MEMORIZED SECURED TRANSACTIONS
INTRO
I.
II.
III.
IV.
V.
VI.
VII.
Definitions
a. General topic: Debtor offers personal property as collateral. Creditor can
repossess upon default
b. What is a security interest? Interest in personal prop, fixtures, agricultural liens,
or certain rights to payment, securing payment or performance obligation
c. Security transaction must be [3]
i. Personal prop or fixtures
ii. Consensual
iii. Regardless of form
d. Security agreement: contract that creates security interest
e. Three parties
i. Secured party: creditor with int in debtor’s prop
ii. Debtor: interest, other than security interest, in collateral (owner)
iii. Obligor: party that must pay or perform the obligation collateral secures
Attachment
a. Creates a security interest in the collateral. Makes the interest enforceable.
Perfection [NOTICE]
a. Gives notice to other parties who may hold an interest in a dispute to who has
priority.
Priority
a. Rules for resolving disputes between multiple Ps over the same collateral.
Enforcement
a. Rights and duties of secured interests in enforcing right to repossess.
Together
a. Attachment  Enforcement; Attachment + Perfection  Good standing in
priority dispute
Approach
a. Classify collateral
b. Sec int
i. Attached? y/n? when? Which collateral?
ii. Perfected? y/n? when? Extinguished?
c. Priorities and analyze
COLLATERAL CATEGORIES
I.
Classify based on PRINCIPLE use at time SI created
a. Change of classification possible
II.
Goods – anything movable at time SI created [CGFP;IE]
a. Consumer goods – personal, family, household use
b. Farm products – materials used in or produced by farming op
c. Inventory – items on shelf for sale or lease
d. Equipment – catchall
III.
Rights to Payment [CPPNAPI] [Cruel Poodles Poking Needles At Peaceful Iguanas]
a. Chattel paper
i. Two components
1. Monetary obligation
2. SI or lease
b. Promissory note (checks, instruments)
c. Accounts
i. Right to repayment of money for
1. Prop sold, leased, licensed
2. Servs rendered
d. Payment intangible – catchall, rare, for right to repayment of money
e. Strategy
i. Look for third party owing debtor and debtor uses that as collateral
IV.
Misc Categories [DID u C LG? F!]
a. Documents – showing right to title in goods held by another
b. Investment prop – bonds, stocks
c. Deposit (bank) acct
d. Commercial tort – indiv or org arising out of business activities
e. Letter of right to credit – payment or performance
f. General intangibles – catchall (copyrights, software)
g. Fixtures – attached to house
ATTACHMENT
I.
General: arrangement linking a debt to a particular piece of collateral
a. Rule: for a party to have an interest in the collateral it must first attach
b. Result: lender may sue debtor and repossess
II.
Requirements for attachment [3] [Violet Roses Smell Amazing]
a. Value – by secured party
i. Includes money for line of credit
b. Rights – in the collateral
i. SI only attaches to debtor’s int in the collateral
1. But: voidable title conveyed to BFP will create an
attached/enforceable SI
c. Security Agreement
i. One of two requirements (EITHER/OR]
1. Authenticated record – piece of paper with three requirements
[RAD]
a. Record—retrievable by others
b. Authenticated—by debtor (i.e., signature)
c. Describe—collateral sufficiently (medium specific)
i. Exception: consumer goods and commercial tort
claims must be VERY specific
2. Possession or control of collateral pursuant to an ORAL OR
AUTHENTICATED security agreement
a. Attachment by possession pursuant to security agreement
i. Available for anything you can hold in your hands
(Consumer goods, Farm products, Equipment,
Chattel Paper, e.g.)
ii. Rights and duties of secured party in possession
1. SP must act with reasonable care w/r/t
collateral
2. Keep collateral identifiable
3. Relinquish once obligation satisfied
4. Can charge for reasonable expense of
storing and maintaining collateral
b. Attachment by control pursuant to a security agreement
i. Maybe available for things you cannot hold in your
hands (investment property, electronic chattel
paper, deposit account)
III.
