Protecting inteerest in Collateral -- Classifying Collateral:
Goods:
Quasi-Tangible Property:
Intangible Property:
In re Troupe (p. 1142):

If consumer good, then perfected without notice.



If equipment, then notice is required for perfection.
Collateral is determined at the time of creation of the security interest.
o Classification of collateral does not change due to actions after the time of
creation of the security interest.
#305: went over first part of class 2/28/24 -- also go thru
book quiz’s at end of each chapter (book provides answers).
a) Equipment (professional use)
a. goods that remain as fixed assets or are kept for a long time are
equipment (morgan case)
b)
c)
d)
e)
Farm product and equipment and farm product and farm
Consumer product
General intangible; not applicable; consumer tort; payment intangible
Inventory
a. Goods that will be used up or sold are inventory
f) general intangible; general intangible; account; account
g) equipment
h) payment intangible
i) general intangible
j) account (ex: payment that someone signs)
k) general intangible
l) farm product
#309:
a)
b)
c)
d)
e)
f)
g)
h)
farm; inventory; consumer good
instrument; document; document
Consumer good;
Investment property; investment prop
Deposit account
Consumer good
Not applicable
Morgan County Feeders v. McCormick (p .1149):

Goods:
o Inventory: refers to goods that are sold, leased, or consumed in the
course of the business
o Equipment: means goods other than farm equipment or inventory used
by a business
 Principal Use: principal use is generally determined by considering whether the
goods are for sale and the length of time the goods will be used by the
business.
o Goods that will be used up or sold are inventory; goods that remain as
fixed assets or are kept for a long time are equipment.
Rule: Under the Uniform Commercial Code, goods that are not for sale but
are used by a business (inventory) for a relatively long period of time are
equipment (ordinary course of business).
Facts: Neil Allen owned a herd of cattle that he used principally for recreational cattle
drives, though he sometimes leased the cattle to others. Morgan County Feeders,
Inc. (Morgan) (plaintiff) held a perfected security interest in the cattle. Allen sold the
cattle to James McCormick. Morgan took possession before the cattle could be
delivered. Morgan sued, and the trial court ruled in its favor based on the finding that
the cattle were “equipment” rather than “inventory.” McCormick appealed to the
Colorado Court of Appeals.
 If categorized as equipment than Morgan wins and gets the cattle. If
categorized as inventory, then McCormick gets the cattle.
Issue: Are all goods owned by a business inventory?
Holding: No. Under the Uniform Commercial Code (UCC), a buyer who purchases
inventory, “in the ordinary course of business,” will own the property outright and not
subject to even perfected security interests. Goods, under the UCC, include anything
“movable at the time the security interest attaches.” C.R.S. § 4-9-105(1)(f), (1991
Cum. Supp.) [now, § 9-102(a)(44)]. The UCC categorizes goods as consumer
goods, equipment, farm products, or inventory (notice not required to be perfected).
Inventory refers to goods that are sold, leased, or consumed in the course of the
business. C.R.S. § 4-9-109(4) [now § 9-102(a)(48)]. Equipment, in contrast, means
goods other than farm equipment or inventory used by a business. Id. at v 4-9-109(2)
[now § 9-102(a)(33)]. The classification of goods as inventory or equipment is based
on the “principal use of the property.” C.R.S. § 4-9-109 Official Comment 2. The
principal use is generally determined by considering whether the goods are for sale
and the length of time the goods will be used by the business. Id. at Official
Comment 3. Goods that will be used up or sold are inventory; goods that remain as
fixed assets or are kept for a long time are equipment. First Colorado Bank & Trust v.
Plantation Inn, Ltd., 767 P.2d 812 (Colo. App. 1988). In this case, the question is
whether the cattle are equipment or inventory. If the cattle are inventory, McCormick
purchased free of Morgan’s security interest. If, however, the cattle are equipment,
McCormick took subject to the security interest. Allen’s principal use of the cattle was
for recreational cattle drives. The cattle were kept for a relatively long period of time,
and not meant primarily for sale or lease. Though this is a unique situation, the
evidence supports the trial court’s conclusion that the cattle were equipment.


Cattle is categorized as equipment based on Allen’s use at time of security interest
creation (principally used for recreational purposes).
MORGAN WINS B/C THIS IS LABLED AS EQUIPMENT !!!!!
In re Johns Bean Farm Homestead Inc (p. 1155):
a financing statement is ineffective if it is “seriously misleading” due to a
mistake in the debtor’s name.
 The judge concluded that searchers were obligated to use “reasonable
diligence in examining the results.”
 This case, it was not perfected b/c you’d have to look up registered name by
clicking back 60 times … this is not reasonable.
o Therefore, the financing statement is seriously misleading, and Klein’s
interest was not perfected.

