SECURED TRANSACTIONSOUTLINE

Code in blue
Cases in red
SI = Security interest
SA = Security Agreement
AL = Agricultural Lien
FS = Financing Statement
***CREDITORS REMEDIES UNDER STATE LAW***
I.

General Stuff
a. Article 9 governs secured transactions.
b. Definitions are usually found in 9-101, 102, or 1-101 and 102.
c. Why have secured transactions??? Policy reasons:
i. Ways for a bank to make money back if debtors dont pay back loans:
1. Sue and get a judgment.
2. Increase interest rates.
ii. Secured transactions exist to keep interest rates down. They do this by
making sure there is collateral.
iii. Secured credit law also makes a cheaper way of getting that collateral (i.e.,
allows a bank t get away with 11% on loans instead of 15%). Makes it
cheaper to lend, helps the economy grow.
iv. Makes sure that the people who borrow the money are the ones paying it
back, and the loss is not distributed to those who are paying.

II.

Creditors Remedies of Unsecured Creditors Under State Law (Assignment 1):

a. Who is an unsecured creditor?
i. Anyone owed a legal obligation that can be reduced to a money judgment is
a creditor of the party owing the obligation.
ii. I.e., company with a valid patent infringement claim, the consumer with a
defective product still covered by a warranty, and the child who is the
beneficiary of a non-custodial parents court-imposed support obligation.
b. Most debtor-creditor relationships are entered into voluntarily.
c. Unless a creditor contracts with the debtor for secured status or is granted it by
statute, the creditor will be unsecured. Unsecured creditors are the general
creditors or ordinary creditors.
d. If the unsecured creditor has already obtained a court judgment to establish
liability, the creditor is a judgment creditor, but the mere grant of judgment does
not alter the creditors unsecured status.
e. How do unsecured creditors compel payment?
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i. The law provides procedures for the collection of unsecured debts and
regulates or bars many alternatives.
ii. Self-help seizure of the debtors property is PROHIBITED.
iii. If the creditor has the right to demand payment from the debtor, and does so
in an unreasonable manner, it may incur liability for wrongful collection
practices.
f. Vitale v. Hotel California
i. Sheriff and bodyguards case.
ii. P sued D and got a judgment.
iii. P then has to get the sheriff to execute the writ. Sheriff went to bar to try to
execute but was turned away by bouncer.
iv. Debtor was the corporation Hotel California. They were renting the place
and furniture where the bar was, so sheriff couldnt take the property.
v. Sheriff finally gets in and levies $714 from Ds registers.
vi. Issue: Whether multiple levies can be executed under the same writ and is
the request to levy several times under one writ unreasonable?
vii. Multiple levies are possible until the return date, and as long as early levies
are not returned.
viii. Multiple levies are only unreasonable after no more assets could possibly be
levied.
ix. After the first writ is satisfied, P must file for an alias writ if he wants more.
g. Exemptions to levies: Under state law, some things are exempt See the
Wisconsin statutes in the book on page 15.
h. Writ of garnishment is another possible levy. This would require the 3rd party to
pay the judgment creditor rather than the debtor if 3rd party is in possessions of
property of the debtor or owes money to the debtor.
i. Limitations on compelling payment:
i. Obtaining information about the debtors assets through discovery can take a
long time. You also have to ask the right questions
ii. The creditor must establish the judgment in the destination state before
invoking the enforcement procedures of that state.
iii. It is not fraudulent for a debtor to pay one of its creditors, even if the effect
is to leave nothing for others, so long as the debtor does not make the
payment for the purpose of defrauding the others.
iv. Exemption statutes can be an impediment to the collection of judgment debt.
These statutes prevent the sheriff from seizing certain property under a writ
of execution.
j. Is the Law Serious About Collecting Unsecured Debts?
i. Courts can order those subject to their jurisdiction to meet their legal
obligations and imprison them if they refuse to comply. This does NOT
include judgments for personal injuries, the wages of working people, or the
breaches of most kinds of contracts.
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ii. The availability of effective remedies to enforce particular rights reflects to

some degree the relative values society places on those rights.
III. Security and Foreclosure (Assignment 2)
a. Nature of Security
i. More effective set of collection rights is known as a lien: A charge against or
an interest in property to secure payment of a debt or performance of an
obligation. If the debt is not paid when due, the creditor can compel the
application of the value of the collateral to payment of the debt. The creditor
does this by foreclosure.
b. Most common form of lien is SECURITY INTEREST. There are also other
liens (nonconsensual liens): Liens granted by statute (statutory liens) and liens
obtained by unsecured creditors through judicial process (judicial liens).
c. Virtually anything recognized as property can serve as collateral. Usefulness of
certain property as collateral depends on:
i. The value of the property.
ii. The leverage the creditor can derive from the ability to deprive debtor of that
property.
d. The rights of the holder of a SI are rights that take effect upon default. So a SI is a
right in property that is contingent on nonpayment of a debt.
e. Why would someone ever be an unsecured creditor since secured creditors get
preference?
i. Can charge higher interest rates in exchange.
ii. Some dont choose to be unsecured.
iii. Business custom.
f. In real estate law, no matter if the parties intend to create a security interest, the law
will recast it as a mortgage. ALL ABOUT SUBSTANCE, NOT FORM.
g. Equity of Redemption: Until the equity is foreclosed, the debtor has the right to get
the property by performing the obligation.
h. Basile v. Erhal Holding Company (pg. 27)
i. In 1982, P mortgaged his property to D. P instituted action to find mortgage
null and void based on usury. P argued that D didnt foreclose her equity of
redemption. P defaulted on loan and fire insurance.
ii. RULE: A deed conveying real property, although absolute on its face, will
be considered to be a mortgage when the instrument is executed as a security
for a debt.
iii. Equity of Redemption: It is inseparably connected with mortgage, and
cannot be waived or abandoned by any stipulation of the parties made at the
time, even if embodied in the mortgage. General rule is that if there is an
equity of redemption, you need to foreclose, unless there is an immediate
deed in lieu of default.
i. 9-109(a)(1) provides that Article 9 applies to any transaction regardless of its form
that creates a security interest in personal property.
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j. Ways to foreclose:
i. Judicial: Everything Primarily used for real property. It is court ordered.
File a complaint, prove the obligation hasnt been met, prove the existence of
the security, and ask judge to foreclose.
ii. Power of Sale: Appoint a 3rd party and give deed to them to hold (often an
attorney) and if debtor pays, the deed is given to the debtor. If the debtor fails
to fulfill the obligation, then the creditor gets the deed to foreclose on it and sell
after a certain number of days. If debtor disagrees that there is a breech, go to
litigation to determine if there was a breech of contract. At the moment the
creditor takes possession of the deed, it is foreclosed.
iii. U.C.C. Statutory: For foreclosure on personal property. Use other state means
of foreclosure. Repossession. U.C.C. foreclosure is taking possession of the
collateral and selling it. Creditor can basically foreclose on the property
immediately when breach occurs. Equity of redemption is gone.
k. Cost of the statutory foreclosure: Taking the judicial process away from the debtor.
***CREATION OF SECURITY INTERESTS***
IV. Formalities for Attachment (Assignment 8)
a. U.C.C. 9-203(b) lists three formalities required for the creation of a security
interest enforceable against the debtor:
i. Value must have been given. Value defined in 1-204 (Value is given when
there is a contract to extend credit). Value is defined in 1-201(44) very
broadly.
1. 1-201(44) encompasses all forms of consideration that would support
an ordinary contract (including past consideration).
2. It is easy for an unsecured debt to become secured at any time in the
debtor-creditor relationship.
ii. The debtor must have rights in the collateral. The debtor must have some
right in what he is pledging as collateral. The courts have read 3 significant
subtexts into this rule:
1. They read it to mean that if the debtor owns a limited interest in
property and grants a security interest in the property, the security
interest will generally attach to only that limited interest.
2. Some owners who acquired their rights in property by fraud have
the power to transfer to bona fide purchasers ownership rights they
themselves do not have.
3. The last relates to the time at which the security interest becomes
enforceable. Debtor may grant a SI to creditor in collateral he doesnt
currently own, but may later acquire that collateral, and then the SI
becomes enforceable.
iii. One of the following conditions must be met:
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1. The debtor has authenticated (signed) a security agreement that

