Unit 1: Rights of Unsecured Creditors Outside of Bankruptcy: A Summary Overview.................

4
2-702(2): Reclamation...............................................................................................................4
Setoff............................................................................................................................................4
Unit 2: Basic Concepts and Terminology of Article 9.....................................................................4
Unit 3: Intro to SPs Remedies After Default; SPs Right to Possession of the Collateral...............4
Default..........................................................................................................................................4
Entering a dwelling:.....................................................................................................................4
Presence of Cop:...........................................................................................................................4
Reasonable Assembly...................................................................................................................5
What constitutes a breach of the peace?:......................................................................................5
Damages for Breach of Peace......................................................................................................5
Unit 4: Disposition of the Collateral by the SP (Foreclosure Sale)..............................................5
Waterfall of Application of Proceeds:..........................................................................................6
Surplus & Deficiency:..................................................................................................................6
Commercial Reasonableness of Sale:...........................................................................................6
Notice of Disposition:..................................................................................................................6
Unit 5: Rights of Guarantors and Other Secondary Obligors in a Foreclosure Sale.......................7
Exoneration..................................................................................................................................7
Subrogation..................................................................................................................................7
Reimbursement.............................................................................................................................7
Contract Modifications.................................................................................................................7
Release of P..................................................................................................................................7
Extension of time for P to perform...............................................................................................8
Notification of Sale......................................................................................................................8
Unit 6: Foreclosure Sale and Competing Liens...............................................................................8
Juniors Potential Liability to Senior............................................................................................8
Marshalling:..................................................................................................................................8
Unit 7: Redemption..........................................................................................................................8
Redemption..................................................................................................................................8
U3C one-time right to cure...........................................................................................................9
Unit 8: Strict Foreclosure.................................................................................................................9
Strict Foreclosure:........................................................................................................................9
Unit 9: Collection of Rights to Payment..........................................................................................9
Unit 10: Basic Consequences of bankruptcy to Creditors: The Automatic Stay: Distributions to
Creditors........................................................................................................................................10
DIP Debtor in Possession........................................................................................................10
Unit 11: Creation of a Security Interest (Attachment): The Baseline Rule................................11
1.
Value.................................................................................................................................11
2.
Debtor has rights..............................................................................................................12
3.
Authenticated SA.............................................................................................................12
Unit 12 & 13: Introduction to Resolution of Priority Contests; Perfection by Filing I: Intro to
Filing System; effective filing statements.....................................................................................12
PMSI...........................................................................................................................................13
Banktuptcy trustee has same rights as LC. 9-102(a)(52)(C)......................................................14
Unit 14: Perfection by Filing III: Effect of Post-Filing Changes..................................................14

Unit 15: Perfection Other than by Filing: The Basic Rules...........................................................14

Perfection by Possession by Agent of Debtor:...........................................................................15
Temporary Perfection:................................................................................................................15
Unit 16: Choice of Law Governing Perfection and Priority..........................................................15
Authorized Filers........................................................................................................................16
Unit 17: Proceeds...........................................................................................................................16
Automatic proceeds perfection...................................................................................................16
3 Ways to continue Perfection....................................................................................................16
Unit 18: Security Interests in Property Acquired Postpetition.......................................................16
Unit 19: SP vs. Lien Creditor; The Strong Arm Power of Debtors Bankruptcy Trustee..........17
Unit 20: SP vs. SP2, Part I: FTFOP...............................................................................................17
Circular priority..........................................................................................................................17
Unit 21: SP vs. SP2, Part II: PMSIs; The Double Debtor Rule................................................18
DOUBLE DEBTOR RULE.......................................................................................................19
Unit 22: Transfer of Interests in Goods: Nemo Dat and Protection of (Some) Good-Faith
Purchasers......................................................................................................................................19
Unit 23: SP vs. Buyer....................................................................................................................20
Unit 24: Transfer of Interests in Rights to Payment: Nemo Dat and Protection of (Some) GoodFaith Purchasers.............................................................................................................................21
HDC............................................................................................................................................21
Unit 25: SP vs. Purchasers of Right to Payment: Basic Rules.......................................................21
SP vs. Receivables Purchaser.....................................................................................................22
Unit 26: SP vs. Purchasers of Right to Payment II: Special Rules for Chattel Paper and
Instruments....................................................................................................................................23
Purchaser of instrument has priority..........................................................................................23
Unit 27: Security Interests in Investment Property........................................................................24
Perfection of Certificated Securities...........................................................................................24
TEMPORARY PERFECTION..................................................................................................25
Attachment of Investment Property...........................................................................................25
Perfection of Investment Property..............................................................................................25
Unit 28: Security Interests in Deposit Accounts............................................................................26
Unit 29a; Security Interests in Intangibles Other than Rights to Payment....................................27
Unit 29B: Special Rules on Priority in Proceeds...........................................................................28
Unit 30: Recharacterization; Recharacterization of Leases...........................................................30
1-203. Lease Distinguished from Security Interest.............................................................30
Terminable Leases......................................................................................................................31
Unit 31: Consignments..................................................................................................................32
TO be consignment:...................................................................................................................32
Sale-or-return..............................................................................................................................32
Unit 33: Fixtures............................................................................................................................32
What counts as a fixture?...........................................................................................................32
Baseline Rule..............................................................................................................................32
Exceptions to Baseline Rule:......................................................................................................33
Enforcement...............................................................................................................................33
Unit 34: Preferential Unwinding in Bankruptcy............................................................................33
Elements of a preferential transfer under 547:.........................................................................33

DO not unwind transactions where:...........................................................................................34

Exceptions..................................................................................................................................34
Delayed Perfection -- Time of Transfer......................................................................................34
Appendix 1: Classification of collateral (9-102(a)).....................................................................35

UNIT 1: RIGHTS OF UNSECURED CREDITORS OUTSIDE OF

BANKRUPTCY: A SUMMARY OVERVIEW
2-702(2): RECLAMATION
Exception to rule that unsecured creditor are S.O.L.
10 days / from the time of delivery / of goods
2-507(2): An unpaid / cash / seller of goods can reclaim
SETOFF: a common law right
exists between any two creditors; often found in bank-customer setting
2-702 (3): One with voidable title can grant good title
How to levy: get writ of execution from sheriff or garnishment
UNIT 2: BASIC CONCEPTS AND TERMINOLOGY OF ARTICLE 9
UNIT 3: INTRO TO SPS REMEDIES AFTER DEFAULT; SPS RIGHT TO
POSSESSION OF THE COLLATERAL
After debtor defauls, SP has a right to possess the collateral, but he doesnt own it. Debtor still
owns it, just subject to SPs security interest. Debtor may redeem until foreclosure.
9-609 gives SP right to repossess without judicial process (self-help repo.), but only when
possible without a breach of the peace.
DEFAULT

Defined by the contract, not A9.

Repeated acceptance of late payments can constitute right to repossess. To reinstate its right
under contract, bank must give notice to debtor that bank expects strict compliance in future
dealings. Mercedes Benz Credit Corp v. Morgan, 312 Ark. 225 (1993).
Split of authority on whether non-waiver clauses in original contracts are enforceable. Theyre
more likely to be enforceable when debtor is a sophisticated party.
ENTERING A DWELLING: The majority of cases appear to hold that there is a breach of the
peace once the repossesor has entered into the debtors home or garage without express
permission, even if there is no direct confrontation between the repossessor and anyone on the
property. But peaceful entrance onto driveway doesnt seem to be BOP.
PRESENCE OF COP: Mere presence of cop who observes but does not participate may not
invalidate an other wise good repo. Involvement by cop is likely to invalidate an otherwise good
repo. See 9-609 Cmt. 3.

