Secured Transactions Outline

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Summer 2003
WARNING: This outline will help a great deal with following Fisfis in class and
provides answers to the casebook. His exam has little to do with the contents of this
outline. Your best bet is to study the codes, and consider taking an additional
Bankruptcy course. You can bring the 1962, 2002 to the exam but it will do little to
help you. Good luck.
I. GENERAL INTRODUCTION
A1. Important Class Notes about the Code
Course covers three concepts:

1. Attachment (Enforcement)
2. Perfection
3. Priorities
1. Why study the code: except LA, it passed into state law in all other jurisdictions.
2. UCC deals w/ statutory law.
3. There are variations of the Code in different jurisdictions.
i. Most require filing.
ii. After deciding which state law applies, look to the version in the jurisdiction to
see which version is still in effect (comments and commentaries sometimes
differ).
4. All jurisdictions in the US enacted the 1999-2000 Code.

5. PA adopted Revised A9 on June 8, 2001 and it became effective July 1, 2001
6. When quoting the statute, always look at the old versions (ie, 1962 and 2000).
7. Levy = Execution under state law.
A2. Expanded Scope

o Dominant theme of A9: Extension of Credit.
C. Development of the UCC (History of the Code)

1. Code first worked on Pre-WWII. (some precode law was statutory, most was CL).
2. 1952 – First Version of UCC
-accepted only in PA (PA was Republican)
-NY Law Revision Commission studied UCC to determine if it should be adopted
by NY.
-NY made recommendations for changes in the 1952 draft.
3. 1958 – UCC w/ NY Changes  became 1962 Version
-1962 version was generally enacted by US States (everyone but LA).
4. 1972 – made some changes to A9 ST. Eventually was adopted by states at different
times. 1978 Code – changes to A8 (stocks & bonds).
5. 2002 – Present version primarily follows 1972 version.
- See R9-322 – present version of priorities among conflicting security interests in
and agri-liens.
6. The UCC is not restricted to commercial situations.
7. The law of contracts is potentially applicable to ST, but that is not our concern.
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8. The issue in an A9 situation is, whether the right language has been included or not.
Notes. Compare 1962 + 2002 versions be/c can’t depend on cases for details of statutes.
9101 – R9 supercedes Old A9. Many terms are the same.
9101-9102 + comments – Overview of general conception of the code, old version &
revised version.
1. Summary of revisions to A9.

a. R9’s Expanded Scope.
i. Deposit accounts – 2002, R9-109 deals with deposit accounts as original
collateral except in consumer transactions. 1962 A9 dealt with deposit
accounts only as proceeds of other collateral.
ii. 2002 R9 says payment intangibles, promissory notes, sale of accounts
and chattel paper create an SI.
1962 included only sales of accounts and chattel paper.
iii. Health care insurance receivables are now included w/in the
definition of account.
iv. Nonpossessory statutory agri-liens are now in R9.
v. “True” consignment-bailments for purposes of sale by the bailee are
security interests covered by A9, w/ certain exceptions.
9101-9109 – revised present version of the code, overview.

Attachment, perfection, priorities.
Financing Statements (FS) – good for 5 years unless stated otherwise.
Hypo 1: Sale of Widgets.

T and F enter into Sale of Widgets for $10,000
F agrees to buy widgets from T and pay @ end of 30 days.
F does not pay.
1. Can T get the widgets back? (in-rem remedy for the widgets)
Answer: No she only has the right to get her PRICE back. T should ask for an
execution from the Sheriff for a judgment be/c until she gets that, she can’t get her
goods back.
2. If T wants her widgets back, what should she have done at the time of the
transaction?
a. T should have gotten a SA and filed an FS.
b. FS alone is probably not enough. T would have to make a standard SA.
c. T would then have an in-rem right to secure the goods.
3. What if T did not file an FS?
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a. There’s no third-party involved and we’re not concerned about an FS
when there’s no third party.
b. If T had a 1) writing, 2) singed 3) with a description of the SI, it’s enough
to have the widgets returned.
c. If T gets the SA from F, that’s enough if it’s just two of them.
d. But if H also enters the picture, an FS must be filed for three parties.
4. Point: A SI creates a property interest.

a. Once T gets a SI in the widgets, it entitles her to get the widgets back.
b. Otherwise, if no SI, then T’s recovery falls under 2709 of the code.
5. If F sues under A2, T wins, gets a judgment properly recorded in office.
Note: Judgment Lien = Execution Lien.

1. First obtain judgment against debtor
2. Or, obtain lien through judicial process.
Planning v. Litigation
When looking at the problems focus on the planning aspects and ask, “how could
this problem have been avoided?”
How do you spot an A9 Question?

When there’s a SP and you’re in bankruptcy, you know you have an A9 question
be/c Fisfis wants you to compare the rights of the Levy Creditor which determines
the Bankruptcy question’s answer. It’s an A9, not bankruptcy.
Hypo 2:
T and F enter into an agreement

F sues T and gets a judgment in Allegheny County
F is in Allegheny County
F owns property subject to a SI.
1. Does T have a Lien on the personal property?

No. T must get a writ of execution, without which a judgment on personal
property is not operable.
Hypo 3: Same Facts as Hypo 2.

1. Under PA Law, does T have a lien on real estate F owns in Allegheny County?
Yes! The judgment is a lien against all the real estate in the county. To find this
lien, T must search the judgment index in the protonothary’s office for any
judgments against the property.
PA (Minority): A judgment by itself is not a lien on personal property but it is on

real estate.
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Majority: Judgment in protonothary’s office is not a judgment on a lien. It is not

enough for the recorder’s office to record the judgment in another office.
Title Questions
Hypo 4:
F steals a tangible object from S.
F sells to Warren (W) – Here F had void title so F does not pass any title to W.
W takes the object for 1) value 2) in good faith 3) without notice.
S wants it back.
1. Can S get the object back from W?

a. Yes, be/c W never had title, it was void.
Hypo 5: Fraud in the Inducement.

1. S and F enter into a K for sale of a good.
2. F defrauds her in terms of the agreement (Standard Misrepresentation).
3. S sells something worthwhile to F.
4. F takes by defrauding S.
5. F sells to W, a BFP for 1) value, 2) good faith, 3) without notice.
6. Can S get the good back from W?
a. No! be/c F had voidable title and W received good title.
Hypo 6: Bailment at Common Law (CL).

1. F delivers a watch to W.
2. W is a merchant of watches.
3. W sell’s F’s watch to Sheehan (S) for 1) value, 2) in good faith 3) w/out
notice.
4. At CL, can F get the watch back?
a. At Common Law, yes be/c W had void title and he was a bailee who
could not pass good title to a BFP for 1) value, 2) in good faith 3)
w/out notice.
Hypo 7: Same as 6, except deals with Entrustment question under UCC.
1. Under the UCC, can F get the watch back?
b. No, under UCC be/c the code does not allow recovery under
“Entrustment” doctrine, which says that be/c W was a “merchant in
goods of the kind,” he has the right to transfer all rights to a buyer in
the ordinary course of his business.
Hypo 8: Same as 6, except W is not a merchant in the business of selling and

repairing watches.
1. Under UCC, can F get the watch back?
a. Yes! W is not a merchant so he cannot transfer the rights of a merchant.
So, F can get the watch back from S.
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Hypo 9: Negotiable Instrument: Holder in bear form.
F possesses a check made payable to “Nick Fisfis.”

F endorses the back “Nick Fisfis”
Check is stolen by W while in F’s possession.
W transfers check to S for 1) value 2) good faith 3) w/out notice.
1. Can F get the check back from S?

a. This is a void title situation but W is a thief. F could get the check
back from W, but not from S, be/c S is a holder in bear form and a
holder in due course.
Hypo 10: Negotiable Instrument: Not a Holder in Bear Form.
F is in possession of a check payable to “Nick Fisfis.”

W steals the check, writes on the back (Forges) “nick fisfis” signature.
W transfers to S, for 1) value, 2) in good faith 3) w/out notice.
S is a good faith purchaser for value (BFP).
1. Can F get the check back from S?

a. Yes be/c S is not a holder; she has to be 1) a holder of an instrument,
2) payable to her 3) in bearable form.
b. Difference: A person cannot be a holder of an instrument or have
rights in due course be/c a forged instrument is not valid.
Chapter 3: Attachment of Security Interests
Problems.
3.2.1. SP rights.
Main Motors defaults on its obligation. What are FB’s remedies? Litigation
I. Issue: Whether FB is a SP be/c remedies are not available for FB unless it is a

SP.
R9-203(b) – A SI is enforceable against the debtor and third parties with respect
to the collateral only if:
1) value has been given
2) the debtor has rights in the collateral or power to transfer rights in the
collateral to a secured party; {MM has rights to transfer ownership of the cars]…
3) There is a SA that provides a description of collateral and is authenticated
by debtor. [Here, debtor MM authenticated the SA, which provides for a
description of the collateral. Form 3.2 was signed by G.Gessel for MM and
properly describes the collateral].
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Thus, FB is a SP, secured by MM’s authenticated SA which provided for the
SI.
See (DISA), Form 3.2, 12a, 13 – See CB 102.
Other terms
a) SA – an agreement that creates or provides for an SI.
1) SA must: 1) met reqs of 9-203(b) and 2) have granting language.
b) SI - an interest in personal property that secures payment or performance of
an obligation.
1) SI only exists for collateral described in an SA.
2) “inventory” is a proper description of collateral.
c) Authenticate – means to sign. R9-102(a)(7).
II. Next ask, since FB was a SP, what are FB’s remedies?
9-601(a) Rights of Secured Party after Default.

After default, a SP has the rights provided by agreement of the parties…
A SP...
1) may reduce a claim to a judgment, foreclose, or otherwise enforce a
claim, SI, or agricultural lien by any available judicial procedure.
2) if the collateral is documents, may proceed either as to the documents

or as to the goods they cover.
FB might take possession after default…

9-609(a)(b) SP has a right to take possession after default.
a) Possession: rendering equipment unusable; disposition of debtor’s

premises.
After default, SP…
1) may take possession of collateral and

2) w/out removal, may render equipment unusable and dispose of
collateral on a debtor’s premises under 9-610.
b) Judicial and non-judicial process...
1) pursuant to judicial process…

2) w/out judicial process, if it can be done w/out breach of peace.
FB has six other remedies…

9-607(a) – Collection and Enforcement by a SP…
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1) (FB) may notify an account debtor, or other person obligated on
collateral to make payment or otherwise render performance to or for
the benefit of the SP.
2) FB may take proceeds to which SP is entitled under 9-315
3) FB can enforce the obligations of an account debtor or other person
obligated on collateral and exercise the debtor’s rights with respect to
the obligation of the account debtor or other person obligated on
collateral to make payment or otherwise render performance to the
debtor, and w/ respect to any property that secures the obligations of
the account debtor or other person obligated on the collateral.
4) FB can hold a SI in a deposit account perfected by control under 9-

104(a)(1) and can apply the balance of the deposit account to the
obligation secured by the deposit account.
5) If FB holds a SI in a deposit account perfected by control, it may
instruct the bank to pay the balance of the deposit account to or
for the benefit of the SP (FB).
Hypo 11: Accounts v. Inventory

F is a debtor, who secures a loan from W.
As security for the loan, W gets an interest in F’s inventory.
F also owns accounts.
Assume the accounts are not proceeds of the inventory.
Does W have a SI in F’s accounts?
Answer: No. 9-203(a). Debtor F authenticated a SA that provides a description

of the collateral, which is “inventory.” It does not contain a description of the
accounts as collateral  W has no SI in the accounts, just the inventory.
3.2.2. Assume MM only signed a promissory note (PN). Litigation

FB paid GM for a new trailer of cars.
MM’s prez, Gessel, orally agreed FB had a SI in the cars.
a) If MM defaults, can FB enforce its SI by seizing the cars and selling them?
i. Attachment occurs when conditions giving rise to an
enforceable SI are satisfied. R9-203a,b.
ii. SI is an interest in property 1-201(37).
iii. Until a SI attaches to a particular property, the SP has no
enforceable SI and no enforceable property right – in the
collateral…
iv. Until the SI attaches, the SP is unsecured.
v. A SI is enforceable only if R9-203(b) is met:
1. value was given; here FB gave value to GM on MM’s
behalf so it can probably enforce.
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2. debtor has rights to the collateral or power to
transfer rights to a SP.
3. debtor must agree the SI has been created in the
collateral (SA exists).
vi. debtor is a person having an interest, other than a SI or other
lien, in the collateral, regardless of whether the person owes the
obligation the collateral secures R9-102(a)(28).
vii. SA, authenticated by debtor, must provide a description of
the collateral to satisfy R9-203(b)(3)(A).
viii. General rule: A description of personal property or real
property is sufficient, whether or not it is specific, if it
reasonably identifies what is described.”
1. A description of a SA must make possible the
identification of the collateral described, but does not
have to be exact and detailed (rejects serial nos test).
2. SA provides evidence that a SI in fact has been created
in certain collateral.
Answer: MM’s PN alone is not a valid SA. The third element of 9-203(b) is
missing: there is no authenticated SA that provides for a description of the
collateral. Therefore, if the party to a transaction is an unsecured
creditor, (FB) the unsecured creditor has no right to collect (possess) the
collateral.
b) Transactional problem (not litigation).

Would FB have an enforceable SI if the PN signed by MM contained the
following notation: “Collateral: Motor Vehicles?”
Issues: Is it enforceable and was there attachment? What “motor

vehicles” are being talked about?
Answer: No, there’s not an attachment be/c the collateral is not described on
the form (Chevrolet). You get attachment under 9203(a) if you have
enforcement under 9203(b). The A answer flows from the B answer…
Always ask>> 1) is there an enforceable SI?

Then, 2) is there attachment of the SI?
Rule: To have an attached and enforceable SI, you must have an enforceable
and attached SA.
9-102(a)(73) – A SA must create or provide for a SI.

Just calling a SI “collateral” on the SA is not enough to
create the SI.
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1) According to In Re Bollinger Corp, No. Majority rule: A signed FS
cannot operate as a SA when there is no language granting a SI to a
creditor in the PN. The notation must describe the collateral, and we
have no way to tell which motor vehicles are addressed.
2) PA follows Minority Rule: as long as a FS is 1) in writing 2) signed

by the debtor and 2) describes the collateral, the FS can serve as a SA
and formal reqs of 9-203(1)(b) are considered met.
Here, there was not attachment be/c collateral is not properly

described.
See In Re Bollinger Corp 134
Note: Look at how the problem could have been avoided.
Solution: Get a formalized SA or at the least if doing an abbreviated SA, have the debtor
say…“I hereby grant a security interest in X,Y and Z cars.” This would be a
sufficient description and would avoid litigation.
3.2.2 (c) and (d) present the same issue… Authentication
Issue: Whether A SI can be authenticated by voicemail and email?
Voicemail
c) Would FB have an enforceable SI if Main’s oral agreement that FB had a SI
in the cars was recorded on FB’s voicemail? If so, would you advise FB to
extend credit to MM in reliance on this agreement?
Email
d) An email (and voicemail) may be construed as a “record” R9-102(a)(69) if
it is 1) in writing, 2) signed (authenticated by debtor, Gessel/MM) and 3)
describes the collateral existing and future collateral (MM inventory).
i. but answer might change if description of future collateral was left out…
Analysis: Not clear. Here, we have an authentication issue pursuant to 9-203(b)

be/c we have 1) value, 2) signed by debtor and 3) an authenticated SA w/
description of the collateral.
Fisfis says under R9-102(a)(69) and 9-203(b) you can argue under the facts that a
voicemail or email would qualify as a record.
Bottom line: Look to see if the oral agreement made has enough factual info to
qualify as a voicemail.
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c) & d) Would you advise the client to extend credit under either situation?
Planning P.O.V.: Tell the client not to extend credit unless there’s a tangible
piece of paper with a written signature. Problem here, the collateral may only
be vaguely described in the email or voicemail, and won’t adequately create a SI.
Tell client, make sure you get a SA in 1) writing, 2) signed and 3) describing
the collateral, to create an SI.
Agency Sub-issue…
d) Subissue: Whether the client should extend credit based on the words “G.S.
Gessel” at the bottom of the email?
Answer: Since the email merely says “G.S. Gessel” at the end, an agency
argument could be made that Gessel is not as likely to be an agent as in c)…be/c
the corp wasn’t mention, he did not sign in a representative capacity.
Bottom line: Don’t extend credit unless there’s a signed SA which creates a
valid SI.
3.2.3. Authentication / Statute of Frauds Problem.

Assume during negotiations, FB sent MM a letter, to which the FS (3.1) was
attached. The letter stated, “in connection with the inventory financing of MM, it
is necessary for us to file the attached financing stmt. Kindly sign the enclosed
copy of this letter and return it to us at your earliest convenience.”
MM signed a copy of the letter and returned it, w/ the FS attached, to FB.
FB filed the statement in the proper filing office (PA Bureau of MV).
Thereafter, MM signed a simple Promissory Note (PN) and FB paid GM
for a trailer load of new cars delivered to MM.
1) Issue: Whether FB has an enforceable SI in the cars?
Rules Bollinger would say that there was no need for granting language
but, the requirements of an SA must be met to create an SI…and they
were not…
A run of the mill FS, by itself, will not qualify as an SI, even if it
accompanied by a PN.
R9-203(b)(3)(A) – 1) writing, 2) signed by debtor 3) SA w/ description of

collateral.
Answer: Here, 3) SA w/ description of collateral is not met, be/c there

must be specific granting language in the SA, which the debtor
authenticates and describes the collateral.
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R9-1-201(3) – Agreement – the bargain of the parties in fact as found in

their language or by implication from other circumstances including CD,
UT, CP.
R9-102(a)(73) – SA means an agreement that creates or provides for a SI.
R9-102(a)(7) – Authenticate
2) Issue: Why would anyone authorize the filing of a financial stmt

w/out intending to create a SI?
Answer: For priority in getting the collateral. (Properly filed FS goes

first). Mere filing of an FS does not mean a SA is valid. For pre-filing of
an FS, the Sec of State looks to the time period as at the time of the filing
of the SA. Bank does the title search and it wants to make sure the search
is on file.
R9-502(d) – A FS may be filed be/f a SA is made or a SI otherwise

attaches.
R9-322(a)(1) – Transferees of $$ take the $$ free and clear of an SI unless

the transferee acts in collusion w/ the debtor in violating the rights of the
SP.
Note: In 1962, the FS had a signature and would discuss collateral, it

would be enough to create a SI.
Bollinger changed this, and said that while there is still no need for
granting language, there must be an SA – something more than an FS – to
create a SI in the debtor’s property.
A9 usurps the CL Contract formation issue of SOF.

A9 situations keep A9 to protect the rights of a third party.
9-203(b) is a SOF statute.
3.2.4. Assume by error, a new Cavalier was omitted from the Loan Req Form (3.4). The
LRF and PN were the only documents executed by MM.
Issue: Whether FB has an enforceable SI in the omitted cavalier for which it paid
Old Bank?
Answer: No! While the LRF is acting as a SA be/c it is an agreement which

provides for a SI under R9-203(b) for Chevrolets, the problem is with the
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description of the collateral. The word “Cavalier” is not listed as part of the
description, and this violates R9-324(a).
Conclusion: The omitted Cavalier for which FB paid Old Bank is not collateral
subject to a SI. All other cars listed on the RLRF in the collateral description
would be covered by a SI (Chevrolets).
R9-108
Question: What if a FS was put into 3.2.4?

Answer: Not enough to create a SI in the collateral (Cavalier) be/c 3 parties are
involved, an FS alone is not enough.
b) Would the term “inventory” in the dealer’s inventory SA cover the omission of the
new cavalier?
Answer: Yes, be/c it is an example of a word that reasonably identifies what is

being described (9-108(a)). The “inventory” is objectively determinable, and
would be an example of reasonable identification under 9-108(b). Thus, it would
cover the omission of the new cavalier.
Planning: Don’t put vague descriptions your SA! Draft them better. These are
drafting problems.
Note: An ordinary PN (DISA) can be turned into an SA if there is granting

language in the PN. The word “inventory”, coupled with granting language,
would be enough to create a SI.
Drafting problem: Planning v. Litigation (again)

c) What if the DISA covered only “motor vehicles located at the dealer’s address set forth
above” and in fact, the omitted Cavalier was stored at another location? Should the
reference to location be construed as a limitation on the collateral covered or merely a
reference to the location where the parties expected the collateral to be kept?
Issue: Whether a DISA (or PN) stating that the collateral is at the dealer’s address
but in reality is at another location is covered by the DISA (or PN)?
Answer: It depends. Probably the answer is different from (b) be/c the omitted
Cavalier is not at the same location described in the DISA. Thus, the term
“inventory” would not reasonably identify a Cavalier located elsewhere be/c it
is not the type of collateral located in the same “category.” It’s probably a
limitation on the collateral covered.
Rule: See R9-108(a): a description of personal or real property is sufficient,

whether or not it is specific, if it reasonably identifies what is described.
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R9-108(b): A description of collateral reasonably identifies collateral if it
ids the collateral by:
1) specific listing
2) category
3) a type of collateral defined in the UCC
4) quantity
5) computational or allocational formula
6) any other method of identity, if the id of the collateral is
objectively determinable.
Description Issue: Super generic.

d) What if paragraph 5 in the SA contained no sub-paragraphs and covered only “all
dealer’s personal property, of every kind and nature whatsoever?”
Issue: This is an issue of whether a super generic description of collateral is

sufficient for a SA.
Rule: R9-108(c) A Super generic Description of collateral as “all the debtor’s

assets” is not sufficient to reasonably identify the collateral in a SA, but it is
sufficient for a FS!
Answer: This description for a SA would not cover the slip-up be/c it is super
generic and does not reasonably identify the collateral.
Note: Keep in mind the differences between a FS where super generic language is
sufficient to describe collateral, and an SA where it is not sufficient.
e) What if the SA description covered only “certain motor vehicles?”
Issue: Whether or not certain motor vehicles is an adequate description of the

collateral.
Rules: R9-102(a)(23). Consumer goods are goods to be brought primarily for

personal, family, or HH purposes.
R””(33). Equipment means gods other than inventory, products or

consumer goods.
R””(34). Farm Products means goods other than standing timber with
respect to which the debtor is engaged in a farming operation, and which
are:
a) crops grown or to be grown, (trees, vines, bushes, aquatic).
b) livestock born or unborn (incl aquatic)
c) supplies used or produced in a farming operation
d) products of crops or livestock in their manufacturing states.
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R’’(43). Inventory are goods other than farm products which:
a) are leased by the person as a lessor
b) are held by the person for sale or lease, or furnished under a
K for services
c) are furnished by a person under a K for services
d) consist of raw materials, work in process, or materials used
or consumed in a business.
Collateral is labeled one of the following types:

1) consumer goods
2) equipment
3) farm products
4) inventory
Answer: It depends. On one hand, “certain motor vehicles” may qualify as a

description which reasonably identifies the collateral under 9-108(a)-(c). On the
other, certain motor vehicles cannot be classified as one of the four categories
be/c the description is super-generic. It comes closest to consumer goods but
“certain motor vehicles” could also be selected for business use. Equipment only
covers goods other than inventory like farm products or consumer goods.
“Certain motor vehicles” may or may not be included in inventory.
Planning Solution: Don’t put in super generic language in an SA!
Enforceability, AAPC
3.2.5. Assume FB “picked up” the floor plan financing for MM as described in the
prototype. Subsequently, FB paid GM for a new shipment of cars to MM.
Issue: Does FB have an enforceable SI in the newly arrived cars?
Rule: There is no need to get a new SA every time new collateral comes in, as
long as there is an 1) enforceable SA and 2) an AAPC is on the form!
R9-204(a). After Acquired Collateral – SA may create or provide for a SI

in after-acquired collateral.
R9-204(b). But note when an AAPC is not effective. An SI does not

attach under a term constituting an AAPC to:
1) Consumer goods other than accession when given as
additional security unless the debtor acquires rights in them
w/in 10 days after the SP gives value or
2) A commercial tort claim exists.
Analysis
1. First ask whether all elements of enforceability R9-203(b) are met:
1) value given? Yes, FB paid money to GM
2) debtor has control of collateral? Yes. MM controls the cars.
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3) is there a SA w/ a description of the collateral signed by the debtor?
Yes. The DISA describes the collateral and is signed by MM.
2. Second, ask “Is there an After-Acquired Property Clause?” (AAPC?)

1) Yes. CB 98. Part 5 of SA – “now owned or hereafter acquired,” for
property dealer gives to FB in SI.
Answer: All elements of R9-203(b) are met, and there is an AAPC on the form.
Thus, FB has an attached and enforceable SI in the newly arrived cars!
Course of Dealing Question.

Question: would it have made a diff if the only reference to the collateral in the SA and
FS was “to all inventory” (with no AAPC)?
Issue: When dealing only with a SA, do you need an AAPC for a SA?
Rule: It depends on which three approaches are followed w/ regard to the AAPC.
1) always – need the AAPC in the SA for all collateral.
2) never – don’t need the AAPC in the SA for all collateral.
3) It depends – need an AAPC for some types of collateral, not others.
Answer: Depends on the type of collateral at issue – generally, if the inventory

has high turnover, then you need the AAPC. If the inventory has low turnover,
then you don’t need the AAPC.
Ex 1. For inventory or chattel paper, no need for an AAPC be/c of high turnover.
For equipment, need AAPC be/c there is low turnover.
Hypo 12: Turnover for AAPC.
Bank lends $1 million to Rolliers (an independent hardware store).

R gives an SA in “all the inventory” to the Bank.
R plans to pay interest until payback.
2 years go by.
Question: If there’s no AAPC in the DISA, What’s the worth of the collateral at
the end of the two years?
Answer: None! Because it’s an independent hardware store, and not a large
selection of inventory, it may have high turnover. At the end of two years, only
after acquired property will be left, and there’s no collateral for the bank, be/c the
DISA failed to include an AAPC to secure the Bank’s SI.
3.2.6. Assume the same facts as the prototype but paragraph 5 covers only
“inventory.”
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Summer 2003
Problem where SI attaches.
a) Does FB’s SI in the cars in MM’s inventory extend to software in the cars
operating properly, or only to the frames, engines and other tangible aspects of
the car?
R9-102(a)(48). Inventory means goods…other than farm products which:

a) are leased by a person as a leassor…
R9-102(a)(44). Goods means all things which are movable when a SI attaches.
…the term also includes a computer program embedded in goods, and any
supporting information provided in connection with a transaction relating
to the program if i) the program is associated with the goods in such a
manner that it is customarily considered part of the goods or ii) by
becoming owner of the goods, a person acquires a right to use the
program in connection with the goods.
The term does not include a computer program embedded in goods that
consist solely of the medium in which the program is embedded.
Answer: 1) First, we must decide whether the program is goods or software.

Here, the software is the type described w/in the definition of
goods be/c it is
1) movable when the SI attaches
2) goods includes computer programs embedded in goods, and
only supporting info provided in connection with a transaction
relating to the program if it 1) is customarily considered part of the
goods or 2) by owning the goods, the owner acquires the right to
use the program.
Thus, FB’s SI in the inventory of MM’s cars would extend to the
wide array of software used to keep the major systems in the car
operating properly.
Software only covers programs and supporting info provided in

connection with a tansaction relating to the program, and does not
include a computer program w/in the definition of goods.
Note: Here, the SI attaches. The software could be included within the definition
of inventory which includes goods, defined as computer programs embedded in
the software to which the owner acquires a right.
Planning problem where SI does not attach.
b) Does FB’s SI in MM’s inventory extend to electronic repair manuals, car racing games
and other computer software that MM sells as a sideline?
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Summer 2003
R9-108 a) Sufficiency. A description of personal or real property is sufficient,
whether or not it is specific, if it reasonably identifies what is described.
b) Examples of reasonable identification include:

1) specific listing
2) category
3) a type of collateral defined in the UCC
4) quantity
5) computation or allocational formula or procedure
6) any other method if the identity of the collateral is objectively
determinable.
R9-102(a)(42). General intangible means any personal property, including

things in action, other than accounts, chattel paper, commercial tort claims,
deposit accounts, documents, goods, instruments, investment property, letter of
credit rights, letters of credit, money, and oil, gas or other minerals be/f
extraction. The term includes payment intangibles and software.
R9-102(a)(44). Goods means all things which are movable when a SI attaches.
The term does not include a computer program embedded in goods that consist
solely of the medium in which the program is embedded.
R9-102(a)(48). Inventory. (supra).
R9-102(a)(75). Software (not goods). Means a computer program and any

supporting information provided in connection with a transaction relating to the
program.
The term does not include a computer program included in the def of goods.
Answer: Electronic repair manuals, car-racing computer games, and other computer
software are “software” and not goods. Be/c these items are software and not goods,
they’re not covered by the SA. They are general intangibles (personal property).
Moreover, manuals and racing games “consist solely of the medium in which the
program is embedded.”
Note: From a planning standpoint, the problem would have been avoided if the general
intangibles here were listed as both goods and software.
1) Look at R9-203(b)(3)(A) and remember there must be a SA w/ description of t

he collateral signed by the debtor.
2) classify the collateral and determine its value;
3) look at what it is that is classified in the SA.
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Summer 2003
• If the collateral described in the SA is inventory, then they can be
classified as goods and have a valid SA, so the SI attaches.
• If the collateral described in the SA is software, then they are not
goods and not a valid SA so no SI attaches.
How could the problem be avoided?

This new class here is called general intangibles or software. When there is a general
intangible as in this case, it should be classified as both goods and software to avoid
classification problems.
Planning problem.
c) Does FB hold a SI in MM’s “loaners” (cars MM allows its customers to use while
their cars are being serviced)?
R9-102(a)(33). Equipment. Goods other than inventory, farm products or

consumer goods.
R9-102(a)(23). Consumer goods are goods used primarily for personal, family
or HH use.
R9-102(a)(34). Farm Products are goods other than standing timber, w/ respect
to which debtor is engaged in farming and are:
A) crops (fruit, aquatics)
B) livestock born or unborn)
C) supplies used in farming operations
D) products of crops or livestock in their unmanufactured states
R9-102(a)(48). Inventory includes goods other than farm products which are:
1) leased, 2) held for sale or lease 3) furnished under K for service 4) or consist
of raw materials, work in process, or materials used or consumed in a
business.
SA CB 98: any new or used inventory under PA.
Answer: The loaners would fit the description for consumer goods. But, the loaners here
are not necessarily used by customers primarily for personal, family or HH purposes,
they could be leased for business use. Thus, inventory could also fit. Here, FB’s SI
will not attach for anything not classified in the SA (ie, consumer goods or equipment).
Note: To avoid this problem, keep in mind the following:

1) How do you hurdle the specific issue? Cover it both ways.
2) remember planning v. litigation.
Here, the car could be classified two ways as both inventory and consumer goods.
To plan, the lawyer should draft the SA to include both inventory and consumer
goods purposes when loaning the vehicle.
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Summer 2003
Why might his make a difference? Be/c a SP should only be secured for what it is
owed in the SA. An SP cannot be under secured or it will not be enough to cover
the loan (here, the loan for the “loaners”).
d) Does FB have a SI in the Chevrolet Monte Carlo that MM owns but allows Gessel
(pres of MM) to drive as part of his compensation?
Answer: The use of this car (lease or sale for business purposes) makes it appear that is
possibly covered as inventory. However, it appears the car might be classified as
equipment, or consumer goods which are not covered in the SA. To avoid this problem,
the drafter should have planned to include terms which defined equipment and consumer
goods to specify whether or not they would also be covered in the SA.
3.2.7. MM leases from Office! Office! Office equipment on a 3 year lease. MM may
terminate the lease w/out penalty for any reason, giving up to 30 days advanced
notice to Office! Office!. Assume A2A does not apply, just general lease law.
What’s the underlying Secured Transaction? The loan between MM and Office! Office!
Issue: Whether the ST created a SI in the equipment.
Whether debtor has rights in the collateral (under 9-203(b)(2)).
a) Can MM create an enforceable SI in the office equipment?

If yes, should a lender extend credit?
R-9203(b) Enforceability. SI is enforceable against the debtor and third parties

with respect to the collateral only if:
1) value was given
2) debtor has rights in the collateral
3) SA with a description of the collateral is signed by debtor
Answer: Here, debtor (MM) has rights in the collateral be/c MM may terminate the lease
w/out penalty. The loan indicates value was given, and there is a SA describing the
collateral signed by debtor. Thus, MM can probably create an enforceable SI in the
office equipment.
However, I would not advice a lender to extend credit to MM be/c MM could terminate
the lease at any time.
b) Assume the lease contains the provision “MM lessee aggress not to assign the
lease or rights thereunder. Any purported assignment shall be null and void
and shall constitute a default resulting in immediate termination.
Changes answer?
R9-401(a). Alienability of debtor’s rights is governed by law, not A9.
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Summer 2003
R9-407 Restrictions on SI in lease agreement. A term in a lease agreement is
ineffective to the extent that it:
1) prohibits, restricts, or requires consent of a party to the lease to the assignment
or transfer of or creation, attachment, perfection or enforcement of a SI in an
interest of a party under the lease contact or in the lessor’s residual interest in
the goods.
2) Provides the assignment, or transfer or the creation, attachment, perfection or
enforcement of the SI may give rise to a default, breach, right of recoupment,
claim, defense, termination, right or termination or remedy under the lease.
Answer: Whether rights can be transferred is governed by law, not A9; Moreover, an
agreement between debtor and SP which prohibits debtor’s rights in collateral or makes
transfer a default does not prevent the transfer from taking effect.
Here, the provision in the lease raises a question of enforceability. There’s an SI but it’s
not worth much be/c under 9-407(c), the lessee’s interest in the SI is not materially
impaired. By a creation, attachment, perfection or enforcement of a SI in the lessor’s
interest under the lease K or lessor’s residual interest in the goods is not an interest that
materially alters the lessor’s (MM) prospect of obtaining return performance, unless
enforcement results in a delegation of material performance.
R9-502(d) & Comm 2: FS may be filed before a SA is made, or a SI otherwise

attaches; but the fact a FS is filed alone, does not necessarily mean a SI has been
or will be created.
Hypo 13: Tangible Goods (Diamonds).
W steals tangible goods (diamonds) from Sheehan.

