1

SECURED TRANSACTIONS OUTLINE

SPRING 2009
PROF. JAMES L. MUSSELMAN
LYNN M. LOPUCKI & ELIZABETH WARREN, SECURED CREDIT: A SYSTEMS APPROACH (6th ed. 2009)
SELECTED COMMERCIAL STATUTES (Carol L. Chomsky et al. eds., 2008 ed. 2008)
JAMES J. WHITE & ROBERT S. SUMMERS, UNIFORM COMMERCIAL CODE (5th ed. 2000)

PART ONE: THE CREDITOR-DEBTOR RELATIONSHIP ..................................................................................................... 2
CHAPTER 1. CREDITORS REMEDIES UNDER STATE LAW ......................................................................................... 2
Assignment 1: Remedies of Unsecured Creditors under State Law ..................................................................... 2
Assignment 2: Security and Foreclosure .............................................................................................................. 3
Assignment 3: Repossession of Collateral ............................................................................................................ 4
Assignment 5: Article 9 Sale and Deficiency ........................................................................................................ 6
CHAPTER 2. CREDITORS REMEDIES IN BANKRUPTCY ............................................................................................ 13
Assignment 6: Bankruptcy and the Automatic Stay ........................................................................................... 13
Assignment 7: The Treatment of Secured Creditors in Bankruptcy ................................................................... 14
CHAPTER 3. CREATION OF SECURITY INTERESTS .................................................................................................... 18
Assignment 8: Formalities for Attachment ........................................................................................................ 18
Assignment 9: What Collateral and Obligations Are Covered? .......................................................................... 19
Assignment 10: Proceeds, Products and Other Value-Tracing Concepts ........................................................... 21
PART TWO: THE CREDITOR-THIRD PARTY RELATIONSHIP .......................................................................................... 24
CHAPTER 6. PERFECTION ........................................................................................................................................ 24
Assignment 16: The Personal Property Filing Systems ...................................................................................... 24
Assignment 17: Article 9 Financing Statements: The Debtors Name............................................................... 27
Assignment 18: Article 9 Financing Statements: Other Information ................................................................ 31
Assignment 19: Exceptions to the Article 9 Filing Requirement ........................................................................ 35
Assignment 20: The Land and Fixtures Recording Systems ............................................................................... 42
Assignment 21: Characterizing Collateral and Transactions .............................................................................. 44
CHAPTER 7. MAINTAINING PERFECTION ................................................................................................................ 49
Assignment 22: Maintaining Perfection Through Lapse and Bankruptcy .......................................................... 49
Assignment 23: Maintaining Perfection Through Changes of Name, Identity, and Use .................................... 51
Assignment 24: Maintaining Perfection Through Relocation of Debtor or Collateral ....................................... 56
Assignment 25: Maintaining Perfection in Certificate of Title Systems ............................................................. 60
CHAPTER 8. PRIORITY ............................................................................................................................................. 63
Assignment 26: The Concept of Priority: State Law .......................................................................................... 63
Assignment 28: Lien Creditors Against Secured Creditors: The Basics ............................................................. 66
Assignment 29: Lien Creditors Against Secured Creditors: Future Advances ................................................... 69
Assignment 30: Trustees in Bankruptcy Against Secured Creditors: The Strong Arm Clause ........................... 71
Assignment 31: Trustees in Bankruptcy Against Secured Creditors: Preferences ............................................ 73
Assignment 32: Secured Creditors Against Secured Creditors: The Basics ....................................................... 85
Assignment 33: Priority in Land and Fixtures ..................................................................................................... 93
Assignment 36: Buyers Against Secured Creditors ............................................................................................ 97