For closer calls, consider Murray v. Ponti 980 NE 2d 1275, 2012 Ill App. LEXIS 1008 (Ill App
2012) factors.
1. officers arrival with repo man
2. intervening in more than one step of repo process
3. failing to depart before completion of the repo
4. standing in close proximity to the creditor
5. unreasonably recognizing the documentation of one party over another
6. telling the debtor that the seizure is legal
7. ordering the debtor to stop interfering or be arrested
REASONABLE ASSEMBLY: If collateral is scattered all about, SP may require debtor to
assemble collateral and make it all available to SP at a place which is reasonably convenient to
both parties. 9-609(c).
WHAT CONSTITUTES A BREACH OF THE PEACE?:

Cant contract around provisions regarding what constitutes a breach of the peace

If confrontation, then repo man must retreat.

Role of cop can differ based on whether he comes and participates, vs. when he
encounters repo after the fact and is just checking in.

Role of cop can differ based on whether he comes and participates, vs. when he
encounters repo after the fact and is just checking in.

Suggestion that "post-repossession objection" is "too late"

DAMAGES FOR BREACH OF PEACE

Weak damages provision

9-629: Damages provision: "The damaged party is entitled to any loss" i.e., compensatory
damages

9-629c allows penalty in consumer transactions allows 10% of principled debt plus
finance charges

General damages for failing to compy with the post-default 600s:

9-625: Remedies for SPs failure to comply with article
SP liable for damages in the amount of any loss caused by a failure to
comply with this article
9-626: Action in which deficiency or surplus is in issue
9-627: Determination of whether conduct was commercially reasonable
OK if on recognized market, at price current on such market, or otehrwise
in conformity with reasonable commercial practices among dealers in the
type of property that was the subejct of the disposition

UNIT 4: DISPOSITION OF THE COLLATERAL BY THE SP

(FORECLOSURE SALE)
9-610(a): allows SP to sell, lease, license, or otherwise dispose of collateral in its present
condition or following any commercially reasonable preparation/processing
9-610(c): allows SP to dispose of collateral by public or private proceedings, by one or more
contracts, as a unit or in parcels, and at any time and place on any terms.
WATERFALL OF APPLICATION OF PROCEEDS: 9-615(a)
(a) To the reasonable expenses incurred in the SPs repo and sale (incl. to extent of
agreement and not prohibited by law, its reasonable legal expenses);
(b) To the satisfaction of the indebtedness secured by the security interest under which the
disposition is made i.e., paying the SP what it is owed on the underlying obligation; and
(c) To the satisfaction of any security interest of lesser priority provided the holder of the
interest has made an authenticated demand;
(d) To consignor.
SURPLUS & DEFICIENCY: 9-615(d)
SP shall pay a debtor any surplus (unwaivable), and the obligor is liable for any deficiency.
9-615(d)(1) says that debtor is entitled to surplus.
9-615(d)(2) says that obligor is liable for deficiency.
If SP found to be out of compliance with A9 commercial reasonableness:
9-626(a) basically adopts the REBUTTABLE PRESUMPTION RULE for any transaction other
than a consumer transaction!
1. Set-off Rule (6 Jxs)
a. SP gets all money except what debtor can prove resulted from imporoper sale
2. Rebuttable Presumption Rule (most widely followed, 26 states)
a. Presumption: that collateral is equal in value to the amount of the secured debt
b. SP must prove that collateral was worth less
3. Absolute Bar Rule (only a handful of states) likely for consumer transaction
a. SP who fails to comply with A9 is absolutely barred from recovering any
deficiency judgment whatsoever
COMMERCIAL REASONABLENESS OF SALE: 9-610(b)
The debtor has a right to expect that [e]very aspect of a disposition of collateral, including the
method, manner, time, place, and other terms, must be commercially reasonable. Per 9-627(a),
SP cannot be faulted and held to have failed its obligation to make what may be termed a
commercially reasonable sale merely because the result was not the absolute best price that
could possibly have been achieved.
Sales of stock and other things on recognized market where price dramatically changes after sale.
SP is off the hook per 9-627(a).

NOTICE OF DISPOSITION: 9-611 through 9-614

Notice goes to debtor and other interested parties.
9-611: SP must send authenticated notice to: debtor; secondary obligor(s); and, if
collateral is other than consumer goods, any other person from which SP has received
authenticated notification of a claim, and any results of a search of FSs, and any other SP that
held statute/COT interest (10 days before sale)
Exception if: collateral is perishable or threatens to decline quickly in value or
collateral is of a type customarily sold on a recognized market.
9-612: Timeliness of Notification before Dispo.
For non-consumer goods, after notification and before 10 days before sale is OK.
Otherwise, its a question of fact.
9-613: Contents and Form of Notification: General
9-614: Contents and Form of Notification: MORE requirements for CONSUMER
GOODS
9-615(f): Stricter calculation standards when SP himself or party close to SP acquires
collateral (like SP getting it at public sale). Calculation of surplus/deficiency done based on
amount of proceeds that would have been realized.

UNIT 5: RIGHTS OF GUARANTORS AND OTHER SECONDARY OBLIGORS

IN A FORECLOSURE SALE
O = Bank
P = Primary Obligor
S = Secondary Obligor
EXONERATION:
Allows S, upon P's default, to compel P in a suit in equity to pay O.
SUBROGATION:
When S pays Bank IN FULL, S becomes entittled to all of P's rights (the O had) in the collateral.
Subrogation is an equitable remedy.
REIMBURSEMENT:
AKA indemnification
When S pays any part of P's debt.
Restatement 22-23
Only a right in personam against P

CONTRACT MODIFICATIONS. If P and O modify the contract (either more or less

favorable to P), S is generally off the hook. LIMIT: Restatement requires that S's obligation is
discharged only to the extent that the modification imposes "fundamentally different" risks on S
or causes S loss.
RELEASE OF P. Generally releases S. But O can reserve its rights as against S at the time of
P's release.
EXTENSION OF TIME FOR P TO PERFORM. Discharges S to the extent that the
extension causes a loss, even if O has preserved S's recourse against P.
NOTIFICATION OF SALE. Even when a secondary obligor is not a debtor, the secondary
obligor is entitled to notification of a disposition.

UNIT 6: FORECLOSURE SALE AND COMPETING LIENS

9-617: Discharges junior liens.
JUNIORS POTENTIAL LIABILITY TO SENIOR

i. Any junior with a security interest has a right to reposses.

ii. If junior repos, and senior demands before junior sells, junior must turn over
possession of collateral to senior.
iii. If juniors buyer disappears, drafters couldnt decide whether junior would be
liable to senior.
i. Decided that theres no per se liability of junior to senior. But, Cmt 5 of 9610 suggests that if junior creditor fucks up somehow, then junior may be
liable under conversion to senior
ii. Consier: whether junior knew damn well that buyer was going to
disappear with the collateral.
iii. If junior conducts commercially-unreasonable sale, senior has right to
collect damages from junior. Junior liable to senior, debtor, and any
obligor for any caused loss.
iv. If junior doesnt notify senior, thats a violation of the juniors duties. There
may be a loss if senior can show that, had it stepped it, it would have sold the
collateral for more money.
MARSHALLING:

Marshalling is a common law notion that prevents SP1 from getting its hands on collateral that
SP2 has a right in, without first pursuing other collateral.
o
However, absent a court order, there is no affirmative duty for SP2 to behave in this way.

