SECURED TRANSACTIONS OUTLINE – FALL ’07
Chapter 1 – Introduction:
 Informal Debt Collection Methods:
o (1) request payment (persuasion, leverage, etc.);
o (2) setoff – only works where the parties both owe each other money;
 Debt Collection Rules:
o (1) FDCPA – Fair Debt Collection Practices Act:
 Applies only to debt collectors (people who collect debt for others);
 Applies only to consumer debt.
 Rules:
 No calling before 8:00 am or after 9:00 pm;
 No using obscene or profane language;
 Cannot contact third parties about debt;
 Cannot make false representation about character or amount of debt;
 Cannot make false representation about consequences of nonpayment;
 Cannot use any false or deceptive method to collect debt or to obtain information;
 Cannot attempt to collect unauthorized amount.
o (2) FCRA – Fair Credit Reporting Act:
 Allows creditors to report past credit history (lack of payment) on credit report.
o (3) Tort causes of action:
 i.e., defamation, abuse of process, malicious prosecution, negligence, NIED, etc.
 Collecting Debts Judicially:
o “confession of judgment” clause:
 Debtor consents in advance to the creditor’s obtaining a judgment without notice or hearing and
possibly even without appearance.
 Not allowed in all states under all situations.
o Execution Process:
 (1) obtain judgment in court;
 (2) locate potential seizeable property;
 (3) obtain a lien on such property:
 For real property, record judgment in county where property is located;
 For personal property:
o (a) obtain a “writ of execution” from the clerk of court;
o (b) deliver the writ to the sheriff;
o (c) have the sheriff “levy” on the property;
 i.e., have him actually or constructively seize the property.
 (4) sell the property at a sheriff’s sale (public auction);
 (5) apply proceeds of sale to debt.
o Statute of Limitations:
 Keep in mind that there is limit on life of judgment; if writ of execution is not issued on judgments
within such time period, judgment becomes dormant.
 Judgment becomes dormant when SOL runs on issuance of writ of execution;
o In that case, judgment must be revived to allow issuance of writ.
 If SOL runs on judgment itself, the judgment must be renewed by obtaining a judgment on that
judgment.
o Redemption:
 Pre-Sale:
 Until sale is completed, debtor can redeem property by paying debt in full (includes postjudgment interest and sheriff’s fees);
 Post-sale:
 For set time period after sale is completed, debtor may redeem property by paying creditor the
sale price received at the auction.
o Enforcing Judgments in other states:
 (1) use full faith and credit clause to obtain judgment in state where property is located; OR
 (2) utilize Uniform Enforcment of Foreign Judgments Act procedures.
1
o
o
o
o
o
Fraudulent Transfers/Conveyances:
 Where debtor transfers property to another person in order to delay or hinder creditors or to avoid
paying a justly due debt, the transfer can be "avoided" (rescinded) thereby allowing the creditor to seize
and sell the property…
 Governed by the UFTA…
 Also prevents debtors from not receiving fair value in exchange for property…
 Insolvent debtors cannot gift property to others…
Prejudgment Remedies:
 Attachment:
 Process typically used on tangible property in which debtor has an interest.
 Clerk issues a writ of attachment (at discretion of judge) directing sheriff to levy on certain
property.
 However, levied property is not sold, but merely held by the court until the creditor obtains a
judgment.
 Garnishment:
 Same process; applies to property in the hands of third parties as opposed to the debtor…
Exempt Property:
 GENERALLY SPEAKING -- exemptions do not protect corporations, ONLY natural persons!!!
 ALSO -- protect against levy/execution process, not enforcement of voluntary/consensual liens…
 Property not subject to seizure or judicial sale…
 Varies from state to state…
 USUALLY INCLUDES:
 clothes;
 tools of the trade;
 wage garnishment restrictions (usually a %)…
 often times meaningful personal property (family heirlooms, photographs, etc.) with little or no
value at a sale, but valuable to the family…
 homestead…
Constitutional Considerations:
 Any type of levy/seizure of property is governed by:
 (1) DPC of the 5th and 14th Amendments;
o Procedurally requires notice and hearing;
 (2) 4th Amendment:
o Prevents unreasonable searches and seizures;
States
cannot
create laws that limit the obligation of contract…

 Protects creditors with security interests…
 3-part test:
o (1) does the state law operate as a substantial impairment of the contract obligation?
o (2) If so, is the state law designed to promote a significant and legitimate public
purpose?
o (3) Is the law narrowly tailored to accomplish that purpose?
 If so, then the statue might be found to be a permissible change to the obligation of a contract…
Bankruptcy:
 Choice b/w filing under chapters 7 (liquidation) or 13 (reorganization);
 Chapter 7:
o Trustee takes charge of all debtor’s non-exempt assets and puts them into “bankruptcy
estate”;
o Creditors file claims with the court for payment;
o If claim is approved, creditor is paid from the proceeds of the assets in the bankruptcy
estate under a system of priority whereby claims in the same class each receive a certain
pro-rata share…
Chapter
13:

o Debtor remains in control of all assets;
o Debtor proposes a repayment plan that must meet certain requirements that allows
debtor to pay of all or part of its debts over a period of 3 – 5 years…
 Secured v. Unsecured Creditors:
2
o
 Secured creditors are always paid in full for the value of the collateral secured by the lien…
 Upon filing of petition, automatic stay prevents further attempts to collect debt owed before petition was
filed…
Consensual Liens:
 Voluntary liens imposed by contract.
 Real property – mortgages (aka deeds of trust);
 Personal property – security interests (Art. 9 of U.C.C.)
 Consensual liens invalidate exemptions (i.e., are seen as “waivers” of exemptions)…
Chapter 2 – Attachment:
 § 9-203(a) – “attachment”:
o a security interest attaches to collateral when it becomes enforceable against the debtor with respect to the
collateral, unless an agreement expressly postpones the time of attachment.
 Perfection makes security interest enforceable against the rest of the world…
 § 9-203(b) – “enforceability”:
o A security interest is enforceable against the debtor and third parties with respect to collateral only if:
o (1) value has been given;
 § 1-204 – “value”:
 Any extension of credit, a commitment to lend, any consideration sufficient to support a simple
contract.
o ALSO INCLUDES RELIEF OF ANTECENDENT DEBT…
o (2) debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; AND
 Determined by property law…
 Also, debtor cannot give interest in rights more than debtor has…
 i.e., if debtor only has a leasehold interest in property, debtor can only grant leasehold interest
as collateral…
o (3) one of the following conditions is met:
 (A) debtor has authenticated a security agreement that provides a description of the collateral AND if
the security interest covers timber to be cut, a description of the land concerned; OR
 (B) collateral is NOT certificated security (stocks/bonds) AND is in possession of secured party
pursuant to security agreement; OR
 Collateral that may be possessed defined in § 9-313(a).
o Goods, instruments, money, certificated securities, tangible chattel paper, and tangible
negotiable documents of title.
 Possession is defined by property law.
 (C) collateral is certificated security and certificate has been delivered to secured party pursuant to
security agreement; OR
 (D) collateral is deposit accounts, electronic chattel paper, investment property, letter-of-credit rights, or
electronic documents, and the secured party has CONTROL pursuant to security agreement.
 Collateral that may be controlled defined in § 9-104 – § 9-107.
o Deposit accounts – § 9-104;
o Investment property – § 9-106;
o Letter-of-credit rights – § 9-107;
o Electronic chattel paper – § 9-105;
o Electronic documents of title – § 7-106.
 Authentication (§ 9-203(b)(3)(A)) requirements:
o NO MAGIC LANGUAGE IS REQUIRED TO CREATE A SECURITY AGREEMENT;
 § 9-102(a)(73) – “security agreement”:
 An agreement that creates or provides for a security interest.
 § 1-201(b)(3) – “agreement”:
 The bargain of the parties in fact, as found in their language or inferred from other
circumstances.
 § 1-201(b)(35) – “security interest”:
 An interest in personal property or fixtures which secures payment or performance of an
obligation.
o SECURITY AGREEMENT NEED NOT BE IN WRITING (see § 9-102, cmt. 3b).
3




However, § 9-203(b)(3)(A) implies that the agreement must either be in writing, inscribed on some
other tangible medium, or stored in an electronic format but nevertheless retrievable in a perceivable
form.
 § 9-102(a)(7) – “authenticate”:
 (a) to sign; OR
 (b) to execute or otherwise adopt a symbol, or encrypt or similarly process a record in whole or
in part, with the present intent of the authenticating person to identify the person and adopt or
accept the record.
 § 9-102(a)(69) – “record”:
 Information that is inscribed on a tangible medium or which is stored in an electronic or other
medium and is retrievable in a perceivable form.
Adequate Description of Collateral (under § 9-203(b)(3)(A)):
o Governed by § 9-108:
 (a) sufficiency of description:
 description is sufficient, whether or not it is specific, if it reasonably identifies what is
described.
 (b) examples of “reasonable identification”:
 (1) Specific listing;
 (2) category;
 (3) type of collateral defined in UCC;
 (4) quantity;
 (5) computational or allocational formula or procedure;
 (6) any other method, if identity of collateral is objectively determinable.
 (c) supergeneric description not sufficient:
 Description of collateral as “all debtor’s assets” or “all debtor’s real property” or words of
similar import do not reasonable identify the collateral.
 (d) and (e) are exceptions relating to investment property, commercial tort claims, and consumer
transactions.
Types of Collateral:
o § 9-102 comments:
 Classification of goods depends on current use, not intention for other use in the future.
 Flood Test -- “how is the collateral used by the debtor?”
 For “consumer goods”, test is PRIMARY use at time of attachment; subsequent changes do not have
any effect…
o § 9-102, cmt 4(a):
 In general, goods used in a business are equipment if they are fixed assets or have, as identifiable units,
a relatively long period of use, but are inventory, even though not held for sale or lease, if they are used
up on consumed in a short period of time in producing a product or providing a service.
o § 9-102(a)(2) “accounts”;
o § 9-102(a)(11) “chattel paper”;
o § 9-102(a)(23) “consumer goods”;
o § 9-102(a)(29) “deposit account”;
o § 9-102(a)(31) “electronic chattel paper”;
o § 9-102(a)(33) “equipment”;
o § 9-102(a)(34) “farm products”;
o § 9-102(a)(41) “fixtures”;
o § 9-102(a)(42) “general intangible”;
o § 9-102(a)(44) “goods”;
o § 9-102(a)(47) “instrument”;
o § 9-102(a)(48) “inventory”;
o § 9-102(a)(61) “payment intangible”;
o § 9-102(a)(65) “promissory note”;
Composite Document Doctrine:
o Composite Document Doctrine:
 § 9-203(b)(3)(A) requires that debtor authenticate writing that also contains a description of the
collateral…
4