provides a description of the collateral and, if the security interest
covers timber to be cut, a description of the land concerned;
2. The collateral is not a certificated security and is in the possession of
the secured party under Section 9-313 pursuant to the debtors
security agreement;
3. The collateral is a certificated security in registered form and the
security certificate has been delivered to the secured party under
Section 8-301 pursuant to the debtors security agreement; or
4. The collateral is deposit accounts, electronic paper, investment
property, or letter-of-credit rights, and the secured party has control
under Section 9-104, 105, 106, or 107 pursuant to the debtors
security agreement
iv. Agreement and security interest defined in 1-201.
v. Must start at 9-203 and go through the code defining basic terms.
vi. Article 9 ratifies 2 types of security agreements:
1. Authenticated Records: Contract
2. Security Agreement Made Effective By Possession: Most uncommon.
3. An agreement inscribed on some tangible medium in which it can be
stored and from which it can be retrieved. Information so inscribed is
referred to as a record. The record must be authenticated by
processing it with the intention to identify the authenticator and
adopt or accept the record.
vii. Security Agreement: Contains a description of the collateral, a description
of the obligations secured, and provisions, defining default, specifying the
rights of the secured creditor on default, re-imposing other obligations on the
debtor.
b. In re Ace Lumber
i. Ace was indebted to Minot for quite a bit of money. Minot and Ace both
signed a financing statement and phone notes in order to try and get the debt
paid off. They filed the financing statement with the Secretary of State.
ii. Trustee of Ace, after it went bankrupt and Minot tried to collect collateral,
said that the above did not create a security interest.
iii. The Ninth Circuit said that all that is needed is the financing statement.
iv. The 3rd Circuit adopted the composite document rule, looking at all
documents and the intent of the parties.
v. Must look to the language of 9-203 to see if the telephone conversation
notes could count as an authentication of security agreement.
vi. The court used the composite document rule here, but decided that the
financing statement alone is not enough to assume a security agreement.
Any document that the parties wish to make up security agreement MUST
be signed.
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vii. This court said that you must show a meeting of the minds. Therefore, there
must be a description of the collateral, authentication, and if no
authentication, language that there is intent to make a security agreement.
viii. Court says, language missing is I debtor, grant x collateral, to creditor to
insure performance of the obligation.
ix. This case illustrates the consequence of failing to obtain an authenticated
security agreement: The creditor has no security interest and is therefore and
unsecured creditor.
c. 2 parts to the Composite Document Rule:
i. What documents make up the agreement under 9-203 (financing statement
and security agreement/contract)
ii. Is there a meeting of the minds? Must be subjective intent. May have to be
objective intent language that shows intent (one argumentargument
from Ace). A signature insures a meeting of the mind.
d. Justifications for Requiring Security Agreements to be Authenticated:
i. Preventing Fraud: Comment 3 to U.C.C. 9-203 explains that the requirement
of a writing in Article 9 is in the nature of a Statute of Frauds. The
modern theory is that courts should be skeptical about agreements that are
not in writing.
ii. Minimizing Litigation: If the security agreement and the description of
collateral are in writing, there will be less chance that the debtor and the
creditor will differ as to whether a security interest was granted and, if so,
what property was to serve as collateral.
iii. Cautioning Debtors: Requiring that the promise of security be in writing to
be enforceable will result in debtors making better decisions about whether
security agreements are in their interest.
iv. Channeling Transactions: By refusing to enforce oral security agreements
the law encourages the parties to put them in writing.
v. Discouraging Secured Credit: Secured creditors are typically banks and
insurance companies and they invoke a legal device that gives them
collection advantages not universally shared. When they do so imperfectly
(by failing to authenticate) observers believe it is fair to pull them down to
the level of the unsecured folks they were trying to best.
e. The competing policy is the doctrine of equitable mortgages: Under that
doctrine, the courts can enforce oral security agreements where to do so would be
equitable. The doctrine is impliedly repudiated in the text of 9-203(b)(3).
f. SIs in real estate (mortgage) require more formality.
V.

What Collateral and Obligations are Covered (Assignment 9):

a. What can we use to interpret the language of the statutes?
i. Notes/comments to the code
ii. Policy
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b. Section9-108 tells us when a description of collateral is sufficient. Sufficient

description may be met by noting one of the following:
i. Specific listing;
ii. Category;
iii. Except as otherwise provide in subsection (e), a type of collateral defined in
the UCC;
iv. Quantity (if somethingquantity alone is not enough)
v. Computational or allocational formula or procedure; or
vi. Except as otherwise provided in subsection (c), any other method, if the
identity of the collateral is objectively determinable.
c. Functional Test: If you go over to a debtors property and can read its description
in the security agreement, and know that it is the collateral describedthe
functional test has been met.
d. Although a security agreement is a contract between the debtor and the creditor, in
most circumstances, it binds 3rd parties as well (often secured party takes collateral
other creditors were counting on for collection).
e. Descriptions of Collateral 9-102:
i. Account: Except as used in account for means a right to payment of a
monetary obligation, whether or not, earned by performance..(see rest of
9-102(a)(2)).
ii. Consumer Goods: Goods that are used or bought for use primarily for
personal, family, or household purposes. 9-102(a)(23)
iii. Equipment: Goods other than inventory, farm products, or consumer goods.
9-102(a)(33). (i.e., Racehorses could be included).
iv. General Intangible: 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 before extraction.
The term includes payment intangibles and software. 9-102(a)(42) (i.e.
Owner of restaurant, when granting SI in general intangibles, is including
in that collateral his liquor license.)
v. Inventory: Goods other than farm products, which:
1. (A) Are leased by a person as lessor;
2. (B) Are held by a person for sale or lease or to be furnished under a
contract of service;
3. (C) Are furnished by a person under a contract of service; or
4. (D) Consist of raw materials, work in process, or materials used or
consumed in a business. 9-102(a)(48)
f. ****In re Shirel*** (important case!)
i. 9-108(a) did not exist when this case was decided.
ii. Now, saying everything charged to your sears card is not
supergeneric.
iii. Court was asking, was merchandise a reasonable description under 9-108.
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iv. Court said that you must use a graphic or detailed account/description, such
as the type or class of collateral. Refrigerator would have been sufficient.
v. Now, under 9-108(b)(6), all merchandise would be a sufficient
description b/c it is objectionably determinable.
vi. In deciphering code, use objective meaning.
g. Import does not mean effect.
h. After-Acquired Property
i. Term used to refer to property that a debtor acquires after the security
interest is created (accounts receivable often after-acquired collateral).
ii. There is a hitch in using the accounts as collateral: The accounts that exist
on any given day will disappear as they are paid off. The collateral existing
on the day of the loan transaction may shrink considerably in 30 days and
nearly disappear in 60 or 90.
iii. The accounts that are generated after the security agreement is signed are
after-acquired property. Having them as collateral is crucial to the
position of the accounts-secured lender.
iv. 9-204(a): Except as otherwise proved in subsection (b), a security agreement
may create or provide for a security interest in after-acquired collateral.
v. 9-204(b): A security interest does not attach under a term constituting an
after-acquired property clause to:
1. Consumer goods, other than an accession when given as additional
security, unless the debtor acquires rights in them w/in 10 days after
the secured party gives value; or
2. A commercial tort claim.
vi. After-acquired property clauses declining, b/c of the use of computers.
Some department stores include a security agreement on the receipt for each
credit purpose.
i. Stoumbous v. Kilimnik
Language is inventory on hand at May 1, 1982, equipment, and accounts.
i. Language is inventory on hand at May 1, 1982, equipment, and
accounts.
ii. P sold business to AAM retaining SI in inventory and equipment and used
after-acquired property language in regards to accounts receivable.
iii. Account is any right to payment upon sale of inventory.
iv. What counts as after-acquired property? Depends on the context.
v. After-acquired property clauses normal when creditors take SI in broad
categories of collateral (floating liens).
vi. P argues that where a creditor acquires a SI in equipment and inventory, the
court should find that this interest automatically extends to the after-acquired
inventory and equipment.
vii. There is support for the proposition that, where a financing statement or
security agreement provides for a security interest in all inventory, the
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document incorporates after-acquired inventory. The rationale is that the

inventory is constantly turning over, and no creditor could reasonably agree
to be secured by an asset that would vanish in a short time in the normal
course of business.
viii. Where the word/description does not connote that it is constantly turning
over, then more specific language is needed than for inventory.
j. After-acquired property can be used with inventory and accounts, anything else
you want to cover under this language you must specifically state.
k. After-acquired property clauses become ineffective upon the filing of bankruptcy.
l. Virtually any obligation can be secured if the parties make their intention clear.
m. A security interest can also secure a debt that does not yet exist but which the
parties contemplate will come into existence in the future. If the future obligation
will come into existence as the result of an additional extension of credit by the
secured creditor, it is referred to as a future advance.
VI. Proceeds, Products, and Other Value-Tracing Concepts (Assignment 10)
a. In order for something to be attached, debtor has to have rights in the collateral.
b. If a debtor knows that the debtor sold, rented, transferred collateral, but does
nothing about it, it waives its rights.
c. Collateral can change in form that puts them outside of the description of collateral
in the security agreement. The creditor usually has the security interest attach to
whatever the debtor receives in return.
d. One way to assure that a security interest will follow the value is to include express
language in the description of the collateral in the security agreement that covers
all forms the value is likely to take.
e. The express language included in security agreements to follow the value of the
collateral is called value tracing concepts. These include proceeds, products,
rents, profits and offspring.
f. Proceeds: 9-102(a)(64)(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 (i.e., proceeds of a slot machine); (C)
Rights arising out of collateral; (D) To the extent of the value of collateral ,
claims arising out of the loss, nonconformity, or interference with the use of,
defects or infringement of rights in, or damage to, the collateral, or; (E) To the
extent of the value of collateral and to the extent payable to the debtor or the
secured party, insurance payable by reason of the loss or nonconformity of,
defects or infringement of rights in, or damage to, the collateral.
i. When proceeds are disposed of or rights to arise out of them, whatever
is received is proceeds. Thus the proceeds of proceeds are proceeds.
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g.

h.

i.

j.