Marshalling and bankruptcy: unsecured parties have an interest in the SP1 going after smaller
(reverse-marshalling) collateral first (to leave more for the unsecured creditor)

Generally, because they're in a dilemma, bankruptcy courts avoid issuing any marshalling
order

UNIT 7: REDEMPTION: 9-623

REDEMPTION

Common English, any time the debtor pays off the loan

In UCC A9, when debtor pays off the loan after default, prior to dispo or strict foreclosure

Debtor has a RIGHT to do this

Under non-Bankruptcy law, debtors may have to pay MORE to redeem than collateral is worth
o
Under 722, in Bankruptcy, SP can't collect more than the value of the collateral

Williams v. Ford Motor Credit Co.

P had contact with bank where bank said "don't worry about being late," and bank still repo'd car.
K has 'no oral modifications' clause.. So P/debtor out of luck. Default = default.

Dunn v. General Equities of Iowa

Business transaction. Late payments. No objection from bank after several late payments. Court
holds that bank can't accelerate b/c it waived its right to accelerate when it accepted late payments.

U3C ONE-TIME RIGHT TO CURE

U3C gives debtor a one-time right to cure (20 day notice and right to cure). Also limits default to REAL
instances (serious and/or repeated failures to pay).

UNIT 8: STRICT FORECLOSURE

STRICT FORECLOSURE: effectively, debtor selling collateral to SP

9-620, 9-621, 9-622

For consumer transactions, goods cant be in debtors possession when purported
acceptance of strict foreclosure takes place
For consumer transactions, no partial satisfaction allowed
For partial strict foreclosure, debtor must send authenticated record to accept
For total strict foreclosure, debtor can accept with authenticated record; or by not
providing notification of rejection of proposal within 20 days
You can't commit to strict foreclosure at the outset of the loan
The central requirement: debtor has to consent. And that consent has to be given after default

When not open to SP: 9-620(e):

- When collateral is consumer goods (9-620(a)(3)) AND
- Consumer debtor has already paid at least 60% of the price or loan secured by those goods
To effect strict foreclosure:
1.
Get the debtor to consent (after default) via authenticated agreement 9-620(c)
i.
Signed and dated after default date.

ii.

2
2

For full foreclosures, SP can send proposal to debtor, and if debtor doesn't object
in 20 days, then it counts as CONSENT
Send notices (9-621)
i.
Same at 9-611 (guarantor/secondary obligor; anybody who has told SP that they
have notice in collateral; conduct lien search and give those people notice too
SP must act in good faith

Senior has duty to give notice to junior during this process; BUT if notice is not given to junior
creditor, that does not prevent strict foreclosure from going through.
o
Junior's remedy for not getting notice: 9-625 = general remedies for junior who don't get
notice

UNIT 9: COLLECTION OF RIGHTS TO PAYMENT

If we were asked who made the discovery which has most deeply affected the fortunes of the human race? We
think, after full consideration, we might safely answer the man who first discovered that a Debt is a Saleable
Commodity.
1 Henry Dunning MacLeod, Principles of Economical Philosophy 481 (2d ed. 1872)
-

A9 Governs the Sale of Some Kinds of Receivables:

9-109(a)(3) A9 governs sale of:
Account
Chattel Paper
Payment Intangible
Promissory Note
Liability of Debtor for Surplus/Deficiency: THE CHICKEN EGG-PRODUCTIVITY
ANALOGY:
9-608(b) says that, for sales of receivables, surplus/debtor rules do not apply.
Buyer (= SP) is not obligated to pay seller (= debtor) any surplus
Seller (= Debtor) is not obligated to pay buyer (= SP) any deficiency
9-608(b) Cmt. 3 allows parties to change this by contract.

UNIT 10: BASIC CONSEQUENCES OF BANKRUPTCY TO CREDITORS: THE

AUTOMATIC STAY: DISTRIBUTIONS TO CREDITORS
When bankruptcy petition is filed, 2 things happen:
1 Bankruptcy estate is formed

BC362 Automatic Stay comes into effect

i. Stay prevents: 362(a)(6) any act to collect, assess, or recover a claim
against the debtor that arose before the commencement of the case under
this title;
ii. SP must turn over any and all collateral to estate that it has repossessed but
not yet sold (no matter how worthless)

DIP DEBTOR IN POSSESSION

Has powers of bankruptcy trustee

DIP has right to use property that SP repossessed (effectively a limited lift of the stay)
1 Especially in the operation of its business
But Bank is entitled to adequate protection
1 Including adequate protection payments to compensate for depreciation
2 LIMIT: Timbers says SP isnt entitled to adequate protection payments including
the time value of money

Besides adequate protection, another way for SP to get the collateral back from DIP (trustee)
Under BC362(d)(2), Court lifts stay and give property to SP if:
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization;
Equity calculation:
Equity in an item of property = (FMV of the item) minus (amount of liens on it).

UNIT 11: CREATION OF A SECURITY INTEREST (ATTACHMENT): THE

BASELINE RULE
9- 203(b) sets out baseline rule for attachment:
1. VALUE (1-204) has been given (commitment to lend, any simple consideration, actual
loan, security for a preexisting claim)
a. SA can only cover, if consumer goods, consumer goods that are acquired within
10 days after creditor has given value
2. DEBTOR HAS RIGHTS in the collateral or or the power to transfer rights in the
collateral to a secured party
a. Consider nemo dat and voidable title exceptions (2-403(1))
b. Bailee for limited purpose (borrowing) cant transfer rights
3. AUTHENTICATED SA with description of collateral (req: debtors sig. + description
of collateral)
a. A9 categories are OK, except in consumer goods in consumer transaction.
Supergeneric all Ds assets NOT ok.
b. After-acquired property is OK; except consumer goods (though 10 day pro-SP
grace period)
c. Besides 9-203(b)(3)(B)-(D), needs authenticated record or SP in possession of
collateral (Cmt. 4)
d. Conditional title agreement = SA
e. Collateral in possession of SP can take place of authenticated SA
f. 9-210(b)(3)(B) permits oral security agreements, but only if the SP has possession
of the collateral (and the collateral cannot be a certificated security)
UNIT 12 & 13: INTRODUCTION TO RESOLUTION OF PRIORITY
CONTESTS; PERFECTION BY FILING I: INTRO TO FILING SYSTEM;
EFFECTIVE FILING STATEMENTS

All of the applicable requirements for perfection at Sections 9-310 through 9-316
LC beats unperfected security interest. An unperfected security interest is subordinate to
the rights of a person that becomes a lien creditor before the security interest is
perfected; (9-317)
Continuous Perfection: 9-308: Perfected continuously if originally perfected one way, then
perfected in another, with no intermediate period of unperfection
9-310: Except as otherwise provided in subsection (b) and Section 9-312(b), a financing
statement must be filed to perfect all security interests.
- Filing is permissible for all types of collateral except money and deposit accounts
Four Ways to Perfect: 1. File; 2. Possession; 3. Automatic Perfection; 4. Control
9-301: Debtors Locations Law Governs: 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 nonperfection, and the priority of a security interest in collateral.
9-516: What Consititutes Filing?
(a) What constitutes filing. Except as otherwise provided in subsection (b),
communication of a record to a filing office and tender of the filing fee or acceptance of
the record by the filing office constitutes filing.
(b) has reasons filing office can reject filing (acceptance of rejectable FS = effective FS,
Cmt. 9). No Ds address = rejectable.
(c) says that, if filing office rejects filing for reason not in (b), filing is effective

