UCC: Secured Transactions Outline

Purposes of the Article 9—stability, certainty, uniformity, and predictability. Notice.

9-109(a)(1) “a transaction, regardless of its form that creates a security interest in personal property or fixtures by
contract.” Cmt. 2: subjective intent of the parties with respect to the legal characterization of their transaction is
irrelevant to whether this Article applies. Security interest must be consensual.
1-201(b)(35) reservation of title serves as holding a security interest in a good.
9-102(a)(12) Collateral—the property subject to a security interest or agricultural lien. (59) Obligor—the person
who has to pay back the loan. (73) Secured Party—the party that gave the loan using a security interest. (74) Security
Agreement—an agreement that creates or provides for a security interest. Comment 3b to §9-102 Securing
agreement is not the document or writing that contained a debtor’s security agreement.
Brown v. Indiana National Bank—hockey player’s contract. Security Agreement, not Assignment. Security
agreement secures payment of obligation. Assignment is a complete transfer of rights.
The Unsecured Creditor—usually have to enforce their rights through judicial process (i.e. judgment creditors).

Types of Collateral: 9-102(a) A document to be drafted, a form to be filled out, or a notice to be given is valid and
works as intended only if it contains a proper “description” or “indication” of the collateral. There is no hierarchy in
the types of collateral.
(44) Goods—things that are movable when a security interest attaches. The classes of goods are mutually exclusive.
In close cases, the principal use to which the property is put is determinative. Goods can fall into different classes at
different times. If not another category, then equipment.
 (23) Consumer Goods—primarily for personal, family, or household purposes.
 (34) Farm Products— crops, livestock, supplies used or produced in farming operation, products of crops
or livestock in unmanufactured states. Aquatic goods produced in aqua-cultural operations. NOT: Standing
Timber.
 (35) Farming Operation—raising, cultivating, fattening, grazing, etc.
 (48) Inventory—short-run inputs; materials to make something else; leased; or held for sale or lease.
 (33) Equipment—long-run inputs; goods that are not one of the above.
Intangibles and Quasi-Intangibles: 9-102(a)

 (47) Instrument—a negotiable instrument or any other writing that evidences a right to the payment of a
monetary obligation. Comment 5c E.g. check or note, not Account.
 (30) Document—a document of title or a receipt of the type describe in §7-201(b)—receipt for goods.
 (11) Chattel paper—a record or records that evidence both a monetary obligation and a security interest in
specific goods. Promise to pay + Security Interest
o (31) Electronic chattel paper—chattel paper in electronic medium
o (79) Tangible Chattel paper—chattel paper inscribed on a tangible medium
 (2) Account—a right to payment of a monetary obligation, whether or not earned by performance. Comment
5a “a right to payment for property that has been sold, for services rendered. Good being sold or service
being rendered. E.g. Account Receivable. Not: deposit accounts, promissory notes, etc.
 (29) Deposit account—a demand, time, savings, passbook, or similar account maintained with a bank. NOT:
Investment property or accounts evidenced by an instrument.
 (13) Commercial tort claim
 (42) General Intangible--any personal property, including things in action other than…
o Cmt. 5d: Things in action (e.g. IP rights) These are rights to do something. Any personal property
that doesn’t fit elsewhere (like equipment to tangible goods).

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 o (61) Payment Intangible—a general intangible under which the account debtor’s principal obligation
is a monetary obligation. E.g. stream of payments under a loan.
o (76) Software—a computer program and any information in connection with a transaction relating to
the program. (software, payment intangibles, other general intangibles).
(49) Investment Property—a security, whether certificated of uncertificated, security entitlement, securities account,
commodity contract, or commodity account. Definitions of these terms in §8-102(a).
 Types: (15) Security—an obligation of an issuer or a share, participation, or other interest in an issuer or in
property or an enterprise of an issuer. (4) Certificated Security—a security that is represented by a certificate;
transferred by (1) endorsement and (2) delivery. (18) Uncertificated Security—a security that is not
represented by a certificate; transferred through instruction to the issuer. (16) Security Certificate—a
certificate representing a security. (2) Bearer Form—a form in which the security is payable to the bearer of
the security certificate according to its terms but not by reason of an indorsement. (13) Registered Form—a
form in which specifies a person entitled to the security or a transfer of the security.
 Parties: (3) Broker—a person defined as such under the federal securities laws, but without excluding a
bank acting in that capacity. (14) Securities Intermediary—a clearing corporation or a person, including a
bank or broker, that maintains securities accounts for others and is acting in that capacity. (17) Security
Entitlement—the rights and property interest of an entitlement holder with respect to a financial asset. (7)
Entitlement Holder—a person having a security entitlement against the securities intermediary.
 Securities Account—an account to which a financial asset is or may be credited.
 Actions: 8-102(a)(8) Entitlement Order and 8-507(a) Broker obligated to follow order.
Certificated Securities: Indorsement-and-Delivery Rule—(1) indorsement and (2) delivery of the certificate by its
holder to the transferee. An indorsement means a signature that alone or accompanied by other words is made on a
security certificate in registered form or on a separate document for the purpose of assigning, transferring, or
redeeming the security. Delivery occurs when: (1) the transferee acquires possession of the security certificate or (2)
another person does on transferee’s behalf. A registration of a stock transfer on the stock transfer books of the
corporation is not necessary to complete the transfer of title. In re Estate of Washburn—the creation of a trust
involves a conveyance of property. Certificate 1 transferred to the trust because she signed and delivered it;
Certificate 2 did not because it was only found after she died.
Uncertificated Securities: Issuer-Registers Rule—when the issuer registers the purchaser as the registered owner
or when a person other than a securities intermediary either becomes the registered owner of it on behalf of the
purchaser or having previously become the registered owner, acknowledges that it holds it for the purchaser.
Securities Investor Protection Corp. v. First Entertainment Holding Corp.—a stock option is considered an
uncertificated security. FEHC was in contempt for failing to have the court registered as the owner as ordered.

Collateral Classification Examples: In re Estate of Silver—paintings were equipment, not consumer goods,
because they were used for business and displayed in model homes. The Cooperative Finance Association, Inc. v.
B&J Cattle Co.—the cattle were inventory because MRC was not in that business of raising, fattening, and grazing
cattle at the time of purchase and B&J knew it. Classification of the goods turns on the intent of the debtor. In re
Palmer—a tractor and front loader were consumer goods and not equipment because the contract language said that
was its purpose, they were listed it in bankruptcy filings as a personal expense, and the arguments of inadvertence
and collusion did not have evidentiary support. Monitor vs. Classified at Agreement Rules. Lake Region Credit
Union v. Crystal Pure Water, Inc.—the original bank forecloses on Crystal’s property and Lake Region purchases
the sheriff’s deed and loans it to Crystal with a security interest in the corporation’s property and water permit. A
water permit is a general intangible under Article 9, and may be subject of a valid security interest. Other examples:
state clamming license, FCC radio broadcast license, state certificates of public convenience and necessity.

Elements of a Security Agreement—1-201 (b):

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(3) Agreement—the bargain of the parties in fact (not necessarily on paper), as found in their language or inferred
from other circumstances including: course of performance, course of dealing, or usage of trade. (37) Signed—
includes using any symbol executed or adopted with present intention to adopt or accept a writing. (43) Writing—
includes printing, typewriting, or any other intentional reduction to tangible form. (Written has corresponding
meaning).
9-102(a): (74) Security Agreement—an agreement that creates or provides for a security interest. (70) Record—
inscribed on a tangible medium or retrievable in perceivable form. Comment 9: term does not include any oral or
other communication that is not stored or preserved by any means. (7) Authenticate—to sign or with present intent to
adopt or accept a record, to attach or logically associate with the record an electronic sound, symbol, or process.
(Identifiable as coming from you) (75) Send—in connection with a record or notification, means: (A) to send in the
mail or other usual means of communication. (B) to cause for the record or notification to be received within the
time that it would have been received if properly sent under (A). Comment 9b—appropriateness of method depends
on the circumstances.
Comments 3b—security agreement is not the document or writing (colloquial) and parties’ intention for it not to be
security interest irrelevant.
9-203 ATTACHMENT AND ENFORCEABILITY: (1) value given, (2) rights to transfer, and (3) agreement +
evidentiary condition. (a) Attachement—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. (b)
Enforceability: (1) value has been given, (2) the debtor has rights in the collateral or the power to transfer rights in
the collateral to a secured party, and (3) one of the following conditions is met (agreement plus satisfaction of an
evidentiary requirement): (a) Debtor authenticates a certificated security that provides a description of the collateral;
(b) The collateral is not a certificated security and is in the possession of the secured party; (c) The collateral is a
certificated security in registered form and the security certificate has been delivered to the secured party; or (d) The
collateral is deposit accounts, electronic chattel paper, investment property, letter-of-credit rights, or electronic
documents and the secured party has control Comment 3: Security Agreement; Authentication: a debtor may
show by parol evidence that a transfer purporting to be absolute was in fact for security.
1-204: VALUE GIVEN—a person gives value for rights if the person acquires them: (1) in return for a binding
commitment to extend credit or extension whether or not drawn upon; (2) as a security for or in total or partial
satisfaction of, a preexisting claim; (3) by accepting delivery under a preexisting contract for purchase; or (4) in
return for any consideration sufficient to support a simple contract.
9-108 SUFFICIENCY OF DESCRIPTION (a) [Sufficiency of description.] reasonably identifies what is
described. (b) [Examples of reasonable identification.] (1) specific listing; (2) category; (3) except as otherwise
provided in subsection (e), a type of collateral defined in [the Uniform Commercial Code]; (4) quantity; (5)
computational or allocational formula or procedure; or (6) except as otherwise provided in subsection (c), any other
method, if the identity of the collateral is objectively determinable. (c) [Supergeneric description not sufficient.] A
description of collateral as "all the debtor's assets" or "all the debtor's personal property" or using words of similar
import does not reasonably identify the collateral. (e) [When description by type insufficient.] A description only
by type of collateral defined in [the Uniform Commercial Code] is an insufficient description of: (1) a commercial
tort claim; or (2) in a consumer transaction, consumer goods, a security entitlement, a securities account, or a
commodity account.
Comment 2—General Rules: The test of sufficiency of a description under this section is whether the description
does the job assigned to it: make possible the identification of the collateral described. Comment 3—After
Acquired Collateral: question of contract interpretation and not subject to statutory rule.
9-204—AFTER-ACQUIRED PROPERTY: (a) [After-acquired collateral] a security agreement may create or
provide for a security interest in after-acquired collateral. (b) [When not effective] (1) consumer goods, unless the
consumer good is an accession within 10 days after the secured party gives value. (2) commercial tort claims.
Comment 2—no further action by the secured party (such as a supplemental agreement covering the new collateral)
is required.
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Case Law of Attachment and Enforceability:
In re Yantz—snowmobile not secured because there was no authenticated agreement.
Shelby County State Bank v. Van Diest Supply Company—the comma made it so that interest only extended to
inventory SP sold the creditor. Hennings has two creditors (contract interpretation, contra proferentem).
In re Southern Illinois Rail Car Co.—Wells Fargo fails on 9-203(b) because its description was not attached.
Rice v. Miller—Rice fulfilled 9-203(b) because it correctly described the patents as general intangibles.
In re Duckworth—Trustee vs. Bank. Because there was a third party involved, and not just the two original parties,
the mistake in the date made the security agreement unenforceable.
National Pawn Brokers Unlimited v. Osterman, Inc.—Pippin’s bad check for jewelry; pawns jewelry, but still
had right to transfer to good-faith purchaser despite the fact that his title was voidable and the contract prohibited
doing so.
Jerke Construction, Inc. v. Home Federal Savings Bank—Peck did not have rights in the bulldozer because he
only had naked possession, no title, nor contractual right. Naked possession vs. voidable title vs. rightful owner.
Estoppel of Disputing the Validity of a Security Interest—if an owner of property effectively allows a debtor to
appear as the owner of that property, and that appearance misleads a creditor, the owner may be estopped to deny the
effectiveness of a security interest taken on the property by the creditor. Estoppel may not apply, however, if the
allegedly misled creditor failed to make reasonable efforts to ascertain the ownership of the collateral. Bank’s belief
that Peck owned the D-9 was based primarily on Peck’s word. The mere presence of the machinery on the property
did not alone establish an estoppel.
Zurita v. SVH-1 Partners, LTD—title is not necessary to have rights. owner’s permission to use goods as collateral
creates rights in the debtor sufficient to give rise to an enforceable security interest. POLICY: hidden-title
subeterfuge to trick creditors is to be deterred and discouraged. This does not conflict with that policy.
Miko Enterprises, Inc. v. Allegan Nursing Home, LLC—Allegan Real Estate and Allegan Nursing Home are
different legal entities. Piersma’s interest in the Nursing Home’s accounts receivable was superior.

Purchase-Money Security Interest (PMSI): (1) be a security interest, (2) must have attached like other security
interests, and (3) meet the requirements of 9-103.
9-103 PMSI—(a) [Definitions] (1) purchase money collateral means goods or software that secures a purchase-
money obligation incurred with respect to that collateral; and (2) purchase-money obligation means an obligation of
an obligor incurred as all or part of the price of the collateral OR for value given to enable the debtor to acquire
rights in or the use of the collateral if the value is in fact used. (b) [PMSI in goods] a security interest in goods is a
purchase-money security interest: (1) to the extent that the goods are purchase-money collateral with respect to that
security interest.
Comment 3—Value given to enable includes obligations for expenses incurred in connection with acquiring rights
in the collateral (e.g. sales taxes, duties, finance charges, interest, freight charges, cost of storage in transit, attorney’s
fees, etc.) A PMSI requires a close nexus between the acquisition of collateral and the secured obligation.
(e) [Application of payment in non-consumer-goods transaction] extent to whether interest is PMSI depends on
the application of a payment to a particular obligation, the payment must be applied: (1) in accordance with
reasonable method to which parties agreed, (2) in absence of agreement, in accordance with any intention of the
obligor manifested at or before the time of payment, or (3) in the absence of both (1) and (2), in the following order:
(A) to obligations that are not secured; and (B) if more than one obligation is secured, to obligations secured by
PMSI in the order in which those obligations were incurred. (f) [No loss of status of purchase-money security
interest in non-consumer-goods transaction.] (3) refinance. (g) [SP has burden of proof in non-consumer
transactions]. (h) [Non-consumer-goods transactions; no inference] The court may not infer from limitation the
nature of the proper rules in consumer-goods transactions. Continue to apply established approaches.
Comment 7—Dual-Status Rule—for transactions other than consumer-goods transactions, security interest may be
a PMSI to some extent and a non PMSI to some extent. Rejects the Transformation Rule—any cross-
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collateralization, refinancing, or the like destroys the PMSI entirely. Allocation of Payments: (same as what the
statute says (e)) Burden of Proof: is on the secured party as to whether the PMSI is still such after refinance or
otherwise.