ii. Concepts of proceeds and after-acquired property frequently overlap,

but the former is a value-tracing concept, while the latter is not.
iii. Even if the security agreement makes no mention of proceeds, a security
interest automatically covers them. The rule derives from 9-203(f) and
9-315(a):
1. 9-203(f): The attachment of a security interest in collateral
gives the secured party the rights to proceeds provided by 9315 and is also attachment of a security interest in a supporting
obligation for the collateral.
2. 9-315(a): Except as otherwise provided in this article and in 2403(2): (1) A security interest or agricultural lien continues in
collateral notwithstanding sale, lease, license, exchange, or
other disposition thereof unless the secured party authorized
the disposition free of the security interest or agricultural lien;
and (2) A security interest attaches to any identifiable proceeds
of collateral.
Commingling proceeds: If the proceeds of a piece of collateral are put into a bank
account with unrelated money in it, the proceeds have lost identifiability (ability to
be traced). We can still look to records of the bank and the account to identify.
This test is called the lowest intermediate balance test. This rule provides that
the amount of the secured creditors collateral remaining in a bank account is equal
to the lowest balance of all funds in the account between the time the collateral was
deposited to the account and the time the rule is applied.
9-322(b) provides that 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 secured party. Even though the
cash proceeds that the debtor transfers from the bank account are free of the SI,
anything the debtor purchased with that cash may nevertheless still be proceeds.
Secured creditors sometimes authorize their debtors to dispose of the collateral free
of the security interest. When this occurs, 9-315(a)(1) gives a effect to the
authorization: The buyer takes free of the security interest and the secured creditor
can look only to the debtor and the proceeds.
The language of may SAs prohibits the sale of the collateral. The debtor must pay
in full in order to have the right to sell the collateral. Even if the security
agreement expressly prohibits sale of the collateral the debtor has the power under
9-401 to transfer ownership to a buyer.
i. 9-401(b) An agreement between the debtor and secured party which
prohibits a transfer of the debtors rights in collateral or makes the
transfer a default does not prevent the transfer from taking effect.
ii. The result is that after a sale that the secured party has not authorized to be
free of the security interest the buyer will own the collateral subject to the
security interest. The buyer may not know of that interest.
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iii. If a debtor sells the collateral w/out authorization, the SI continues in the
original collateral and also in the proceeds. This is no mere tracing of the
value of the collateral; it is potentially a multiplication of the value in favor
of the creditor. (see 9-102(a)(12) and (64) and 9-315(a)).
k. A security interest continues to encumber proceeds only so long as they remain
identifiable. 9-315(a)(2)
l. In re Oriental Rug Warehouse Club
i. Yasher rugs consigned rugs to D in a consignment agreement for a total of
$106,073.
ii. Yasher filed a UCC-1 financing statement w/ the Secretary of State.
iii. D sold some of the rugs, but didnt give Yasher the proceeds, instead bought
other rugs, after he had put the money into the account.
iv. This question comes down to the lowest intermediate balance.
v. For the proceeds, and new rugs to be considered proceeds under the code,
they must have come from the collateral, and be identifiable.
vi. Court held against P, b/c it cannot be ascertained what in the account was
proceed and what was not proceed.
m. Other Value Tracing Concepts:
i. Product: Something the collateral produces. The term is most commonly
used in the context of agriculture. These products may also be proceeds of
the collateral named because they arise out of collateral.
ii. Profit: Can be used to describe the excess of revenues of a business over the
expenses where the business itself is the collateral.
iii. Rent: Money paid for the temporary use of collateral.
iv. Products, profits, rents, and offspring of collateral are all arguably rights
arising out of collateral, thus they are arguably all proceeds.
n. Non-Value Tracing Concepts: After-acquired property, replacements, additions and
substitutions in a description of collateral are non-value tracing in that they can
pick up property acquired by the debtor with value not derived from the previously
existing collateral.
***DEFAULT***
VII. Default, Acceleration, and Cure Under State Law (Assignment 13)
a. Default
i. Default is the debtors failure to pay the debt when due or otherwise perform
the agreement between debtor and creditor.
ii. Creditors cant exercise their remedies under state law until the debtor
defaults.
iii. Security agreements nearly always define default expansively.
b. When is Payment Due?
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i. Installment Loans: When the parties contemplate that the debtor will repay
in a series of payments. Payment is due on an interval basis (monthly,
quarterly, or annually).
ii. Single Payment Loans: Many secured loans are made payable on a particular
day.
iii. Lines of Credit: The bank contracts to lend up to a fixed amount of money as
the debtor needs it. Under most line arrangements, the debtor borrows the
money simply by writing a check on its bank account.
c. Acceleration and Cure
i. Acceleration Clauses: Provisions in installment loan agreements that opt out
of the common law rule.
ii. The practical effect of acceleration is often to eliminate the debtors ability
to cure its default.
iii. Limits on the Enforceability of Acceleration Clauses: A secured creditor can
exercise its right to accelerate for even a tiny or fleeting default in payment,
as the following case makes clear. But if the grounds for acceleration are
merely that the secured creditor deems itself insecure, the creditor has the
right to accelerate only if it in good faith believes the prospect of payment or
performance is impaired.
iv. The debtors right to cure: A debtor has the right to cure a default by paying
the amounts then due.
d. Remedies: (1) Judicial remedies such as foreclosure and replevin, which are
administered by the courts, and (2) Self-help remedies such as repossession w/out
judicial process, the notification of account debtors, or the refusal to make further
advances to the debtor under a line of credit.

***PERFECTION***
VIII.

Article 9 Financing Statements: The Debtors Name (Assignment 17)

a. The Components of a Filing System
i. A filing system consists not only of the filed records but also of subsystems
for adding new records searching among the records, and removing obsolete
records.
ii. Financing Statements: Can be filed in paper or electronically.
iii. Index: When a financing statement is filed, the filing officer assigns it is a
unique number, usually referred to as the file number or in some local
systems, the book and page number.
1. A few kinds of filing systems index by a description of the collateral.
2. Real estate and motor vehicle filing systems can index by collateral.
3. 9-519(c) requires that the filing office index financing statements
according to the name of the debtor.
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iv. Search Systems: Some computer systems sort the index entries
alphabetically and print hard copies of the index
1. Problems: A misspelling early in a name can throw a name to a distant
part of the directory. The position of even a correctly spelled name
can be affected by arbitrary, difficult to discover rules for
alphabetizing.
2. Search Logic: Rules that determine what the program will consider
equivalent.
3. The Basket: Unindexed, undiscoverable documents, not-yet processed
kept in a basket on someones desk.
b. Correct Names for Use on Financing Statements
i. 9-506(a): A financing statement substantially complying with the
requirements of part 5 of Article 9 is effective, even if it includes minor
errors or omissions, unless the errors or omissions make the financing
statement seriously misleading.
ii. 9-503: Provides that a financing statement sufficiently provides the
name of a registered entity only if it provides the name of the debtor
indicated on the public record of the debtors jurisdiction of origin.
iii. 9-503(a)(4): As to an individual or partnership, the financing statement
must provide the individual or organizational name of the debtor.
iv. 9-503(b): A financing statement that provides the name of the debtor in
accordance with subsection (a) is not rendered ineffective by the absence
of:
1. A trade name or other name of the debtor, or
2. Unless required under subsection (a)(4)(B), names of partners,
members, associates, or other persons comprising the debtor.
v. 9-503(c): A financing statement that provides only the debtors trade
name does not sufficiently provide the name of the debtor.
vi. Individual Names
1.
The correct name of an individual is the name he/she is generally
known by in the community.
2.
Courts have consistently favored the longer or more formal version
of a name.
vii. Corporate Names:
1. The corporation can change that name only by filing an amendment
with the secretary of state.
2. In the large majority of states, the name must show that the entity is a
corporation. (Does this by including L.L.C., Inc., Co., etc.)
3. No state will permit the formation of 2 corporations with the same
name or confusingly similar names.
viii. Partnership Names
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1. The secretary of state will not permit use of a name that is the same
as, or confusingly similar to, that of a limited partnership already
chartered by the state.
2. The legal name of a general partnership is the name by which it is
generally know in the community.
3. 9-507 contains rules dealing with the effects of partnership name
changes on filing and searching.
4. 9-507(c): If a debtor so changes its name that a filed financing
statement becomes seriously misleading under Section 9-506:
a. The financing statement is effective to perfect a security
interest in collateral acquired by the debtor before, or
within 4 months after, the change; and
b. The financing statement is not effective to perfect a security
interest in collateral acquired by the debtor more than 4
months after the change, unless an amendment to the
financing statement which renders the financing statement
not seriously misleading is filed w/in 4 months after the
change.
ix. Trade Names
1. A trade name is a name under which a person or entity conducts
business that is not its legal name.
2. Most states have a fictitious name statute requiring that every person
or entity doing business in a name other than its own file notice in a
public record system provided for that purpose.
3. 9-503(b) and (c) make clear that trade names are neither necessary nor
sufficient to identify a debtor on a financing statement.
x. The Entity Problem
1. The difficulty of determining the correct name of a legal entity is
easily confused with a much more basic question: Who, or what, can
have a name?
2. U.C.C. says in 9-102(a)(28): A debtor means (A) a person having
an interest, other than a security interest or other lien, in the
collateral, whether or not the person is an obligor; (B) A seller of
accounts, chattel paper, payment intangibles, or promissory notes;
or (C) a consignee.
3. A person is defined in 1-201(27): Person means an individual,
corporation, business trust, estate, trust, partnership, limited
liability company, association, joint venture, government,
governmental subdivision agency, or instrumentality, public
corporation, or any other legal or commercial entity.
4. 1-201(25): Organization means a person other than an individual.
14