AUTHRORIZED FILINGS

If SP files without authorization on 5/15; then signs SA (for implicit authorization) on 7/1, filing
date is 5/15!!! (9-322 Cmt. 4)
9-517: SLOPPY FILING OFFICE does not effect effectiveness of filing
PMSI: 9-103: Grants Superpriority for Goods and Software
9-309(1) automatic perfection in consumer goods
9-317(e)
9-324 : PMSI priority
"purchase-money obligation" means an obligation of an obligor
[X] incurred as all or part of the price of the collateral or

[Y] 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.
9-502(a) and 9-516(b): CONTENTS OF FILING STATEMENT:
9-502. Contents of Financing Statement. (UCC1)
(a) Sufficiency of financing statement. Subject to subsection (b), a financing statement
is sufficient only if it:
(1) provides the name of the debtor; (seriously misleading if any error;
except not seriously misleading if search for correct name would turn up
erroneously filed FS (9-506(a))
Alt A: Driv lic necessary if debtor has a driver's license; if not, then it can be individual name
OR debtor's surname and first personal name (majority of states)
Alt B: driver's license OK; individual name OK; debtors surname and first personal name OK
Corp trade name = insufficient. 9-503(c).

(2) provides the name of the secured party or a representative of the

secured party; and
(3) indicates the collateral covered by the financing statement. (can be
more broad than in SA)
9-504. Indication of Collateral. A financing statement
sufficiently indicates the collateral that it covers if the financing
statement provides:
(1) a description of the collateral pursuant to Section
9-108; or
(2) an indication that the financing statement covers all assets or
all personal property.
---- 9-504, Comment 2. Indication of Collateral.
[2] This section provides two safe harbors. Under paragraph (1),
a description of the collateral (as the term is explained in Section 9-108)
suffices as an indication for purposes of the sufficiency of a financing
statement.
BANKTUPTCY TRUSTEE HAS SAME RIGHTS AS LC. 9-102(A)(52)(C).

9-210 DUTY TO RESPOND:

SP must respond to Debtor; SP doesnt have to respond directly to Third Party
SP has 14 days to respond
9-625: Penalties for Noncompliance with A9
(c)(2) has DAMAGES FORUMLA FOR CONSUMER TRANSACTIONS slapped
on naughty SPs.

9-513: Termination Statements

After request by debtor, if debt is satisfied, SP must file termination statement within 20
days. Otherwise Debtor can file term statement himself.
For consumer goods, SP must sua sponte, file a termination statement within 30 days.
After acquired property clauses (and future advances clauses) should be written into SAs; but
need not be written into FSs.
UNIT 14: PERFECTION BY FILING III: EFFECT OF POST-FILING
CHANGES
When DEBTORS NAME CHANGES, 9-507 says security interest perfected by FS remains
perfected for 4 months after name change. Also grants 4 month window to file an amendment to
correct debtors name to reflect name change.
9-515(c) has RETROACTIVE UNPERFECTION as against purchasers for value after lapse.
(i.e., does not apply as against LCs.
UNIT 15: PERFECTION OTHER THAN BY FILING: THE BASIC RULES
Filing
[9-310(a)]
Account

Possession
[9-313(a)]

Temporary

Chattel Paper (Tangible)

X
[9-312(a)]

Instrument

X
[9-312(a)]

X
[9-312(e), (g)]

X
[Same]

X
[Same]

Promissory Note
(Subset of Instruments)
General Intangibles
Payment Intangible
(Subset of General
Intangibles)

X
X

Constructive Possession: FIELD WAREHOUSING

If collateral is money, then the only option is to have a sort of field warehousing
arrangement. For coin collector/warehouse, it might consist of pledge notices and SP
having keys to showcases
PERFECTION BY POSSESSION BY AGENT OF DEBTOR:

It doesn't work to make the debtor your agent of possession.

Lawyer for debtor probably can't be agent of SP to hold onto collateral.

Minimum needed: letter from party acknowledging that it holds possession of collateral
for secured party's benefit
Consider whether there are implied duties arising under non A9 law
Perfection by possession of writing only if the writing is a negotiable instrument.

TEMPORARY PERFECTION:

9-312(e). Temporary perfection; new value. A security interest in certificated

securities, negotiable documents, or instruments is perfected without 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 security agreement.
9-312(g). Temporary perfection: delivery of security certificate or instrument to debtor.
A perfected security interest in a certificated security or instrument remains perfected for
20 days without filing if the secured party delivers the security certificate or instrument to
the debtor for the purpose of:

(1) ultimate sale or exchange; or

(2) presentation, collection, enforcement, renewal, or registration of transfer.
UNIT 16: CHOICE OF LAW GOVERNING PERFECTION AND PRIORITY
Perfection and priority rules are immutable.
9-301 and 9-307 are baseline rules.

The proper Jx is "where the debtor is located;" unless its where perfection is done by
possession, in which case its where the collateral is located.

Where the debtor is located? (9-307)

o
(b) and (c) lay out baseline rule. Split between [natural people, foreign
organization, general partnership (where you do business or where your chief exec.
Office is )] and ["registered organization" E.g., corporation, LP, LLC, etc. ]
o
Individual/sole proprietorship/ = principle residence

General Partnership = file @ HQ state

Organization = place of business = where debtor conducts its affairs

If more than one, then at chief exec office
Corp located in state where its incorporated
9-316: When debtor moves, perfection lasts until it would normally have run out in the
original Jx OR 4 months, whichever comes first
o 9-316(b) says that, if a SP moves, and fails to re-file, he is not only unperfected,
he is also retroactively unperfected, meaning that it's as though he wasn't ever
perfected as against a purchaser of the collateral for value.
This window is ONE YEAR for sales of collateral to buyers in new jurisdiction.
o

AUTHORIZED FILERS
- 9-506(a) through (c) say who is allowed to file.
- FS filed by unauthorized person has no legal effect
- Must be authenticated by debtor OR by implication of authorized SA
- If SP files without authorization on 5/15; then signs SA (for implicit
authorization) on 7/1, filing date is 5/15!!! (9-322 Cmt. 4)

9-302 through 9-306 are special rules for special types of collateral.
UNIT 17: PROCEEDS
9-315(a)(2) sec interest attaches to all identifiable proceeds in the collateral
9-102(a)(4) definition of proceeds:
- Whatevers acquired from collateral
9-315(b) Commingled Proceeds
- Commingled proceeds, that are not goods, remain proceeds
AUTOMATIC PROCEEDS PERFECTION for 20 days!
3 WAYS TO CONTINUE PERFECTION 9-315(d)
1. Elephant Rule
a FS covers original collateral AND
b The proceeds are collateral in which a sec intr 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.
i ASK: "Has there been a cash interval?"
2. Identifiable cash proceeds. Cmt 13 = anything fundamentaly like cash or checks (liquid
assets) (incl. debit card transactions)
3. Sec interest in proceeds is perfected in ordinary way within 20 days

UNIT 18: SECURITY INTERESTS IN PROPERTY ACQUIRED

POSTPETITION
BC 552: Generally, petition gets a fresh start after petition. So, (a) says that property generated
postpetition can't be subejct to any lien resulting from security agreement entered into prepetition.
EXCEPTION: Proceeds of pre-petition property. Security interest continues in proceeds from prepetition property. BC 552 (b)(2). But courts can override this and keep proceeds free of security
interest.