Case Law of Atypical PMSI Situations:

North Platte State Bank v. Production Credit Ass’n—PCA’s interest attached the moment Tucker had legal
possession of the cattle. The bank’s interest not a PMSI because it did not enable Tucker to acquire since he already
had them.
Gen. Elec. Capital Commercial Auto. Finance, Inc. v. Spartan Motors, LTD—even though the SP reimbursed
the creditor for the money it spent on the Mercedes-Benz cars, the interest was a PMSI because it was a significant
factor in buying the cars and closely allied (temporally and intent of parties). The creditor relied on the loan to get
the cars.
First National Bank of Steeleville, N.A. v. ERB Equipment Co., Inc.—consolidated loans of equipment removes
PMSI status because of lack of delineation in the loans (Delineation Rule). Other Rules: Transformation Rule—any
commingling destroys PMSI status. Dual-Status Rule—allows the security to be divided into portions, PMSI
remains. Lewison State Bank v. Greenline Equipment, LLC—bank has priority because a PMSI only remains
such while the underlying obligation is not paid in full. Assignments do not remove PMSI status; however,
refinancing does.
In re Huddle—Huddle and 1st Advantage argue as to whether a PMSI in consumer goods remained a PMSI after 1 st
Advantage’s subsequent loan. Courts are split on this. Official Comment leaves the court free to continue to apply
established approaches to consumer-goods transactions. It was not a PMSI because it was to pay off different loan.

Perfection: (1) attachment and (2) proper perfection steps. 9-308 Cmt. 2 (In either order).

Four Methods to Perfect: (1) filing 9-310, (2) possession of the collateral by the secured party 9-313, (3) control—
which is a special means of perfection carefully defined and only available for certain types of collateral 9-313, and
(4) automatic perfection—without the need for the secured party to do any more 9-309.
9-308(a)—Perfection of Security Interest: a security interest is perfected when it attaches if the applicable
requirements are satisfied before the security interest attaches. (c)—Continuous Perfection; Perfection by
Different Methods—originally perfected by one method under this article and is later perfected by another method
under this article, without an intermediate period when it was unperfected.

1. PERFECTION BY FILING:

9-310(a)—General Rule: Perfection by filing: a financing statement must be filed to perfect all security interests,
except as provided in 9-312(b) and (b) of this provision. Comment 2—General Rule: filing is not necessary to
perfect a security interest if perfected by another permissible method nor does filing ordinarily perfect a security
interest in a deposit account, letter-of-credit right, or money.
9-102(a) (39) Financing Statement—means a record or records composed of an initial financing statement and any
filed record relating to the initial financing statement.
9-301(1)—the local law of the jurisdiction in which a debtor is located governs perfection, the effect of perfection or
nonperfection, and the priority of a security interest in collateral (except as otherwise provided in this section).
Comment 4—Law Governing Perfection General Rule: the law governing perfection is the law of the jurisdiction
of the debtor’s location as determined under Section 9-307.
9-307—Location of Debtor: (a)—Place of business: a place where a debtor conducts its affairs, (b) Debtor’s
Location: General Rules: (1) individual—principal residence, (2) organization—if only one place of business, then
at its place of business, (3) organization—if more than one place of business, then its chief executive office (Cmt. 2
—where the management decisions are being made). (c) Foreign Jurisdictions: only if (b)’s jurisdiction generally
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requires information concerning the existence of a nonpossessory security interest to be made generally available in
filing, recording, or registration system as a condition or result of the security interest’s obtaining priority over the
rights of a lien creditor with respect to the collateral. If not, then debtor is located in D.C. (d) Continuation of
location: cessation of existence, etc.: if person ceases to exist, have a residence, or have a place of business, then he
continues to be located in the jurisdiction specified by (b) and (c). (e) Location of registered organization
organized under State law: a registered organization that is organized under the law of a State is located in that
State.
9-501(a) Filing Offices: in the office of mortgage if related to real property or the office of [State of debtor] or any
office duly authorized by [State of debtor]. In AZ and most states, it is with the Secretary of State.
Comment 2 Where to File: central filing is done more than local now because of the high transaction costs of local
filing.
1-201(b) (25) Organization—means a person other than an individual. Person is defined in 1-201(b) (27).
9-102(a) Registered Organization—formed or organized solely under the law of a single State or the United States
by the filing of a public organic record or the enactment of legislation by the State or the United States. The term
includes a business trust that is formed or organized under the law of a single State if statute requires its organic
record be filed with the State. 9-102(a) (68)—Public Organic Record: means a record that is available to the public
for inspection and is:
(A) a record consisting of the record initially filed with or issued by a State or the United States to form or organize
an organization and any record filed with or issued by the State or the United States which amends or restates the
initial record; (B); (C)…
The Initial Financing Statement
9-502(a) The three most crucial pieces of information that absolutely required are: (1) the name of the debtor, (2) the
name of the secured party, and (3) an indication of the collateral. Notice Filing.
Comment 2: After-Acquired property is included if mentioned.
9-503 Name of Debtor and Secured Party:
(a) (1) the name that is stated to be the registered organization’s name on the public organic record.
Alternative A—is more widely used (46 States) Driver’s license, only if test
Alternative B—Safe Harbor—if driver’s license that is one of the acceptable ways.
9-504 Indication of Collateral: (1) description of the collateral pursuant to 9-108 or (2) an indication that the
financing statement covers all assets or all personal property.
9-506 Effect of Errors or Omissions (Seriously Misleading Test): a financing statement substantially satisfying
the requirements of this part is effective, even if it has minor errors or omissions, unless the errors or omissions make
the financing statement seriously misleading. A financing statement that fails sufficiently to provide the name of the
debtor according to 9-503(a) is seriously misleading. It is not seriously misleading if it would be discovered in a
search under the debtor’s correct name using the filing office’s standard search logic. Comment 2—mistake in
debtor’s name is seriously misleading as a matter of law, unless it would be discovered using the filing office’s
standard search logic. This section is to balance the interests of filers and searchers. More wiggle room in secured
party’s name because a party will not search for the lien based on the secured party’s name.
9-521 Uniform Form of Written Financing Statement and Amendment: See code pg. 887.
Comment 2—Safe Harbor Written Forms: as long as the filing office accepts written forms, these forms are
appropriate and cannot be rejected on basis of form or format. However, they are not exclusive.

Case Law of Proper Filing of Financing Statements:

In re Miller—financing statement with name on driver’s license, social security, and tax statements is proper despite
the fact that other name appeared on his birth certificate, letter from another creditor, and notes from accountant.
Correct name is required, not legal name. Could be legal name. See 9-503 Alternative A and B.

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In re C. W. Mining Company—lender filed financing statement as CW Mining Company. However, the
company’s correct name was C. W. Mining Company and standard search logic did not find the name, so the name
was seriously misleading
In re Pickle Logging, Inc.—the collateral was mislabeled by one number in the model number and serial number
and did not give enough other details to identify it, so it was ineffective. Maxus Leasing Group, Inc. v. Kobelco
America, Inc.—financing statement of a crane that was one digit off of the correct serial number had enough other
details for subsequent parties to identify it. Therefore, it was effective. If a serial number is inaccurate, then it is
seriously misleading unless there are sufficient details to identify the collateral in an objectively determinable
manner.

Attachment vs. Perfection Rule: A security agreement cannot perfect collateral that is not described in the
financing statement. Existence of collateral in a security agreement without the corresponding inclusion in the
financing statement will not perfect a claim because a security agreement cannot perfect anything. A financing
statement cannot perfect collateral that is not described in the underlying security agreement.

The Process of Filing

9-502(d) a financing statement may be filed before a security agreement is made or a security interest otherwise
attaches. Comment 3—there is no longer a signature required to file, however, the filing may only be done if the
debtor authorizes it. The debtor’s authentication of a security agreement ipso facto constitutes debtor’s authorization
to file and no further authorization is required.
9-509 Persons Entitled to File a Record: (a) a person may file financing statements only if: (1) the debtor
authorizes the filing in an authenticated record or pursuant to subsection (b) or (c) OR (2) agricultural lien (b)
Security agreement as authorization (c) Acquisition of collateral as authorization.
Comment 2—the person who files the financing statement is irrelevant as long as it has been authorized.
Comment 3—a person who files an unauthorized record in violation of subsection (a)(1) is liable under § 9-625 for
actual and statutory damages. A filed financing statement is ineffective to perfect a security interest if the filing is
unauthorized.
Comment 4—Ipso Facto Authorization—authentication of a security agreement, new debtor’s authorization, and
the acquisition of collateral in which a security interest continues.
9-510(a) a filed record is effective only to the extent that it was filed by a person that may file it under § 9-509.
9-516 What Constitutes Filing: (a) [What constitutes filing.] Except as otherwise provided in subsection (b),
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. (b) [Refusal to accept record; filing does not occur.] Filing does not occur with respect to
a record that a filing office refuses to accept because: (1) unauthorized method or medium by filing office; (2) filing
fee not tendered; (3) the filing office is unable to index the record because: (A) no name of debtor; (B) in the case of
an amendment or information statement, the record: (i) does not identify the initial financing statement as required
by Section 9-512 or 9-518, as applicable; or (ii) identifies an initial financing statement whose effectiveness has
lapsed under Section 9-515; (C) in the case of an initial financing statement that provides the name of a debtor
identified as an individual or an amendment that provides a name of a debtor identified as an individual which was
not previously provided in the financing statement to which the record relates, the record does not identify the
debtor's last name; or (D) in the case of a record filed [or recorded] in the filing office described in Section 9-501(a)
(1), the record does not provide a sufficient description of the real property to which it relates; (4) no mailing address
of SP; (5) in the case of an initial financing statement or an amendment that provides a name of a debtor which was
not previously provided in the financing statement to which the amendment relates, the record does not: (A) provide
a mailing address for the debtor; or (B) indicate whether the name provided as the name of the debtor is the name of
an individual or an organization; or (C) if the financing statement indicates that the debtor is an organization,
provide: (i) a type of organization for the debtor; (ii) a jurisdiction of organization for the debtor; or (iii) an
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organizational identification number for the debtor or indicate that the debtor has none; (6) in the case of an
assignment reflected in an initial financing statement under Section 9-514(a) or an amendment filed under Section 9-
514(b), the record does not provide a name and mailing address for the assignee; or (7) in the case of a continuation
statement, the record is not filed within the six-month period prescribed by Section 9-515(d). (c) [Rules applicable
to subsection (b).] For purposes of subsection (b): (1) a record does not provide information if the filing office is
unable to read or decipher the information; and (2) a record that does not indicate that it is an amendment or identify
an initial financing statement to which it relates, as required by Section 9-512, 9-514, or 9-518, is an initial financing
statement. (d) [Refusal to accept record; record effective as filed record.] A record that is communicated to the
filing office with tender of the filing fee, but which the filing office refuses to accept for a reason other than one set
forth in subsection (b), is effective as a filed record except as against a purchaser of the collateral which gives value
in reasonable reliance upon the absence of the record from the files.
Comment 3—filing office does not have to look at the accuracy of the financing statement; subsection (b) are the
only grounds an office may reject the financing statement. Comment 9—if the filing office accepts the financing
statement notwithstanding one of the details of (b) is found, the filing is effective if properly perfect (9-502(a) and
(b)).
9-517 Effect of Indexing Errors: The failure of the filing office to index a record correctly does not affect the
effectiveness of the filed record.
9-518 Inaccurate or Wrongfully Filed Record (a) a person may file in the filing office an information statement
with respect to a record indexed there under the person’s name if the person believes that the record is inaccurate or
was wrongfully filed. (c) if the person is a secured party of record with respect to the financing statement to which
the record relates and believes that the person that filed the record was not entitled to so under section 9-509(d).
9-520 (a) [Mandatory refusal to accept record.] A filing office shall refuse to accept a record for filing for a
reason set forth in Section 9-516(b) and may refuse to accept a record for filing only for a reason set forth in Section
9-516(b). (b) [Communication concerning refusal.] If a filing office refuses to accept a record for filing, it shall
communicate to the person that presented the record the fact of and reason for the refusal and the date and time the
record would have been filed had the filing office accepted it. The communication must be made at the time and in
the manner prescribed by filing-office rule but [, in the case of a filing office described in Section 9-501(a)(2),] in no
event more than two business days after the filing office receives the record. (c) [When filed financing statement
effective.] A filed financing statement satisfying Section 9-502(a) and (b) is effective, even if the filing office is
required to refuse to accept it for filing under subsection (a). However, Section 9-338 applies to a filed financing
statement providing information described in Section 9-516(b)(5) which is incorrect at the time the financing
statement is filed.
9-525 Filing Fees (a): will be determined by the state.

United States of America v. Reed—Davis and Reed think they are not subject to jurisdiction of the U.S. because of
their membership with an unrecognized Indian tribe and file false financing statements against judge and U.S.
Attorney. They are convicted of conspiracy to file a false lien (18 U.S.C. § 1521).

Later Filings and Changes in the Situation: Both Termination Statements and Continuation Statements

Situations that may necessitate a new initial financing statement in a different jurisdiction: Relocation: 9-
316(a)(2); Change in debtor’s name 9-507(c); Change the collateral 9-512(a); Obligation paid off/Termination
Statement: 9-513;
Continuation: 9-515.

9-509(d) [Person entitled to file certain amendments.] A person may file an amendment other than an amendment
that adds collateral covered by a financing statement or an amendment that adds a debtor to a financing statement
only if: (1) the secured party of record authorizes the filing; or (2) the amendment is a termination statement for a
8
financing statement as to which the secured party of record has failed to file or send a termination statement as
required by Section 9-513(a) or (c), the debtor authorizes the filing, and the termination statement indicates that the
debtor authorized it to be filed.
9-510(c) a continuation statement that is not filed within the six-month period prescribed by section 9-515(d) is
ineffective.
9-512 Amendment of Financing Statement
Comment 2—more than one change at the same time do not require separate amendments, rather a single
amendment is legally sufficient. Comment 3—only the information in the financing statement that is to be changed.
9-513 Termination Statement (a) If collateral is consumer good, then secured party must file termination statement
within a month after the underlying obligation is paid off. (c) other collateral—once debtor sends a demand
statement, the secured party must file termination statement within 20 days.
9-515(a) Five-Year Effectiveness—except as otherwise provided in subsections (b), (e), (f), and (g), a filed
financing statement is effective for a period of five years after the date of filing. (c)—Lapse: The effectiveness of a
filed financing statement lapses on the expiration of the period of its effectiveness unless before the lapse a
continuation statement is filed pursuant to subsection (d). Upon lapse, a financing statement ceases to be effective
and any security interest or agricultural lien that was perfected by the financing statement becomes unperfected,
unless the security interest is perfected otherwise. If the security interest or agricultural lien becomes unperfected
upon lapse, it is deemed never to have been perfected as against a purchaser of the collateral for value. (d)—When
Continuation Statement may be Filed: A continuation statement may be filed only within six months before the
expiration of the five-year period specified in subsection (a) or the 30-year period specified in subsection (b),
whichever is applicable. (e)—Effect of Filing Continuation Statement: Except as otherwise provided in Section 9-
510, upon timely filing of a continuation statement, the effectiveness of the initial financing statement continues for
a period of five years commencing on the day on which the financing statement would have become ineffective in
the absence of the filing. Upon the expiration of the five-year period, the financing statement lapses in the same
manner as provided in subsection (c), unless, before the lapse, another continuation statement is filed pursuant to
subsection (d). Succeeding continuation statements may be filed in the same manner to continue the effectiveness of
the initial financing statement.
9-521(b) Amendment Form. See Code. Pg. 588.
9-522—Maintenance and Destruction of Records: One year after effectiveness has lapsed.
9-625 Remedies for Secured Party’s Failure to Comply with Article: (b) Damages for noncompliance: any loss
caused by a failure to comply with this article. Loss may include loss resulting from the debtor’s inability to obtain,
or increased costs of, alternative financing. (e) Statutory Damages--$500 if (4) fails to cause the secured party of
record to file or send a termination statement as required by 9-513(a) or (c).
9-316 Effect of Change in Governing Law: (a) [General rule: effect on perfection of change in governing law.]
A security interest perfected pursuant to the law of the jurisdiction designated in Section 9-301(1) or 9-305(c)
remains perfected until the earliest of: (1) the time perfection would have ceased under the law of that jurisdiction;
(2) the expiration of four months after a change of the debtor's location to another jurisdiction; or (3) the expiration
of one year after a transfer of collateral to a person that thereby becomes a debtor and is located in another
jurisdiction. (b) If a security interest described in subsection (a) becomes perfected under the law of the other
jurisdiction before the earliest time or event described in that subsection, it remains perfected thereafter. If the
security interest does not become perfected under the law of the other jurisdiction before the earliest time or event, it
becomes unperfected and is deemed never to have been perfected as against a purchaser of the collateral for value.
(i) [Effect of change in governing law on financing statement filed against original debtor]
Comment 2 Continued Perfection—period of time allows the secured party to file in new jurisdiction and continue
perfected. Comment 3 Retroactive Unperfection. Comment 7 Security Interests that attach after debtor
changes location.
9-507 Effect of Certain Events on Effectiveness of Financing Statement (a) [Disposition.] A filed financing
statement remains effective with respect to collateral that is sold, exchanged, leased, licensed, or otherwise disposed
9
of and in which a security interest or agricultural lien continues, even if the secured party knows of or consents to the
disposition.
(b) [Information becoming seriously misleading.] Except as otherwise provided in subsection (c) and Section 9-
508, a financing statement is not rendered ineffective if, after the financing statement is filed, the information
provided in the financing statement becomes seriously misleading under Section 9-506. (c) [Change in debtor's
name.] If the name that a filed financing statement provides for a debtor becomes insufficient as the name of the
debtor under Section 9-503(a) so that the financing statement becomes seriously misleading under Section 9-506: (1)
the financing statement is effective to perfect a security interest in collateral acquired by the debtor before, or within
four months after, the filed financing statement becomes seriously misleading; and (2) the financing statement is not
effective to perfect a security interest in collateral acquired by the debtor more than four months after the filed
financing statement becomes seriously misleading, unless an amendment to the financing statement which renders
the financing statement not seriously misleading is filed within four months after the financing statement became
seriously misleading.
Comment 2—this section deals with situations in which the information in a proper financing statement becomes
inaccurate after the financing statement is filed. Comment 3—a financing statement remains effective even if the
collateral is sold or otherwise disposed of.

