CHANGES IN USE AND IDENTITY OF COLLATERAL

Change in Ds Name/Change in D Effect

D Changes Name after FS is filed D Changes Form after FS is filed Change in Ds name renders the FS seriously misleading, however, the FS remains effective w/ regards to: 1) collateral owned by D at the time of the name change; and 2) collateral acquired by the D in the first 4 months after the name change T Williams as an individual borrows money against the equipment of her business Williams Electronics, then later incorporates the business under the name Williams Electronics, Inc.

Result

Rule really only effects SCs who have floating liens via an afteracquired property clauseSC w/ such a security interest should require D to inform SC of any name change in the security agreement This is not a name change but rather the formation of a new entity and most likely followed by a transfer of collateral to the new entity, the FS previously filed against T Williams would be effective against the collateral now possessed by Williams Electronics, Inc.

Change in Use of Collateral Effect

Type 1 Change Type 2 Change Change in use of collateral does not change office of filing but does make it difficult for subsequent searcher to identify collateral as covered by the filing. Collaterals use has changed in such a way that renders the initial FS seriously misleading and means of perfection for the collateral as it is being used now is different than means of perfection for collateral as it was originally used .

Result
SC does not have to do anything.FS remains effective. (loader as inventory then used as equipment example) SC has to perfect using appropriate method for the collateral as it is being used now. (lumber hot tub example)

Collateral Non-Cash Proceeds (this is a barter, not a sale) Effect

Type 0 Barter Type 1 Barter Type 2 Barter Proceeds received by D fall w/in the description of the collateral in the already-filed FS. Proceeds received by D are property not covered by the description in the FS but are property in which the security interest would be perfected by filing in the same office where the SCs FS is already on file. Proceeds received by D are of a type in which filing is required in a filing office other than the one in which the original collateral was perfected by filing.

Result

SC does not have to do anything. (Coyote Loader traded for Caterpillar Loader example) SC does not have to do anything. (Coyote Loader traded for an elephant example) SC has to perfect using appropriate method for new collateralin order to be continuously perfected, SC must re-file w/in 20 days from the time D receives the proceeds. (Accounts exchanged by D for real property)

Collateral Cash Proceeds Non-Cash Proceeds Effect

Type 0 Exchange Type 1 FS describes collateral as LoaderD sells Coyote Loader and uses cash to buy Caterpillar Loader Exchange results in collateral that is no longer covered by FS although

Result

SC does not have to do anythingoriginal FS remains effective. SC has to re-file new FS w/in 20 days of exchange.

Exchange Type 2 Exchange

new FS would be filed in same office as old FS Exchange results in collateral that is of a type which requires a filing in a different office than original collateral

(Inventory sold and $$ used to purchase elephant/equipment) SC has to re-file FS w/in 20 days of exchange. (Equipment sold and $$ used to purchase fixtures)

D
Individual

Determining the Location of Debtor for Purposes of Filing Place of Filing

Principal residence (residence implies something more than mere physical presence but something less than domicileresidence means living in a particular locality, but domicile means living in that locality w/ the intent to make it a fixed and permanent home) Place of business Chief executive office Washington, D.C. State of incorporation

Organization w/ one place of business Organization w/ more than one place of business D located in foreign country w/ no filing system available to public Registered Organization

Parties
Lien C v. Lien C Lien C v. SC Lien C v. PMSI SC v. SC PMSI (in collateral other than inventory) v. SC PMSI in inventory v. SC Un-Paid Sellers v. SC Buyers v. SC Garage Sale Exception

Competitions b/t Parties for Property of D Result

First to perfect wins First to perfect wins PMSI has a 20 day grace period after attachment in which it can perfect and thereby defeat a Lien C that attached and perfected after the PMSI attached but before the PMSI perfected First to file OR first to perfect PMSI in collateral other than inventory has priority over a conflicting security interest in the same collateral if the PMSI is perfected w/in 20 days of D receiving possession of the collateral where the SC perfected after PMSI attached but before PMSI perfected SC w/ PMSI in inventory can obtain priority but must jump through several hoopsmust perfect at same time D receives inventorymust give advanced notice to inventory lender that it expects to acquire a PMSI interest in inventoryinventory lender MUST be involved SC will take to the exclusion of unpaid sellers (suppliers) so long as the D had a right in the collateralhere SC is treated as if he/she is a good faith purchaser for value BIOC takes free of perfected security interest created by the buyers seller even if the buyer is aware of the security interest. 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 SC if the buyer buys: 1) w/out knowledge of the security interest, 2) for value, 3) primarily for buyers personal, family or household purposes, and 4) before the filing of a financing statement covering the goods. -if there is a FS on file, then this exception does not apply (1) whoever statute says has priority, or if statute is silent, (2) possessory statutory lien holder has priority over SC ASLC must file financing statementfirst to file has priority