Rule: Under Article 9 § 9-506 of the Uniform Commercial Code, a financing
statement is seriously misleading due to an error in the debtor’s name if a
search of the registry for the debtor’s legal name would not return the
statement in the results.
Facts: Klein, a creditor of John’s Bean Farm of Homestead Inc. (John’s) (defendant),
filed a financing statement under the name “John Bean Farms, Inc.,” rather than the
entity’s legal name of “John’s Bean Farm of Homestead, Inc.” Subsequently, John’s
entered bankruptcy. The bankruptcy trustee performed a search of the Florida
Secured Transaction Registry using John’s actual name. Klein’s financing statement
did not come up on the initial search page and could only be found by hitting the
“previous” search results button sixty times. The trustee thus argued that Klein’s
previous security interest was unperfected.
Issue: Is a financing statement seriously misleading if there is an error in the debtor’s
name?
Holding: No. Under Article 9 of the Uniform Commercial Code (UCC), a financing
statement is ineffective if it is “seriously misleading” due to a mistake in the debtor’s
name. The test for sufficiency under revised § 9-506 of the UCC is whether a
computerized search of the debtor’s legal name would reveal the financing
statement. Fla. Stat. § 679.5061. Courts in other jurisdictions have interpreted the
revision as placing the burden on the creditor to file the statement under the debtor’s
legal name, rather than requiring third parties searching the database to search
every possible misspelling. See Pankratz Implement Co. v. Citizens Nat’l Bank, 130
P.3d 57 (Kan. 2006). A financing statement filed under an incorrect name may still be
effective if it is discoverable by a computer search. This is Florida’s Safe Harbor
provision. Thus, a minor error, such as leaving “Inc.” off of a company name, may
render a financing statement invalid if a computer search does not reveal the
statement. See In re Tyringham Holdings, Inc., 354 B.R. 363 (Bankr. E.D. Va. 2006).
In In re Summit Staffing Polk County, Inc., 305 B.R. 347 (2003), the court held that
an error in the debtor’s name was not “seriously misleading,” because the financing
statement was available by clicking the “previous” results button once. The judge
concluded that searchers were obligated to use “reasonable diligence in examining
the results.” Id. The judge made clear that the obligation to look at the “previous”
results pages was limited. Here, Klein argues that Summit Staffing requires
searchers to look beyond the initial page of search results, but that there is no
reasonableness requirement. Thus, Klein argues that the security interest is
perfected, because the financing statement can be found by clicking “previous” sixty
times. The trustee argues that such an interpretation would abrogate the stated
purpose of the revision to Article 9. The statute makes no provision for a
reasonableness test. Nevertheless, the registry itself defines the ‘result’ of a search
as the initial page shown. There is no requirement that the searcher use the
“previous” or “next” buttons. Even if there were, there is no way the obligation would
require examining sixty pages of results. This would violate the well-established
principle that plain-language construction does not require following the ordinary
meaning of a statute if doing so would create “an absurd result.” Miedema v. Maytag
Corp., 450 F.3d 1322 (11th Cir. 2006). Therefore, the financing statement is seriously
misleading, and Klein’s interest was not perfected.
In re PTM Technologies Inc (p. 1165):
Rule: If a financing statement does not list a debtor’s exact registered name, then
the statement is only effective if a searching the debtor’s registered name using the
filing office’s standard search logic would reveal the statement.
In re Grabowski
 All that is required of a security agreement is that the description of the