The Four County Bank v. Tidewater Equipment Co.— A security interest is deemed to never have been
perfected as against a purchaser for value when the secured party fails to file timely continuation statements. A
person knows or has knowledge of a fact when the person has actual knowledge of it. The trial court did not err
when it granted Tidewater summary judgment because the bank failed to file continuation statements in a timely
manner, and Tidewater had no duty to know nor knowledge of the bank’s security interests.
Barnes v. Turner—lawyer does not file or tell client he must file continuation statements, which is his duty and can
be sued for malpractice if he or she does not.

2. Perfection by Possession—The Common-Law Pledge

Possession basically means that the debtor lacks possession or dominion/control over the collateral. It focuses not as
much on what the SP has, but more on the lack of the debtor’s possession, under the rules, of course.

9-310 (b) The filing of a financing statement is not necessary to perfect a security interest: (6) in collateral in
the secured party's possession under Section 9-313.
9-313 When Possession by or Delivery to Secured Party Perfects a Security Interest Without Filing: (a)
[Perfection by possession or delivery.] Except as otherwise provided in subsection (b), a secured party may perfect
a security interest in negotiable documents, goods, instruments, money, or tangible chattel paper by taking
possession of the collateral. A secured party may perfect a security interest in certificated securities by taking
delivery of the certificated securities under Section 8-301. (c) [Collateral in possession of person other than
debtor.] With respect to collateral other than certificated securities and goods covered by a document, a secured
party takes possession of collateral in the possession of a person other than the debtor, the secured party, or a lessee
of the collateral from the debtor in the ordinary course of the debtor's business, when: (1) the person in possession
authenticates a record acknowledging that it holds possession of the collateral for the secured party's benefit; or (2)
the person takes possession of the collateral after having authenticated a record acknowledging that it will hold
possession of collateral for the secured party's benefit. (d) If perfection of a security interest depends upon
possession of the collateral by a secured party, perfection occurs no earlier than the time the secured party takes
possession and continues only while the secured party retains possession.
Comment 2—As under the common law of pledge, no filing is required for goods, instruments, tangible negotiable
documents, money, or tangible chattel paper when that collateral is in the possession of the secured party.

10
Comment 3—Possession—principles of agency apply to possession. If a secured party’s agent takes possession,
then the secured party has taken possession. Dual agency is not a fact of inconsistency with secured party’s
possession. However, the debtor cannot qualify as an agent for the secured party’s purpose of taking possession. The
debtor’s relationship to escrowee does not mean the secured party has failed to take possession. However, if third
party is close enough to the debtor, then it may not be enough to constitute possession. Comment 4—if in doubt of a
third party’s relation to a secured party, the third party should authenticate a record following subsection (c).
National Pawn Brokers Unlimited v. Osterman, Inc.—Possession is continuous even though police obtain a
warrant and seize the collateral because cooperation with law enforcement should be encouraged and notice is still
given that the debtor does not control the collateral.
In re Equitable Financial Management, Inc.—A secured party fails to perfect by possession its security interest in
a lease when it fails to exercise absolute dominion and control over all chattel paper pertaining thereto. However,
here the lease agreements debtor possessed were merely preliminary versions and were not completed documents
having any legal effect. Therefore, CPL had a perfected security interest by possessing the chattel paper. A
reasonably prudent bona fide purchaser would not have accepted the papers the debtor had.

9-207(a) [Duty of care when secured party in possession.] Except as otherwise provided in subsection (d), a
secured party shall use reasonable care in the custody and preservation of collateral in the secured party's possession.
In the case of chattel paper or an instrument, reasonable care includes taking necessary steps to preserve rights
against prior parties unless otherwise agreed. (b) [Expenses, risks, duties, and rights when secured party in
possession.] Except as otherwise provided in subsection (d), if a secured party has possession of collateral: (1)
reasonable expenses, including the cost of insurance and payment of taxes or other charges, incurred in the custody,
preservation, use, or operation of the collateral are chargeable to the debtor and are secured by the collateral; (2) the
risk of accidental loss or damage is on the debtor to the extent of a deficiency in any effective insurance coverage;
(3) the secured party shall keep the collateral identifiable, but fungible collateral may be commingled; and (4) the
secured party may use or operate the collateral: (A) for the purpose of preserving the collateral or its value; (B) as
permitted by an order of a court having competent jurisdiction; or (C) except in the case of consumer goods, in the
manner and to the extent agreed by the debtor.
Comment 2—In many cases of care, the secured party in possession of collateral may notify the debtor of action
that should be taken and allow the debtor to take the action itself. If the secured party itself takes action, its
reasonable expenses may be added to the secured obligation.

3. Automatic Perfection—PMSI in Consumer Goods

9-309 Security Interest Perfected Upon Attachment: (1) a purchase-money security interest in consumer goods,
except as otherwise provided in Section 9-311(b) with respect to consumer goods that are subject to a statute or
treaty described in Section 9-311(a); (9-311 deals with statutes or treaties of governments).
Comment 3—No filing or other step is required to perfect a purchase-money security interest in consumer goods,
other than goods, such as automobiles, that are subject to a statute or treaty described in 9-311(a). However, filing is
required to perfect a non-purchase-money security interest in consumer goods and is necessary to prevent a buyer of
consumer goods from taking free of a security interest under 9-320(b).
9-310(b) (2)—[Exceptions: filing not necessary] that is perfected under Section 9-309 when it attaches.

Automatic—is it a PMSI? Is the PMSI in consumer goods? Is the consumer good something like an automobile or
other consumer good subject to statute? Policy Rationale: How do PMSIs in consumer goods put other parties on
notice? Filing office would be overwhelmed if financing statements on all of these consumer goods; loans in
consumer goods don’t usually last as long as other loans (usually 2 years at the longest); the sales environment does
not allow for all of the other steps (no time to go file or search, come back and talk to consumer, etc.); UCC isn’t

11
fond of consumer goods being collateral. Any valuable consumer good, the lender still may want to file anyway.
Most of those items will be subject to statute anyway and so the lender will have to file.

4. Perfection by Control—available when the collateral is: Investment Property, Deposit Accounts, Electronic
Chattel Paper, Electronic Documents. Deposit accounts must be perfected by control.

Secured party has taken all the steps necessary to put itself in a position that it could sell the collateral without
further steps taken by the debtor. Does the creditor have to ask the debtor for permission to sell the collateral?

9-312(b) (1)—a security interest in a deposit account may be perfected only by control under Section 9-314.
Comment 4—Investment Property: a security interest in investment property, including certificated securities,
uncertificated securities, security entitlements, and securities accounts, may be perfected by filing. A security interest
perfected only by filing is subordinate to a conflicting security interest perfected by control or delivery. A security
interest created by brokers, securities intermediaries, or commodity intermediaries are automatically perfected; filing
is of no effect. Comment 5—Deposit Accounts: control can arise as a result of an agreement among the secured
party, debtor, and bank, whereby the bank agrees to comply with instructions of the secured party with respect to
disposition of the funds on deposit, even though the debtor retains the right to direct disposition of the funds.
9-313(a)—a secured party may perfect a security interest in certificated securities by taking delivery of the
certificated securities under Section 8-301.
9-314(a)-- [Perfection by control.] A security interest in investment property, deposit accounts, letter-of-credit
rights, or electronic chattel paper may be perfected by control of the collateral under Section 9-104, 9-105, 9-106, or
9-107.
9-104(a) [Requirements for control.] A secured party has control of a deposit account if: (1) the secured party is
the bank with which the deposit account is maintained; (2) the debtor, secured party, and bank have agreed in an
authenticated record that the bank will comply with instructions originated by the secured party directing disposition
of the funds in the deposit account without further consent by the debtor; or (3) the secured party becomes the bank's
customer with respect to the deposit account. (b) [Debtor's right to direct disposition.] A secured party that has
satisfied subsection (a) has control, even if the debtor retains the right to direct the disposition of funds from the
deposit account.
Comment 2—control pursuant to the debtor’s agreement may substitute for an authenticated security agreement as
an element of attachment. Comment 3—Requirements for control—under subsection (a)(2) even if the bank’s
agreement is subject to specified conditions, an agreement to comply with the secured party’s instructions suffices
for control. The principles of agency apply to control. The debtor’s ability to reach the funds is not inconsistent with
control. Perfection by control is not available for bank accounts evidenced by an instrument, which by definition are
instruments and not deposit accounts.
9-106(a) [Control under Section 8-106.] A person has control of a certificated security, uncertificated security, or
security entitlement as provided in Section 8-106. (c) [Effect of control of securities account or commodity
account.] A secured party having control of all security entitlements or commodity contracts carried in a securities
account or commodity account has control over the securities account or commodity account.
8-106— (a) A purchaser has "control" of a certificated security in bearer form if the certificated security is delivered
to the purchaser. (b) A purchaser has "control" of a certificated security in registered form if the certificated security
is delivered to the purchaser, and: (1) the certificate is indorsed to the purchaser or in blank by an effective
indorsement; or (2) the certificate is registered in the name of the purchaser, upon original issue or registration of
transfer by the issuer. (c) A purchaser has "control" of an uncertificated security if: (1) the uncertificated security is
delivered to the purchaser; or (2) the issuer has agreed that it will comply with instructions originated by the
purchaser without further consent by the registered owner. (d) A purchaser has "control" of a security entitlement if:
(1) the purchaser becomes the entitlement holder; or (2) the securities intermediary has agreed that it will comply
with entitlement orders originated by the purchaser without further consent by the entitlement holder, or (3) another
12
person has control of the security entitlement on behalf of the purchaser or, having previously acquired control of the
security entitlement, acknowledges that it has control on behalf of the purchaser. (e) If an interest in a security
entitlement is granted by the entitlement holder to the entitlement holder's own securities intermediary, the securities
intermediary has control. (f) A purchaser who has satisfied the requirements of subsection (c) or (d) has control even
if the registered owner in the case of subsection (c) or the entitlement holder in the case of subsection (d) retains the
right to make substitutions for the uncertificated security or security entitlement, to originate instructions or
entitlement orders to the issuer or securities intermediary, or otherwise to deal with the uncertificated security or
security entitlement. (g) An issuer or a securities intermediary may not enter into an agreement of the kind described
in subsection (c)(2) or (d)(2) without the consent of the registered owner or entitlement holder, but an issuer or a
securities intermediary is not required to enter into such an agreement even though the registered owner or
entitlement holder so directs. An issuer or securities intermediary that has entered into such an agreement is not
required to confirm the existence of the agreement to another party unless requested to do so by the registered owner
or entitlement holder.

Comment 1—obtaining control means that the purchaser has taken whatever steps are necessary, given the manner
in which the securities are held, to place itself in a position where it can have the securities sold, without further
action by the owner.

Priority—Basic Rules:

9-201(a)—Except as otherwise provided, a security agreement is effective according to its terms between the parties,
against purchasers of the collateral, and against creditors.
Common Situations: the Secured Party vs. the Lien Creditor, the Secured Party vs. the Trustee in Bankruptcy, the
Secured Party vs. Secured Party

9-317(a) [Conflicting security interests and rights of lien creditors.] A security interest or agricultural lien is
subordinate to the rights of: (1) a person entitled to priority under Section 9-322; and (2) except as otherwise
provided in subsection (e), a person that becomes a lien creditor before the earlier of the time: (A) the security
interest or agricultural lien is perfected; or (B) one of the conditions specified in Section 9-203(b)(3) is met and a
financing statement covering the collateral is filed. A security interest perfected before a person becomes a lien
creditor beats the lien creditor’s interest.
Comment 2—Scope of this Section—this section lists the classes of persons who take priority over, or take free of,
an unperfected security interest. Comment 3—Competing Security Interests—9-322 states general rules for
determining a priority among conflicting security interests and when priority is taken even over a perfected interest.
A fortiori they take priority over an unperfected security interest.
9-102(a) (52) Lien Creditor—(A) a creditor that has acquired a lien on the property involved by attachment, levy,
or the like; (B) an assignee for benefit of creditors from the time of assignment; (C) a trustee in bankruptcy from the
date of the filing of the petition; or (D) a receiver in equity from the time of appointment.
9-322(a) [General priority rules.] Except as otherwise provided in this section, priority among conflicting security
interests and agricultural liens in the same collateral is determined according to the following rules: (1) Conflicting
perfected security interests and agricultural liens rank according to priority in time of filing or perfection. Priority
dates from the earlier of the time a filing covering the collateral is first made or the security interest or agricultural
lien is first perfected, if there is no period thereafter when there is neither filing nor perfection. (2) A perfected
security interest or agricultural lien has priority over a conflicting unperfected security interest or agricultural lien.
(3) The first security interest or agricultural lien to attach or become effective has priority if conflicting security
interests and agricultural liens are unperfected. Comment 2—These rules are subject to various other subsections
and sections of the code. Comment 3—the rules may be regarded as adaptations of the idea, deeply rooted at
common law, of a race of diligence among creditors. Comment 4—even if party that files after the other makes a
13
loan on the collateral before the latter party, the earlier filing date will have priority. This is to protect the filing
system. However, certain other modes of perfection can take priority over the earlier filing, like a PMSI (9-324).
Even the time of an unauthorized filing is the time of filing if it is later authorized. Comment 5—after-acquired
property would function the same as filing on the original property unless one of the exceptions occurs, like a PMSI
for the after-acquired property.
9-323: Comment 3—Competing Security Interests: the time when an advance is made plays no role in
determining priorities among conflicting security interests except when a financing statement was not filed and the
advance is the giving of value as the last step for attachment and perfection.