Statutory Lien Cs v. SC Agricultural Statutory Lien C v. SC

COMPETITION OVERVIEW
Competition b/t Creditors 1. LC v. SC - in LC v. LC: the first to perfect wins--> perfection by an LC depends on the jurisdiction, but can be as late as when the sheriff takes the property - LC v. SC- the LC must become and LC before the SC does either of 2 things: (1) perfects; or (2) files in accordance with 9-203 - As stated above, the LC usually does not become an LC until the sheriff seizes the property; so if the SC files or perfects before the LC levies the property, generally, the LC will lose - PMSI- a PMSI can prime an LC interest if the PMSI comes into existence and attaches to the collateral before the C obtains its lien. If the PMSI does, the holder has 20 days to file. So a PMSI that goes public after an LC becomes an LC can still win if they file within 20 days. This applies to all PMSIs, not just consumer goods. 9-317(e) 2. BT v. SC - When Bankruptcy is filed, the BT becomes an LC (see rules above) - BT has power over other LCs - PMSI- the same PMSI rule as above still applies, but its based on the date of the bankruptcy filing 3. SC v. SC- 9-322 - first to perfect (i.e. possession) OR file wins look to the type of collateral to determine whether the perfection was valid - B/c possession creates a secret lien, SC looking to file should always check out collateral before filing just to make sure someone else hasnt perfected by possession. - PMSIo In collateral other than inventory- must perfect within 20 days of D receiving possession of collateral (same as above) o In inventory- SC with PMSI in inventory must: 9-324(b) Perfect no later than time when D receives possession of collateral PMSI financier must give notice to the inventory lender that it expects to acquire a PMSI in inventory. Example- square books gets loan from Bank to start up business. The financing statement for the loan lists inventory (w/ after-acquired property clause) as collateral. Later, for whatever reason, Square books looks to a PMSI lender to buy more inventory (e.g. go to Double Day publishing to get loan to buy books). Before the PMSI lender can proceed, they must look to see if any other SCs have an interest in the same collateral. If so, they must satisfy 9-324(b) by giving notice. This protects the inventory financier (i.e. bank) against attempts

by Square books to borrow from both the bank and supplier using the same collateral.--> difference from below?--> the seller below is NOT a PMSI, theyre just selling w/o a security interest. 4. Sellers v. SC - Example- after-acquired clause- Square books buys books from OU Press by tendering a check. The check to OU bounces, but the books are placed on the shelves before the check bounces. The local bank has a security interest in the inventory as collateral. So, there is a seller who has given inventory with a bounced check, and a bank that has a security interest in that same inventory. Who wins? o Bank will win o The bank can take the books that OU press sold to Square Books even though OU Press was never paid for them. The bank can sell the books to recover the interest. If theres anything left over when bank gets done then OU press will receive that. - Nemo dat- defendant can not give what they do not have (i.e. D can only give rights to collateral that the D has rights in). o Example- Czar sells to Myers, who pays by check. The check later bounces, but Myers has already sold the car to an innocent buyer prior to the check bouncing. Czar then sues the innocent widow for possession of the car. Who wins?--> the innocent widow wins b/c the law states that even though Myers had voidable title, it is still sufficient to convey title Look at bona fide purchaser- this is the same relationship as above. Czar would be OU books and Myers is Square books, while the innocent widow is the bank but this example applies to personal property; only similar relationships o Example- Czar parks his car on the street and it is later stolen. The thief then sells it to the innocent widow. Czar then sues the innocent widow for possession of the car. Who wins?--> Czar wins this time b/c the thief had void title Discourages theft. o Difference b/t the two? In the first example, there was a transaction b/t Czar and Myers, whereas in the second no dealing to transfer title ever took place. - Security interests in Personal Property- a good faith purchaser for value will defeat the claim of an unpaid seller. o SC finances buyers business with security interest in inventory buyer purchases inventory from seller with check the next day buyer declares bankruptcy & the check bounces. o Issue- there is now a seller that wants the inventory it sold back; BUT, there is a SC with a valid security interest in the inventory after the bankruptcy filing whose claim is superior? o The SC wins! It doesnt matter that the buyer never acquired good title. The title is considered transferred by the seller to the buyer/SC when it subjects its goods sold to the security interest of the SC. - Theme- look at the bargaining b/t the parties and the acquisition of good title if at the time of the sale there is believed to be a good transfer of title to the buyer & you later find out that what the buyer purchased is covered by the SCs security interest youre screwed. o Nemo dat- when theres no bargaining, there is no real seller

o Personal Property- if seller bargains, they subject themselves to the SCs o Square books- the seller subjected itself to the security interest of the financier Remember- these arent PMSIs b/c there is no sale on credit- i.e. no one is financing the individual purchase, theres a loan to operate the business. The business uses that money to buy inventory, and b/c of bad cash management there payment bounces.