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PART ONE: THE CREDITOR-DEBTOR RELATIONSHIP

CHAPTER 1. CREDITORS REMEDIES UNDER STATE LAW

I. Assignment 1: Remedies of Unsecured Creditors under State Law
a. Unsecured Creditor. Anyone who is owed a legal obligation that can be reduced to a money
judgment is a creditor of the party owing the obligation. Unless a creditor contracts w/ the
debtor for secured status or is granted it by statute, the creditor will be unsecured.
b. Rights Baseline. The rights of an unsecured creditor are the baseline; that is, all creditors have
the rights available to unsecured creditors. Secured creditors have additional rights (e.g.,
foreclosure and repossession).
c. No Self-Help Seizure. An unsecured creditor is prohibited from self-help seizure of the debtors
property.
i. Civil Liability: Conversion. Usually, a prohibited seizure of a debtors property will
constitute the tort of conversion. Conversion is the wrongful exercise of dominion and
control over anothers property in denial of or inconsistent with his rights. Damages for
conversion liability is the value of the property seized (i.e., a forced sale).
ii. Criminal Liability: Larceny. A creditor that wrongfully takes possession of property of
the debtor may be charged with larceny, even if the value of the property taken is less
than the amount owed.
d. Debt Collection Process. The creditor must sue the debtor and get a judgment. Then she must
execute by getting a writ of execution. After she finds non-exempt property, she can have the
sheriff levy (i.e., physically seize) the property and auction it. Money from the foreclosure sale
goes to the creditor.
i. Wrongful Collection Practices. If the creditor demands payment from the debtor in an
unreasonable manner, she may incur liability for wrongful collection practices.
ii. Exempt Property. Exemption statutes provide for certain property to be exempt from
execution. See WIS. STAT. ANN. 8.15.18, 815.20(1), 990.01(14) (West 2008) (pp. 14
16). Texas has a $60k exemption on certain personal property, an unlimited exemption
on retirement income, and a 10-acre urban homestead exemption (no dollar limit).
e. Problem 1.1. J lent $1k to L, so she could buy lawn furniture. L hasnt repaid J. The furniture is
in Ls backyard and is worth less than the amount owed. Can J go over and take the lawn
furniture? No; as an unsecured creditor, J cannot resort to self-help seizure of Ls furniture. If J
does take the furniture, he may be liable for conversion (i.e., the value of the furniture) and
possibly punitive damages. He also may be criminally liable (trespass, larceny). To recover the
debt, J must employ the debt-collection process outlined above.
f. Problem 1.3. B lent $10k to K, a day care center owner. The center has not missed a payment,
but B is unsure whether it will survive (and pay her). The center sold the best of its computers
and exercise equipment to move to an upscale location, losing 1/3 of its customers, increasing
employee turnover and replacing the old manager with one who scares the children. What do
you advise? Has K has defaulted on the loan? Usually, the debtor is in default if he misses
payments or has some property repossessed. Sometimes, the debtor is in default if the lender
feels insecure b/c of certain actions. An acceleration clause would make all payments due
immediately upon default. If K has defaulted, B would have to go through the process above.
g. Problem 1.4. The day care folded and B obtained a $12k judgment against K. What do you need
to know to answer her question? What are the possible sources of that information? How is the
day care center organized? The loan was made to K, but the day care (entity) may own the
equipment. See Vitale v. Hotel California, Inc. (where sheriff seized property of landlord, not
tenant-debtor). Assuming K owns the equipment, find out what non-exempt property he has by
discovery. Note: ask the right questions (remember deponent w/ $10k in his pocket).
h. Problem 1.5. If K lives in Wisconsin and owns the following property, what can the sheriff seize
to satisfy Bs judgment?
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i. $6k car. WIS. STAT. ANN. 815.18(3)(d), (g): the sheriff can sell the car and apply $1,200
of the proceeds and up to $4,800 in unused consumer goods exemptions to satisfy the
judgment
ii. $35k house. WIS. STAT. ANN. 815.20(1); 990.01(14): the house is fully exempt ($40k
exemption)
iii. $10k day care equipment. WIS. STAT. ANN. 815.18(3)(b): the equipment is exempt up to
$7,500
iv. $2,265.92 bank account. WIS. STAT. ANN. 815.18(3)(k): the bank account is exempt up
to $1k
II. Assignment 2: Security and Foreclosure
a. Foreclosure. If a secured debt is not paid when due, the creditor can compel the application of
the value of the collateral to payment of the debt. The process by which the creditor compels
application is called foreclosure.
b. Scope of Article 9. If Article 9 applies to a transaction, the secured creditor must comply with
Article 9. That is, she must comply with the rules regarding creation and attachment of a security
interest, perfecting a security interest, and repossessing and foreclosing on secured property.
c. Transactions Intended as Security. Since Article 9 procedure is technical, time-consuming and
expensive, creditors may enter into contracts that dont create a security interest in form, but do
create one in effect. But, Article 9 will apply to any transaction, regardless of its form, that
creates a security interest in personal property by contract. U.C.C. 9-109(a).
i. Conditional Sales. Owners who intend to sell goods on credit sometimes seek to retain
title to the goods until the buyer has finished paying for the goods. But, the retention
or reservation of title by a seller of goods . . . is limited in effect to a reservation of a
security interest. U.C.C. 1-201(35).
ii. Leases Intended as Security Interests. If the term of the lease extends for the entire
remaining economic life of the collateral, the economic effect of the lease on the parties
(taxes aside) may be identical to the economic effect of a sale with a security interest
back for the purchase price. The lease will be a true lease if the contract transfers
only part of the anticipated economic life of the property. See II.e. Problem 2.2, infra.
d. Problem 2.1. Same facts as Problem 1.5, except B and K agreed to list a car, house, equipment
and bank account as security. Which items can B reach through foreclosure of her security
interest?
i. Since B has a security interest in all the listed property, upon default, B has the right to
repossess and foreclose on all the listed property.
ii. Bs security interest is not void as a waiver of exemptions
1. WIS. STAT. ANN. 815.18(12), 815.20: exemption statute doesnt apply to
Article 9 security interests or real estate mortgages
e. Problem 2.2. Instead of selling cars (at $180.77 monthly), B plans to lease them (at $180.77/mo.)
with an option to buy at the end of the lease period for $10. The lease provides that on default,
B has the right to terminate the lease and the option to buy. B retains ownership of the car and
will simply repossess it if the lessee defaults. What advice do you give B? Under the intended as
security doctrine, Article 9 applies to this transaction.
i. U.C.C. 9-109(a): Article 9 applies to a transaction, regardless of its form, that creates a
security interest in personal property by contract
ii. U.C.C. 1-201(35) : security interest means an interest in personal property which
secures payment or performance of an obligation. Whether a transaction in the form of
a lease creates a security interest is determined pursuant to Section 1-203
1. U.C.C. 1-203(b)(4): a lease creates a security interest if the lease pmts are not
subject to termination by the lessee and the lessee has an option to become the
owner of the goods for nominal additional consideration upon compliance w/
the lease agreement
2. Here, the lessee does not have the right to terminate and has an option to buy
for $10 (nominal consideration)
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iii. See also, II.c.i. Conditional Sales, supra.
III. Assignment 3: Repossession of Collateral
a. Secured Partys Right to Take Possession After Default. After default, a secured party (1) may
take possession of the collateral; and (2) without removal, may render equipment unusable.
U.C.C. 9-609(a).
i. Judicial Process. A secured party may proceed under subsection (a) pursuant to judicial
process. U.C.C. 9-609(b)(1). A creditor can obtain a writ of replevin, directing the
sheriff to take possession of the property from the defendant and give it to the plaintiff.
The creditor completes the foreclosure by selling the collateral in a commercially
reasonable manner. See U.C.C. 9-610.
ii. Nonjudicial Process w/o Breach of the Peace. A secured party may proceed under
subsection (a) w/o judicial process, if it proceeds without breach of the peace. U.C.C.
9-609(b).
b. Assembly of Collateral. If so agreed, and in any event after default, a S/P may require the D to
assemble the collateral and make it available to the S/P at a place to be designated by the S/P
which is reasonably convenient to both parties. U.C.C. 9-609(c).
c. Breach of the Peace Generally
i. Nondelegable Duty. Courts generally hold that the duty to refrain from breach of the
peace during repossession is nondelegable, making the secured creditor liable for the
consequences of illegal repossessions by their independent contractors.
ii. Liability for Trespass. A creditor ordinarily will not be subject to liability for trespass if
she repossesses w/o a breach of the peace. But, the creditor can never enter the
debtors residence (incl. attached garages) to repossess property.
1. Entry onto Premises of a Third Party. In Salisbury Livestock Co. v. Colorado
Central Credit Union, the issue of trespass was sent to the jury where
Repossessor entered onto a non-debtors land to recover debtors property.
iii. Security Agreements
1. General Effectiveness. Except as otherwise provided in the U.C.C., a security
agreement is effective according to its terms btwn the parties, against
purchasers of the collateral, and against creditors. U.C.C. 9-201(a).
2. Cannot Waive Breach of Peace Requirement. Parties to a security agreement
cannot waive a self-help repossessors duty not to breach the peace. U.C.C.
9-602(6).
3. Reasonable Standards Measuring Fulfillment of Rights and Duties. Parties
may agree to standards measuring the fulfillment of the rights of a debtor or
duties of a secured party if theyre not manifestly unreasonable. U.C.C. 9-
603(a). See Wombles Charters, Inc. v. Orix Credit Alliance, Inc. (p. 49) (cutting a
lock to enter property was not a breach of the peace where security agreement
permitted creditor to enter any premises . . . w/o liability for trespass).
a. Inapplicable to Breach of Peace. Subsection (a) doesnt apply to the
duty under 9-609 to refrain from breaching the peace. U.C.C. 9-
603(b).
d. Defining Breach of the Peace
i. Using Police in Self-Help Repossession. Generally, getting police involved in self-help
repossession will constitute a breach of the peace. See In re Walker v. Walthall (p. 47)
(creditor taking uniformed police officer to debtors home on repossession attempt was
a breach of the peace); Marcus v. McCollum (pp. 47-48) (breach of the peace occurred
where repossessor beckoned a nearby police officer who told debtors to keep [their]
mouths shut [and] go back in the house).
ii. Must Withdraw After Confrontation. Where a creditor is physically confronted by the
debtor, disregards his request to desist efforts at repossession and refuses to depart
from private premises upon which the collateral is kept, they commit a breach of the
peace. See Morris v. First Natl Bank & Trust Co. of Ravenna, Ohio (p. 47).
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1. Separate Instances. Each repossession attempt is a separate instance for
determining a breach of the peace. See Wade v. Ford Motor Credit Co. (p. 49)
(where stealthy repossession was not a breach of the peace, despite threats by
Debtor on prior occasions).
2. Stealthy Repossession. In Wallace v. Chrysler Credit Corp., there was no
breach of the peace where the repossessor followed debtor to his daughters
house and repossessed the truck at 2:00 a.m. See also Wade v. Ford Motor
Credit Co. (p. 49).
3. Level of Confrontation. There was no breach of the peace in Williams v. Ford
Motor Credit Corp. (p. 48) where Debtor hollered at Repossessors while they
were driving away, Repossessors stepped between Debtor and the car (while
retrieving personal items), and Repossessors were polite and didnt threaten
Debtor w/ physical harm. Note: this is probably a minority view.
iii. Breaking Locks, Leaving Property Unprotected. In Laurel Coal Co. v. Walter E. Heller &
Co., Inc. (p. 48), the creditor breached the peace when he cut a chain used to lock a
fence, leaving $350k worth of plaintiffs equipment unsecured and unprotected.
iv. Lying to a Guard is Permissible. In most courts, a repossessor may trick or lie to a guard
to gain entry onto the premises. See K.B. Oil Co. v. Ford Motor Credit Co., Inc. (p. 49)
(where repossessor obtained possession of collateral by fraudulently misrepresenting to
the truck equipment dealer that the debtor had given him permission to repossess).
e. Accounts as Collateral
i. Accounts Financing. If D sells products/services to Customers on credit (an unsecured