U.S. Claims, Inc. v. Flomenhaft—Priority is a bright-line rule. A creditor’s subjective knowledge is entirely
irrelevant to determining the relative priority of the competing interests. Even if the later creditor makes his advance
on the same collateral with knowledge of another’s prior unperfected competing interest, he will still be awarded
priority under Article 9 so long as he is the first to perfect. Whether conversion may be asserted turns on the
threshold inquiry of the relative priority of the competing interests. Since U.S.’s right is junior to Stillwater’s, its
claim fails as a matter of law.

Special (SUPER) Priority for PMSI

9-317(e) applies to parties who perfect during grace period or after the PMSI has attached
9-324 applies to parties who have already perfected before the PMSI party.

9-317(e) [Purchase-money security interest.] Except as otherwise provided in Sections 9-320 and 9-321, if a
person files a financing statement with respect to a purchase-money security interest before or within 20 days after
the debtor receives delivery of the collateral, the security interest takes priority over the rights of a buyer, lessee, or
lien creditor which arise between the time the security interest attaches and the time of filing.
9-324(a) [General rule: purchase-money priority.] Except as otherwise provided in subsection (g), a perfected
purchase-money security interest in goods other than inventory or livestock has priority over a conflicting security
interest in the same goods, and, except as otherwise provided in Section 9-327, a perfected security interest in its
identifiable proceeds also has priority, if the purchase-money security interest is perfected when the debtor receives
possession of the collateral or within 20 days thereafter. (b) [Inventory purchase-money priority.] Subject to
subsection (c) and except as otherwise provided in subsection (g), a perfected purchase-money security interest in
inventory has priority over a conflicting security interest in the same inventory, has priority over a conflicting
security interest in chattel paper or an instrument constituting proceeds of the inventory and in proceeds of the
chattel paper, if so provided in Section 9-330, and, except as otherwise provided in Section 9-327, also has priority
in identifiable cash proceeds of the inventory to the extent the identifiable cash proceeds are received on or before
the delivery of the inventory to a buyer, if: (1) the purchase-money security interest is perfected when the debtor
receives possession of the inventory; (2) the purchase-money secured party sends an authenticated notification to the
holder of the conflicting security interest; (3) the holder of the conflicting security interest receives the notification
within five years before the debtor receives possession of the inventory; and (4) the notification states that the person
sending the notification has or expects to acquire a purchase-money security interest in inventory of the debtor and
describes the inventory. (c) [Holders of conflicting inventory security interests to be notified.] Subsections (b)(2)
through (4) apply only if the holder of the conflicting security interest had filed a financing statement covering the
same types of inventory: (1) if the purchase-money security interest is perfected by filing, before the date of the
filing; or (2) if the purchase-money security interest is temporarily perfected without filing or possession under
Section 9-312(f), before the beginning of the 20-day period thereunder. (d) [Livestock purchase-money priority.]
Subject to subsection (e) and except as otherwise provided in subsection (g), a perfected purchase-money security
interest in livestock that are farm products has priority over a conflicting security interest in the same livestock, and,
except as otherwise provided in Section 9-327, a perfected security interest in their identifiable proceeds and
identifiable products in their unmanufactured states also has priority, if: (1) the purchase-money security interest is
14
perfected when the debtor receives possession of the livestock; (2) the purchase-money secured party sends an
authenticated notification to the holder of the conflicting security interest; (3) the holder of the conflicting security
interest receives the notification within six months before the debtor receives possession of the livestock; and (4) the
notification states that the person sending the notification has or expects to acquire a purchase-money security
interest in livestock of the debtor and describes the livestock. (e) [Holders of conflicting livestock security
interests to be notified.] Subsections (d)(2) through (4) apply only if the holder of the conflicting security interest
had filed a financing statement covering the same types of livestock: (1) if the purchase-money security interest is
perfected by filing, before the date of the filing; or (2) if the purchase-money security interest is temporarily
perfected without filing or possession under Section 9-312(f), before the beginning of the 20-day period thereunder.
(f) [Software purchase-money priority.] Except as otherwise provided in subsection (g), a perfected purchase-
money security interest in software has priority over a conflicting security interest in the same collateral, and, except
as otherwise provided in Section 9-327, a perfected security interest in its identifiable proceeds also has priority, to
the extent that the purchase-money security interest in the goods in which the software was acquired for use has
priority in the goods and proceeds of the goods under this section. (g) [Conflicting purchase-money security
interests.] If more than one security interest qualifies for priority in the same collateral under subsection (a), (b), (d),
or (f): (1) a security interest securing an obligation incurred as all or part of the price of the collateral has priority
over a security interest securing an obligation incurred for value given to enable the debtor to acquire rights in or the
use of collateral; and (2) in all other cases, Section 9-322(a) applies to the qualifying security interests. [Selling
PMSI beats Enabling PMSI.]
Comment 2—usually arises against after-acquired clauses; a PMSI can be created only in goods and software.
Comment 3—PMSI priority applies even if that party knows of a conflicting security interest. Normally, possession
is clear. However, when conflict: Buyer takes possession after an inspection of the portion of the goods in the
debtor’s possession. When one receives goods and later decides to buy them (like a lease that the person later buys),
filing must take place when it is turned into collateral and is subject to a security interest. Would it be apparent to a
potential lender that the debtor has acquired in an interest taken as a whole?
Comment 4—Inventory—20-day grace period does not apply. The notification requirement protects secured parties
from fraudulent debtors who try to take a loan on same inventory or type. Periodic advances don’t occur as much
outside the inventory field, subsection (a) does not contain a notification requirement.
Comment 5—if the debtor never receives possession, the five-year period never begins, and the PMSI has priority,
even if notification is not given. Only if conflicting party files before PMSI in inventory must notification be given
to the holder of the conflicting security interest.
Comment 13—PMSI Sales beat Loans. Works the same in Mortgage. The first-to-file-first-to-perfect rule applies to
multiple PMSI enabling loans because otherwise the seller would not part with the collateral.
Broadie Hotel Supply, Inc. v. United States—using, then buying restaurant equipment. Lyon was not a debtor until
the 12 because a debtor is the person who owes payment or other performance of the obligation secured and was just
using the equipment before that. 9-324(a) applied, so Broadie’s interest had priority. Bank could have protected itself
by inquiring into Lyon’s interest in the equipment before accepting his chattel mortgage.
First Financial Bank, N.A. v. GE Commercial Distribution Finance Corp.—FFB extended a line of credit to
Lakota Watersports and took a security interest in inventory. CDF sent a PMSI notification that was authenticated
and described the collateral to FFB (letterhead and other markings and 9-108 category description). Since CDF’s
notification adequately identified the subject collateral and complied with the State’s statutory requirements for
authentication, CDF’s PMSI interest in the three boats had priority over FFB’s previously-filed security interest as a
matter of law. See 9-324(b) and (c).

Fixtures: Ordinary v. Extraordinary Building Materials:

What exactly makes for a fixture, as a matter of real property law? No uniform test exists. Common factors to
determine such, however, are: (1) how securely the goods have been affixed to the real property, (2) how closely to
which the goods are to be put parallels the uses to which the real estate is to be put, and (3) the intention of the party
15
to bring the goods on the land and affix them to it. Reasonable person—belonging to or a part of the real property
test.

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.
9-102(a) (40) Fixture Filing—the filing of a financing statement covering goods that are or are to become fixtures
and satisfying 9-502(a) and (b). The term includes the filing of a financing statement covering goods of a
transmitting utility which are or are to become fixtures.
9-502(a) [Sufficiency of financing statement.] Subject to subsection (b), a financing statement is sufficient only if
it: (1) provides the name of the debtor; (2) provides the name of the secured party or a representative of the secured
party; and (3) indicates the collateral covered by the financing statement. (b) [Real-property-related financing
statements.]
Except as otherwise provided in Section 9-501(b), to be sufficient, a financing statement that covers as-extracted
collateral or timber to be cut, or which is filed as a fixture filing and covers goods that are or are to become fixtures,
must satisfy subsection (a) and also: (1) indicate that it covers this type of collateral; (2) indicate that it is to be filed
[for record] in the real property records; (3) provide a description of the real property to which the collateral is
related [sufficient to give constructive notice of a mortgage under the law of this State if the description were
contained in a record of the mortgage of the real property]; and (4) if the debtor does not have an interest of record in
the real property, provide the name of a record owner.
Comment 5—a description of the real property be must be sufficient enough to identify it. The proper test is that a
description of real property must be sufficient so that the financing statement will fit into the real-property search
system and be found by a real-property searcher. Comment 6—Record of Mortgage Effective as Financing
Statement
Standard form—9-521(a)
Where to file a fixture filing:
9-301(3)(A)—perfection of a security interest in the good by filing a fixture filing; [the local law of jdx. Applies]
Comment 5b—Fixture Filings—the law of the jurisdiction in which the fixtures are located governs perfection,
including the formal requisites of a fixture filing.
9-501(a)(1)(B)—the office designated for the fling of a record of a mortgage on the related real property is the place
to file a financing statement if filed as a fixture filing and the collateral is goods that are or are to become fixtures.
Comment 4—two ways to file a financing statement to perfect a security interest in goods that are or are to become
a fixture: in the same place as Article 9 records, as with most other goods OR as a fixture filing in the office in which
a record of a mortgage on the related real property would be filed.
Priority in fixtures:
9-334(a) [Security interest in fixtures under this article.] A security interest under this article may be created in
goods that are fixtures or may continue in goods that become fixtures. A security interest does not exist under this
article in ordinary building materials incorporated into an improvement on land. (b) [Security interest in fixtures
under real-property law.] This article does not prevent creation of an encumbrance upon fixtures under real
property law. (c) [General rule: subordination of security interest in fixtures.] In cases not governed by
subsections (d) through (h), a security interest in fixtures is subordinate to a conflicting interest of an encumbrancer
or owner of the related real property other than the debtor. (d) [Fixtures PMSI priority.] Except as otherwise
provided in subsection (h), a perfected security interest in fixtures has priority over a conflicting interest of an
encumbrancer or owner of the real property if the debtor has an interest of record in or is in possession of the real
property and: (1) the security interest is a purchase-money security interest; (2) the interest of the encumbrancer or
owner arises before the goods become fixtures; and (3) the security interest is perfected by a fixture filing before the
goods become fixtures or within 20 days thereafter. (e) [Priority of security interest in fixtures over interests in
real property.] A perfected security interest in fixtures has priority over a conflicting interest of an encumbrancer or
owner of the real property if: (1) the debtor has an interest of record in the real property or is in possession of the real
16
property and the security interest: (A) is perfected by a fixture filing before the interest of the encumbrancer or
owner is of record; and (B) has priority over any conflicting interest of a predecessor in title of the encumbrancer or
owner; (2) before the goods become fixtures, the security interest is perfected by any method permitted by this
article and the fixtures are readily removable: (A) factory or office machines; (B) equipment that is not primarily
used or leased for use in the operation of the real property; or (C) replacements of domestic appliances that are
consumer goods; (3) the conflicting interest is a lien on the real property obtained by legal or equitable proceedings
after the security interest was perfected by any method permitted by this article; or (4) the security interest is: (A)
created in a manufactured home in a manufactured-home transaction; and (B) perfected pursuant to a statute
described in Section 9-311(a)(2).
Comment 2—rules governing the priority of security interests in fixtures and crops against persons who claim an
interest in real property. Comment 3—Security Interests in Fixtures—three categories of goods: (1) those that are
chattel entirely and not part of the real property, (2) ordinary building materials that have become an integral part of
the real property and cannot retain their chattel character for purposes of finance, and (3) an intermediate class that
has become real property for certain purposes, but as to which chattel financing may be preserved. May file fixture
filing as precaution and such is not a concession of the nature of the goods. Comment 4—Priority in Fixtures:
General—just because a security interest is unperfected does not mean that a real-property claimant acquires an
interest. Comment 5—Residual Rule—subsection (c) states the residual rule which applies only if one of the other
rules does not: a security interest in fixtures is subordinate to a conflicting interest of an encumbrancer or owner of
the related real property other than the debtor. Comment 6—First to File or Record—subsection (e): transfer of
mortgage or property right or assignment does not change its priority date. Thus, if the perfected interest is
subordinate and a transfer occurs, the perfected interest is still subordinate. Comment 7—PMSI—subsection (d):
PMSI priority is limited to rights against real-property interests that arise BEFORE the goods become fixtures, not so
subsequently. Comment 8—Readily Removable Goods—subsection (e)(2): priority to holders of security interests
in readily removable goods. Only applies to consumer goods? Comment 9—Judicial Liens—subsection (e)(3):
First in time security interest applies even if no evidence of the security interest appears in the relevant real-property
records.
9-102(a) Encumbrance—a right, other than an ownership interest, in real property—includes mortgages and other
liens on real property. Mortgage—a consensual interest in real property, including fixtures, which secures payment
or performance of an obligation.
In re Adkins—windows were ordinary building materials because there was nothing unique or special about them.
Therefore, under 9-334(a), Wells Fargo’s PMSI did not continue in the windows once they were “incorporated into
an improvement on land” i.e. installed.
In re Ryan—bathtub case cited above. Every item of building material places somewhere on a continuum that
distinguishes the ordinary from the extraordinary. The material must be sufficiently different or unique as to fall into
the range of the extraordinary. The bathtub is extraordinary because of its price, luxury features, and accompanying
fixtures, which were all bought at a specialty store.
In the matter of Bennett—manufactured home—9-334(e)(4)—if Article 9’s current version applied, Green Point
would win because its interest is properly noted on the certificate of title and would take priority as a fixture filing
over competing security interests. However, since all of the events occurred before the revision, Gothenburg State
Bank’s interest has priority because the home became a fixture. Possible Test to determine whether something is a
fixture: (1) Actual annexation to the realty, or something appurtenant thereto, (2) Appropriation to the use or purpose
of that part of the realty with which it is connected, (3) the intention of the party making the annexation to make the
article a permanent accession to the freehold.
Tustian v. Schriever—Deere had priority under 9-334(e)(3) in the home. Deere did not have an interest in the real
property, as a whole. Deere could not share in the proceeds from the sale of the real estate; it could only repossess
the home. 9-604 Comment 3—mentions Maplewood case and overrules these cases under subsection (b).

17
9-335 deals with Accession—goods which are physically united with other goods in such a manner that the
identity of the original goods is not lost.
9-336 deals with Commingled Goods—goods united with other goods in such a manner that their identity is
lost in a product or mass.