UNIT 19: SP VS. LIEN CREDITOR; THE STRONG ARM POWER OF

DEBTORS BANKRUPTCY TRUSTEE
9-317: SP beats LC if SP has perfected sec intr. 2 ways not-fully-perfected SP can still beat LP
1. 9-317(a)(2)(b) SP has done everything but give value to get perfected
2. 9-317(e): PMSI
SPperf loses to LC, whereas SPperf would usually win. 9-323(b)
- SP is subordinate to LC to the extent that advance made 45 days after LC
becomes LC.

Unless w/o knowledge of lien OR made pursuant to prior agreement.

BC 362(b)(3) 547(e)(2)(a): SP has 30 days to file FS within attachment. Amounts to an

exception to the automatic stay.
BC 362(b)(3) BC 546(b)(1) UCC A9: PMSI 20 days to continue PMSI perfect can
occur postpetition.
UNIT 20: SP VS. SP2, PART I: FTFOP
Baseline Rule: 9-322
Baseline rule applies to future advances, unless SP1 perfected "in a way that would be really
hard for SP2 to find" (9-312)
FTFOP and Proceeds:
- Priority date same as original collateral
- Inventory financier with interest in accounts as proceeds can beat later-on-thescene accounts financier (despite when proceeds generated, subject to
identification rules)
CIRCULAR PRIORITY: 4.1.4(c)

UNIT 21: SP VS. SP2, PART II: PMSIS; THE DOUBLE DEBTOR RULE
PMSI Privileges:
Grace period to file vs. lien creditors, buyers (9-317(e))
- 20 days
- Only applies to non-consumer goods (because consumer goods get automatic
perfection)
Automatic perfection in consumer goods 9-309
- Permanent.
9-324 Superpriority as against competing priority
- PMSI in goods (except inventory and livestock) is
- Perfected before debtor received possession or within 20 days thereof
- (b) and (c) say that SP on inventory written notice; no 20 day grace period
Checklist:
PMSI perfected at debtor receives possession of inventory
PMSI sends authenticated notice to previous SP
SP receives notice within 5 years before debtor receives possession
Notification states that person sending notification (will) have PMSI
interest
- 9-324 TWO PMSIs in same collateral DP (enabling loan vs. principal,
principal wins)
TWO enabling PMSIsrace to perfect under 9-324(g)(2)
- 20 days to file after debtor takes delivery. Debtor takes delivery when potential
lender that the debtor has acquired an interest in the goods taken as a whole.
Ostensible Ownership Test. 9-324 Cmt. 3.
- Trying equipment out isnt an A9 transaction.

Bankruptcy code 546(b)(1), 362(b)(3))

PMSI In Inventory:
- No 20 day grace period
- Must be perfected at time of debtor receiving delivery
- Must notify all competing third parties before delivery (but no more than 5 years
before delivery). 9-324(b).

DOUBLE DEBTOR RULE 9-325: PRIORITY OF SECURITY INTERESTS IN

TRANSFERRED COLLATERAL.

9-325:
(This rule can help: Sellers who were perfected afterwards)
(a) Subordination of security interest in transferred collateral. Except as otherwise
provided in subsection (b), a security interest created by a debtor is subordinate to a security
interest in the same collateral created by another person if:

(1) the debtor acquired the collateral subject to the security interest created by the
other person;
(2) the security interest created by the other person was perfected when the
debtor acquired the collateral; and
(3) there is no period thereafter when the security interest is unperfected.
(b) Limitation of subsection (a) subordination. Subsection (a) subordinates a security interest
only if the security interest:
(1) otherwise would have priority solely under Section 9-322(a) [FTFOP] or
9-324 [PMSI]; or
(2) arose solely under Section 2-711(3) or 2A-508(5).

UNIT 22: TRANSFER OF INTERESTS IN GOODS: NEMO DAT AND

PROTECTION OF (SOME) GOOD-FAITH PURCHASERS
Voidable title --> intermediary transfers GOOD TITLE to final purchaser.
Entrustment 2-403
- Any entrusting of goods to merchant gives him rights to give all rights of entruster
to BIOCOB
- (3) includes any delivery or acquiescence of possession
BIOCOB: 1-201(a)(9)

UNIT 23: SP VS. BUYER

9-315(a)(1) Baseline Rule says that SPs interest continues through any transfer of collateral,
unless authorized by SP.
Three exceptions:
FIRST EXCEPTION: IF SP AUTHORIZES disposition free of security interest

Be sure to inquire as to whether: agreement worded release as a condition or remission of

proceeds after sale of collateral, or as an independent covenant
SECOND EXCEPTION: FUTURE ADVANCES TO BUYER. 9-323 (b) LC; (d), (e) for
buyers

Buyer's (new debtor) collateral

Buyer rule more protective of buyers than LC is of LC

SP is never protected after 45th day. SP is never protected after learning of

buyer's purchase.

Only applies to goods, so for, e.g., patents, buyer is much more vulnerable. There is no
limitation as to amount, knowledge.

THIRD EXCEPTION: MOST IMPORTANT: BIOCOB -- 9-320(a)

BIOCOB (goods) takes free of a security interest created by the buyers seller, even if the
security interest is perfected and buyer knows of its existence. BIOCOB can become BIOCOB
before actual possession of goods. [Can depend on 2-502 and 2-716: Down Payment helps,
unique goods helps, spec performance helps, goods identified to contract].
BIOCOB Checklist:
- A person that buys goods
- In good faith
- Without knowledge that the sale violates the rights of another in the goods
- Ordinary course
- From a person, other than a pawnbroker, in the business of selling goods of that
kind
-

Must take possession or have a right to do so

9-321(c) allows for LIOCOB (lessee).

Consumer-to-consumer sales. Cut off security interests.
- Goods only. Cuts off security interest. Only if no FS. Only if w/o knowledge of
the security interest.
Unperfected SP vs. Buyer
Unperfected SP wins as against buyer if Buyer knew of unperfected security interest
No "all left to do but give value" protection goes to buyers -- only goes to LC

UNIT 24: TRANSFER OF INTERESTS IN RIGHTS TO PAYMENT: NEMO DAT

AND PROTECTION OF (SOME) GOOD-FAITH PURCHASERS
In A3, Instrument = Negotiable Instrument
An A3 (negotiable) instrument = A9 negotiable instrument
HDC: 3-302
1. No forgery
2. Holder
a. Possession
b. Bearer or blank indorsement
3. Value (actual money forked over in A3)
4. Good Faith
5. W/o notice of claim to instrument (earlier security interest)

 If HDC of negotiable instrument (who may hold it as security or as outright owner), then take free of
ALMOST all claims and defenses
3-305(a)(1): list of defenses that can be asserted against all holders (even HDCs!)
o bankruptcy discharge, infant signed it, duress etc narrow set of defenses
3-305(b): says HDC not subject to defenses of 2-205(a)(2) and (3), but still subject to defenses of 3305(a)(1)

UNIT 25: SP VS. PURCHASERS OF RIGHT TO PAYMENT: BASIC RULES

Similar rules to HDC. Protected purchasers of securities take free of any adverse claims. A8 =
Securities. Protected purchaser = HDC (more or less).
8-303 = PROTECTED PURCHASER OF SECURITIES.
1. Value (general UCC sense)
2. No notice of adverse claim
3. Control of security 8-106(b)
a. Delivered
b. Indorsed to purchaser
c. Registered to name of purchaser
For other Rights. (not A3, A7, or A8)
(a) [Assignee's rights subject to terms, claims, and defenses; exceptions.] Unless an account
debtor has made an enforceable agreement not to assert defenses or claims, and subject to
subsections (b) through (e), the rights of an assignee are subject to:
(1) all terms of the agreement between the account debtor and assignor and any defense
or claim in recoupment arising from the transaction that gave rise to the contract; and
(2) any other defense or claim of the account debtor against the assignor which accrues
before the account debtor receives a notification of the assignment authenticated by the
assignor or the assignee.
Defenses:
(b) [Agreement not to assert claim or defense.] Except as otherwise provided in this section, an
agreement between an account debtor and an assignor not to assert against an assignee any claim
or defense that the account debtor may have against the assignor is enforceable by an assignee
that takes an assignment:

(1) for value;

(2) in good faith;
(3) without notice of a claim of a property or possessory right to the property assigned;
and
(4) without notice of a defense or claim in recoupment of the type that may be asserted
against a person entitled to enforce a negotiable instrument under Section 3-305(a).