obligation), D can use those obligations as collateral for a loan from Bank.
1. Account. An account is a right to pmt of a monetary obligation for
property/services. See U.C.C. 9-102(a)(2).
2. Account Debtor. An account debtor is a person obligated on an account.
U.C.C. 9-102(a)(3).
ii. Self-Help Against Accounts
1. Notice of Assignment. After default, a secured party may notify an account
debtor to make pmt to the secured party. See U.C.C. 9-607(a)(1).
2. Discharge of Account Debtor. An account debtor may discharge its obligation
by paying the assignor (D) until, but not after, the account debtor receives a
notification . . . that the amount due has been assigned and that pmt is to be
made to the assignee (S/P). After receipt of the notification, the account
debtor may discharge its obligation by paying the assignee (not the assignor).
See U.C.C. 9-406(a).
3. Steps into the Shoes. The rights of the S/P are subject to all terms of the
agreement btwn the account debtor and the D and any defense or claim in
recoupment arising from the transaction that gave rise to the contract. See
U.C.C. 9-404(a)(1).
f. Problem 3.1. On the facts of Problem 1.1, assume J went to an office supply store and picked up
a form titled Personal Property Security Agreement and had L sign it. You decide its a
perfectly enforceable security agreement designating the lawn furniture as collateral. Does your
advice change? Yes; as a secured party, J may repossess the lawn furniture without breaching the
peace. J should probably sneak over to Ls lawn in the middle of the night.
g. Problem 3.2. Outline some guidelines for repossession of a bulldozer. If possible, repossess the
equipment (or render it unusable) without confrontation with Debtor. Repossession w/o breach
of the peace is more likely at night. If Debtor is there and objects to repossession, Repossessor
must withdraw. If a guard is there, Repossessor can trick/lie to him to gain entry. See III.d.
Defining Breach of the Peace, supra.
i. e. As CFs regular counsel, you should also consider whether there is anything that
should be in CFs security agreements that might make repossession easier. CF may
consider having debtors agree to a security agreement like the one in Wombles (security
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agreement permitted creditor to enter any premises . . . w/o liability for trespass). See
III.c.iii.3. Reasonable Standards Measuring Fulfillment of Rights and Duties, supra.
h. Problem 3.3. S (debtor) received a letter from ITT (creditor) declaring the loan in default and
directing him (per the security agreement) to assemble the collateral and make it available to ITT
for repossession. See III.b. Assembly of Collateral, supra. What can S do to resist repossession?
What if they bring the sheriff with them? S should physically confront the repossessors and craft
a situation where repossession would be a breach of the peace.
i. If ITT is repossessing by judicial process, the sheriff can take the collateral. But, if ITT
brings a sheriff to assist in self-help repossession, it is a per se breach of the peace. See
III.d.i. Using Police in Self-Help Repossession, supra.
ii. S should not hide the property
1. WIS. STAT. ANN. 943.25: its a Class E felony in WI
2. MODEL RULES OF PROFL CONDUCT R. 1.2(d): as an attorney, it would be against the
Model Rules to advise S to hide the collateral
i. Problem 3.5. F lends an amount equal to 60% of Ds accounts receivable (A/R). When D makes a
sale to the supply store, it sends a copy of the invoice to F. F deposits an amount equal to 60% of
the invoice to Ds bank account. When the supply store pays the invoice, D is required to apply
60% of the proceeds to repay the loan immediately. D requested that Fs interest in the accounts
not be made known to the account debtors b/c it might make them nervous. What are the
risks of this arrangement? F runs the risk that (1) D will collect on the accounts and not pay, (2) D
will make up invoices, (3) D will sell to insolvent customers, (4) D will sell defective equipment, or
that (5) D will engage in kiting (i.e. paying off loans from old invoices with new cash flow).
i. Note: under this arrangement, D is a debtor under 9-102(a)(28), F is a secured
party under 9-102(a)(72), and Ds retail customers are account debtors under 9-
102(a)(3). The A/R from the retail customers are accounts under 9-102(a)(2).
j. Problem 3.6. (Using facts of Problem 3.5) D defaulted and two months ago F notified the
account debtors to pay F directly.
i. a. H, one of Ds account debtors, claims that it paid D in full last month and refuses to
pay F. Can F collect from H? Yes.
1. U.C.C. 9-607(a): after default, a S/P may notify an account debtor to make
pmt to the S/P
2. U.C.C. 9-406(a): after notification, an account debtor can only discharge its
obligation by paying the assignee, not the assignor
ii. b. Another account debtor, W, has refused to pay anything, claiming that although they
received $42k in equipment, they have untended warranty claims amounting to $19k.
What can F collect from W? If Ws claims are valid, F can only collect $23k ($42k $19k)
1. U.C.C. 9-404(a)(1): unless otherwise agreed, an assignees (F) rights are
subject to all terms of the agreement btwn the account debtor (W) and the
assignor (D) and any defense/claim in recoupment arising from the transaction
that gave rise to the contract
k. Problem 3.8. Z sold a car to E and arranged financing w/ a separate financing company. E made
the first two payments, then missed the next three. E complained about the quality of the car,
the representations the salesperson made to her, and the financing Z obtained for her. Whats
your advice? Has E defaulted? Default is defined in the security agreement. If E hasnt defaulted
(i.e. if her valid warranty claims justify her from not making pmts under the S/A) and Z
repossesses the car, E may bring a wrongful repossession claim.
IV. Assignment 5: Article 9 Sale and Deficiency
a. Right to Redeem Collateral
i. Persons that May Redeem. A debtor . . . may redeem collateral. U.C.C. 9-623(a).
ii. When Redemption May Occur. A redemption may occur before a S/P (1) has collected
collateral under 9-607, (2) has disposed of collateral under 9-610, or (3) has accepted
collateral in full/partial satisfaction under 9-622. U.C.C. 9-623(c).
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iii. Requirements for Redemption. To redeem collateral, a debtor shall tender: (1)
fulfillment of all obligations secured by the collateral, and (2) reasonable expenses and
attorneys fees. See U.C.C. 9-623(b).
b. Strict Foreclosure
i. Effect of Strict Foreclosure. A S/Ps acceptance of collateral in full/partial satisfaction:
(1) discharges the obligation to the extent consented to by the debtor, (2) transfers to
the S/P all of a debtors rights in the collateral, and (3) discharges the S/I that is the
subject of the debtors consent and any subordinate S/I. See U.C.C. 9-622.
ii. No Partial Satisfaction in Consumer Transactions. In a consumer transaction, a S/P may
not accept collateral in partial satisfaction of the obligation it secures. U.C.C. 9-620(g).
iii. Debtors Consent. S/P may accept collateral in full or partial satisfaction of the
obligation if, inter alia, the debtor consents to the acceptance. U.C.C. 620(a).
1. Partial Satisfaction. A debtor consents to an acceptance of collateral in partial
satisfaction if the debtor agrees to the acceptance in a record authenticated
after default. See U.C.C. 9-620(c)(1).
2. Full Satisfaction. A debtor consents to an acceptance of collateral in full
satisfaction if the debtor agrees to the acceptance in a record authenticated
after default OR the S/P sends a proposal to accept collateral in full satisfaction
and does not receive a notification of objection w/in 20 days. See U.C.C. 9-
620(c)(2).
c. Notification of Disposition
i. Notice Requirement. Except as provided in 9-611(d), S/P that disposes of collateral
under 9-610 shall send to, inter alia, the debtor a reasonable authenticated
notification of disposition. U.C.C. 9-611(b), (c).
1. Exceptions. The notice requirement does not apply if the collateral is
perishable or threatens to decline speedily in value or is of a type customarily
sold on a recognized market. U.C.C. 9-611(d). A recognized market is
where items sold are fungible and prices are not subject to individual
negotiation (e.g., NYSE). U.C.C. 9-610 cmt. 9.
ii. Waiver. The notice requirement cannot be waived in a S/A. See U.C.C. 9-602(7). But,
a debtor may agree to waive notice after default. See U.C.C. 9-624(a).
iii. Timeliness of Notification. In a business transaction, a notification of disposition sent
after default and 10 days before disposition is sent w/in a reasonable time before
disposition. U.C.C. 9-612(b). Otherwise, whether a notification is sent w/in a
reasonable time is a question of fact. U.C.C. 9-612(a).
iv. Agreed Standards of Fulfillment. Parties may agree to the standards measuring the
fulfillment of the parties rights/duties (including notice requirements) if not manifestly
unreasonable. See U.C.C. 9-603(a).
d. Disposition of Collateral
i. Purchase by Secured Party. A S/P may purchase collateral (1) at a public disposition, or
(2) at a private disposition only if the collateral is customarily sold on a recognized
market or the subject of widely distributed standard price quotations. U.C.C. 9-610(c).
ii. Commercially Reasonable Disposition. Every aspect of a disposition of collateral,
including the method, manner, time, place and other terms, must be commercially
reasonable. U.C.C. 9-610(b).
1. Greater Amount Obtainable: Not Dispositive. The fact that a greater amount
could have been obtained by a disposition is not itself sufficient to preclude S/P
from establishing commercial reasonableness. See U.C.C. 627(a).
2. Commercially Reasonable Dispositions. The following dispositions are
commercially reasonable: (1) dispositions in the usual manner on any
recognized market, (2) dispositions at the price current in any recognized
market, or (3) dispositions otherwise in conformity w/ reasonable commercial
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business practices among dealers in the type of property disposed of. See
U.C.C. 627(b).
iii. Disposition After Default. After default, a S/P may dispose of any or all of the collateral
in its present condition or following any commercially reasonable preparation or
processing. U.C.C. 9-610(a).
1. Duty to Prepare/Process? Some courts imposed an affirmative duty on the S/P
to process or prepare the collateral prior to disposition. Although courts
should not be quick to impose a duty of preparation/processing on the S/P, 9-
610(a) does not grant the S/P the right to dispose of the collateral in its then
condition in all circumstances. A S/P may not dispose of collateral in its then
condition when, taking into account the costs and probable benefits of
preparation or processing and the fact that the S/P would be advancing the
costs at its risk, it would be commercially reasonable to dispose of the
collateral in that condition. U.C.C. 9-610 cmt. 4.
iv. Effect of Disposition. A S/Ps disposition (1) transfers to the transferee all the debtors
rights in the collateral, (2) discharges the S/I, and (3) discharges any subordinate S/I.
U.C.C. 9-617(a).
v. Transfer Statement. A transfer stmt is a record authenticated by a S/P stating: (1) the
debtor defaulted on an obligation secured by specified collateral; (2) the S/P exercised
its post-default remedies; (3) a transferee has acquired the rights of the debtor; and (4)
the name and mailing address of the S/P, debtor and transferee. U.C.C. 9-619(a).
1. Effect of a Transfer Statement. A transfer stmt entitles the transferee to the
transfer of record of all rights of the debtor in any official filing, recording
registration, or certificate of title system covering the collateral. U.C.C. 9-
619(b).
e. Application of Proceeds
i. Application of Proceeds. S/P shall apply the proceeds of disposition under 9-610 in
the following order:
1. S/Ps Expenses. (1) reasonable expenses of retaking, holding, preparing for
disposition, processing, and disposing, and to the extent provided for by
agreement, reasonable attorneys fees;
2. The Debt. (2) the satisfaction of obligations secured by the security interest;
3. Subordinate S/Ps Who Demand. (3) the satisfaction of obligations secured by
any subordinate S/I if the S/P receives from the subordinate S/P an
authenticated demand for proceeds before distribution of the proceeds is
completed. See U.C.C. 9-615(a).
ii. Surplus/Deficiency. After making pmts under 9-615(a), S/P shall account to and pay a
debtor for any surplus, and the debtor is liable for any deficiency. U.C.C. 9-615(d).
f. Remedy for S/Ps Failure to Comply with Article 9
i. Denial/Reduction of Deficiency
1. STEP ONE: Consumer or Business Transaction?
a. Consumer Transactions: Court Determines Rules. The Code leaves
the determination of proper rules in consumer transactions. Some
courts (including Texas) follow the absolute bar rule, which bars a
creditor who violates Article 9 from any deficiency. Others follow the
rebuttable presumption rule (described in U.C.C. 9-626(a) for
business transactions). A third approach subtracts actual damages the
debtor could prove from the deficiency.
i. Consumer Transaction. A consumer transaction is a
transaction where an individual incurs an obligation primarily
for personal, family, or household purposes, a security
interest secures the obligation, and the collateral is held or
9