W gives to F and asks for a loan as SI for the tangible goods (diamonds).
W signs a SA “I hereby give Nick Fisfis security in the diamonds for this loan.”
W gives the tangible goods (diamonds) to F.
Can S get the diamonds back from F free & clear under the SA?
Answer: F took the diamonds for 1) value 2) in good faith 3) w/out notice of a
defect. But, S can get them back be/c under R9-203, W (debtor) never had rights
in the collateral and S can take free and clear be/c F never had rights in the
collateral. R9-203 requires 1) debtor had rights in the collateral, as one of the
elements – and if one element is missing, debtor’s rights were not perfected and
no SI exists.
Remember R9-201 says that a transaction subject to this article is subject to any
applicable rule of law which establishes a different rule for consumers. Here, the
void/voidable title rule could apply; when combined with R9-203, it has the same
effect as saying W didn’t have rights in the collateral and F therefore had no
rights. Thus, S can recover the diamonds free & clear.
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Summer 2003
Difference between AAPC, Future Advances Clause.
1) After acquired property clause – deals w/ future collateral.

2) Future advances clause – deals w/ future liabilities.
Hypo 14: Future Advances Clause w/ 1 SA.

F lends W $100K
F&W sign SA that says W “hereby gives property as SI to F for $100K debt.”
2 mos later, F lends W another $50K
Assume F was over-secured on the original lien so this was okay.
F defaults.
Issue: Whether W has a SI in collateral for $100K or $50K?

Answer: F has a SI for payment of the $100K, not the $50K be/c the SA only provided
for the $100K debt. W has a SI in collateral for $100K, not $50K.
Hypo 15: Future Advances Clause w/ 2 SAs.
Same facts but F & W sign another SA for the added $50K debt.
Then W has SI in collateral for the additional $50K ($100K total).
Bottom line: when dealing with Future Advances Clause, make sure separate SAs
are signed for each loan, or specify a higher amount so the debtor’s SI in the
collateral will be secured by future loans.
Note: General loans. In the Prototype, each time a shipment was sent, the bank paid.
This is an example of a general loan. In one year, there are 30 or 40 loans given, and
when the cars come in the bank pays. A series of loans and repayments are scheduled,
and it is not necessary to get a new SA unless the parties exceed the amount specified in
the general loan (ie, $35 million). New SAs are not needed each time here.
Planning: In Hypos 14 and 15, F and W could have specified a higher amount for the SA
to plan for future loans to be made, so a new SA did not have to be drafted.
3.2.8. Future Advances Clause Problem.
MM falls behind in payments to unsecured trade creditors.

MM requested a $100K loan for 60 days from FB.
FB agreed to advance $100K loan to MM.
Only a PN signed by MM existed.
The PN note contained no references to inventory finance documentation.
MM failed to pay the PN when due, and defaulted under the inventory financing
arrangement.
Lean, a third-party creditor of MM, caused Sheriff to levy on MM’s auto
inventory.
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Summer 2003
Question: Is Lean’s execution lien JR or SR to FB’s SI?

Answer: Here we are not dealing with AAP but a Future Advances Clause.
As counsel to Lean, Lean’s execution lien is JR to FB’s SI. The value of the auto
inventory is probably sufficient to satisfy all amounts outstanding in MM’s inventory
loans from FB, w/ surplus value available from Lean.
On the other hand, if the auto inventory secures not only the inventory loans but also the
$100K term loan there’s little for Lean.
a) Argue the Auto Inventory secures the loan.
R9-204(c). Future Advances (Clause) and other value.
R1-201(37). Security Interest defined. SI means an interest in personal property or

fixtures which secures payment or performance of an obligation.
Answer: Similar to an AAPC which deals w/ future collateral, a FAC deals w/ future
liabilities. Here, the Future Advances Clause, “and all existing and future liabilities
and obligations of dealer to bank” probably provides for collateral liabilities. See CB
98. Under R9-204(c), collateral may be used to secure future and past or present
advances if the SA so provides. Thus, the auto inventory secures the loan.
b) Argue the Auto Inventory does not secure the loan.
Professor Gilmore’s 4 part relatedness test determines if an obligation (or future

obligation) is covered by a SA:
1. Specifically expressed. Whether the other indebtedness allegedly covered by the
SA are specifically expressed therein.
2. Other debt of the same class. Whether the other indebtedness allegedly covered
are of the same class of the debt referenced by the SA.
3. Intended to be Separately Secured. Whether the other indebtedness were
intended to be separately secured, and
4. Reliance by SP. Whether the SP relied on the clause to make further loans.
Gilmore essentially says that if a loan is not for the same type of obligation, it should
not be included in the SA / policy.
Answer: The best argument the SA does not secure the $100K loan for FB is under
Gilmore. Only future advances that are similar and related to an initial principal
obligation are given the broad future advances clause in a SA. The $100K loan is not
in the same class and the PN contains no reference to inventory financing
documentation. The SA should have provided the collateral could secure future and
past or present advances but did not. R9-204c, Comm 5.
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Summer 2003
Note: Gilmore was used under Old A9 but no longer used for Future Advances
now. Fisfis says Gilmore is a reason why we have complications in commercial
agreements (landlord-tenant leases).
It’s a matter of planning – handle the drafting as clearly as you can!! How do you
avoid such issues? Draft a SA that lists all the inventory!!
c) Assuming the $100K loan would be secured, what result if MM’s $100K
obligation to FB arose out of an accident where one of MM’s tow trucks ran
through FB’s plate glass window, into its lobby and over its President?
1. First, ask “does A9 apply?”

R9-109(12), Comm 15 Tort claims.
2. Next, “can the parties agree that such accidents would be covered by SA?”
R9-204, Comm 5
Answer: The $100K obligation arising from the accident would not be a SI. 1962 A9
did not cover commercial tort claims but the new A9 now applies to commercial tort
claims and to SIs in tort claims that constitute proceeds in other collateral (ie, a right
to pmt for negligent destruction of debtor’s inventory).
Also, if the parties freely agreed such accidents would be covered by the SA, that’s
okay under R9-204 Comm 5, and A9 rejects the holdings of cases where other tests of
whether the future advance or subsequently incurred obligation was of the same or
similar type of class.
Bottom line: The fact the event was an accident, it won’t matter and FB probably has
a right to pmt for destruction of the inventory since the SI covers “any obligation
whatsoever.”
II. Perfection – the second step.
1. Enforceable and Attached. The first step is always to check that the reqs of R9-
203(b) and (a) are met.
2. Perfected filing. Then ask, whether the SI was Perfected.
Even if the three questions for enforceability and attachment are met for a valid SI,
the secured party (SP) does not necessarily prevail over holders of competing claims
to the collateral.
3.3.1. Levy.
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Summer 2003
The facts are like the prototype. Lean caused the sheriff to levy on the cars in
MM’s inventory.
Issue: whether the SP can seize and sell the cars. Who has priority between the
SI and execution lien.
Q: Is Lean’s execution lien SR or JR to FB’s SI in the cars?
R9-201 general effectiveness of a SA. A SA is an agreement that creates or

provides for an SI. Except as otherwise provided, SA is effective according to its
terms.
R9-203(a),(b). An SI attaches when it becomes enforceable w/ respect to the

collateral. Enforceable w/ 1) value 2) debtor’s rights, 3) SA w/ description of the
collateral signed by the debtor.
R9-317(a)(2)(A). SI is subordinate to the of a perfected SI or SA+FS.

2(a). SI is subordinate to a person who becomes a lien creditor – lien creditor wins
if levy comes before perfection of the SI. This section also impliedly tells us
that a SP wins if the SP perfects before the levy.
R9-308(a). SI is perfected when attached and 9-310 – 9-316 met before SA

attaches. Can’t have perfection without attachment. A run of the mill FS does
not quality as an SA.
R9-201(a). If perfected SI, there is no interest otherwise provided. Either way, a

SP wins against a levying creditor.
R9-201(a)(52). Lien creditor. One who acquired a lien by attachment, levy or

the like.
R9-310 A filing is required to perfect an SI.
R9-502(a). FS must provide 1) name of debtor, 2) name of SP or rep, 3) collateral

covered by a FS.
R9-102(a)(48). Inventory – goods other than farm products which are: A) leased
by a person as lessor B) held by sale or lease under a K for service C) furnished
by a person under K for service, D) consists of raw materials, works in process, or
materials.
R9-501(a). Filing office. Local law of this state governs perfection of a SI…and
filing happens in the office of the Sec of the Commonwealth.
In 1962, dual filing was required for both states!
In 2002, only filing in state capital (Harrisburg) is required.
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Summer 2003
R9-311(d). Perfection of SI. The filing of a financing stmt is not necessary or
effective to perfect a SI in property subject to: 1) a statute, regulation or treaty of
US…2) list any certificates of title statute, 3) a certificate of title statute that
provides for a SI to be indicted on the certificate as a condition or result of the
SI’s obtaining priority over the rights of a lien creditor with respect to the
property. Bottom line: if collateral is inventoried by someone doing business w/
that inventory, follow standard filing reqs; no cert of title for consumer
transactions. Ie, in the prototype, Dealer and Bank only required standard filing.
Note: How do you determine when there is a LEVY? When there is a lien, it will be
based on non-code state law. Just know it goes to state law, and is not in the code.
Hypo 16: C1 FS
Part 1 C1 Loan
C2 Levy
C2 has priority be/c C1 does not have a perfected SI. C1 did not have
enforceability 1) value, 2) debtor’s rights in collateral 3) SA describes.
C1 (debtor) did not authenticate so there are no rights perfected.
Hypo 16: C1 SA/Loan

Part 2 C1 FS
C2 Levy
C1 has priority be/c C1 was the first to perfect; Perfection occurred when
the FS was filed be/c C1 already had the SA/Loan.
Hypo 16: C1 FS
Part 3 C1 SA/Loan
C2 Levy
C1 has priority; C1 perfected when SA/Loan are attached. Need

attachment and enforceability under R9-310 to R9-316.
3.3.2
Suppose FB’s clerks failed to file the FS (form 3.1).
Lean, the judgment creditor, caused the Sheriff to levy on MM’s inventory of
cars.
Issue: Whether Lean’s execution lien is SR or JR to FB’s SI.

Answer: Lean’s execution lien here is SR over FB’s be/c FB did not perfect its SI
by properly filing the FS.
R9-317(a)(2) A SI or agricultural lien is subordinate to the rights of: …a person

that becomes a lien creditor be/f the earlier of time…the SI is perfected.
**If the lien creditor perfects first, he wins.
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Summer 2003
R9-310 A FS must be filed to perfect all SIs…
3.3.3
FS’s clerks mistakenly filed the FS w/ the NJ office.

Lean caused the Sheriff to levy on MM’s inventory of cars.
Issue: whether Lean’s execution lien is SR or JR to FB’s SI?

Answer: Lean’s execution lien is SR to FB’s be/c FB’s SI was not perfected since
it was mistakenly filed in the wrong state office. It should have been filed in PA
not NJ.
Diff between 3.3.2 and 3.3.3: In the second problem the was a mis-filing in the
wrong location.
R9-317(a)(2) A SI or agricultural lien is subordinate to the rights of: …a person

that becomes a lien creditor be/f the earlier of time…the SI is perfected.
**If the lien creditor perfects first, he wins.
R9-310 A filing is required to perfect an SI.
R9-301 Local law of the jurisdiction governs perfection.
3.3.4 Erroneous Indexing, Info from Filing Office.
After FB properly delivered the FS to the proper filing office, a clerical error in
inputting the data into a computer resulted in the FS’s being erroneously indexed
to reflect FB as debtor and MM as the SP. (MM is really debtor).
A mistaken receipt was mailed to FB by the filing office but none of FB’s staff
noticed the error.
a) Second Bank (SB) is interested in providing floor plan financing to MM and

wishes to learn whether MM’s inventory is subject to an SI.
Issue: Could SB discover the FS of FB?
Answer: No. the office is req to index an initial FS according to the name of the
debtor and index all filed records in a manner that associates them w/ one
another. Thus, SB will not find the FS of FB be/f the FS was erroneously
indexed w/ MM as the SP, and the FS is filed by the SP. (MM is the correct
debtor). FB is the correct SP who would file an FS.
R9-519(c). Indexing is done by the name of the debtor.
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Summer 2003
R9-523(c). SB has a right to request the info. Here, SB will not be able to find
the FS. MM should be indexed as debtor, but MM was indexed as SP.
R9-523(c)(1)(A). The filing office shall communicate or otherwise make

available in a record the following info when someone requests it:
1)whether there is on file on a date and time specified by the filing office,
but not a date earlier than three business days be/f the filing office
receives the request, any FS that:
A) designates a particular debtor [or, if the req so states, designates a
particular debtor at the address specified in the req].
Note: Bracketed code means the suggestion is optional for the state; alternatives
that are recommended by the drafters are put into the brackets. PA always
includes all the info in the brackets.
b) was the filing effective to perfect FB’s SI?
Yes. Here, the filing perfected the SI, even though it was in the wrong office.
Rule: An erroneous filing can perfect a SI by the FS that is filed.
An erroneous indexing does not undo perfection!!!!!
R9-516(a). Indexing from filing office.

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.
R9-517. The failure of the filing office to index a record does not affect the
effectiveness of the filed record.
c) Do other creditors or lien holders who may be damaged by the erroneous indexing
have any recourse other than to attack the effectiveness of the SI?
R-519(c) Indexing Generally

R9-523(c) The filing office must communicate the requested info or make the
record available to those who request it.
Answer: There may be a c.o.a. against the filing office but the c.o.a. may be
subject to governmental immunity which is governed by non-code state law.
Fisfis says go ahead with the loan; Go to the non-code state law to find if the state
official who did the erroneous indexing can be sued; this depends on non-code
state law.
3.3.5 Operation of the Filing System.
FB est a financing arrangement w/ MM as described in Prototype. Subsequently,

SB became interested in providing floor plan financing to MM. SB asks you as
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Summer 2003
counsel to check the public record to discover whether and to what extent MM’s
assets may be subjected to SI’s.
FS v. SA.
a) what does the public record reveal?
See FS (Form 3.1 supra).
Answer: The public record (3.1) shows the 1) name of the debtor, 2) name of
the SP or rep 3) collateral covered by the FS.
Question: Does it (record) show whether any motor vehicles are in fact subject
to Old Bank’s or FB’s SI, and if so, which ones?
Answer: No. But the function of an FS is to give general notice of the

potentiality of those things present in the FS (ie, collateral). A run of the
mill FS that does not create or provide for a SA does not provide a SI
The language “all of the flowing hereinafter acquired is not needed..”

indicates there is collateral involved. The FS just needs to indicate there is
collateral involved, and “all of the following” indicates a sufficient description
of which collateral is involved.
Question: Does it show whether MM is obligated to Old Bank or FB and if

so, the amount of the obligation?
R9-522(a) Maintenance and destruction of records. Post-lapse / retrieval.

The filing office shall maintain a record of info provided in a filed FS for at
least one year after the effectiveness of the FS has lapsed under R9-515 w/
respect to all secured parties of record. The record must be retrievable by
using the name of the debtor and by using the file number associated
assigned to the initial FS to which the record relates.
Note: FS remains on record for 1 year after lapse period; longest period is 5
years + 1 year thereafter.
R9-515(a) An initial FS is effective for 5 years.
R9-515(c) An FS that lapses can still be effective if a continuation stmt is

filed pursuant to (d), otherwise the SI will become unperfected unless the SI
is perfected otherwise.
Note: A continuation stmt can be filed to go beyond the 5 years.
b) If the only reference to collateral were “inventory,” would the FS be

adequate to perfect a SI in the automobile in MM’s inventory as of the time
the FS was filed?
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Summer 2003
Answer: Yes, the FS would be sufficient to perfect FB’s SI in the automobile.
R-9516(a).
R-9-517.
R9-108 (a). Sufficiency of Description. A description of personal or real
property is sufficient, whether or not it is specific, if it reasonably identifies
what is described.
(b) Examples of reasonable identification include: 1) specific listing, 2)

category, 3) type of collateral, 4) quantity, 5) computational or allocational
formula or procedure, 6) or any other method, if the identity of the
collateral is objectively determinable.
R9-504 Safe Harbor. The existence of a SI…given to a debtor to dispose of

or use collateral, w/out more, does not subject a secured party to liability in
contract or tort for the debtor’s acts or omissions.
R9-402. The existence of a SI, given to a debtor to dispose of or use

collateral, w/out more, does not subject a SP to liability in contract or tort for
the debtor’s acts or omissions.
Question: Would it be adequate to perfect a SI in inventory MM acquired

after the FS was filed?
Answer: yes, be/c an AAPC is not necessary for an FS.

FS descriptions are more lenient than a SA. “all debtors’ assets” okay for an
FS, but not for an SA.
Question: How can SB discover all the facts?

In other words, how does SB find out what collateral is subject to the SA?
Answer: Interested party (SB) must have a record authenticated by the

debtor requesting the info sought.
SB should ask: 1) what is the collateral subject to the SI?
2) how much is owed?
R9-210 – gives a formalized procedure.

3) Request regarding a list of collateral means a record authenticated by a
debtor requesting that the recipient approve or correct a list of what the debtor
believes to be the collateral securing an obligation and reasonably identifying
the transaction or relationship that is the subject of the request.
Question: What if SB says, “we’re interested in doing the financing of the

collateral for MM” to FB?
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Summer 2003
Answer: Raises a privacy problem. SB didn’t ask MM and this presents a
privacy problem. FB should tell SB that it is necessary for MM to give SB
permission for FB to make the info available.
What’s the difference between the hypo below and the Prototype?
Hypo: SA says “I hereby give a SI interest in the following: a) inventory.
Difference: The Prototype says “all the dealer’s property now owned in
inventory.” The Hypo just says “inventory.”
This is important be/c: The “all” language is granting language, which gives
a SI in the dealer’s collateral in problem b)…which is sufficient for both an
FS and SA. But in the hypo, it’s only sufficient for an FS, not an SA.
Rule: For an FS, debtor need only give notice of the FS.
Ie, Just saying “inventory: motor vehicles, accounts” is enough for
the FS be/c an FS does not require granting language. But for an
SA, this would not be sufficient as an SA requires granting
language.
Note: Under 1-103, if info is inaccurate, there may be a remedy for estoppel.
c) Would the FS be adequate to perfect the SI if the only reference was to

“certain motor vehicles?” Is this a description of collateral?
Answer: Certain Motor Vehicles is okay for an FS but not an SA. It’s an
indication of the type under R-9502(a)(3).
Sufficient for FS: Certain MV, MV, Certain Inventory, Inventory

Sufficient for SA: All of the MVs, All of the inventory.
Question: Is certain motor vehicles an adequate description of collateral?
Answer: Yes, for the FS; No for the SA.

It satisfies the contents of the FS be/c it provides 1) the name of the
debtor, 2) the name of the SP or rep, 3) indicates the collateral
covered by the FS.
Still, it is not great from a planning pov, be/c it’s not adequate to
describe the SA.
An FS ids what is the subject of the SI for individual parties

and third parties as well.
d) Would the FS be legally sufficient to perfect a SI if it lacked info in 1c-1g, and

3c (a mailing address?)
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Summer 2003
Answer: Yes, for an FS to be effective only the “big 3” are required in R9-502.
1) name of debtor, 2) name of SP or rep, 3) indication of the collateral.
R9-502(a)
R9-502(c).
R9-516(b)(4), (b)(5).
R9-502, Comm. 2.
Question: If so, would you advise FB to adopt a cost-saving policy of leaving the
boxes blank?
Answer: No! be/c of R9-502(a), the filing office should refuse to accept the
record if the boxes are left blank (for a reason set forth in R9-516(b). However,
the FS will be effective if the filing office chooses to file it anyway. R9520(c).
R9-520 Comm 3
R9-516 Comm 5
R9-502 Comm 2
e) Should the UCC require more complete info to appear in the public record?
R9-504(2).
R9-108(c)
Answer: Yes, but it depends on the type of collateral and who is involved. For
example, more details are required for equipment than inventory. Also, you
would want to avoid all super generic descriptions for SAs.
Rule: Super generic language can be used in the FS but not the SA to secure
the SI be/c it won’t sufficiently id the collateral in the SA.
Super generic description. “all of debtor’s personal property of every kind and
nature.”
Note: An SA can be filed as an FS as long as what is in the FS is in the SA.
Priority Problem. Purchase Money Security Interests
3.3.6.
March 19 – MM executed documents (as described in the Prototype.)
FB advanced funds to GM for new cars.
March 23 - New cars are delivered to GM
March 26 - Lean levied on newly delivered cars.
In other words….
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Summer 2003
3/19 - C1 – SA, Loan
3/23 - cars delivered by GM to MM
3/23 - C2 – Levy
5/26 - C1 - FB filed FS.
Question: Is Lean’s execution lien SR or JR to FB’s SI?
Answer: Lean’s execution lien is JR to FB’s SI. Under R9-317, a levying

creditor will win be/c SI was not perfected until filing on 5/26 w/ FS.
Under R9-317(e), if a person files a FS w respect to a PMSI, before or

w/in 20 days after debtor receives delivery of the collateral, the SI takes
priority over the rights of the buyer, a lessee or lien creditor, which arose
between the time the SI attaches and time of filing.
Thus, the lien must attach between the time the SI attaches and time of f
filing.
Here, FB filed the FS in the proper office w/in 20 days after Lean’s
execution lien, and FB’s SI is SR to the rights of Lean as lien creditor that
arose between the time the SI attached and when FB filed the FS.
R9-322 First to file or perfect rule.

Priorities among SIs. Priority among conflicting SIs..in the same
collateral is determined according to the following rules: 1) conflicting
SIs…rank according to the time of filing or perfection. 2) a perfected
SI…has priority over conflicting unperfected SI or agricultural lien. 3) the
first SI…to attach or become effective has priority if conflicting SIs are
unperfected.
Under R9-103(b), A PMSI in Goods…says…A SI in Goods is a PMSI..1)

to the extent that the goods are purchase money collateral w/ respect to
that SI.
There are 2 basic fact situations where you have a PMSI:
1. When Debtor (Buyer) buys the goods on credit (installment basis) from Seller
(who makes the loan). This evidences an ongoing relationship between
Debtor and Seller.
Hypo 17: PMSI / Purchase Money Security Interest…

1) Seller + Buyer involved in purchase of Widgets.
2) Seller sells widgets on credit to Buyer for $10K.
3) Seller can’t get them back w/out a SA.
4) Seller gets a SA.
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Summer 2003
5) Seller and Buyer have an ongoing relationship, and Buyer will make
installment payments.
2. When Debtor (Buyer) borrows from a 3rd Party to Purchase Certain Goods.
Hypo: 18: PMSI / Purchase Money Security Interest.

1) Buyer needs $ to purchase machine to make widgets ($100K).
2) Bank lends Buyer money…Buyer gives a PMSI to Bank in the new
machine, or widgets that will be made by it.
3) Bank makes check payable to both “Buyer’s Equipment Co.” and
“Seller” of the machine who sold to Buyer.
4) Seller is really the financier!
Note: Most ST scenarios use a PMSI.
R9-103(a)(1). Purchase Money Collateral. Means goods or software that

secures a Purchase Money Obligation incurred w/ respect to the collateral.
R9-103(a)(2). Purchase Money Obligation is an obligation of an obligor

incurred as all or part of the price of collateral, or for value given to enable debtor
to acquire rights in or the use of the collateral if the value is in fact so used.
Question: When did the SI in the loan attach?

Answer: It probably didn’t attach on 3/19 w/ just the SA and Loan, so the
real Issue is What part of the attachment was a problem here?
R2-501. Buyer has rights at the time the collateral attaches.
Answer: Between 3/19 and 3/23 there could have been attachment be/c
that’s when buyer’s rights in the collateral were available…we
know it was at least attached by 3/23 when the levy was filed.
By 3/23, all parts of 9-317 are attached.
Notes: R9-317 defines when a PMSI attaches in 2000. Except as otherwise

provided in 9-320 and 9-321, if a person files a FS w/ respect to a
PMSI, before or w/in 20 days after debtor receives delivery of
collateral, the SI takes priority over the rights of a buyer, lessee or
lien creditor, which arise between the time the SI attaches and
time of filing.
2000 – 20 days
PA - has always been 20 days
1962 – 10 days
Exam tip: A lot of the “10 day” versions cited in the code became 20 day
UCC versions in 2000.
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Summer 2003
Hypo: 19 Priority of Perfection.
C1 FS
C2 FS, SA, Loan
C1 SA, Loan
Under 1962 Code and Bankruptcy Law – first to file or perfect when
there are conflicting perfected SIs has priority under 9-322(a).
Priority rank is done at the time of filing OR perfection.
Question: Suppose “all the cars” were described in the SA as having been
perfected. Who perfected first?
R9-203(b) must be met – the need for attachment.

1) value given
2) debtor has rights in the collateral
3) SA that contains an adequate description of the cars.
Priority Rule: Party with priority in the collateral is the first to file or
perfect!
Answer: Answer: It appears C1 has priority over C2 for time of filing for
any cars before the new shipment arrives. On any cars obtained from the
dealer after the new cars are delivered, it’s a tie. For all cars before the
new shipment arrives, C1 has priority for perfection.
Here, the order of perfection is:

1) debts not paid for either
2) Future Advances Clause for both.
When the shipments both come in after perfection, they both will have
rights after the new collateral comes in (later shipments of cars).
R9-203(b): Perfection occurs simultaneously when:

1) Value is given
2) debtor gets rights in the collateral
3) SA contains an adequate description of the cars.
Note: this does not matter in terms of the new 2000 code be/c debtor’s
rights in collateral are dependent on the first to file or perfect.
Hypo 20: Perfection by Possession.
C1 Possession, SA, Loan

C2 FS, SA, Loan
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Summer 2003
Note: W/ certain kinds of collateral, you can only file by taking possession.
Answer: C1 has priority be/c C1 is perfected by taking possession before C2

either filed or perfected.
3.3.7
Assume R9-324 has not been met.
FB met the financing arrangement w/ MM as in Prototype.
Then, SB became interested in providing the floor plan financing to MM.
a) SB (C2) extends financing to MM (D) secured by MM’s inventory.
SB has an SI, but fails to “pick up” FB’s C1 floor plan by paying MM’s
Indebtedness to FB.
Question: Is SB’s (C2) SI in the cars SR or JR to FB’s (C1) SI?
C1 (FB) FS, SA, Loan

C2 (SB) FS, SA, Loan
D (MM) defaults.
C1 (FB) SA, Loan
R9-322(a)(1): remember the first to file OR prefect has priority.

This means that a SP who acquires a PMSI as defined in R9-103 may qualify for
priority over earlier-filed SPs. See R9-324.
Answer: C1 (FB) is first to file or perfect for all loans (including subsequently
issued loans) at time of filing or perfection, before C2, so C2 (SB) will not
advance the loan. SB’s interest in the cars is JR to FB’s be/c FB made the first
filing covering the collateral.
b) Now assume C2 (SB) refuses to advance funds to MM in light of the FS filed

in favor of FB, notwithstanding MMs & FBs assurances that FB was paid in full
and has made no commitment to extend more credit to MM.
Question: What would you advise MM to do?
R9-513 (c) and (d) Remedy for conflicting SIs.
Answer: Advise MM to have FB file a termination statement. Filing a term

stmt has the effect of ending the effectiveness of the FS.
Question: What would happen if FB filed the termination statement?
Than, C1’s pre-filed FS would be cancelled out…and if it re-filed then C2 would

have priority!
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Summer 2003
C1 ---cancelled FS---, SA, Loans
C2 FS, SA, Loans
C1 Loan, SA, FS
C2 has priority be/c the term stmt cancelled out C1s pre-filed FS and C2 would
now be the first to file or perfect under R9-322(a)(1).
3.3.8 Mistake w/ Name Filing: Debtor’s Name Situation.
Same facts as Prototype

FS filed by FB set forth the name as “Main Motors.”
MM’s (debtor’s) exact corp name is “Main Motors Inc.”
Lean, MM’s judgment /levying creditor caused Sheriff to levy all cars.
Question: Is Lean’s (levying creditor) execution lien SR or JR to FB’s SI?
Issue: Can there be a perfected SI when there’s a problem w/ the debtor’s name?
R9-203(b). Here, part 3) is met…there’s a SA w/ a description of the collateral

signed by debtor (MM) to satisfy SOF of A9.
R9-317
R9-503(b)(3)
R9-502(a)(1) An FS is sufficient only if it: 1) provides the name of debtor,
2) provides name of SP or rep,
3) indicates collateral covered by FS
R9-503(a)(1) – Sufficiency of name of debtor. An FS sufficiently provides the

name of the debtor if 1) debtor is a registered organization (in jurisdiction in
which debtor was organized).
R9-102(a)(70). Registered organization – organized under the law of the state.
R9-506(c). Seriously misleading?

Financing Stmt Not Seriously Misleading. If a search of the records of the
filing office under debtor’s correct name using the filing office’s standard
search logic, would disclose a FS that fails sufficiently to provide the name of
debtor in accordance w/ R9-503(a), the name provided does not make the FS
seriously misleading.
Answer: No clear answer be/c it depends on how the filing office operates, but
Lean’s execution lien is probably SR to FB’s SI if FB failed to use the exact
name of debtor, Main Motors Inc, on the FS. The filing is done by the debtor’s
correct name, so the indexing may not show the correct debtor as MM Inc.
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Summer 2003
Under R9-503(a), leaving out the “Inc” is seriously misleading, so we must look
at R9-506(c) to see if it is seriously misleading. It all depends on how the
standard office’s filing search logic was used.
Note: R9-506(c) overrules R9-503(a)(1). If you can find the name in the
jurisdiction (although accidentally), then even if you can’t find the same or exact
name, you’re okay and the lien creditor’s interest will be JR.
From a Planning pov: How can the SP (FB) handle it? Ask the debtor to provide
its correct or exact corporate name when for the FS. Here MM could have been
asked by FB to provide its correct/exact corporate name;
Rule: If SP puts the correct/exact corporate name on a form from a planning

viewpoint, the SP is covered and will take SR to a levying creditor. If it fails to
do so the SP will not be covered.
3.3.9 Filed under Trade Name, not Corporate Organization Name.
Assume MM’s business is operated under the trade name Center City Chevrolet
Sales & Service.
Question: Would the filing against MM Inc. be sufficient to perfect FB’s SI in the
cars?
Answer: Yes. The filing against MM Inc. would be sufficient be/c a FS is

sufficient if it 1) provides for the name of the debtor; And, FS sufficiently
provides the name of the debtor if the debtor is a registered organization, and the
FS provides the name of the debtor indicated on the public record of the debtor’s
jurisdiction of organization which shows the debtor to have been organized.
Bottom line: name of debtor (MM Inc) is not rendered ineffective by using the
name of MM since it is a registered organization.
See R9-502(a)(1).
R9503(a)(1)
R9-503(b)(1)
R9-503(c)
R9-506
Question: Would filing against Center City Chevrolet Sales & Services be
sufficient?
Answer: No, be/c it does not provide the name of the debtor in accordance w/
R9-503(a) and can be classified as “seriously misleading” since a search of the
records of the fling office would not reveal the debtor’s correct name.
See R-9506(b)(c)
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Summer 2003
R9503(b)(c). A FS that only provides for the debtor’s trade name does not
sufficiently provide for the name of the debtor.
Bottom line: A FS that provides for the name of the debtor in a form of its
registered organization (ie, MM Inc) is sufficient, but use of the trade name
(ie, Center Chevrolet) is not sufficient to provide for the name of the debtor.
3.3.10
Assume FB’s operations are carved out under “Phirst of Philly” and the FS set out
that the trade name is placed in the box for the SP’s name.
Question: Is the FS sufficient?
Answer: Yes, be/c an error in the SP’s trade name does not render the FS
ineffective. Therefore, the FS would be sufficient.
R9-102(a)(72). SP means. A person in whose favor an SI is created or provided

for under an SA, whether or not any obligation to be secured is outstanding.
R9-502(a). An FS is sufficient if 1) it provides the name of debtor

2) provides the name of the SP or rep
3) indicates collateral covered by the FS.
R9-506(a). A FS substantially satisfying the reqs of this part is effective, even if

it has minor errors of omissions, unless the errors or omissions make the FS
R9-506(b). A FS that fails to sufficiently provide the debtor’s correct name is

seriously misleading as a matter of law.
R9-506 Comm 2. An error under the name of the SP (FB) or its rep will not be
seriously misleading…in as much as searches are not conducted under the SP’s
name and no filing is needed to continue the perfected status of a SI after it is
assigned.
Note: When searching for an FS, the debtor’s name is used; a mistake in the SP’s
name is irrelevant.
3.3.11
In the context of Prototype, assume FB assigned its SI & obligations of MM that

it secures to SB, but nothing indicating the assignment is filed w/ the filing
office. (ie, the FS naming FB as a SP remains unchanged).
a) Does the FS remain sufficient to perfect the SI now held by SB?
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Summer 2003
R9-310. No filing is necessary in connection w/ an assignment by a SP to an

assignee in order to maintain perfection as against creditors of and transferees
from the original debtor.
Answer: yes, the FS remains sufficient to perfect the SI now held by SB.
b) One of FB’s clerks then sends a termination stmt to the filing office.
Question: What is the effect if any on SB’s SI?
Answer; Termination statements. SB’s SI would continue but probably would

no longer be effective.
R9-315(d) says that the FS will cease to be effective upon a filing of the term stmt
w/ the filing office.
Planning Note: A better approach might be for FB to make an amendment to

the FS to name SB as the SP of record. If filed under R9-514(b), the assignee
named in the FS (FB) is the SP of record, and may assign authorization of
amendments. Here, under R9-509(d), FS (as the SP of record) authorized the
filing so it is entitled to file an amend.
Rule: Fisfis says a FS has nothing to do w/ attachment of an SI, so a term stmt

that takes out an FS will not unsecure the SI, but will merely unperfect it.
Unsecure and Unperfect are two different things!
Planning Question: What should SB have done?
Answer: SB wants to use the earlier filing date. SB should have asked FB to
file an amend authorizing SB as the party of record so SB could use its agents to
make an amend. SB doesn’t want to file its own FS be/c it would only be
perfected as of the latter date of filing and would make a levying creditor’s SI
SR to SB’s.
3.3.12 Agency Problem: Syndicate of Creditors / All Banks are SPs
Assume in the LINE OF CREDIT, in Prototype, the LOC was extended to MM by

not just an FB but a SYNDICATE OF BANKS, including FB, and the DISA
(from 3.2) named all the banks as SPs. As part of the in-creditor agreement, the
banks agreed among themselves that the FS would show only FB as a SP and the
FB would act as an agent for the banks in its capacity as the SP of record.
Question: Is the FS sufficient?
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Summer 2003
R9-102(a)(72)(a) Definition of a SP.
R9-511 SP of record.
R9-503(d), Comm 4. Failure to Indicate Rep Capacity.
R9-312
R9-503(d), Comm 4
Issue: Agency-related: Who is authorizing the FS to be filed?