SP VS. RECEIVABLES

PURCHASER

Sales, Perfection Method

Accounts

File

CP

File or
possession

Promissory Note

Automatic*
(sales only!)

General Intangible (incl.

payment intangible)

Automatic*
(sales only!)

* Different than Security Interests

9-309(2): Automatic perfection:
For little bitty bit
A little bitty bit 9-309(2)
Sale of promissory note / general intangible
But one should never ever rely on it

Obligee/Obligor/Assignee: WHO MUST OBLIGOR PAY? (Obligee or Assignee?) 9-406(a)

-

Account debtor can keep paying assignor until he receives authenticated

notification from either of us. Must specify to whom payment must now be made.

Must reasonably idenfity rights assigned and to whom payment must be made
(identify assignee).

Non-waivable: All or nothing. Non-waivable.

Room for account debtor to doubt under 9-406(c)

Assignability clauses
-

If restricting, generally ineffective

Clauses restricting transfer (sale or security interest) ineffective

Except SALE of promissory note/payment intangible (term restricting

assignment of those are effective)

UNIT 26: SP VS. PURCHASERS OF RIGHT TO PAYMENT II: SPECIAL

RULES FOR CHATTEL PAPER AND INSTRUMENTS

9-331: A3, A7, and A8 rules override any A9 rules that would govern preference. HDC and
HDC-esque parties win over A9 rules.
9-330(d)
PURCHASER OF INSTRUMENT HAS PRIORITY over sec. interest perfected
other than possession if:
o
o
o
o
o
o
o

Purchaser?
Instrument?
SP1 perfected by method "other than possession"?
SP2 give value?
Sp2 took possession?
SP2 GF?
SP2 "without knowledge that purchase violates rights of SP1"?
o Place a legend/stamp to protect against this!

9-330(a) and (b)

Purchaser of CP has priority over sec. interest perfected other than possession if:
(A) CP Purchaser beats inventory proceeds
if:
In good faith
In ordinary course of purchasers business
For new Value
Take Possession / Obtains Control
& CP is not legended or stamped that it
has been assigned to another identified
assignee

(B) CP purchaser beats other security

interest if:
Gives new value
Takes possession / obtains control
In good faith
In ordinary course of purcahsers business
without knowledge that the purchase
violates the rights of SP

9-330(c)
Purchaser has priority in proceeds, except as in deposit account, to the extent that:
9-322 provides for priority in proceeds, or
proceeds are specific goods covered by the CP or cash proceeds of specific goods, even if
purchasers security interest in the proceeds in unperfected

UNIT 27: SECURITY INTERESTS IN INVESTMENT PROPERTY

PERFECTION OF CERTIFICATED SECURITIES

1. File

9-312(a)

2. Delivery
9-313(a) and 8-301
a. Possession; or
b. Another person acquired possession or holds it for purchaser; or
c. Securities intermediary holds it in registered form
3. Control (Delivery+) 8-106 (Delivery, indorsement, registered to purchaser)
The crux is the ability to sell without further consultation of D.
a. Certificated security bearer form
b. Certificated security registered form
c. Uncertificated Security (e.g., Mutual Fund)
d. Security Entitlements

Control > Delivery > Filing

TEMPORARY PERFECTION
o 9-312(e) gives 20 days of automatic perfection arising from new value given under
authenticated SA.

ATTACHMENT OF INVESTMENT PROPERTY

Governed by 9-203(b)(3)(C), (D)

Control and delivery can allow for attachment, as well as regular ol SA.
9-203(h) says that a security entitlement is like the same as a sec intr.
Removes intermediary gobbledygook.
PERFECTION OF INVESTMENT PROPERTY

9-310(b)(7) Can perfect by possession (i.e., delivery of security certificate)

Control beats delivery and filing. Control established:
9-314(a) 9-106 8-106:
a. Certificated security bearer form
- Deliver to purchaser
b. Certificated security registered form
- Delivery to purchaser
and

- indorsed to purchaser (or blank)

Or
- registered in purchasers name

c. Uncertificated Security (e.g., Mutual Fund [ under 8-106(c)(1)]) (at least control)
- Delivered to purchaser
OR
- the issuer has agreed that it will comply with instructions originated by the
purchaser without further consent by the registered owner.
d. Security Entitlement (file or control)
- The purchaser becomes the entitlement holder
OR
- The securities intermediary has agreed that it will comply with entitlement orders
originated by the purchaser without further consent by the entitlement holder
OR
- Another person has control of the security entitlement on behalf of the purchaser
or, having previously acquired control of the security entitlement, acknowledges
that it has control on behalf of the purchaser.
OR
- (e) Securities entitlement holder himself always has control
Including on margin cases. 8-106(e) Cmt. 6.
** Original owner can retain control under 8-106(f)
8-102(a)(9) Broker can treat anything as a financial asset (including Puppy Chow).
Choice of Law9-305
1. by filing = debtors location
2. cert = state of certificate
3. entitlement or security account = security intermediary Jx (by agreement) (by 8-110(e))

UNIT 28: SECURITY INTERESTS IN DEPOSIT ACCOUNTS

For attachment, control can also take the place of an authenticated SA.
Only perfect by control. NO filing. Only non-consumer (to be consumer: 1. Debt must be
incurred for consumer purpose, AND 2. Account must be used primarily for consumer purpose.
9-102(a)(26).) deposit account governed by A9.
3 ways to get control. 9-104
1. SP = bank, automatic control (enforce by taking money from account)
2. Bank, debtor, SP have 3-way agreement (instruct enforce by instructing bank to pay)
3. SP becomes banks customer (same as b)
9-327: Priority in Control
Control (3 > 1 > 2)

> Proceeds >

> PMSI
9-607: Enforcement
9-340: Right to Recoupment and Setoff
- When SP is banks customer. Bank cant enforce setoff as against
9-332(b)Transferees of Deposit Accounts take free except in cases where Debtor acts in
collusion with transferee
Non-control perfecters usually end up resorting to judicial process
Bank can exercise setoff/recoupment.
Priority Exceptions:
- HDC, Protect Purchaser, HTWANDOTHBDN
- Purchasers of CP and Instruments per 9
- Deposit Accounts
- Securities intermediary with automatic control
- PMSI and proceeds, loses to bank with control over deposit account
- Proceeds per 9-322b proceeds relate back to original collateral perfection date