5. An entity might be a debtor under Article 9 and its name might show
up on financing statements, even though it is not recognized as a legal
entity for any other purpose.
c. Errors in the Debtors Names on Financing Statements
i. If the searcher searches under the correct name of the debtor, but does not
find the prior filing b/c the prior secured party listed an incorrect name for
the debtor on its financing statement, the prior filing is ineffective.
ii. 9-503(a): [Sufficiency of Debtors Name] A financing statement
sufficiently provides the name of the debtor:
1. If the debtor is a registered organization, only if the financing
statement provides the name of the debtor indicated on the public
record of the debtors jurisdiction of organization which shows
the debtor to have been organized;
2. If the debtor is a decedents estate, only if the financing statement
provides the name of the decedent and indicates that the debtor is
an estate;
3. If the debtor is a trust or a trustee acting w/ respect to property
held in trust, only if the financing statement;
a. Provides the name specified for the trust in its organic
documents or, if no name is specified, provides the name of
the settlor and additional information sufficient to
distinguish the debtor from other trusts having one or more
of the same settlors;
b. Indicates, in the debtors name or otherwise, that the debtor
is a trust or is a trustee acting w/ respect to property held in
trust; and
4. In other cases:
a. If the debtor has a name, only if it provides the individual or
organizational name of the debtor; and
b. If the debtor does not have a name only if it provides the
names of the partners, members, associates, or other person
comprising the debtor.
iii. 9-506(a): [Minor Errors and Omissions] a financing statement
substantially satisfying the requirements of this part is effective, even if
it has minor errors or omissions, unless the errors or omissions make
the financing statement seriously misleading.
iv. 9-506(c): [Financing Statement not Seriously Misleading] If a search of
the records of the filing office under the debtors correct name, using
the filing offices standard search logic, if any, would disclose a
financing statement that fails sufficiently to provide the name of the
debtor in accordance with section 9-503(a), the name provided does not
make the financing statement seriously misleading.
15

v. 9-517: If the search is made under the correct name of the debtor, but
does not find prior filings made in the correct name of the debtor b/c the
filing officer indexed the prior filings incorrectly, the prior filings are
nonetheless effective.
vi. Test for Sufficiency: When the sufficiently of the debtors name as provided
in the financing statement is challenged, the test is not whether the trustee or
later lender actually found the financing statement, but whether a
hypothetical search by the trustee or later lender under the correct name of
the debtor would have found the financing statement.
vii. Transamerica Commercial Finance Corp. v. General Electric Capital
Corp.: An error in the debtors name is seriously misleading if it would
prevent the reasonably diligent searcher from discovering the financing
statement.
IX. Article 9 Financing Statements: Other Information (Assignment 18)
a. 9-521 contains a standard form for filing and amending the financing statement in
a hard copy, but Article 9 does not require its use. The secured party can use its
own form or even file a copy of the security agreement as a financing statement.
b. 9-516(b): [Refusal to accept record; filing does not occur] Filing does not
occur w/ respect to a record that a filing office refuses to accept b/c:
i. (1) The record is not communicated by a method or medium of
communication authorized by the filing office,
ii. (2) An amount equal to or greater than the applicable filing fee is not
tendered;
iii. (3) The filing office is unable to index the record b/c:
1. (A) In the case of an initial financing statement, the record does
not provide a name for the debtor;
2. (B) In the case of an amendment or correction statement, the
record:
a. (i) Does not identify the initial financing statement as
required by 9-512 or 9-518 as applicable; or
b. (ii) Identifies an initial financing statement whose
effectiveness has lapsed under 9-515.
3. (C) In the case of an initial financing statement that provides the
name of a debtor identified as an individual or an amendment
that provides a name of a debtor identified as an individual which
was not previously provided in the financing statement to which
the record relates, the record does not identify the debtors last
name; or
4. (D) In the case of a record filed (or recorded) in the filing office
described in 9-501(a)(1), the record does not provide a sufficient
description of the real property to which it relates;
16

iv. (4) In the case of an initial financing statement or an amendment that

adds a secured party of record, the record does not provide a name and
mailing address for the secured party of record;
v. (5) In the case of an initial financing statement or an amendment that
provides a name of a debtor which was not previously provided in the
financing statement to which the amendment relates, the record does
not;
1. (A) Provide a mailing address for the debtor;
2. (B) Indicate whether the debtor is an individual or an
organization; or
3. (C) If the financing statement indicates the debtor is an
organization, provide:
a.
(i) A type of organization for the debtor;
b.
(ii) A jurisdiction of organization for the debtor; or
c.
(iii) An organizational identification number for the
debtor or indicate that the debtor has none.
vi. (6) In the case of an assignment reflected in an initial financing
statement under 9-514(a) or an amendment filed under section 9-514(b),
the record does not provide the name and mailing address for the
assignee; or
vii. (7) In the case of a continuation statement, the record is not filed w/in
the 6-month period prescribed by 9-515(d).
c. Financing Statement What does it need to be valid?
i. The name of the debtor.
ii. The name of the secured creditor
iii. An indication of the collateral covered.
iv. The mailing address of the secured creditor Section 9-516(b)(4)
v. The mailing address of the debtor.
vi. An indication of whether the debtor is an individual or a corporation. If the
debtor is an organization 9-516(b)(5)(C) also requires rejection of the
financing statement unless it contains 3 additional items of information.
vii. The type of organization (corp., LLC, etc).
viii. The debtors jurisdiction of organization.
ix. The debtors organizational identification number.
d. Improper Acceptance: If the information in 1-3 is correct, then it is effective even
if wrongly accepted; however, if the information in 4-9 is incorrect, then 9-338
applies.
e. 9-520(b): If a financing statement lacks any of these 9 pieces of info., other
than an indication of the collateral covered, the filing officer should refuse to
accept it and communicate to the filer the reason for refusal and the date and
time the record would have been filed. The attempt at filing has accomplished
nothing, but, notified of its failure, the filer has the opportunity to try again.
17

f. Financing party is meant to give notice to 3rd parties that certain property might be
encumbered, and additional investigation is needed by searcher.
g. Security agreement is meant to limit the collateral that the creditor has interest in.
h. The financing statement does not need to describe the collateral in the same way
that the security agreement does, it just needs to put 3rd parties on inquiry notice.
There is no need for after-acquired language.
i. Wrongly Accepted Filings
i. 9-520(c): [When filed financing statement effective] A filed financing
statement satisfying 9-502(a) and (b) is effective, even if the filing office
is required to refuse to accept it for filing under subsection (a).
However, 9-338 applies to a filed financing statement providing
information described in 9-516(b)(5) which is incorrect at the time the
financing statement is filed.
ii. The reasons why they are effective are that the omission necessitates further
inquiry, therefore misleading no one, and if the filing officer would have
rejected the filing, that would have given the filer the opportunity to correct
its error.
j. Wrongly Rejected Filings:
i. If the filing officer should accept an initial financing statement, either b/c it
is correct or b/c the manner in which it is incorrect does not warrant
rejection under 9-516, but the filing officer rejects it instead, the financing
statement will not appear on the public record. Instead, the filing officer will
stamp it with the date and time of the attempt to file and return it to the filer.
(9-520(b))
ii. 9-516(d): [Refusal to accept record; record effective as filed record] A
record that is communicated to the filing office w/ tender of the filing
fee, but which the filing office refuses to accept for a reason other than
one set forth in subsection (b), is effective as a filed record except as
against a purchaser of the collateral which gives value in reasonable
reliance upon the absence of the record from the files.
iii. So, the attempt to file nevertheless perfects the underlying SI sufficiently to
defeat lien creditors.
k. Grabowski v. John Deere & Co.
i. BOA and SP both had security interests in farming equipment of Ps.
ii. BOA filed first and gave a general description of the collateral and filed the
Ps business address.
iii. SP filed second and noted the collateral very specifically and gave the Ps
home address, where the equipment was kept for their home farming
business.
iv. SP says that BOAs financing statement is invalid b/c it is too general and
lists the business address, so 3rd parties would believe that the John Deere
business equipment was collateral, not the home business equipment.
18