CDD comes into play when there is no specific writing that has the debtor's signature and a description
of the collateral…
 Standard = whether the parties intended to create a security interest…
 2-part test:
 (1) court must decide whether there is a written document or documents containing language
that objectively indicates that the parties intended to create a security interest (question of law);
 (2) if such a documents exists, then the fact finder must determine whether the parties actually
intended to create a security interest (question of fact).
After-acquired property:
o Property acquired by the debtor after debtor authenticates the security agreement.
o § 9-204(a) – security agreement MAY create or provide security interest in AAP;
 Not automatic, must have APP property clause in order to gain security interest in AAP;
 i.e. “all inventory now owned or hereafter acquired”…
o § 9-204(b) – AAP clauses do not attach to:
 (1) consumer goods, unless debtor acquires rights within 10 days after SP gives value; OR
 (2) commercial tort claims.
o In re Filtercorp, Inc:
 Point of case is that AAP clause is not needed for collateral that is described as “inventory” or “accounts
receivable” because their nature is to turn over quickly, therefore requirement of AAP clause would
render security agreement impractical.
 Idea of “floating lien” or rebuttable presumption that collateral description on “inventory” or “accounts
receivable” covers AAP without express AAP clause.
Proceeds:
o NEED NOT BE DESCRIBED IN SECURITY AGREEMENT…
o § 9-102(a)(64) – “proceeds”:
 (A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral;
 (B) whatever is collected on or distributed on account of collateral;
 (C) rights arising out of collateral;
 (D) proceeds from loss of collateral;
 (E) insurance payments…
o § 9-203(f):
 Attachment of a security interest in collateral gives the secured party the rights to proceeds provided by
§ 9-315.
o § 9-315(a)(2):
 A security interest attaches to any identifiable proceeds of collateral…
o § 9-315(a)(1):
 Security interest continues in collateral notwithstanding sale, lease, license, exchange, or other
disposition thereof unless the secured party authorized the disposition free of the security interest.
 i.e. -- if debtor transfers collateral to another party, the security interest in the collateral stays
attached to the collateral UNLESS lender waives such right.
o § 9-102(a)(12) -- "collateral":
 (A) proceeds to which a security interest attaches…
o EXCEPTIONS:
 (1) property outside of Art. 9.
 i.e., if collateral is exchanged for real estate, the real estate is not a "proceed" covered under Art.
9.
 (2) proceeds must be "identifiable"
 Must be traceable;
 § 9-315(b)(2) deals with commingled goods and authorizes use of common law traceability
theories (LIFO, FIFO, etc.)
 § 9-315, cmt. 3 authorizes use of “lowest intermediate balance rule”:
o Gist of the rule is that to the extent possible, treat each withdrawal as consisting of nonproceeds.
o Based on the following table, at the end of Day 3, there would be $4,000 of proceeds.
 $8,000 withdrawal was composed in the following order:
 $6,000 initial non-proceed balance;
5

Day
0
1
2
3



Proceeds Deposits
$5,000
 $1,000 of non-proceed deposit;
 $1,000 of proceed deposit
Therefore, all of the money remaining in the account ($4,000) is proceeds…
 Almost like a “non-proceeds first out” method…
Non-Proceed Deposit
Withdrawals
Balance
$6,000
$11,000
$1,000
$12,000
$8,000
$4,000
Commingled Goods:
o NEED NOT BE DESCRIBED IN SECURITY AGREEMENT.
o § 9-336(a) – “commingled goods”:
 Goods that are physically united with other goods in such a manner that their identity is lost in a product
or mass.
 Comments use example of flour and eggs being combined to make cakes…
 Also, when fungible property is combined;
o i.e., putting more gas in a gas tank, putting more corn in a grain bin, etc…
o § 9-336(b):
 No security interest in the original collateral as such after commingling occurs.
o § 9-336(c):
 If collateral becomes commingled goods, a security interest attaches to the product or mass.
o SEE ALSO § 9-335 which governs “accessions”:
 § 9-102(a)(1) – “accessions”:
 Goods that are physically united with other goods in such a manner that the identity of the
original collateral is not lost…
 Generally speaking, as long as it is still separately identifiable, security interest continues in collateral
that becomes an accession.
Future Advances:
o Any new loan or other extension of credit after authentication of the security agreement.
o § 9-204(c):
 A security agreement may provide that collateral secures future advances or other value given in the
future…
 THEREFORE, in order to be governed by security agreement, there must be a “future advances” clause.
 i.e., “all obligations now or hereafter owed by debtor to lender”...
o In re Wollin:
 Minority case that blatantly disregards plain meaning of language of § 9-204(c)…
 Court adopted rule that in order for “future advances” clause (aka “dragnet” clause) to cover future
loans, the future loan must be of the same class as the primary/initial loan, and must be so related to it
that the consent of the debtor to its inclusion may be inferred…
 i.e., the “specific reference” standard…
Automatic Attachment:
o § 9-203(f) – automatic attachment in proceeds and supporting obligations for collateral;
 Where collateral is right to receive payments, and such right is also supported by a supporting obligation
(i.e., a co-signor or guarantor), the security agreement automatically attaches to the supporting
obligation as well as the right to receive the payment.
o § 9-203(g) – automatic attachment in rights in a secured obligation.
 When a right to payment is offered as collateral, any lien securing that payment right automatically
follows with it.
 Example:
o Lender loans money to A in form of mortgage;
o If lender offers right to receive mortgage payments as collateral to a secured party, the
security interest also automatically attaches to the mortgage itself as well…
o § 9-203(h), (i) – automatic attachment in certain investment property.
 If security agreement describes collateral to include a securities account, it automatically also attaches to
all securities entitlements in that account.
6