UNIT 29A; SECURITY INTERESTS IN INTANGIBLES OTHER THAN

RIGHTS TO PAYMENT
Licensee in the Ordinary Course of Business. 9-321(b). A LICENSEE IN ORDINARY
COURSE OF BUSINESS of a general intangible under a nonexclusive license takes free of a
security interest in the general intangible. (e.g, software)
A licensee may effectively waive its defenses under a license as against its licensors assignee. 9403.
9-408: Permits creation of security interests in general intangibles. Can override agreement. Only
applies to things that are property.
Classnotes:
Pp. 456 - 458

Problem 29.1 - Valuable Property = Liquor License

Liquor License Statute:

Provision A: License = personal privilege

Provision B: License not transferrable

Board says that licenses aren't transferrable; but in practice, the licensing board almost
always issues a new license to a qualified person who buys a bar from an existing licensee

(a)

Assume C7 Bankruptcy;
Liquor license NOT property per state law, so "you don't get off the ground"
So, no security interest in the liquor license; but it will have a security interest of FFE
(fixtures, furniture, and equipment)
No SI in liquor license = bank is unsequred for price paid for bundled assets ABOVE cost
of FFE

(b) - Strike Provision A

Begs the question of whether the license is property: assuming it is property

State law says that SI is not permitted because license right is not transferrable

9-408 speaks to effectiveness of legal restrictions on assignment.

o
o

If a rule of law restricts creation of a SI in a general intangible, then that rule

of law is ineffective
BUT, SP can't enforce the security interest

SO you can get a security interest in a general intangible, but you can't do
anything with it

BUT SP has rights in ALL the proceeds of liquor license!!!

UNIT 29B: SPECIAL RULES ON PRIORITY IN PROCEEDS

Case 1: BATTLE BETWEEN SPS ON ORIGINAL COLLATERAL IS NEITHER

FTFOP OR PMSI
If Original Collateral has two competing interests, generally look to FTFOP to see who has rights
in proceeds. 9-322(b).
If PMSI under 9-324, then PMSI priority to extent of PMSI.
If battle between SPs neither FTFOP or PMSI (usually control), the priority is governed by 9322(c). Usually control of a financial instrument that yields proceeds. See example:

T1
D
SP1
SP2

T2

Bond - file
Bond - control

T3
*cash out* (traceable)

SP1 would WIN in proceeds under strict FTFOP; but SP2 should win in
proceeds because it would win in bond.

So 9-322(c) allows SP2 to win in proceeds of bond, too

D grants SP-1 a security interest in a $1,000,000 bond (a security) which SP-1 perfects by
filing. Later, D grants SP-2 a security interest in the bond, which SP-2 perfects by
control. (Note that SP-2s control security interest in the bond has priority over SP-1s
filed security interest in the bond under 9-328(1).) Still later, the bond matures and is paid
in cash by the issuer to D. Assume that those cash proceeds remain traceable (so both SPs
will have a perfected security interest in the cash proceeds). Under the baseline FTFOP
rule, as extended to proceeds by 9-322(b), SP-1 would have priority in the cash proceeds.
(And indeed, this was the result under Former Article 9.) It is odd, however, that SP-1
wins in cash proceeds of the bond when he loses in the bond itself.
SP-2 wins.

Case 2: CUT BACK THE APPLICABILITY OF THE FTFOP PRIORITY RULE TO

PRIORITY IN PROCEEDS in situations in which
(i) the original collateral is not perfected by filing, and
(ii) the proceeds are of a type as to which perfection is typically by filing
T1

T2

T3

D
SP1
SP2

Dep Acct
Control

T4
Dep Acct money
Item X of inv

Inv FS
Inv FS

Under Strict FTFOP, SP1 would win because it perfected first and was continusously perfected
(not that without T3 filing statement in inventory, it would have been unperfected after 20 days.
9-322(d) and (e) allow SP2 to win because 1. SP1s collateral is of a type not perfected by filing
(i.e., control); and 2. Proceeds are of a type typically perfected by filing. This outcome protects
the integrity of the filing system.
Example 2: At time T1, D grants SP-1 a security interest in debtors deposit
account, which SP-1 perfects by control. At T2, D grants SP-2 a security interest
in debtors existing and after- acquired inventory, which SP-2 perfects by filing.
At T3, SP-1 files a financing statement covering inventory (with authorization
from D). At T4, D withdraws funds from the deposit account and uses them to
buy item X of inventory. Each SP has a security interest in X (in the case of SP-1,

as proceeds; in the case of SP-2, as original collateral). Because each has filed
against inventory each security interest is perfected. (Notice that if SP-1 hadnt
filed at T3 its proceeds security interest in X would have become unperfected
after 20 days.) Under the FTFOP priority rule, as extended to proceeds by 9322(b), SP-1 would have priority in X because it perfected in the deposit account
before SP-2 filed. That seems rather subversive of the filing system, as SP-2 filed
first.
In response to such situations, Revised Article 9 added new subsection (d) and (e)
to 9-322. These apply a first-to-file (not first-to-file-or-perfect) priority rule to
proceeds consisting of property of a type for which filing is the usual method of
perfection. By virtue of 9-322(d) and (e), SP-2 is given priority in X in this
Example 2.
9-322(d) [First-to-file priority rule for certain collateral.] Subject to subsection (e) and
except as otherwise provided in subsection (f), if a security interest in chattel paper, deposit
accounts, negotiable documents, instruments, investment property, or letter-of-credit rights is
perfected by a method other than filing, conflicting perfected security interests in proceeds of the
collateral rank according to priority in time of filing.
(e) [Applicability of subsection (d).] Subsection (d) applies only if the proceeds of the collateral
are not cash proceeds, chattel paper, negotiable documents, instruments, investment property, or
letter-of-credit rights.

UNIT 30: RECHARACTERIZATION; RECHARACTERIZATION OF LEASES

A transaction that purports to be a lease of goods is not a true lease when it is in reality and in
substance a present sale of goods coupled with the sellers retention of a security interest in the
goods sold to secure the buyers obligation to make the installment payments as they become
due.
A true lease is distinguished . . . by the true lessors having by intention retained from the outset
an economically meaningful reversionary interest in the property.
1-203. LEASE DISTINGUISHED FROM SECURITY INTEREST.

(a) Whether a transaction in the form of a lease creates a lease or security interest is determined
by the facts of each case.
(b) A lease should be recharacterized if:

- the consideration that the lessee is to pay the lessor for the right to possession and use of
the goods is an obligation for the term of the lease and
- is not subject to termination by the lessee, and:
(1) the original term of the lease is equal to or greater than the remaining
economic life of the goods; [lease term uses all economic life of goods]
(2) the lessee is bound to renew the lease for the remaining economic life of the
goods or is bound to become the owner of the goods;
(3) the lessee has an option to renew the lease for the remaining economic life of
the goods for no additional consideration or for nominal additional consideration
upon compliance with the lease agreement; or
(4) the lessee has an option to become the owner of the goods for no additional
consideration or for nominal additional consideration upon compliance with the lease
agreement.
(c) A transaction in the form of a lease does not create a security interest merely because:
(1) the present value of the consideration the lessee is obligated to pay the lessor
for the right to possession and use of the goods is substantially equal to or is greater than
the fair market value of the goods at the time the lease is entered into;
(2) the lessee assumes risk of loss of the goods;
(3) the lessee agrees to pay, with respect to the goods, taxes, insurance, filing,
recording, or registration fees, or service or maintenance costs;
(4) the lessee has an option to renew the lease or to become the owner of the
goods;
(5) the lessee has an option to renew the lease for a fixed rent that is equal to or
greater than the reasonably predictable fair market rent for the use of the goods for the
term of the renewal at the time the option is to be performed; or
(6) the lessee has an option to become the owner of the goods for a fixed price
that is equal to or greater than the reasonably predictable fair market value of the goods at
the time the option is to be performed.
(d) Additional consideration is nominal if it is less than the lessee's reasonably predictable cost of
performing under the lease agreement if the option is not exercised. Additional consideration is
not nominal if:
(1) when the option to renew the lease is granted to the lessee, the rent is stated to
be the fair market rent for the use of the goods for the term of the renewal determined at
the time the option is to be performed; or

(2) when the option to become the owner of the goods is granted to the lessee, the
price is stated to be the fair market value of the goods determined at the time the option is
to be performed.
(e) The remaining economic life of the goods and reasonably predictable fair market
rent, fair market value, or cost of performing under the lease agreement must be
determined with reference to the facts and circumstances at the time the transaction is
entered into.