v. Court said that BOAs financing statement was not too broad for a financing
statement under 9-108.
vi. The court says, regarding the address, that the purpose of it was not to give
the location of the collateral, but was given to contact the debtor if necessary
to further investigate.
l. If a filer entirely omits from the financing statement a piece of information
required in 9-516(b), the filing officer can and should reject the filing. 9-520(a).
m. If the required piece of info. is merely incorrect, however, that is insufficient
reason for rejection.
n. 9-338: If a SI or agricultural lien is perfected by a filed financing statement
providing information described in 9-516(b)(5) which is incorrect at the time
the financing statement is filed: (1) the SI or AL is subordinate to a conflicting
perfected SI in the collateral to the extent that the holder of the conflict SI
gives value in reasonable reliance upon the incorrect info.; and (2) a
purchaser, other than a secured party, of the collateral takes free of the SI or
AL to the extent that, in reasonable reliance upon the incorrect info., the
purchaser gives value and, in the case of chattel paper, documents, goods,
instrument, or a security certificate, receives delivery of the collateral.
o. 9-338 says that the wrongly accepted SI is perfected if it satisfies 9-520. The
security interest to the judgment creditor is subordinate to a purchasers interest if
the purchaser gives value
p. Why certain information is included in financing statements and the effect of
omission:
i. Name of Secured Party: Searchers may need the name of the secured party
for 2 reasons:
1. If terminations statements, released of collateral, or subordination
agreements are needed to modify or eliminate prior filings to pave the
way for the new loan, the name of the secured party on the financing
statement tells the searcher who can or must authenticate them.
2. The searcher may need info. from the secured party; the secured
partys name on the financing statement assures the searcher that it is
inquiring of the right person.
*Function of secured partys name on financing statement is to
unambiguously identify the holder of the SI
ii. Description of Collateral:
1. The description of collateral in a financing statement is often identical
to that in the SA, but that is not always so.
2. There are differences in the legal standards for the description of the
collateral in SA and financing statements:
a. Super-generic descriptions are valid in financing statements
but not in SAs.
19

b. The function of the financing statement is to put searchers on

notice of the identity of the collateral. We give words in the
financing statement their common meanings. In contrast,
words in descriptions of SAs are given the meaning that the
parties intended.
iii. Authorization to File a Financing Statement
1. The purpose of a financing statement is to advise later lenders of the
existence of a prior security interest.
2. In some states it is illegal to file or refuse to release a fraudulent
lien.
3. Before filing a financing statement, the secured creditor must obtain
authorization from the debtor in an authenticated record. 9-509(a)(1).
4. So, all the creditor needs to do to obtain the right to file a financing
statement is what it already had to do to become a secured creditor
get the debtor to authenticate a security agreement.
5. 9-102(a)(7): Authenticate means:
a. (A) To sign; or
b. (B) To execute or otherwise adopt a symbol or encrypt or
similarly process a record in whole or in part, with the
present intent of the authenticating person to identify the
person and adopt or accept a record.
6. 9-510(a): [Filed record effective if authorized] A filed record is
effective only to the extent that it was filed by a person that may
file it under 9-509.
7. 9-509 Persons Entitled to File a Record:
a. [Person entitled to file record] A person may file an initial
financing statement, amendment that adds collateral
covered by a financing statement, or amendment that adds
a debtor to a financing statement only if:
i. (1) The debtor authorizes the filing in an
authenticated record or pursuant to subsection (b) or
(c); or
ii. (2) The person holds an agricultural lien that has
become effective at the time of filing and the financing
statement covers only collateral in which the person
holds an agricultural lien.
b. [Security agreement as authorization] By authenticating or
becoming bound as debtor by a security agreement, a
debtor or new debtor authorizes the filing of an initial
financing statement, and an amendment, covering:
i. (1) The collateral described in the SA; and
20

q.
r.
s.

t.

u.
v.

ii. (2) Property that becomes collateral under 9-315(a)

(2), whether or not the SA expressly covers proceeds.
c. [Acquisition of collateral as authorization] By acquiring
collateral in which a SI or agricultural lien continues under
9-315(a)(1), a debtor authorizes the filing of an initial
financing statement, and an amendment, covering the
collateral and property that becomes collateral under 9315(a)(2).
d. [Person entitled to file certain amendments] A person may
file an amendment other than an amendment that adds
collateral covered by a financing statement or an
amendment that adds a debtor to a financing statement only
if:
i. (1) The secured party of record authorizes the filing;
or
ii. (2) The amendment is a termination statement for a
financing statement as to which the secured party of
record has failed to file or send a termination
statement as required by 9-513(a) or (c), the debtor
authorizes the filing, and the termination statement
indicates that the debtor authorizes it to be filed.
e. [Multiple secured parties of record] If there is more than
one secured party of record for a financing statement, each
secured party of record may authorize the filing of an n
amendment under subsection (d).
Section 516 requires that a filer provide information.
Effective as a filed record = filed (perfected)
Purchase defined in 1-201: It has been interpreted that involuntary liens are not
purchases. (1-201(29): Purchase means taking by sale, lease, discount,
negotiation, mortgage, pledge, lien, security interest, issue or reissue, gift, or
any other voluntary transaction creating an interest in property.)
9-515(d): A record that is communicated to the filing office with tender of the
filing fee, but which the filing office refuses to accept for a reason other than
one set forth in subsection (b), is effective as a filed record except against a
purchaser (defined in 1-201) of the collateral which gives value in reasonable
reliance (must have looked and found nothing) upon the absence of the record
from the files.
Code is meant to protect lenders. That is why 516(d) made a distinction between
purchasers and judgment creditors.
If you leave information that falls under 9-516(b)(5) and it is not rejected by the
officer, then it is valid, b/c the information is not incorrect, just missing. This is b/c
no one is misled.
21

w. If the financing statement is not filed, then it is seriously misleading b/c it does not
give notice.
x. 520 is saying that the financing statement is effective only if it satisfies 502(a) and
(b).
X. Exceptions to the Article 9 Filing Requirement (Assignment 19)
a. 3 Ways to Perfect Other than Filing:
i. Possession
ii. Automatic Perfection by operation of law.
iii. Secured creditor may give notice to or through some person or organization
that controls the collateral.
b. Possession-Gives-Notice Theory
i. 9-310(b)(6): (The filing of a financing statement is not necessary to
perfect a SI): In collateral in the secured partys possession under 9-313.
(SEE 9-313 IN CODE BOOK)
ii. ***(9-310 also provides other situations in which the filing of a financing
statement is not necessary to perfect a SI.)***
iii. Exception to filing requirement is grounded on 2 assumptions: A person who
buys or lends against certain kinds of collateral will look at the collateral
before disbursing its money. Looking at collateral in the possession of a
secured party will alert the searcher to the possible existence of a SI. These
2 assumptions called possession-gives-notice.
iv. Problem: Possession doesnt always give notice, especially to
unsophisticated lenders. It favors the relatively sophisticated parties who
engage in these transactions repeatedly, at the expense of people who
stumble occasionally into a system in which everybody knows things that
they do not.
c. What is Possession?
i. The legal right to control is determinative of possession.
ii. A secured party can possess collateral through an agency.
iii. 9-313(a) [Perfection by possession or delivery] Except as otherwise
provided in subsection (b), a secured party may perfect a SI in
negotiable documents, goods, instruments, money, or tangible chattel
paper by taking possession of the collateral. A secured party may
perfect a security interest in certificated securities by taking delivery of
the certificated securities under 8-301.
d. Possession as a means of Perfection:
i. Depending on the type of collateral, possession may play any of 3 roles in
the perfection of SIs:
1. Possession is an alternative form of perfection for some types of
collateral.
2. Possession is an ineffective form for other types of collateral.
22

3. Possession is the sole means of perfecting a SI in money.

ii. Possession is an alternative to filing with goods, instruments, tangible chattel
paper, negotiable documents, and certificated securities.
1. 9-312(a): A security interest in chattel paper, negotiable
documents, instruments, or investment property may be perfected
by filing.
2. 9-312(c): [Goods covered by negotiable document] While goods
are in the possession of a bailee that has issued a negotiable
document covering the goods:
a. (1) A security interest in the goods may be perfected by
perfecting a SI in the document; and
b. (2) A SI perfected in the document has priority over and SI
that becomes perfected in the goods by another method
during that time.
3. 9-310 says you must file to perfect except., and 9-313 says you may
possess goods to perfect the SI. You dont HAVE to possess, but you
can.
4. Instruments: File or possess to perfect SI (look at 310 and 313).
Possession trumps filing.
5. ***Perfection by possession is superior to perfection for goods,
instruments, tangible chattel paper, negotiable documents, and
certificated securities*** Purchasers who subsequently take
possession of these kinds of collateral generally take priority over
secured creditors who perfected by filing.
6. Perfection by possession trumps perfection by filing.
7. 9-330(d): [Instrument purchasers priority] Except as otherwise
provided in 9-331(a), a purchaser of an instrument has priority
over a method other than possession if the purchaser gives value
and takes possession of the instrument in good faith and w/out
knowledge that the purchase violate the rights of the secured
party.
8. 9-331(a): [Rights under Articles 3, 7, and 8 not limited] This
article does not limit the rights of a holder in due course of a
negotiable instrument, a holder to which a negotiable document of
title has been duly negotiated, or a protected purchaser of a
security. These holders or purchasers take priority over an earlier
SI, even if perfected, to the extent provided in Articles 3, 7, and 8.
9. The effect of such liberalization of the perfection requirement is to
impose an additional burden on the searcher. Searcher must check
both the system and the collateral itself.
iii. Perfection by possession is impossible for SI in accounts and general
intangibles.
23