Special rules
a. After-acquired property clause
i. Rule: after-acquired property is only included in debtor’s SI if there’s an
after acquired prop clause
1. Unless: for inventory or accounts, then rebuttable presumption of
A-A prop
b. Accessions [opposite commingled]
IV.
i. Goods physically united with other goods but not losing identity
ii. SI does not terminate at unity
c. Commingled Goods [opposite accession]
i. Goods physically united w other goods but YES losing identity
ii. SI does terminate in original good, but attaches then to larger product or
mass
d. Proceeds – of lease, sale, license, exchange, or disposal
i. Rule: if SI attaches to original collateral, it also attaches to proceeds
automatically
Purchase Money Security Interests (PMSI) in GOODS or SOFTWARE – IMPORTANT
a. General – SI only in goods or software
b. Two components
i. Acquire – value given to debtor allows debtor to acquire goods or
software collateral
ii. Secure – goods or software acquired secure the loan
c. Fact Patterns
i. Lender PMSI – lender loans money to debtor to buy goods
1. Required
a. Value actually used to acquire goods
b. Lender takes SI in same goods to secure the loan
ii. Seller PMSI –goods bought on credit
iii. Partial PMSI – good has a PMSI and non-PMSI security interest
PERFECTION
I.
Six Methods of Perfection [Famous People Can’t Avoid Attention]
a. Filing by Financing Statement
i. Where?
1. Central filing office of appropriate state
a. Indivs: where debtor has principle residence (unless real
prop-related, then where the prop is)
b. Corp: state of incorp
c. Business w/o reg: where operates business
ii. How long?
1. Five years after filing
2. Continuation can be filed w/I six months before lapse
3. Effect of lapse is loss of perfection (and potential loss of priority)
4. Fulfillment of obligation voids FS
iii. To what kinds of collateral?
1. All except depsit (bank) accts, money, and cars
iv. Requirements [DSA Dani]
1. Debtor’s name—correct, legal
a. Corp: incorporated name, not trade name
b. Indiv: majority rule is name on state ID/license; minority
rule is name on state ID but other docs can be OK
2. Secured party’s name
3. Authorization
a. No need for debtor to sign, enough to authenticate SA 
secured party can file FS
4. Description of collateral—two descriptions
a. Same description as in SA
b. More generic description than in SA
v. Non-essential info [can still perfect w/o]
1. Addresses for both debtor and secured party
2. Indication of debtor is indiv or org
vi. For real prop also have:
1. FS has to say this type of collateral covered in SA
2. Note to file in local real prop records
3. Owner of real prop’s name if debtor isn’t same [recording
mortgage can suffice]
vii. Your Errors
1. Minor errors don’t affect perfection unless SERIOUSLY
MISLEADING
a. Debtor’s name error is seriously misleading unless can still
be found w error
viii. Filing office errors
1. Must refuse if
a. Lacks required info
b. Creditor fails to pay fee
c. FS improperly submitted
2. Errant refusal  still perfected
a. Unless: BFP or secured party gave value in reasonable
reliance on absence of record from files
II.
III.
b. Possession
i. Applies to tangible collateral where secured party has possession (money,
goods, instruments, tangible chattel paper)
1. Only way for money to perfect
ii. As long as secured party has possession, int is perfected
c. Control
i. Applies to intangible collateral where secured party has control (bank
accounts, electronic chattel paper, investment property, letter of credit
rights)
1. Only way for deposit accounts and letter of credit to perfect
ii. Deposit (bank) accounts—three ways to gain control
1. Secured party is bank w/ the deposit account
2. Secured party, bank, debtor all agree in authenticated record that
secured party has control over bank account (deposit account
control agreement)
3. Secured party can become bank’s customer w/r/t deposit account
d. Alternate perfection
i. State certificate of title statute requires perfection by noting a security
interest on certificate of title
ii. Cars, vehicles with title
1. Except: when car is brand-new inventory
e. Automatic perfection
i. ONLY for
1. PMSI in consumer goods
2. Casual, isolated assignments only transferring small parts of
outstanding accounts receivable
3. Sales of Promissory Notes or Payment Intangibles (CP PN A PI)
PMSIs
a. PMSI in consumer goods automatically perfected (absent certificate of tile law,
i.e., vehicle)
b. PMSIs in software or other goods perfected by:
i. SP files FS
ii. SP takes possession
Post- perfection changes
a. Debtor name change
i. Name change becomes seriously misleading, four months discover and
amend
ii. Failure to amend makes all collateral after 4 months not in FS
b. Move state
IV.