5. Buyers v. SC - Opposite type of transaction from above in above, the property was purchased by the debtor and fell under the protection of the security interest of the debtors bank now, the property is going out from the debtor to a buyer. The issue is whether that piece of property still falls under the banks security interest? - If a debtor sells property without authorization from its SC, the SCs interest continues in the property look for lack of authorization so the SC will go after property that the D has sold when the D defaults b/c they still have claim to this collateral - So buyers are screwed by the person they bought it from - When is the buyer a buyer in terms of competition? The moment the seller files bankruptcy (in which the SC has a right to the money from the sale of everything it has an interest in meaning what the seller sold to the buyer; OR when the SC repossess the collateral from the new buyer upon default of the seller) - General rule is that security interest continues in collateral; so the bank can go after the new owner of the collateral - Exceptions: o BIOC- if the person is a buyer in good faith, etc they can trump the security interest of the bank (i.e. the sellers financier) see the test (cereal example) o Garage Sale Exception- BIOC rule doesnt apply b/c its not ordinary course of business. But, a person who bought the goods for personal, etc use takes the property free of the banks security interest. 6. Statutory v. SC - There are 3 types of statutory lien holders: o Ones that give priority to the lien or the security interest based on which is first in time o Types that give priority to the statutory lien regardless of the order in which the two arose o Types that give priority to the security interest regardless of the order in which the two arose - Default rule- possessory statutory lien holder has priority over the SC- 9-333

FLOW CHART FILING PROCESS

Information on Financing Statements:
9-502(a)- reqts for effective financing statement Name of D Name of SC Indication of collateral 9-520(a)- requires filing officer to refuse to accept unless it contains 1-3 and: 4. Mailing address of SC 5. Mailing address of D 6. Indication of whether the D is an individual or an organization 9-516(b)(5)(C)- if D is an org., rejection is also required unless statement contains: 7. Type of org. (LLC, corp., etc) 8. Ds jurisdiction or org. 9. Ds organizational ID #

Filer Errors Wrongly Rejected

Omissions

If filing has all necessary info, the filing officer cannot refuse to accept, even if incorrect

Filing Officer should reject

Effective against LC (UCs) and BT. Ineffective against SC

Errors in 1-3

Errors in 4-9

Wrongly Accepted Filings

Effective against LC, BTs, & others, but NOT against purchasers who give value and act in reasonable reliance

If minor errors or omissions, the statement is effective so long as its not seriously misleading

Missing items 1-3

Missing Items 4-9

Ineffective

Nevertheless effective

FLOW CHART PERFECTION

Method of Perfection?
Notice to Stakeholder

Examples include tort actions

Filing

Possession

Automatic Control
(to the exclusion of the debtor)

9-313(a) 1. Accounts 2. Gen. Int.

9-312(b)(3) - Money
9-310(b)(8) Deposit Accts. E-chattel paper Invest. Property Letter of Credit Rights

9-309(1) PMSI in cons. Goods

9-312(a), 9-313(a) Either Method Sufficient

Non consumer good-PMSI perfect either by possession or filing (yacht case)

Goods

9-330(d), 9-331(a) Items where Possession is SUPERIOR to Filing

9-313 Instruments Tangible Chattel Paper Negotiable Documents Certificated Securities ** possession is superior b/c these types of collateral are all types of written documents that give the bearer the right to the collateral

Overview Types of collateral where possession perfects the sec. int. and there is no reason to file Neg. Docs- gives bearer right to goods Goods Instruments- right to pmt in written form Money (only perfected by possession) Tangible chattel paper- combo note (right to pmt) & security interest (cars) Collateral where Possession is superior to filing: Neg. Docs Instruments Tangible chattel paper Certificated Securities Types where control, rather than possession, is sufficient to perfect Deposit accounts Invst. Property E-chattel paper Letter of credit rights Types where Filing is only way to perfect: General intangibles Accounts

