Chapter 28
Secured Transactions
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Overview
Liens.
•Consensual Liens.
Art.9 secured transactions =
personal property.
Mortgages = real property.
•Statutory Liens.
Mechanic’s Lien.
Artisan’s Lien.
Innkeeper’s Lien.
Judicial Liens.
Attachment.
Writ of Execution.
Garnishment.
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Other Creditor
Remedies:
Composition.
agreements, ABC’s.
Suretyship.
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§1: Terminology
UCC Article 9 governs transactions when
personal property is put up as collateral for
debt.
Terminology:
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Security interest.
Secured party.
Debtor.
Security agreement.
Collateral.
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Tangible Collateral
Real Property.
Tangible Personal Property.
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Consumer goods.
Equipment.
Farm Products.
Inventory.
Fixtures.
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Intangible Collateral
Chattel Paper:
 A note with security agreement in it.
Documents of Title:
 Bills of lading, warehouse receipts.
Instruments:
 Notes, drafts, CDs.
Pure Intangibles:
 Accounts Receivable.
 General Intangibles: patents, trademarks,
copyright, trade name, good will.
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§2: Creating Security Interests
A valid security interest makes a creditor
“secured” and her rights “attach” to the
collateral. Attachment gives creditor
enforceable security interest.
Three requirements:
 1. Either: oral agreement and possession or a
written agreement.
 2. Secured creditor give debtor value.
 3. Debtor has rights in the collateral.
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Security Interest: Agreement
An oral agreement wherein the debtor puts
the personal property up as collateral and
gives possession of the collateral to the
secured party; or
A written agreement wherein the debtor
puts the personal property up as collateral,
describes the collateral reasonably
identifying it, and signs the agreement.
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Security Interest: Value
Creditor gives any consideration that would
support a simple contract.
Creditor already gave consideration (antecedent
debt).
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Security Interest:
Debtor’s Rights in Collateral
Debtor must have some interest (but not
necessarily ownership) in the collateral, or right
to obtain possession.
Rights can either be future or current legal
interests.
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Purchase Money
Security Interest (PMSI)
Sellers that finance the sale of durable goods take
PMSI. Occurs in two situations:
 Credit sale of the personal property which will be
collateral for the credit given.
 A loan is made to buy the personal property which
will be collateral for the loan.
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§3: Perfecting a
Security Interest
Debtors often put the same property up as
collateral to several different creditors.
Who gets the collateral if the debtor
becomes insolvent? General rule: the first
creditor to perfect the security interest gets
the collateral.
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Two Ways to Perfect
Filing a financing statement (in Texas--Secretary
of State).
Without Filing Financing Statement:
 By “Pledge”: Debtor transfers collateral to Creditor.
 Automatically by attachment of PMSI in consumer
goods (for personal or household).
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Perfection By Filing
Debtor’s and Creditor’s Name and Address.
 Changes in the Debtor’s Name.
 Case 28.1: Cabool State Bank v. Radio Shack (2002).
Description of the Collateral.
Where to File?
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Consumer goods - where debtor lives.
Farm equipment - where farm is.
Commercial transactions - central state office.
Fixtures - where real property is located.
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Perfection Without Filing
Perfection by Possession of Collateral:
 Money.
 Non-negotiable document of title.
 Instruments.
• Investment securities.
Automatic Perfection by Law:
 PMSI in consumer goods.
 Exceptions: 
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Exceptions to Automatic Perfection
Following collateral must be perfected by special
federal or state laws:
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FAA: aircraft.
UCC Art 8: investment securities.
UCC Art 7: documents of title.
State statutes: motor vehicle, boat trailers,
motorcycles, and motor home security agreements
must appear on certificate of registration filed with
state.
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§4: The Scope of a
Security Interest
Proceeds: whatever Creditor received when
collateral sold or disposed of.
Automatically perfected in proceeds of collateral
for 10 days after receipt of the proceeds by the
Debtor.
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To Perfect Proceeds
Beyond 10 days
Filed financing statement provides for
extended coverage.
Financing statement would be filed in same
place.
When financing statement would be filed in
same place for property bought by the debtor
with cash proceeds.
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To Perfect Proceeds
Beyond 10 days
Financing statement covers original collateral
and proceeds are identifiable cash proceeds.
Perfected before the 10 days in a different place
as called for by the kind of property proceeds.
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After-Acquired Property
Creditor wants to have a security interest in
property acquired after the security interest is
signed.
 Inventory as collateral: will be sold, and more
inventory brought in - Creditor wants a security
interest in the new inventory.
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Future Advances
Used in establishing a “line of credit.”
Creditor wants to lend money in the future that
will be secured by the same collateral as debtor
puts up for first loan.
Creditor and Debtor do not want to execute a
new security agreement every time the debtor
needs to borrow money - the first security
agreement covers future advances.
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The Floating-Lien Concept
Commonly used in the financing of inventory the lien “floats” over the changing inventory.
 After-acquired property clause will cover new
inventory as it comes in.
 Future advances clause will enable debtor to borrow
money again and again without putting up new
collateral or entering into a new agreement.
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§5: Priorities
Creditor Interest
Priority
Secured vs. unsecured creditors
Secured wins
Perfected secured vs. unperfected
secured creditor
First in Time wins
Secured creditor vs. secured creditor First in time wins
Buyer not in the ordinary course of
the Seller’s business
BNIOCB loses
Buyer in the ordinary course of the
Seller’s business
BIOCB wins
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Priorities [2]
General Rule: Secured Party vs. Lien Creditor:
first in time has priority.
Exceptions:
 PMSI creditor has an extra 10 days to file which is
then retroactive.
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Priorities [3]
When More Than One Party has security in same
Collateral: first in time wins.
Exceptions:
 PMSI creditor in inventory.
 PMSI creditor in equipment.
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§6: Rights and Duties
of Debtors and Creditors
 Information Requests.
 Release, Assignment and Amendment.
 Confirmation or Accounting Request by Debtor.
 Debtor entitled to one request every six months without
charge.
 Termination Statement.
 All creditors must file.
 For consumer debts, must file within one month or when
request in writing, must file within 10 days of receipt of
request, whichever is earliest.
 For all other written requests - within 10 days of receipt.
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§7: Debtor’s Default
Basic Remedies:
 Creditor can give up security interest and sue to
get judgment, then execute.
 Take possession and keep or sell.
Secured Party’s Right to Take Possession, but
no breach of peace.
Case 28.2: Bank Brothers Corp. v. Donovan
Floors Inc. (1996).
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Disposition of Collateral
After taking possession, Creditor must give
notice of plans for the collateral:
 Notice.
 Wit 21 days for objection.
 Consumer Goods exception.
Sale of Collateral By Secured Party.
 Notice.
 Commercially reasonable manner.
Case 28.3: Fielder v. Credit Acceptance (1996).
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Disposition Procedures
Proceeds from disposition.
Deficiency Judgment.
 not for accounts or chattel paper unless court order or
security agreement.
Redemption Rights.
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Law on the Web
Revised Article 9 at U of Penn.
Secured transactions at Cornell U.
Legal Research Exercises on the Web.
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