Answer: Yes, the FS is sufficient. Failure to indicate a rep capacity of a SP or
rep of an SP does not affect the sufficiency of an FS. R9-503(d). Comm 3. A FS
that names the rep of an SP is sufficient.
3.3.13 Elimination of Signature for Paperless filing; Term Stmt; Correction Stmt.
Most other documents placed in the public record including some FSs filed under
A9. (R9-402(1)) and mortgages, are ineffective unless signed.
However, a FS is sufficient under A9 is sufficient under RA9, even if not

signed!! R-9502(a).
a) Why does RA9 eliminate the signature requirement?
Answer: To eliminate problems w/ paperless (electronic) filing.
R-9502, Comm 3. The elimination of the signature requirement facilitates

paperless filing! In 1962, the paperless FS was sufficient…no need for debtor’s
signature on an FS!
R9-510(a), Note 4 – A filed record is effective only to the extent that it was filed
by a person that may file it under R9-509.
R9-509(a). The person entitled to file a FS or amend that adds collateral or a

debtor may do so only if: 1) the debtor authorizes a filing in an authenticated
record pursuant to b) or c). 2) if executing an SA, then the SA covers the
particular collateral in the SA (proceeds).
Note: if you pre-file, you must have a specific authorization to file an FS, but in
2000, no longer need the signature on the FS….in 1962, a signature was required.
b) Donald Duck. What course of action would you recommend to a client against whom
a FS was filed (by SP, Donald Duck) to impair the client’s ability to obtain credit?
Answer:
R9-510(a) a filed record is effective only if authorized.

R9-509(d) DD is not authorized to file the FS!
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Summer 2003
R9-625(e)(3) Discusses statutory damages brought against a person not entitled
to file.
R9-625(b). damages
Real issue: We may not know who DD is! What can the debtor do to protect
himself?
Answer: Debtor (MM) can file a term stmt under certain circumstances listed in
R9-509(d), OR MM can file a correction statement.
Under 9-510(a) and 9-509(a)(d), DD is not a person authorized to file. DD will

be liable for damages under R9-625(b), where damages to the debtor (MM)
include a $500 recovery from DD for filing a record he was not entitled to file,
which is fine if you can find DD and collect the judgment!
Under 9-509(d), MM as debtor could file and amendment or termination stmt if

MM as the SP authorized it to be filed.
Under R9-102(a)(72), An amend of an FS which A) identifies by its file number

the initial FS to which it relates and B) indicates either it is a termination stmt or
the identifying FS is no longer effective.
R9-513 says a term stmt would have to be filed by debtor (MM) w/in 20 days
after it receives the stmt (1962, would be 10 days, PA 20 days). This will cause
the effectiveness of the FS to lapse under R2-513(d).
Note: the code does not deal w/ criminal matters, and is only concerned about the
remedy for debtor (MM).
Recap the steps: 1) authorization to file term stmt.

To change SP 2) SP of record sends term stmt to debtor.
3) debtor files a correction stmt.
4) SP of record (DD) has authority to send the FS, to get rid of
the FS that is ineffective (canceled out).
5) File a term stmt for an FS w/in 20 days.
6) file a correction stmt to cover the new SP
3.3.14 Continuation Statement. ON EXAM!!!!!
FB obtained documentation and followed the procedures in the Prototype; except

the DISA form did not include paragraph 5b (excluded accounts, chattel paper,
general intangibles and instruments, and all obligations of sureties, and guarantors
for pmt and satisfaction thereof).
a) Lean, holder of a judgment against MM, subsequently caused the Sheriff to levy on the
cars in MM’s (debtor’s) inventory.
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Summer 2003
Question: Is Lean’s lien SR or JR to FB’s SI in the cars?
R9-317(a)(2).
R9-510(a), Comm 2
R9-509(a),(b)
Answer: Lean’s lien is JR to FB’s SI be/c FB became a lien creditor before the
earlier of time, the SI was perfected when FB filed the FS naming the collateral,
and at least one of the conditions of R9-203(b) was met.
Question: Or, does the fact MM did not authorize the filing of the FS cover
accounts, chattel paper, or general intangibles render the FS ineffective?
Answer: No. The FS is still effective. FB was entitled to file the record when
MM as debtor gave the authorization through the SA for the FS to be filed, and an
amend covering the collateral described in the SA was issued.
b) Lean, the holder of a judgment (creditor) against MM (debtor), caused the Sheriff to
serve a garnishment summons on several persons who owed debts to MM and thereby
obtained a judicial lien on certain of MM’s accounts.
Question: Is Lean’s lien SR or JR to FB’s SI in the accounts?
R9-203(b).
R9-317(a)(2)
R9-510(a) & Comm
R9-509(a),(b)
Answer: Lean’s lien is SR to FB’s SI in the accounts be/c MM’s “accounts” are
not covered by the SA…paragraph 5b containing the term “accounts” was
omitted!!! MM did not authorize an SA that provided for an adequate description
of the collateral to secure FB’s SI in the inventory.
Note: You can have some accounts that are not proceeds of the inventory. How? See
Hypo below.
Hypo 20: Some accounts are not proceeds of inventory.
5/1/03 - FS, SA, Loan

(inv) – 90 day credit $900K of accounts
Issue: Does SP have any SI on the accounts?

Answer: No! be/c the SI is AR proceeds only on the inventory, not the accounts!!
6/1/03 - $900K accounts  will have $200K of proceeds subject to the SI.
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Summer 2003
Now, $600K is left.
9/1/03 - $900K accounts  $900K in accounts will have been collected.
Ask: Is it proceeds of the inventory that is subject to the SI? To the extent that
the proceeds of inventory, are subject to the SI, the filing of the FS covering
proceeds was authorized; to the extent it deals w/ accounts, it was not authorized.
CB 198
Howarth v. Universal CIT Credit Corp: Western Dist of PA, 1962
Decided under 1952 version of the code.
see Table of Cases.
See below for comparison chart of SP’s Rights upon Disposition of Collateral, and
Continuation of a SI.
Deals w/ Proceeds and SP’s Rights upon Disposition of Collateral.
1952 1962-1972 1962-1972 2000

1. 9306(2) = 9306(4) 3. 9306(2) = 9315(a)(2)
2. 9306(1) = 9306(2),(3) 4. 9306(3) = 9315(c)(d)
1. 1962 - 9-306(4) – Insovlency Proceedings. In the event of insolvency proceedings

instituted or by a debtor, a SP w/ a perfected SI in proceeds has perfected a SI
a) in identifiable, non-cash proceeds
b) in identifiable cash proceeds in the form of money which is not commingled
with other money or deposited in a bank account prior to the insolvency
proceedings.
c) in identifiable cash proceeds in the form of checks and the like which are not
deposited in a bank account prior to insolvency proceedings.
d) in all cash and bank accounts of debtor, if other cash proceeds have been
commingled or deposited in a bank account, but the perfected SI under d) is
i) subject to any right of set-off, and
ii) limited to an amount not greater than the amount of any cash
proceeds received by debtor w/in 10 days be/f the institution of
insolvency proceedings, and commingled or deposited in a bank account
prior to the insolvency proceedings, less the amount of cash proceeds
received by the debtor and paid over to the SP during the 10 day period.
2. 1962 - 9-306(2)– Except where this Article provides, a SI continues in collateral

notwithstanding a sale, exchange, or other disposition thereof by the debtor unless
his action was authorized by the SP in the SA or otherwise, and also continues in any
identifiable proceeds including collections received by the debtor.
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Summer 2003
1962 9-306(3) – The SI in proceeds is a continuously perfected SI if the interest in
the original collateral was perfected… but it ceases to be a perfected SI and becomes
unperfected w/in 10 days after receipt of the proceeds by debtor… unless…
a) a filed FS covering the original collateral also covers proceeds, or
b) the SI in the proceeds is perfected be/f the expiration of the 10 day period.
3. 2000 – 9-315(a)(2) SP’s Rights on Disposition of Collateral and in Proceeds.

A SI continues when….
A SI attaches to any identifiable proceeds of collateral.
4. 2000 – 9-315(c) Perfection of SI in proceeds.

A SI in proceeds is a perfected SI if the SI in the original collateral was
perfected.
2000 – 9-315(d) Continuation of perfection. A perfected SI in proceeds becomes

unperfected on the 21st day after the SI attaches to the proceeds…unless:
1) the following conditions are satisfied…
a) a filed FS covers the original collateral…
b) the proceeds are collateral in which a SI may be perfected by filing
in the office where FS had been filed, and…
c) the proceeds are not acquired w/ cash proceeds…
2) the proceeds are identifiable cash proceeds, or
3) the SI in proceeds is perfected other than under (c), when the SI attaches to
the proceeds or w/in 20 days thereafter.
3.3.15 PMSI: Debtor’s Name Change is Seriously Misleading (affects indexing).
8/3/01 - Assume FB “picked up” the Floor plan financing for MM, as in
Prototype.
10/1/01 – MM changed its corp name from MM to Center City Chevrolet Sales
& Service Inc
11/15/01 – MM received a new shipment of cars.
12/20/01 – MM received another new shipment.

--4 mos pass---
2/14/02 – MM received another new shipment.
FB took no action to perfect its SI subsequent to filing the original FS (Form

3.1).
2/20/02 – Lean, MM’s judgment creditor, caused the Sheriff to levy on all the
remaining cars in MM’s inventory.
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Note: ---this was more than 4 mos after MM’s name change---.
FS did not file an amendment.
Question: Whether Lean’s execution lien is SR or JR to FB’s SI.
R9-506: a) Effect of Errors or omissions. A FS substantially satisfying the reqs

of this part is effective, even if it has minor errors or omissions, unless the
errors or omissions make the FS seriously misleading.
b) FS seriously misleading…if a FS fails to sufficiently provide the debtor’s

name in accordance with R9-503(a), then it is seriously misleading.
c) FS not seriously misleading…if a search of the records of the filing office

(always indexed by debtor’s name) under the debtor’s correct name, using
standard search logic, if any, would disclose a FS that fails to sufficiently
provide the name of the debtor under R9-503(a), the name provided does not
make the FS seriously misleading.
In other words, the FS is always indexed by debtor’s name but if the FS

incorrectly names the debtor but it would still be discovered using standard
search logic, then it is not seriously miseading.
ie, Not Seriously Misleading. Correct name of party is Carol Edmund but it
was indexed under Edmund Carol, it could probably be found using standard
search logic and it not seriously misleading. Also, A.B.C. is entered as ABC,
probably not misleading.
ie, Seriously Misleading. The corporate debtor Cozy is indexed as Kozy. This
would be seriously misleading be/c such spelling errors would probably not be
found using standard search logic.
d) Debtor’s Correct Name. means the correct name of the new debtor.
Comm 2: Erros w/ SP’s Name Not Seriously Misleading…are not misleading

be/c no filing is needed to continue the perfected status of the SP; thus an error in
the name of the SP or its rep is not seriously misleading be/c searches are done
using debtor’s name, not SPs. There is no need to refile by a SP’s name.
R9-507(b). FS is not rendered ineffective if, after filed, the info in the FS (later) becomes
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Summer 2003
R9-507(c). Change in Debtor’s Name. A debtor’s name changes so that a FS becomes
seriously misleading under R9-506 when:
1) the FS is effective to perfect the SI in collateral acquired by debtor within 4
mos after the change.
2) the FS is not effective to perfect a SI in collateral acquired by the debtor more
than 4 mos after the change, unless an amendment to the FS which renders the
FS not seriously misleading is filed w/in 4 mos after the change.
If debtor’s name changes and becomes “seriously misleading,” then the current
SI is only perfected for 4 mos under the FS – and an amendment to the FS must
be filed by debtor to continue the perfection of the SI beyond 4 mos.
Answer: Here, the current FS applies to the 11/15/01 and 12/20/01 shipments to
perfect FB’s SI in the collateral (cars), acquired by debtor. Thus, Lean’s
levy is JR to FB’s SI with regard to these cars.
However, Lean’s levy is SR for the 2/14/02 shipment be/c FB’s SI was not
perfected at that time since it was beyond the 4 mo period after debtor’s
name change 10/1/01. (4 mo. cut-off date was 2/1/02.
Planning: FB should have field an amendment to the FS to perfect its SI under

R9-507(C)(1),(2).
3.3.16: PMSI: SP Name Change not seriously misleading (no effect on index).
You are the attorney for FB.

2 years after Prototype, FB plans name change to “Phirst of Philly.”
Question: FB wants to know if it risks becoming unperfected on all the secured loans
if it fails to amend the several thousand FSs in the name of FB. What
advice do you give?
R9-507(b) – Info becoming seriously misleading. A FS is not rendered ineffective if,

after the FS is filed, the info provided in the FS becomes seriously misleading under R9-
506.
Answer: Each FS does not have to be refiled be/c a FS is not rendered ineffective if, after
filing, the info becomes seriously misleading.
Note: Perfection of a PMSI can occur by means other than filing a FS, or an
amendment (4 ways):
1. Seller sells goods to Buyer; Transaction done on a credit basis where there is a
SI in the goods being bought.
2. Buyer wants to buy X but has no $;
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Buyer goes to Bank for a loan,
Bank gives Buyer a loan;
Buyer gives Bank an SI in X;
Buyer uses loan from Bank to Buy X.
3. Buyer uses Bank’s loan to buy goods from Dealer; Bank gets a SI in the goods
being brought w/ the Loan $ and…
4. Seller extends credit to Buyer in essence in an Installment K.
See National Cash Register v. Firestone & Co., Inc.. S.Ct. of Mass (1963).
Action in tort for conversion of a cash register.
Seller = P, C1 = manufacturer of cash registers

Lender = D, C2 = Edmund Carroll, doing business as Kozy Kitchen.
Rule: A conditional sales K = SA.
Rule: the debtor’s intent must be judged by the language of the SA.
Rule: Misspelling a corporate name is not seriously misleading as long as the

debtor’s name is correctly given in the FS.
Rule: An AAPC is not needed in a FS; A FS need language that merely

indicates the type of collateral. Where the SA contains an APPC, it is not
necessary that the FS also mention the AAPC.
Remember the three methods for including an AAPC in a SA:

1) definitely include AAPC in the SA
2) don’t include AAPC in the SA
3) maybe include the APPC in the SA.
Bottom line: An AAPC is not needed in a FS, just language that indicates the
type of collateral. But, it is not clear if an AAPC should be included in a SA.
Planning: Always include an AAPC in the SA for the client to be sure his SI is
covered.
Note: 1962 and 2001 are the same w/ regard to AAPC and FACs.
R9-204(a)(c), Comm. 7
After-acquired property; future advances.
a) After-acquired collateral. SA may provide for an interest in after-acquired collateral
(AAP).
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b) When AAPC is not effective. A SI does not attach under a term constituting an
AAPC to 1) consumer goods…unless debtor acquires rights in them w/in 10 days after
the SP gives value or 2) a commercial tort claim.
c) Future advance (clauses) and other value. SA may provide that collateral secures,
or that accounts, chattel paper, payment intangibles or promissory notes are sold in
conjunction w/ future advances or other value, whether or not the advances or value are
given pursuant to a commitment.
FS and SAs are different; References to (the need for) AAPCs and FACs are
limited to SAs.
R9-502, Comm 2 Notice filing. (third paragraph) FS is effective to cover AAP…and

to perfect w/ respect to Future Advances under SAs, regardless of whether the AAP or
FAs are mentioned in the FS and even if not in the contemplation of the parties at the
time the FS was filed.
TEST QUESTION RE: PERFECTION FROM National Cash Register

See pg. 838 of the handout – first sentence, second paragraph.
1. Rewrite the following issue so it is properly stated:

“We now come to the question of whether the D’s FS should have mentioned
property to be acquired thereafter be/f a SI in the cash register could attach.”
a. Answer: Issue should replace the word attach w/ perfect!

“We now come to the question of whether the D’s FS should have mentioned
property to be acquired thereafter be/f a SI in the cash register could be
perfected.”
Perfection requires both attachment and enforceability, so it is not enough that

the drafters merely stated the issue was “attachment.”
Hypo: (old outline) X owns goods (pre-owned property).

X goes to Bank for $100K loan w/ goods as collateral.
Bank gives loan.
Question: Does Bank have a PMSI?

Answer: Bank does not have a PMSI under R9-317(e).
R9-317(e). Purchase Money Security Interest (PMSI) defined. If a person files a

FS w/ respect to a PMSI before or w/in 20 days after debtor receives
delivery of the collateral, the SI takes priority over the rights of buyer,
lessee, or lien creditor…which arise between the time the SI attaches
and the time of filing.
Perfection by Means Other Than Filing.
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Summer 2003
3.3.17
Lee Abel bought a Chevrolet (GM car) from MM.

Lee executed a MV installment sales K (Form 3.6)
MM assigned its rights to FB under the K.
Procedures in Prototype were followed.
No FS naming Abel as Debtor was field w/ respect to Abel’s Chevy.
a) Friendly Finance (FF), a judgment creditor of Abel’s, caused Sheriff to levy on the car.
Question: Is FFs execution lien SR or JR to FB’s SI?
R9-317(a)(2) Interests that take priority or free of other SIs.

a) Conflicting SIs and rights of lien creditors. SI is subordinate to the rights of:
1) a person that becomes a lien creditor be/f the earlier of time:
A) the SI or agricultural lien is perfected…
B) one of the conditions in 9-203(b)(3) is met and a FS covering collateral is filed.
R9-310(a)(b)(2) When filing is required to Perfect SI / Filing is not necessary.

a) General rule: Perfection by filing. A FS must be filed to perfect all SIs…
b) Except: filing a FS is not necessary to perfect a SI:
(1) that is perfected under 9-308(d)(e)(f) or (g)…(d)(perfection of a SI in collateral also
perfects a SI in a supporting obligation for the collateral); (e)(lien securing right to
payment. Perfection of a SI in a right to payment or performance also perfects a SI in a
SI, mortgage or other lien on personal or real property securing the right (f) (Perfection of
a SI in a securities account also perfects a SI in the security entitlements carried in the
securities account) (g) Perfection of a SI in a commodity account also perfects a SI in the
commodity contracts carried in the commodity account.
(2) that is perfected under 9-309 when it attaches…
R9-309: SI perfected upon attachments. The following SIs are perfected when
they attach:
(1) a PMSI in consumer goods, except as otherwise provided in R9-311(b) with
respect to consumer goods that are subject to a statute or treaty described in R9-
311(a).
(2) an assignment of accounts or payment intangibles…
(3) sale of a payment intangible
(4) sale of a promissory note
(5) SI created by the assignment of healthcare insurance receivable to the
provider of health-care goods or services.
Etc..
R9-301 Law governing perfection and priority of SIs. Following rules determine law
governing perfection, effect of perfection or non-perfection, the priority of a SI in
collateral:
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Summer 2003
1) local law of the jurisdiction governs perfection, the effect of perfection or
non-perfection, and the priority of a SI in collateral.
2) While collateral is located in a jurisdiction, the law of that jurisdiction
governs perfection.
R9-103(a) PMSI; Application of Payments, Burden of Establishing. a) Definitions.

Purchase Money Collateral means goods or software that secures a PM obligation
incurred w/ respect to that collateral.
2) Purchase Money Obligation is 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 collateral...
R9-103(b)(1)
b) Purchase Money Security Interest in Goods. A SI in goods is a PMSI:
1) to the extent that the goods are purchase-money collateral w/ respect to that SI.
R9-102(a)(23) Consumer goods means goods that are used or bought for use primarily
for personal, family or HH purposes.
R9-311(a) Perfection of SIs in Property Subject to Certain Statutes, Regulations and

Treaties.
a) SI subject to other law. The filing of a FS is not necessary or effective to perfect a SI
in property subject to:
1) a statute, regulation, or treaty of the US whose reqs for a SI’s obtaining priority
over the rights of a lien creditor w/ respect to the property pre-empt §9-310(a);
2) list any certificate of title statute covering automobiles, trailers, mobile

homes, boats, farm tractors, or the like, which provides for a SI to be
indicated on the certificate as a condition or result of perfection, and any
non-Uniform Commercial Code central filing statute, or
3) the certificate of title statute of another jurisdiction which provides for a SI to

be indicated on the certificate as a condition or result of the SI’s obtaining priority
over the rights of a lien creditor w/ respect to the property.
R9-311(b) Compliance w/ other law. Compliance w/ the reqs of a statute, regulation or

treaty described in (a) for obtaining priority over the rights of a lien creditor, is equivalent
to the filing of a FS. Except for goods covered by a certificate of title, a SI in property
subject to a statute, regulation, or treaty described in (a) may be perfected only by
compliance w/ those reqs, and a SI so perfected remains perfected not w/standing a
change in the use or transfer of possession of the collateral.
R9-308 Perfection of a SI. A) a SI is perfected if it has attached and all of the

applicable reqs for perfection in R9-310 through R9-316 are satisfied. A SI is perfected
when it attaches if the applicable reqs are satisfied before the SI attaches.
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Summer 2003
Answer: Here there is an installment sales K, acting as a SA. There’s a PMSI be/c
Seller (MM) extends credit to Abel in the installment sales K to secure the price. Thus,
FF’s execution lien is JR to FB’s PMSI be/c FB’s PMSI was perfected be/f FFs, and R9-
311(b) says a SI so perfected remains so not w/standing a change in the use or transfer of
possession of collateral.
Question: Is this result consistent w/ the policy of req public notice as a condition to
prevailing over judicial liens and claims of third parties?
Answer: No.
b) Abel buys a tractor to use on his farm.
R9-317(a)(2). Interests that take priority. a) Conflicting SIs; A SI is subordinate to the

rights of a person that becomes a lien creditor be/f the earlier of time if a) the SI is
perfected or 2) one of the conditions is met and a FS covering the collateral is filed.
R9-310(a) When Filing is required to perfect a SI or agricultural lien. a) General

Rule: perfection by filing. A FS must be filed to perfect all SIs, unless w/in an
exception.
R9-310(b)(2) Perfected under R9-309 when it attaches…

R9-309. SI perfects on attachment.
An installment sales K does not equal a PMSI.
Answer: In the Prototype, there was a PMSI be/c it was used to secure the price. Here, it
might also be a PMSI but it is not consumer goods. In classifying the collateral, the main
issue is whether we are dealing w/ consumer goods. We’re not be/c a tractor is
considered equipment.
R9-102(a)(33). Equipment means goods other than inventory, farm products or

consumer goods.
R9-102(a)(23). Consumer Goods means goods that are bought or used primarily for
personal, family or HH purposes.
Answer: Here, Abel is using the tractor on his farm, so we know it’s not for personal
family or HH purposes and fits better under the description of equipment.
Thus, FF’s execution lien is SR to FB’s SI be/c FB’s SI was not perfected in the
equipment when FB neglected to file.
c) Abel buys a tractor to pull a lawn mower (HH use). Is friendly’s execution lien
SR or JR to FB’s SI?
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Summer 2003
Answer: Here the argument can be made the tractor falls into the description of
consumer goods be/c it’s being used for HH purposes.
Thus, FF’s execution lien is JR to FB’s SI be/c the transaction deals w/ consumer goods
and under R9-310(b)(2), a PMSI in consumer goods is automatically perfected.
Question: Can c) be reconciled w/ b)?
Answer: Yes, Abel is using the tractor for commercial reasons in part b) so the tractor is
equipment. The tractor was being used for household use in part c) so the tractor there is
a consumer good. Under R9-310(b)(2), a PMSI in consumer goods is automatically
perfected. FB’s FS and SA came first, so it was perfected be/f FFs. Also under R9-
203(b), attachment of consumer goods occurs when the three elements of 1) value given
by the loan (purchase price), 2) debtor acquired rights in the collateral, (Abel bought the
tractor, and 3) authentication (signature) of the SA occurred – here the installment sales
K acted as a SA.
Planning question
d) Abel uses the tractor at his house, for a few months then decides to use it exclusively
for farming.
Here, the Sheriff levied the tractor at the farm.

Issue: Is there a perfected SI now being used on the tractor?
Answer: Here, Abel’s use of the tractor started as a PMSI in consumer goods, then went
to equipment. It is not clear how the dealer perfects himself under such circumstances,
and case law is all over the place.
Question: When is the use of collateral determined for purposes of classifying the
collateral?
Answer: R9-102(a)(23). For consumer goods, its reasons for initially buying the
collateral are classified for personal, family or HH purposes.
Question: What is the effect of a charge in use?
Answer: Under R9-507(b), debtor will not be liable if the change is not seriously
misleading. Pursuant to R-9628(c), the SP is not liable if the SP had a reasonable belief
based on the debtor’s representation concerning the purpose for which the collateral was
to be used.
For a person who had a tractor repossessed, perfection is irrelevant when no 3rd party is
involved.
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Summer 2003
Most of the time, the real concern is whether there is a problem with the levying creditor;
What is the real plan of attack by the debtor, and how much will it cost to file a FS each
time, are questions which could be addressed by making a cost-benefits analysis so the
client was aware of the situation and how he could protect himself. (ie, SEARS).
It all comes down to planning v. litigation and with such transactions, what advice you
should give the client!
3.3.18
Dooley, an amateur numismatist, applied to Castle Finance Co for a loan.

In response to Castle’s request for a security, Dooley delivered to Castle a
valuable coin collection (he already owned) and received a loan for $25K (value).
**Note: the implied oral SA (in response to Castle’s req, Dooley delivered…)
a) Lean, a judgment creditor of Dooley, levies on the coin collection held by Castle.
Question: Who has priority?
Answer: Dooley already owned the goods, so this is not a PMSI and Castle has priority
over Lean. Lean takes JR to Castle’s SI.
R9-201. Security Agreement is an agreement that creates or provides for a SI. SA is

effective according to its terms between the parties, against purchasers of collateral, and
against creditors.
**Here, there was an oral SA between Dooley and Castle for the purchase of collateral,
which created or provided for a SI and was effective.
R9-203(b). Enforceability. A SI is enforceable against the debtor and third parties w/

respect to the collateral if: 1) value is given 2) debtor has rights in the collateral or power
to transfer rights to a third party, 3) and one of the conditions is met:..B)…the collateral
is not a certificated security and is in the possession of the SP under 9-313 pursuant
to the debtor’s SA.
Here, under R9-310(b)(6), a FS does not need to be filed to perfect a SI in collateral

which is already in the SP’s (Castle’s) possession.
Under R9-313, a SP may perfect his SI in negotiable documents, goods, instruments,

money or tangible chattel paper by taking possession of the collateral.
Here, it is clear the SP (Castle) has taken possession of the collateral.
Rule: If there’s a possessory situation, there’s no need for a written SA; just an oral SA.
Rule: Need a filed FS unless possession;
A SI in money can only be perfected by the SP taking possession.
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Summer 2003
A SI in goods can be perfected by either filing a FS or taking possession.
Here, Castle as SP took possession of the coins, so Castle’s SI was perfected.
b) What if Castle filed a FS conforming to R9-502(a) but did not take delivery of the
coins?
Step 1: Classify the collateral!!
Issue: whether the coins are considered goods or money.

Note: A SI in goods can be perfected by filing FS or by taking possession, but a SI in
money can only be perfected by taking possession.
R9-312(b)(3). SI in money may be perfected only by the SP’s taking possession.
R1-201(24). Money. A medium of exchange authorized or adopted by a domestic or

foreign govnt and includes a monetary unit of account established by an
intergovernmental organization or by agreement between 2 or more nations.
R9-102(a)(44) Goods. means all things that are movable when a SI attaches.
R9-203(b). Enforceability. A SI in enforceable against the debtor and third parties w/

respect to the collateral only if 1) value has been given, 2) debtor has rights in the
collateral, or power to transfer rights…and 3) one of the following conditions is met: A)
debtor authenticated a SA that provides a description of the collateral, B) collateral is
not certificated security and is in possession of SP, C) collateral is certificated and
was delivered to SP, D) debtor’s SA gives SP control of collateral like deposit accounts,
chattel paper, investment property or letter of credit rights.
Answer: The answer depends on whether you look at the coins as money or goods.
Here, if the collateral is money, then Castle did not take possession, and if
the collateral is goods, Castle did not take possession and no FS was filed.
There is an oral SA but there is no authentication and it was not
perfected be/c Castle as SP was not in possession of the coins, there is no
FS filed, the coins do not fit w/in an exception.
Remember: NO ATTACHMENT, NO PERFECTION!!

R9-308 says you can’t have attachment w/out perfection!!
c) What result if Castle did not take delivery of the coins but appointed Dooley agent to
hold the coins on his behalf? Dooley’s lawyer?
R9-313(a) Comm 3. The debtor (Dooley) cannot qualify as an agent for the SP
(Castle) for the purpose of the SP’s taking possession, and is not sufficient for
perfection.
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Summer 2003
Answer: Castle as SP cannot ask debtor (Dooley) to hold the coins as his agent; Castle
could probably appoint Dooley’s lawyer as agent to hold the coins, but even then the
court may determine the debtor, Dooley, and his lawyer are “so closely connected” that
the debtor retained effective possession and Castle’s interest was not perfected.
In Re Copleand.
Remember in In Re Copeland, the bailee was an escrow agent…and
Issue was whether or not putting the collateral in possession of an escrow agent was
sufficient for the purposes of collateral.
Rule: While the UCC does not define possession, it’s clear you can have an escrow agent
to qualify as an agent for the SP.
Bankruptcy Context: What kind of status does a person opposing the SP have here?
Copeland is a debtor in possession, and a debtor in possession gets the same rights as a
trustee in bankruptcy, and a trustee in bankruptcy has the same rights as a lien
creditor. This means that debtor in possession has the same rights as a lien creditor!
Note: Always look to see if the SP has a perfected SI; if not, the rights of the lien
creditor are SR to the SP.
Holding: Possession by a third-party bailee who is not controlled by debtor, which

adequately informs potential lenders of the possible existence of a perfected security
interest satisfies the notice function underlying the “bailee w/ notice” provision of the
code (F9-305).
In Copeland, the perfected SP prevailed over the levying creditor.
Note: A possessory SI goes back to Biblical times. Exodus 25, 26. – “taking a
neighbor’s garment in pledge.” The possessory SI precedes filing device by thousands of
years.
Question: Why do we have a filing system?

Answer: We want debtor to remain in possession of the collateral.
PMSI – Inventory v. PMSI – Consumer Goods

Commercial Transactions: Problem 6: (Handout).
1. First Transaction…PMSI Inventory…

Manufacturer = M, C1
Appliance Dealer = AD, C2, debtor
M (C1) delivers dishwashers to AD (C2) and agrees to let AD (C2) pay later. (oral SA).
AD (C2) executes a written SA covering the dishwashers.
Neither C1 nor C2 – no FS filed.
Abel holds a judgment on AD (C2) and levies on the dishwashers in C2’s store.
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2. Second Transaction…PMSI Consumer Goods…

AD = C2
Murphys = C3, debtor
AD (C2) sells a dishwasher to Murphys (C3) for HH use (consumer good; value given).
Murphys (C3) execute to AD (C2) an installment sales K and SA.
Baker holds a judgment against the Murphy’s and levies on the dishwashers in their home
Question: Is either levy effective?
Analysis
1. Manufacturer – Dealer Inventory Transaction.
R9-102(a)(48). Inventory. Means goods which
a) are leased by a person as a lessor
b) held by a person for sale or lease or to be furnished
under a K for service,
c) furnished by a person under a K for service
d) consist of raw materials, work in progress, or
materials used or consumed in a business,
R9-203(b). Enforceability. A SI is enforceable against a debtor and third parties if w/
respect to the collateral only if:
1) value was given
2) debtor has rights in the collateral or power to transfer the rights to a SP,
3) and debtor authenticated / certificated a SA that provides a description of the
collateral.
R9-203(a). Attachment. An SI attaches to collateral when it becomes enforceable

against the debtor w/ respect to the collateral.
Answer: Here, the dishwashers can be classified as inventory and since inventory is
subject to normal filing requirements, an FS is required to perfect inventory. Attachment
did not take place be/c the dealer did not properly authenticate by filing a FS, so
Manufacturer’s SI is not enforceable. It does not fall w/ in an exception.
Here, Abel as levying creditor had a judgment lien against AD (debtor) and is SR to the
Manufacturer’s SI be/c the execution lien is properly attached, and enforceable, and
Manufacturer’s SA was not.
2. AD-Murphy Transaction: PMSI in Consumer Goods
Answer: Dealer has a PMSI in the dishwasher to Murphy, which was sold as a
consumer good. With all consumer goods, perfection happens upon attachment.
Consumer goods are not subject to normal filing reqs.
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Summer 2003
Baker had a PMSI in the dishwasher but did not file w/in 20 days after AD received
delivery, so it was not perfected and did not attach. Thus, AD’s SI is SR to Baker’s
PMSI.
Notes on Attachment: 1962 v. 2000 Comparison.
R9-204(1) AAP / AAC – a SA may create or provide for a SI in after-acquired collateral.
R9-203, Comm 2 A SI attaches to collateral only when it becomes enforceable against

the debtor. Three basic pre-requisites to the existence of a SI must be met: 1) value 2)
debtor’s rights or power to transfer rights in the collateral and 3) an agreement +
satisfaction of an evidentiary requirement. When all of these elements exist, a SI
becomes enforceable between the parties and attaches under (a).
1962
F9-203(1)(a)(b) A SI is not enforceable against debtor and third parties unless a) the
collateral is in the possession of the SP; or debtor has signed a SA which contains a
description of the collateral (or land concerned)…”proceeds” is sufficient w/out further
description to cover proceeds of any character.
F9-204(1) (Similar to 1972+2000) A SI cannot attach until there is agreement that it

attach, value is given and debtor has rights in the collateral. (1972, 2000 req third
element, agreement + satisfaction of an evidentiary req).
1962 – SP could have attachment before it had enforceability.
1972+2000 – (diff from 1962)– enforceability and attachment go together under R9-
203(a)(b) – SI attaches when it becomes enforceable; Enforceability occurs when 1)
value was given 2) debtor has rights in the collateral and 3) SA describes the collateral.
EXAM QUESTION: WHY HAVE A SECURED TRANSACTION? Be/c it protects

the interest of the SP from a debtor who has bad credit (creditworthiness).
Hypo: Mellon Bank.
If F (SP) sells to Mellon Bank, F is not concerned about Mellon’s

creditworthiness be/c Mellon is credit worthy (has deep pockets).
But if F sells to Sears Construction, F as SP will be concerned for the

creditworthiness of the Construction company and will ask for a SA when it gives
the loan and will perfect by filing. Here, we’re dealing w/ a situation where the
lender is concerned about the effectiveness of the debtor’s ability to pay back
the loan, so lender asks for collateral.
3.3.20
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Summer 2003
In Prototype, FB filed a FS to perfect its SI in MM’s autos.