DEFINITIONS
DEFINITIONS: accounts: refers to a right of payment for goods and services sold or leased that is not evidenced by an instrument or chattel paper certain similar rights to payment, such as rights to payment arising out of a credit card or lottery winnings, are also accounts, typically called accounts receivable attachment: process by which the D and SC create a security interest in the Ds collateral effective b/t these two parties BIOC: a person that buys goods, (a) in good faith w/out knowledge that the sale violates the rights of another person in the goods, and (b) from a person/seller in the ordinary course of business chattel paper: refers to a record (written or electronically stored information) that evidences BOTH a monetary obligation and a security interest in or a lease of specified goodscan be either electronic chattel paper or tangible chattel paper collateral: commercial tort claims: tort claims filed by organizations and tort claims filed by individuals that do not involve personal injury composite document doctrine: if the parties can piece together documents to be read together as a security agreement, the court will uphold it as sufficiently authenticating a security agreementthe documents must contain some term indicating a security agreement and also some indication that the D authorized the transaction consumer goods: goods used or bought primarily for personal, family, or household purposes default: Ds failure to pay the debt when due or otherwise perform the agreement b/t C and D deficiency: results when SC is under-secured and sale of the collateral fails to satisfy debt owed to SC by DSC can then sue D for the deficiency in the amounts owed and amounts received deposit accounts: bank accountsdoes not include consumer deposit accounts except to the extent they include proceeds documents: documents of title such as bills of lading and warehouse receiptsa companys business documents do not fall under this definition equipment: goods that do NOT fit into any one of the other three categories of goods (e.g., long-lasting goods used in a business, such as machinery in a factory, or a painting on an office wall) exemptions: rule that certain property of the D can be protected against claims of Csthe D must have some equity in the property in order for the exemption to apply farm products: good used or produced in farming operations and are in the possession of the farmer/Dterm includes (a) crops, (b) livestock, (c) products of crops and livestock as long as the products are still in their un-manufactured state, and (d) supplies used or produced in farming operationsonce the products have gone through a manufacturing process, they cease to be farm products and if the farmer holds them out for lease or sale to others, they become inventory financing statement: used to perfect a security interest and inform others of the existence of such security interest garnishment: UC brings a garnishment action in which a 3rd party who owes money to the D is required to make periodic payments to the UC to satisfy the debt of D, typically involves the Ds employerD does not have to be a party to the actiononly issue is Does the 3rd party owe the D money?state law places some limits on how much $ the 3rd party can pay UC general intangibles: any personal property that does not fit into one of the existing categories inventory: goods held for sale or lease to others in the ordinary course of businessincludes raw materials and materials used or consumed in a business

investment property: stocks and bonds, commodity Ks and accounts in which such investments are held (securities accounts or commodity accounts) involuntary unsecured creditor: typically a who wins a tort judgment against the D, this has no choice but to get in line as an UC judicial lien-holders: non-consensual C who have gone to court and had a judgment entered against D letter of credit rights: seller of goods does not trust buyer to make payments so instead seller requires buyer to get a letter of credit from bank in favor of the seller so that the bank makes payment to the seller on behalf of the buyer lockbox: method of self-help SC can use where collateral is accounts receivable off-spring: should use this especially w/ livestock as collateralmay be covered if considered inventory b/c after-acquired property would be implied PMSI: C who advances value to a D enabling that D to acquire an interest in collateral perfection: process by which the a security interest is made good against the rest of the worldserves to provide notice that SC has an interest in the collateral priority: issue that arises when several different parties claim an interest in the same piece of collateral or property proceeds: anything received by the D on the sale or any other kind of disposition of the collateral, whether or not the disposition was authorized by the C products: typically used in agricultural contextwool from sheep, milk from cow profits: usually used in real estate sense; profits a pendre ability to go onto anothers land and remove resourcesprofits of a business must be more clearly defined b/c most commercial lawyers assume that profits means profits a pendre rent: should be used b/c it is not clear whether rent from property is proceed security agreement: K b/t SC and D granting a security interest statutory lien-holders: non-consensual C who attains this status by operation of lawmechanics lien, etc. strict foreclosure: occurs where SC decides to retain the repossessed collateral in either partial or full satisfaction of the debt owed to SC by Dmay not always be available to SC tendering the debt: occurs when D pays all owing obligations after defaulting on loan but prior to property being sold at foreclosure sale Classification of Collateral: 1. Tangible Collateral: goodsall things that are movable when a security interest attaches -Consumer Goods -Inventory -Farm Products -Equipment 2. Quasi-Intangible Collateral: legal rights usually represented by pieces of paper -Instruments -Documents -Chattel Paper -Investment Property

3. Intangible Collateral: have no physical form -Accounts (Receivable) -General Intangibles -Commercial Tort Claims -Letter of Credit Rights -Deposit Accounts