If security agreement describes collateral to include a commodities account, it automatically also
attaches to all commodity contracts within that account.
Creating an Enforceable Security Interest; Scope of Article 9:
o § 9-109(a)(1):
 Article 9 applies to any transaction "regardless of its form" that creates a security interest in personal
property or fixtures by contract.
 i.e., form does not matter, substance does; parties need not label their arrangement as a security
agreement or refer to the interest created as a security interest.
o § 1-201(b)(35):
 Covers "conditional sales contracts"…
 Where seller sells goods to buyer on contract and retains title to the goods until full payment has
been made.
 Gives seller security interest in goods until they have been paid for…
 Governed as a security agreement under Article 9…
o Leases:
 Defined in § 2A-103(1)…
 In a true sale, the seller does not expect to get the property back if the buyer pays; in a true lease, the
lessor does get the property back after the lessee pays and the lease term expires.
 Determination b/w “lease” and “conditional sales contract” is made by use of the “economic realities
test”:
 Test is "whether there is a reasonable likelihood that the party denominated as "lessor" truly
retains a valuable, residual economic interest in the goods.
o (1) whether the lease term equals or exceeds the entire economic life of the goods; OR
o (2) whether some provision of the lease agreement is likely to trigger an event that
prevents the goods from ever reverting back to the lessor while they still have economic
life.
 If either of these is true, the UCC treats the transaction as a sale with a retained security interest.
o If not, the UCC treats the transaction as a true lease.
o LEASE DISTINGUISHED FROM SECURITY INTEREST IN § 1-203…
Bankruptcy Consequences on Attachment:
o (1) AAP clauses do not work once the bankruptcy process has begun…
 Part of fresh start; limits creditors to the rights that they had at the time the bankruptcy petition was
filed…
o (2) Proceeds that are traceable to the collateral are available in bankruptcy…
 Merely extension of collateral at the time the petition was filed…
o (3) For future advances, must have court permission…
o (4) Value of collateral:
 Determined at the moment the petition was filed;
 Post-petition interest is only allowed to over-secured creditors to the extent of the value of the collateral;
Chapter 4 – Perfection:
 Attachment allows security interest to be enforced against the debtor; perfection allows security interest to be enforced
against the rest of the world…
 § 9-308(a):
o The “attachment +” requirement;
 Perfection of security interest merely requires attachment, plus the fulfillment of one of the other steps
laid out in §§ 9-310 – 9-316.
 Possible Perfection Methods:
o (1) filing a financing statement in the appropriate government office;
o (2) SP takes possession of the collateral;
o (3) SP acquires control of the collateral;
o (4) attachment of the security interest brings about automatic perfection;
o (5) compliance with some other law outside of Art. 9 that determines perfection.
 Filing a financing statement:
o § 9-310(a):
7

o
o
o
o
Except as otherwise provided in subsection (b) and § 9-312(b), a financing statement MUST be filed to
perfect all security interests and agricultural liens.
§ 9-102(a)(39) – “financing statement”:
 A record or records composed of an initial financing statement and any filed record relating to the initial
financing statement.
Financing statement requirements:
 § 9-502(a) – a financing statement is sufficient only if it:
 (1) provides the name of the debtor;
o § 9-519(c),(f) – financing statements are indexed by debtor’s name.
o § 9-503(a) governs sufficiency of debtor’s name.
 (2) provides the name of the SP or a representative of the SP; AND
o § 9-503(d),(e) govern sufficiency of SP’s name.
 (3) indicates the collateral covered by the financing statement.
o § 9-504 governs indication of collateral.
Errors in Financing Statement:
 (1) debtor’s name;
 § 9-503(a) governs what the correct name of the debtor should be.
 § 9-506(a) states that errors in financing statement are effective unless the errors make financing
statement seriously misleading.
 § 9-506(b):
o A financing statement that fails sufficiently to provide the name of the debtor in
accordance with § 9-503(a) is seriously misleading.
 § 9-506(c):
o The name listed on the financing statement is not seriously misleading if a search under
the correct name would bring up the erroneous name as one of its results.
 In re Kinderknecht:
o Debtor’s legal name is “Terrance Joseph Kinderknecht”;
o Financing statement said “Terry J. Kinderknecht”;
o Upon filing bankruptcy, TIB effectively challenged status of secured claim b/c error in
name prevented perfection of security interest.
 (2) SP’s name:
 Only very indirectly governed under § 9-503.
 § 9-506(a) “seriously misleading” standard applies;
o However, § 9-506(b),(c) do not apply to SP’s name.
 Error in SP’s name generally does not matter.
o However, see § 9-506, cmt. 2 under which it may bring about estoppel issues.
 (3) Indicating the Collateral:
 Governed by § 9-504:
o (1) sufficient if described pursuant to rules of § 9-108;
o (2) otherwise sufficient if describes as “all assets” or “all personal property”.
 Also, mere reference to description in security agreement is not enough…
 § 9-506(a) “seriously misleading” standard applies…
Filing Office Duties:
 § 9-516(a) – What constitutes filing:
 Communication of a record to a filing office and tender of the filing fee or acceptance of the
record by the filing office constitutes filing.
 § 9-516(b) – Reasons for Rightful Refusal.
 § 9-516(d) – Wrongful refusal still effective.
 § 9-520(a) – Mandatory Refusal to Accept:
 A filing office SHALL refuse to accept a record for filing for a reason set forth in § 9-516(b),
and may refuse to accept only for such reasons.
 § 9-520(c) – When wrongfully filed still effective:
 If filed financing statement satisfies § 9-502(a) and (b), it is still effective even if the filing
office should have rejected it under § 9-520(a).
8