FB took possession of the certificates of origin.
Question – Did this make the filing unnecessary?
Answer: No. It was necessary be/c the certificates of origin are not found in R9-313 for
perfection by possession, and they cannot be considered negotiable documents.
Therefore, filing an FS is still required be/c we can’t take possession of the cars, and
certificate of origin is not w/in the meaning of a negotiable document.
Step 1: Classify the collateral.
R9-310(a) – Perfection by possession or delivery. A SP may perfect a SI in negotiable

documents, goods, instruments, money or tangible chattel paper by taking
possession of the collateral. A SP may perfect a SI in certificated securities by taking
delivery of the certified securities under R8-301.
R9-102(30). Document means a document of title or a receipt of the type

described in 7-201(2). A document of title means a document issued for an
order of goods, delivery, etc.
R9-201 – General effectiveness of the SA. Except as otherwise provided in the UCC, a
SA is effective according to its terms between the parties, against purchasers of the
collateral, and against creditors.
Question – If the filing perfects FB’s SI, then what purpose if any is served by FB’s
taking possession of the certificate of origin?
Answer: FB needs the certificate of origin to get the certificate of title. The SP (FB)
needs the Certificate of title to:
1) facilitate enforcement in the event of the debtor’s default and
2) prevent the debtor from disposing of collateral either outright or to a holder of
a SR SI.
Basically FB gets paid each time debtor sells a car, and debtor pays the loan
amount on that car. If the certificate of origin or title rested with the dealer, the
dealer could sell the car and not pay the bank back. Controlling the certificate of
origin allows the bank to make certain debtor pays and control the certificate of
title.
3.3.21 Account Debtor
D Construction Co. entered into a contract to build a small office building for
Realty (account debtor) for $1,000,000.
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K called for step-by-step progress pmts to D as the building reached specified
stages of completion.
FB is willing to lend D $900,000 to be secured by a SI in the contract w/ Realty

and the payments due and to become due under the K.
D prefers not to reveal the transaction to the public and suggests to FB that no FS
be filed.
D proposes instead that: 1) the SA be entitled “Pledge of K” 2) the original

signed K be delivered to FB by way of pledge and 3) upon D’s default, FB would
have the right to notify Realty to make pmts directly to FB.
Question: As counsel to FB, how would you respond to these suggestions?
R9-102(a)(2) Account is a right to payment or money obligation whether or not earned

by performance, 1) for property that has been or will be sold, leased, licensed, assigned or
disposed of; 2) for services rendered or to be rendered; 3) for an insurance policy 4) for a
secondary obligation incurred or to be incurred 4) for energy 5) a vessel 6) credit or
charge card 7) winnings in a lottery or other game of chance… The term includes health
care insurance receivables.
The term does not include: 1) right to payment evidenced by chattel paper or
instrument, 2) commercial tort claims 3) deposit accounts 4) investment property
5) letter of credit rights or letter of credit 6) right to payment for money or funds
advanced or sold, other than rights arising out of use of a credit or charge card….
R9-102(a)(47) Instrument means a negotiable instrument or any other writing that

evidences a right of payment of a monetary obligation…is not itself a SA or lease….term
does not include: investment property, letters of credit, or writings that evidence a right
to payment…
R9-102(a)(11) Chattel paper means a record or records that evidence both a monetary
obligation and a SI in perfected goods and software used in the goods.
R9-102(a)(61) Payment intangible is a general intangible under which the account

debtor’s principal obligation is a monetary obligation.
R9-102(a)(3) Account debtor is a person obligated on an account chattel paper or

general intangible.
R-9102(a)(42) & Comm 5a-d General intangible means any personal property
including things in action other than accounts…chattel paper, commercial tort claims,
deposit accounts, documents, goods, instruments, investment property, letter of credit
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rights, letters of credit, money and oil, gas and other minerals be/f extraction. Term
includes payment intangibles and software.
R9-310(a) When Filing is Req to Perfect a SI; SI to which Filing does not Apply.
Perfection. An FS must be filed to perfect all SI.
R9-310(b)(6) No Filing Necessary. The filing of an SI is not necessary to perfect a SI:

in collateral in the SP’s possession under 9-313.
R9-313(a) Perfection by Possession or Delivery. A secured party may perfect an SI in

negotiable documents, goods or instruments, money or tangible chattel paper by taking
possession of the collateral. A SP may perfect a SI in certificated securities by taking
delivery of the certified securities under R8-301.
R9-607 Collection and Enforcement. If so agreed after default, a SP may:

1) notify an account debtor or other person obligated on collateral to make payment or
otherwise render performance to or for the benefit of the SP;
2) may take any proceeds to which the SP is entitled under R9-315;
3) can enforce the obligations of the account debtor or other person obligated on
collateral…and exercise rights of the account debtor
4) if SP holds a SI in a deposit account perfected by control under 9-104(a)(1), may
apply the balance of the deposit account to the obligation secured by the deposit
account; and
5) if SP holds a SI in a deposit account perfected by control under 9-104(a)(2) or (3), may
instruct the bank to pay the balance of the deposit account to or for the benefit of the
SP.
Answer: Here the creditworthiness of the company is the main concern.

Step 1: Classify the Collateral.
Here, there is a contract right in the SP. Here, the contract right most closely resembles
an account for services rendered, and is a right to payment of a monetary obligation
whether or not it was earned by performance.
A contract right is not: chattel paper – be/c cp is a record that evidences a monetary
obligation and a SI in specific goods (ie, SA for cars – Form 3.6 Installment Sales K,
DISA). Not an instrument be/c K rights are not normally transferred by delivery w/ any
necessary endorsement or assignment. It is not a general intangible be/c even though it
is personal property, (realty) it includes things other than accounts.
This presents a perfection problem.

R9-313(a) says a SP may perfect a SI in ND, Goods, instruments, money and tangible
chattel paper by possession. However, the account here is not listed in R9-313(a) be/c
you cannot take possession of an account be/c it is intangible.
In 1962, an account had a different meaning – it was any right to payment for goods sold
or leased for services rendered which is not evidenced by an instrument or chattel paper,
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whether or not it has been earned by performance. Accounts and other intangibles could
be perfected by possession in 1962.
In 2000, accounts, general intangibles, chattel papers, and NDs, must all be perfected by
filing an FS. Possession will not perfect.
2000 Rule: One cannot perfect an intangible by possession.

1962 Rule: One could perfect an intangible by possession.
Advice: To perfect its account, FB as SP should file a FS; or FB could pay Realty
directly (not make the loan to D) rather than involve D to avoid the problem of needing
perfection.
Remember the Perfection Rule: A perfected SI is only required if there are third-party
lien holders in the problem.
An SI cannot be perfected in an account unless SP files an FS. Fisfis says advise FB to

not make the loan to D unless FB fully understands it will be a high-risk unsecured loan.
As attorney to FB, put this advice in the opinion letter to FB to cover your tracks!
3.3.22
Equipco is in the business of selling construction equipment.
6/1 - Equipco sells to its very best customers on unsecured credit: the customer
pays 20% down and gives a negotiable PN for the balance.
To secure a line of credit, FB took a SI in “all Equipco’s existing and APP rights
to payment in every form whatsoever, whether or not represented by a writing,
and including w/out limitation, accounts receivable, general intangibles, chattel
paper, and instruments. (FA Clause?)
The SA obligates Equipco to deliver to FB all writings evidencing rights to

payment w/in 7 days after Equipco receives them.
FB filed a FS containing the same description of the collateral.
(a) 6/1 – C1 (levying creditor) SA (accounts, chattel paper, general intangibles and I
instruments), AAP, Loan, FS.
6/15 – Equipco (debtor) sold and delivered a backhoe to Butcher, a customer.

Butcher only signed a Purchase Order.
7/1 – Equipco (debtor) files a bankruptcy petition.
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Question: Is FB’s SI in Equipco’s right to payment perfected as of the commencement
of the bankruptcy case? Don’t assume that if the SI is perfected, it necessarily will be
valid in bankruptcy.
R9-310(a). A FS must be filed to perfect all SIs and agri-liens.
Answer: First Classify the collateral. The collateral is a right to payment which =
account. A SI in an account can only be perfected by filing a FS. Here, FB filed an FS
prior to debtor (Equipco) filing for bankruptcy. Thus, FB’s SI is perfected at the
commencement of the bankruptcy case. Here a Purchase Order = offer generally,
and FB’s right to payment comes from the delivery of the Backhoe to B.
(b) On 6/15 – Equipco rec’d a PN from Baker, another customer, but neglected to turn
over the note to FB.
Question: Is FB’s SI perfected as of the commencement of the bankruptcy case?

R9-310(a). A FS must be filed to perfect all SIs and agri-liens.
R9-312(a). A SI in chattel paper, negotiable documents, instruments or investment

property may be perfected by filing.
R9-102(a)(47). Instrument means a negotiable instrument or any other writing that

evidences a right to the payment of a monetary obligation, is not a SA or Lease, and is of
a type that in the ordinary course of business is transferred by delivery with any
necessary endorsement or assignment. It does not include investment property, letters of
credit, or writings that evidence a right to payment acting out of the use of a credit or
charge card…
In 2000, the FS now covers instruments, which is new to the code – instruments can now
be perfected by filing.
In 1962, the instrument could not be perfected as collateral.

In 1972, the instrument could only be perfected by taking possession.
In 2000, the instrument can now be perfected by filing.
Rule: Copeland. Filing gives a SP a perfected SI in instruments
A latter perfected party who takes possession will prevail against a trustee in bankruptcy
Answer: Classify the collateral. A PN = negotiable instrument. A negotiable

instrument can be perfected either by filing a FS (R9-310(a)) or by possession (R9-
313(a). Here, since FB filed a FS prior to the commencement of the bankruptcy case,
FB’s SI is perfected.
Remember: Debtor in possession = trustee in bankruptcy = lien creditor at state law.
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c) On 6/19, Equipco sold some equipment to Chandler on secured credit.
Chandler paid 10% down, signed a PN for the balance and signed a SA covering
the equipment.
Again, Equipco failed to deliver the PN and SA to FB.
Question: Is FB’s SI perfected at the commencement of the bankruptcy case?
R9-310(a) Except as provided in 9-312(b), a FS must be filed to perfect all SIs.
R9-312(a) A SI in chattel paper, negotiable documents, instruments or investment

property, may be perfected by filing.
R9-102(a)(11) Chattel paper means a record or records that evidences both a monetary
obligation and a SI in specific goods or software used in the goods; a SI in specific
goods…or software….
Here, monetary obligation means a monetary obligation secured the goods or

owed under a lease of the goods and includes a monetary obligation secured by
the goods or owed under a lease of the goods….it does not include charters or
contracts for hired vessels, or credit card transactions….
If a transaction is evidenced by records that include an instrument or series of

instruments, the group of records taken together constitutes chattel paper.
Answer:
Classify the collateral: Here, Chandler, the debtor, gave as collateral a PN + SA.
Taken together as a group, these instruments constituted chattel paper.
Under R9-312(a), a SI in chattel paper may be perfected either by filing or by taking
possession.
Here, FB filed its FS before Equipco filed for bankruptcy on 7/1, so FB’s SI was
perfected in the chattel paper at the start of the bankruptcy case.
Note: Prototype had example of chattel paper: the Installment Sales K between Dealer
and Lee Abel.
d) What answer in the preceding parts if the FS had not been filed?
R9-310(a) See above.
R9-310(b)(5). The filing of a FS is not necessary to perfect a SI in collateral in the SP’s

possession under section R9-313;
R9-313(a) Perfection by possession or delivery. Except as otherwise provided in (b) a

SP may perfect a SI in negotiable documents, goods, instruments, money or tangible
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chattel paper by taking possession of the collateral. A SP may perfect a SI in
certificated securities by taking delivery of the certificated securities under R8-301.
R9-312(e) Temporary Perfection: New Value. A SI in certificated securities,

negotiable documents or instruments is perfected w/out filing or the taking of possession
for a period of 20 days from the time it attaches to the extent that it arises for new
value given under an authenticated SA.
R9-102(a)(57). New Value means money, money’s worth in property, services or new
credit, or release by a transferee of an interest in property previously transferred to the
transferee. The term does not include an obligation substituted for another obligation.
Answer:
a) contract right, account – not a perfected SI be/c even though there

was possession, an account cannot be perfected by possession – there must
be a filed FS.
b) negotiable instrument – There would not be a perfected SI under the

facts here w/out the FS – be/c it was a negotiable instrument (PN) and it
did not attach w/in 20 days for new value (money’s worth in property was
not paid). Here, if the instrument had been delivered to FB, then FB as SP
could perfect its interest by taking possession.
c) chattel paper – There’s an authorized SA, but the question is whether

or not it was given for new value. Here the answer is no be/c the line of
credit was previously established – and the loan was already made
when the chattel paper came into being…In these facts, there was no new
value given and came in after the AAPC was created. Here, if the
instrument had been delivered to FB, then FB as SP could perfect its
interest by taking possession.
In 1962 – different.
F9-108 allowed chattel paper coming in after an AAPC was established
was new value.
In 2000, chattel paper coming in after an AAPC is not new value.
Exam: Perfection Summary:

Money can only be perfected by taking possession.
Accounts can only be perfected by filing an FS.
Chattel paper, Instruments and Securities can be perfected both ways.
Perfection (cont)…Documents of Title.
3.3.23 See CB 60. 61, 62 for examples.
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Delgado imports whiskey in large quantities.
Delgado stores it in storage tanks at a warehouse bonded by US Customs Service.
Under applicable law, the whiskey may remain in a bonded warehouse for up to
five years be/f Delgado is obligated to pay the import duty.
Each time Delgado stores the whiskey, Delgado receives a warehouse receipt
running to the order of Delgado.
a) FB is willing to take the whiskey as collateral for a loan and asks you for advice
on how to perfect its SI. Among the possibilities: 1) filing a FS, 2) taking
delivery of the warehouse receipts, 3) notifying the warehouse of FB’s SI.
Question: What do you recommend for FB?
R9-102(a)(30) Document means a document of title, or a receipt of the type described

in 7-201(2).
UCC 1-201(15) Document of title includes a bill of landing, dock warrant, dock receipt,
warehouse receipt or other order of the delivery of goods…to be a document of a title, a
document must purport to issued by or addressed to a bailee and purport to cover goods
in the bailee’s possession which are either identified or are fungible portions of an
identified mass.
R9-312(c) Goods covered by negotiable document. While goods are in the possession
of a bailee that has issued a negotiable document covering the goods, 1) a SI in the
goods may be perfected by perfecting a SI in the document; 2) a SI perfected in the
document has priority over any SI that becomes perfected in the goods by another
method during that time.
R9-312(a) A SI in chattel paper, negotiable documents, instruments or investment

property may be perfected by filing.
R9-313(a) Perfection by possession or delivery. Except as otherwise provided in (b) a

SP may perfect a SI in negotiable documents, goods, instruments, money or tangible
chattel paper by taking possession of the collateral. A SP may perfect a SI in
certificated securities by taking delivery of the certificated securities under R8-301.
R9-313(c) Goods covered by certificate of title. W/ respect to goods covered by a

certificate of title issued by the state, a SP may perfect a SI in the goods by taking
possession of the goods, only in circumstances described in R9-316(d).
R9-316(d). Goods covered by certificate of title by the state. Except as otherwise

provided in (e), a SI in goods covered by a cert of title which is perfected by any other
method under the law of another jurisdiction when the goods become covered by a cert
of title from this State remains perfected until the SI would have become
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unperfected under the law of the other jurisdiction had the goods not become so
covered.
UCC 7-502(1) A holder to whom a negotiable document of title has been duly
negotiated acquires thereby: a) title to the document, b) title to the goods, c) all rights
accruing under the law of agency or estoppel (incl rights to goods delivered to bailee after
the document was issued) 3) and the direct obligation of the issuer to holder deliver the
goods according to the terms of the document free of any defense or claim arising under
the terms of the document or under this article.
R9-331 A 9 does not limit the rights of a holder in due course of a negotiable
instrument, a holder to which a document of title has been duly negotiated, or a
protected purchaser of a security. These holders or purchasers take priority over an
earlier secured interest, even if perfected, to the extent provided in As 3, 7, 8.
R9-312(e) Goods covered by negotiable document. While goods are in the possession
of a bailee that has issued a negotiable document covering the goods, 1) a SI in the goods
pay be perfected by perfecting a SI in the document, and 2) a SI perfected in the
document has priority over any SI that becomes perfected in the goods by another method
during that time.
R9-312(f) Temporary perfection: New value. A SI in certificated securities,

negotiable documents or instruments is perfected w/out filing or the taking of possession
for a period of 20 days from the time it attaches to the extent that it arises for new value
given under an authenticated SA.
Answer: First, classify the collateral. It is negotiable documents. ND come in 2 types,

1) warehouse receipts and 2) bills of landing. To be a ND, the warehouse receipt must
say “to the order of” and it does. Thus, perfection of FB’s SI in the whiskey can be
perfected by filing a FS, or possession of the ND.
Bottom line: Advise FB to do both – cover both the ND & goods themselves w/ FS and
possession. file the FS and take possession of the ND be/c merely notifying the
warehouse of FB’s SI is not enough; Perfection of a ND of title can only be done by 1)
filing (R9-312(a)) or 2) taking possession (R9-313(a)). Here, we want the SP to take
possession to avoid someone else taking the goods/whiskey from the warehouse.
Also, tell FB that if it winds up with both a SA and FS, cover both the ND and the goods,
be/c the ND gives a SI in the goods, but if the goods have been returned to the debtor,
and are not covered by the FS or ND, then they are no longer in possession of the
warehouse and FB’s SI will be unperfected.
b) Assume FB decides to perfect its SI by filing a FS. How should FB describe the
collateral?
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Answer: To cover the document and goods descriptions sufficiently, FB should describe
the document as a warehouse receipt and the goods as whiskey. This will help define
them as negotiable documents and goods – so they can be perfected under the FS filing or
by possession, or both.
c) Assume FB decides to perfect its SI by taking delivery of the warehouse receipt

(possession).
Question: Should FB require Delgado to indorse the warehouse receipt before delivery?
UCC 7-502 Rights acquired by due negotiation. A holder to whom a negotiable

document of title has been duly negotiated acquires thereby:
a) title to the document
b) title to the goods
c) all rights accruing under the law of agency or estoppel, including rights to
goods delivered to the bailee after the document was issued
d) the direct obligation of the issuer to hold or deliver the goods according to the
terms of the document free of any defense or claim by him except those
arising under the terms of the document, or under this article. In the case of a
delivery, order the bailee’s obligation accrues only upon acceptance and the
obligation acquired by the holder is that the issuer and any indorser will
procure the acceptance of the bailee.
3) Subject to the following section, title and rights acquired are not defeated by
any stoppage of the goods represented by the document, or by surrender
of such goods by the bailee, and are not impaired even though the negotiation
or any prior negotiation constituted a breach of duty or even though any
person has been deprived of possession of the document by misrepresentation,
fraud, deceit, accident, mistake duress loss theft or conversion or even though
a previous sale or other transfer of the goods of documents has been made to
third persons.
UCC 7-501 Form of Negotiation and Reqs of “Due Negotiation.” A negotiable

document of title running to the order of a named person is negotiated by his indorsement
and delivery. After his indorsement, in blank or to bearer any person can negotiate
it by delivery alone.
2(a) A negotiable document of title is also negotiated by delivery alone when by

its original terms it runs to the bearer.
(b) When a document running to the order of a named person is delivered to him
the effect is the same as if the document had been negotiated.
(3) Negotiation of a negotiable document of title after it has been indorsed to a

specified person requires indorsement by the special indorsed as well as
delivery.
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(4) A negotiable document of title is duly negotiated when it is negotiated in the

manner stated in this section to a holder who purchases it in good faith
without notice of a defense or claim to it on the part of any person and for
value, unless…the negotiation is not in the regular course of business or
financing or involves receiving the document in settlement or payment of a
money obligation.
(5) Indorsement of a non-negotiable document neither makes it negotiable nor

adds to the transferee’s rights.
(6) The naming in a negotiable bill of a person to be notified of the arrival of

the goods, does not limit the negotiability of the bill nor constitute notice to a
purchaser thereof of any interest of such person in the goods.
UCC 7-504 Rights acquired in the absence of due negotiations. 1) a transferee of a

document, whether negotiable or non-negotiable, to whom the document has been
delivered but not duly negotiated, acquires the title and rights which his transferor had or
had actual authority to convey.
(2) In the case of a non-negotiable document, until but not after

the bailee receives notification of the transfer, the rights of the
transferee may be defeated.
a) by those creditors of the transferor who could treat the sale as

void under 2-402 or
b) by a buyer from the transfer in ordinary course of business if
the bailee has delivered the goods to the buyer or received
notification of his rights; or
c) as against the bailee by good faith dealings of the bailee with
the transferor.
(3) a diversion or other change of shipping instructions by the co-

signor in a non-negotiable bill of landing which causes the
bailee not to deliver to the co-soignée defeats the co-signor’s
title to the goods if they have been delivered to a buyer in the
ordinary course of business and in any event defeats the co-
signor’s rights against the bailee.
(4) Delivery pursuant to a non-negotiable document may be

stopped by a seller under UCC 2-705 and subject to the
requirement of due notification there provided. A bailee
honoring the seller’s instructions is entitled to be indemnified
by the seller against any resulting loss or expense.
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Answer: Yes, FB should ask D to sign it be/c the warehouse receipts can be classified as
a negotiable document and a negotiable document of title running to the order of a
named person is negotiated by his indorsement and delivery.
Question: If Delgado delivers the warehouse receipt to FB but neglects to endorse it, is
FB perfected?
R9-312(c) Temporary perfection: New value. A SI in certificated securities,

negotiable documents, or instruments is perfected w/out filing or the taking of possession
for a period of 20 days from the time it attaches to the extent that it carries new value
given under an authenticated SA.
R9-313(a) Perfection by possession or delivery. Except as provided in b), a SP may

perfect a SI in negotiable documents, by taking possession of the collateral…or by
taking delivery of a certified security.
Answer: Yes, even if D does not endorse the warehouse receipt, FB’s SI in the
negotiable document is still perfected by filing or possession.
Question: If FB wishes to take possession of the whiskey upon Delgado’s default, (see
R9-609), will the warehouse permit FB to remove the whiskey w/out Delgado’s
indorsement?
R9-609 Possession: rendering equipment unusable; disposition on debtor’s

premises. After default, a SP may:
1) take possession of collateral, and
2) w/out removal, render equipment unusable, and dispose of collateral
on a debtor’s premises under R9-610.
b) Judicial and non-judicial process. A SP may proceed under a):

1) pursuant to judicial process or
2) w/out judicial process, if it proceeds w/out breach of the peace,
c) Assembly of collateral. If so agreed, and in any event after default, a SP may

require the debtor to assemble the collateral and make it available to the SP at a
place to be designated by the SP which is reasonably convenient to both parties.
UCC 7-403 Obligation of a warehouseman or carrier to Deliver, Excuse.
1) the bailee must deliver the goods to a person entitled under the document
who complies with (2) (charges paid) and (3) (cancellation of the ND), unless and
to the extent that the bailee establishes any of the following…a) delivery of the
goods, b) c) damage or delay of goods, d) previous sale, exercise by a seller of his
right to stop delivery, e) diversion, f) release, satisfaction, g) any other lawful
excuse.
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4) Person entitled under the document means holder in the case of a negotiable
document, or the person to whom delivery is to be made by the terms of or
pursuant to written instructions under a non-negotiable document.
Answer: Here, FB is not the holder or person entitled under the ND to whom delivery is
to be made.
UCC 1-201(20). Part 2 - Holder with respect to a document of title means the person in
possession if the goods are deliverable to the bearer or to the order of the person in
possession. (Part 1 does not apply be/c here we have a ND, and part 1 only deals w/
negotiable instruments – something different!!)
UCC 1-201(5). Bearer. Means the person in possession of an instrument, document of

title, or certificated security payable to bearer or endorsed blank.
A holder is a person to whom the warehouse receipt is made out and it is payable to the
order of D, not FB. Since FB is not the holder, the bailee (US Customs) is not required
to deliver the whiskey to FB (R9-403(3)). Basically, FB is not a bearer as defined in 1-
201(5).
Note: point is that even though FB is a perfected SI, FB should have asked for the ND to
be transferred over to FB so that it was payable to the order of FB and FB would be the
“holder” of the SI.
Question: If FB makes the loan and later wishes to obtain Delgado’s indorsement, what
can FB do?
UCC 7-506 The transferee of a negotiable document of title has a specifically

enforceable right to have his transferor supply any necessary indorsement, but the
transfer becomes a negotiation only as of the time the indorsement is supplied.
Answer: A holder in due course must have endorsement. Here FB can compel
endorsement under R7-506 be/c it has a right to have the transferor supply any necessary
endorsement to secure the negotiable document.
Notes:
Negotiable document – “to the order of” indicates magic language of a ND.
2 types of NDs: 1) warehouse receipts and 2) bills of landing.
Accounts – an account is an intangible. Cannot take possession of an intangible. See

comment R9-313 Comm 1.
Chattel paper – an installment sales K is an example of chattel paper; an Obligation to

Pay (ie, PN) + SA = Chattel Paper.
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Class Notes: Negotiable Instrument, Holder in Due Course
Hypo 1: Negotiable Instrument (Holder in Due Course).

W steals check in bearer form from Sheehan.
W sells check to F.
F takes in value, in good faith, w/out due course.
Issue: Can S get the check back from F?
Answer: No. S can’t get the check back from F be/c he is a holder in due course, it’s in
bearer form, he took in good faith for value w/out notice.
If the check was a good instead of a negotiable instrument, then S would get the good
back.
Hypo 2: Negotiable Instrument (Bailment).

W steals the check in bearer form from Sheehan.
W and F are buddies and W gives the check to F.
Issue: Can S get it back?
Answer: Yes. F took in good faith, w/out notice but F did not give value!!! S can get
the check back from F.
Hypo: Holder in Due Course. (payable “to the order of”)

Sheehan has a check payable “to the order of Sheehan.”
W steals a check from Sheehan and forges her signature. (not endorsed)
F takes for value, in good faith w/out notice.
Issue: Is F as a person in possession a holder in due course (can S get the check back?)
F is not a holder in due course so Sheehan can get the check back.
Note: If the endorsement is forged or missing, Fisfis says start with the notion the
person in possession was not a holder in due course!
Field Warehouse Case. 185-86

Field Warehouse developed under the CL, in response to the law’s requirement that a SP
take possession of collateral in order to enjoy a property right that was valid against other
creditors. Notion of a field warehouse derives from the creative application of the
principle that a SP may take possession of collateral through its agent, which might
be a warehouse. Rather than move the debtor’s inventory, inventory lenders moved the
warehouse to the inventory. Typically the debtor’s inventory was placed in a fenced area
“the warehouse” w/in its premises (usually debtor’s stock room)….Warehouses were
used for a variety of instruments for which possession was the exclusive means of
perfection.
In this arrangement, the specialized field warehouse would lease the premises from
debtor for a nominal amount, and post signs the goods were in the custody of the
warehouse. The company would issue a non-negotiable warehouse receipt naming the
SP party as the person entitled to delivery. As such the SP could cause the warehouse to
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release inventory by issuing written delivery orders (or a single, standing delivery order)
See UCC 7-403.
Both 1962 and 2000 follow common law rules for possession necessary to constitute a
valid field warehouse.
R9-205(b). When SI is not invalid or fraudulent; Requirements of Possession Not

Relaxed.
1962 went by the order of perfection, not by filing.

Req FS, SA, value to be given, debtor had to have rights in the collateral, and for
debtor to have rights, the debtor’s had rights in the collateral upon identification
to the K prior to delivery to the warehouse.
1962 FA9 required a filing of FS, so it undercut the reason for establishing the
field warehouse.
Thus, in 1963, Lawrence Systems then the leading operator of field warehouses,
in a dramatic reversal of policy, began to encourage lenders holding its receipts to
file under A9. The basic reason was the danger that the holder of a
competing SI who filed would have prior claim to the new assets (and
proceeds)!!
Thus, 1972+2000 deal w/ perfection of competing SIs under R9-322(a)(1) which

says conflicting perfected SIs rank according to the time of filing or perfection.
Hypo: Perfection w/ Field Warehouse.
Assume under 1962 F9-312(5)(b) perfection happens w/in the 5 yr period for the
live financing stmt.
2001 – C1 Field Warehousing (inventory) - it’s into possession.

1/1/03 – C2 takes FS, SA (in inventory), Loan.
2/1/03 – AAPC (in inventory) comes in.
Issue: Who has priority?
Answer: For everything in the warehouse prior to 1/1/03, C1 has priority.
Same between 1962 and 1972+2000 codes.

