Problem 21.1, page 376
How should secured party perfect in: f.
A franchisee’s interest?
Secured
Party
Security interest
Franchisee Franchisor
60

Problem 21.1, page 376
How should secured party perfect in: f.
A franchisee’s interest?
Secured
Party
Security interest
Step 1: Does Article 9 apply?
Franchisee Franchisor
61

Problem 21.1, page 376
How should secured party perfect in: f.
A franchisee’s interest?
Secured
Party
Security interest
Step 1: Does Article 9 apply?
Franchisee Franchisor
§9-109(a)(1). “This article applies to a . . . a transaction . .
. that creates a security interest in personal property. . .”
62

Problem 21.1, page 376
How should secured party perfect in: f.
A franchisee’s interest?
Secured
Party
Security interest
Step 1: Does Article 9 apply?
Franchisee Franchisor
§9-109(a)(1). “This article applies to a . . . a transaction . .
. that creates a security interest in personal property. . .”
Step 2: What does Article 9 require?
63

Problem 21.1, page 376
How should secured party perfect in: f.
A franchisee’s interest?
Secured
Party
Security interest
Step 1: Does Article 9 apply?
Franchisee Franchisor
§9-109(a)(1). “This article applies to a . . . a transaction . .
. that creates a security interest in personal property. . .”
Step 2: What does Article 9 require? Filing for a general intangible (contract rights).
64

Problem 21.1, page 376
How should secured party perfect in: f.
A franchisee’s interest?
Secured
Party
Security interest
Step 1: Does Article 9 apply?
Franchisee Franchisor
§9-109(a)(1). “This article applies to a . . . a transaction . .
. that creates a security interest in personal property. . .”
Step 2: What does Article 9 require? Filing for a general intangible (contract rights).
The franchisor is an account debtor. §9-102(a)(3).
The “nontransferable” restriction is not effective. §9-
408(a).
65

Problem 21.1, page 376
How should secured party perfect in: g. An electronic CD?
Instrument?
Secured
Party
Security interest
Depositor
CD
Bank
66

Problem 21.1, page 376
How should secured party perfect in: g. An electronic CD?
Instrument? No, §1-201(b)(43)
Secured
Party
Security interest
Depositor
CD
Bank
67

Problem 21.1, page 376
How should secured party perfect in: g. An electronic CD?
Instrument? No, §1-201(b)(43)
Secured
Party
Security interest
Depositor
CD
Bank
General intangible?
68

Problem 21.1, page 376
How should secured party perfect in: g. An electronic CD?
Instrument? No, §1-201(b)(43)
Secured
Party
Security interest
Depositor
CD
Bank
General intangible? Not if it is a deposit account.
69

Problem 21.1, page 376
How should secured party perfect in: g. An electronic CD?
Instrument? No, §1-201(b)(43)
Secured
Party
Security interest
Depositor
CD
Bank
General intangible? Not if it is a deposit account.
Deposit account?
70

Problem 21.1, page 376
How should secured party perfect in: g. An electronic CD?
Instrument? No, §1-201(b)(43)
Secured
Party
Security interest
Depositor
CD
Bank
General intangible? Not if it is a deposit account.
Deposit account? Yes. §9-102(a)(29) “time account”
71

Problem 21.1, page 376
How should secured party perfect in: g. An electronic CD?
Instrument? No, §1-201(b)(43)
Secured
Party
Security interest
Depositor
CD
Bank
General intangible? Not if it is a deposit account.
Deposit account? Yes. §9-102(a)(29) “time account”
How does secured party perfect in a deposit account?
72

Problem 21.1, page 376
How should secured party perfect in: g. An electronic CD?
Instrument? No, §1-201(b)(43)
Secured
Party
Security interest
Depositor
CD
Bank
General intangible? Not if it is a deposit account.
Deposit account? Yes. §9-102(a)(29) “time account”
How does secured party perfect in a deposit account?
Control. §9-314, 9-104.
73

Problem 21.1, page 376
How should secured party perfect in: h. Electronic chattel paper?
Secured
Party
Security interest
Debtor Acct debtor
Chattel paper
74

Problem 21.1, page 376
How should secured party perfect in: h. Electronic chattel paper?
Secured
Party
Security interest
1. Can secured perfect by filing?
Debtor Acct debtor
Chattel paper
75

Problem 21.1, page 376
How should secured party perfect in: h. Electronic chattel paper?
Secured
Party
Security interest
1. Can secured perfect by filing?
Yes, §9-312(a)
Debtor Acct debtor
Chattel paper
76

Problem 21.1, page 376
How should secured party perfect in: h. Electronic chattel paper?
Secured
Party
Security interest
1. Can secured perfect by filing?
Yes, §9-312(a)
Debtor Acct debtor
Chattel paper
2. Can secured perfect by control?
77