§ 9-517 -- if the filing office misindexes the financing statement, that mistake does not affect the
effectiveness of the filing.
 § 9-519(a),(b) -- filing office is supposed to assign a unique number to each financing statement.
 § 9-512(a)(1) -- amendments to the financing statement must reference such number.
 § 9-519(c),(h) -- filing office is supposed to index a financing statement within two business days of
receiving it.
 § 9-523(c),(e) -- filing office is supposed to respond to search requests within two days as well.
 § 9-523, cmt. 8 -- filing office's failure to meet these two performance standards has no affect on the
rights of the filer or any user of the filing system.
o Authority to File:
 §§ 9-509 & 9-510 state that for a financing statement to be effective to perfect a security interest, the
debtor must authorize its filing.
 § 9-509(a)(1):
 A person may file a financing statement if debtor authorizes filing in an authenticated record
OR;
o Used for pre-attachment filings…
 § 9-509(b)(1):
 Upon authentication of the security agreement, the SP is authorized to file a financing statement
that describes collateral in the same way that the security agreement does.
 § 9-509 cmt. 3:
 If lender files a financing statement w/out debtor’s authorization and debtor later accepts a loan
and authenticates a security agreement, the financing statement becomes authorized as of the
date it was originally filed…
 i.e., Ipso Facto Authorization…
o Where to File:
 § 9-501:
 If real estate, in county where property is located;
 If personal property, in designated office (usually SOS).
o Length of Filing’s Effectiveness:
 § 9-515(a):
 Generally speaking, a financing statement is effective for 5 years from date of filing.
 § 9-515(c):
 At end of 5 year period, security interest becomes unperfected;
o UNLESS a continuation statement (§ 9-102(a)(27)) was filed before period expired.
 § 9-515(d):
 Continuation statement can only be filed w/in 6 months before 5 year period expires.
 § 9-515(e):
 If continuation statement is timely filed, financing statement remains effective for another 5
year period beginning from the date that it would have lapsed if not continued.
 § 9-509(d):
 SP does not need debtor’s authorization to file a continuation statement.
 §§ 9-519(g), 9-522(a):
 Filing office is not supposed to remove debtor’s name form index until 1 year after lapse of
financing statement.
o Other Filings:
 § 9-502 – financing statement;
 § 9-512 – amendments;
 § 9-515 – continuation statement;
 § 9-513 – termination statement;
 §§ 9-512, 9-514 others;
o Change names or addresses, add or release collateral, assign filing, etc.
Other Methods of Perfection:
o § 9-310(a):
 Filing statement is required for perfection of security interest or agricultural lien unless exception in (b)
applies.
o § 9-310(b):
9



 Provides exceptions based on type of collateral at issue…
o Summary:
 Filing:
 Works for everything but money and deposit accounts.
 Possession:
 Works for everything but deposit accounts, investment property, accounts or general
intangibles.
 Control:
 Works only for electronic chattel paper, electronic documents of title, certificated securities,
deposit accounts, and investment property.
 Automatic:
 PMSI in consumer goods;
 temporary interest in documents of title, certificated securities or instruments;
 accounts if not a significant portion.
Alternative Filing Systems:
o Governed by § 9-311:
 (a) financing statement is unnecessary to perfect security interest in property subject to:
 (1) federal statutes that preempt state UCC;
 (2) property subject to state’s certificate of title statute;
 (3) certificate of title statute of another jurisdiction.
 (b) compliance with other law listed in (a) is equivalent to perfection under Art. 9.
 (d) certificate of title statutes do not apply to inventory held to sale or lease by a person in the business
of selling goods of that kind…
 i.e., cars held by car dealer for sale would dealt with under Art. 9 as inventory, not under state
certificate of title statute…
Perfection by Possession:
o § 9-312(b) – only way to perfect security interest in money.
o § 9-313(a):
 Permissible way to perfect security interest in goods, instruments, tangible chattel paper and tangible
negotiable documents of title.
o § 9-313(b):
 Not permissible way to perfect goods covered by state certificate of title statute.
o § 9-313(c):
 Allows a bailee to authenticate a record to the SP that it is holding the collateral for the SP’s benefit.
o § 9-312:
 Governs situations where bailee issues a document of title;
 All other bailee situations are governed by § 9-313(c).
 Distinguishes b/w negotiable and non-negotiable documents of title.
o § 9-313(d),(e):
 Perfection through possession is only effective as long as possession is retained.
o What is possession?
 § 9-313, cmt. 3:
 (1) SP may possess collateral though an agent;
 (2) debtor may not serve as SP’s agent for this purpose;
 (3) Art. 9 does not define possession; left up to common law.
Perfection by Control:
o § 9-314(a):
 Security interest in deposit accounts, electronic chattel paper, letter-of-credit rights, or electronic
documents is perfected by control as long as SP remains in control of collateral.
o § 9-310(b)(8):
 Filing of financing statement is not necessary to perfect collateral listed in § 9-314(a) that is perfected
via control.
o Control is different for different types of collateral:
 §§ 9-106 and 8-106 govern control of investment property;
 § 9-104 governs control of deposit accounts;
 § 9-107 governs control of letter-of-credit rights;
10