C2 wins under both versions of the code!
1972+2000 Answer:
Under R9-312(b) and R9-313(2), C2 was the first to file on 1/1/03 and has
an attached and perfected SI on all collateral until 2/1/03. C2 has priority
on the AAP in inventory be/c C1 did not perfect until 2/1/03 when it took
possession of the AAP (treated as new assets). C2 has priority
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1962 Answer: First to perfect takes priority. When did perfection

happen?
C2 can’t perfect w/out attachment 9-308….
1/1/03 – C2 had value, debtor’s rights, SA describing the collateral.
2-501 – when goods are id’d to the K, debtor has rights in the collateral…
C2’s 1/1/03 rights will cone first be/c goods must be identified to the
collateral before delivery happens; Thus, C2 has priority under the 1962
Code.
Problem 9 – Handout.
The Hilton Furniture Co. sold carpeting to the Baptist Golden Age Home, a non-profit
organization for the care of the aged. Hilton by agreement reserved a SI but did not file.
Question: Does Hilton have a perfected SI under the Code?
Issue: Whether a run-of the mill judgment creditor has priority over a SP (Hilton) who
was not perfected by filing a FS?
Note: There’s no perfection by filing so we have to see if there is perfection by some

other way, such as whether the carpet can be considered a PMSI in consumer goods.
Under 1962 and 2000, the results are the same.
R9-103(b) Purchase Money Security Interest in Goods. A SI in goods is a PMSI

1) to the extent the goods are purchase money collateral with respect to that SI;
2) if the SI is in inventory that is or was purchase money collateral, also to the
extent the SI secures a purchase money obligation incurred w/ respect to other
inventory in which the SP holds or held a PMSI, and
3) also to the extent the SP secures a purchase money obligation incurred w/
respect to software in which the SP holds or held a PMSI.
R9-102(23) Consumer goods. Consumer goods means goods that are used or bought for
use primarily for personal, family or HH purposes.
R9-102(33) Equipment. Means goods other than inventory, farm products or

consumer goods.
Issue restated: If the debtor is a non-profit organization or non-profit business, can the ST
be considered consumer goods?
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Answer: No, when the debtor is a non-profit organization, the transaction is probably not
a PMSI in consumer goods be/c the carpeting was not bought primarily for personal,
family or HH use, but for use in a nursing home. Instead, the goods would be considered
equipment, the interest in which should be perfected by filing.
Question: Now say the same factual situation as above, but that the carpet is sold to
Fisfis for use in his home.
Issue: whether the carpeting could be considered a fixture under the Code?
R9-102(a)(41). Fixtures. Goods that have become so related to particular real

property that an interest in them arises under real property law.
R9-501(a)(2) Filing offices. The office of [local] or any office duly authorized by
[local] in all other cases, including a case in which the collateral is goods that are or are
to become fixtures, and the FS is not filed as a fixture filing.
R9-501(a)(1)(B) Filing offices. If the local law of this State governs perfection of a
SI….the office in which to file a FS to perfect the SI is: 1) the office designated for filing
or recording of a record of a mortgage on the related property if: b) the FS is filed as a
fixture filing and the collateral is goods that are or are to become fixtures.
R9-334 + Comments Priority of SIs in Fixtures and crops. a) SI in fixtures may be

created in goods that are fixtures or may continue in goods that become fixtures. A SI
does not exist under this article in ordinary building materials incorporated into an
improvement on land.
R9-401 – Changes for 1972 Alienability of Debtor’s Rights.

a) other law governs alienability; exceptions. whether a debtor’s rights in
collateral may be voluntarily or involuntarily transferred is governed by law other
than this article.
b) agreement does not prevent transfer. An agreement between the debtor and
SP which prohibits the transfer of debtor’s rights in the collateral or makes the
transfer a default does not prevent the transfer from taking effect.
Answer: Yes, the carpet is now a fixture. Here, Hilton’s SI is not perfected be/c a
fixture cannot be perfected until a FS is filed. A “fixture filing” means the filing of a FS
covering goods that are to become fixtures and satisfy R9-502(a) and (b). The term
includes filing of a FS covering goods of a transmitting utility which are to become
fixtures. Here the carpet is to become a fixture not separable from the real property but
no FS was filed to perfect Hilton’s SI!!
Note: Fisfis’ SI or an encumbrancer’s SI (anyone who files a lien on the real estate) is
SR to Hilton’s.
Note: FIXTURE FILING IS NOT ON THE EXAM but we should know:
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1. there is such a thing as a fixture filing.
2. the issue here was really whether there was a fixture filing or not, and the way
to resolve a fixture filing issue is to double file – the recorder of deeds office
and secretary of state’s office be/c on the chance the carpet could be considered
a “good” rather than a fixture, a judgment on a lien will not be perfected if it is
filed only in the prothonotary’s office – it must also be filed w/ the secretary of
state.
IV. Proceeds of Collateral.
“Proceeds” includes whatever is received on the sale, exchange, collection or other

disposition of collateral proceeds; Cash proceeds are money, checks, deposit accounts;
anything else is Non-Cash Proceeds.
Where collateral has been disposed of w/out authorization from the SP, the SI continues
in both the collateral and identifiable proceeds received by the debtor, but there can be
only one satisfaction of the obligation which the collateral secures.
In the case of inventory collateral, the SA would normally authorize the debtor to sell the
collateral to buyers in the ordinary course of business, and such buyers would take free of
a SI.
It is thus essential for an inventory financier to have a SI in proceeds arising on
the sale of the goods.
The SI in proceeds is continuously perfected from the time of the perfection of
the SI in inventory, and the proceeds may consist of traded-in goods, a check,
cash, a conditional sales K, an account or a combination of these proceeds.
The SI automatically continues in proceeds for 10 days after their receipt by debtor.
Under RA9, the SI in proceeds beyond 10 days after their receipt is automatic: If the SP
filed a FS covering the original collateral and a SI in the proceeds involved could be
perfected by filing in the same office and if the proceeds are acquired with cash proceeds,
the collateral described in the FS indicates the type of property constituting the proceeds;
or if a SI in the proceeds as such is perfected be/f the end of the 10 day period which may
be done by the Sp taking possession of the proceeds, or by filing a FS, describing the
original collateral, if the SI in the original collateral was perfected, and only the SP need
sign the FS.
Class Notes
Hypo: Proceeds.
Haus Sheehan
Red car Blue car R9-315(a)(1)
F gives SI in red car to Haus F gives SI in blue car to Sheehan

(SI carries over into proceeds) (SI carries over into proceeds)
F sells red car for $10,000 F sells Blue Car for $5000 R9-315(a)(2)
F gets $10,000 check (proceeds) F gets $5,000 check (proceeds)
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1. Issue: Are the two checks considered proceeds in collateral?

Answer: Yes.
R9-315(a)(1). SP’s Rights on Disposition of Collateral and in Proceeds.

..A SI continues in collateral notwithstanding sale, lease, license, exchange, or
other disposition thereof unless the SP authorized the disposition free of the SI or
agricultural lien, and…
R-9315(a)(2). A SI attaches to any identifiable proceeds of collateral.
2. Who has an interest in the proceeds?

Rule: A person only has a SI in the proceeds which have been designated to him.
Haus has a SI in the $10,000 check Sheehan has a SI in the $5000 check
(proceeds)…but not the $5000 check (proceeds) but not the $10,000 check
Notes:
Original collateral = SI in inventory, “now or hereafter acquired”
Accounts = Inventory obtained when original collateral was sold
Perfection Issue: In Prototype, do we have a perfected SI in the collateral?
Collateral: Chevy Trade-in
Yes Yes
Answer: There is an attached and perfected SI in both the Chevy and Trade in.
Issue: Do you have an After Acquired Property in the SA?

Rules: 1. Yes
2.No
3. Maybe. – it depends on the type of collateral; the type of collateral that
normally changes, which includes:
Inventory
Accounts
Chattel paper
Instruments
Negotiable documents
Remember: when considering a SA or FS, there is no need to include an AAPC in an FS,

but there is in a SA. Fisfis says don’t leave an AAPC out of an FS if you can help
it….still….remember….. Nat’l Cash Register said there is no AAPC needed in an FS.
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Perfection Analysis: 1. Classify the collateral

2. Does the SP have a SI as…
a. Original collateral? or
b. as Proceeds?
3. Is the SI perfected?
a. Which SI is SR?
b. if proceeds, continuation of perfection? (R9-315)
Proceeds
3.5.1. In setting of Prototype, a new Chevrolet financed by FB was traded by MM for a

Lincoln.
Subsequently, MM traded the Lincoln for a Cadillac.
a) Does the Dealer Inventory SA (Form 3.2, supra), create a SI in the Cadillac in
favor of FB? If so, is the SI perfected?
R9-204(a) After acquired collateral. A SA may create or provide for a SI in
after acquired collateral.
FS includes 1) name of debtor, 2) name of SP – FB, 3) all of the following:

inventory (names the collateral).
R9-310(a) When filing required to perfect SI or Agricultural Lien.

General rule: Perfection by Filing. A FS must be filed to perfect all SIs…
(unless it fits in an exception, or perfection/control)
R9-311(d) Inapplicability to certain inventory. During any period in which

collateral is subject to a statute specified in (a)(2) is inventory held for sale or
lease by a person or leased by that person as lessor and that person is in the
business of selling goods of that kind, this section does not apply to a SI in that
collateral created by that person.
Answer: Yes, the DISA’s “inventory” section includes “any new or used inventory
owned or possessed by the dealer and all tangible personal property held by the dealer.
Also, the grant of the SI in the AAPC “dealer hereby grants and conveys to the bank a
continuing lien upon and SI in all of dealer’s property described below now owned or
hereafter acquired.”
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Thus, FB has a SI in the Cadillac both in the “inventory” and AAP in the DISA (3.2) –
see CB 98.
Question: Is FB’s SI perfected?
Answer: Yes, FB’s SI is perfected be/c it filed an FS.
Note: Original collateral is the collateral described in the SA. There’s not a need for a
proceeds clause in a SA be/c proceeds include whatever is acquired on the sale, collected
in, or distributed on account of the collateral, so you don’t know what “proceeds” are
until you find out what’s left over.
b) Suppose that both the SA and the FS covered only the “motor vehicles” financed by
FB (here the Chevrolet). Does FB have a SI in the Cadillac? If so is it perfected?
Answer: The answer depends on whether the Cadillac can be considered original
collateral or proceeds.
1. Original Collateral – No. The SA and FS say only “motor vehicles” financed by FB
are covered (here, Chevrolets in the Prototype). Thus, FB does not have a SI in the
Cadillac as original collateral be/c all of the original collateral is defined as “motor
vehicles” and the “motor vehicles” in the SA and FS are defined as “Chevrolets,” not
Cadillac’s.
Remember R9-203(b): 1) value must be given, 2) debtor must have rights in the
collateral and 3) attached SA must describe the collateral. Here we did not have a
description of the collateral (Cadillac). Therefore there is no enforceability or attachment
of the collateral to create a SI in FB.
No attachment, no collateral!
2. Proceeds – Yes. The Cadillac is not original collateral but can be defined as
proceeds under R9-315(a) and FB does have a SI in the Cadillac as proceeds, which
continues in the collateral not w/standing sale, lease, license or exchanges, or other
disposition unless the SP authorized the disposition free of the SI…
Cash proceeds include money, checks, bank accounts, etc.
Answer: Here the FB’s SI in proceeds of the Cadillac is perfected under R9-315(d)(2) for
continuation of perfection, which says unperfection will not occur on the 21st day after
the SI attaches to the proceeds if the proceeds are identifiable cash proceeds.
R9-315(d)(1) Continuation of Perfection. A perfected SI in proceeds becomes

unperfected on the 21st day after the SI attaches to the proceeds unless:
1) the following conditions are satisfied:
A) A filed FS covers the original collateral, and
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B) the proceeds are collateral in which a SI may be perfected by filing in
the office in which the FS has been filed, and
C) the proceeds are not acquired with cash proceeds.
**all three conditions of R9-315(d)(1) must be met to prevent a SI in proceeds
from becoming unperfected under (d)(1)….OR…
**one of the other two conditions (d)(2) OR (d)(3) must be met to prevent
unperfection:
2) the proceeds are identifiable cash proceeds, OR

3) the SI in proceeds is perfected other than under c) when the SI attaches to the
proceeds or w/in 20 days thereafter.
Answer: Here all three parts of R9-315(d)(1) are met.

1) the FS referred to the collateral as “motor vehicles.”
2) the proceeds (Chevrolet) are collateral to which the SI can be perfected by filing in the
same office where the FS statement was filed (normally, you can expect to file in the
same office), and
3) the proceeds are not acquired with cash proceeds (they used computer equipment).
Since only one part of R9-315(d) needs to be met to perfect, (d)(1) was met and the
proceeds will not become unperfected on the 21st day.
Hypo: C1 – FS, (names inv + accts), SA (names only inventory), Loan
Issue: As original collateral, is there a perfected SI in the accounts?
Answer: No be/c the SA doesn’t name the accounts.
R9-308 Perfection of a SI says a SI is perfected if it has attached and all of the

applicable reqs for perfection in 9-310 through 9-316 have been satisfied. A SI is
perfected when it attaches if the applicable reqs are satisfied be/f the SI attaches.
Remember: A run of the mill FS will not qualify as an original SA.

A SI cannot be perfected, regardless of what’s in the FS.
Original Collateral: R9-315(a)(1) says unless something cuts it off, a SI in original

collateral continues.
See definition R9-102(a)(64)
Proceeds: R9-315(a)(2) says a SI attaches to any identifiable proceeds of collateral.
See definition R9-102(a)(12(A)
In 3.5.1, the Cadillac = proceeds.
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Note: Original collateral is the collateral described in the SA. There’s not a need for a
proceeds clause in a SA be/c a proceeds clause includes whatever is acquired on the sale,
collected on or distributed on account of the collateral; so you don’t know what
“proceeds” are until you find out what’s left over.
In 1972 + 2000 Code, Proceeds are proceeds are proceeds!!!
Remember: R9-306 The local law of the issuer’s jurisdiction or a nominated person’s
jurisdiction governs perfection.
3.5.2 Perfection.
FB financed the purchase of new cars by MM in the manner as in Prototype,

except the FS referred to the collateral as “Motor Vehicles.”
6/1, MM sold to CSI, a computer dealer, a new Chevrolet, financed by FB.

CSI pad for the Chevrolet in part by delivering to MM certain computer
equipment.
CSI installed the equipment in MM’s office.
a) 6/25 – LC Co, (MM’s creditor) had sheriff levy on all of Main’s equipment,
incl computers.
Question: Does FB’s SI extend to the computer equipment? If so, is FB’s SI

SR to LC’s execution lien?
R9-315(a) Disposition of collateral / Continuation of SI. 1) a SI continues in

collateral not w/standing sale, lease, license, exchange or disposition unless SP
authorized dispo free of SI,
2) SI attaches to any identifiable proceeds of collateral.
R9-102(a)(64) proceeds means A) whatever is acquired upon the sale, lease,

license or exchange or other disposition of collateral; B) whatever is collected or
distributed on account of collateral; C) rights arising out of collateral; D) claims
arising from loss of collateral; E) insurance payable for value to debtor for
damages.
R9-317(a)(2) A SI is subordinate to the rights of: 1) a person who becomes a lien

creditor be/f the earlier of time the SI is perfected, or 2) one of the conditions of
9-203(b) is met and a FS covering the collateral is filed.
R9-315(c) Drafters thought the absence of a claim to proceeds in a FS would not

mislead third persons, but provided some exceptions.
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Notes on SI in Proceeds. 1962 + 1972 give SP an automatic right to proceeds R9-

203(f). A claim to proceeds is so basic this claim goes w/out saying be/c it is
the intent of the parties, otherwise agreed. 1962 + 1972 treat a filing against
the collateral as a filing against the proceeds.
Filing against collateral = filing against proceeds.
Answer:
Issue should be separated into 2 parts.
1) whether FB’s SI extends to the computer equipment as original collateral.

Here, the answer is NO.
R9-102(a)(12) Collateral means the property subject to a SI and includes:
A) proceeds to which a SI attaches; Here, no SI attaches in the
computer be/c there is not enforceability; under R9-203(b) 1)
value was given 2) debtor has rights, but 3) the SA did not
describe the collateral.
B) Accounts, chattel paper, payment intangibles, and promissory
notes that have been sold; Here, the collateral is not classified
as one of these.
C) Goods that are the subject of a consignment; No.
Therefore, FB has no rights in the computer as original collateral.
2) whether FB’s SI extends to the computer equipment as proceeds. Here, the

answer is YES.
Here, under R9-315(a)(2), a SI attaches to any identifiable proceeds of
collateral. Under R9-102(a)(64)(A), proceeds means whatever is acquired upon
the sale, lease, license or exchange or other disposition of collateral; the
computer here could be considered “other disposition of collateral.” Moreover,
R9-203(f) parallels R9-315 and states that the attachment of a SI in collateral
gives the SP rights to proceeds provided by R9-315 and is also attachment of a SI
in a supporting obligation for the collateral. Thus, FB clearly has a SI in the
proceeds, and the SI arises in the proceeds by operation of law.
3) Next issue is whether or not FB’s SI was perfected.
Answer:
R9-315(d) addresses continuation of perfection.

A perfected SI in proceeds becomes unperfected on the 21st day after the SI
attaches to the proceeds unless: (1) or (2) or (3) are met…

A) a filed FS covers the original collateral; AND
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B) the proceeds are collateral in which a SI may be perfected by filing
in the office in which the FS has been filed; AND
OR
2) the proceeds are identifiable cash proceeds (here the computers are not cash
proceeds).
OR
3) the SI in the proceeds is perfected other than under (c), when the SI attaches to
Here, all three parts of R9-315(d)(1) are met be/c there was a FS covering the
motor vehicles as original collateral, the proceeds (computers) are collateral
which may be perfected by filing in the same financing office where the FS has
been filed; AND the proceeds were not acquired with cash. FB’s SI in the
proceeds was perfected under R9-315(d)(1).
Note: Remember that for cars which are inventory, we only need to file a FS to
perfect…(to perfect non-inventory, a note should be made on the certificate of
title.
b) Now assume that instead of swapping the computer equipment for a portion of the
price of the Chevrolet…
6/1 - CSI paid cash for the Chevrolet.

6/2 – MM used a portion of the cash to purchase the computer equipment.
FB took no further action to perfect a SI in the computer equipment.
6/25 – LC had the sheriff levy.
Question: Does Part (a) change?
Answer: Yes. Here the proceeds are computer equipment, not cash.
R9-315(c) Perfection of SI in proceeds. A SI in proceeds is a perfected SI if the

SI in the original collateral was perfected.
R9-102(a)(9). Cash proceeds means proceeds that are money, checks, deposit
accounts or the like.
Here, the proceeds are not identifiable cash proceeds; the proceeds are
computers, which cannot be classified as money, checks, deposit accounts or the
like – R9-315(d)(2) was not met. There was also not a SI that attached to the
proceeds w/in 20 days after filing - R9-315(d)(3) was not met.
Therefore, there is no perfected SI in the computer.
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c) Facts are the same as b), except LC levied 10 days earlier on 6/15.
Question: Is FB’s SI SR to LC’s execution lien?
Answer: R9-513(d)(3) says a perfected SI in proceeds becomes unperfected on the 21st

day after the SI attaches to the proceeds unless the SI in the proceeds is perfected other
than (c) when the SI attaches to the proceeds 10 days thereafter.
Here, LC levied w/in a 20 day period (6/2-6/15) after the SI in proceeds attached.
Question: Are the relative rights of LC and FB fixed as of the date of levy or can they
change as time passes?
Answer: Not clear; Fisfis says this is determined case by case.
R9-315(c) says a SI that becomes unperfected upon lapse is deemed never to have been
perfected as against a purchaser for value.
R9-315(b) says an SI that becomes unperfected after the debtor changes location is
deemed never to have been perfected as against a purchaser for value.
Perfection Hypos.
Hypo 1: Automatic Perfection.
In prototype did the SP need the proceeds clause in the FS and SA?
Question: In the SA, was it necessary to have a proceeds clause to perfect SP’s SI in the
proceeds?
Answer: No, the “gap filler” type provisions R9-203(f) and R9-315(a)(2) say that there is
no need for a proceeds clause be/c the proceeds will be automatically perfected.
Question: In the FS, was there a need for a proceeds clause?
Answer: No, there is no need for a proceeds clause in a FS under R9-315(c) and (d). If
you meet the proceeds clause it’s irrelevant.
Notes
1. The following sections give the SP a SI:
R9-315(a)(2) A SI attaches to any identifiable proceeds of collateral.
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R9-203(f) Proceeds and supporting obligations. Attachment of a SI in collateral gives
the SP the rights to proceeds provided by R9-315 and is also attachment of a SI in a
supporting obligation for collateral.
2. The following sections give a SP perfection:
R9-315(c) Perfection of a SI in proceeds. A SI in proceeds is a perfected SI if the SI in

the original collateral was perfected.
R9-315(d) Continuation of perfection. A perfected SI in proceeds becomes

unperfected on the 21st day after the SI attaches to the proceeds, unless:
1. the following conditions are satisfied:
A) A field FS covers the original collateral

B) The proceeds are collateral in which a SI may be perfected by
filing in the office in which the FS has been filed, and
C) The proceeds are not acquired with cash proceeds’
2. the proceeds are identifiable cash proceeds
3. the SI in the proceeds is perfected other than under (c) when the SI attaches to
Bottom line: Fisfis says even if the SP’s attorney puts proceeds in the SA, the SP
will still be unperfected on the 21st day.
1962:
Question: Did old article 9 req a proceeds clause in the FS to perfect a SI in proceeds?
Answer: Yes, you needed a proceeds clause in the FS to perfect a SI in proceeds.
Question: Did old article 9 req a proceeds clause in the SA to prefect a SI in proceeds?
Answer: Not clear - F9-203(b) req proceeds clause in SA to have perfected SI in the
proceeds. But..F9-306(2) and (3) indicated a proceeds clause was not needed.
2000 & 1972: proceeds clause was not necessary in the FS or SA to have a perfected SI
in proceeds…but after 20th day, must comply with R9-315(d) to perfect.
Hypo 2: Perfected SI in Collateral: Pontiac traded for computer.
C1 traded a Pontiac for computer equipment.

C1 filed a FS.
Question: Is there a perfected SI?
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Answer: Not if the Pontiac was purchased for check or cash, then traded for computer
equipment – the trade-in in computer equipment was not identifiable cash proceeds;
nothing was done to independently perfect.
Hypo 3: Perfected SI in Collateral: Pontiac and 1 Year Negotiable PN.
Pontiac was sold for 1 year negotiable PN.
Issue: Whether there is a perfected SI in the one year negotiable PN, under the 2000
code?
Answer: Her the collateral is a negotiable PN. “I hereby promise to pay Hauser @ the
end of one year.”
Here the proceeds are identifiable (negotiable promissory note) but they are not
identifiable cash proceeds. “Or the Like” language indicates a negotiable PN is similar
to money, checks, deposit accounts, etc.
R9-315(d)(1) is met; 2000 code now allows filing of instruments to perfect a SI.
1962 & 1972 codes required possession of instruments to perfect!
Hypo 4: Pontiac w/ One Year Negotiable PN used to buy comp equip & Subaru.
C1 sells Pontiac for 1 year Negotiable PN to Sheehan.

C1 files a FS
Sheehan uses the PN to buy computer equipment and a Subaru.
**Remember a One-Year Negotiable PN is not cash proceeds.
Issue: Whether C1 has a perfected SI in the computer equipment and Subaru?
Rule: This problem qualifies under R9-315(d)(1)(A)(B)(C).
R9-315(d)(1)(A) Here a filed FS covers the original collateral (PN)

R9-315(d)(1)(B) proceeds are collateral in which a SI may be perfected by filing in the
office in which the FS had been filed.
R9-315(d)(1)(C) the proceeds were not acquired with cash proceeds.
Therefore, all parts of R9-315(d)(1) are met and continuation of perfection can occur
beyond the 21 days after the SI attaches to the proceeds for C1. C1 has a perfected SI in
the computer equipment and Subaru purchased by Sheehan.
Note: Under 2000 code, place of filing for proceeds of collateral will normally be in the
same state as where the FS was filed.
For all issues concerning perfected SIs, use…

R9-315(d)(1), or…
R9-315(d)(2)…and ask about identifiable cash proceeds…OR
R9-315(d)(3) SI attaches to proceeds w/in 21 days.
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3.5.3 Third Party Insurer.
Continental Construction Company bought a new backhoe

Palmetto Bank loaned Continental the Purchase Price and perfected a SI in the backhoe
by filing an FS. (Note: Palmetto had an Oral SA!!)
a) An employee of Iceberg Masonry Inc, negligently dropped a load of bricks on the

backhoe at a job site; damaged backhoe beyond repair.
Continental’s insurer,. Everystate Insurance Co, sent its check covering the value
of the backhoe for $100K to Continental.
Question: Does Palmetto’s SI extend to the check? If so, is it perfected?
R9-315(a) Disposition of collateral: Continuation of SI:

1) a SI continues in collateral not w/standing sale, lease, license, exchange or
other disposition thereof unless the SP authorized the disposition free of the SI…
AND
2) a SI attaches to any identifiable proceeds of collateral.
R9-102(a)(64) Proceeds 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 the collateral, claims arising out of the loss non-
conformity or interference with the use of, defects or infringement of rights in, or
damage to the collateral;
E) to the extent of the value of the collateral, and to the extent payable to the
debtor, or the SP insurance payable by reason of the loss of non-conformity of,
defects, or infringement of rights in, or damage to, the collateral.
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Perfection
R9-315(c) Perfection of a SI in proceeds. A SI in proceeds is a perfected SI if

the SI in the original collateral was perfected.

unperfected on the 21st day, after the SI attaches to proceeds, unless:
A) a filed FS covers the original collateral;
B) the proceeds are collateral in which a SI may be perfected by
filing in the office in which the FS has been filed, and
2) the proceeds are identifiable cash proceeds; OR
3) the SI in the proceeds is perfected other than under c) when the SI
attaches to the proceeds or w/in 20 days thereafter.
First issue: Whether Palmetti’s SI is perfected?

Answer: Yes, here the SI is perfected under R9-315(c), where a SI in proceeds is
a perfected SI if the SI in the original collateral was perfected.
Here, Palmetto had an oral SA, gave a loan and perfected by filing a FS.
The collateral (bulldozer) was damaged, but money was paid from the insurance
carrier by a check, which is considered cash proceeds under R9-102(a)(64)
which includes insurance payable by reasonable loss. Under R9-315(a)(2), a
SI attaches to any identifiable proceeds of collateral.
Notes: original collateral. A SP cannot perfect original collateral as money except by

taking possession. (ie, coin collection problem).
Proceeds. concept was expanded between ’62-’72-‘2000 code.

Proceeds only need be identifiable cash proceeds by taking possession or by
filing an FS w/ regard to the proceeds of collateral.
This cannot be done w/ original collateral itself.
b) Would the result in a) be the same if the $100K check had been sent by
Iceberg’s liability insurance carrier?
Note: A claim for loss is identifiable cash proceeds under R9-102(a)(64)(d).

Answer: They would still be cash proceeds payable to the debtor or SP.
Question: What result if the check had been sent by Iceberg itself?
Answer: It makes a difference if the proceeds are considered identifiable cash
proceeds under R9-315(d)(1) for perfection. The proceeds must not be cash proceeds
for Palmetto’s SI to remain perfected beyond 21 days.
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c) Suppose instead that the backhoe malfunctioned and that Continental pressed a
claim against Manufacturer for damages resulting from negligent design and
breach of implied warranty;
the claim included evidence of damage resulting from the malfunctions and loss
of profits resulting from the use of the backhoe.
Manufacturer settled for $50K and sent a check to Continental for that sum.
Palmetto Bank claims the check as proceeds for its collateral.
Question: What result?
Issue: the issue here is the same as the Howarth case. Whether payments made
due to the damage arising from the malfunctions and lost profits are considered
cash proceeds.
Answer: For damages to the collateral (backhoe) – yes. R9-102(a)(64)(d) says

that property to the extent of the value of collateral, claims arising
from loss of the collateral.. Damages to the collateral are payable
only to the extent of the value of collateral.
For damage to the property – yes. R9-102(a)(64)(d) covers proceeds to

the extent of the value of collateral, arising from non-conformity (defects)
of the collateral.
For loss of profits – no, not cash proceeds. Lost profits cannot be
classified as proceeds under R9-102(a)(64).
Note: This question presents an identifiability cash proceeds problem, especially

if the payment for the damages is made in a lump sum.
3.5.6
6/1 – Dale Bookbinder obtained a short-term (6 mo) loan from FB for $25K
(FB = SP1, Loan)
Bookbinder delivered as collateral a certificate for 2000 shares of GM
Common Stock.
(a) 6/3 – GMC declared (ie, undertook to pay) a Stock Dividend:

Each stockholder was entitled to receive 1 additional sh for each 4 shs
owned.
Be/c Bookbinder remained the registered owner of the shares,

GMC mailed a new certificate for 500 shares directly to Bookbinder.
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715 – Bookbinder received the stock certificate.
Question: Does FB acquire a SI in the new certificate?

Real Issue: Whether a cash dividend and a stock dividend qualify as cash proceeds.
Answer: Yes. Both the cash and stock dividend are considered proceeds under R9-
315(a) Comm 13a: The phrase, “whatever is collected on, or distributed on account of
collateral,” in R9-102(a)(64)(B) is broad enough to cover cash or stock dividends
distributed on account of securities or other investment property that is original collateral.
Here, we have the new certificate which covers the proceeds of the original collateral
(cash and stock certificates). FB obtains a SI in the new stock be/c it is proceeds of
the old stock, pursuant to whatever is collected or distributed on account of
collateral. R9-102(a)(64)(B).
Question: But, was FB’s SI in the cash and stock dividends perfected?
Answer: No. Here, the problem was that FB took no action to continue its perfection of
the investment property (new certificate’s stock dividends) after the 21st day when the
SI attached to the proceeds, pursuant to R9-315(d) or (R9-312(a)).
Rules: Remember, A SI in proceeds is perfected if the SI in the original collateral was

perfected. But, a perfected SI in proceeds becomes unperfected on the 21st day after the
SI attaches to the proceeds unless: a filed FS covers original collateral, proceeds are
collateral in which a SI may be perfected by filing in the office where the FS was filed,
or the proceeds are not acquired with cash proceeds OR the proceeds are identifiable
cash proceeds OR the SI in proceeds is perfected other than (c) when the SI attaches to
FB’s SI is not perfected be/c FB did not take action pursuant to R9-315(d) to continue
the perfection of its interest in the original collateral (investment property: cash and
stock dividend). FB should have filed a new FS to perfect its interest in the investment
property (cash and stock dividend) w/in 20 days to perfect under R9-312(a), or asked
Bookbinder to re-register the stock in its name.
R9-315(a) Disposition of Collateral: Continuation of SI…

1) A SI continues in collateral not w/standing sale, lease, license, exchange, or other
disposition thereof unless the SP authorizes the disposition free of the SI….AND
2) a SI attaches to any identifiable proceeds of collateral.
R9-102(a)(64) & Comm 13a: Proceeds 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 the collateral
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D) to the extent of 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;
E) to the extent of the value of collateral and to the extent payable to the debtor or
the SP insurance payable by reason of the loss or nonconformity of, defects or
infringement of rights in, or damage to, the collateral.
Comm 13a: proceeds expands on the definition from 1962 R9-306 and 1972.
a) Distributions on account of collateral. The phrase, “whatever is collected on,
or distributed on account of collateral,” in (B) is broad enough to cover cash or
stock dividends distributed on account of securities or other investment property
that is original collateral.
R9-315(c) Perfection of SI in proceeds. A SI in proceeds is a perfected SI if the SI in


unperfected on the 21st day after the SI attaches to the proceeds unless:
A) a filed FS covers original collateral
B) proceeds are collateral in which a SI may be perfected by filing in the
office where the FS was filed.
C) the proceeds are not acquired with cash proceeds
OR
2) the proceeds are identifiable cash proceeds;
OR
3) the SI in proceeds is perfected other than (c) when the SI attaches to the
Question: What could FB have done to improve its position?
Answer: Because a SI in investment property can be perfected by filing an FS, FB

should have filed a new FS to perfect its interest in the stock dividends (new certificate).
Investment property includes certificated and uncertificated security entitlements or
securities accounts, and the stock dividends were considered investment property by
which FB could have perfected by filing a new FS.
R9-312(a) Perfection by filing permitted. A SI in chattel paper, negotiable documents,

instruments or investment property may be perfected by filing (a FS).
R9-102(a)(49) Investment property means a security, whether certificated or

uncertificated, security entitlement, securities account, commodity contract, or
commodity account.
b) Would your answers to part a) change if GMC had declared a cash dividend
instead of a stock dividend?
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Answer: Maybe. The real issue is whether the cash dividend here was first or second
generation. If there is one day more than 20 days after the SI attaches for a cash
dividend, the interest in the cash dividend as identifiable cash proceeds will not be
perfected if by check.
Planning: a filed FS would obviate the problem with the cash proceeds as well be/c the
FS would carry over the SI to the next generation.
3.5.8 Special Proceeds Account.
Finco (SP1) extended a line of credit to Lappin Leather Ltd (debtor)

Lappin secured its obligations to Finco in all its “existing and future accounts.” (oral SA)
Finco perfected its SI by filing an FS.
Under the transaction documents, Lappin is obligated to deposit all checks received in
payment of accounts into a special proceeds account maintained in Local Bank.
a) Does Finco have a perfected SI in the bank account, which contains nothing but
proceeds of Lappin’s accounts?
Answer: Yes. The special proceeds account is a deposit account, which is equivalent to
proceeds. The proceeds are identifiable cash proceeds, be/c the deposit account
contains no co-mingling of funds.
Here the only funds in the deposit account are from Lappin’s existing and future
accounts. There continues to be a perfected SI beyond 20 days be/c the account is
identifiable cash proceeds under R9-315(d)(2) – proceeds are identifiable cash proceeds.
R9-102(a)(64) Proceeds 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, non-
conformity or interference with the use of, defects or infringement of rights in or
damage to the collateral;
E) to the extent of the value of the collateral, and to the extent payable to the debtor,
or the SP (insurance payable), by reason of the loss or non-conformity of, defects
infringement of rights in, or damage to the collateral.
R9-315(a) Disposition of collateral.

1) A SI or agricultural lien continues in collateral not w/standing sale, lease,
license, exchange, or other disposition thereof unless the SP authorized the
disposition free of the SI…AND
2) A SI attaches to any identifiable proceeds of collateral.
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R9-315(c) Perfection of SI in proceeds. A SI in proceeds is a perfected SI if the SI in

R9-315(d) Continuation of Perfection. A perfected SI in proceeds becomes unperfected

on the 21st day after the SI attaches to the proceeds unless:

A) a filed FS covers the original collateral
B) the proceeds are collateral in which a SI may be perfected by filing in the
office in which the FS has been filed.
OR
2) the proceeds are identifiable cash proceeds,
OR
3) the SI in proceeds is perfected other than under (c) when the SI attaches to the
R9-315(e) When perfected SI in proceeds becomes unperfected. If a filed FS covers

the original collateral, a SI n the proceeds which remains under subsection (d)(1)
becomes unperfected at the later of:
1) when the effectiveness of the filed FS lapses under R9-515 or is
terminated under R9-513 OR
2) the 21st day after the SI attaches to the proceeds;
b) Lappin (debtor) draws a $2500 check to Supplier, and Local Bank properly pays
the check from the bank account.
Question: May Finco recover the payment or hold Supplier liable for money had
and received?
Answer: No. Finco cannot recover the payment or hold S liable for the money had and
received be/c the money transferred to S made S a transferee who took free of the SI, and
there’s no evidence to show S acted in collusion with violating the rights of the SP
(Finco).
R9-332
a) Transferee of money. A transferee of money takes the money free of a SI unless
the transferee acts in collusion with the debtor in violating the rights of the SP.
b) Transferee of funds from a deposit account. A transferee of funds from a

deposit account takes the funds free of a SI in the deposit account unless the
transferee acts in collusion with the debtor in violating the rights of the SP.
c) Lappin draws a $500 check as a charitable contribution to the local United Way.
Local Bank properly pays the check from the bank account.
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Question: May Finco recover the payment or hold the United Way liable for money
had and received?
Is the United Way deserving of protection even if it did not give value or
otherwise act in reliance on receipt of the funds?
R9-332 & Comment 3 Broad protection for transferees helps ensure the SIs in deposit
accounts do not impair the free flow of funds. It also minimizes the likelihood that a
SP will enjoy a claim to whatever the transferee purchases w/ the funds.
Answer: Finco cannot recover a payment or hold United Way liable be/c UW takes free
of a SI.
Note: UW is getting greater rights than a holder in due course. UW is deserving of

protection be/c as a policy matter, for transferees, SIs from deposit accounts should not
impair the free flow of funds. The ST will favor the transferee.
1962, ’72 Code had different answers.
3.5.9 Lowest Intermediate Balance Question.
In setting of the automobile financing Prototype, assume FB’s SI in MM’s inventory was
perfected by filing a FS that referred to the collateral only as “Motor Vehicles.”
Moreover, the SA covered only new motor vehicles financed by FB, not used vehicles.
Main deposited cash received from the sale of new and used cars from its repair
department into a checking account maintained with FB.
As in Prototype, when financed cars were sold, MM promptly sent FB a check covering
the amount FB advanced to the manufacturer for those cars.
June – when MM owed $1,500,000 to FB, MM became short on cash and used proceeds
from the sale of financed cars to meet payroll, rent, utilities, and other pressing
obligations.
6/1 – MM had a balance of $1000 in its checking account.
The following table shows deposits and withdrawals for the first few days of June.
PC = proceeds of collateral subject to FB’s SI.
June Debit or W/drawal Balance E.O.D.