Sales and other Dispositions of Collateral

Did the transferee take the property free from or subject to the secured party’s interest? (1) whether the collateral is
perfected. (2) whether the buyer is a BIOC

9-201(a)--[General effectiveness.] Except as otherwise provided in [the Uniform Commercial Code], a security
agreement is effective according to its terms between the parties, against purchasers of the collateral, and against
creditors.
Comment 2—Effectiveness of Security Agreement—general rule. Exceptions: 9-317 subordinates unperfected
security interests to lien creditors and certain buyers, and several provisions in Part 3 subordinate some security
interests to other security interests and interests of purchasers.
9-315(a)(1) [Disposition of collateral: continuation of security interest or agricultural lien; proceeds.] Except as
otherwise provided in this article and in Section 2-403(2): (1) a security interest or agricultural lien continues in
collateral notwithstanding sale, lease, license, exchange, or other disposition thereof unless the secured party
authorized the disposition free of the security interest or agricultural lien; and
Comment 2—general rule that a security interest survives disposition of collateral. In these cases, secured party may
repossess, sue for conversion, or claim the proceeds, depending on the situation. This rule does not apply if the
secured party authorized the disposition in the security agreement or otherwise, and if the secured party entrusts
goods collateral to a merchant who deals in goods of that kind and sells the collateral to a buyer in ordinary course of
business.
9-317(b) [Buyers that receive delivery.] Except as otherwise provided in subsection (e), a buyer, other than a
secured party, of tangible chattel paper, documents, goods, instruments, or a certificated security takes free of a
security interest or agricultural lien if the buyer [1] gives value and [2] receives delivery of the collateral [3] without
knowledge of the security interest or agricultural lien and before it is perfected [4] [UNPERFECTED].
Comment 6—Purchasers Other Than Secured Parties—to obtain priority, a buyer must both give value and
receive delivery of the collateral without knowledge of the existing security interest and before perfection. Physical
delivery must be before perfection. Normally, there will be no question when delivery occurs. However, if the
collateral is delivered in stages or parts, delivery is when, after an inspection of the portion of the goods remaining
with the seller or lessor, it would be apparent to a potential lender to the seller or lessor that another person might
have an interest in the goods.
1-202(b) Knowledge—means actual knowledge. "Knows" has a corresponding meaning.
9-320(a) [Buyer in ordinary course of business [mainly only inventory].] Except as otherwise provided in
subsection (e), a buyer in ordinary course of business, other than a person buying farm products from a person
engaged in farming operations, takes free of a security interest created by the buyer's seller, even if the security
interest is perfected and the buyer knows of its existence. (b) [Buyer of consumer goods.] Except as otherwise
provided in subsection (e), a buyer of goods from a person who used or bought the goods for use primarily for
personal, family, or household purposes takes free of a security interest, even if perfected, if the buyer buys: (1)
without knowledge of the security interest; (2) for value; (3) primarily for the buyer's personal, family, or household
purposes; and (4) before the filing of a financing statement covering the goods. (c) [Effectiveness of filing for
subsection (b).] To the extent that it affects the priority of a security interest over a buyer of goods under subsection
(b), the period of effectiveness of a filing made in the jurisdiction in which the seller is located is governed by
Section 9-316(a) and (b).
Comment 2—a buyer who takes free of a perfected security interest takes free of an unperfected one.
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Comment 3—Buyers in Ordinary Course—subsection (a) applies primarily to inventory collateral. The buyer
takes free if the buyer merely knows that a security interest covers the goods but taking subject if the buyer knows in
addition that the sale violates a term in an agreement with the secured party. Good-faith requirement. In order for the
buyer to take free of security interest, the security interest must be created by the buyer’s seller.
Comment 4—Buyers of Farm Products—cannot take free under this section, however, could under § 1324 of the
Food Security Act of 1985, 7 U.S.C. § 1631.
Comment 5—Buyers of Consumer Goods—subsection (b) PMSIs perfect automatically in consumer goods, so if
the SP files anyway, then buyers take subject to the security. The rights of a buyer under subsection (b) turn on
whether a financing statement has been filed against consumer goods.
Comment 6—Authorized Disposition—these limitations apply to unauthorized sales by the debtor. If SP
authorized, then buyer takes free. Moreover, the buyer also takes free if the SP waived or otherwise is precluded
from asserting its security interest against the buyer. See Section 1-103.
1-201(a)(9) Buyer in ordinary course of business:
 Buys in good faith, without knowledge that the sale violates the rights of another person in the goods
 From someone other than a pawnbroker, in the business of selling goods of that kind
 Sale comports with the usual or customary practices in the kind of business in which the seller is engaged or
with the seller's own usual or customary practices.
 Takes possession of the goods or has a right to recover the goods from the seller under Article 2
 Does NOT include a person that acquires goods in a transfer in bulk or as security for or in total or partial
satisfaction of a money debt.

Snow Machines, Inc. v. South Slope Development Corporation—Example of 9-317(b) giving value and
knowledge of the interest. Defendant was leasing 3 snow making machines while it secured a line of credit; however,
the SP sent defendant a letter before sale closed. Therefore, since defendant had knowledge before value was given,
it loses.
Indianapolis Car Exchange, Inc. v. Alderson—9-320(a) Comment 3—Good Faith: For a buyer to take free of a
security interest created by the seller, the buyer may have knowledge that the security interest exists but may not
have knowledge that the sale, violates the rights of another person. Since the buyer of the truck only knew that there
was an interest but did not know that the sale violated that interest, he was still a BIOC.
International Harvester Co. v. Glendenning—9-320(a) Not Good-Faith Buyer: a tractor dealer colluded with a
previous tractor salesman to buy 3 tractors, but say that he bought 4. Appellee’s own testimony immediately
removes him from the category of an innocent farmer who seeks to purchase 3 tractors in the ordinary course of
business. Here, honesty in fact was the standard. Now, it is honesty in fact and reasonable commercial fair dealing.
In re Western Iowa Limestone, Inc.—under 1-201(a)(9) taking possession can be constructive. Constructive
possession of personal property by its owner exists where the owner has intentionally given the actual possession—
the physical control—of the property to another for the purpose of having him do some act for the owner to or with
the property. Since the buyer of the agricultural limestone had constructive possession, he was still BIOC.
Fin AG, Inc. v. Hufnagle, Inc.—either way, Fin Ag would win because either the dealer was not the secured party
(created by the seller language) or the dealer wasn’t the seller, then Fin Ag’s filing put Menschke on notice defeating
under the language of the FSA. Fin Ag’ priority stayed intact. FSA rule: under 7 U.S.C. § 1631 a buyer of farm
products in the ordinary course of business (1) takes free of security interests created by the seller, unless notice of
the seller-created security interest has been given by one of three specific notice procedures, which include the
central filing system provided here; but (2) takes subject to interests created by someone other than the seller.

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Tuesday, March 17th Proceeds
9-315(a) (2) a security interest attaches to any identifiable proceeds of collateral.
Collateral includes proceeds to which a security interest attaches. 9-102(a) (12) (A).
9-102(a) (64) "Proceeds", except as used in Section 9-609(b), means the following property: (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) to the extent of the value of collateral,
claims arising out of the loss, nonconformity, or interference with the use of, defects or infringement of rights in, or
damage to, the collateral; or (E) to the extent of the value of collateral and to the extent payable to the debtor or the
secured party, insurance payable by reason of the loss or nonconformity of, defects or infringement of rights in, or
damage to, the collateral.
(9) "Cash proceeds" means proceeds that are money, checks, deposit accounts, or the like.
(58) "Noncash proceeds" means proceeds other than cash proceeds.
Comment 13—subsection (B) is broad enough to cover cash or stock dividends distributed on account of securities
or other investment property that is original collateral. The phrase “and the like” covers property that is functionally
equivalent to money, checks, or other deposit accounts, such as money-market accounts that are securities or part of
securities entitlements. Proceeds of proceeds are not captured under the definition of collateral. (d) it is necessary
only that the property be traceable, directly or indirectly, to the original collateral.

Farmers’ Cooperative Elevator Co. v. Union State Bank—fattening hogs are not proceeds of the feed, which CO-
OP took a PMSI in, because ingestion and biological transformation of feed is not a type of other disposition within
the contemplation of (A). Therefore, the hogs are not proceeds of the feed because it is not traceable.
Helms v. Certified Packaging Corporation—business losses are like the hogs being fattened by the feed. Not
being able to use the equipment probably caused some of the business loss, but how much? Not very traceable. The
insurance pay off was on account of the business failure, not the damaged equipment. However, the SP’s claim to the
property-damage component under the Com Ed suit is LaSalle’s up to the value of the collateral.
In re Gamma Center, Inc.—bank loaned and took interest in a special camera. Now that the debtor filed for
bankruptcy, the bank wants its interest to extend to accounts receivable. Neither the term proceeds nor the term
products of the collateral, constitute a sufficient description of accounts receivable. As the feed was to the hogs, and
as the insurance claim was to the business losses, the camera is to the accounts receivable. Part of the reason for the
accounts was the camera, but how much is not traceable just to the camera.

Thursday, March 19th Attachment, Perfection, and Priority in Proceeds

Attachment—identifiable proceeds; Perfection—automatic, in the short term; Priority—is the same as in the
underlying collateral
9-203(f) [Proceeds and supporting obligations.] The attachment of a security interest in collateral gives the
secured party the rights to proceeds provided by Section 9-315 and is also attachment of a security interest in a
supporting obligation for the collateral.
9-315(a) (2) a security interest attaches to identifiable proceeds. (b) [When commingled proceeds identifiable.]
Proceeds that are commingled with other property are identifiable proceeds: (1) if the proceeds are goods, to the
extent provided by Section 9-336; and (2) if the proceeds are not goods, to the extent that the secured party identifies
the proceeds by a method of tracing, including application of equitable principles, that is permitted under law other
than this article with respect to commingled property of the type involved. (c) [Perfection of security interest in
proceeds.] A security interest in proceeds is a perfected security interest if the security interest in the original
collateral was perfected. (d) [Continuation of perfection.] A perfected security interest in proceeds becomes
unperfected on the 21st day after the security interest attaches to the proceeds unless: (1) the following conditions are
satisfied: (A) a filed financing statement covers the original collateral; (B) the proceeds are collateral in which a
security interest may be perfected by filing in the office in which the financing statement has been filed; and (C) the
proceeds are not acquired with cash proceeds; (2) the proceeds are identifiable cash proceeds; or (3) the security
20
interest in the proceeds is perfected other than under subsection (c) when the security interest attaches to the
proceeds or within 20 days thereafter. (e) [When perfected security interest in proceeds becomes unperfected.] If
a filed financing statement covers the original collateral, a security interest in proceeds which remains perfected
under subsection (d)(1) becomes unperfected at the later of: (1) when the effectiveness of the filed financing
statement lapses under Section 9-515 or is terminated under Section 9-513; or(2) the 21st day after the security
interest attaches to the proceeds.
Comment 3—Right to Identifiable Proceeds: among the equitable principles whose use other law may permit is
the lowest intermediate balance rule. See Restatement (2d), Trusts § 202. “The amount of the secured creditor's
collateral remaining in a bank account is equal to the lowest balance of all funds in the account between the time the
collateral was deposited to the account and the time the rule is applied.”
Comment 4—Automatic Perfection in Proceeds: General Rule—a security interest in proceeds is a perfected
security interest if the security interest in the original collateral was perfected. The loss of perfected status under
subsection (d) is prospective only.
Comment 5—Automatic Perfection in Proceeds: Proceeds Acquired with Cash Proceeds—the general rule of
continued perfection is inapplicable to proceeds acquired with cash proceeds, leaving perfection of a security interest
in those proceeds to the generally applicable perfection rules under subsection (d)(3). If the original collateral
(inventory) is sold for cash (cash proceeds) that is used to purchase equipment (proceeds), the security interest in the
equipment proceeds remain perfected only if the description in the filed financing indicates the type of property
constituting those equipment proceeds (i.e. equipment). Example 1—only in inventory. Example 2—all debtor’s
property (equipment continues perfected after 20-day period).
Comment 6—Lapse of Financing Statement during 20-day period—under subsection (e), the proceeds would
remain perfected until the 21st day. Comment 7—under subsection (d)(2), if the security interest in the original
collateral was perfected, a security interest in identifiable cash proceeds will remain perfected indefinitely.
9-322(b) (1) [Time of perfection: proceeds and supporting obligations.] For the purposes of priority: (1) the time
of filing or perfection as to a security interest in collateral is also the time of filing or perfection as to a security
interest in proceeds; Comment 6—Priority in Proceeds: General Rule—a security interest in proceeds of original
collateral does not attach and is not perfected until the proceeds come into existence and the debtor acquires rights to
them (much like 9-203 and 9-308).
9-324(a) PMSI SUPER PRIORITY APPLIES TO PROCEEDS.
9-332-- (a) [Transferee of money.] A transferee of money takes the money free of a security interest unless the
transferee acts in collusion with the debtor in violating the rights of the secured party. (b) [Transferee of funds
from deposit account.] A transferee of funds from a deposit account takes the funds free of a security interest in the
deposit account unless the transferee acts in collusion with the debtor in violating the rights of the secured party.
Van Diest Supply Co. v. Shelby County State Bank—inventory commingled and not tracked well. Van Diest had
the burden of identifying the proceeds and tried to do so on a pro rata basis, which failed because Hennings did not
track its inventory by supplier and any finding would have been too speculative. Pro rata not rejected, just
insufficient proof.
Metropolitan National Bank v. La Sher Oil Company—Intermediate-Balance Rule—as long as the account
balance equals or exceeds the proceeds of the sale of collateral, there is a presumption that those proceeds remain in
the account. The assumption is that the debtor spends his own money before that which is encumbered. However, if
the account balance drops below the amount of the proceeds, the security interest in the funds on deposit decreases
accordingly. The lower balance is not increased if non-proceed funds are later deposited into the account.

Tuesday, March 24th Leases of Goods:

Transaction purporting to be a Lease of Goods—Use § 1-203 to distinguish. If true lease, then governed by Article
2A. If sale of goods with Security Interest, the sale of goods governed by Article 2 and Secured Transaction
governed by Art. 9.