acquired primarily for personal, family, or household
purposes. U.C.C. 9-102(a)(26).
b. Business Transactions. U.C.C. 9-626(a) applies in business
transactions, using a rebuttable presumption approach to remedy
noncompliance with Article 9.
2. STEP TWO: Place S/Ps Compliance in Issue. The S/P sues the debtor after
default. If the debtor does nothing, the court will enter a default judgment for
S/P. If the debtor calls the S/Ps compliance with Article 9 in issue, move on.
See U.C.C. 9-626.
3. STEP THREE: S/Ps Compliance. S/P has the burden of establishing compliance
with Article 9. U.C.C. 9-626(a)(2). If the S/P proves compliance, it gets a
judgment for the deficiency.
4. STEP FOUR: Rebutting the Presumption of No Deficiency. If S/P cannot prove
compliance with Article 9, then there is a rebuttable presumption that the S/P
is not entitled to a deficiency. See U.C.C. 9-626(a)(3), (4). To get a deficiency,
the S/P must prove that the proceeds it wouldve gotten by complying are less
than the obligation + expenses. U.C.C. 9-626(a)(4).
ii. Damages for Noncompliance. A person is liable for damages in the amount of any loss
caused by a failure to comply w/ Article 9. U.C.C. 9-625(b).
iii. Judicial Orders. If a S/P is not proceeding in accordance w/ Article 9, a court may order
or restrain collection, enforcement, or disposition of collateral on appropriate terms and
conditions. U.C.C. 9-625(a).
g. Problem 5.1. Bank repossessed Ms car and sent him notification that it would sell it in a private
sale after ten days from this notice. The balance owing on the loan, including principal,
interest, attorneys fees and expenses is $100k.
i. a. If FMV of the car is $80k, but it sells for $70k in a commercially reasonable sale, what
is the proper amount for the court to award as a deficiency?
1. U.C.C. 9-615(d): generally, after applying the proceeds from a disposition of
the collateral, the debtor is liable for any deficiency
a. Thus, M would ordinarily be liable for $30k ($100k $70k).
2. U.C.C. 9-626(b): if the transaction is a consumer transaction, the court
determines the proper rules where the amount of deficiency/surplus is in issue
a. U.C.C. 9-102(a)(26): a consumer transaction is a transaction where
a S/I secures an obligation for collateral held for personal, family, or
household purposes
3. Assuming the car is used for business purposes, U.C.C. 9-626(a) applies. If D
places S/Ps compliance in issue and S/P cannot prove compliance, theres a
rebuttable presumption that there is no deficiency. See IV.f.i. Denial/Reduction
of Deficiency, supra.
ii. b. How much would M have to pay to redeem the car?
1. U.C.C. 9-623(b): to redeem collateral, a debtor must tender
a. (1) fulfillment of all obligations secured by the collateral; and
b. (2) reasonable expenses and attorneys fees
2. Thus, M would have to pay $100k
iii. c. If M has enough money to redeem the car, would you recommend that he do so or
that he purchase another car just like it for $80k? M should redeem the car for $100k. If
M purchased another car for $80k, he would still have to pay the $30k deficiency for a
total of $110k.
iv. d. Ms friend offers $80k for the car. The bank refuses b/c they follow a policy of selling
all the cars they repossess through auto auctions. The friend cant go to the auction, b/c
it is only open to dealers. At the auction, the car sells for $70k. Now how much should
the deficiency be?
1. Was the sale commercially reasonable?
10