1 $1,000
2 +15,000 Sale of new Chevrolet (PC) 16,000
3 +9,000 Sale of new Chevrolet (PC) 25,000
4 -4,000 Rent for Off-site storage lot 21,000
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5 -12,000 Payroll 9,000
6 - 2,000 Fuel Oil 7,000
7 - 1,000 Telephone, electricity 6,000
8 + 2,000 Collections for Body Repairs 8,000
9 + 6,000 Sale of used cars (not PC) 14,000
10 + 12,000 Loan from relative 26,000
During this period, MM made no pmts to FB.
6/12 – Caesar, a creditor of MM, with a judgment for $50,000 garnished the checking
account by serving a garnishment summons on FB.
Question: Is Caesar’s garnishment lien SR to FB’s SI in MM’s checking account? If so,

to what extent? (Ignore right of setoff).
R9-315(b) & Comm 3: When co-mingled proceeds are identifiable. Proceeds that are
co-mingled with other property are identifiable proceeds:
1) if the proceeds are goods, to the extent provided by R9-336; and
2) if the proceeds are not goods, to the extent the SP identifies the proceeds by
a method of tracing, including application of equitable principles, that is
permitted under law other than this article w/ respect to commingled property of
the type involved.
Comm 3: SP’s right to identifiable proceeds. Subsection (b) is NEW! (not in 1962).
It indicates when proceeds commingled with other property are identifiable proceeds and
permits the use of whatever methods of tracing other law permits w/ respect to the type of
property involved. Among the equitable principles whose use other law may permit is
the “lowest intermediate balance rule.”
Universal CIT Credit Corp v. Farmers Bank of Portageville – Co-mingled funds case.
“Lowest Intermediate Balance Rule” is a tracing method which says non-proceeds go
out of the account until so much went out that some proceeds have had to have gone
out of the account; replenishing the account only to the extent new proceeds come in is
permitted.
Note: Here, there’s a different issue from Universal CIT be/c there’s no issue of
identifiability be/c MM (debtor) put its checks into a special proceeds account – in
Universal, the funds were not kept separate and were co-mingled.
Issue: whether the proceeds of the collateral subject to FB’s SI are perfected?
Analysis: FB has perfected SI in identifiable cash proceeds from the Sale of the New
Chevrolet (PCs), as covered by the SA (new motor vehicles). There was value given,
debtor had rights in the collateral, and an authenticated SA described debtor’s rights (R9-
203(b)). FS did not have a perfected SI in the collections for body repairs, sale of used
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cars (not PC) and Loan from relative which went into MM’s account be/c the SA did not
provide for these.
Caesar’s garnishment lien is JR to FB’s SI in MM’s checking account for $6,000 be/c
the LIBR reveals $6,000 on the sale of new cars is left for FB’s perfected SI as provided
by the SA. .(See CB 208). However, FB does not have a perfected SI in collections for
body repairs, sale of used cars (not PC) and loan from relative, so Caesar’s garnishment
lien is SR to FB’s SI in MM’s checking account for these items.
Universal CIT Credit Corporation v. Farmers Bank of Por – Comingled Funds Case
US Dist Ct, MO (1973).
P = UCIT Floor Plan financier (SP1); D = Farmers Bank (SP2)
6/18 – Ryan (Debtor) had a SA w/ UCIT (SP1). (SP1 – SA)

UCIT (SP1) provided new automobiles in exchange for a SI in some of the new
cars Debtor sold.
As each auto sold, Ryan remitted UCIT’s advance in the form of checks (similar
to the Prototype), drawn on Debtor’s checking account with Defendant Farmers
Bank (SP2).
UCIT (SP1) perfected its SI by filing a FS.
12/31/69 – UCIT (SP1) decided to terminate the floor plan arrangement w/ Debtor
(Ryan).
1/15/70 – Debtor (Ryan) told D (Bank) to pay UCIT (SP1) last, and gave D (Bank, SP2)
a PN.
Issue 1: P (UCIT, SP1) seeks to recover $22,390 as the unpaid balance on checks drawn
to P (UCIT) as payee and thereafter endorsed and presented to D (Farmers Bank, SP2).
Rule: A defendant bank is not permitted to retain an amount debited outside the usual
course of business, and defeat the SI of P (UCIT) in identifiable proceeds of sale.
(UCIT claimed it had perfected a SI in the account from which proceeds were taken
from the sale of certain automobiles, and Defendant Farmers Bank had no right to
receive this money).
Held: Here, Defendant Farmers Bank was instructed by the Debtor to retain an amount
greater than what it was entitled to under the SA. Such an agreement with Debtor is not
permitted be/c it would defeat the SI of P (UCIT) in identifiable proceeds of sale in 6 new
autos, which UCIT has perfected. Remember, R9-322 says priority among SI rank
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according to time of filing or perfection. Here UCIT (SP1) had a perfected, enforceable
SI and had priority in the proceeds of the 6 new autos.
Issue 2: P (UCIT, SP1) contends that it had a perfected SI in proceeds of sales of

certain automobiles which proceeds were deposited in debtor’s account (Ryan) in D
(Farmers Bank, SP2) – and which were permitted by D (Farmers Bank, SP2) w/
knowledge of P’s (UCIT, SP1’s) claim. (which funds if any, were SP1’s?)
Note: court operates on the notion that some or all of the money turned over to Defendant
First Bank was a perfected SI in UCIT.
Rule: An account constituting a general deposit is subject to a bank’s right of set-off,

except the bank is not entitled to a set-off where it has sufficient knowledge of facts
relating to interests of others in the account.
Rule: Lowest intermediate balance rule says it is necessary to start with identifiable
proceeds and subtract all outgoing amounts to determine how much in non-proceeds
went out. It’s a series of intermediate balances – non-proceeds go out of the account
first, until so much goes out that some proceeds have had to have gone out; this result is
the lowest intermediate balance of the account. Proceeds are only replenished to the
point the proceeds are going in; LIBR is a tracing method.
Held: So many non-proceeds went out of the account that some proceeds had to have
gone out. To determine how much went out, the LIR applies.
See chart CB 213-14
LIBR: non proceeds went out so much so that some

proceeds must have gone out.
12/18 $710.74
12/19 $5,700 deposit proceeds $9,100.58 End Balance – means more
than proceeds went in
this day.
12/20 $4,125 deposit proceeds $9,709.90 End Balance – means some

proceeds had to have gone
out.
12/21 $6,201.41 some money goes out “Lowest Intermediate Balance” – this had to
be proceeds that went out.
1/2/70 $4,715.30 more money went out! “Lowest Intermediate Balance” – this had
to be proceeds that went out.
+ $1599.94 deposit proceeds $6315.24 – total proceeds remaining in
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acct.
1/2/70 $2,237.50 deposit proceeds $8,552.74 – total proceeds remaining in acct
1/14/70 $6,979.11 more money went out! “Lowest Intermediate Balance” – so much
went out that some of it had
to be proceeds.
1/15/70 $2700
$1750 add proceeds
$11,429.11 ending proceeds balance Bank is entitled to debit as a result of using

LIBR terminology.
1/15/70 – $16,340.00 End Balance +516.65 in checks = $15,823.35–11,429.11 =

$4934.24
$12,000 debit entry at close of business - $4394.24 = $7605.76 amt P (UCIT) is entitled
to recover from the Bank (excess amount Bank debited to Debtor’s account).
IV. Priority.
A) Competing Sis
1) First to File or Perfect Rule.
2000
R9-322(a) Priorities among Conflicting SIs. Priority among conflicting
SIs are determined according to the following rules:
1) Conflicting perfected SIs rank according to time of filing or perfection.

2) a perfected SI has priority over an unperfected SI.
3) the first SI to attach or become effective has priority if conflicting SIs
are unperfected.
R9-322(b) Time of perfection: Proceeds and Supporting Obligations.

1) time of filing or perfection as to a SI in collateral is also the time of
filing or perfection as to a SI in proceeds.
2) time of filing or perfection as to a SI in collateral supported by a
supporting obligation is also the time of filing or perfection as to a SI in
the supporting obligation.
R9-322(d) First to file priority rule for certain collateral. If a SI in

chattel paper, deposit accounts, NDs, instruments, investment property or
letter of credit rights is perfected by a method other than filing, conflicting
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perfected SIs in proceeds of the collateral rank according to priority in
time of filing.
1962
R9-312(5) – Priority between conflicting SIs in the same collateral is
determined as follows:
a) in the order of filing, if both are perfected by filing, regardless
of which SI attached first, and whether it attached before or
after filing.
b) in the order of perfection, unless both are perfected by filing,
regardless of which SI attached first under R9-204(1), and in the
case of a filed SI, whether it attached before or after filing, and
c) in the order of attachment, so long as neither is perfected.
R9-312(6) For Priority rules, a continuously perfected SI shall be

treated at all times as if perfected by filing if it was originally so perfected
and it shall be treated at all times as if perfected otherwise than by filing
if it was originally perfected otherwise than by filing.
3.6.1
6/1 – D a dealer in mink pelts.

SP1 gave D a $50K loan, SP1 got pelts as security (possession), SP1 did not file.
Oral SA!!!!
7/1 – SP2 gave D a $50K loan, SP2 got a SA giving SP2 a SI in “all mink pelts owned by
D.” SP2 immediately filed an FS covering “mink pelts.”
a) D defaults on debts to SP1 and SP2.

D’s principal assets are pelts delivered to SP1.
Question: Do both SP1 and SP2 have a SI in the pelts?

Answer: Yes. SP1 and SP2 have a SI in the pelts. There was attachment under R9-
203(b) for each of them.
For SP1: 1) value was given, 2) debtor has rights in the collateral, and 3)B) is met: the
collateral is not a certificated security and is in the possession of the SP under R9-313
pursuant to debtor’s SA. (A SP may perfect an interest in certificated securities by taking
delivery of the certificated securities). Here, 3)A) was not met be/c the SA was oral, not
authenticated.
Rule: An oral SA can create a SI if all parts of R9-203(b)(1)(2)(3)(B) are met.
For SP2: 1) value given, 2) debtor had rights in the collateral (pelts), and 3)A) is met:
debtor authenticated a SA that described debtor’s rights in the collateral.
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Question: Is each SI perfected?
Answer: Yes. SP1 perfected its SI by taking possession, and the other elements of
R9-203(b) were met. There was an oral SA and value was given (loan). SP2
perfected by filing and the other elements of R9-203(b) were met; there was a written SA
and value was given (loan).
Question: Whose SI is SR?

Answer: Under 2000, SP1 be/c SP1 perfected prior to the time SP2 either filed or
perfected, so SP has priority under the first to file or perfect rule of R9-322(a)(1).
Question: What could losing party have done to avoid the loss?
Answer: Be/f SP2 was perfected by filing the FS, SP2 should have checked to see if the
debtor had possession in the collateral (pelts).
Code is same in 1962.
R9-322(a)(1) & Comm 4. Priorities among Conflicting SIs. Priority among conflicting
SIs are determined according to the following rules:
1) Conflicting perfected SIs rank according to time of filing or perfection.
Comm 4: Competing perfected SIs. When there is more than one perfected SI, the SIs
rank according to priority in time of filing or perfection. Filing refers to the filing of an
effective FS. Perfection refers to the acquisition of a perfected SI, ie, one that has
attached and as to which any required step to perfection has been taken.
R9-308 A SI is perfected if it has attached and all of the applicable requirements for
perfection in R9-310 through R9-316 have been satisfied.
A SI is perfected when it attaches, if the applicable requirements are satisfied before the
SI attaches.
R9-309 SI perfected upon attachment. The following SI are perfected when they
attach.
1) a PMSI in consumer goods…
(see code for rest…)
R9-102(a)(23) Consumer goods means goods used or bought for use primarily for
personal, family or HH purposes.
R9-310(a) A FS must be filed to perfect all SIs…
R9-310(b)(6) Except…the Filing of a FS is not necessary to perfect all SIs…6) in

collateral in the SP’s possession under R9-313.
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R9-313 Perfection by possession or delivery. …A SP may perfect a SI in NDs, goods,
instruments, money, or tangible chattel paper by taking possession of the collateral. A SP
may perfect a SI in certificated securities by taking delivery of the certificated securities
under R8-301.
b) Reverse the order of transactions in a);
6/1 – SP2 loan, authenticated SA, filed FS.

7/1 – SP1 loan, oral SA, took possession of pelts.
Question: In this setting, whose SI is SR?

Answer: 2000 Code: SP2 is SR be/c it was first to file or perfect under R9-322(a)(1).
1962 Code: Same result. SP2 perfected at step 1, SP1 perfected at step 2, SP2
has priority under F9-312(5)
Question: What could the losing party have done to avoid the loss?
Answer: SP1 should have checked the filing records be/f it took possession of the pelts.
c) Now assume…
6/1 – SP2 filed FS (no loan to D, no SA)

7/1 – SP1 loan to D, oral SA, possession of pelts.
8/1 – SP2 loan to D, D signed SA
Question: Whose SI is SR?

Answer:
2000 Code: (Filing or Perfection) SP2 was the first to file or perfect to its SI is
SR over SP1 be/c SP2 filed on 6/1.
1962 Code: (Perfection matters). SP1 is SR be/c SP1 perfected on 7/15 be/f
SP2 finished its perfection.
Question: What could the losing party have done to avoid the loss?
2000 Code: SP1 could have checked the filing records to see when SP2 filed.
1962 Code: SP2 should have checked to see if SP1 had possession of the pelts.
Analysis: Always ask 2 questions:

1) Does the SI deal w/ 2 perfected SPs? If yes…then 2.
2) Which party has priority in the SI?
Hypos of Perfection and Priorities

Hypo: 1. Under 1962, 2000 code.
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C1 – FS
C2 – Possession, SA
C1 - SA, Loan
C2 - Loan
1962 – (see handout). C1 was perfected at step 3 prior to the time C2 perfected at step 4.
C2 is perfected at step 4; Both are perfected but C1 takes priority.
2000 – the SP who is the first to file or perfect by filing an FS takes priority – as long as
the perfection of the SI happens eventually. Here, C1 perfects be/f C2 be/c C1 filed first,
long be/f C2 perfected at Step 4. C2 did not perfect be/f C1 be/c @ Step 2 it did not
have value under R9-203(b).
Note: SP has no R9-308 perfection until all the things are done in R9-310 to R9-316. As
a preliminary matter, always examine whether SP has attachment under R9-203(b)!!!
Here, C2 did not give value until step 4 – long after C1 perfected its SI.
Pre-Existing Property
6/1 – FS 6/1 – SA, Loan

7/1 – SA, Loan 7/1 – FS
Rule: A run of the mill FS is not an SA! Attachment? 6/1

Issue: When did attachment occur? On 7/1. Perfection? 7/1 as soon as filing
be/c that’s when value was given. happened.
Perfection? Pre-filing occurred on 6/1 and
Perfection occurred as soon as there was
Attachment on 7/1.
C1 – FS
C2 – Poss, SA
C1 – SA, Loan
C2 – Loan
Attachment & perfection both occurred at step 4, be/c that’s when value was given under
R9-203(b).
After-Acquired Property
6/1 – Loan
7/1 – FS
8/1 – Debtor buys property;
Attachment – 8/1 be/c that’s when R9-203(b) is met; debtor acquires rights in the
property when he buys the property.
Perfection – 8/1 be/c of same reason.
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6/1 – C1 - FS, Loan
7/1 – C1 - SA
8/1 – Debtor gets property
8/1 – C2 – FS, SA, Loan
Attachment – 8/1
Perfection – 8/1
2000 Code: C1 was first to file or perfect a FS; C1 is SR to C2; Critical thing is FS.
Pre-Owned Property
6/1 – FS, Loan

7/1 – SA
Attachment – 7/1
Perfection – 7/1
Think about SP and Loving Creditor under R9-323 next time.
Hypos on Perfection.
Hypo 1: C1 – FS
C2 – Poss, SA, Loan
C1 – SA, Loan
Who has priority for the perfected SI? Both are perfected, but who perfected first?
1962 F9312(5)(b). Priority between conflicting security interests in the same collateral
are determined as follows: b) in the order of perfection, unless both are perfected by
filing, regardless of which SI attached first….
Answer: Under 1962 Code, C2 perfected first at Stage 2, prior to the time C1 perfected
at Stage 3. C2 had 1) possession and 2) a SA which perfected his interest before C1 and
3) value was given (loan).
2000 R9322(a)(1). The first in time to file or perfect has priority.
Answer: Under 2000 Code, C1 was first to file and has priority even though it was not the
first to perfect.
Hypo 2: C1 – SA
C1 – FS, Loan
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1962 F9312(5)(b). priority is determined…in the order of perfection unless both

are perfected by filing, regardless of which SI attached first…
Answer: Under 1962, C2 has priority be/c C2 was the first to perfect; C2 had 1)
possession, 2) SA, and 3) value was given (loan).
2000 R9-322(a)(1). The first in time to file or perfect has priority.
Answer: Here, C2 has priority be/c C2 was first to file or perfect before C1. This time
C1 did not file until after C2 perfected.
Hypo 3: C1 - SA, Loan

C2 – FS, SA, Loan
C1 – Possession
1962 F9-312(5)(b). priority is determined…in the order of perfection unless both

are perfected by filing, regardless of which SI attached first…
Answer: C2 has priority be/c it is perfected first. C2 does not perfect until Step 3 even
though C1 is the first to attach. 1) value was given, 2) debtor had rights in the collateral,
and 3) security was given at Step 1.
2000 R9-312(5)(b). First to file or perfect. C2 perfected and filed at Step 2. C1 did not
file or perfect (by possession) until Step 3. Note: C1 attached first.
Hypo 4: C1 – SA
C2 – SA, Loan
C1, - FS, Loan
1962 R9-312(5)(b). C1 wins be/c it was first to perfect in step 3, and C2 was not
perfected at all.
1972 Appendix R to 9-312(5) CD 1256-57. Rule – First to file or perfect. C1 was first
to file at Step 3 and was also first to perfect at Step 3. C1 has priority.
2000 R9-322(a)(2). A perfected SI…has priority over a conflicting unperfected SI…

Here, C1 is perfected and has priority over C2.
Hypo 5: C1 – FS, Loan

C2 – FS, SA, Loan
1962 F9-312(5)(a). b) says…unless both are perfected by filing, and a) applies only to
situations where both filed – in the order of filing, if both are perfected by filing,
regardless of which SI attached first…and whether it attached before or after filing.
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Here, FS was filed by both parties and perfected by both. So C1 has priority be/c C1
filed first.
But, if C2 did not file a FS, then C2 would have priority be/c F9-312(5)(c) would apply
and say that in the order of attachment, so long as neither is perfected. Neither C1 nor
C2 would be perfected if C2 did not file an FS and C2 would have priority.
2000 Rule – a run of the mill FS does not qualify as a SA; For C1, there’s no attachment
under R9-203(b)(3)(1) be/c there’s no authenticated SA which describes debtor’s rights
in the collateral.
Under R9-201, a SA is effective according to its terms between the parties, against
purchasers of the collateral and against creditors. Here, C1 didn’t even have a SI!! C2 is
perfected and has priority.
Even if C2 was missing the FS, it would still have attachment and would have priority
over C1.
Hypo 6: C1 – FS
C2 – FS, SA, Loan
C1 – SA, Loan
1962 Note: Both filed!!! F9-312(5)(a) applies and says that if both filed, priority is
determined by order of filing, regardless of which SI first attached. Here, C1 filed first,
and even though it did not have attachment or perfection in Step 3, C1 filed before C2 so
it has priority.
2000 – R9-322(a)(1). C1 takes priority be/c priority is determined by filing or

perfection. C1 filed first before C2 filed or perfected.
Hypo 7: C1 – FS
C2 – Poss, SA
C2 – Loan
C1 – SA, Loan
1962 – R9-312(5)(b). Priority is determined in the same collateral…in the order of

perfection unless both are perfected by filing.
Here, C2 attached first when it gave its loan under R9-203(b). C2 also perfected first
when it gave the loan. C2 has priority over C1. C1 perfected but had attachment and
perfection later than C2.
2000 – C1 at first step – C1 was first to file or perfect.
Hypo 8: C1 – Poss, SA
C2 – SA, Loan
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C1 – Loan
C2 – FS
1962 – F9-312(5)(b). C1 was first to perfect (and one was not perfected by filing). C1
perfected at Step 3 before C2 perfected at Step 4.
2000 – R9-322(a)(1). First to file or perfect would be C1 by perfecting at Step 3 before

C2 filed or perfected at Step 4.
C2 – SA, Loan
C2 – FS
C1 – Loan
1962 – One party did not file - F9-312(5)(b) applies. C2 had perfection at Step 3. C1
did not attach, and no value was given until Step 4. C2 was first to perfect.
2000 – C2 was first to file or perfect by both filing and perfecting at Step 3. C1 did not
give value and had no attachment or perfection until Step 4.
Hypo 10: C1 – Poss, SA, Loan

C2 – FS, SA, Loan
1962 – First to perfect unless both are perfected by filing. Under F9-312(5)(b), C1 has
priority be/c it attached and perfected first.
2000 – Rule: R9-322(a)(1). First to file or perfect. C1 has priority be/c it was first to file
or perfect before C2 perfected or filed.
Hypo 11: C1 – FS, SA, Loan

C2 – FS, SA, Loan
1962 – R9-312(5)(a) – applies be/c both perfected by filing. C1 has priority be/c it was
first to file.
2000 – F9-322(a)(1). First to file or perfect – Here, C1 be/c C1 was first to file.
Hypo 12: C1 – SA, Loan

C2 – FS, SA, Loan
C1 – FS
1962 – F9-312(5)(a) – Both perfected by filing. C2 has priority be/c it filed first.
Who was first to attach? C1 be/c there’s no need for a FS for attachment. Perfection
occurs by FS or Possession but neither is needed for attachment. R9-203(b) says 1)
value, 2) debtor must have rights in the collateral and 3) an authenticated SA must
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describe debtor’s rights. Here, C1 gave value, debtor had rights and authenticated SA
existed at Stage 1. C1 has priority.
2000 – R9-322(a)(1). First to file or perfect. C2 was first to file and perfect, C1 did not
file or perfect until Stage 3. C2 has priority.
Under both Codes, a FS is not relevant to attachment!!!
Hypo 13: What’s this situation tell you? 1/1 – Loan

6/1 – SA
6/10 – FS
That debtor has had problems making loan repayments, or there is some
change in relation to the debtor. This is why the SP suddenly made the
effort to make a SA and file a FS to secure it’s rights in the collateral.
Hypo 14: C1 - SA, Loan

C2 - Poss, SA, Loan
C1 – FS
1962 – F9-312(5)(b). First to perfect has priority unless both perfected by filing…Here,
C2 has priority be/c it was first to perfect.
Who attached first? C1 be/c 1) value was given, 2) debtor had rights in the collateral and
3) authenticated SA describing the collateral was issued.
2000 – R9-322(a)(1). First in time to file or perfect. Here, C2 perfected first so C2 has
priority over C1. C1 neither filed nor perfected until Stage 3.

C2 – FS
C1 – Loan
C2 – SA, Loan
1962 – Both did not file. F9-312(5)(b) applies. First to perfect has priority. C1 was first
to perfect at stage 3 when it gave value for the loan (also when it attached).
2000 – R9-322(a)(1). First in time to file or perfect. C1 attached at Stage 1 but did not
file and was not perfected until Stage 3. C2 filed first at Stage 2 so C2 has priority be/c it
was first to file or perfect.

C2 – SA, Loan
C1 – Loan
C2 – FS
C1 – FS
C1 – gives possession to Debtor. (third party).
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1962 – Both filed to perfect (be/c C1 gave Possession away to the debtor!!). But…
C1 perfected first at Step 3 be/c of R9-312(6) which says that a continuously
perfected SI shall be treated at all times…as if perfected otherwise than by filing if it
was originally perfected otherwise than by filing. Here, C1 perfected otherwise than
by filing. Thus, Order of Perfection under F9-312(5)(b) controls which says the priority
of conflicting SI in the same collateral is determined by perfection unless both are
perfected by filing. C1 has priority be/c C1 perfected first.
2000 – R9-322(a)(1). First to file or perfect has priority. C1 was first to have filed or
perfected….be/c priority dates from the time a filing covering the collateral is first
made, or the SI is first perfected…and there was no period thereafter when there is
neither filing nor perfection.
Hypo 17: C1 - Poss, SA

C2 – SA, Loan
C1 – Loan
C2 – FS
1962 – Both did not file. F9-312(5)(b). First to perfect was C1 at Stage 3. C1 has
priority.
When did C1 attach???? I think Stage 3 when value was given.
2000. R9-322(a)(1). First to file or perfect. C1 was first to perfect at Stage 3.
Hypo 18: C1 – FS
C1 – SA, Loan
C2 – Gives up possession to Debtor
C2 – FS
1962 – F9-312(6) – not applicable be/c the SI was not continuously perfected. Giving up
collateral broke C2’s possession, so C2 did not perfect until Stage 5 when it perfected by
filing. C2 no longer has a continuously perfected SI.
F9-312(5)(a) applies – both perfected by filing. C1 gets perfection at Stage 1 be/c the
rule is priority in the order of filing if both are perfected by filing.
2000 – R9-322(a)(1) first and second sentence. Priority is ranked according to time of
filing or perfection, provided there is no period thereafter when there is no filing nor
perfection. C2 broke possession at Stage 4, but C1 continued to be perfected throughout
the time period. C1 has priority be/c it perfected at Stage 1 and continued to be
perfected throughout the time period.
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Hypo 19: C1 – FS
C1 – SA, Loan
1962 – F9-312(5)(b). C2 was first to perfect. C2 has priority.
2000. R9-322(a)(1). Priority ranks according to time of filing or perfection. C1 has

priority be/c C1 filed first.
Note: SA+Loan – enough for attachment.
Hypo 20: C2 - Poss, SA, Loan

C1 - FS
C1 - SA, Loan
C2 - Gives Possession to Debtor
C2 - FS
1962 – F-9312(6) did not apply be/c C2 was not continuously perfected at Stage 4. So
F9-312(5)(a) applies be/c both C1 and C2 perfected by filing. C1 was first to file, so C1
has priority under F9-312(5)(a).
2000 – R9-322(a)(1). First to file or perfect has priority as long as there was no time
where there was neither filing nor perfection. C2 was unperfected at Stage 4 so C2 is
not used as the “priority event.” Here the “priority event” is C1’s filing statement be/c
C1 was the first to file or perfect. C1 has priority under the 2000 Code.
3.6.2 Future Advances
R9-204(c). Collateral may secure future and past or present advances if the parties agree.
R9-323(a) is an exception to R9-322(a)(1), and R9-323(a) sets forth the only

circumstances under which the priority of a (future) advance does not date from the time
of filing or perfection:
• When the SI is perfected only automatically under R9-309 or temporarily under
R9-312(e),(f), or (g), and the advance is not made pursuant to a commitment
entered into while the SI was perfected by another method.
• Thus, an ADVANCE HAS PRIORITY from the date it is made only in the
rare case in which it is made WITHOUT COMMITMENT and while the SI
is PERFECTED ONLY TEMPORARILY under R9-312.
6/1 – D, dealer in soybeans borrowed $200K from SP1.

SP1 - $200K loan to D, SA w/ AAPC (all soybs then owned or might thereafter
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acquire) and w/ FAC (that might arise in the future).
SP1 – filed FS for “soybs now owned or hereafter acquired.”
6/1 – D had 50,000 bushels at $5.00 per bushel ($250,000 value) – Note: Over secured!!
9/1 – D reduced debt it owed SP1 to $25,000

D applied to SP2 for loan
D showed SP2 canceled checks showing payments to SP1 and current balance of $25,000 D owed
SP1.
SP2 - $150K loan to D, took a written SA covering D’s soybs, and filed FS.
9/15 - SP1 $175K loan to D, FS remained on file throughout.
a) 10/1 – D defaulted on loans to SP1 and SP2.
Question: Who has the SR SI in the 50,000 bushels of soybeans in D’s granaries?
First Question: Is there enough collateral to cover the debt? No!!!!

After SP1 made the second loan to SP1 on 9/15, this brought total outstanding debt to
$350K. There is $250K worth of collateral held by D, and it’s still secured!! But, there’s
not enough collateral left to cover the debt.
Second Question: Who has priority in the following loans?
SP1 - $250K
SP2 - $150K
SP1 - $175K
R9-204(c). A SA agreement may create or provide for a SI in after-acquired

collateral. Here, the SA is sufficient to cover the original loan and future advances.
R9-322(a)(1). Priority rank is determined according to time of filing or perfection.
Answer: SP1 was first to file or perfect and SP1 filed first, so SP1 has priority. We
don’t have to worry about perfection.
But note…
Under R9-309, there’s not need to worry about a FS or SA be/c you get it automatically.
R9-309. Following SIs are perfected when they attach: a sale of a payment
intangible…
R9-323 Comm3. the time when a (future) advance is made plays no role in
determining priorities among conflicting SIs except when a FS was not filed, and the
advance is the giving of value as the last step for attachment and perfection. Priority
is based on FS, not perfection in terms of when a Future Advance is made. A SP takes
subject to all advances secured by a competing SI having priority under R9-322(a)(1).
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Answer: SP1 has the perfected SR SI over SP2 be/c SP1 filed first.
Question: What should the leasing party have done to protect itself?
Answer: SP2 should have filed a termination statement to have SP1s loan terminated.
The debtor is entitled to have the debt wiped off the books. OR
SP2 could have entered into a subordination agreement w/ SP1.
Here, SP2 is an idiot! And had no business going ahead and making the loan w/out
checking first.
R9-339. Priority is subject to subordination.
R9-513(c), (d). Termination stmt..filed w/in 20 days after SP receives an authenticated

demand from the debtor, the SP shall cause the SP of record for FS to file a term stmt…
upon filing a TS, the FS ceases to be effective.
R9-514(b). A SP of record may assign all or part of its power to authorize an amend to a
FS by filing an amend which: 1) IDs the initial FS 2) provides name of assignor 3)
provides name, address of assignee.
R9-511(b). If an amend w/ the three elements is filed, the person or assignee named is a
SP of record.
b) What if 9/1 – C1 gave written notice of the transaction to C1?
R9-322(a)(1). Conflicting perfected Sis and agri liens rank according to priority in the
time of filing or perfection.
R9-322(a). Future Advances: Priority is not determined by the time an advance is made
unless a FS was not filed and the advance is the giving of value as the last step for
attachment and perfection.
• SP takes subject to all advances secured by a competing SI..having priority under
R9-322(a)(1).
Note: “now owned or hereafter acquired…in the future” = AAPC + FAC.
Answer: Notice is not a factor in determining the priority of a SI. See Ex. 1 CD 746 R9-
323 Comm 3.
Question: Would result in a) change of 9/1 SP2 made a loan of $150K to Debtor,
and Debtor’s debt to SP1 was reduced to zero?
Answer: No. Because there’s a future advance clause and a SA may provide that
collateral secures future advances.
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d) What if…
9/1 - SP1’s SA secured payment of “all amts due and to become due under
debtor’s PN in the amount of $200K of even date herewith.” (No
FAC, just AAPC).
9/15 - SP1’s loan was evidenced by a new PN for $175K.
Answer: Yes. C2 would have priority . C2 would not longer have a FA clause, so only
up to the amount of $200K would be secured. SP1’s new SA would only cover the
$200K loan, not the latter $175K.
Question: What could the losing party have done to protect itself?
Answer: SP1 should not have made the subsequent loan be/c it was not covered; or SP1
should have gotten another SA to protect itself for the larger amount.
e) D applied for new loan from SP2.

9/1 – Debtor gave SP1 a signed “request regarding a statement of account”
under R9-210.
Req indicated D’s $25K unpaid obligation, secured by collateral and

identified the transaction.
Debtor requested SP1 approve the stmt and return it to D.

SP1 wrote “approved” on the stmt, signed it and returned it to D.
D showed SP2 the stmt in applying for the $150K loan.

SP2 extended the $150K loan to D.
9/15 - SP1 gave D the $175K loan.