21
2-106 (1) Sale—consists in the passing of title from the seller to the buyer for a price (2-401).
2A-103(1)(j) Lease—a transfer of the right to possession and use of goods for a term in return for consideration, but
a sale, including a sale on approval or a sale or return, or retention or creation of a security interest is not a lease.
Unless the context clearly indicates otherwise, the term includes sublease.
Comment j—if security interest disguised as a lease, then Article 9 governs. If lease, no perfection requirements.
The distinction between a lease and a security interest disguised as a lease is not clear from the case law at the time
of the promulgation of this Article. At common law a lease of personal property is a bailment for hire. This requires
a thing to be let and a price for the letting. In other words, consideration for the right of possession and use over a
specified period of time. A lease is neither a sale nor a security interest. This section as well Section 1-203 must be
examined to determine the transaction in question. With each renewal of a lease the facts and circumstances at the
time of each renewal must be examined to determine if that conclusion remains accurate, as it is possible that a
transaction that creates a lease at first, later creates a security interest. (E.g. lease of printer with economic life of 36
months worth $1,000 for $100/month. The person would end up paying $3,600.) (E.g. conditional sale—required
lessee to lease the goods for 36 months, with no right to terminate)
1-201(35)—whether a transaction in the form of a lease creates a “security interest” is determined pursuant to 1-203.
1-203 Lease Distinguished From Security Interest--(a) Whether a transaction in the form of a lease creates a lease
or security interest is determined by the facts of each case.
(b) A transaction in the form of a lease creates a security interest if the consideration that the lessee is to pay the
lessor for the right to possession and use of the goods is an obligation for the term of the lease and is not subject to
termination by the lessee, and: (1) the original term of the lease is equal to or greater than the remaining economic
life of the goods; (2) the lessee is bound to renew the lease for the remaining economic life of the goods or is bound
to become the owner of the goods; (3) the lessee has an option to renew the lease for the remaining economic life of
the goods for no additional consideration or for nominal additional consideration upon compliance with the lease
agreement; or (4) the lessee has an option to become the owner of the goods for no additional consideration or for
nominal additional consideration upon compliance with the lease agreement.
(c) A transaction in the form of a lease does not create a security interest merely because: (1) the present value of the
consideration the lessee is obligated to pay the lessor for the right to possession and use of the goods is substantially
equal to or is greater than the fair market value of the goods at the time the lease is entered into; (2) the lessee
assumes risk of loss of the goods; (3) the lessee agrees to pay, with respect to the goods, taxes, insurance, filing,
recording, or registration fees, or service or maintenance costs; (4) the lessee has an option to renew the lease or to
become the owner of the goods; (5) the lessee has an option to renew the lease for a fixed rent that is equal to or
greater than the reasonably predictable fair market rent for the use of the goods for the term of the renewal at the
time the option is to be performed; or (6) the lessee has an option to become the owner of the goods for a fixed price
that is equal to or greater than the reasonably predictable fair market value of the goods at the time the option is to be
performed.
(d) Additional consideration is nominal if it is less than the lessee's reasonably predictable cost of performing under
the lease agreement if the option is not exercised. Additional consideration is not nominal if: (1) when the option to
renew the lease is granted to the lessee, the rent is stated to be the fair market rent for the use of the goods for the
term of the renewal determined at the time the option is to be performed; or (2) when the option to become the owner
of the goods is granted to the lessee, the price is stated to be the fair market value of the goods determined at the time
the option is to be performed.
(e) The "remaining economic life of the goods" and "reasonably predictable" fair market rent, fair market value, or
cost of performing under the lease agreement must be determined with reference to the facts and circumstances at the
time the transaction is entered into.
Commentary—All of the tests focus on economics, not the intent of the parties. A fixed price purchase option in a
lease does not of itself create a security interest, especially if the fixed price is equal to or greater than the reasonably
predictable fair market value of the goods at the time the option is to be performed. A security interest is created only
if the option price is nominal. Everything in between must be determined on the facts of the case.
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9-505--(a) [Use of terms other than "debtor" and "secured party."] A consignor, lessor, or other bailor of goods,
a licensor, or a buyer of a payment intangible or promissory note may file a financing statement, or may comply with
a statute or treaty described in Section 9-311(a), using the terms "consignor", "consignee", "lessor", "lessee",
"bailor", "bailee", "licensor", "licensee", "owner", "registered owner", "buyer", "seller", or words of similar import,
instead of the terms "secured party" and "debtor". (b) [Effect of financing statement under subsection (a).] This
part applies to the filing of a financing statement under subsection (a) and, as appropriate, to compliance that is
equivalent to filing a financing statement under Section 9-311(b), but the filing or compliance is not of itself a factor
in determining whether the collateral secures an obligation. If it is determined for another reason that the collateral
secures an obligation, a security interest held by the consignor, lessor, bailor, licensor, owner, or buyer which
attaches to the collateral is perfected by the filing or compliance.
Comment 2—Precautionary Filing—filing does not affect the substantive question of classification of the
transaction.

In re Grubbs Construction Company—FACTS: Leas of equipment with 3 buy-out options. Both parties expected
the first option to occur. Grubbs also was unconditionally liable for all rental payments, bore the risk of loss, and
indemnified the bank. LAW: The most obvious example of a lease is a typical short-term car rental agreement
because the lessee acquires no equity in the vehicle. To determine if the transaction is a security agreement, a court
will first consider the bright-line test in 1-203(b). This test basically results in either the property no longer having
any economic value when the lessor obtains the property or the lessee has right to ownership with no additional or
nominal consideration at the end of the lease term. If a transaction passes this test, this only means it is not a security
agreement per se, and it is still necessary to apply the economic realities test to determine whether there is a security
agreement. A significant question is whether the lessor has retained a reversionary interest (up-side right or down-
side risk). If so, then lease. If not, security agreement. Additionally, the sensible person test further helps: if at the
end of the term of the transaction, the only economically sensible course for the lessee is to exercise the option to
purchase the property, then the agreement is a security agreement. In other words, is a secured transfer of ownership
afoot? Even if there is an inclusion of a fair market value option, a transaction could still be a security agreement if
the economic realities indicate otherwise. If the lessee has an equity or pecuniary interest in the leased property, the
transaction is a security agreement as a matter of law. Finally, the totality of the other rights and responsibilities of
the parties to the transaction are still relevant in considering the economic realities of the transaction.
CONCLUSION: under any of the options the court would have found a security agreement, not a lease.
Economic Realities Test: If (1) at the outset, the parties expected the goods to retain some significant residual value
at the end of the lease term, and (2) the lessor retains some possibility of gain or risk of loss in the value of the goods
at the end of the lease, then it’s a true lease. If not, then it may be a sale with reservation of a security interest (even
if it falls outside 1-203(b)) – Coordes’ take on the economic realities test. Approach: Does it fall under 1-203(b)? If
not, then apply the economic realities test (1-203(c), Grubbs factors, all other facts).

Thursday, March 26th Other Article 9 Transaction—Agricultural Liens, Sales of Receivables, and
Consignments.

9-109(a) (2) an agricultural lien; (3) a sale of accounts, chattel paper, payment intangibles, or promissory notes; (4) a
consignment;
9-103(d) [Consignor’s inventory purchase-money security interest.] the security interest of a consignor in goods
that are the subject of a consignment is a purchase-money security interest in inventory.
Comment 6—rules generally applicable to inventory apply to these. For other purposes, such as rights and duties,
the consignor would remain the owner of the goods under a bailment arrangement with the consignee.
9-318-- (a) [Seller retains no interest.] A debtor that has sold an account, chattel paper, payment intangible, or
promissory note does not retain a legal or equitable interest in the collateral sold. (b) [Deemed rights of debtor if
buyer's security interest unperfected.] For purposes of determining the rights of creditors of, and purchasers for
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value of an account or chattel paper from, a debtor that has sold an account or chattel paper, while the buyer's
security interest is unperfected, the debtor is deemed to have rights and title to the account or chattel paper identical
to those the debtor sold.
Comment 2—the fact that a sale of an account or chattel paper gives rise to a security interest does not imply that
the seller retains an interest in the property that has been sold—to the contrary he or she retains no interest
whatsoever.
Comment 3—if the buyer’s security interest is unperfected, then for purposes of determining the rights of certain
third parties, the seller (debtor) is deemed to have all rights and title that the seller sold. E.G. debtor sells accounts or
chattel paper to buyer 1. Buyer 1 does not file a financing statement. Debtor then sells to buyer 2. Buyer 2 files a
financing statement. Even though debtor does not have rights, buyer 2’s security interest attaches, is perfected by the
filing, and is senior to buyer 1’s interest. Comment 4—if the security interest of a buyer is perfected, creditors of the
seller could not acquire an interest in that sold.
9-319-- (a) [Consignee has consignor's rights.] Except as otherwise provided in subsection (b), for purposes of
determining the rights of creditors of, and purchasers for value of goods from, a consignee, while the goods are in
the possession of the consignee, the consignee is deemed to have rights and title to the goods identical to those the
consignor had or had power to transfer. (b) [Applicability of other law.] For purposes of determining the rights of a
creditor of a consignee, law other than this article determines the rights and title of a consignee while goods are in
the consignee's possession if, under this part, a perfected security interest held by the consignor would have priority
over the rights of the creditor.
Comment 2— for purposes of determining the rights of certain third parties, the consignee is deemed to acquire all
rights and title that the consignor had, if the consignor's security interest is unperfected. The consignee acquires these
rights even though, as between the parties, it purchases a limited interest in the goods (as would be the case in a true
consignment, under which the consignee acquires only the interest of a bailee). As a consequence of this section,
creditors of the consignee can acquire judicial liens and security interests in the goods.
1-201(b)(35)-- "Security interest" includes any interest of a consignor and a buyer of accounts, chattel paper, a
payment intangible, or a promissory note in a transaction that is subject to Article 9.
9-102(a) Definitions:
(3) "Account debtor" means a person obligated on an account, chattel paper, or general intangible. The term does
not include persons obligated to pay a negotiable instrument, even if the instrument constitutes part of chattel paper.
(5) "Agricultural lien" means an interest in farm products: (A) which secures payment or performance of an
obligation for: (i) goods or services furnished in connection with a debtor's farming operation; or (ii) rent on real
property leased by a debtor in connection with its farming operation; (B) which is created by statute in favor of a
person that: (i) in the ordinary course of its business furnished goods or services to a debtor in connection with a
debtor's farming operation; or (ii) leased real property to a debtor in connection with the debtor's farming operation;
and (C) whose effectiveness does not depend on the person's possession of the personal property.
(19) "Consignee" means a merchant to which goods are delivered in a consignment.
(20) "Consignment" means a transaction, regardless of its form, in which a person delivers goods to a merchant for
the purpose of sale and: (A) the merchant: (i) deals in goods of that kind under a name other than the name of the
person making delivery; (ii) is not an auctioneer; and (iii) is not generally known by its creditors to be substantially
engaged in selling the goods of others; (B) with respect to each delivery, the aggregate value of the goods is $1,000
or more at the time of delivery; (C) the goods are not consumer goods immediately before delivery; and (D) the
transaction does not create a security interest that secures an obligation.
(21) "Consignor" means a person that delivers goods to a consignee in a consignment.
(28) “Debtor” (B) a seller of accounts, chattel paper, payment intangibles, or promissory notes; or (C) a consignee.
(73) “Secured Party” (B) a person that holds an agricultural lien; (C) a consignor; (D) a person to which accounts,
chattel paper, payment intangibles, or promissory notes have been sold;

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Agricultural Lien—does NOT create a security interest on behalf of the supplier and do NOT attach, however, the
transaction and the line are governed by Article 9. It does not attach, but “becomes effective.” Under 9-310(a) a
filing will be required to perfect an agricultural lien. However, under 9-302, the filing must be done not in the state
in which the debtor is located, but in the state where the farm products are located. As far as priority, it is to be
treated just as a security interest is. Attachment is governed by state law.
Sale of Receivables—do hold a security interest. See 1-201(b)(35). The interest of the buyer must attach according
to the rules of attachment. The interest must be perfected if it is to have the kind of priority desirable. Buyer is SP;
the accounts are collateral; and, the seller is the debtor. Perfection on accounts will have to be obtained through a
filing. Perfection on tangible chattel paper may be accomplished by either filing or taking possession under 9-313.
The purchase of payment intangibles and promissory notes is automatic under 9-309(3) or (4) upon attachment. The
debtor does not have the risk of payment on the accounts. Here, the buyer of the accounts bears the risk relating to
the collection on the accounts. Article 9 governs attachment, perfection, and priority.
Consignments—are treated as a PMSI that the consignor has reserved in the goods consigned, which are considered
to be goods held by the consignee as inventory. Exceptions: consumer goods and goods under $1000. Consignor is
the SP and can perfect their PMSIs and secure super priority under 9-324(b). A “disguised consignment” will be
treated by the courts as what it is in fact, a sale with a PMSI attached.

Rayfield Investment Co. v. Kreps—lender vs. consignor of a piece of art in an art gallery. The lender had a
perfected interest in the gallery’s inventory before the consignment. The consignor failed to prove that the lender
knew that the gallery was substantially engaged in selling on a consignment basis. The consignor did nothing to
perfect his interest. The consignor must prove the majority of the consignee’s creditors have knowledge of seller’s
being substantially engaged in selling on a consignment basis (here 20% or more). Commercial law on secured
transactions is not flexible to promote equitable principles. Lender with perfected prior interest wins. Real test is in
9-102(a)(20) is it generally known by a consignee’s creditors to be substantially engaged in selling the goods of
others?
In re Music City RV, LLC—Dudley consigned his RV to Music City RV, LLC. The RV was a consumer good, so
the common law of bailments applied. Note: a classic consignment is a transaction where the owner of goods
delivers possession to a bailee who is also given the power to sell the goods to its customers. Title remains with the
consignor until the goods are sold to the ultimate buyer and the consignee is free to return any unsold goods to the
consignor.

Tuesday, March 31st Interests Not Covered by Article 9

9-109 (c) and (d), Where federal law preempts—FAA, STB, and ICC filings, intellectual property, etc., the federal
tax lien and the IRS, and other liens under 9-109(d).

9-109 (b) [Security interest in secured obligation.] The application of this article to a security interest in a secured
obligation is not affected by the fact that the obligation is itself secured by a transaction or interest to which this
article does not apply. (c) [Extent to which article does not apply.] This article does not apply to the extent that:
(1) a statute, regulation, or treaty of the United States preempts this article; (2) another statute of this State expressly
governs the creation, perfection, priority, or enforcement of a security interest created by this State or a
governmental unit of this State; (3) a statute of another State, a foreign country, or a governmental unit of another
State or a foreign country, other than a statute generally applicable to security interests, expressly governs creation,
perfection, priority, or enforcement of a security interest created by the State, country, or governmental unit; or (4)
the rights of a transferee beneficiary or nominated person under a letter of credit are independent and superior under
Section 5-114. (d) [Inapplicability of article.] This article does not apply to: (1) a landlord's lien, other than an

25
agricultural lien; (2) a lien, other than an agricultural lien, given by statute or other rule of law for services or
materials, but Section 9-333 applies with respect to priority of the lien;

Intellectual Property: Does the federal statute preempt the UCC? So far, only registered copyrights.

In re Coldwave Systems, LLC—To perfect a security interest in a patent, one must file in the office dictated by the
UCC. USPTO is only for ownership interests and does not preempt Article 9. Three types of preemption—express,
field, and conflict. In re Cybernetics (leading case in this area): in that case the party filed in the state, not
USPTO, and perfected.
Registered Copyrights should be filed in the federal Copyright Office. Unregistered ones should be where
UCC dictates. Trademarks are to be filed where the UCC dictates also. And, domain names are probably to
be filed where the UCC dictates also.
Federal Tax Liens—The Federal Tax Lien Act

Internal Revenue Code § 6321—if any person liable to pay any tax neglects or refuses to pay the same after demand,
the amount shall be a lien in favor of the United States upon all property and rights to property, whether real or
personal, belonging to such person. § 6323—If a debtor ever fails to pay its federal taxes and the IRS then files with
respect to its lien on the debtor’s property, then the secured party’s interest has lost its priority in the subject property
as provided in subsections (c) and (d). Property is deemed to be at the residence of the taxpayer, executive office, or
(if foreign) D.C. at the time the notice of lien is filed. Once the IRS files a notice of its lien, the lien has priority over
all security interests that are unperfected on the date the IRS notice is filed. Tax lien notices are to be filed in the
state where the property is located. §6323(d)—tax lien does not take priority over perfected advances made without
knowledge of the lien during 45 days after the lien was filed.