i. Debtor
1. Debtor moves, four months to discover and re-file in new state
2. Failure to amend makes all collateral after 4 months not in FS and
not perfected
ii. Collateral
1. Debtor still owns, no need to re-file
2. Collateral goes to new debtor in new state, one year to re-file and
list new debtor
3. Failure to re-file makes collateral not perfected
c. Secured party perfected by possession gives collateral back to debtor
i. Rule: secured party is only perfected as long as it has possession
ii. Exception (limited): if possession in instrument, negotiable doc,
certificated security or goods stored with another person can be given
back without destroying perfection if given back to:
1. Sell
2. Exchange
3. Enforce debtor’s rights in collateral
iii. Temporary automatic perfection (above) lasts for 20 days; must file
financing stmt or repossess after
Proceeds Perfection
a. General
i. Def: money from leasing, selling, destroying, licensing collateral
ii. SI attaches automatically to proceeds even if the SA does not explicitly say
b. Perfection Rules
i. Initially
1. Automatic perfection for 20 days after sale; after 20, lapse unless
[A CuP, SO…..]
a. Amendment: amend FS before 20 days
b. Cash proceeds rule: cash proceeds perfected indefinitely as
long as identifiable (i.e., sep bank acct)
c. Same office rule:
i. FS covers original collateral
ii. Proceeds are collateral that can be perfected by
filing FS in same office as orig
iii. Proceeds not acquired w cash
PRIORITY
I.
II.
III.
IV.
V.
VI.
Issues
a. Party v Party over Collateral
Collateral Claimants
a. Secured Creditor
i. Attached?
ii. Perfected?
iii. PMSI?
b. Unsecured Creditor
i. Creditor w/ no SI in collateral
ii. Rights
1. None in property
a. Gain by lien or SI
2. In contract against debtor
c. Lien Creditor – judicial or statutory
d. Purchasers of CPPNAPI
i. Secured party w SI attached (may not be perfected)
1. Automatic perfection for (Promissory Notes and Payment
Intangibles)
e. Buyers or Transferees of Other Collateral—can take free of secured party’s SI
Type 1: Security Interest v. Security Interest (neither PMSI – goods and software)
a. Perfected SI v. Perfected SI
i. First in time to file FS OR perfect (whichever first) takes priority
b. Perfected SI v. Unperfected SI
i. Perfected takes priority
c. Unperfected SI v. Unperfected SI
i. First in time to attach OR take effect takes priority
Type 2: Security Interest v. Judicial Lien Creditors
a. Perfected SI v. Lien Creditor
i. Perfected SI takes priority over LC
b. Unperfected SI v. Lien Creditor
i. LC takes priority over unperfected SI
1. Exception: filed but unattached SI where has authenticated SA and
FS but no value yet, SP wins over LC
Type 3: Security Interest v. Statutory Lien
a. SL has priority over SI (perfected or not) as long as:
i. Lien effective only if lienholder possesses the goods
ii. Lien secures payment or performance in ord course of business
iii. Statute doesn’t negate
Type 4: Priority over future advances
a. Secured Party v. Secured Party over Future Advances
i. First to file or perfect w/r/t future advances
1. OK even if SP knows of competing SI
VII.