10/1 - D defaults.
Question: On 10/1, who has the SR SI in D’s $150K bushels of soybeans?
Answer: SP1 is SR be/c it was the first to file or perfect.
SP1 – Loan, SA (w/ AAPC, FAC), FS

SP2 – Loan
R9-210. Request regarding stmt of acct means a record authenticated by a debtor

requesting the recipient approve or correct a stmt indicating what debtor believes to be
the aggregate amount of unpaid obligations secured by collateral as of a specified date
and reasonably identifies the transaction or relationship that is the subject of the request.
Planning: What should the losing party have done to protect itself?
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Answer: SP2 should have reviewed SP1’s SA and FS to determine if a FAC was in SP1’s
SA and FS which gave SP1 priority.
Smallcross v. Community State Bank & Trust Co. Priority when there’s knowledge.
Rule: it makes no difference which secured party knows of the other’s security interest at
the time he perfects. It only matters that the secured party first perfects his interest. R9-
312.
Analysis: Here, SP2 (D Bank) perfected first when it filed, so it had priority in the
collateral.
General Insurance Co. v. Lowry. Exception to Smallcross. Notice is not relevant to

determining who has priority.
A D’s rights in stock prevail over P’s unperfected SI even though D had knowledge of
P’s SI.
1962 Code - Gilmore Treatise. Future Advances Clause. (+ Coogan Theory).
Remember 2000
R9-204 – a) a SA may create or provide for a SI in after acquired collateral (AAP).
c) Future Advances and other value. A SA may provide that collateral
secures..whether or not the advances or value are given pursuant to commitment.
R1-201(44) – Value. A person gives value for rights if he acquires them d) generally in
return for any consideration sufficient to support a simple contract.
R9-308 – A SI is perfected if it has attached and all of the applicable reqs for R9-310 to
R9-316 have been satisfied.
R9-203(b). Need to make binding commitment (FA) to prevail over lien creditor.
4/1 – SP1 - Loan (to debtor), SA (w/ FAC), FS

4/15 – SP2 – executes a judgment lien (Levy).
5/1 – SP1 - Advances (another Loan to debtor) (SP1 had knowledge of the lien)
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1+1a
Commitment or
No Commitment
4/1 – SP1 gives $100,000 loan to debtor, SA (w/ FAC), FS

4/15 – SP2 levies.
4/1 – SP1 makes no advance.
Assume No Commitment –
loan made 4/1 – SP1 has priority.
1962 - have value be/c of the loan under F9-204(1) and F9-303(1).
Under R9-201(44)(d), same answer even if there was commitment!
The value of the loan may change w/out needing a new SA.
Who has priority? SP1 has priority for the full amount of $100K on 4/1 under both
1962 and 2000 codes.
2+2a
Commitment.
4/1 - Debtor paid down debt to [$25K] and owes this to SP1.
5/1 - New advance given for $100K by SP1 on 5/1
5/1 - Debtor paid down loan and owes [$75K]. (SP1 had knowledge of the lien)
Answer: Levying creditor is JR to SP1. SP1 has both attachment be/c it paid value
(gave commitment), debtor has rights in the collateral, and authenticated SA describing
debtor’s rights in the collateral
was created under both 1962 and 2000 code (R9-203(b)). SP1 also perfected first in
1962 and was first to file or perfect in 2000. Thus, SP1 has priority / is SR over levying
creditor for FULL AMOUNT of $100K. Value was given on 4/1.
3
No Commitment
4/1 – SP1 made no loan, had SA (w/ FAC) and FS

4/15 – SP2 levied.
5 / 1 – SP 1 advanced $100K (SP1 had knowledge of the lien)
Answer: Levying creditor (SP2) is SR (has priority) to SP1. Levying creditor (SP2) has
priority be/c SP1 gave no value at 4/1. SP1 did not give value until 5/1 when it
advanced a loan for $100K – SP1 had NO SECURITY INTEREST on 4/1 be/c it had
NOT ATTACHED since there was no value given. SP2 was automatically perfected
with its judgment lien on 5/1. SP2 is SR.
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4.
Commitment.
4/1 – SP1 - $25K Loan (to debtor), SA (w/ FAC), FS

4/15 – SP2 levied.
5/1 – SP1 advanced another loan for $75K to debtor (SP1 had knowledge of lien).
Answer: Under Gilmore and 1972 Pre-R9-301(4), 2000 Code, R9-317 and R9-323(b) for
Lien creditors, SP1 gave value on 4/1. SP1 has priority for the full value of $100K in
loans. SP2 would get anything left over.
Note: Gilmore theory sees an attached and perfected SI as one perfected SI, which can
“fluctuate up or down” and therefore the original perfected SI covers future advances.
So, under Gilmore theory, the future advance of $75K becomes a part of the original
$25K loan, and SP1 becomes perfected for $100K. SP1 is perfected for full amount.
Under Coogan, the 2 SI Theory, SP1 would have priority for $25K, then SP2, (Levying
Creditor) would receive the amount due him. SP1 would then get what was left over to
cover the SI in the $75K advance.
1972 Code follows the Gilmore approach with regards to Hypo 4 above.
Gilmore Approach was adopted in 1972 and 2000 Code!

1972, 2000
R9-317(a). A SI is subordinate to the rights of: 1) a person that becomes a lien creditor
before the earlier of the time: A) the SI is perfected, or B) one of the conditions
specified in R9-203(b)(3) is met, and a FS covering the collateral is filed.
R9-323(b). A SI is subordinate to the rights of a person that becomes a lien creditor to

the extent that the SI secures an advance made more than 45 days after the person
becomes a lien creditor, unless the advance is made:
1) w/out knowledge of the lien.
2) pursuant to a commitment entered into w/out knowledge of the lien.
Question for Fisfis: So if SP1 had no knowledge of SP2’s lien when it made the
future advance, would the Lien creditor (SP2) have priority instead of SP1 under
R9-323(b) in problem 4??
Priority Hypos: Future Advances.
Hypo: 1: C1 - FS, SA (fac, aapc), Loan

C2 – FS, SA, Loan
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C1 – Loan
Who has priority under 1962 Code for C1’s loan? (Gilmore & Coogan) Here, both filed.
F9-312(5)(a) applies. Priority between conflicting SIs in the same collateral shall be
determined as: follows: a) in the order of filing, if both are perfected by filing,
regardless of which SI attached first under R9-204(1) and whether it attached
before or after filing. Here, both parties filed to perfect.
C1 has priority under the 1962 code be/c both parties filed to perfect and C1 filed first.
And, Gilmore says that the second loan is secured be/c C1 entered into a “binding
commitment” and it takes priority as to future advances.
Coogan would say C1 wins and has priority on the subsequent loan, then C2 would use
money to pay its loan, then C1 again takes what’s left.
Who has priority under 1972 Code? (Gilmore)

R9-312(7). If future advances are made while a SI is perfected by filing, the taking of
possession, etc…the SI has the same priority for (5) with respect to future advances as it
does with the first advance. If a commitment is made before or while the SI is so
perfected, the SI has the same priority with respect to advances made pursuant thereto.
C1 has priority be/c the future advance in Step 3 was made while its SI was perfected by
filing, and the loan in Step 3 has the same priority with respect to the first advance.
Same result as ’72 code.
Hypo 2: C1 – FS, SA (fac, aapc), Loan

C2 – Possession, SA, Loan
C1 – Loan
Who has priority under 1962 Code? (Gilmore & Coogan)

F9-312(5)(b). Priority between conflicting SIs in the same collateral is determined: b) in
the order of perfection unless both are perfected by filing regardless of which SI
attached first…
Gilmore Here, C1 is SR be/c C1 perfected before C2 filed or perfected. There’s a FAC,

and C1 gave value (loan), so C1’s interest in the second loan is perfected. C1 has priority.
Coogan would say that C1 has priority, then C2, then C1 gets what’s left over to cover
the last loan.

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C1 was first to file or perfect. Gilmore would say its SI continues…C1 has priority over
C2.
Hypo 3: C1 – Possession, SA (fac, aapc), Loan

C2 – FS, SA (fac, aapc), Loan
C1 - Loan

F9-312(5)(b). Priority between conflicting SIs in the same collateral is determined: b) in
the order of perfection unless both are perfected by filing regardless of which SI
attached first…
Gilmore would say that C1 perfected first, so it would have priority over C2 as a lien
creditor.
Coogan would allow C1 to be paid first, then C2 then C1 would get what remains.


The first to file or perfect has priority. Here the first to file or perfect is C1.
Priority Hypos: Pay down to zero!! (as in problem 3.6.2(c).
Issue: Which SP has priority when there’s a pay down to zero at Stage 2 when C2
paid C1?
Hypo: 1: C1 - FS, SA (fac, aapc), Loan

C2 pays C1’s loan down to zero, then…
C2 – FS, SA, Loan
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C1 – Loan

F9-312(5)(a). Here both were perfected by filing, so the order of filing determines
priority. C1 has the priority / SR SI be/c FS was not removed and remains on file; so the
pay down to zero does not take away the fact C1 filed first.

C1 still wins and has priority / SR SI over C2. Rule is first to file or perfect and C1
continues to be perfected by filing; C1 remains filed by the FS.

R9-322(a)(1). Priority rank is determined according to the time of filing or perfection.
First to file or perfect if there is no period thereafter where there is neither filing nor
perfection.
Here, C1 wins be/c it was the first to file or perfect.
R9-323. perfection of a SI dates to the time an advance is made.
R9-323 Comm 3. Under the first to file or perfect rule, the time when an advance is
made plays no role in determining priorities among conflicting SIs except when a FS was
not filed and the advance is giving value as the last step for attachment and perfection.
Thus, a SP takes subject to all advances secured by a competing SI having priority under
R9-322(a)(1).
Hypo 2: C1 – FS, SA (fac, aapc), Loan

C2 – Possession, SA, Loan
C1 – Loan

F9-312(5)(b). Here, the first to perfect wins be/c only one was perfected by filing. C1
wins under Gilmore…C1 has the perfected SI in the loan.
Coogan would say C1 takes priority then C2 gets what’s left to pay its loan, then C1 gets
anything left thereafter to pay the advance.

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Here the pay down to zero is irrelevant be/c there was perfection by filing occurred due to
C1’s FS. C1 takes priority / SR interest over C2.

R9-322(a)(1). First to file or perfect rule would say C1 has priority be/c it was first to
file, and the FS stays on file so C1 continues to be perfected.
Hypo 3: C1 – Possession, SA (fac, aapc), Loan

C2 – FS, SA (fac, aapc), Loan
C1 - Loan

F9-312(5)(b). Here, the first to perfect wins be/c at least one did not file. C1 wins under
Gilmore…C1 has the perfected SI in the loan.
Coogan would say C1 takes priority then C2 gets what’s left to pay its loan, then C1 gets
anything left thereafter to pay the advance.


R9-322(a)(1). Priority rank is determined according to the time of filing or perfection.
First to file or perfect if there is no period thereafter where there is neither filing nor
perfection.
Here, C1 wins be/c it was the first to file or perfect.
R9-323. perfection of a SI dates to the time an advance is made.
R9-323 Comm 3. Under the first to file or perfect rule, the time when an advance is
made plays no role in determining priorities among conflicting SIs except when a FS was
not filed and the advance is giving value as the last step for attachment and perfection.
Thus, a SP takes subject to all advances secured by a competing SI having priority under
R9-322(a)(1).
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Note: Hypo 3, Pay down to zero – is probably of limited commercial concern be/c its
more common that C1 will perfect by a FS, not possession. It’s common to have a pay
down to zero with a seasonal business. Loan will be paid down to zero often when
season ends.
Note: See R9-323 Comm 3, Example 1, CD 746. For a future advance, it makes no
difference whether C1 knows of C2’s intervening advance when C1 makes a second
advance.
3.6.3 Lapse Issue (5 yrs)
5/2002 – SP1 perfected a SI in certain collateral by filing an FS. It is

7/2007 – date it is now.
a) 4/2007 – SP2 FS, SA, Loan

SP2 had actual knowledge of SP1’s SI.
Remember: It’s now 7/2007!!
Question: Which SI is SR?
Answer: SP2 be/c it’s now July 2007 and SP1’s SI lapsed after 5 years from the
date of filing the FS. SP1’s SI is deemed never to have been perfected as against
a purchaser for value. SP2 was a purchaser of collateral for value while SP1 was
not.
Rule: The lapse of a first-filed FS renders the first-to-file SP (SP1)

unperfected and subordinate to the second-to-file SP (SP2); the latter’s
knowledge of the earlier in time SI is not relevant.
R9-515(a) A filed FS is effective for 5 years after the date of filing.
R9-515(c), Comm 3 Lapse…when a period of filing for 5 years expires, the FS

lapses.
Question: What if anything could the holder of the JR SI have done to prevent the
loss?
R9-515(c) Lapse. Continuation of a FS. Lapse….occurs on expiration period

(5 yrs) unless a continuation stmt is filed.
R9-515(d) When a Continuation Statement can be filed. A continuation stmt

may be filed only within 6 mos before the expiration of the 5 yr period.
R9-102(a)(27) A continuation statement is an amendment to an FS which:

a) identifies by its # the initial FS to which it relates, and
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b) indicates it is a continuation statement (filed) to continue the
effectiveness of the FS.
Answer: SP1 should have filed a continuation statement to continue its SI beyond
5 years. SP1 would have to file the continuation statement 6 months before the
expiration of the 5 year period…or before 11/2006 be/c the 5 year period
expired on 5/2007.
b) Question: Should one inclined toward the “good faith” principle,

discussed in the Smallcross and Lowry cases apply that principle to preserve
SP1’s priority over SP2 notwithstanding R9-515(c) or its predecessor F9-
403(2)?
Answer: No. A continuation statement should be filed instead, rather than

reliance on Smallcross and Lowry.
Question: Has SP2 acted dishonestly, violated reasonable commercial

standards of fair dealing, or misbehaved in any way that would warrant
continued subordination of SP’s SI not w/standing the lapse of SP1’s FS?
Answer: No. SP1 had the responsibility to file a FS; SP2 did not act in bad faith
nor did anything wrong. SP1 was too stupid to file a FS.
UCC 1-203. Every contract or duty w/in this act imposes an obligation of good
faith on its performance or enforcement.
R9-102(a)(43) Good faith means honesty in fact and the observance of

reasonable commercial standards of fair dealing.
3.6.4
John Brown, (Debtor) sole proprietor, owns a shoe store.

Lender = SP1 – Brown gave SI: Loan, SA, FS covering “inventory.”
FS had Debtor’s incorrect address when SP1 filed it (wrong street
and city).
Finco = SP2 – (inventory financing). Assuming Loan, SA, FS were given.
SP2 checked for all FS naming “Brown, John” as debtor.
The filing office found the FS filed by Lender (SP1).
R9-523(c) Communication of Requested Information. The filing office shall

communicate or otherwise make available in a record the following information
to any person that requests it:
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1) whether there is on file on a date and time specified by the filing office,
but not a date earlier than 3 business days before the filing office
receives the request, any FS that:
A) designates a particular debtor [or if the request so states,
designates a particular debtor at the address specified on the
request] **PA includes all brackets
B) has not lapsed under R9-515 with respect to all SP of record;
and
C) if the request so states, has lapsed under R9-515 and a record of
which was maintained by the filing office under R9-522(a).
2) the date and time of filing each financing statement, and
3) the information provided in each financing statement.
a) Is Lender’s (SP1’s) SI perfected?
R9-502(a). Sufficiency of the FS. A FS is sufficient only if it:

1) provides the name of the debtor,
2) provides the name of the SP or rep;
3) indicates the collateral covered by the FS.
Answer: Yes. The real issue is whether or not the FS was sufficient to perfect
SP1’s SI. Here it was be/c an address is not needed to perfect a FS. Assuming
the name of the debtor and SP1 were provided, the FS indicates the collateral is
‘inventory’ and was sufficient to perfect SP1’s SI despite the incorrect address.
b) Which SI has priority?
R9-338. Priority of SI Perfected by Filing a FS Providing Certain Incorrect

Information.
o If a SI is perfected by filing a FS providing info described in 9-516(b)(5)
which is incorrect at the time the FS is filed:
1) the SI is subordinate to a conflicting perfected SI in the
collateral, to the extent that the holder of the conflicting SI gives
value in reasonable reliance on the incorrect information…
Answer: The real issue is whether there was reasonable reliance on Finco’s
(SP2’s) part on the information in the FS which induced it to make the loan to
Brown (Debtor). SP1 has priority if there was no reasonable reliance on
Finco’s part.
Note: The filing office accepted the FS and filed it, even though it has an incorrect
address. SP1 is therefore perfected by filing. But, if the filing office rejected
SP1’s FS be/c of the incorrect address, and did not file it, SP1 would not have a
perfected SI and SP2 would prevail.
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c) What if Lender’s (SP1) FS failed to provide the mailing address for
debtor?
Answer: Lender (SP1) would have priority if the FS accepts anyway be/c an
address is not required to perfect a FS if the other three elements of R9-502(a) are
met.
d) Would the results in parts (a) and (b) change if Finco (SP2) requested
information concerning the FSs naming “Brown, John” of 2425
Springfield Ave, Chicago, IL (correct address) as debtor?
R9-338 Priority of SI…Perfected by Filed FS Providing Certain Incorrect

Information.
1) the SI is subordinate to a conflicting perfected SI in collateral to the

extent that the holder of the conflicting SI gives value in reasonable
reliance upon the incorrect information.
R9-523(c)(1)(A). Information from Filing Office.

Communication of requested information. The filing office shall communicate
or otherwise make available in a record the following information to anyone that
requests it:
1) whether there is on file on a date and time specified by the filing
office (but not a date earlier than three business days before the filing
office receives the request), any financing statement that…
A) designates a particular debtor, [or if the request so states, designates
a particular debtor at the address specified in the request].
Answer: Yes. Finco (SP2) would not have made its loan after it gave the
debtor’s correct information to the filing office be/c SP2 was asking for the FS @
the correct address and there was no FS there; So, there was no reasonable
reliance on the incorrect FS. SP2 would not have made the loan.
Review Notes on The Role of Knowledge in Priority Contests (CB 233).
3.6.5. Priority: No PMSI v. PMSI in Equipment.
a) NOT A PMSI: THE LOAN IS NOT USED TO BUY THE BULLDOZER, SO a)

IS NOT A PMSI.
Debtor = Construction Company.

Manufacturer = M, maker of Celtrac Bulldozer
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6/1 – SP1 – Loan for $100K to D, SA (“all construction equipment now
owned or hereafter acquired by D”), filed FS covering “construction
equipment.”
(D owned construction equipment such as bulldozers, cranes and trucks).
a) 7/1 – D bought a new Celtrac bulldozer from M for $100K
7/2 – SP2 – Loan ($90K), D gave SA covering “Celtrac bulldozer”,

SP 2 filed FS.
Note: Here, D is using the new Celtrac bulldozer as collateral to secure the
loan to SP2. This is not a PMSI.
Note: Bulldozers are not subject to the relevant certificate of title act be/c
bulldozers, planes and trains, unlike cars, have a separate filing system
regulated by federal govnt, not the state.
Question: Who has priority in the new bulldozer?
Answer: Classify the collateral. Here it is equipment. SP2’s perfected SI is in

equipment, and is not a PMSI in goods. The first-to-file or perfect rule of R9-
322(a)(1) applies to say that conflicting SIs rank according to the time of filing or
perfection. Here, be/c SP2’s interest in the bulldozer is not a PMSI in goods and
equipment can be perfected either by filing or possession, the R9-322(a)(1) says
SP1 perfected by filing before SP2, so SP1’s SI is SR to SP2. SP1 has priority.
R9-322(a)(1) Priority of conflicting SIs…rank…according to time of filing or

perfection.
R9-324(a) General rule: purchase money priority. A perfected purchase-

money SI in goods other than inventory or livestock has priority over a conflicting
SI in the same goods…and a perfected SI in its identifiable proceeds also has
priority, if the PMSI is perfected when the debtor receives possession of the
collateral or within 20 days thereafter.
R9-103(a) Purchase Money Security Interest.

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 so used.
R9-103(b) Purchase Money Security Interest in Goods. A SI in goods is a

PMSI:
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1) to the extent the goods are purchase money collateral with respect to
that SI;
2) If the SI is in inventory that is or was purchase-money collateral, also

to the extent that the SI secures a purchase-money obligation
incurred with respect to other inventory in which the SP holds or held
a PMSI, and
3) Also to the extent that the SI secures a purchase money obligation

incurred with respect to software in which the SP holds or held a
PMSI.
b) Suppose…SP2’s LOAN IS USED TO BUY THE BULLDOZER!!

THIS IS A PMSI!!!
6/1 – SP1 – Loan for $100K to D, SA (“all construction equipment now owned or
hereafter acquired by D”), filed FS covering “construction equipment.”
7/1 – D bought a new Celtrac bulldozer from M for $100K

- D told SP2 it needed a loan to buy new bulldozer from M.
HERE THE SP2 LOAN IS USED TO BUY THE BULLDOZER!!
THIS IS A PMSI!!!
7/2 – SP2 – Loan ($90K) payable to both D and M.
Assume: D gave SA covering “Celtrac bulldozer”
7/2 – D endorsed check to M and paid M the remaining $10K of the price.
7/2 – M delivered the new bulldozer to D.
7/8 – SP filed FS.
Question: Who has priority as to the new bulldozer?
Answer: Both SIs are perfected, assuming D gave SP2 a SA covering the bulldozer.
SP2 has priority over SP1 be/c “a perfected SI in identifiable proceeds has priority” if
the PMSI is perfected when the debtor receives possession of the collateral or w/in 20
days thereafter. Here there was a PMSI in the bulldozer, SP perfected a SI in identifiable
proceeds by filing on 7/8, and the bulldozer was delivered to Debtor w/in 20 days of
perfection.
R9-324(a) General rule: purchase money priority. 1) A perfected PMSI in goods

other than inventory or livestock has priority over a conflicting SI in the same goods…
and a perfected SI in its identifiable proceeds also has priority, if the PMSI is
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perfected when the debtor receives possession of the collateral or within 20 days
thereafter.
R9-103(a) Purchase Money Security Interest.
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 so used.
R9-103(b) Purchase Money Security Interest in Goods. A SI in goods is a PMSI:
1) to the extent the goods are purchase money collateral with respect to
that SI;
2) If the SI is in inventory that is or was purchase-money collateral, also to

the extent that the SI secures a purchase-money obligation incurred with
respect to other inventory in which the SP holds or held a PMSI, and
3) Also to the extent that the SI secures a purchase money obligation

incurred with respect to software in which the SP holds or held a PMSI.
Question: What if anything could the losing party have done to avoid the
result? SP1 could have put a future advances clause in its SI to continue to
perfect a SI in future collateral.
Note: Different result if SP2 did not get a SA from Debtor on 7/1 for its loan.
Then SP2 would not be perfected and SP1 would have priority under R9-322(a)
(1) first to file or perfect rule. In such case, SP2 would lose, and should have
asked SP1 to file a termination statement with regard to its SI in the collateral
(new bulldozer).
c) What policy considerations underlie the rules of a) and b)?
Answer: A PMSI allows a debtor to secure additional financing when the first to file SP
is unwilling to provide it. A PSMI eliminates the monopoly of the first to file or perfect
SP who has the benefit of an AAPC. PMSIs eliminate the monopoly of the first to file or
perfect of a SP who has the benefit of an AAPC.
d) Agreement does not prevent transfers R9-401(b).
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Question: Would the results in a) and b) change if SA in favor of SP1, included the
following provision? (See CB 237). “Debtor shall not create…any SI in any collateral…
covered by this agreement?”
Answer: The provision would be null and void.
R9-401(b) says agreement does not prevent transfers. An agreement between the debtor
and SP which prohibits a transfer of D’s rights in collateral or makes the transfer of a
default does not prevent the transfer from taking effect.
3.6.9 PMSI in Inventory.
D = wholesaler, sells textiles to retail stores from substantial stocks of textiles in

D’s warehouse.
6/1 – SP1 – Loan $100K (to D),
SA w/ AAPC “all the textiles that D then owned or might thereafter

acquire.”
FS covering “textiles”
7/1 – SP2 – Loan $20K (to D) to buy more textiles.
SP2 made check payable to D and M; D endorsed to M.
Assume: There was a SA.
7/2 – SP2 filed a FS.
7/5 – M delivered textiles to D who put them in warehouse.
D defaults on Loans from SP1 and SP2.
a) Whose SI is SR as to the shipment of textiles?
Answer: This is clearly a PMSI in inventory, since the loan was used to purchase the
collateral, which are textiles. Textiles can be considered inventory. R9-102(a)(48)
defines inventory as goods other than farm products which are held by a person for sale
or lease or to be furnished under a K for service.
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Next ask, have the parties perfected their SIs? Yes. SP1 filed an FS, had an SA and
made a loan for value. SP2 did the same (assuming there was an SA).
Next ask, who has priority in the inventory / textiles?
SP1 has priority. Both SP1 and SP2 met the elements of enforceability under R9-203(b)
1) value was given (loan), 2) debtor has rights in the collateral 2) authenticated SA exists.
SP1 was the first to file or perfect. SP2’s loan to M in the form of a check payable to D
and M identifiable cash proceeds, under R9-102(a)(9) (checks) and R9-315(d)(2) says a
perfected SI will continue in proceeds after the SI attaches if the proceeds are
identifiable cash proceeds. The textiles are purchase money collateral under R9-103(a)
be/c they are goods that secure a purchase money obligation which allows debtor to
acquire rights in the collateral (textiles). Purchase money collateral can be perfected by
filing or possession. Here, SP1 filed first, and had an AAPC in the SA, and “textiles”
secured by the FS. SP1 takes priority under the first to file or perfect rule.
Question: What if anything could the losing party have done to improve its
position?
Answer: SP2 did not provide notice to SP1 of its SI as required in R9-324(b).
To perfect a PMSI in inventory over a conflicting SI in the same inventory, the holder of
the PMSI (SP2) must send an authenticated notification to the holder of the conflicting
SI (SP1) and the holder of the conflicting SI must receive the notification within 5 years
before the debtor receives possession of the inventory. Here only 3 days passed after
SP2 filed its FS for the textiles on 7/2 and they were delivered to debtor on 7/5. Right
after SP2 filed its FS, SP2 should have sent notice to SP1 of its perfected SI in the textiles
before delivery to debtor. Be/c SP2 did not send notice to SP1, SP1 has priority. R9-
324(b)(3) required notice be given before 7/5 delivery.
Note: The PMSI in inventory was perfected when debtor received the inventory, but
authenticated notification should have been sent by SP1 to SP2. All SP2 had to do was
search the filing records to find an FS in the textiles, using the debtor’s name. This
would tell SP2 that it had to send an authenticated notice to SP1 w/in 5 years be/f debtor
received possession…SP2 could have overnight shipped the notice to SP1 if it checked
right after filing the FS. IF SP2 FOUND THE CONFLICTING FS BEFORE IT MADE
THE LOAN, IT COULD HAVE AVOIDED MAKING THE LOAN!!!
For client: Always check the filing records to see if a conflicting SI in collateral
exists before making a loan.
Notes; Why does inventory require notice?

Bec/s the SP is likely to be giving continuous loans…and needs a continued
perfected SI in collateral….the notion for inventory is that it is continuously
changing and the rapid turnover requires notice.
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Equipment on the other hand requires no notice, be/c it does not continuously
change.
SP2 may also have to give more than one notice over a period of time!!!
R9-322(a)(1). Priority among conflicting SIs is determined by rank according to the

time of filing or perfection.
R9-315(d)(2). Continuation of Perfection. A perfected SI in proceeds becomes

unperfected on the 21st day after the SI attaches to the proceeds unless 2) the proceeds are
identifiable cash proceeds.
R9-102(a)(9). Cash proceeds means proceeds that are money, checks, deposit accounts
or the like.
R9-324(b). Inventory Purchase Money Priority. A perfected PMSI in inventory has

priority in inventory has priority over a conflicting SI in the same inventory, and
proceeds of chattel paper (or an instrument) 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 the buyer if:
1) the PMSI is perfected when debtor receives possession of the inventory;
2) the holder of the PMSI sends an authenticated notification to the holder of

the conflicting SI
3) the holder of the conflicting SI receives the notification within 5 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 PMSI in inventory of the debtor and describes the inventory.
R9-103(b) Purchase Money SI in Goods. A SI in goods is a PMSI:

1) to the extent that the goods are purchase money collateral (goods or software
that secures a purchase money obligation)…with respect to that SI.
2) if the SI is in inventory that is or was purchase money collateral (goods or

software that secures a purchase money obligation), also to the extent that the
SI secures a purchase-money obligation incurred with respect to other inventory
in which the SP holds or held a PMSI and
3) also to the extent that the SI secures a purchase money obligation (an
obligation of an obligor incurred as all or part of the price of collateral, or
for value given to enable the debtor to acquire rights on the collateral if value
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is so used)…incurred with respect to software in which the SP holds or held a
PMSI.
R9-103(a)(1) Purchase money collateral means goods or software that secures a

purchase money obligation incurred with respect to that collateral.
R9-103(a)(1). Purchase money obligation means an obligation of an obligor incurred as

all or part of the price of collateral, or for value given to enable the debtor to acquire
rights in the collateral if value is so used.
Black’s Law: PMSI is an interest created when a buyer uses the lender’s money to make
the purchase and immediately gives the lender a security (R9-107).
o A SI that is either 1) taken or retained by the SELLER of the collateral to secure
part or all of its price, or 2) taken by a person who by making advances or incurring
an obligation gives value to enable the debtor to acquire rights in or use the
collateral if that value is in fact so used.
o Ex. Buyer purchases a boat from MM (SP1);
o the Purchase is financed by a Bank (SP2) that loans Buyer (Debtor) the amount of
the purchase price;
o the Bank’s security interest in the boat is a purchase-money security interest
(PMSI).
Notes on Purchase Money Priority and the Definition of PMSI 243

1) Contexts in which the distinctions between PMSIs and Non-PMSIs is relevant.
a) A PMSI perfected by filing before or w/in 20 days after debtor receives
delivery of the collateral receives priority over the interests of lien creditors
which arise between the time the SI attaches and time of filing. R9-317(e).
b) R9-317(e) also subordinates to a PMSI the interests of buyers and lessees
whose interests arise during the “gap” between attachment and filing.
c) Most PMSIs in Consumer Goods are automatically perfected without filing
or possession by a SP R9-309(1).
2) Purchase Money Priority under R9-324.
R9-324 has priority rules which override the first to file or perfect rule of R9-322(a)(1).
To qualify for the priority PMSI rules, a PMSI must meet the definition of R9-103.
PMSI priority is conditioned on the satisfaction of certain procedural requirements; when

the requirements are not met, R9-322(a) governs the priority of a PMSI.
R9-322(a). Priority among conflicting SIs and agri-liens in the same collateral is
determined according to the following rules:
1) …rank according to time of filing or perfection.
2) A perfected SI has priority over a conflicting unperfected SI.
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3) The first SI to attach or become effective has priority if conflicting SIs are
unperfected.
1) Eligible Collateral.
a. PMSIs arise in only 2 types of collateral: 1) goods 2) software. R9-
103(b)(c)
b. But in many cases, a “second in time” SP can achieve priority in paper
collateral (documents, instruments, chattel paper) and other intangible
collateral (investment property, deposit accounts), under other special
priority rules.
R9-312(c)(2). Goals covered by N.D.

R9-327 Priority of SIs in deposit accounts.
R9-328 Priority of SIs in investment property
R9-330. Priority of Purchasers of Chattel Paper, Instruments
R9-331. Priority of rights of purchaser of instruments, documents, securities
and other articles.
Timing of perfection. For goods other than livestock or inventory, the SI must be
“perfected when the debtor receives possession of the collateral or within 20 days
thereafter;
An inventory PMSI must be perfected when the debtor receives possession of the
inventory, there is no 20 day period of grace, R9-324(b)(1).
Same requirements for livestock. R9-324(d)(2).
3) Notification of Competing SIs.

1) Inventory Collateral (R9-324(b)). Requires PMSI financier to give written
notification to certain competing SPs
2) Notification must be received by those parties before not more than five years
before) debtor receives possession of the inventory.
3) Notification must state the PMSI financier has or can obtain a PMSI in
specified items or types of inventory (b)(4).
R9-324 Comm 4. Notice Required for PMSI: to protect the SP;

For inventory in PMSIs, be/c a fraudulent debtor may apply to the SP for
advances even though it has given PMSI in inventory to another SP, the SP must
give notice to the holder of the conflicting SI who filed against the same type of
inventory be/f the PMSI filed or its SI became perfected temporarily under R9-
312(e) or (f).
The notice requirement protects the non-purchase money inventory SP (Non-PMSI by)…
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If the PMSI SP received notification, it presumably will not make an advance; if it
has not received notification (or other SI is not PM), any advance the PMSI SP
will make ordinarily will have priority under R9-322.
Note: Notice is NOT required for unusual arrangements of periodic advances against
incoming goods (outside the inventory field).
o PMSI provides a means for the debtor to obtain additional secured financing when
the first to file SP is unwilling to provide it.
o Although the APPC saves costs, it also creates a problem where the SI in AAP
enjoys a special competitive advantage over other lenders in all his subsequent
dealings with the debtor.
o PMSIs give a debtor flexibility.
o The main reason a PMSI priority does not seriously impair the position of the First
to file or perfect secured creditors is 1) a PMSI financier contributes new value that
is in fact used by the debtor to acquire a new asset.
3) Definition of a PMSI: the tracing requirement.
R9-103(b)(1). Defines a PMSI in goods: A SI in goods is a PMSI to the extent

the goods are purchase money collateral with respect to the SI.
R9-103(b)(1). Two types of PMSIs in goods:

1) those held by the seller to secure an obligation…incurred as all or part of the
price of the collateral; and
2) those taken by a lender to secure an obligation incurred for value given to

enable the debtor to acquire rights in or the use of collateral if the value is in fact
so used. R9-103(a)(2).
Rule: For a SI taken by a lender to qualify as a PMSI…..