 § 9-105 governs control of electronic chattel paper;;
 § 7-106 governs control of electronic documents of title.
Automatic Perfection:
o Perfection at attachment with no other steps required.
o (1) PMSI in Consumer Goods:
 PMSI is defined by § 9-103(b)(1):
 A security interest in goods is a PMSI to the extent that the goods are purchase-money collateral
with respect to that security interest.
 SEE § 9-103(a)(1) and (2) for definitions of purchase-money collateral and purchase-money
obligation.
 § 9-309(1):
 Automatic perfection for PMSI in consumer goods unless governed by state certificate of title
law.
 § 9-310(b)(2):
 No financing statement is needed for automatic perfection under § 9-309.
 Usual situations where PMSI in consumer goods arise:
 (1) Seller sells object on credit to buyer and retains security interest in object to secure unpaid
portion of purchase price;
 (2) Creditor loans money to borrower to use to purchase object; borrower grants creditor
security interest in object to secure loan.
o (2) Associated Collateral:
 Situations where perfection of an interest in one type of collateral automatically perfects security
interest in another type of collateral.
 § 9-308(d):
 Perfection of security interest in collateral also perfects security interest in supporting obligation
for collateral.
 § 9-102(a)(77) defines support obligation.
 § 9-308(e):
 Perfection of security interest in a right to payment or performance also perfects security
interest in a security interest, mortgage, or other lien.
o (3) Temporary Automatic Perfection:
 § 9-310(b)(5):
 Exception to the filing statement requirement.
 § 9-312(e):
 Deals with security interests in certificated securities, negotiable documents, or instruments to
the extent that the security interest arises fro new value given.
 Allows automatic perfection for 20 days.
 § 9-312(f):
 20 days of automatic perfection for negotiable document or goods in possession of a bailee if SP
makes goods available to the debtor during purchase process.
 § 9-312(g):
 20 days of automatic perfection for certificated security or instrument where SP delivers such
items to debtor for purpose of sale, transfer, etc.
Choice of Law:
o § 9-301(1):
 Law of jurisdiction where debtor is located controls perfection, effect of perfection or nonperfection,
and priority.
o § 9-301(2):
 Law of jurisdiction where collateral is located controls for a POSSESSORY security interest.
o § 9-301(3):
 Governs fixtures, timber, etc.
o § 9-301(4):
 Governs wellheads or mineheads.
o § 9-302:
 For agricultural liens, law of jurisdiction where farm products are located controls.
o § 9-303:
11

 Deals with certificate of title;
 (c) local law of jurisdiction under whose certificate of title the goods are covered controls.
o § 9-304:
 Deals with deposit accounts.
o § 9-305:
 Deals with investment property.
o § 9-306:
 Deals with letter-of-credit rights.
o § 9-307:
 Determines where debtor is located for purposes of § 9-301(1).
Maintaining Perfection (Changes):
o Types of Changes to consider:
 (1) acquiring new collateral based on AAP clause;
 (2) acquiring new collateral via proceeds;
 (3) changes in use of collateral;
 (4) changes in location of collateral;
 (5) changes in loan;
 (6) changes in debtor (new debtor);
 (7) changes in initial debtor:
 Changes in name;
 Changes in location
o Passage of Time:
 Perfection by possession or control – perfected as long as possessed/controlled by SP;
 Perfection by certificate of title – once noted on certificate; forever perfected as long as collateral exists;
 Perfection by filing statement – perfected for 5 years; must file continuation statement w/ in 6 month
period before perfection lapses.
o Changes in Collateral or Perfection Method:
 Acquiring new collateral via AAP clause in SA:
 § 9-204(a):
o If new items fall w/ in description of collateral in SA, SI will attach to new items
o Subject to limitations in § 9-204(b).
 If perfected by financing statement (must fall w/ in collateral description), SI in new collateral is
perfected as well.
o If outside of description, file an amendment to financing statement under § 9-509(a),
which will be effective from date of original financing statement (§ 9-512.)
 If perfected by possession or control, SP must take possession of new collateral as well.
o Perfected from moment of possession on.
 Acquiring new collateral via proceeds of original collateral:
 § 9-315(c) – if SI in collateral was perfected, SI in proceeds is perfected for a limited time.
 § 9-315(d) – SI in proceeds becomes unperfected on 21st day after SI attaches to them unless SP
perfects its interest in proceeds pursuant to this section:
o § 9-315(d)(3) – proceeds covered by collateral description in financing statement area
automatically perfected.
o § 9-315(d)(2) – if proceeds are identifiable “cash proceeds”, SP perfected in original
collateral remains perfected.
 § 9-102(a)(9) – definition of cash proceeds.
o § 9-315(d)(1) – automatic perfection beyond 20-day period if:
 (i) SI in original collateral was perfected by financing statement;
 (ii) proceeds are collateral of type that financing statement filed in same office
could be filed to perfect them;
 (iii) proceeds are not acquired with cash proceeds.
 § 9-315(e) – such perfection continues as long as financing statement is
effective.
o Changes in location or characterization of collateral:
 Generally, change in use or location of collateral does not require any action to be taken.
 However, action is necessary when:
12