property “reasonably identif[y]” the collateral. UCC § 9-108.
o This can be satisfied by a specific identification, a general description of
the “category,” or any other means so long as the “collateral is
objectively determinable.”
o Just about any description short of “all debtor’s property” will do.
Rule: Under § 9-504 of the Uniform Commercial Code, a financing statement need
only give a general description of the property sufficient to put third parties on notice
that a security interest may exist in order to perfect the interest.
Facts: Ronald and Trenna Grabowski (plaintiffs) owned a farm and a John Deere
equipment business, called Grabowski Tractor-Benton, Inc. The Grabowski’s took
out loans from Bank of America (BoA) and South Pointe Bank (South Pointe). BoA
filed a financing statement in 1998 listing “all inventory, chattel paper, accounts,
equipment, and general intangibles” as collateral for its interest under the security
agreement. The financing statement listed the business address for Grabowski
Tractor-Benton, Inc. South Pointe filed its financing statement in 2000, specifically
listing various pieces of the Grabowski’s farm equipment as subject to its lien. That
financing statement listed the Grabowskis’ home address. In 2001, the Grabowskis
entered Chapter 11 bankruptcy and filed an action to determine the validity and
priority of liens. The Grabowskis’ creditors settled most issues, but BoA and South
Pointe claimed an interest in three pieces of equipment. BoA claims that the
equipment was covered under its earlier, general financing statement; South Pointe
argues that BoA’s statement was ineffective, because it was too general and listed
the Grabowskis’ business address.
Issue: Must a financing statement describe personal property specifically in order to
perfect a security interest?
Holding: No. The Uniform Commercial Code outlines the procedures for a creditor to
get and perfect a security interest. UCC §9-203 details the requirements for a
security agreement, and § 9-502 governs the requirements for perfecting the interest
by filing a financing statement. These documents serve different purposes and
require different levels of specificity. A security agreement defines precisely what
property falls under the lien. In contrast, a financing statement gives all potential
creditors notice of the existence of a security interest and the need for additional
inquiry. All that is required of a security agreement is that the description of the
property “reasonably identif[y]” the collateral. UCC § 9-108. This can be satisfied by a
specific identification, a general description of the “category,” or any other means so
long as the “collateral is objectively determinable.” See id. Just about any description
short of “all debtor’s property” will do. The description of collateral contained in a
financing statement can be even more broad, even stating that “all assets or all
personal property” of the debtor are subject to a lien. Id. at § 9-504. The goal of this
requirement, which was part of the revisions to Article 9, is to give potential creditors
“inquiry notice” that property may be subject to a lien and further inquiry is needed.
Here, BoA’s financing statement included a broad description of several categories
of the Grabowskis’ property. This was more than sufficient to put potential creditors
on notice that the Grabowskis’ property could be subject to BoA’s liens. Further, the
Grabowskis’ business address was not part of the description of the property and
should not have been construed as limiting BoA’s security interest to property
located there. Rather, the address was one method for creditors to contact the
Grabowskis. BoA’s financing statement was in the Grabowskis’ name, not Grabowski
Tractor-Benton, Inc. A reasonably prudent creditor should have known that the
Grabowskis’ personal property was subject to the lien, not just the business’ property.
BoA’s financing statement was valid, and it’s prior, perfected security interest defeats
South Pointe’s interest.
I. (Prof G statement) Attachment must always be
done in a “writing.” Perfection can happen in
other ways
In re I80 Equipment
 Although both documents must describe the collateral, the financing statement