1) the value (ie, enabling loan)
i) must be given for the purpose of enabling the debtor to acquire the
collateral and
ii) must actually be used for that purpose.
2) to achieve PMSI status, a secured lender must trace the loaned funds and
establish that they actually were used to pay the purchase price for the collateral.
What’s NOT a PMSI: When a seller sells goods on unsecured credit (an open account)
or lender makes an unsecured enabling loan. Years later, the buyer gives seller (or
enabling lender) a SI in the goods to secure the balance of the purchase price (or unpaid
balance of the loan).
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R9-103 Comm 3. A SI does not qualify as a PMSI if Debtor:

1) acquires property on unsecured credit and
2) subsequently creates the SI to secure the purchase price.
4) Transformation and “Dual Status” Rules
A SI in goods is a PMSI “to the extent” that the goods are purchase money
collateral (ie, to the extent that they secure a PMO incurred w/ respect to those
goods).
o As in the PMSI financed collateral is not a PMSI to the extent that it also secures
debt other than a price or enabling loan.
o A SI in collateral other than a PMSI-financed collateral is not a PMSI even though it

secures a PMO with respect to other collateral.
o R9-103(b) “to the extent” derives from the definition of PMSI in F9-107.
o Dual status – PART PMSI, be/ they secure price or enabling loan.
o Part Non-PMSI – be/c they secure other indebtedness.
1962. FA9 holds then what otherwise would be a PMSI is “transformed into a non-PMSI
whenever the PMSI financed collateral secures any obligations other than the price or an
enabling loan, or whenever other collateral, in addition to the PMSI financed collateral,
secures the purchase money obligation.
R9-103(f). Rejects the Transformation Rule and adopts the Dual Status Rule.
A PMSI does not lose its status even if
1) the PM collateral also secures an obligation not a PM obligation,
2) collateral that is not PM collateral receives a purchase money obligation
(PMO)
3) or PMO has been renewed, refinanced, consolidated, or restructured. R9-
103(f).
**Watch consumer goods transactions.
Ex: Dual Status Rule:

Bank has a PMSI in equipment to secure an enabling loan of $50K.
And all present and future obligations of D to bank.
Loan is reduced (paid down) to $35K. (pmo)
Bank extends additional $10K to Debtor. (non-pmo)
Question: To what extent is the SI a PMSI?

Answer: $35K
R9-103(b)(1). SI is a PMSI only to the extent the equipment is purchase money collateral
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R9-103(a)(1). The equipment is purchase money collateral if it secures a purchase
money obligation w/ respect to the equipment.
R9-103(a)(2). Of the obligations secured by the equipment, only $35K is a purchase
money obligation.
Note: To the extent the equipment secures the $10K, the non-purchase money obligation,
the SI is not a PMSI.
Hypo 2: Suppose the debtor pays Bank $5K. This leaves $40K secured by equipment.
Question: To what extent is the SI a PMSI?
Answer: Depends on the amount of the purchase money obligation, which determines
how much, if any of the $5K print was applied to the $35K purchase money obligation
and how much was applied to the $10K non-purchase money obligation.
1962 – required SP to prove the $5K was a pmo.

2000 – Non-consumer goods of R9-103(g) requires SP to prove the amount
R9-103(e) allows parties in non-consumer goods cases to agree to an allocation
formula and provides for rules of allocation applicable in essence of agreement.
5) Cross-Collateralization and Purchase Money Financing.
Cross-Collateral agreements are those where Debtor and SP agree that each item of
inventory secures not only its own price but the aggregate unpaid price of all other
inventory financed by SP2.
R9-103(f). the fact an item of inventory secures not only its own price but also other
obligations does not destroy the purchase money status of an SI.
But…
R9-103(b)(1). SP2 has a PMSI in each item of inventory only to the extent that the item
secures a Purchase Money Obligation incurred with respect to that item of collateral.
1962. Old A9 permitted intercreditor agreements which afforded priority to each

purchase money financier in the inventory it had financed.
2000. R9-103(b)(2). Is same – if inventory subject to a PMSI secures not only its own
price (or enabling loan) but also the price or enabling loan w/ respect to other purchase
money inventory, then the SI in inventory is a PMSI not only to the extent the inventory
secures its own price but also the price of other inventory.
6). The Dual Status Rule; Cross Collateral Agreements and Payment Allocation
Formulas in Consumer Transactions.
R9-103(f) rejects. The 1962 transformation rule for non-consumer goods transactions.
R9-103 Comm 8.
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R9-309(1). A SI in consumer goods is automatically perfected upon attachment in both

the 1962 and 2001 code.
If a PMSI is transformed into a Non-PMSI and no perfection step is taken, then automatic
perfection is lost and the SI can be avoided.
Rule: When a purchase money loan is refinanced, or consolidated, the security

collateralizing the prior loan can continue to secure the new loan, even if the new loan is
for a larger amount, or is in other respects a non-purchase money loan.
R9-103(h). permits the court to apply established approaches for determining the extent
of purchase money obligations.
FTC prohibits cross-collateral provisions….agreements where each item of the collateral

secures its price and the price of other items sold by the financier. State law governs the
extent of the PMSI.
PMSI in Software.
1962 excluded purely intangible collateral under F9-107.

2000 R9-103. A PMSI may be created only in goods and in limited circumstances,
software.
R9-103(c). Debtor must acquire an interest in software in an integrated transaction, in

which debtor acquires an interest in the goods and debtor must acquire the software for
the principal purpose of using the software in the goods.
Competing PMSIs in the Same Collateral.
A. PMSIs in Consumer Goods.

1. For PMSIs in consumer goods, attachment and perfection of a seller’s SI, and a
lender’s SI can occur simultaneously upon Debtor’s acquisition of rights in the
collateral.
See R9-203(b)(2)
R9-309(1)
R9-324(g). The first to file or prefect rule governs priority of conflicting PMSI’s
where neither is held by a seller.
R9-324(b). A PMSI does not qualify for purchase money priority under R9-
324(b), unless it is perfected “when debtor receives possession of the inventory.”
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Likewise, purchase money priority in collateral other than inventory and livestock
(under R9-324(a)), depends on perfection of the PMSI when debtor receives
possession of the collateral or w/in 20 days thereafter.).
The UCC does not define possession for purposes of PMSI priority, and does not
explain what it means for debtor to “receive possession of the collateral.”
Note: Problems arise when delivery of components of a product are sold to the
buyer over a period of time – courts are split on when the 20 day period begins.
1962 – This was a problem.

2000 – R9-324(a) Comm 3. The 20 day period does not commence until
the goods become collateral, and starts to run only when the debtor has
created a SI.
*same as 1962 but 1962 cases were decided based on whether person in
possession was a debtor.
Hypo: CB 255
Buyer = Debtor
SP1 = Seller / Enabling Lender
Seller sells equipment to buyer on unsecured credit., or an enabling lender extends

unsecured credit that enables the buyer (debtor) to acquire equipment.
One year later, SA is signed covering the equipment and w/in 20 days thereafter,
FS is filed.
SP1: unsecured credit/Loan, …one year later….SA in equip, FS
Question: Does SP1 enjoy the Purchase-Money Priority Status under R9-324(a)?
Answer: If the 20 day period does not start running until debtor (buyer) receives the
possession of collateral, and the equipment is not collateral defined in R9-102(a)(12),
until the SA is authenticated, then the SP (seller) enjoys priority under R9-324(a).
Note: A SI taken several months after making of enabling loans is not a PMSI.
V. Priority - Proceeds
3.6.14 the facts are the same as problem 3.6.5(b);
6/1 - SP1 – Loans, SA (w/ AAPC “present & future const equip, FA)
6/1 – SP1 files FS
7/1 – SP2, Loan, PMSI
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7/2 – bulldozer delivered (CELTRAC) to D.
7/8 – SP2 – files FS
8/1 – D traded Celtrac dozer for CATERPILLAR
What’s the collateral? CATERPILLAR.
Issue: Whether SP2’s PMSI priority in the CELTRAC dozer carries over to the 8/1
CATERPILLAR.
Answer: The CATERPILLAR equipment is proceeds, acquired upon the exchange of the
Celtrac dozer.
2000: SP1’s has a SI in the CELTRAC and CATERPILLAR be/c of the SA’s AAPC, but
SP2 has priority over the CELTRAC be/c SP2’s perfected SI in the CELTRAC was a
PMSI. SP2’s PMSI interest in the CELTRAC carries over to the CATERPILLAR under
R9-324(a), which says a perfected SI in identifiable proceeds has priority if the PMSI
is perfected when debtor receives possession of the collateral or w/in 20 days
thereafter. Here, the CATERPILLAR was identifiable proceeds (not cash), SP2’s
interest was a PMSI and Debtor received possession of the CATERPILLAR dozer. SP2
has priority.
1962: Pursuant to R9-312(4), “or it’s proceeds” language is not present, so did the PMSI
priority in the Celtrac pass to the Caterpillar? Unclear if a PMSI priority applies to
proceeds under the 1962 code. The drafters didn’t answer this question until 2000.
R9-322(a). priority among conflicting SIs ranks according to time of filing or

perfection.
R9-322(b). time of filing or perfection as to a SI in collateral is also the time of filing or

perfection as to the SI in proceeds.
R9-315(a). SI in collateral continues not w/standing sale, lease, license or exchange or

other disposition thereof unless authorized; AND a SI attaches to any identifiable
proceeds of collateral.
R9-102(a)(64). Proceeds means whatever is acquired upon the EXCHANGE or

disposition of the collateral.
R9-324(a). A perfected PMSI in goods (other than inventory or livestock) has priority
over a conflicting SI in the same goods AND a perfected SI in identifiable proceeds also
has priority if the PMSI is perfected when debtor receives possession of the collateral
w/in 20 days thereafter.
Hypos: Issue of whether a PMSI carries over to PROCEEDS of the collateral.
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1962 Code.
SP1 – FS, SA (w/ AAPC, FA in Accounts)

SP2 – FS, SA (w/ AAPC, FA in Inventory – PMSI)
Issue: Who has priority in the proceeds of inventory under 1962 Code?
Or
SP1 – FS, SA (w/ AAPC, FA in Inventory – PMSI)

SP2 – FS, SA (w/ AAPC, FA in Accounts)
Issue: Who has priority in the proceeds of accounts under 1962 Code?
F9-312(4) – Does not apply be/c we are not dealing with PMSI in collateral other than
inventory.
F9-312(a)(b)(c). Under the 1962 Code, there is no answer!!!

Answer: Here, one SP is perfecting in inventory, one in accounts, so it’s a F9-306
situation (in 2000, a R9-315 situation). Unclear.
Remember: Can’t get perfection unless Debtor has rights in the collateral (under R9-
203(b)).
3.6.15 makes many sales on credit to retail stores. The retail stores began to take
more and more time to pay, so D ran short of operating funds.
6/1 – SP1, Loan ($60K), SA (“all present and future ACCOUNTS”) FS

(all accts receivable currently existing or arising hereafter.”)
(AAPC, FA)
7/1 – SP2 – Loan, ($20K), SA (all INVENTORY), FS (INVENTORY).

AAPC, FA
9/1 – D defaulted on Loans to SP1 and SP2.
D’s INVENTORY = i) inventory of $5K

ii) accounts (from sale of inventory) $25K
iii) Bank account from $5K from collection of accts
a) Who has the SR SI in each of these three groups of property?
R9-322(a)(1) First SP to file or perfect has priority.

(a)(2) Perfected SI has priority over an unperfected one.
(a)(3) Both SIs are unperfected, first to attach has priority.
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R9-322(b). Time of filing or perfection as to a SI in collateral is also the
time of filing or perfection as to a SI in proceeds.
Answer:
i) Inventory- SP2 has priority be/c it was the only one to file or perfect a
SI in inventory.
ii) accounts from Sale of Inventory – BOTH PARTIES have a perfected

SI in the accounts from the sale of inventory be/c SP1 had the accounts
initially and SP2 perfected its SI in the inventory. However, SP1
perfected first be/c it was the first to file or perfect, and it’s SA had an
AAPC which covered the inventory.
iii) Bank accounts ($5K) from collection of accounts – This is

identifiable cash proceeds, which includes money, checks and deposit
accounts (or the like) under R9-102(a)(9).
SP1 was first to file or perfect….SP1had priority be/c it filed a FS,

and under the 2000 code, there’s no need to worry about perfection
for priority when there’s a filed FS covering the collateral. Here,
SP1’s FS covered the accounts, so its SI was perfected first.
Note: C1 = FS or C1=FS
C2 = FS, SA, Loan C2 = Possession, SA, Loan
C1 = SA, Loan C1 = SA, Loan
Who was first to file or perfect?

1962 – C2 be/c it was first to perfect in both hypos
2000 – C1 be/c it was first to file or perfect in both hypos.
b) Now assume SP2 was first to file the FS, (FS covering
INVENTORY was filed first) What result?
6/1 – SP2 – Loan, ($20K), SA (all INVENTORY), FS (INVENTORY).

AAPC, FA
71 – SP1, Loan ($60K), SA (“all present and future ACCOUNTS”) FS

(all accts receivable currently existing or arising hereafter.”)
(AAPC, FA)
i) Inventory- SP1 has priority be/c it was the first to file or perfect a SI
in inventory.
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ii) accounts from Sale of Inventory – BOTH PARTIES have a perfected
SI in the accounts from the sale of inventory but SP2 has priority be/c SP2
claims the accounts as part of its original collateral in its AAPC on the
inventory.
iii) Bank accounts ($5K) from collection of accounts – SP2 be/c SP2
was the first to file or perfect and its SA contained an AAPC clause which
covers the accounts.
Note: F9-312(5) = R9-322(a)(1); F9-312(6) = R9-322(b)(1).
VI. Perfected SI in buyers of goods.
3.6.16. D is a wholesaler of textiles. D’s AR reached $60K.
6/1 – SP1 – Loan, SA, (Accts + Inv), FS (Accts + Inv)

AAPC, FA
7/1 – SP2 – Loan, SA (PMSI in Inv – Textiles), FS (Inv).

AAPC, FA
Notice
Textiles delivered to SP2.
9/1 – D defaults
but Textiles were sold to retail stores….generating:
1) unpaid accounts (receivable) of $15,000
2) separate deposit collateral account of $5K which came from
payments by retail stores of such accounts.
3) Check for $4000 received as an advance payment for an order of
textiles subsequently shipped to buyer.
a) Who has priority with respect to the collateral (textiles) in three categories?
Answer: 1) SP1 be/c R9-324(b) does not apply since accounts receivable are not
identifiable cash proceeds, and not chattel paper or instruments. Therefore, R9-322
applies and first to file or perfect wins. Here SP1 was the first to file or perfect its SI
with an APPC covering “all inventory” and the textiles can be considered inventory.
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2) SP1; R-9324(a) does not apply be/c identifiable cash proceeds were not received on
or before delivery of the goods to the buyer. Thus, R9-322 first to file or perfect applies.
3) SP2; R9-324(b) applies be/c the $4000 check was identifiable cash proceeds since it
was received on or before the delivery of the inventory to the buyer; PMSIs in inventory
only carry over in a limited sense, but the four elements were met under (b) be/c notice
was given, authenticated (in writing), within 5 years of debtor’s possession, and
explained SP2’s rights in the collateral.
R9-322(a) Conflicting SIs rank according to time of filing or perfection.
R9-322(b) Time of Perfection: Proceeds….(and supporting obligations).

(1) the time of filing or perfection as to a SI in collateral is also
the time of filing or perfection as to a SI in proceeds.
(2) The time of filing or perfection as to a SI in collateral
supported by a supporting obligation is also the time of filing
or perfection as to a SI in the supporting obligation.
R9-324(a) General Rule: Purchase Money Priority. A perfected PMSI in goods

other than inventory (or livestock) has priority over a conflicting SI in the same
goods, and a perfected SI in identifiable proceeds also has priority if the PMSI is
perfected when the debtor receives possession of the collateral or w/in 20 days thereafter.
R9-324(b) Inventory, Purchase Money Priority. A perfected PMSI in inventory has

priority over a conflicting SI in the same inventory, chattel paper, or instrument
constituting proceeds of the inventory, and in proceeds of chattel paper, if so
provided in R9-330, and also has priority in identifiable cash proceeds of the
inventory to the extent that the identifiable cash proceeds are received on or before
the delivery of the inventory to the buyer, if:
1) the PMSI is perfected when debtor receives possession of the collateral.

2) The purchase money secured party sends an authenticated notification to
the holder of a conflicting SI
3) The holder of a conflicting SI receives the notification w/in 5 years be/f
debtor receives possession of the inventory and
4) The notification states that the person sending the notification has or
expects to acquire a PMSI in inventory of the debtor and describes the
inventory.
R9-324(c) Holders of conflicting SIs to be notified…apply only if the holder of the

conflicting SI had filed an FS covering the same types of inventory:
1) if the PMSI is perfected by filing, be/f the date of the filing or
2) if the PMSI is temporarily perfected w/out filing or possession under R9-
312(f) be/f the beginning of the 20 day period thereunder.
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R9-102(a)(9). Identifiable cash proceeds means proceeds that are money, checks,
deposit accounts or the like.
Note: Sections R9-324(b) only apply to identifiable cash proceeds, chattel paper or
instruments.
R9-324(b) for PMSI carries over only to items which are identifiable cash proceeds
received on or before delivery of the inventory to the buyer.
b) Would the priorities be resolved differently if SP1 had taken a perfected SI in

only inventory and not accounts (as proceeds)?
Answer: (Cross out accounts from above). No. Same analysis assuming no accounts
on 6/1 and inventory is on 6/1. The issue here centered mostly around the inventory
as collateral, not the accounts.
3.6.17. Gadget Const entered into a road const. biz.

Gadget has a line of credit with Wowsers Bank, secured by Gadget’s Const
Equip.
Bank = SP1 – perfected by filing FS, SA, Loan
Note: Gadgets SI to Bank prevents Gadget from selling, leasing or disposing of

collateral w/out Bank’s written permission.
2/1 – Gadget sold loaders to Penny.

Penny did not check UCC records and had no knowledge of Bank’s SI or
Gadget’s agreement not to dispose of equipment.
Gadget used cash received to pay unsecured creditors.
Gadget defaulted and Bank demands equip from Penny.
a) is Banks SI SR or JR to Penny’s SI in the loaders?
See R9-315(a)(1).
Answer; Bank’s SI is perfected by filing the FS, and meets R9-203(b). Bank’s SI
is SR to Penny’s in the loaders.
R9-315(a)(1) says a SI continues in collateral not w/standing sale, license,

exchange, or other disposition unless the SP authorized the disposition free of the
SI or lien (same as Celtrac).
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What could losing party have done (Planning)?
Answer: Penny should have checked the records to see if there was a prior SI.
b) Assume SI continues and Penny buys loaders subject to Bank’s SI. Does Bank’s
SI continue to be perfected as against the creditors of Penny?
Yes. Penny should have done a title search that would give a SI that might have been cut
off by the Bank.
d) What result in (a) if the SA permits Gadget to sell collateral on the condition the
Bank’s SI will continue in the collateral (ie, sales are subject rather than free of the
SI).
R9-315(a)(1), Comm 2. The general rule is that if the disposition is authorized by the SP
in the SA, is one the buyer will take “free of the SI.” But here, the Bank did not
authorize disposition in the SA, and is treated as not authorized “free of the SI,” so the
Bank has priority.
Exam: Review R9-315(a)(1) and R9-315(a)(2) for exam purposes.
3.6.18 Priority of Future Advances - EXAM

R9-323(a) deals w/ a SP; R9-323(b) deals w/ lien creditors.
Same as previous problem.
Assume Bank’s SI continued in the loaders following Gadget’s sale to Penny and on…
2/1 – (date of Penny’s purchase) $25K was outstanding on the line of credit.
3/1 – unaware of the sale Bank (SP1) extended another $5K line of credit.
4/1 – Bank (SP1) extended $10K line of credit.
a) Can Bank enforce its SI in the loaders to cover the $40K?
Answer: Bank’s interest in the $25K continued in the loaders so it can definitely recover
the $25K. Here, Bank is a buyer other than one in the ordinary course of business, so it
took free of a SI that secured advances made after 45 days from the date of purchase.
(4/1 was 60 days from date of purchase). Bank’s extension of the $10K line of credit
(made more than 45 days from date of Penny’s purchase) was not a secured advance.
Result: Bank can recover $35K be/c the $5K loan was secured pursuant to R9-323(e)
be/c Bank had no knowledge and the commitment was made before the expiration of
the 45 day period for the 3/1 transaction but not the 4/1 transaction.
R9-322(a). priority of SI rank according to time of filing or perfection.
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R9-323(d). Except as provided in (e), a buyer of goods other than a buyer in the ordinary
course of business takes free of a SI to the extent it secures advances made after the
earlier of: 1) the time the SP requires knowledge of the buyer’s purchase, or 2) 45 days
after purchase.
R9-323(e). (d) does not apply if…the advance is made pursuant to a commitment entered
into w/out knowledge of buyer’s purchase and before expiration of the 45 day period.
mine) What result if Bank had no knowledge of the sale to Penny on 2/15 then
extended credit on 3/15 instead of 4/1?
Answer: Of course this changes the damn answer. The Bank’s 45 day period for its SI in
the line of credit would not have expired by the 45th day and the Bank could have secured
its interest for the full $40K.
b) What result in (a) if Bank learned of the sale to Penny on 2/15?, then extended
credit.
Answer: The Bank would have knowledge of Penny’s purchase from Gadget before the
Bank made the advances. Therefore Bank can only recover the $25K from its initial line
of credit outstanding.
See notes on Unauthorized dispositions (from the Casebook).
Hypo: The 1962 Code Nightmare.
C1 – FS, SA, (AAP, FA; Accounts)

Proceeds
C2 – FS, SA (AAP, FA; PMSI-Inventory)

Proceeds
D – Defaults
Issue: Who has priority in the accounts?
1962. First note that both C1 and C2 have perfected SIs in the accounts. (C1 by the
AAPC and C2 by proceeds in inventory). Fisfis says there’s no clear answer under the
1962 Code. Must ask ‘does the PMSI priority carryover to the proceeds (accounts) of
C1? No mention of this is in the 1962 Code be/c there’s no language about carryover.
F9-312(3). PMSI in inventory collateral has priority over a conflicting SI in the same
collateral if:
a) the PMSI is perfected at the time the debtor receives possession of the
collateral; AND
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b) any SP whose interest is known to the holder of the PMSI interest who prior to
date of filing made by holder of the PMSI, filed a FS covering the same types of
inventory, received notification of the PMSI before debtor received possession of
the collateral covered by the PMSI ..AND
c) such notification states that the person giving the notice has or expects to
acquire a PMSI in inventory of debtor, describing such inventory by item or type.
Assume C2 is not a PM secured party.

If a R9-312(5)(a) problem, then C1 has priority be/c first to have filed a FS.
Note: Pursuant to R9-306, proceeds clause is needed in FS.
If a R9-315(5)(b) problem be/c C2 has automatic perfection, then there is a tie

between C1 and C2 be/c they don’t get perfection until Debtor has rights in the
collateral (ie, when accounts come into play) and here the accounts come into play
simultaneously.
2000 Code. C1 has priority be/c the C2 PMSI does not carry over be/c it is not
identifiable cash proceeds. R9-322(a) First to file or perfect rule and R9-322(b) time of
filing or perfection as to a security interest in collateral is also the time of filing or
perfection as to a SI in proceeds. C1 perfected its interest in the proceeds be/f C2.
3.6.19
Diapson (Debtor) is a retail store that sells musical instruments.

Castle (SP1) finances Diapson’s Loans for inventory.
SP1 - Diapson (Debtor) executed a SA to SP1 (covering its inventory)

w/ AAPC, FAC
SP1 filed FS that described collateral as “organs, pianos, & other musical
instruments.”
SP1 – Loans, SA (inventory. w/ AAPC, FAC), FS
a) Diapson, w/out consulting Castle, sold & delivered an organ to Consumer for $4K
cash, and used the $$ to pay rent, utilities and other pressing bills.
Castle brings a replevin action for the organ against customer.

R9-315(a)(1). A SI continues in collateral not w/standing sale, lease, license, exchange,

or other disposition unless the SP authorized the disposition free of the SI. Here, Castle
did not authorize the disposition of the organ by Diapson to Consumer.
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Summer 2003
R1-201(9). Buyer in the ordinary course of business (BICOB) means a person that
buys goods in goods faith, w/out knowledge that the sale violates the rights of another
person in the goods, and in the ordinary course from a person, other than a pawnbroker,
in the business of selling goods of that kind. A person buys goods in the ordinary
course if the sale to the person comports with the usual or customary practices in
the kind of business in which the customer is engaged or with the seller’s own usual
or customary practices. Only a buyer that takes possession of the goods or has a right
to recover the goods from the seller under A2 may be a buyer in the ordinary course of
business.
R9-320(a) A buyer in the ordinary course of business (BIOCOB), takes free of a SI

created by the buyer’s seller even if the SI is perfected and the buyer knows of its
existence…..
R9-320 Comm 5. Buyers of consumer goods. Sub (b) deals w/ buyers of collateral the
debtor-seller holds as consumer goods (bought for personal family or HH use).
A PMSI in consumer goods ..is perfected instantly upon attachment and
A buyer of consumer goods takes free of a SI even though perfected, if
1) the buyer buys w/out knowledge of the SI,
2) for value
3) primarily for the lawyer’s own personal, family or HH purposes and
4) before a SI is filed.
R9-320(b). A buyer of goods form a person who used or bought the goods primarily for
personal, family or HH use, does not apply here be/c Diapson bought for resale, not as a
consumer.
Answer: Here under R9-320(a), a buyer in the ordinary course of business (BIOCOB),
takes free of a SI created by the buyer’s seller even if the SI is perfected and the buyer
knows of its existence…..Customer has priority as a BIOCOB and takes the organ free of
SP1’s SI, even though it was perfected and buyer maybe knew of its existence.
b) Suppose the SA in a) included a covenant: “D agrees that under no

circumstances will it complete a sale of its inventory w/out Castle’s prior approval…
in the event of such approval, D will turn over any cash, other proceeds, or chattel
paper, resulting from such sale.
Castle’s FS added the sentence: “Sale of collateral not authorized w/out Castle’s
prior approval.
Question: Would the result change? (D still sold to Consumer).
R1-201(9). Buyer in the ordinary course (see above).
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Summer 2003
R9-320(a) A buyer in the ordinary course of business (BIOCOB), takes free of a SI
created by the buyer’s seller even if the SI is perfected and the buyer knows of its
existence…..
Answer: No. The buyer is in the ordinary course and the financier does not have to check
the FS if buyer is in an ordinary course. Consumer’s SI is still SR to Castle’s be/c even if
Consumer knew about the agreement between D and Castle, it would not matter since
Consumer was a buyer in the ordinary course and the FS does not need to be checked.
Consumer takes the organ free of the SI of Castle (created by Seller), even though
Castle’s SI is perfected.
Does the UCC’s rule make sense? Yes be/c R9-320(b) is meant to protect the consumer-
buyer of goods that one subject to a SI that is perfected even though NO FS has been
filed.
(d) Vertical Sale. Clef, a similar music store in the same city needed a particular
organ for prompt delivery to the consumer.
Diapson had the organ in stock.
D sold the organ to Clef for $3K cash (slightly more than wholesale – value).
Clef knew D had inventory financing with Castle.
As in (a), D dissipated (spent the cash received) for the organ.
Castle brings replevin action against Clef.
Question: What result? Clef is a “buyer in the ordinary course of business” and
deals in goods of the kind, so it takes free of the SI created by the seller D. Clef’s
take free of Castle’s SI.
R9-315(a)(1). A SI counts in collateral not w/standing sale, lease, license, exchange, or

other disposition thereof unless the SP authorized the disposition free of the SI or agri-
lien.
R9-320(a). A BIOCOB takes free of a SI created by the buyer’s seller even if the SI is
perfected, and the buyer knows of its existence.
R9-102(9). Buyer in the ordinary course…is a person that buys goods in good faith
without knowledge the sale violates the rights of another person in the goods, and in the
ordinary course from a person selling goods of that kind.
Question: What difference if any would it make if the past arrangements between
Clef and Diapason were highly unusual among music stores?
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Summer 2003
Answer: If it was not a usual or customary practice to use vehicle sales between dealers
in the music instrument business, then Clef would not be a BIOCOB and Castle’s SI
would be SR to Clef’s.
e) D owed $4K to creditor, who was pressing for payment. D delivered one of the
organs in the store to creditor in satisfaction of the debt.
Castle brings an action in replevin, against creditor – what result?
Answer: Creditor here is not a BIOCOB. Therefore under R9-320(a), Castle’s replevin
action will prevail be/c Castle’s SI is SR to creditor.
Question: What should losing party have done to protect itself?
Answer: Creditor should have checked to see if there were any filings against the organ,
suspecting it might be collateral w/ a SI held by someone else. Creditor could have asked
for cash.
f) Assume in (e) creditor was also in the business of selling organs. Before Castle
learned creditor was in possession of the organ, creditor sold & delivered the organ to
Bass, (possession) who had no idea how creditor acquired the organ.
Castle brings an action in replevin against Bass.
Answer: Creditor was a BICOB from D, and Bass was a BIOCOB from creditor. Under
R9-320(a), the SI did not come from buyer’s seller (Bass). It came from Castle!! Thus,
Castle will be successful in its replevin action against Bass.
Question: What could the losing party have done to protect itself?
Answer: Be/c Bass is a buyer in the ordinary course, he has a c.o.a. under Article 2 for
breach of warranty of title and may recoup the value he paid for the organ. Bass should
have checked to see if a FS was filed to perfect a SI in the organ by another party…
Note on UCC F9-307(2); Now R9-302(b)
S retains a SI in a TV set sold to B for home use, but S does not file a FS.
B sells the set to N, a neighbor. (not a BIOCOB under R1-201(9)).
Question: Under UCC 9-307(2), may S retake from N? Who would prevail if S filed?
F9-307(2). Protection of Buyers of Goods. In the case of consumer goods and in the
case of farm equipment, having an original purchase price not in excess of $2500 (other
than fixtures,) a buyer takes free of a SI even though perfected if he buys
1) w/out knowledge of the SI for value and
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Summer 2003
2) for his own personal, family or HH purposes or
3) for his own farming operations unless prior to the purchase the secured party
has filed a FS covering such goods.
R9-320(b). Buyer of Consumer Goods. A buyer of consumer goods from a person who
used or bought the goods primarily for personal, family or HH purposes, takes free of a
SI even if perfected, if the buyer buys:
1) w/out knowledge of the SI;
2) for value;
3) primarily for the buyer’s personal, family or HH purposes, and;
4) be/f the filing of a FS covering the goods.
Answer: Assume S did not file. S cannot retake from N. N is not a BIOCOB but he
takes free of the SI be/c it is a transaction from neighbor to neighbor.
Assume S files. Then S has priority in its perfected SI over N and be/c N is not a
BIOCOB, N takes subject to S’s SI.
Question: Suppose B resells to D, a second-hand dealer? Who would prevail if S

filed?
Answer: Assume S does not file. D, the second-hand dealer, is a BICOB so he takes
free of the SI. D is a BIOCOB be/c he’s buying from a person who purchased the goods
primarily for personal, family or HH use (B), so D takes free of the SI.
Assume S files. S has a perfected SI, but D still takes the TV free of a SI be/c he was a
BIOCOB.
Note: Scholars agree that UCC9-307(2) applies to sales by consumer debtors to

consumer buyers, but it does not cover sales of inventory by dealers to consumer buyers.
Question: Can you point to specific language in UCC F9-307(2) that limits its application
in this manner?
Yes. The filing of the FS allows the SP to cover the goods. Inventory does not require
the filing of an FS, which is perfected automatically??
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Course covers three concepts:

4. All jurisdictions in the US enacted the 1999-2000 Code.

A2. Expanded Scope

C. Development of the UCC (History of the Code)

1. Summary of revisions to A9.

9101-9109 – revised present version of the code, overview.

Financing Statements (FS) – good for 5 years unless stated otherwise.

Hypo 1: Sale of Widgets.

3. What if T did not file an FS?

4. Point: A SI creates a property interest.

5. If F sues under A2, T wins, gets a judgment properly recorded in office.

Note: Judgment Lien = Execution Lien.

How do you spot an A9 Question?

T and F enter into an agreement

1. Does T have a Lien on the personal property?

Hypo 3: Same Facts as Hypo 2.

PA (Minority): A judgment by itself is not a lien on personal property but it is on

Majority: Judgment in protonothary’s office is not a judgment on a lien. It is not

1. Can S get the object back from W?

Hypo 5: Fraud in the Inducement.

Hypo 6: Bailment at Common Law (CL).

Hypo 8: Same as 6, except W is not a merchant in the business of selling and

F possesses a check made payable to “Nick Fisfis.”

1. Can F get the check back from S?

Hypo 10: Negotiable Instrument: Not a Holder in Bear Form.

F is in possession of a check payable to “Nick Fisfis.”

1. Can F get the check back from S?

Chapter 3: Attachment of Security Interests

I. Issue: Whether FB is a SP be/c remedies are not available for FB unless it is a

See (DISA), Form 3.2, 12a, 13 – See CB 102.

9-601(a) Rights of Secured Party after Default.

2) if the collateral is documents, may proceed either as to the documents

FB might take possession after default…

a) Possession: rendering equipment unusable; disposition of debtor’s

After default, SP…

1) may take possession of collateral and

b) Judicial and non-judicial process...

1) pursuant to judicial process…

FB has six other remedies…

4) FB can hold a SI in a deposit account perfected by control under 9-

Hypo 11: Accounts v. Inventory

Does W have a SI in F’s accounts?

Answer: No. 9-203(a). Debtor F authenticated a SA that provides a description

3.2.2. Assume MM only signed a promissory note (PN). Litigation

b) Transactional problem (not litigation).

Issues: Is it enforceable and was there attachment? What “motor

Always ask>> 1) is there an enforceable SI?

9-102(a)(73) – A SA must create or provide for a SI.

2) PA follows Minority Rule: as long as a FS is 1) in writing 2) signed

Here, there was not attachment be/c collateral is not properly

See In Re Bollinger Corp 134

Note: Look at how the problem could have been avoided.

3.2.2 (c) and (d) present the same issue… Authentication

Issue: Whether A SI can be authenticated by voicemail and email?

Analysis: Not clear. Here, we have an authentication issue pursuant to 9-203(b)

3.2.3. Authentication / Statute of Frauds Problem.

1) Issue: Whether FB has an enforceable SI in the cars?

R9-203(b)(3)(A) – 1) writing, 2) signed by debtor 3) SA w/ description of

Answer: Here, 3) SA w/ description of collateral is not met, be/c there

R9-1-201(3) – Agreement – the bargain of the parties in fact as found in

R9-102(a)(73) – SA means an agreement that creates or provides for a SI.