iv. The secured party who takes possession of a negotiable promissory note is
regarded as having perfected in the right to payment it represents.
v. To be suited to perfection by possession collateral must have a physical
embodiment recognizable as exclusively representing the right.
vi. The reason that money can only be perfected by possession is to encourage
free negotiability of money, unhampered by the need to conduct searches in
the system.
vii. 9-312(a) permits the perfection of SIs in both instruments and chattel paper
by filing.
viii. 9-330 protects the purchasers who take possession of chattel paper or
instruments from SIs perfected in them by filing. B/c purchaser is defined
to include those who take a SI in the chattel paper or instruments as well as
those who buy them, the effect is to give priority to those who perfect by
taking possession over those who perfect by filing.
e. Collateral in the Control of the Secured Party
i. Usually control things you cant possess.
ii. Article 9 recognizes control of some kinds of collateral as a substitute for
filing. They include:
1. Deposit accounts: Type of property generally referred to as a bank
account. 9-102(a)(29). This definition excludes instruments. 9-104
indicates 3 ways to take control of deposit accounts:
a. Secured party can be the bank in which the account is
maintained.
b. The debtor, the secured party, and the bank can authenticate a
record instructing the bank to comply with the secured partys
instructions with regard to the account.
c. The secured party can become the banks customer by putting
the account in the name of the secured party.
2. Electronic chattel paper
3. Investment property
4. Letter of credit rights
iii. The secured party is in control of the account even though the debtor can
write checks on the account and perhaps withdraw the entire amount. The
control specified 9-104 is potential control, not actual control.
iv. Parties who wish to encumber a deposit account w/out putting other
creditors on notice could do so by agreement.
v. If anybody is controlling the collateral other than the debtor (band and
debtor can control together), you must ask why they have that control. B/c if
theyve taken control to put you on notice, you have to find that out.
f. Purchase-Money Security Interests in Consumer Goods
i. 9-309(1) creates an exception to the filing requirement for most PMSIs in
consumer goods. The following SIs are perfected when they attach: (1)
A PMSI in consumer goods, except as otherwise provided in 9-311(b) w/
24

respect to consumer goods that are subject to a statute or treaty

described in 9-311(a).
ii. SIs that met the terms of this exception are considered automatically
perfected.
iii. Purchase-money is giving you the money to purchase the collateral.
Purchase-money can also exist when for instance, you get a Best Buy credit
card to buy a plasma T.V.
iv. 9-103(b)(1): A security interest in goods is a purchase-money security
interest to the extent that the goods are purchase-money collateral w/
respect to that security interest.
v. PMSIs arise in 2 situations:
1. Ex: Pauline buys a piano from Sweigerts for $2,000. She pays $100
down and signs a note promising to pay the remaining $1,900 to
Sweigerts. If the note is secured by a SI, it is PMSI.
2. Ex. Pauline makes application to Friendly Finance for a loan that will
enable her to buy the piano. She signs a promissory note for $1,900
and SA listing the piano she is about to purchase as collateral.
Friendly lends her the $1,900 and she uses the money, together with
her $100 to buy the piano from Swiegerts. The difference from the
first situation is that a 3rd party provided the financing for the purchase
and became a secured.
vi. A secured party can easily lose the purchase-money status of its interest. Ex:
Pauline deposits the $1,900 loan proceeds into her bank account, and then
writes a check for $2,000. A question may arise as to whether the loan
proceeds were in fact used to buy the piano.
g. Consumer Goods
i. ***A PMSI is automatically perfected only in consumer goods.***
ii. A PMSI in any other kind of goods must be perfected by the ordinary means
required in Code for the type of collateral.
iii. 9-102(a)(23): Consumer goods means goods that are used or bought for
use primarily for personal, family, or household purposes.
h. ***General Intangibles and Accounts: Not mentioned in 9-310, you must
file.***
i. SIs Not Governed by Article 9 or Another Filing Statute: Interests in wage claims,
insurance policies and claims, real estate interests, and non-commercial tort claims.
XI. The Land and Fixtures Recording System (Assignment 20)
a. Real Property Recording System
i. Different from personal property filing system in 4 ways:
1. Contains documents evidencing liens against real estate, and
documents evidencing transfers of ownership (deeds). The personal
property equivalent of deeds (bills of sale), are not filed in Article
filing system.
25

2. Costs more than filing in personal property system.

3. Real estate recording systems arent self-purging.
4. Debtors name problem relatively insignificant.
ii. Can search by names of parties and by the description of property.
b. Perfecting in fixtures
i. Nothing in Article 9 prevents the creation of perfection of SI in fixtures
under real estate law of the state. 9-334(b): [SI in fixtures under realproperty law] This article does not prevent creation of an encumbrance
upon fixtures under real property law.
ii. In re Cliffs Ridge Skiing Corp.
1. Court puts forth a 3 part test to tell whether something is a good or a
fixture:
a. Is the property annexed or attached to the realty,
b. Is the attached property adapted or applied the use of the realty,
and
c. Is it intended that the property will be permanently attached to
the realty.
2. The book gives us another test: Integrated Industrial Plant test
Goods can be a fixture if it is integral to a business or industry
whether or not it is attached.
3. A mortgage does not cover a fixture until it is a part of the real
property, but a fixture filing does.
4. A fixture filing is nothing further from a regular financing statement
other than where you file it.
iii. By filing an ordinary financing statement in the personal property filing
system, a secured creditor can perfect a SI in goods that are fixtures. Such a
filing is not a fixture filing, but there is nothing in Article 9 that says one
must make a fixture filing to perfect in fixtures. 9-501(a).
iv. 9-501 does not require filing in the real estate records to perfect in fixtures;
it merely requires filing in the real estate records to perfect by means of a
fixture filing.

***MAINTAINING PERFECTION***
26

XII. Maintaining Perfection Through Changes of Name, Identity and Use (Assgn. 23)
a. Changes in the Debtors Name
i. When dealing with a corporation, there are ways that searcher prior
interests/loans:
1. Insisting that debtor prove its incorporation under the laws of some
state or country.
2. Searching the records of that state or country for changes of the
debtors name.
3. Having discovered that the debtor was previously named something
else, conducting its search in that name as well as the new one.
ii. When there is a name change for corp. or individual, FS needs to be
amended to reflect that change.
iii. If a 2nd bank files a FS under debtors new name on collateral that the 1st
bank already had a SI, a merger is created.
iv. 9-507(a): [Disposition] A filed FS remains effective w/ respect to
collateral that is sold, exchanged, leased, licensed, or otherwise disposed
of and in which a SI or agricultural lien continues, even if the secured
party knows of or consents the disposition. (Ex: Teresa borrowed money
against her equipment, later incorporates her business and names it Williams
Electronics and transfers ownership in collateral to corp. The FS is still
effective as against that collateral).
v. 9-507(b): [Information becoming seriously misleading] Except as
otherwise provided in subsection (c) and 9-508, a financing statement is
not rendered ineffective if, after the financing statement is filed, the
information provided in the financing statement becomes seriously
misleading under 9-506.
vi. 9-507(c): [Change in debtors name] If a debtor so changes its name that
a filed financing statement becomes seriously misleading under 9-506:
1. The FS is effective to perfect a security interest in collateral
acquired by the debtor before or w/in 4 months after, the change;
and,
2. The FS is not effective to perfect a security interest in collateral
acquired by the debtor more than 4 months after the change,
unless an amendment to the FS which renders the FS not
seriously misleading is filed w/in 4 months after the change.
vii. Purpose of 4 month rule is for the merger to occur.
viii. If Bank 2 finds out that debtor changed her name, they need to wait out the 4
months to see if Bank 1 re-files. Banks usually wont make loan until 4month period has elapsed.
b. Changes Affecting Description of Collateral
i. Type I changes: Change in use. Bank 1 lends against debtors inventory.
Debtor starts using inventory as equipment and seeks to borrow against it.
27

Bank 2 will discover Bank 1s FS, but it will say inventory, so they may not
suspect the equipment they are about to lend against was once that inventory.
9-507(b) says FS still effective.
ii. Type II changes: Change in type. Lumber Co. takes SI in wood it sells to M.
M then builds hot tub and attaches it to real property so that it is a fixture. 9507(b) forgives the change in description, but not the failure to file a fixture
filing.
c. Exchange of the collateral
i. Barter Transactions:
1. 9-315(d)(1): [A perfected SI in proceeds becomes unperfected on
the 21st day after the SI attaches to the proceeds unless:] the
following conditions are satisfied:
a. A filed FS covers the original collateral;
b. The proceeds are identifiable cash proceeds; or
c. The proceeds are not acquired w/ cash proceeds.
2. 3 types:
a. Type 0: The proceeds received by debtor fall w/in the
description of collateral of already-filed FS. (Ex: Bank lends
against Coyote loaderdescription in FS is loader. Debtor
exchanges for Caterpillar loader. This is ok).
b. Type 1: Exchange of collateral for noncash proceeds where
those proceeds are property not covered by the description in
the FS but are property in which a SI could be perfected by
filing in the office where the secured creditors FS is already on
file. (Ex: Exchange of inventory for equipmentstill
covered/perfected).
c. Type 2: Exchange of collateral for non-cash proceeds of a type
in which filing is required in a filing office other than the one in
which the original collateral was perfected by filing. (Ex:
Exchange coyote loader for aircraftno longer perfected
does not invoke 9-315(d)(1) exception). To be continuously
perfected in the 2 items so that it has one perfection dating from
the time of the filing of the original collateral, the secured party
must make these filings w/in 20 days from the time the debtor
receives the proceeds/exchange.
ii. Collateral to Cash Proceeds to Non-Cash Proceeds
1. If debtor sells collateral for cash and then buys something else with
that cash, the creditor must file w/in 20 days of the receipt of new
property to be continuously perfected. If 2nd filing occurs after the end
of the 20-day period, it dates only from the time it was made not
continuous.
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2. This type of transaction governed by 9-315(d)(3).

iii. Collateral to Cash Proceeds
1. 9-315(d)(2) grants secured parties continuous, perpetual perfection in
identifiable cash proceeds.
2. Bank account can be cash proceeds. As long as the account is
identifiable, it attaches automatically.
3. Creditor needs to take control of the deposit account to perfect.
XIII.