In re Spearing Tool and Manufacturing Co., Inc.—creditor does not find IRS filed tax lien because the tax lien
was filed with & instead of and. In such cases the seriously-misleading standard for searches under the UCC is
preempted by the Reasonable and Diligent Search Rule: whether a reasonable and diligent search would have
revealed the existence of the notices of the federal tax liens under these names. Here, Crestmark did not conduct a
reasonable and diligent search because of the suggestion to search other terms and those terms were common.
Policy: unduly burdensome to government’s tax-collection efforts, prompt revenue collection is encouraged, and
uniformity of the law. Government wins. Criticisms—precedent of the case is questionable because it was limited to
the facts, federal law should keep up with state law’s technologically advancing pace, and judicial paternalism
causes a double standard for the government.

9-109(c)(2)—statute of the State—Attorney’s Lien

North Valley Bank v. McGloin, Davenport, Severson & Snow, P.C.—bank’s filed security interest vs. attorney’s
filed attorney’s lien under state statute. Attorneys receive damage award and took most for fees in that case and
$3,000 for future retainer. Bank claimed interest in the entire award. For a statute to be an exception to the first-in-
time perfection rule, it must be clearly expressed or it would be unjust to secured parties and their contractual
expectations. This statute was clearly expressed to give attorney’s liens priority because of its first lien language.
Two types of attorney’s liens: (1) charging lien that only includes the fees related to the particular judgment and (2)
retaining lien which is the possessory lien (holds onto papers until paid) and can apply to all services and fees. The
equivalent of 9-109(d)(2) did not apply because this attorney’s lien was a charging lien and was thus nonpossessory
and did not attach to goods or services only the judgment in a lawsuit. Similarly, 9-333 did not apply. Bank should
have argued that it deserved the $3,000. Attorneys win.

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Possessory Liens—9-333: (a) ["Possessory lien."] In this section, "possessory lien" means an interest, other than a
security interest or an agricultural lien: (1) which secures payment or performance of an obligation for services or
materials furnished with respect to goods by a person in the ordinary course of the person's business; (2) which is
created by statute or rule of law in favor of the person; and (3) whose effectiveness depends on the person's
possession of the goods. (b) [Priority of possessory lien.] A possessory lien on goods has priority over a security
interest in the goods unless the lien is created by a statute that expressly provides otherwise.

Premier Community Bank v. Schuh—Bank vs. Dad in son’s cattle. The state statute provided for a possessory lien
of cattle (shall and may language—may only means that lienholder may choose to retain or not). Bank argues (a)(3)
does not apply because of may, then that (a)(1) does not. It was in the ordinary course of business because they
agreed on a rate and the father repeatedly asked for payment. Dad wins. Example of 9-109(c)(2).

Thursday, April 2nd Default—General Insecurity Clauses and Acceleration Clauses:

9-601: parties have rights under Article 9 and by the agreement of the parties. A written security agreement will
typically include a distinct section setting forth what events will constitute a default. However, just in case, most
secured parties include a general insecurity clause at the end of the listings of events, such as: “Any other change in
the condition or affairs, financial or otherwise, of the Debtor or any guarantor or surety of the liability secured by
this agreement which in the sole opinion of the Secured Party impairs the value of the collateral or imperils the
prospect of the Debtor’s full performance or satisfaction of the obligation secured by this agreement.” The secured
party usually includes an acceleration clause too, which makes it so upon any default by the debtor, the entire
payment, not just the upcoming installment, becomes due.

9-601 (a) [Rights of secured party after default.] After default, a secured party has the rights provided in this part
and, except as otherwise provided in Section 9-602, those provided by agreement of the parties. A secured party: (1)
may reduce a claim to judgment, foreclose, or otherwise enforce the claim, security interest, or agricultural lien by
any available judicial procedure; and (2) if the collateral is documents, may proceed either as to the documents or as
to the goods they cover. (b) [Rights and duties of secured party in possession or control.] A secured party in
possession of collateral or control of collateral under Section 9-104, 9-105, 9-106, or 9-107 has the rights and duties
provided in Section 9-207. (c) [Rights cumulative; simultaneous exercise.] The rights under subsections (a) and
(b) are cumulative and may be exercised simultaneously. (d) [Rights of debtor and obligor.] Except as otherwise
provided in subsection (g) and Section 9-605, after default, a debtor and an obligor have the rights provided in this
part and by agreement of the parties. (e) [Lien of levy after judgment.] If a secured party has reduced its claim to
judgment, the lien of any levy that may be made upon the collateral by virtue of an execution based upon the
judgment relates back to the earliest of: (1) the date of perfection of the security interest or agricultural lien in the
collateral; (2) the date of filing a financing statement covering the collateral; or (3) any date specified in a statute
under which the agricultural lien was created. (f) [Execution sale.] A sale pursuant to an execution is a foreclosure
of the security interest or agricultural lien by judicial procedure within the meaning of this section. A secured party
may purchase at the sale and thereafter hold the collateral free of any other requirements of this article. (g)
[Consignor or buyer of certain rights to payment.] Except as otherwise provided in Section 9-607(c), this part
imposes no duties upon a secured party that is a consignor or is a buyer of accounts, chattel paper, payment
intangibles, or promissory notes.
Comment 3—When Remedies Arise—this Article leaves to the agreement of the parties the circumstances giving
rise to default. This Article does not dictate when or what constitutes a waiver of default. These things are to be
determined by the parties’ agreement and law other than this Article.
1-309—Option to Accelerate at Will--A term providing that one party or that party's successor in interest may
accelerate payment or performance or require collateral or additional collateral "at will" or when the party "deems
itself insecure," or words of similar import, means that the party has power to do so only if that party in good faith
27
believes that the prospect of payment or performance is impaired. The burden of establishing lack of good faith is on
the party against which the power has been exercised.
Comment—good-faith requirement makes this an enforceable clause and not against public policy.
1-201(b)(20) Good Faith—except as otherwise provided in Article 5, means honesty in fact and the observance of
reasonable commercial standards of fair dealing.
9-102(a)(43) Good Faith--means honesty in fact and the observance of reasonable commercial standards of fair
dealing.

Regions Bank v. Thomas—aircraft financing. Thomas did materially breach his contract. Thomas did not meet his
burden of proof that Bank failed to act in good faith; and, Regions did not fail to act in good faith because they
repeatedly contacted him to renew his insurance and he did not meet his burden. Possible Good-Faith Factors:
Rational, Knowledge of the circumstances, Nature and Value of the Collateral, Conduct (deceit, outrageous, abrupt
foreclosure, departure from course of dealing), Use of superior position, Commercial Advantage unrelated to the
Transaction, Gross Negligence in Record Keeping, Assurances upon which other party relies, Creditors conduct
contributing to default.
Minor v. Chase Auto Finance Corporation—elderly man’s late payments did not establish a waiver because of
clauses in the contract—non-waiver and no-unwritten-modification clauses. (1) When the contract does not contain
the provisions, course of dealing can waive creditors’ rights to enforce and accelerate default and waiver is effective
until the creditor notifies the debtor that it will no longer accept late payments, and instead will require strict
compliance. (2) However, if a contract includes non-waiver and no-unwritten-modification clauses, the creditor, in
accepting late payments, does not waive its right under the contract to declare default of the debt, and need not give
notice that it will enforce that right in the event of future late payments. Alternative approaches: (1) same as here,
right to take possession without notice, (2) waiver is irrelevant—proper inquiry is equitable estoppel, and (3) applies
2-208—conduct waives terms of the contract. Holding other than the rule above would be illogical and unsound,
parties agreed to the terms, and non-waiver clause is a form of notice. REMANDED.

Tuesday, April 7th Repossession: Trespass? Breach of the Peace?

Repossession and other enforcements may be a right to a secured party upon the debtor’s default; however, such
action is a last resort and very unattractive. Many times the secured party will just remind the debtor of his or her
obligation as not to waive its rights to enforce or will set up a new agreement to accommodate the debtor’s hardship.
Some intangibles or quasi-intangibles do not allow for repossession due to their nature.
9-607(a)(1) and (3)—ability to enforce debts directly.
9-607(a)(4)-(5)—ability to get money out of a deposit account over which the secured party has control without the
debtor’s cooperation.
9-609 SECURED PARTY’S RIGHT TO TAKE POSSESSION AFTER DEFAULT. (a) [Possession; rendering
equipment unusable; disposition on debtor's premises.] After default, a secured party: (1) may take possession of
the collateral; and (2) without removal, may render equipment unusable and dispose of collateral on a debtor's
premises under Section 9-610. (b) [Judicial and nonjudicial process.] A secured party may proceed under
subsection (a): (1) pursuant to judicial process; or (2) without judicial process, if it proceeds without breach of the
peace. (c) [Assembly of collateral.] If so agreed, and in any event after default, a secured party may require the
debtor to assemble the collateral and make it available to the secured party at a place to be designated by the secured
party which is reasonably convenient to both parties.
Comment 3--This section does not define or explain the conduct that will constitute a breach of the peace, however,
courts should hold the secured party responsible for the actions of others taken on the secured party's behalf.
Comment 4—Damages for Breach of Peace. See Section 9-625, Comment 3. Comment 5—Multiple Secured
Parties. More than one secured party may be entitled to take possession of collateral under this section. Conflicting
28
rights to possession among secured parties are resolved by the priority rules of this Article. Comment 6—Secured
Party's Right to Disable and Dispose of Equipment on Debtor's Premises. In the case of some collateral, such as
heavy equipment, the physical removal from the debtor's plant and the storage of the collateral pending disposition
may be impractical or unduly expensive. All aspects of a disposition must be commercially reasonable. Comment 7
—Debtor’s Agreement to Assemble Collateral—enforceable if the parties agreed, even if no default.

9-207—the duty to reasonable care in the custody and preservation of repossessed goods or tangible collateral.

Breach of the Peace—where is the secured collateral on the debtor’s land? What has the debtor done while the
collateral is being repossessed (i.e. contemporaneous events). If a reasonable repossessor knows or should know that
violence is about to ensue and continues, then there was a breach of the peace.
Callaway v. Whittenton—two repossessions of a vehicle. The second repossession the plaintiff’s foot was run over
as he protested the taking of the vehicle, which was ruled to be for a jury. A breach of the peace is any situation
tending to disturb public order or a disturbance of the public tranquility, by any act or conduct inciting to violence or
tending to provoke or excite other to break the peace, or, as is sometimes said, it includes any violation of any law
enacted to preserve the good order.
Chrysler Credit Corporation v. Koontz—no breach of the peace when a man stepped out of his house in his
underwear and did not get physical or have a weapon because violence was not likely to ensue.
James v Ford Motor Credit Company—Once a repossession agent has gained sufficient dominion over collateral
to control it, the repossession has been completed. Debtor saw the repossession agent driving the car about an hour
after it had been repossessed. She fought with him inside and outside the car and gained control of it and drove it
home. She was subsequently detained by police officers on a future date due to Ford’s complaints against her.
Murray v. Poani—state action, like a police officer, must be done under 9-609(b) (1) pursuant to judicial process
and due process. Whether a police officer is involved is a totality of the circumstances test and lies on a spectrum.
Factors to consider: (1) officer’s arrival with the repossessor, (2) involved in more than one step, (3) failing to depart
before the repossession ends, (4) standing closely to creditor, (5) telling the debtor the seizure is legal, and (6)
ordering the debtor to stop interfering or be arrested. Crucial inquiry: whether the officer is there in case of a breach
of the peace or to take an active role or intimidate the debtor. An officer may act to diffuse a volatile situation, but
may not aid the repossessor in a way that the repossession would not have occurred but for their assistance.
Eley v. Mid/East Acceptance Corp. of N.C., Inc.—truck repossessed with personal property and 130 watermelons
in it. Conversion may occur when a valid repossession of collateral results in an incidental taking of other property,
unless the loan agreement includes the debtor’s consent to the incidental taking. Here, defendant assumed and
exercised the right of ownership over plaintiff’s watermelons without her permission, to the exclusion of her own
rightful ownership interest. Therefore, the trial court’s judgment of conversion was affirmed.

Thursday, April 9th Foreclosure Sale: Notice—sent and proper? Commercially Reasonable? Remedy Rules?

Disposition: The secured party has broad discretion in 9-610 in determining how it will dispose of the collateral or
achieve the “foreclosure sale” of the collateral.
Proceeds: The proceeds of diposition under 9-615 go to cover the costs of foreclosure sale, then payment of the
obligation, then any subordinate interest, then the surplus goes to the debtor or the obligor owes the deficiency to the
secured party.
Protections: Protections for the debtor include 9-610’s requirement for commercial reasonableness, the requirement
for the secured party to give notification to the debtor prior to the event, and in a consumer-goods transaction, the
secured party must provide an explanation of how any surplus or deficiency has been calculated.
Remedies: 9-625, the absolute bar rule, the rebuttable presumption rule, the set-off rule—reduced to the extent that
debtor can prove statutory damages.