a. U.C.C. 9-627(a): the fact that a greater amount could be obtained is
not of itself sufficient to preclude a S/P from establishing commercial
reasonableness
b. U.C.C. 9-627(b): a disposition is commercially reasonable if its made
in conformity with reasonable commercial practices among car dealers
h. Problem 5.2. W recently repossessed and sold the inventory and equipment of an auto parts
store. The debt secured by the collateral was in the principal amount of $57,345, plus $3,541
interest. The S/A provides that D will pay attys fees in the event of default. Its $3k for replevy of
the collateral, $650 for preparing the sale, and $350 for a legal opinion on distributing proceeds.
The bank spent $1.5k preserving the collateral and $750 advertising. Auto Parts Depot, a
judgment creditor demands their $4.2k judgment be paid.
i. a. The highest bid at auction was $47,136. To whom should W pay? How much is the
deficiency?
1. U.C.C. 9-615(a): a S/P shall apply proceeds of a disposition under 9-610 in
the following order:
a. (1) reasonable expenses of retaking, holding, preparing for disposition,
processing and disposing, and, to the extent provided for by
agreement reasonable attys fees;
b. (2) satisfaction of obligations secured by the security interest;
c. (3) satisfaction of obligations secured by any subordinate security
interest if the S/P receives an authenticated demand for proceeds
before distribution of the proceeds is completed
2. $47,136 proceeds $6,250 (expenses to S/P) = $40,886
3. $60,886 obligation $40,886 = $20k deficiency
ii. b. If the highest bid was $75k, to whom should W pay? Can W pay Auto Parts Depot?
1. $75k proceeds $6,250 (expenses to S/P) = $68,750
2. $68,750 $60,886 obligation = $7,864 surplus
3. W must pay the debtor the surplus
a. U.C.C. 9-615(d): after making the pmts required by 9-615(a), the
S/P shall account to and pay a debtor for any surplus
b. Note: W would have to pay Auto Parts Depot if it was a subordinate
S/P. See U.C.C. 9-615(a)(3)(A).
i. Problem 5.3. E repossesses cars and sells them through dealers-only auctions. Some debtors
complain about length (5 days notice, but tries to send it 10 days before the sale). None of the
borrowers would object to a waiver contained in the S/A, even if it were specifically pointed out
to them.
i. a. Does E have to send these notices?
1. Yes
a. U.C.C. 9-611(b), (c): as a S/P that disposes of collateral under 9-
610, E is required to send the debtor reasonable authenticated notice
of disposition.
i. The exceptions in U.C.C. 9-611(d) do not apply
b. U.C.C. 9-602(7): this notice requirement cannot be waived in a S/A
c. U.C.C. 9-624(a): a debtor may agree to waive notice after default
2. Reasonable time
a. U.C.C. 9-612(a): whether notice is sent w/in a reasonable time is a
fact question
b. U.C.C. 9-612(b): in business transactions, a notice sent after default
and 10 days before disposition is sent w/in a reasonable time
3. S/A may reduce notice requirement to 2 days
a. U.C.C. 9-603(a): the parties may agree to the standards measuring
the fulfillment of the parties rights/duties if theyre not manifestly
unreasonable
11

ii. b. What if they dont send them?
1. U.C.C. 9-625(b): if the debtor suffers loss caused by the S/Ps failure to comply
w/ Article 9, the S/P is liable for those damages
2. Note: a suit by the debtor for damages would occur where the S/Ps
noncompliance reduces a surplus.
iii. c. Can E dispense w/ selling a repossessed automobile if E and the debtor agree on a
deficiency amount?
1. U.C.C. 9-620(g): in a consumer transaction, a S/P may not accept collateral in
partial satisfaction of the obligation it secures
2. U.C.C. 9-620(a), (c)(1): for business transactions, a S/P may accept collateral
in partial satisfaction if, inter alia, the debtor consents (agrees to an acceptance
in a record authenticated after default).
j. Problem 5.4. G repossessed what should have been a $345k helicopter, but D removed all the
electronics, leaving a hull w/ no resale value. The debt is $345k. The debt is guaranteed by 4
wealthy individuals.
i. a. Can G throw the hull away?
1. U.C.C. 9-610(b): every aspect of a disposition of collateral, including the
method, manner, time, place and other terms, must be commercially
reasonable. Is throwing the hull away commercially reasonable?
2. U.C.C. 9-610(a): a S/P may dispose of any or all collateral in its present
condition or following any commercially reasonable preparation or processing
3. U.C.C. 9-610 cmt. 4
a. Some courts have imposed an affirmative duty on the S/P to
process/prepare the collateral prior to disposition
b. Although courts should not be quick to impose a duty to
prepare/process, 9-610(a) does not grant the S/P the right to dispose
of the collateral in its then condition when, balancing costs of
probable benefits, it would be commercially unreasonable to dispose of
the collateral in that condition
ii. b. Assume G throws the hull away and the guarantors later prove that if G had spent
$245k to install an engine and electronics it couldve sold the helicopter for $345k. To
what deficiency judgment is G entitled?
1. U.C.C. 9-626: if throwing the hull away was commercially unreasonable, there
is a rebuttable presumption that the proceeds that couldve been obtained was
$345k (leaving no deficiency)
2. A solution would be to give the hull back and restore the site where it was
repossessed to the way it was found (e.g., replacing a cut lock). Then sue for
non-pmt. Article 9 does not force a S/P to foreclose on a S/I when D defaults.
k. Problem 5.5. P bought a retail store from L for $50k down and a promissory note in the amount
of $277k. The note was secured by a S/I in the store. P couldnt make pmts on the debt, so he
gave L the keys. L resumed operation and sent P a bill for $131k, which L claims is what P owed
after crediting him the value of the store. Can L sue for a deficiency w/o selling the store first?
i. U.C.C. 9-610: a S/P may dispose of collateral after default
1. U.C.C. 9-620(a): instead of disposing of the collateral, a S/P may accept it
partial satisfaction if, inter alia, the debtor consents
2. U.C.C. 9-620(c)(1): such consent must be in a record authenticated after
default
ii. P could put Ls Article 9 compliance in issue (e.g., L didnt follow the notice rules), which
would give rise to a rebuttable presumption, forcing L to prove the value of the store.
l. Problem 5.6. C repossessed a jet. In this case, the debtor is insolvent; any deficiency judgment
will be uncollectible. C estimates the jet is worth $800k. The debt is about $850k. C would like
to avoid the expenses of sale and just keep the jet for personal use.
i. a. What should they do?
12

1. U.C.C. 9-620(a): a S/P may accept collateral in full satisfaction of the
obligation it secures if, inter alia, the debtor consents
2. U.C.C. 9-620(c)(2): consent requires that either (1) the debtor sign an
authenticated record after default, or (2) the S/P send debtor a proposal to
accept the collateral in full satisfaction of the obligation and not receive a
notification of objection w/in 20 days after the proposal is sent
ii. b. What if debtor objects to the retention of the collateral and they simply ignore the
objection? Will they have a title problem if they later decide to sell or encumber the
plane?
1. The debtor cannot sue under 9-625(b) b/c he suffered no damages (w/o
retention of the collateral, hed owe a $50k deficiency).
2. U.C.C. 9-625(a): a court may restrain collection, enforcement or disposition of
collateral on appropriate terms and conditions
3. C can sell the jet
a. U.C.C. 9-617(a): a S/Ps disposition (1) transfers to the transferee all
the debtors rights in the collateral, (2) discharges the S/I, and (3)
discharges any subordinate S/I
b. U.C.C. 9-619(b): a transfer stmt entitles the transferee to the
transfer of record of all rights of the debtor in any official filing,
recording registration, or certificate of title system covering the
collateral
iii. c. What if C simply announce that they have sold the jet to themselves for $800k? C
cannot just buy the jet
1. U.C.C. 9-610(c): a S/P may purchase collateral at a private disposition only if
the collateral is of a kind customarily sold on a recognized market or subject to
widely distributed standard price quotations