b. Secured Party v. Lien Creditor over Future Advances
i. SP has priority over LC if SP’s advance is within 45 days of lien arising
ii. After 45 days, LC over SP unless EITHER:
1. Advance made w/o knowledge of lien
2. Advance made pursuant to commitment entered into w/o
commitment of lien
Type 5: Secured Parties v. Buyers [free of OR subject to]
a. Question: did the buyer take the collateral free of SI or subject to SI?
b. Buyer v. Perfected SI
i. Unless SP authorizes sale free and clear of SI, buyer takes subject to
perfected SI
1. Exception 1 Buyer-Merchant (knowledge OK): buyer in ord course
of business can take free even if knew of SI as long as:
a. Bought from merchant
b. Merchant sells this and it’s the ord course of business
c. Good faith and without knowledge of harming rights of
another person w rights to same goods
d. Not a pawnbroker
2. Exception 2 Consumer-Consumer (knowledge NOT OK): buyer of
consumer goods can take free of perfected SI as long as:
a. Value
b. For personal, family, or household use
c. From consumer seller
d. Without knowledge of SI
3. Exception 2 does not apply if SP has filed an FS covering the goods
before purchase.
a. PMSIs in consumer goods are automatically perfected,
lender must AFFIRMATIVELY file FS to get out of Exception
2
c. Buyer v. Unperfected SI
i. [SAME AS LAST] Unless SP authorizes sale free and clear of SI, buyer takes
subject to unperfected SI
1. Exceptions for Buyer-Merchant and Consumer-Consumer also
apply
2. Exception:
a. Value
b. Delivery of collateral
c. w/o knowledge of SI
d. Buyers and future advances
i. Applies: buyer purchases subject to SI and SP makes future advance
ii. Rule: free and clear of future advance if:
1. SP knew of purchase OR
2. 45+ days after purchase
e. Transferees of Money or Funds
VIII.
i. Transferee of $ from bank account subject to SI takes free of SI unless
1. Transferee colludes w debtor to violate SP’s rights
Type 6: PMSI
a. PMSI v. Lien Creditor
i. Perfected PMSI has priority over lien creditor
ii. Lien creditor has priority over unperfected PMSI
1. Note 20-day grace period for PMSIs
a. If perfects w/i 20 days of possession by debtor, PMSI wins
over lien creditor
b. PMSI v. Security Interests
i. PMSI Super-Priorities
1. Goods other than Inventory or Livestock
a. PMSI takes priority over all other SI—regardless of other
SI’s perfected date—as long as SP perfects w/i 20 days of
possession by debtor
i. If not, SP v. SP rules (first in time to file or perfect)
b. Priority applies to proceeds of collateral
2. Inventory or Livestock
a. PMSI takes priority over all other SI as long as:
i. Perfected before delivered to debtor
ii. Sending authenticated notification to other SPs
b. Priority only applies to proceeds that are up-front cash
payments for inventory sold
c. PMSI v PMSI
i. Seller PMSI (credit) beats lender PMSI (money to buy good)
ii. Or SP v SP rule
d. Fixtures
i. Fixture SI v. Real Property Interest
1. Fixture SI priority over RPI if
a. filed FS with local real prop before RPI recorded
2. PMSI in fixtures priority over RPI if both:
a. Debtor has int of rec in real prop or possesses real prop
b. SI perfected by FS before goods become fixture or w/i 20
days thereafter
ii. Construction Mortgage v. PMSI
1. Construction mortgage has priority over fixture SI—including
PMSIs—if
a. Recorded before goods become fixtures
b. Goods become fixtures before construction completed
iii. Fixture SP v. Fixture SP
1. General priority
LEASES & CONSIGNMENTS (WHEN IS A LEASE OR CONSIGNMENT A SECURED TRANSACTION?)
I.
II.