Maintaining Perfection Through Relocation of Debtor or Collateral (Assgn. 24)

a. 9-301 through 9-307 tells where to file and search.
b. Initial Perfection
i. At the Location of the Debtor:
1. 9-301(1): Except as otherwise provided in this section, while a
debtor is located in a jurisdiction, the local law of that jurisdiction
governs perfection, the effect of perfection or non-perfection, and
the priority of a SI in collateral.
2. 9-307(a)-(b):
a. In this section, place of business means a place where a
debtor conducts its affairs.
b. Except as otherwise provided in this section, the following
rules determine a debtors location:
i. (1) A debtor who is an individual is located at the
individuals principal residence.
ii. (2) A debtor that is an organization and has only one
place of business is located at the place of business.
iii. (3) A debtor that is an organization and has more than
one place of business is located at its chief executive
office.
3. One need not live in the building currently for it to qualify as ones
principal residence. Do not need to intend to stay there permanently
either.
4. 9-307(e): A registered organization that is organized under the law
of a state is located in that state.
5. For an unregistered organization, they must file where their principal
place of business is. The only time we care about place of business is
when there is just one.
6. Nerve Center Test: The organization is located in the place from
which it is managedregardless of the location of its operations. The
place from which it is managed is its nerve center, the place from
which commands originate.

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ii. At the location of the Collateral: Fixture filing must be made in the office
designated for the filing or recording of a mortgage on the real property to
which the fixture is attached9-501(a)(1).
iii. Relocation of Debtor
1. 9-316(a): [General Rule: Effect on perfection of change in
governing law] A SI perfected pursuant to the law of the
jurisdiction designated in 9-301(1) or 9-305(c) remains perfected
until the earliest of:
a. The time perfection would have ceased under the law of that
jurisdiction;
b. The expiration of 4 months after a change of the debtors
location to another jurisdiction; or
c. The expiration of 1 year after a transfer of collateral to a
person that thereby becomes a debtor and is located in
another jurisdiction.
2. If a debtor reincorporates by merger or sale of assets, 9-316(a)(3) will
apply, giving the secured creditor 1 year to discover the merger and
perfect in the destination state.
***PRIORITY***
XIV.The Concept of Priority
a. 2 basic principles govern the timing of the enforcement of competing liens against
the same collateral:
i. Absent an agreement to the contrary, any lien holder may foreclose while the
debtor is in default to that lien holder. The existence of a prior lien generally
doesnt block the rights under a subordinate one.
ii. No lien holder is compelled to foreclose.
b. General rules of Foreclosure (9-615 and 9-617):
i. The sale discharges from the collateral the lien under which the sale is held
and all subordinate liens.
ii. The sale transfers the debtors interest in the collateral to the purchaser,
subject to all prior liens.
iii. The proceeds of sale are applied first to expenses of sale, then to payment of
lien under which sale was held, the to payment of subordinate liens in the
order of priority.
iv. The debt underlying each lien is reduced by amount paid to lien holder from
sale, but balance remains owing. The lien holder is then entitled to a
judgment against the debtor for deficiency (deficiency judgment) unless a
statute provides otherwise.
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c. 9-617(a): [Effects of disposition] A secured partys disposition of collateral

after default:
i. (1) Transfers to a transferee for value of the debtors rights in the
collateral;
ii. (2) Discharges the SI under which disposition (sale) is made; and
iii. (3) Discharges any subordinate SI or other subordinate lien.
d. If 1st mortgagor forces sale:
i. Mortgage sale will discharge 1st and 2nd mortgage/liens so that the purchaser
will own the vacation home free and clear of them.
ii. Sheriff will use the 1st proceeds of sale to pay the expenses of sale.
iii. Sheriff will pay the next amount to 1st mortgagor.
iv. Sheriff will pay next amount (if any) to 2nd mortgagor.
v. Sheriff will pay any remaining balance to debtor (ignoring claims of
unsecured creditors).
nd
e. If 2 mortgagor forces sale:
i. Mortgage sale discharges only the 2nd mortgage and subordinate liens; the
purchaser will take subject to first mortgage.
ii. Sheriff will use first proceeds of sale to pay the expenses of sale.
iii. Sheriff will not pay anything to 1st mortgagor, but will pay next amount to
2nd mortgage holder.
iv. Sheriff will pay any remaining balance to debtor (unless there are other
subordinate secured claims).
f. At foreclosure were just getting rid of security, not the contract that secured that
interest.
g. Mortgages usually have priority over judgment liens for the simple reason that
when a debtor has judgment liens against his property, no on will make a mortgage
loan to debtor.
h. Grocers Supply Co. v. Intercity Investment Properties (Right to Possession
Between Lien Holders)
i. Grocers Supply lent money to The Grocery Store and Cedric Wise.
ii. Intercity foreclosed on a judgment lien, knowing that P had an interest in the
inventory of the Grocery Store. Intercity took possession of the inventory
and did not notify P of the foreclosure.
iii. P had to pay $24,000 to re-acquire the inventory.
iv. The security agreement between P and The Grocery Store provided that a
judgment against the debtor, or the levy, seizure, or attachment of the
collateral constituted a default and upon the occurrence of any of those
events, the entire obligation becomes immediately due and payable at
secured partys option w/out notice to debtor.
v. Court held that Ps right to take possession of the collateral was superior to
the right of Intercity.
vi. This case says that senior creditor has an absolute right to possession. So
the senior creditor can keep a junior creditor from collecting by taking
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possession of the collateral whenever they want. The junior creditor is

subjected to the whimsy of the senior creditor.
i. Frierson v. United Farm Agency
i. This case says that if the senior lien holder has the right to foreclose (like in
Grocers Supply) but chooses not to, and this frustrates the ability of junior
creditors to foreclose, then the senior lender must foreclose.
j. Senior lien creditor can assert its right to possess if collateral would be wasted
upon sale.
k. Collusion: This case says that if the senior lien holder has the right to foreclose
(like in Grocers Supply) but chooses not to, and this frustrates the ability of junior
creditors to foreclose, then the senior lender must foreclose.
***COMPETITIONS FOR COLLATERAL***
XV. Lien Creditors Against Secured Creditors (Assignment 28)
a. How Creditors Become Lien Creditors
i. 9-102(a)(52) defines lien creditor broadly as including any creditor who has
acquired a lien on the property involved by attachment, levy or the like.
ii. Attachment is when a plaintiff in litigation receives judgment, gives writ to
sheriff, and levies on it. Virtually synonymous with execution, but
attachment occurs before judgment is entered, execution occurs after.
iii. Garnishment: Unsecured creditor may obtain lien creditor status by reaching
debts owing from a 3rd party to debtor or property of debtor is in 3rd parties
hands.
iv. Recordation of a Judgment for Money Damages: Recordation of judgment in
real property recording system creates and perfects a lien against all real
property owned by debtor w/in county.
b. Priority Among Lien Creditors
i. First creditor to take the legally designated crucial step has 1st lien, the 2nd to
take step has 2nd lien and so forth.
ii. Laws generally award a lien priority as of one of four dates:
1. Date of Levy: Date on which sheriff or other officer took possession
of particular property.
2. Date of Delivery of Writ: A writ of execution, attachment, or
garnishment typically is issued by clerk of court on request of creditor
who is entitled to it. Creditor then delivers writ to sheriff.
3. Date of Service of Writ of Garnishment: Service is delivery of writ by
sheriff to garnishee, typically bank or employer.
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4. Date of Recordation of Judgment: Date judgment is delivered to filing

or recording officer.
iii. Priority Between Lien Creditor and Secured Creditor
1. Priority between lien creditor and non-purchase money secured
creditor depends on whether the lien creditor becomes a lien creditor
before secured creditor does either of 2 things:
a. Perfects its SI or
b. Files a financing statement and complies with 9-203(b)(3).
2. 9-308(a): [Perfection of SI] Except as otherwise provided in this
section and 9-309, a SI is perfected if it has attached an all of the
applicable requirements for perfection in 9-310 through 9-316
have been satisfied. A SI is perfected when it attaches if the
applicable requirements are satisfied before the SI attaches.
3. In most states, lien creditors become lien creditors on the date of levy.
4. 9-317(a): [Conflicting SIs and rights of lien creditors] A SI or AL
is subordinate to the rights of:
a. A person entitled to priority under 9-322; and
b. Except as otherwise provided in (e), a person that becomes a
lien creditor before the earlier of the time:
i. The SI or AL is perfected; or
ii. One of the conditions specified in9-203(b)(3) is met
and a FS covering the collateral is filed.
5. Priority Between Lien Creditors and Mortgage Creditors
a. Priority b/w lien creditors and mortgage creditors is governed
by real estate law.
b. RE law generally gives priority to fist lien created and then
reverses the result only if the failure to perfect offends the
states recording statute.
c. A mortgage granted before the judgment creditor became lien
creditor by recording its judgment has priority over judgment
lien even though judgment lien was 1st lien perfected.
6. Purchase-Money Priority
a. When a 2nd in time interest takes precedence over an earlier
interest, the cognoscenti describe the 2nd secured creditor as
priming the 1st. Frequently occurs with PMSIs, which may
be granted and perfected long after the competing liens they
prime.
b. PMSIs exception to first in time is first in right rule.
c. 9-317(e): [PMSI] Except as otherwise provided in 9-320 and
9-321, if a person files a FS w/ respect to a PMSI before or
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w/in 20 days after debtor receives delivery of the collateral,

the SI take priority over the rights of a buyer, lessee, or lien
creditor which arise between the time the SI attaches and
the time of filing.
XVI.