13

CHAPTER 2. CREDITORS REMEDIES IN BANKRUPTCY

V. Assignment 6: Bankruptcy and the Automatic Stay
a. The Automatic Stay. A bankruptcy petition imposes a stay, which precludes entities from taking
action against the debtor, the debtors property, or the estates property. See 11 U.S.C. 326(a).
i. Entity. An entity includes a person, estate, trust, governmental unit, and U.S. Trustee.
11 U.S.C. 101(15).
ii. Remedy for Violation. Violations of the automatic stay may result in actual damages
(incl. attorneys fees) and punitive damages. See 11 U.S.C. 326(k).
b. Lifting the Automatic Stay
i. Effect of Lifting Automatic Stay. If a creditor succeeds under either test below, the
automatic stay is lifted (i.e., it does not apply anymore) to that creditor and the creditor
can exercise its rights under Article 9.
ii. No Equity + Not Necessary for Effective Reorganization. On the creditors request after
notice and a hearing, the ct shall lift the stay if the D has no equity in the property and
the property is not necessary to an effective reorganization. See 11 U.S.C. 362(d)(2).
1. Burden of Proof. The secured creditor bears the burden of proof that D has no
equity (i.e., debt > FMV of property). See 11 U.S.C. 362(g)(1). The debtor has
the burden to prove that the property is necessary for an effective
reorganization. See 11 U.S.C. 362(g)(2).
iii. Adequate Protection. If a debtor files for bankruptcy, a S/P has a constitutionally
protected right to her S/I (property). A debtor must furnish the secured creditor
adequate protection against loss as a result of the delay in foreclosure caused by the
stay. See 11 U.S.C. 362(d)(1).
1. Equity Cushion. Where a creditor is oversecured (i.e., FMV of the collateral >
debt), the creditor has an equity cushion that adequately protects his S/I.
2. Split of Authority. Courts are split on the issue of whether creditors are
entitled to adequate protection where a dropping value of the collateral
threatens to meet an increasing claim (b/c of pendency interest).
3. Providing Adequate Protection. When adequate protection is required, it may
be provided by (1) requiring the trustee to make cash pmts, (2) providing the
creditor replacement/additional liens, or (3) other relief. See 11 U.S.C. 361.
4. Measure of Adequate Protection: Three Views
a. In re Craddock-Terry Shoe Corp. Craddock-Terry held that adequate
protection begins on the date the bankruptcy petition is filed.
b. Majority Approach. Under the majority approach, adequate
protection begins on the date when the motion to lift stay is filed.
c. Minority Approach. Under the minority approach, adequate
protection begins when the court hears the motion to lift stay.
c. Problem 6.1. Twelve of CSs clients are in bankruptcy and none are making pmts on outstanding
accounts, even though CS has billed them each month. Can CS do some serious collection
efforts with these guys? No
i. 11 U.S.C. 362(a): the automatic stay precludes creditors from taking action against a
debtor (who filed for bankruptcy), the debtors property, or the property of the estate
d. Problem 6.2. KS obtains a judgment against J to collect a $1.2M loan secured by equipment
worth $1.5M. When KS arrives w/ the sheriff to seize the collateral, J says he filed for bankruptcy
that morning. Can you go forward with the repo? Can the sheriff? No; neither KS nor the sheriff
can go forward w/ the repo. Both are subject to the automatic stay. See 11.U.S.C. 101(15)
(including governmental units in entities subject to the stay).
e. Problem 6.3. P, owing Bank $250k, filed for Chapter 11. The collateral is one of Ps restaurants
(worth less than $250k) that P closed before filing for bankruptcy. Can Bank foreclose?
i. 11 U.S.C. 326(a): usually, the automatic stay would preclude foreclosure
14

ii. 11 U.S.C. 362(d)(2): Bank can argue to lift the stay b/c (1) P has no equity in the
property and (2) the property is not necessary for an effective reorganization.
1. Here, the debt is greater than the propertys FMV
2. Here, the restaurant is not necessary for an effective reorganization b/c P
closed the restaurant before filing for bankruptcy.
f. Problem 6.4. S, owing Bank $210k, filed for Chapter 11. Bank began foreclosure proceedings on
the mortgage it holds on a building w/ FMV of $600k. Loan Officer anticipates a long
reorganization and wants Bank to get out ASAP. Whats your advice?
i. 11 U.S.C. 362(a): Bank cannot proceed in foreclosure b/c of the automatic stay
ii. Bank likely cannot argue to lift the stay under 11 U.S.C. 362(d)(2) b/c there is equity in
the property (i.e. FMV > debt)
iii. Bank probably cannot argue to lift the stay under 11 U.S.C. 362(d)(1) b/c the large
equity cushion provides adequate protection of the collateral.
g. Problem 6.5. P owes Bank $350k secured by a $700k yacht. Before P filed for Chapter 11, the
insurance was canceled. Under the S/A Ps failure to insure the yacht is a default. The S/A
provides that in the event of default, Bank can purchase insurance and add the cost to the
secured debt and/or take possession of the yacht. Bank cant get another policy. What do you
do? Despite the equity cushion, the ct will likely lift the stay under 11 U.S.C. 362(d)(1) b/c the
lack of insurance is too much of a risk for the creditor to bear.
h. Problem 6.6. You represent Chapter 11 debtor H. How do you deal with these creditors?
i. a. H owes W $126 unsecured. W is upset that H is 6 mo. behind on loan pmts. Dont
return this creditors call. As amoebas of the bankruptcy court, unsecured creditors
can only file a proof of claim and hope for a distribution after secured creditors are paid.
ii. b. M has a S/I in Hs sterilization equipment to secure a $50k debt. She is upset b/c at
the beginning of the case, the equipment was worth $50k but now its worth $40k.
1. 11 U.S.C. 362(d)(2): M probably cant lift the stay under 11 U.S.C. 362(d)(2)
b/c the equipment is necessary for reorganization
2. 11 U.S.C. 362(d)(1): since the equipment is declining in value, M could get the
stay lifted for lack of adequate protection
a. 11 U.S.C. 361: the court would order the trustee to make cash pmts
to M, or grant M replacement liens
iii. c. If (1) the collateral declined in value to $35k by the time M moved to lift the stay, (2)
the collateral declined to $30k by the time the court heard the motion and then ruled,
and (3) the collateral was predicted to decline to $25k by the end of the bankruptcy
case, how much must H pay to prevent a lifting of the stay?
1. In re Craddock-Terry Shoe Corp.: adequate protection begins on the date the
bankruptcy petition is filed
a. $50k FMV at filing the bankruptcy petition $25k FMV at end of
bankruptcy case = $25k.
2. Majority approach: adequate protection begins on the date when the motion
to lift stay is filed
a. $35k FMV at filing motion to lift stay $25k FMV at end of bankruptcy
case = $10k.
3. Minority approach: adequate protection begins when the court hears the
motion to lift stay
a. $30k FMV at hearing on motion to lift stay $25k FMV at end of
bankruptcy case = $5k.
VI. Assignment 7: The Treatment of Secured Creditors in Bankruptcy
a. Determining Secured Status. An allowed claim of a creditor secured by a lien on property is a
secured claim to the extent of the FMV of the property, and is unsecured for any remaining
value. 11 U.S.C. 506(a)(1).
b. Calculating a Secured Claim
15