Leases
a. Bright-line test: what does lessor get back? If nothing, ST
i. Two prongs
1. Lease can’t terminate early
2. Lessor doesn’t get anything at end of lease term
a. Goods used up at end of lease
b. Goods must be used up by extending lease time
c. Option to extend until goods used up for no or nominal
consid
d. Option to buy at end of lease for no or nominal consid
ii. Result if test is met
1. Lessor is SP and needs to perfect SI
iii. Result if test is failed—factual inquiry
Consignments
a. Parties
i. Consignor – owner of goods (SP)
ii. Consignee – seller of goods on behalf of consignor
b. Requirements
i. Consigner deliver to consignee merchant regularly dealing in these goods
ii. Consignee is merchant who isn’t generally selling others’ stuff
iii. 1K per delivery
iv. Not consumer goods
DEFAULT AND ENFORCEMENT
I.
General
a. Cumulative, simultaneous rights to enforcement
b. SP can:
i. Seek possession of tangible
ii. Seek judgment
iii. Use other agreed on methods
II.
Repossession of Goods and Other Tangible Collateral
a. Two ways
i. Judicial process
ii. Self-help repossession that doesn’t breach the peace
b. Disposition of Collateral – can sell, lease, license dispose of repossessed collateral
as long as commercially reasonable
i. Commercially reasonable standard (safe harbors/”either/or”)
1. Sold in reasonable manner in market
2. Price current in that market
3. In conformity w reasonable commercial pracs of other sellers in
that market
ii. Details of Disposition
1. Pub or priv
2. SP can buy collateral at pub sale, but not priv sale, unless
collateral is fixed or standardized price
iii. Notice
1. Who
a. Debtor; secondary obligors; SPs
2. When
a. Commercially reasonable time; if non-commercial, 10 days
before sale
3. What must it include
a. SP and debtors names; description of collateral; how to be
sold; debtor entitled to an accounting
4. Exceptions
a. Not required if goods perishable or destroyed value soon
b. Sold on recognized market
c. Notice waived
iv. Proceeds
1. Distributed in following order
a. Reasonable expenses for collection and enftmt
b. Debt to foreclosing SP
i. If not enough, deficiency judgment against obligor
c. Subordinate SIs pursuant to demand from those SPs
d. Surplus to debtor
III.
Other Enforcement Methods
a. Acceptance of collateral “strict foreclosure” – SP can accept collateral in full or
part w conditions
i. Full satisfaction
1. Debtor consent in authenticated record
a. No objection within 20 days after proposal sent, consent
2. ONLY CONSUMER GOODS:
a. SP can only accept in full
b. 60% rule: if debtor has paid back 60%+, goods must be
sold and acceptance not permitted
ii. Partial satisfaction
1. Debtor consent in authenticated record
a. No objection not consent
b. Redemption rights
i. Redemption available for debtor, obligor, other SPs by paying entire
obligation plus expenses for sale
1. BEFORE SP sold or SP accepted collateral
ii. No waiver
c. Special enforcement rules for
i. Fixtures
1. If SP has priority, can remove from real estate but must pay for
repairs if damage occurs
ii. Accessions
1. SP w priority can remove accession from among other goods
iii. Rights to payment (CPPNAPI)
1. SP can take place of debtor to collect debts from third parties
a. When third party has notice, must pay to SP not debtor
2. Surplus (goes to debtor) and deficiency (owed by debtor) rules
don’t apply
d. Remedies for secured party’s failure to comply
i. Injunctive relief – debtor or other SP can halt improper enforcement
ii. Actual dams – debtor or SP can be compensated for loss from improper
enforcement
iii. Statutory dams – available for consumer goods for violations of Art. 9
iv. Violation of Art 9
1. Commercial transactions – Rebuttable Presumption rule prevents
SP from getting deficiency if not sold in commercially reasonable
manner (unless compliance w Art 9 would CREATE deficiency)
2. Consumer transactions – Absolute Bar rule prevents SP from
getting deficiency if failure to comply w Art 9
v. Conversion tort liability