does not require as much specificity as the security agreement itself.
A financing statement sufficiently indicates the collateral if the statement
includes a description of the collateral or an indication that the statement
covers all assets or personal property.
A description may identify collateral using any method that makes the
collateral’s identity objectively determinable.
:
Rule A financing statement perfects a security interest if the statement
incorporates a description of collateral by reference to an unattached security
agreement.
Facts: I80 Equipment, LLC (I80) was an Illinois business that purchased and
refurbished trucks for resale. I80 took out a commercial loan from First Midwest Bank
(Midwest) (plaintiff). I80 and Midwest entered into an agreement that gave Midwest a
security interest in I80’s assets. The assets were detailed in 26 categories of
collateral within the security agreement. Midwest timely filed a financing statement to
perfect its interest in I80’s assets. The statement claimed to cover all collateral
described in the security agreement. I80 defaulted on its loan and filed a voluntarybankruptcy petition. The court assigned a trustee (defendant) to manage the
bankruptcy assets, and Midwest sued the trustee in bankruptcy court, seeking to
recover funds on the defaulted loan. Midwest also filed a declaration that it had
perfected its interest in I80’s assets and that its interest was senior to all other
interests. The trustee asserted that Midwest’s interest was not perfected because the
financing statement failed to independently describe the collateral and instead
referenced an outside security agreement. The bankruptcy court found in favor of the
trustee, and the parties jointly appealed to the United States Court of Appeals for the
Seventh Circuit.
Issue: Does a financing statement perfect a security interest if the statement
incorporates a description of collateral by reference to an unattached security
agreement?
Holding: Yes. A financing statement perfects a security interest if the statement
incorporates a description of collateral by reference to an unattached security
agreement. Financing statements are intended to be abbreviations of security
agreements and to put third parties on notice of the security agreement’s contents.
Although both documents must describe the collateral, the financing statement does
not require as much specificity as the security agreement itself. A financing statement
that substantially satisfies the requirements is effective, even if the statement has
minor errors that are not seriously misleading. The Uniform Commercial Code (UCC)
requires that a financing statement provide the name of the debtor and indicate the
collateral covered by the statement. Under a plain-language reading, the purpose of
indicating the collateral is to point out or direct attention to an underlying security
interest. A financing statement sufficiently indicates the collateral if the statement
includes a description of the collateral or an indication that the statement covers all
assets or personal property. The description does not need to be specific but must
reasonably identify the collateral. A description may identify collateral using any
method that makes the collateral’s identity objectively determinable. One such
method is by referring to collateral that is described in a separate security
agreement. Indeed, a financing statement’s reference to collateral detailed in an
unattached security agreement is an acceptable method of describing collateral
under the UCC. In this case, Midwest perfected its security interest in I80’s assets
because Midwest filed a financing statement that referred to the collateral detailed in
the security agreement. Therefore, the trustee may not avoid Midwest’s lien.
Accordingly, the bankruptcy court’s judgment is reversed, and the case is remanded
for further proceedings.
Border State Bank of Greenbush v. Bagley Livestock
Exchange, Inc.
Rule: Under Article 9 of the Uniform Commercial Code, a party need only have
rights in property, not complete ownership, in order to grant a security interest in the
property.
Facts: Bert Johnson, owner of Johnson Farms, entered a cattle-sharing arrangement
with Hal Anderson. Anderson was to maintain and breed the cattle, though the cattle
was still “owned by Johnson Farms and any offspring [was] to be sold under
Johnson Farms’ name.” Johnson was to get a “guaranteed” percentage of all calves.
A few years later, the parties modified the agreement to increase the number of cows
and have Johnson provide beet tailings for feed. Anderson also contended that the
parties agreed to do away with Johnson’s “guarantee” and have Johnson provide all
feed, but Johnson disputed this. Border State Bank (Border) (plaintiff) loaned
Anderson $155,528, and Anderson gave Border a security interest in all “rights, title
and interest” in “livestock” that he owned or later acquired. Johnson reclaimed the
cattle, but Anderson kept the calves to sell. Bagley Livestock Exchange (Bagley)
(defendant) sold the calves. Bagley paid Johnson, who paid Anderson a remainder,
less money allegedly advanced for feed. Border sued Bagley for conversion of its
perfected security interest in the calves. Johnson filed a third-party complain against
Anderson seeking indemnity, and Anderson countersued for breach of contract. The
district court directed a verdict in favor of Bagley on the ground that Anderson did not
have an “ownership interest” in the calves and could not give Border a security
interest. Border appealed to the Minnesota Court of Appeals.
Issue: Must a party have complete ownership of property in order to grant a security
interest in that property?
Holding: No. Under Article 9 of the Uniform Commercial Code (UCC), there are three
requirements for a security interest to attach: (1) the creditor must have given value
for the interest, (2) the debtor must have either “rights in the collateral or the power to
transfer rights,” and (3) there must be a security agreement describing the collateral
signed by the debtor. Minn. Stat. § 336.9-203(b)(2002). The creditor must file a
financing statement containing a description of the property sufficient to put third
parties on notice to perfect the interest. Prod. Credit Assn. of W. Cent. Minn. V.
Bartos, 430 N.W.2d 238 (Minn. App. 1988). UCC Article 9 allows a debtor to give a
security interest in property so long as the debtor has “rights in the collateral.” There
is no requirement that the debtor have full ownership. The issue becomes whether
the debtor has sufficient rights, or ‘sticks in the bundle of ownership rights,’ to grant a
security interest. See First Natl. Bank of Philip, S.D. v. Temple, 642 N.W.2d 197 (S.D.
2002). In this case, Border gave value for the security interest in Anderson’s rights in
livestock, and Anderson signed a security agreement. The descriptions of the
collateral were sufficient in both the agreement and the financing statement. The only
question is whether Anderson had sufficient rights in the calves to grant the security
interest. The district court concluded that Johnson never gave Anderson an
ownership interest under the cattle-sharing agreement, and erroneously held that
Anderson could not therefore give a security interest. This ruling is contrary to
Minnesota law and must be set aside. The lower court must construe the contract
and determine whether Anderson did have sufficient rights in the cattle to give Border
the security interest. The case is remanded.
Account: right to payment or monetary obligation
v.
Deposit Account: Our own money