i. As of Date of Filing Petition. The court shall determine the amount of an allowed claim
as of the date the petition was filed. 11 U.S.C. 502(b).
ii. Debt. A claim includes the original debt.
iii. Interest
1. Pre-Petition Interest. All creditors are entitled to pre-petition interest at the
rates specified in their contracts.
2. Pendency Interest/Attorneys Fees. To the extent a secured claim is secured
by property w/ FMV > claim, interest and reasonable fees (incl. attorneys fees)
provided for under the agreement are allowed. 11 U.S.C. 506(b). The rate
specified in the contract or (if no K rate) the prevailing market rate will apply.
3. Interest after Plan Confirmation. To get a Chapter 11 plan confirmed, the plan
must provide that secured claims will be paid of a value as of the effective date
of the plan. 11 U.S.C. 1129(b)(2)(A)(i)(II). This means that a secured claim
will get paid off over the course of a plan at the Till rate (i.e., the prime rate +
an adjustment for risk).
c. Calculating an Unsecured Claim in Chapter 7. Determine how much is available for distribution
to general unsecured creditors. Then, divide that into the total unsecured claims to get a
percentage. Multiply this percentage by a particular claim to calculate what will be collected.
See 11 U.S.C. 726(b). See also VI.f. Problem 7.2, infra.
d. Abandonment of Property of the Estate
i. By Trustee. After notice and a hearing, the trustee may abandon property of the estate
that is burdensome to the estate or that is of inconsequential value and benefit to the
estate. 11 U.S.C. 554(a).
ii. On Request by Party. On request of a party in interest and after notice and a hearing,
the court may order the trustee to abandon any property that is burdensome to the
estate or of inconsequential value. 11 U.S.C. 554(b).
e. Problem 7.1. A owes CS $30k for repair work. The contract provides for 18% interest. The
market rate is 12%. The work was done Feb. 15 and the bill was sent March 15. A filed for
bankruptcy on Sept. 15. The bankruptcy case is still pending on Dec. 15. Attorney billed CS $400,
but the contract btwn A and CS says nothing about who will pay collection costs. How much is
the claim? The claim is worth $32,700
i. 11 U.S.C. 502(b): the court determines the amount of a claim as of the date of the
filing of the bankruptcy petition
ii. Debt = $30k
iii. Interest = $2,700
1. Pre-petition Interest = $2,700
a. 18% interest per year = 1.5% interest per month
b. [1.5% interest/mo.]*[$30k debt] = $450/mo.
c. [$450/mo.]*[6 mo.] = $2,700
2. No pendency interest for unsecured creditors. See 11 U.S.C. 502(b)(2)
(precluding unmatured interest from an allowed claim).
3. 11 U.S.C. 506(b): no attorneys fees b/c the contract didnt provide for them.
f. Problem 7.2. After calculating the claim in Problem 7.1, the trustees Final Report and Account
shows that there will be $59,575 available for distribution to general unsecured creditors.
Unsecured claims (including CSs) total $1,191,500. What does that mean for CS? CS will get
$1,635.
g. 11 U.S.C. 726(b): determine what each class of creditors will be paid; divide the figure pro-rata
i. [$59,575 available for unsecured creditors]/[$1,191,500 total unsecured claims] = 5%
ii. 5% * $32,700 (CSs claim) = $1,635.
h. Problem 7.3. At filing, S owed CI $340k plus 6 mo. interest at 12%/yr. The loan was secured w/
Ss printing equipment appraised at $400k.
i. a. Assuming that collateral value holds up in bankruptcy court, how much is CIs claim?
The claim is currently worth $371,212.
16

1. Debt = $340k
2. Pre-petition interest = $20,400
a. 12%/yr = 1%/mo.
b. [1%/mo.]*[$340k debt] = $340/mo.
c. [$340/mo.]*[6 mo.] = $20,400
3. Claim before pendency interest = $360,400
4. Pendency interest = $10,812
a. 11 U.S.C. 506(b): to the extent a secured claim is secured by property
w/ FMV > claim, interest is allowed
b. 12%/yr = 1%/mo.
c. [1%/mo.]*[$360,400 claim] = $3604/mo.
d. [$3604/mo.]*[3 mo.] = $10,812
5. Claim = $371,212
ii. b. If the court also used a 12% interest rate for pending bankruptcy, how much should CI
expect to be paid under a plan of reorganization that is confirmed today? CI should
expect to be paid $371,212 plus interest at the Till rate.
1. 11 U.S.C. 1129(b)(2)(A)(i)(II): the plan must provide that secured claims will
be paid of a value as of the effective date of the plan
iii. c. How much should CI expect to be paid if the reorganization plan is not confirmed for
another year? CI should expect to be paid $400k at the Till rate.
1. Claim before pendency interest = $360,400
2. Pendency interest = $39,600
a. 12%/yr = 1%/mo.
b. [1%/mo.]*[$360,400 claim] = $3604/mo.
c. [$3604/mo.]*[12 mo.] = $43,248.
d. But, pendency interest allowed only to the extent FMV > claim. Thus,
the claim is capped at $400k.
3. Claim = $400,000
i. Problem 7.4. (From the facts of Problem 7.3) the property was reappraised and the FMV is more
like $325k. Debtor estimates that there will be sufficient assets to pay the unsecured creditors
about 10% of their outstanding claims.
i. a. Describe CIs claim now. CIs claim is $325k secured and $35,400 unsecured
1. 11 U.S.C. 506(a)(1): an allowed claim of a creditor secured by a lien on
property is a secured claim to the extent of the FMV of the property, and is
unsecured for any remaining value
ii. b. What should CI expect to be paid under a plan of reorganization? CI should expect to
get paid $328,400.
1. Secured debt collectible = $325k
2. Unsecured debt collectible = $3,540
a. $35,400 unsecured debt * 10% collectible
iii. c. Does it matter to CI whether the plan is confirmed today or a year from today? Yes.
CI wants the plan confirmed ASAP b/c he is not entitled to pendency interest.
j. Problem 7.5. (From the facts of Problems 7.3 and 7.4) no security agreement was ever signed.
i. a. Now what is the nature of CIs claim? CIs claim is unsecured. Generally, a S/A is
required to create a S/I. See U.C.C. 9-203. See also, VIII. Assignment 8: Formalities of
Attachment, infra.
ii. b. If the 10% payout for unsecured creditors persists, what should CI expect under a
plan of reorganization? CI should expect $36,040.
1. [$360,400 claim]*[10% collectible] = $36,040
k. Problem 7.6. Ts summer house is in the Chapter 7 estate. T owes $850k on the mortgage (incl.
10%/yr interest). Broker can get $1M for the house and charges 6% commission. Estimated
trustee costs = $10k.
17

i. a. If the house sells in 6 mo., how much money will the sale produce for the estate? The
sale will produce $37,500 for the estate.
1. $930k available to distribute to creditors
a. $1M sale price $60k commission $10k trustee costs = $930k
2. $892,500 secured claim
a. Claim before pendency interest = $850k
b. Pendency interest = $42,500
i. 10% interest/yr = 0.833%/mo.
ii. [0.833%/mo.]*[850k claim] = $7,083/mo.
iii. [$7,083/mo.]*[6 mo.] = $42,500
3. $930k $892,500 = $37,500
ii. b. How does that amount vary if you sell at an earlier or later time? Is trying to sell the
house the right thing to do?
1. If the house sells 6 mo. later, that adds $42,500 (in pendency interest) to the
secured claim for a total claim of $935k.
2. Since the proceeds (after expenses) = $930k, the creditor is probably stuck with
$930 rather than his claim of $935.
3. That extra $5k is from interest, which is probably not constitutionally protected.