Problem 21.1, page 376
How should secured party perfect in: h. Electronic chattel paper?
Secured
Party
Security interest
1. Can secured perfect by filing?
Yes, §9-312(a)
Debtor Acct debtor
Chattel paper
2. Can secured perfect by control?
Yes, §9-314(a)
78

Problem 21.1, page 376
How should secured party perfect in: h. Electronic chattel paper?
Secured
Party
Security interest
1. Can secured perfect by filing?
Yes, §9-312(a)
Debtor Acct debtor
Chattel paper
2. Can secured perfect by control?
Yes, §9-314(a)
How can secured take control of chattel paper? §9-105
79

Problem 21.1, page 376
How should secured party perfect in: h. Electronic chattel paper?
Secured
Party
Security interest
1. Can secured perfect by filing?
Yes, §9-312(a)
Debtor Acct debtor
Chattel paper
2. Can secured perfect by control?
Yes, §9-314(a)
How can secured take control of chattel paper? §9-105
Create the authoritative copy and keep possession
80

Problem 21.1, page 376
How should a secured party perfect in: i.
Software on a consumer debtor’s computer?
Is this goods? Software? General intangible?
81

Problem 21.1, page 376
How should a secured party perfect in: i.
Software on a consumer debtor’s computer?
Is this goods? Software? General intangible?
Not goods. Comment 4.a to §9-102
General intangibles includes software: §9-102(a)(75),
§9-102(a)(42).
82

Problem 21.1, page 376
How should a secured party perfect in: i.
Software on a consumer debtor’s computer?
Is this goods? Software? General intangible?
Not goods. Comment 4.a to §9-102
General intangibles includes software: §9-102(a)(75),
§9-102(a)(42).
File a financing statement. §9-310(a)
83

Problem 21.1, page 376
How should a secured party perfect in: i.
Software on a consumer debtor’s computer?
Is this goods? Software? General intangible?
Not goods. Comment 4.a to §9-102
General intangibles includes software: §9-102(a)(75),
§9-102(a)(42).
File a financing statement. §9-310(a) j. Documentation and manuals for software?
84

Problem 21.1, page 376
How should a secured party perfect in: i.
Software on a consumer debtor’s computer?
Is this goods? Software? General intangible?
Not goods. Comment 4.a to §9-102
General intangibles includes software: §9-102(a)(75),
§9-102(a)(42).
File a financing statement. §9-310(a) j. Documentation and manuals for software?
Probably included in the software, §9-102(a)(75)
85

Sale-Lease Distinction
§ 9-109(a)(1) [T]his article applies to a transaction, regardless of its form, that creates a security interest in personal property
86

Sale-Lease Distinction
§ 9-109(a)(1) [T]his article applies to a transaction, regardless of its form, that creates a security interest in personal property
§1-203. “[A] transaction in the form of a lease creates a security interest if the consideration . . . is an obligation for the term of the lease not subject to termination by the lessee
87

Sale-Lease Distinction
§ 9-109(a)(1) [T]his article applies to a transaction, regardless of its form, that creates a security interest in personal property
§1-203. “[A] transaction in the form of a lease creates a security interest if the consideration . . . is an obligation for the term of the lease not subject to termination by the lessee, and . . . [the lease is for the remaining economic life of the goods
Security interest
Economic life
Lease term
88

Sale-Lease Distinction
§ 9-109(a)(1) [T]his article applies to a transaction, regardless of its form, that creates a security interest in personal property
§1-203. “[A] transaction in the form of a lease creates a security interest if the consideration . . . is an obligation for the term of the lease not subject to termination by the lessee, and . . . [the lease is for the remaining economic life of the goods by
1. Original term
Security interest
Economic life
Lease term
89

Sale-Lease Distinction
§ 9-109(a)(1) [T]his article applies to a transaction, regardless of its form, that creates a security interest in personal property
§1-203. “[A] transaction in the form of a lease creates a security interest if the consideration . . . is an obligation for the term of the lease not subject to termination by the lessee, and . . . [the lease is for the remaining economic life of the goods by
1. Original term
2. Required renewal or purchase
Security interest
Economic life
Lease term Mandatory renewal
90

Sale-Lease Distinction
§ 9-109(a)(1) [T]his article applies to a transaction, regardless of its form, that creates a security interest in personal property
§1-203. “[A] transaction in the form of a lease creates a security interest if the consideration . . . is an obligation for the term of the lease not subject to termination by the lessee, and . . . [the lease is for the remaining economic life of the goods by
1. Original term
2. Required renewal or purchase
3. Renewal term for no (or nominal) additional consideration
Security interest
Economic life
Lease term Free renewal
91

Sale-Lease Distinction
§ 9-109(a)(1) [T]his article applies to a transaction, regardless of its form, that creates a security interest in personal property
§1-203. “[A] transaction in the form of a lease creates a security interest if the consideration . . . is an obligation for the term of the lease not subject to termination by the lessee, and . . . [the lease is for the remaining economic life of the goods by
1. Original term
2. Required renewal or purchase
3. Renewal term for no (or nominal) additional consideration
4. Option to buy for no (or nominal) additional consideration]”
Security interest
Economic life
Lease term Option to buy for free
92