o
o
o
o
o
o
o
o
(1) automobiles subject to certificate of title statute go from being inventory (for a car dealer) to
equipment for the same car dealer – financing statement is no longer valid to perfect the cars, and
perfection must be noted on certificate. SEE § 9-311(a)(2),(d).
 (2) SI is noted on certificate of title in State A, and debtor gets new title in State B – SP must note
security interest on new certificate of title w/ in 4 months. SEE § 9-316(d),(e).
 (3) SP perfected agricultural lien in farm products by filing financing statement in State A where farm
products are located. SEE § 9-302. Debtor moves farm products to State B, therefore, SP must file an
effective financing statement in State B to regain perfection.
 (4) SP has perfected SI in timber to be cut via financing statement filed in county where timber is
located. SEE § 9-301(3), § 9-501(a)(1)(A). Timber is cut down, SP must file in central filing office of
state in which debtor is located. SEE § 9-301(1), § 9-501(a)(2).
SEE CHART ON P. 278
Changes in Loan:
 § 9-204(c) – if future advances clause in SA, new amount loaned is secured; if not future advances
clause, must amend SA or enter into new SA to secure the new advance.
Changes in Debtor’s Name:
 Only relevant where perfection by financing statement.
 § 9-507(b),(c) – if name change renders filed financing statement seriously misleading under § 9-506,
filed financing statement is ineffective to perfect a SI in collateral acquired by debtor more than four
months after the name change.
 Conversely, financing statement remains effective to collateral acquired before, or w/ in four
months of name change.
 § 9-509 – to retain perfection of collateral acquired more than four months after name change, must
amend financing statement before four month period is up to retain initial date of filing as perfection.
 § 9-507, cmt. 4 – If wait until after four months to amend financing statement, perfection goes
from date of amendment.
Adding or subtracting Debtors:
 § 9-512(d),(e) – amendment needed to add or subtract debtors.
 Financing statement effective to added debtors are time of addition.
 Financing statement terminated as to old debtors at time of subtraction.
Changes in Debtor’s Location:
 Relevant where debtor’s location governs choice of law for perfection (§ 9-301(1); § 9-305(c)).
 Effect of change governed by § 9-316(a),(b).
 Generally, SP has 4 months to re-perfect in new jurisdiction.
 If financing statement will expire before end of four month period, SP must perfect in new state
before financing statement expires.
 Move within same jurisdiction creates no problems.
Disposition of Collateral:
 § 9-315(a)(1) – SI remain attached to collateral despite transfer to new owner unless SP authorized
disposition free of SI.
 § 9-507(a) – upon disposition, financing statement still effective even though old debtor is listed.
 Exception:
 § 9-316(a) – if collateral is transferred to person located in another jurisdiction, SP has one year
to re-perfect.
 § 9-316(b) – if not, collateral becomes retroactively unperfected.
SEE CHART ON P. 287.
Changes in Secured Party:
 § 9-507(b) – subsequent change in name of SP is not relevant to effectives of financing statement.
 § 9-310)(c) – SI or AL may be assigned to another person and remain perfected w/out need to file notice
of assignment in filing system.
 § 9-514 – amendment indicating assignment may be filed, but is not necessary to maintain perfection.
Chapter 5 – Priority:
 SI Against Judicial Liens:
o General Rule:
 § 9-201(a) – unless provided otherwise in Article 9, SP has priority against other types of lienholders.
13


§ 9-317(a)(2) – SI or AL is subordinated if LC lien arises before SP does either of two things:
 (1) perfects its SI or AL; or
 (2) files financing statement and satisfies § 9-203(b)(3).
o Basically requires authentication of SA and financing statement w/out also requiring
value given and debtor’s rights in collateral.
o PMSI against Judicial Liens:
 § 9-317(e) – allows SP to have priority over judgment creditor in PMSI situation as long as SP files a
financing statement w/in 20 days after debtor receives delivery of the collateral.
o Secured Future Advances v. Judicial Liens:
 If SI is subordinated to the rights of a lien creditor, SP’s future advance will likewise be subordinated.
 § 9-323(b) – Lien Creditor’s lien is subordinate to SP’s future advance if:
 Advance is made w/in 45 days of lien creditor’s lien arising; or
 Advance is made after 45 days and w/out knowledge of lien creditor’s lien.
SI v. SI:
o First to File or Perfect:
 § 9-322(a)(1) – when two SI are perfected, first in time to file or perfect has priority.
 § 9-322(a)(2) – a perfected SI has priority over unperfected SI.
 § 9-322(a)(3) – if conflicting SI are unperfected, priority goes to first to attach.
o § 9-322(g) – if statute so provides, perfected AL may have priority over perfected SI.
o Exceptions:
 § 9-338(1) – if first party’s financing statement is incorrect, and second party grants SI in reliance on
such incorrect information, first party’s error makes first party subordinate to second party.
 § 9-337(2) – if first party has lien noted on certificate of title; debtor gets new certificate and first
party’s line is mistakenly left off, first party is subordinate to any second party whose lien is noted on
title AS LONG AS SECOND PARTY HAD NO KNOWLEDGE of first lien.
o Proceeds:
 § 9-203; § 9-315(a)(2) – SA automatically attaches to proceeds.
 § 9-322(b):
 Uses first to file or perfect rule that is used for original collateral.
 Time of filing or perfection in proceeds relates back to time of filing or perfection in original
collateral, assuming no intermediate period when SI was unperfected.
o Priority of PMSI:
 § 9-324(a):
 To obtain PMSI priority in goods other than inventory and livestock, SP need perfects its
interest either before debtor receives possession of the collateral or within 20 days thereafter.
 § 9-324(b):
 To obtain PMSI priority in inventory:
o SP must perfect by the time debtor receives possession;
o SP must send notification to any prior, perfected inventory lender;
o Prior lender must receive such notification before debtor receives inventory but not
more than 5 years before.
o Proceeds of PMSIs:
 Special priority rules for PMSIs also extend to proceeds of such goods.
 § 9-324(a),(d) -- PMSI priority in equipment and livestock extends to all proceeds of the original
collateral.
 § 9-324(b) -- PMSI priority in inventory extends only to cash proceeds, and only if such proceeds are
received by the debtor prior to the delivery of the inventory to the buyer.
o Double-Debtor Problem:
 Occurs where collateral is sold subject to SI, and buyer of collateral grants SI to new SP.
 § 9-325(a) -- SI created by debtor is subordinated to a SI in same collateral created by another person if:
 (1) D acquired collateral subject to SI;
 (2) such SI was perfected when D acquired collateral; AND
 (3) there is no period thereafter when SI is unperfected.
o Future Advances:
14