Secured Creditors Against Secured Creditors (Assignment 32)

a. The Basic Rule: First to File or Perfect
i. 9-322(a): [General Priority Rules] Except as otherwise provided in this
section, priority among conflicting SIs and ALs in the same collateral is
determined according to the following rules:
1. Conflicting perfected SIs and ALs rank according to priority in
time of filing or perfection. Priority dates from the earlier of the
time a filing covering the collateral is 1st made or the SI or AL is
first perfected, if there is no period thereafter when there is
neither filing nor perfection.
2. A perfected SI or AL has priority over a conflicting unperfected SI
or AL.
3. The first SI or AL to attach or become effective has priority if
conflicting SIs and Agricultural liens are unperfected.
ii. ***Note, the rule is the first to file or perfect***
iii. 9-325 Priority of SIs in Transferred Collateral:
1. (a) [Subordination of SI in transferred collateral] Except as
otherwise provided in (b), a SI created by a debtor is subordinate
to a SI in the same collateral created by another person if:
a. (1) The debtor acquired the collateral subject to the SI
created by the other person;
b. The SI created by the other person was perfected when the
debtor acquired the collateral; and
c. There is no period thereafter when the SI is unperfected.
2. (b) [Limitation of Subsection (a) subordination] Subsection (a)
subordinates a SI only if the SI:
a. Otherwise would have priority solely under 9-322(a) or 9324; or
b. Arose solely under 2-711(3) or 2A-508(5).
iv. Priority of Future Advances
1. Rule regarding future advances is essentially the rule applied between
a mortgage holder and lien creditor.
2. Provided only that the secured creditors financing statement covers
the collateral, all advances made by the secured creditor to the debtor
have priority as of the foiling of the FS.
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3. Future advances are a type of collusion.

4. If there is an agreement saying that the secured creditor will give
money w/in a certain amount of time, and it is made before the SC
knows about a lien creditor, the SC can lend that money at any time in
the future. If there is no agreement, and the SC doesnt lend w/in 45
days of levy, then the lien creditor takes priority.
5. A SC cannot lend more than the amount set forth in the original
agreement, unless it makes a new security agreement (which it must
do before knowledge of the lien in order to attach to original SA and
get priority).
6. The general rule for attachment: If the documents at the time of the
creation of the SA says we will lend x amount of dollars and x more
whenever we deem necessary, then any future advance will attach and
will have priority. If there is no such agreement, any future advance
will not be attached.
7. 9-323 [Future Advances]
a. [When priority based on time of advance] Except as
otherwise provided in (c), for purposes of determining the
priority of a perfected SI under 9-322(a)(1), perfection of
the SI dates from the time an advance is made to the extent
that the SI secures and advance that:
i. (1) Is made while the SI is perfected only:
1. Under 9-309 when it attaches; or
2. Temporarily under 9-312(e), (f), or (g); and
ii. (2) Is not made pursuant to a commitment entered
into before or while the SI is perfected by a method
other than under 9-309 or 9-312(e), (f) or (g).
b. [Lien Creditor] Except as otherwise provided in (c), 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:
i. (1) W/out knowledge of the lien; or
ii. Pursuant to a commitment entered into w/out
knowledge of the lien.
c. [Buyer of Receivables] Subsections (a) and (b) dont apply
to a SI held by a secured party that is a buyer of accounts,
chattel paper, payment intangibles, or promissory notes or a
consignor.
d. [Buyer of Goods] Except as otherwise provided in (e), a
buyer of goods other than a buyer in ordinary course of
business takes free of a SI to the extent that it secures
advances made after the earlier of:
35

i. (1) The time the secured party acquires knowledge of

the buyers purchase; or
ii. 45 days after the purchase.
e. Subsection (d) does not apply if the advance is made
pursuant to a commitment entered into w/out knowledge of
the buyers purchase and before the expiration of the 45 day
period.
f. Except as otherwise provided in subsection (g), a lesee of
goods, other than a lessee in ordinary course of business,
takes the leasehold interest free of a SI to the extent that it
secures advances made after the earlier of:
i. (1) Te time the secured party acquires knowledge of
the lease; or
ii. 45 days after the lease contract becomes enforceable.
g. Subsection (f) does not apply if the advance is made
pursuant to a commitment entered into w/out knowledge of
the lease and before the expiration of the 45-day period.
v. Priority in After-Acquired Property
1. If a debtor later acquires property that fits the description in the SA,
the SI attaches under 9-203(b).
2. As against other secured creditors of the debtor, the after-acquired
lenders priority dates from the time of its filing. A SI has the same
priority w/ respect to after-acquired property that it has w/ respect to
the original collateral.
vi. PMSIs Generally
1. 9-324(a): [General Rule: PMSI priority] Except as otherwise
provided in (g), a perfected PMSI in goods other than inventory
or livestock has priority over a conflicting SI in the same goods,
and, except as otherwise provided in 9-327, a perfected SI in its
identifiable proceeds also has priority, if the PMSI is perfected
when the debtor receives possession of the collateral or w/in 20
days thereafter.
2. Ex: Bank 1 files a FS against the equipment of Davis Industries on
Feb. 1. Only July 1, Preferred Micro Sales, Inc (PMSI) sells a
computer to Davis, delivers possession, and retains a PMSI. On July
20, PMSI perfects by filing a FS. PMSI has priority over Bank 1 w/
regard to the computer under 9-324(a).
3. This violates first in time rule. It is b/c the PM lender is first in
another important sense: It either supplied the collateral or made
advances to enable the debtor to acquire the collateral.
36

4. PM lender has a relationship w/ collateral before after-acquired lender

does.
5. Rule enables companies to sell and deliver immediately w/out having
to check public records.
6. 9-324(g)(1): [Conflicting PMSIs] If more than one SI qualifies for
priority in the same collateral under (a), (b), (d), or (f) A SI
securing an obligation incurred as all or part of the price of the
collateral has priority over a SI securing an obligation incurred
for value given to enable the debtor to acquire rights in or the use
of collateral.
vii. PMSIs in Inventory
1. The 20-day grace period for the filing of a PMSI in 9-324(a) does not
apply when the property sold will be inventory in the hands of the
buyer.
2. The inventory lender must learn of the financing before disbursing
against the collateral.
3. 9-324(b): [Inventory purchase-money priority] Subject to
subsection (c) and except as otherwise provided in (g), a perfected
PMSI in inventory has priority over a conflicting SI in the same
inventory, has priority over a conflicting SI in chattel paper or an
instrument constituting proceeds of the inventory and in proceeds
of the chattel paper, if so provided in 0-330 and except as
otherwise provided in 9-327, also has priority in identifiable cash
proceeds are received on or before the deliver of the inventory to a
buyer, if:
a. (1) The PMSI is perfected when the debtor receives
possession of the inventory.
b. (2) The purchase-money secured party sends an
authenticated notification to the holder of the conflicting SI;
c. (3) The holder of the conflicting SI receives the notification
w/in 5 years before the debtor receives possession of the
inventory; and
d. (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.
4. Protection comes w/out necessity for the inventory lender to search
the filing system before making each advance.
viii. Purchase-Money Priority in Proceeds
1. Purchase-money priority under 9-324(a) extends to the collateral or its
proceeds.
37

2. There is an exception to the above rule: Purchase-money status in

inventory flows only into chattel paper, instruments, and cash
proceeds. This prevents purchase-money status flowing into other
kinds of proceeds, most notably accounts.
ix. Priority in Commingled Collateral
1. Collateral is commingled when it is mixed w/ other property.
2. When the identity of collateral is lost by commingling (as the
collateral becomes part of a product or mass), the SI continues in the
product or mass.
3. When identity is not lost, but is instead used as a replacement part in a
machine (accession), then the secured partys interest will continue to
be perfected, and it will have priority over later-perfected interests in
the whole.
4. If more than one SI attaches to a product or mass as a result of
commingling, the interests rank equally and share in the proportion
that the cost of each partys contribution bears to the total cost of the
product or mass.
b.
XVII.

38