Sale-Lease Distinction
§ 9-109(a)(1) [T]his article applies to a transaction, regardless of its form, that creates a security interest in personal property
§1-203. “[A] transaction in the form of a lease creates a security interest if the consideration . . . is an obligation for the term of the lease not subject to termination by the lessee, and . . . [the lease is for the remaining economic life of the goods by
1. Original term
2. Required renewal or purchase
3. Renewal term for no (or nominal) additional consideration
4. Option to buy for no (or nominal) additional consideration]”
Lease
Economic life
Lease term
“Meaningful reversion”
93

Problem 21.4, page 377
Assignment: Draft a contract effective as a lease.
94

Problem 21.4, page 377
Thien
Press
$1.2 M
$1.2M loan
Monte
Flexible
(Our Client)
95

Problem 21.4, page 377
Assignment: Draft a contract effective as a lease.
Economic life 5 to 15 years
Economic life 5 15
96

Problem 21.4, page 377
Assignment: Draft a contract effective as a lease.
Economic life 5 to 15 years
Payment period 7 years. $1.2 million plus 10% = $19,921.42 http://www.amortization-calc.com
Payment period 7
Economic life 5 15
97

Problem 21.4, page 377
Assignment: Draft a contract effective as a lease.
Economic life 5 to 15 years
Payment period 7 years. $1.2 million plus 10% = $19,921.42 http://www.amortization-calc.com
Lease term?
Payment period 7
Economic life 5 15
98

Problem 21.4, page 377
Assignment: Draft a contract effective as a lease.
Economic life 5 to 15 years
Payment period 7 years. $1.2 million plus 10% = $19,921.42 http://www.amortization-calc.com
Lease term?
What Flexible Finance wants
Payment period 7
Economic life
Lease term 7
5 15
Monte option for $1
99

Problem 21.4, page 377
Assignment: Draft a contract effective as a lease.
Economic life 5 to 15 years
Payment period 7 years. $1.2 million plus 10% = $19,921.42 http://www.amortization-calc.com
Lease term?
What Flexible Finance wants
What might be a true lease.
Payment period 7
Economic life 5 15
Lease term 6 Monte option for $228,000
100

Problem 21.4, page 377
Assignment: Draft a contract effective as a lease.
Economic life 5 to 15 years
Payment period 7 years. $1.2 million plus 10% = $19,921.42 http://www.amortization-calc.com
Lease term?
What Flexible Finance wants
What might be a true lease. But Monte might not buy!
Payment period 7
Economic life 5 15
Lease term 6 Monte option for $228,000
101

Problem 21.4, page 377
Assignment: Draft a contract effective as a lease.
Economic life 5 to 15 years
Payment period 7 years. $1.2 million plus 10% = $19,921.42 http://www.amortization-calc.com
Lease term?
“This lease is for a term of six years. Lessee shall pay Lessor
$19,921.42 on the first day of each month of the lease term.
At the end of the lease term, Lessee shall have the option to purchase the press for its fair market value.”
Payment period 7
Economic life 5 15
Lease term 6 Monte option for fair market
102

Problem 21.5, page 378
We represent Fidelity, buying chattel paper from Auto Finance.
104

Problem 21.5, page 378
We represent Fidelity, buying chattel paper from Auto Finance.
We are worried about this possible scenario:
105

Problem 21.5, page 378
We represent Fidelity, buying chattel paper from Auto Finance.
We are worried about this possible scenario:
Auto Finance creates paper
After creation of the paper, payments went to Auto Finance
106

Problem 21.5, page 378
We represent Fidelity, buying chattel paper from Auto Finance.
We are worried about this possible scenario:
Auto Finance creates paper
Auto Finance strips/ sells the payment stream to X
March 1
After creation of the paper, payments went to Auto Finance
Auto Finance sells the payment stream to X on March 1.
107

Problem 21.5, page 378
We represent Fidelity, buying chattel paper from Auto Finance.
We are worried about this possible scenario:
Auto Finance creates paper
Auto Finance strips/ sells the payment stream to X
Fidelity buys and takes possession of chattel paper
March 1 March 2
After creation of the paper, payments went to Auto Finance
Auto Finance sells the payment stream to X on March 1.
Auto Finance sells the chattel paper to Fidelity on March 2.
108

Problem 21.5, page 378
We represent Fidelity, buying chattel paper from Auto Finance.
We are worried about this possible scenario:
Auto Finance creates paper
Auto Finance strips/ sells the payment stream to X
Fidelity buys and takes possession of chattel paper
March 1 March 2
After creation of the paper, payments went to Auto Finance
Auto Finance sells the payment stream to X on March 1.
Auto Finance sells the chattel paper to Fidelity on March 2.
How can Fidelity protect itself?
109