Usually future advance has same priority date as original value given (due to relation back to date of
filing or perfection).
Exception:
 § 9-323(a) – when SI is automatically perfected under § 9-309 or § 9-312, perfection and
priority date from time when advance is made.
SP v. Buyer:
o General Rule:
 § 9-315(a)(1) – SI continues in the collateral notwithstanding the its disposition unless the SP authorizes
the disposition free of the SI.
 Such authorization strips (de-attaches) SP’s SI.
 However, does not detach interest in proceeds of such collateral.
o Exception 1 – Unperfected SI:
 § 9-317(b) – a buyer (other than a SP) of tangible chattel paper, tangible documents, goods, instruments,
or a security certificate takes free of SI IF buyer gives value and receives delivery of collateral w/out
knowledge of SI before it is perfected.
 § 9-317(e) – covers rules regarding PMSI.
o Exception 2 – Buyers in the Ordinary Course of Business:
 § 9-320(a) – buyer in the ordinary course of business will take free of SI created by seller even if buyer
has knowledge of such SI.
 Limitations:
o SI must have been created by buyer’s seller;
o Rule does not protect buyer if SP has possession of goods under § 9-320(e);
o Rule does not protect a person who buys farm products from a farmer.
o SEE also § 2-403 (BOO)
 § 1-201(b)(9) – definition of “buyer in the ordinary course of business”:
 Buyer must:
o Buy goods;
o In good faith;
 Honesty in fact, observance of reasonable commercial standards and fair
dealing.
o w/out knowledge that sale violates the rights of another person in the goods;
 buyer can know about SI, they cannot know that sale violates SA.
o In the ordinary course of business;
 Cannot be a bulk transfer (buying a store’s entire inventory);
 Cannot be purchased through forgiveness of an antecedent debt.
o From a person in the business of selling goods of the kind; and
 Seller is a merchant – i.e., can by a tractor from John Deere, but not from
farmer Joe.
o Take possession of the goods or have a right to take possession from seller under
Article 2…
 IF NECESSARY SEE “In re Havens Steel Company” case on p. 349 of text book.
o Exception 3 – Consumer to Consumer Sales:
 § 9-320(b) – “garage sale” exception:
 A consumer buyer takes free of a SI if buyer does not have knowledge of SI, buys for value, and
the SP has not filed a financing statement.
 Only applies where goods are consumer goods in the hands of both buyer and seller.
 Meant to apply to situation where there is an automatic perfection of PMSI in consumer goods
not subject to certificate of title law.
Chapter 6 – Fixtures:
 § 9-109(a)(1) – Article 9 does apply to SI in fixtures.
 § 9-102(a)(41) – “fixtures” – goods that have become so related to particular real property that an interest in them arises
under real property law.
 Enforcement:
15
o
o


Governed by § 9-604.
Under § 9-604(c) – SP must have priority in the fixtures in order to remove them from the real property and
dispose/retain them afterwards.
Perfection:
o b/c fixtures are goods, perfection of fixtures may be had in the same way that perfection of any goods is
allowed.
 i.e. – financing statement; possession; automatically (if PMSI in consumer goods).
o However, for priority purposes, perfection should occur through the use of a “fixture filing”:
 § 9-301(3)(A) – choice of law – where fixtures located governs perfection with fixture filing.
 § 9-501(a)(1)(B) – place of filing for fixture filing is county real estate filing office.
 § 9-502(b) – governs required content of fixture filing in order to be effective.
Priority:
o Governed by § 9-334:
 General rule:
 § 9-334(c) – SI in fixtures is subordinate to a conflicting interest of an encumbrancer or owner
of the related real property (other that the debtor).
o i.e., SI is subordinate to a mortgage/lien holder.
 Exceptions:
 § 9-334(d) – deals with PMSI in fixtures.
o But see § 9-334(h) if mortgage is construction mortgage.
 § 9-334(e)(1) – fixture filing exception.
 § 9-334(e)(2) – before goods were fixtures they were perfected domestic appliances that are
consumer goods.
Chapter 3 – Enforcement:
 Default:
o Not defined in Article 9 – default is governed by the SA b/w the parties.
o § 9-606 governs default of agricultural liens.
o SA is enforceable against debtor upon attachment (perfection is not required unless there are competing SI’s to
consider).
o Possible Default Clauses:
 Debtor moving to new jurisdiction;
 Collateral being moved to new jurisdiction;
 Disposition of collateral w/out SP’s permission;
 Debtor changing its name w/out prior notice to SP.
 Acceleration & Cure:
o Acceleration clauses in SA allow the entire amount of the loan to be due upon default of the debtor, which
allows the SP to enforce the SA (seize the collateral) immediately.
o Limitations on acceleration:
 § 1-309 – where default is based on “insecurity”, coupled with good faith requirement of § 1201(b)(20).
 Rights Upon Default:
o § 9-601(a):
 After default, a SP has the following rights:
 (1) SP may reduce claim to judgment, foreclose, or otherwise enforce the claim by any available judicial
procedure.
o § 9-601(e):
 If SP reduces its claim to judgment and goes through the levy process, the date of priority of the levy
relates back to the time of filing or perfection (whichever comes first).
o § 9-602:
 Covers waiver of rights; most important rights cannot be waived until after default.
 Repossession:
o Different than foreclosure;
 Foreclosure is cutting off the debtor's rights to the property; repossession deals with actually physically
dispossessing the debtor of the property.
o § 9-609(a):
16
o
o
 (1) After default, SP may take possession of collateral; and
 (2) without removal, render equipment unusable and dispose of collateral on debtor's premises.
§ 9-609(b):
 (1) After default, SP may proceed pursuant to judicial process; or
 (2) Without judicial process, WITHOUT breaching the peace.
 This is important, b/c some property cannot be repossessed w/out breaching the peace.
 What constitutes breach of the peace is defined by common law, not by Article 9…
Giles v. First Virginia Credit Services, Inc.
 Breach of the peace case.
 What constitutes breach of peace:
 Breaking and entering;
 Violence;
 Five-factor test from case -- balancing test:
 (1) where the repossession took place;
 (2) the debtor's express or constructive consent;
 (3) the reactions of third parties;
 (4) the type of premises entered; and
 (5) the creditor's use of deception.
17