TERMINABLE LEASES

Early in term likely to be a true lease payments are rent

Late in term likely to be a dirty lease (recharacterize!) payments pay the item
off

UNIT 31: CONSIGNMENTS

Point is to defeat ostensible ownership risk. Consignment treated like PMSI, though of course
not necessarily perfected (especially if not consumer goods). A9 defines consignments at 9102(a)(20).
A consignor whose consignment is an A9 consignment must perfect to beat creditors of
consignees. Or:

Plan A: File, and do so before Bank. (Fat chance!)

Plan B: Subordination from Bank.
Plan C: Comply with the conditions for PMSI superpriority in inventory under 9324(b), (c).

TO BE A9 CONSIGNMENT:

2
3
4

One party must be merchant

1. Party deals in goods of that kind, not as an agent of consignor
2. Party auctioneer
3. Party known as consignee
Goods must be worth more than $1,000
Goods not consumer goods immediately before delivery
Transaction does not create a security interest that secured an obligation.

Consignment rules require consignor to create sec interest in consigned goods. Must perfect to
beat creditors of consignee.
Consignee gets same rights as consignor (can transfer them).

To recharacterize assignment to ST, must have 9-203(b) requirements (i.e., security agreement).
If the CONSIGNEMENT IN QUESTION IS RECHARACTERIZED as a true A9
consignment (i.e., meets the requirements above), then in order for consignors interest to beat
the interest of a creditor of the consignee that would otherwise have priority, the consignor must:
1. Perfect its PMSI before consignee receives possession
2. Notify consignees creditors
3. Within 5 years before consignee receives possession of collateral, and
4. The notification must clearly spell out consignors interest.
These are the 9-324(b) PMSI in Inventory requirements.
SALE-OR-RETURN counts as consignment!
UNIT 33: FIXTURES

WHAT COUNTS AS A FIXTURE? Look to state RE/property law. 9-109

As VERSUS NON-RE CLAIMANT, regular A9 priority rules apply.
As VERSUS A RE CLAIMANT, the following rules apply:
BASELINE RULE: 9-334(c)
- A later RE claimant wins as against a non-RE claimant (with no fixture filing)
- But an earlier-in-time fixture filing has priority over a later RE claimant
EXCEPTIONS TO BASELINE RULE:

1. Non-fixture fixture exception: 9-334(e)(2)

a. If its a factory or office machine,
b. Equipment not primarily used in the operation of the real property, or
c. Replacements of domestic appliences that are consumer goods.
BEATS
2. Construction Mortgage Exception: 9-332(h)
a. Mortgage is construction mortgage to the extent that it secures an obligation
incurred for the construction of an improvement on land (including acquisition of
land).
BEATS
3. General fixture PMSI exception: 9-334(d)
a. Perfd security interest in fixture has PMSI priority if debtor owns RE and:
i. Sec interest is PMSI
ii. Interest of owner arises before goods become fixtures, and

iii. Sec interest perfected by fixture filing before goods become fixtures or
within 20 days thereafter
ENFORCEMENT

9-604(c) If a party beats all RE claimants, that party can go remove fixture; but it has to fix
whatever it dings up on the way out.
9-604(b)(2) alludes to fixture SP getting proceeds of fixture from sale of fixture (e.g., at
foreclosure sale)

UNIT 34: PREFERENTIAL UNWINDING IN BANKRUPTCY

ELEMENTS OF A PREFERENTIAL TRANSFER UNDER 547:

[Chapeau] Transfer of an interest in property

[Chapeau] Of the debtor

To T. The time at which transfer is considered to have happen is 547e

o Perfect within 30 days, then transfer happened at attachment
o Perfect after 30 days, then transfer happened at perfection
o Dont perfect, then transfer happened at TPO of Bankruptcy Petition

B.1: To or for the benefit of the creditor

B.2: on account of an antecedent debt of the debtor

B.3: debtor insolvent at time of transfer

o
Insolvency presumed form p-90: 547(f) [insolvency presumed for 90 days before
petition]

B.4.:Make within p-90 (if to insider, P-1 year)

B.5: transfer has preferential effect -- i.e., transferee is better off as a result of the transfer
o
The transfer has preferential effect if and only if:

The transferee gets more if

The transfer stands & a C7 distribution is made,

Than the transferee would get if

The transfer hadn't been made & a C7 were made

DO NOT UNWIND TRANSACTIONS WHERE:

The debtor is fully or over- secured

The debtor is solvent

EXCEPTIONS :
1. Substantially Contemporaneous Exchanges
a. 547(c)(1)(B) provides an exception for "substantially contemporaneous exchanges"
b. knowledge is totally irrelevant
2. De Minimis Exception at 547(c)(8) and (9)
a. Consumer transaction: $600

b. Non-consumer transaction: $6,225

3. Transfer made in the ordinary course of business or financial affairs of the debtor and the
transferee
a. They planned to do this anyway.
4. Dont unwind PMSIs. 547(c)(3)
a. Even if within P-90, and
b. Even AAP (After-acquired property)

Oversecurednot preferential.
Undersecuredprobably preferential. Debtor only gets back the difference between debt and
securedness.
DELAYED PERFECTION -- TIME OF TRANSFER

(e)(2)(A) and (B)

o
If perfection is 30 days after creation of security interest, then transfer happened on
earlier day, when security interest created.
o
If perfection is after 30 days of creation of security interest, then transfer happened on
later day, when interest was perfected/FS filed.
(3) says that sec interest in after-acquired property doesnt transfer until debtor gets rights in afteracquired property
547(c)(3): PMSI property exception. Not preferential. Not unwound.

APPENDIX 1: CLASSIFICATION OF COLLATERAL (9-102(A))

Consumer Goods
(a)(23)

Farm Products
(a)(34)
Goods
(a)(44)

Documents
(a)(30)
(e.g., warehouse receipt (perf of doc =
perf of goods 9-312(c)); bill of lading)
+/- negotiable

Inventory
(a)(48)

Equipment
(a)(33)

Collateral
(a)(12)

Instrument
(a)(47)

Chattel Paper
(a)(11)
(evinces monetary obligation AND sec
intr)
(e.g., retail sales agreement)

Investment Property
(a)(49)

Deposit Account
(a)(29)
Account
(a)(2)
The "Intangibles"
General Intangible
(a)(42)

Classification made as to TIME OF ATTACHMENT (e.g., computer bought for home

use, then converted to business use, is consumer goods).