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Rights of Disposition:
9-610 (a) [Disposition after default.] After default, a secured party may sell, lease, license, or otherwise dispose of
any or all of the collateral in its present condition or following any commercially reasonable preparation or
processing. (c) [Purchase by secured party.] A secured party may purchase collateral: (1) at a public disposition; or
(2) at a private disposition only if the collateral is of a kind that is customarily sold on a recognized market or the
subject of widely distributed standard price quotations. [Recognized Market is very strict]
Disposition in a Commercially Reasonable Manner:
9-610(b) (b) [Commercially reasonable disposition.] Every aspect of a disposition of collateral, including the
method, manner, time, place, and other terms, must be commercially reasonable. If commercially reasonable, a
secured party may dispose of collateral by public or private proceedings, by one or more contracts, as a unit or in
parcels, and at any time and place and on any terms.
9-627(a) [Greater amount obtainable under other circumstances; no preclusion of commercial
reasonableness.] (b) [Dispositions that are commercially reasonable.] A disposition of collateral is made in a
commercially reasonable manner if the disposition is made: (1) in the usual manner on any recognized market; (2) at
the price current in any recognized market at the time of the disposition; or (3) otherwise in conformity with
reasonable commercial practices among dealers in the type of property that was the subject of the disposition. (c)
[Approval by court or on behalf of creditors.] A collection, enforcement, disposition, or acceptance is
commercially reasonable if it has been approved: (1) in a judicial proceeding; (2) by a bona fide creditors'
committee; (3) by a representative of creditors; or (4) by an assignee for the benefit of creditors. (d) [Approval
under subsection (c) not necessary; absence of approval has no effect.]
Notification Requirement:
9-611(b) [Notification of disposition required.] Except as otherwise provided in subsection (d), a secured party
that disposes of collateral under Section 9-610 shall send to the persons specified in subsection (c) a reasonable
authenticated notification of disposition.
9-612 TIMELINESS OF NOTIFICATION BEFORE DISPOSITION OF COLLATERAL. (a) [Reasonable
time is question of fact.] Except as otherwise provided in subsection (b), whether a notification is sent within a
reasonable time is a question of fact. (b) [10-day period sufficient in non-consumer transaction.]
9-613 CONTENTS AND FORM OF NOTIFICATION BEFORE DISPOSITION OF COLLATERAL:
GENERAL. Except in a consumer-goods transaction, the following rules apply: (1) The contents of a notification of
disposition are sufficient if the notification: (A) describes the debtor and the secured party; (B) describes the
collateral that is the subject of the intended disposition; (C) states the method of intended disposition; (D) states that
the debtor is entitled to an accounting of the unpaid indebtedness and states the charge, if any, for an accounting; and
(E) states the time and place of a public disposition or the time after which any other disposition is to be made. (2)
Whether the contents of a notification that lacks any of the information specified in paragraph (1) are nevertheless
sufficient is a question of fact. (3) The contents of a notification providing substantially the information specified in
paragraph (1) are sufficient, even if the notification includes: (A) information not specified by that paragraph; or (B)
minor errors that are not seriously misleading. (4) A particular phrasing of the notification is not required. (5) The
following form of notification and the form appearing in Section 9-614(3), when completed, each provides sufficient
information:
9-614 CONSUMER GOODS (1) A notification of disposition must provide the following information: (A) the
information specified in Section 9-613(1); (B) a description of any liability for a deficiency of the person to which
the notification is sent; (C) a telephone number from which the amount that must be paid to the secured party to
redeem the collateral under Section 9-623 is available; and (D) a telephone number or mailing address from which
additional information concerning the disposition and the obligation secured is available. (2) A particular phrasing of
the notification is not required. (3) The following form of notification, when completed, provides sufficient
information: [Gives the example form] (4) A notification in the form of paragraph (3) is sufficient, even if additional
information appears at the end of the form. (5) A notification in the form of paragraph (3) is sufficient, even if it
includes errors in information not required by paragraph (1), unless the error is misleading with respect to rights
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arising under this article. (6) If a notification under this section is not in the form of paragraph (3), law other than this
article determines the effect of including information not required by paragraph (1).
Secured Party’s Noncompliance:
9-625 REMEDIES FOR SECURED PARTY’S FAILURE TO COMPLY WITH ARTICLE. (a) [Judicial
orders concerning noncompliance.] If it is established that a secured party is not proceeding in accordance with
this article, a court may order or restrain collection, enforcement, or disposition of collateral on appropriate terms
and conditions. (b) [Damages for noncompliance.] Subject to subsections (c), (d), and (f), a person is liable for
damages in the amount of any loss caused by a failure to comply with this article. Loss caused by a failure to comply
may include loss resulting from the debtor's inability to obtain, or increased costs of, alternative financing. (c)
[Persons entitled to recover damages; statutory damages in consumer-goods transaction.] Except as otherwise
provided in Section 9-628: (1) a person that, at the time of the failure, was a debtor, was an obligor, or held a
security interest in or other lien on the collateral may recover damages under subsection (b) for its loss; and (2) if the
collateral is consumer goods, a person that was a debtor or a secondary obligor at the time a secured party failed to
comply with this part may recover for that failure in any event an amount not less than the credit service charge plus
10 percent of the principal amount of the obligation or the time-price differential plus 10 percent of the cash price.
9-626(a)[Rules of Deficiency or Surplus] (2) If the secured party's compliance is placed in issue, the secured party
has the burden of establishing that the collection, enforcement, disposition, or acceptance was conducted in
accordance with this part. (5) If a deficiency or surplus is calculated under Section 9-615(f), the debtor or obligor has
the burden of establishing that the amount of proceeds of the disposition is significantly below the range of prices
that a complying disposition to a person other than the secured party, a person related to the secured party, or a
secondary obligor would have brought. (b) [Non-consumer transactions; no inference.]
9-615(f) [Calculation of surplus or deficiency in disposition to person related to secured party.] The surplus or
deficiency following a disposition is calculated based on the amount of proceeds that would have been realized in a
disposition complying with this part to a transferee other than the secured party, a person related to the secured party,
or a secondary obligor if: (1) the transferee in the disposition is the secured party, a person related to the secured
party, or a secondary obligor; and (2) the amount of proceeds of the disposition is significantly below the range of
proceeds that a complying disposition to a person other than the secured party, a person related to the secured party,
or a secondary obligor would have brought.

Boulevard Bank v. Malott—proper notice provides the debtor the opportunity to: (1) discharge the debt and
reclaim the collateral, (2) find another purchaser, or (3) verify that the sale is conducted in a commercially
reasonable manner.
Auto Credit of Nashville v. Wimmer—creditor repossess and proceeds to sell the car. It sends a notification via
certified mail on January 18, and the creditor sold the car on February 7. On February 12, however, the creditor
received the notification by return mail. Creditor pursues deficiency judgment. So long as the notification is sent
within the meaning of Article 9, the creditor does not need to take additional steps to determine whether or not that
notification has been received. To require every creditor to verify receipt of notification in every situation would
place an unreasonable burden on them.
Brunswick Acceptance Company, LLC v. MEJ, LLC—repossession of several boats. Emails between the secured
party and the debtor’s attorney. Explains 9-613(2) that allows a trier of fact to weigh the factors in 9-613(1). Once a
notice of a private sale has been provided to the debtor, a second notice is unnecessary even if there has been a
substantial delay before the actual sale was made, because the notice of the private sale is only required to specify a
date after which the collateral will be sold at private sale. This notification gave MEJ an opportunity to provide
alternative buyers for the products or to object to the sale of each boat, which it did not do. Even though MEJ was
not given notice of the second sale, the first two notifications were sufficient under these circumstances (attorney
emailed that client approved of the prices). Affirmed and Remanded.
Center Capital Corp. v. Pra Aviation, LLC—a Learjet. Professional salesman and proper notice. Commercially
reasonable.
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Commercial Credit Group, Inc. v. Barber—waste recycler became inoperable and was constructively repossessed
as it was being fixed. In the foreclosure by sale Creditor advertise in two general circulation newspapers on two days
during the holiday season and held the sale two days after Christmas. Only one bidder showed up other than
Creditor. Creditor sold the recycler as is despite the fact that it had warranties. Creditor’s advertising effort was
grossly inadequate and poorly timed. A public sale or disposition is one at which the price is determined after the
public has had a meaningful opportunity for competitive bidding. See 9-610 Cmt. 7. Meaningful opportunity is
menat to imply that some form of advertisement or public notice must precede the sale (or other disposition) and that
the public must have access to the sale. In addition to these general requirements, the method, manner, time, place,
and other terms of a public sale of collateral must be commercially reasonable. 9-610(b). Creditor should have
chosen a more appropriate date of sale, and tried considerably harder to market the recycler by targeting a legitimate
pool of perspective buyers. Therefore, Creditor’s auction was not commercially reasonable. Affirmed.
Deere Credit, Inc. v. Spitler—golf course maintenance equipment, after it was repossessed, was sold privately on
broker website, which excluded non-wholesale dealers. Debtor argued that the sale was public and notice said
private and that the sale was commercially unreasonable. Every aspect of a private sale must be commercially
reasonable. The creditor must send proper notice, the sale must occur after the time stated in the notice, and the sale
price must be fair and reasonable. The nature of the private auction on the internet was indeed private. The collateral
was inspected by an independent third, and the bids were reviewed and compared to the estimated fair value of the
collateral. Therefore, the debtor received proper notice and the creditor sufficiently demonstrated that it conducted
the sale in a commercially reasonable manner among its recognized market of dealers and equipment brokers.
Coxall v. Clover Commercial Corp.—Lexus. Clover Commercial failed to comply with both the reasonable
notification and commercially reasonable disposition requirements, so the absolute bar rule precludes it from
recovering a deficiency from the Coxalls. And, even if the rebuttable presumption rule were to be applied, the result
would be the same. Damages for violation of the requirements of the statute are those reasonably calculated to put an
eligible claimant in the position that it would have been had no violation occurred. 9-625 Cmt. 3.
Note: Consumer transactions are up to the court to choose a rule. Non-consumer transactions are statutorily under
the rebuttable presumption rule. Absolute bar rule—SP violates code, no recovery; Offset rule—debtor offsets
damages against deficiency; Rebuttable presumption rule—no recovery for SP, unless it overcomes the presumption.
(Compliance with the UCC provisions would have still been a deficiency or rendered less money.)

Thursday, April 14th Strict Foreclosure and the Right of Redemption:

9-620 (a) [Conditions to acceptance in satisfaction.] Except as otherwise provided in subsection (g), a secured
party may accept collateral in full or partial satisfaction of the obligation it secures only if: (1) the debtor consents to
the acceptance under subsection (c); (2) the secured party does not receive, within the time set forth in subsection
(d), a notification of objection to the proposal authenticated by: (A) a person to which the secured party was required
to send a proposal under Section 9-621; or (B) any other person, other than the debtor, holding an interest in the
collateral subordinate to the security interest that is the subject of the proposal; (3) if the collateral is consumer
goods, the collateral is not in the possession of the debtor when the debtor consents to the acceptance; and (4)
subsection (e) does not require the secured party to dispose of the collateral or the debtor waives the requirement
pursuant to Section 9-624. (b) [Purported acceptance ineffective.] A purported or apparent acceptance of collateral
under this section is ineffective unless: (1) the secured party consents to the acceptance in an authenticated record or
sends a proposal to the debtor; and (2) the conditions of subsection (a) are met. (c) [Debtor's consent.] For purposes
of this section: (1) a debtor consents to an acceptance of collateral in partial satisfaction of the obligation it secures
only if the debtor agrees to the terms of the acceptance in a record authenticated after default; and (2) a debtor
consents to an acceptance of collateral in full satisfaction of the obligation it secures only if the debtor agrees to the
terms of the acceptance in a record authenticated after default or the secured party: (A) sends to the debtor after
default a proposal that is unconditional or subject only to a condition that collateral not in the possession of the
secured party be preserved or maintained; (B) in the proposal, proposes to accept collateral in full satisfaction of the
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obligation it secures; and (C) does not receive a notification of objection authenticated by the debtor within 20 days
after the proposal is sent. (d) [Effectiveness of notification.] To be effective under subsection (a)(2), a notification
of objection must be received by the secured party: (1) in the case of a person to which the proposal was sent
pursuant to Section 9-621, within 20 days after notification was sent to that person; and (2) in other cases: (A) within
20 days after the last notification was sent pursuant to Section 9-621; or (B) if a notification was not sent, before the
debtor consents to the acceptance under subsection (c). (e) [Mandatory disposition of consumer goods.] A secured
party that has taken possession of collateral shall dispose of the collateral pursuant to Section 9-610 within the time
specified in subsection (f) if: (1) 60 percent of the cash price has been paid in the case of a purchase-money security
interest in consumer goods; or (2) 60 percent of the principal amount of the obligation secured has been paid in the
case of a non-purchase-money security interest in consumer goods. (f) [Compliance with mandatory disposition
requirement.] To comply with subsection (e), the secured party shall dispose of the collateral: (1) within 90 days
after taking possession; or (2) within any longer period to which the debtor and all secondary obligors have agreed in
an agreement to that effect entered into and authenticated after default. (g) [No partial satisfaction in consumer
transaction.] In a consumer transaction, a secured party may not accept collateral in partial satisfaction of the
obligation it secures.
Comment 4--A proposal need not take any particular form as long as it sets forth the terms under which the secured
party is willing to accept collateral in satisfaction. A proposal to accept collateral should specify the amount (or a
means of calculating the amount, such as by including a per diem accrual figure) of the secured obligations to be
satisfied, state the conditions (if any) under which the proposal may be revoked, and describe any other applicable
conditions.
Comment 5—Secured Party's Agreement; No “Constructive” Strict Foreclosure.
9-621 NOTIFICATION OF PROPOSAL TO ACCEPT COLLATERAL (a) [Persons to which proposal to be
sent.] A secured party that desires to accept collateral in full or partial satisfaction of the obligation it secures shall
send its proposal to: (1) any person from which the secured party has received, before the debtor consented to the
acceptance, an authenticated notification of a claim of an interest in the collateral; (2) any other secured party or
lienholder that, 10 days before the debtor consented to the acceptance, held a security interest in or other lien on the
collateral perfected by the filing of a financing statement that: (A) identified the collateral; (B) was indexed under
the debtor's name as of that date; and (C) was filed in the office or offices in which to file a financing statement
against the debtor covering the collateral as of that date; and (3) any other secured party that, 10 days before the
debtor consented to the acceptance, held a security interest in the collateral perfected by compliance with a statute,
regulation, or treaty described in Section 9-311(a).
9-622(a) [Effect of acceptance.] A secured party's acceptance of collateral in full or partial satisfaction of the
obligation it secures: (1) discharges the obligation to the extent consented to by the debtor; (2) transfers to the
secured party all of a debtor's rights in the collateral; (3) discharges the security interest or agricultural lien that is the
subject of the debtor's consent and any subordinate security interest or other subordinate lien; and (4) terminates any
other subordinate interest.
9-623 RIGHT TO REDEEM COLLATERAL. (a) [Persons that may redeem.] A debtor, any secondary obligor,
or any other secured party or lienholder may redeem collateral. (b) [Requirements for redemption.] To redeem
collateral, a person shall tender: (1) fulfillment of all obligations secured by the collateral; and (2) the reasonable
expenses and attorney's fees described in Section 9-615(a)(1). (c) [When redemption may occur.] A redemption
may occur at any time before a secured party: (1) has collected collateral under Section 9-607; (2) has disposed of
collateral or entered into a contract for its disposition under Section 9-610; or (3) has accepted collateral in full or
partial satisfaction of the obligation it secures under Section 9-622.
9-624 WAIVER. (a) [Waiver of disposition notification.] A debtor or secondary obligor may waive the right to
notification of disposition of collateral under Section 9-611 only by an agreement to that effect entered into and
authenticated after default. (b) [Waiver of mandatory disposition.] A debtor may waive the right to require
disposition of collateral under Section 9-620(e) only by an agreement to that effect entered into and authenticated
after default. (c) [Waiver of redemption right.] Except in a consumer-goods transaction, a debtor or secondary
33
obligor may waive the right to redeem collateral under Section 9-623 only by an agreement to that effect entered into
and authenticated after default.

In re CBGB Holdings—debtor defaulted; SP entered an Agreement with debtor to cure the default in which debtor
consented to strict foreclosure; debtor did not fulfill Agreement; SP exercised full strict foreclosure. In partial strict
foreclosure, the debtor must expressly consent. However, in full strict foreclosure, a debtor may expressly or
implicitly consent. Implicitly—after default proposal to debtor, debtor does not object within 20 days, debtor has
accepted the proposal. The requirements of 9-620(c) may not be waived (9-602(j)). The debtor expressly consented
to strict foreclosure. Because the debtor defaulted on Feb. 12 and expressly consented to strict foreclosure in the
Agreement, when debtor did not fulfill the Agreement, SP was within its 9-620(c)(2) rights to exercise a full strict
foreclosure.
CIT Group/Equipment Financing, Inc. v. Landreth—an employee of SP purportedly told debtor that return of the
collateral would satisfy his obligations. This is governed by Article 9. 9-620(b) a purported or apparent acceptance
of collateral is ineffective unless the secured party consent to the acceptance in an authenticated record or sends a
proposal to the debtor; and the four conditions of subsection (a) are met. The secured party did not consent to the
acceptance in an authenticated record or send a proposal to the debtor. None of the rigorous requirements set forth in
subsection (a) had been met. Defendants, therefore, met their requirements of 9-620. Even if true that employee said
that, such a purported assurance carries no legal force.
Automotive Finance Corp. v. Smart Auto Center, Inc.—debtor sells used cars and has line of credit to buy them.
He defaults. SP repossesses the cars; he interferes and gets arrested; SP repossesses four more after. Then, debtor
offers $265,000 to get cars back. A debtor must tender the full amount due. Tendering payment means offering
payment in full of all monetary obligations then due and performance in full of all other obligations then matured. 9-
623 Cmt. 2. The trial court’s findings that the SP was entitled to repossess the cars and did so properly on all but the
last four was affirmed.

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