• What is a security interest? Who is a
secured party? What is a security
agreement? What is a financing
statement?
• What three requirements must be met
to create an enforceable security
interest? 
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• What is the most common method of
perfecting a security interest under
Article 9?
• If two secured parties have perfected
security interests in the collateral of
the debtor, which party has priority to
the collateral on the debtor’s
default?
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• What rights does a secured creditor
have on the debtor’s default?
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• UCC Article 9 governs transactions
when personal property is put up as
collateral for debt, including:
–Accounts, agricultural liens, chattel
paper (writings evidencing a debt),
commercial assignments, fixtures,
instruments and other intangible
property.
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•
•
•
•
•
•
Secured Party.
Debtor.
Security Interest.
Security Agreement.
Collateral.
Financing Statement: UCC-1 form.
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• To become a secured party, a creditor
must “attach” a security interest in
collateral of debtor.
• Three requirements to “attach”:
–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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• Written or Authenticated Security
Agreement.
–When collateral is not in possession of
secured party, security agreement must
be written or authenticated, reasonably
describe collateral, and be signed by
debtor.
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• Secured Party Must Give Value.
–Creditor gives any consideration that
would support a simple contract.
–Creditor already gave consideration
(antecedent debt).
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• Debtor Must Have Rights in the
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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• 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:
–Perfection by Filing a financing
statement.
–Perfection Without Filing Financing
Statement. 
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• Perfection By Filing.
–The Debtor’s (Legal) Name and
Address.
• Specific Types of Debtors: corporate
names must be on the “public record” on
file with government in debtor’s
jurisdiction.
• Trade Names: generally not sufficient for
a financing statement.
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• Perfection By Filing (cont’d).
–The Debtor’s (Legal) Name (cont’d).
• Changes in the Debtor’s Name.
–Description of the Collateral: provides
sufficient notice to public.
–Where to File: central state government
office (usually secretary of state).
• County Filing: only with timber, fixtures, or
items to be extracted (oil, gas, minerals).
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• Perfection By Filing (cont’d).
–Consequences of an Improper Filing.
Any improper filing renders the
secured party’s interest unperfected,
to an unsecured interest in
bankruptcy.
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• Perfection Without Filing.
–Security interests can be perfected
without filing a financing statement:
• When collateral is transferred into
possession of secured party.
• When security interest can be “perfected
on attachment” (PMSI in consumer
goods, and assignment of beneficial
interest). 
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• Perfection Without Filing (cont’d).
–Perfection by Possession: common law
“pledge” in Art. 9; security instrument does
not need to be in writing if collateral in
creditor’s possession.
–Perfection by Attachment (PMSI): most
common is purchase money security
interest in consumer goods. 
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• Perfection Without Filing (cont’d).
–Perfection by Attachment (cont’d).
• Automatic Perfection: at the time of sale
of goods.
• Exceptions to Automatic Perfection: (1)
certain types of security interests subject
to federal or state laws, and (2) PMSI’s in
non-consumer goods (business inventory
or livestock).
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• Effective Time Duration of Perfection.
–Financing statement is effective for five
(5) years.
–If continuation statement is filed within
six (6)months prior to expiration,
original statement is extended an
additional five years.
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• Proceeds: cash or property received
when collateral is sold or disposed of
in some other way.
–Gives creditor a security interest in the
proceeds from sale of that collateral.
–Perfects automatically and remains
perfected for 20 days after debtor
receives the proceeds. 
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• Proceeds (cont’d).
–Extension of he 20 days can be
provided for in the financing
agreement. UCC also permits
identifiable cash proceeds to be
perfected after 20 days.
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• After-Acquired Property.
–Property debtor acquires after
execution of security agreement.
–Generally debtor buys new inventory
to replace old inventory, so security
agreement has an ‘after –acquired’
clause that gives secured party a
security interest in new collateral.
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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, called cross-collateralization.
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• Floating-Lien Concept: security interest
in proceeds, after-acquired property, or in
collateral subject to future advances.
–Floating Lien in Inventory: lien “floats”
over the changing inventory.
–Floating Lien in Shifting Stock of Goods:
raw materials to finished goods.
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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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• General Rule: when more than one
creditor claims rights in collateral:
–Perfected security interest has priority
over unsecured creditors and interests.
–Conflicting unperfected security
interests: generally first in filing has
priority. 
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• General Rule: (cont’d).
–Conflicting unperfected security
interests: first to attach has priority.
–CASE 24.1 Citizens National Bank of
Jessamine County v. Washington
Mutual Bank (2010). Which of the two
security interests in the land had
priority?
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• Exceptions to the General Rule.
–Buyers in the Ordinary Course of
Business.
• Buyer in good faith and without
knowledge of defects.
• Takes goods free of security interest.
–PMSI in Goods Other Than Inventory
and Livestock. 
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• Exceptions to the General Rule
(cont’d).
–PMSI In Inventory.
• Perfected interest in inventory has priority
over conflicting interest.
–Buyers of the Collateral.
• Buyers in the Ordinary Course of Business.
• Buyers of Farm Products, Instruments,
Documents, or Securities.
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• Information Requests.
• Release, Assignment, and
Amendment.
• Confirmation or Accounting Request
by Debtor.
–Debtor entitled to one request every
six months without charge. 
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• 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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• Basic Remedies:
–Repossession of the Collateral—Self
Help Remedy.
–Judicial Remedies: creditor can give up
security interest and sue to get
judgment, then execute or levy.
• CASE 24.2 First National Bank of
Litchfield v. Miller (2008). How could
Norwest and the bank avoided problems
in this case?
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• Disposition of the Collateral.
–After taking possession, secured party
has several options.
–Retention of Collateral by the Secured
Party: unless consumer goods and
buyer has paid 60% as PMSI. Secured
party must give timely notice to buyer
and any junior lienholder. 
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• Disposition of the Collateral (cont’d).
–Consumer Goods: if PMSI and buyer
has paid 60%, secured party must sell
or dispose of property within 90 days.
–Disposition Procedures: UCC allows
great flexibility. 
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• Disposition of the Collateral (cont’d).
–Disposition Procedures (cont’d).
• Secured party may sell, lease, license or
otherwise dispose of any collateral.
• Can be disposed at public or private sale,
as long as the process is commercially
reasonable.
• Secured party can purchase the
collateral. 
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• Disposition of the Collateral (cont’d).
–Disposition Procedures (cont’d).
• Price is only one aspect of a
‘commercially reasonable manner’ of
disposition.
• CASE 24.3 Hicklin v. Onyx Acceptance
Corp. (2009). What other factors besides
price did the court look for to show
commercially reasonable manner?
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• Disposition of the Collateral (cont’d).
–Proceeds from Disposition.
• Reasonable expenses incurred by
secured party.
• Balance of debt owed to secured party.
• Junior Lienholders.
• Surplus to Debtor.
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• Disposition Procedures (cont’d).
–Noncash Proceeds.
–Deficiency Judgment: difference
between sale and what is actually
owing by debtor.
–Redemption Rights: debtor or other
secured party to retake and maintain
the collateral.
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