18

CHAPTER 3. CREATION OF SECURITY INTERESTS

VII. Assignment 8: Formalities for Attachment
a. Attachment. A S/I attaches to collateral when it becomes enforceable against the debtor w/
respect to the collateral. U.C.C. 9-203(a).
b. Enforceability. A S/I is enforceable against the debtor and 3d parties w/ respect to the collateral
only if (1) value has been given; (2) the debtor has rights in the collateral or the power to transfer
rights in the collateral to a S/P; and (3) [either] (A) the debtor has authenticated a S/A that
provides a description of the collateral; or (B) the collateral is in possession of the S/P. See U.C.C.
9-203(b).
i. Value Given. A person gives value for rights if the person acquires them:
1. Binding Commitment. In return for a binding commitment to extend credit;
2. Security. As security for, or in total or partial satisfaction of, a preexisting
claim;
3. Pre-existing Contract. By accepting delivery under a preexisting contract for
purchase; or
4. Consideration. In return for any consideration sufficient to support a simple
contract. See U.C.C. 1-204.
ii. Debtors Rights in Collateral. A debtor usually acquires rights in collateral when title
passes.
iii. Authenticated Security Agreement
1. Composite Document Rule. When the parties neglect to sign a S/A, look at the
transaction as a whole to determine if there are writings, signed by the debtor
describing the collateral which demonstrates an intent to create S/I in the
collateral. In re Ace Lumber Supply, Inc.
a. Cf. White & Summers Test. First, determine whether the language
objectively indicates that the parties may have intended to create or
provide for a S/A. Second, determine whether the parties actually
intended to create a S/I. Parol evidence is admissible to inform the
latter, but not the former inquiry.
b. Language Requirements. While there are no magic words which
create a S/I there must be language in the instrument which leads to
the logical conclusion that it was the intention of the parties that a S/I
be created. In re Ace Lumber Supply, Inc.
c. Sufficiency of Documents Standing Alone
i. P/note Sufficient. A p/note may qualify as a S/A. In re Amex-
Protein Development Corp.
ii. Financing Stmt Insufficient. A financing stmt is insufficient to
create a security interest in Debtors assets. In re Ace Lumber
Supply, Inc.
d. Inclusion of Non-Authenticated Documents
i. Majority: Internal Connection. So long as the documents
express some internal connection w/ one another, they may
be read together for purposes of including the collateral
described in the second document w/in the S/As umbrella.
ii. Minority: Cross-References. Some courts demand that there
be a reference w/in one document to the other.
2. Post-Signing Descriptions
a. Majority: Sequence Immaterial. The majority view upholds
agreements where descriptions are completed after the debtor signs
the S/A. The sequence of events is immaterial so long as the resulting
documents meet the statutory requirements.
19

b. Minority: Unenforceable. Under the minority view, a secured
creditor cannot complete the S/A or F/S, whether authorized or not,
after the debtor has signed the documents.
c. Problem 8.1. Do the following exhibits meet the authenticated S/A requirement of U.C.C. 9-
203(b)(3)(A)? A promissory note was signed by the debtor but not by the S/P and recites it is
secured by collateral described in a S/A bearing the same date. A financing stmt describes the
collateral as all of the inventory and equipment of the debtors business, was not signed, but
was accompanied by an authorization for the S/P to file the financing stmt (signed by the
debtor). A letter from debtors attorney states, Enclosed are the promissory note and financing
stmt which give you a S/I in my clients inventory and equipment.
i. Standing by themselves, the documents do not meet the authenticated S/A requirement
1. U.C.C. 9-102(a)(73): the promissory note and the letter are not S/As by
themselves b/c they do not provide for a S/I
2. In re Ace Lumber Supply, Inc: the F/S is insufficient to create a S/I as a matter of
law
ii. Composite Document Rule: documents could probably be read together to create a S/I
1. The p/note is signed by the Debtor
2. The F/S and letter describe the property
3. According to the majority approach, the documents probably have some
internal connection
4. As for the minority approach (requiring all documents be authenticated), the
financing stmt may be included b/c of the separate authorization, and one may
argue the letter was signed by the debtors agent.
d. Problem 8.2. When did First National Banks S/I attach to Fishermans Pier restaurant in the
story on pp. 131-33? The S/I attached when all three elements of U.C.C. 9-203(b) are met (i.e.,
when (1) value has been given by creditor to debtor; (2) the debtor has rights in the collateral;
and (3) the debtor has authenticated a S/A that provides a description of the collateral).
i. The S/A was signed at the closing (element 3)
ii. The debtor acquired rights in the collateral when he got the bill of sale (element 2)
iii. The creditor gave the debtor value at the closing when it engaged in a binding
commitment to extend credit. See U.C.C. 1-204(1).
iv. Thus, the S/I attached at the closing.
e. Problem 8.3. S/A read equipment described on the attached list, but no list was attached.
Parties signed the S/A w/o the list attached. The closing was completed and the loan proceeds
were disbursed.
i. a. Did the bank, at that moment, have an enforceable S/I? No. The S/I probably did not
attach b/c there was no description of the collateral. One may be able to argue that the
forgotten list should be read w/ the S/A under the Composite Document Rule.
ii. b. List of collateral was produced two weeks later and stapled to the S/A. Is the S/A
enforceable? Yes. The majority rule provides that the sequence of events is immaterial
as long as the statutory requirements are met. Under the minority approach, the S/A
would not be enforceable.
iii. c. Would it make a difference if the list was produced two years later? No. The S/I
would attach when the list was produced.
iv. d. What if the list of collateral was produced after debtor filed for bankruptcy and the
list was stapled to the S/A? If you cannot argue that the S/I attached at closing b/c of
the Composite Document Rule, then the S/I attached after the bankruptcy petition was
filed. This violates the automatic stay. See 11 U.S.C. 362(a)(4), (5).
VIII. Assignment 9: What Collateral and Obligations Are Covered?
a. Collateral Description Requirement. A S/I is enforceable against D and 3d parties only if, inter
alia, the S/A provides a description of the collateral. U.C.C. 9-203(b)(3)(A).
b. Interpreting Security Agreements
20

i. Parties Intent. Generally the court will try to determine the intention of the parties as
objectively expressed in the S/A. Where the agreement is ambiguous, parol evidence
may be introduced.
ii. Article 9 Meaning. Courts usually give terms (e.g., types of collateral) their Article 9
meaning.
c. Sufficiency of Description
i. Reasonably Identifies Collateral. A description is sufficient if it reasonably identifies the
collateral. U.C.C. 9-108(a).
1. Examples. A description reasonably identifies the collateral if it identifies the
collateral by: (1) specific listing; (2) category; (3) a type of collateral defined in
the U.C.C.; (4) quantity . . . . U.C.C. 9-108(b).
ii. Per Se Insufficient Descriptions
1. Supergeneric Descriptions. A description of collateral as all the Ds assets or
all the Ds personal property or words of similar import does not reasonably
identify the collateral. U.C.C. 9-108(c).
a. In re Shirel. All merchandise is vague, broad, and fails to sufficiently
identify a refrigerator.
2. Certain Descriptions by Type. A description only by the type of collateral
defined in the U.C.C. is an insufficient description of (1) a commercial tort
claim; or (2) in a consumer transaction, consumer goods. U.C.C. 9-108(e).
d. Describing After-Acquired Collateral
i. S/I in After-Acquired Collateral. Except as otherwise provided in subsection (b), a S/A
may provide for a S/I in after-acquired collateral. U.C.C. 9-204(a).
ii. When Ineffective. A S/I does not attach under an after-acquired property clause to
consumer goods, unless the debtor acquires rights in them w/in 10 days after the S/P
gives value; or commercial tort claims. U.C.C. 9-204(b).
1. Additions. A Nebraska case (citing Blacks Law Dictionary) held that
additions did not sufficiently describe after-acquired property.
iii. Implied. The majority rule implies an after-acquired property clause for collateral that is
constantly sold or acquired. E.g., inventory and accounts.
1. Stoumbos v. Kilimnik. S/A provided a S/I in all inventory [on hand at May 1,
1982] and equipment. HELD: the S/A precluded an implied after-acquired
collateral clause. Such a clause cannot be implied for equipment because its
not normally subject to frequent turnover.
e. What Obligations are Secured?
i. Description Not Required. The S/A need not describe the obligation secured.
ii. Interpretation. Like S/As, descriptions of obligations are subject to rules of contract
interpretation.
iii. How to Describe. Descriptions may be made:
1. Specifically (e.g., S/I secures $50 loan made on 1/1/09).
2. By reference (e.g., S/I secures loan evidenced by promissory note).
iv. Future Advances
1. Allowed. A S/A may provide that collateral secures . . . future advances. U.C.C.
9-204(c).
2. Defined. A future obligation that comes into existence as the result of an
additional extension of credit by the secured creditor. E.g., all debt D owes, or
will ever owe, to the S/P.
v. Floating Liens. A floating lien is a future advance that secures all the Ds property
including after-acquired property. E.g., To secure payment of all Ds current and future
debts to S/P, . . . D grants S/P a S/I in all Ds property, whether now owned or hereafter
acquired.
21

f. Problem 9.1. Gs borrowed $350k from FNB, granting a S/I in crops growing on the Ds farm in
Osprey County, about 14 miles from Tilanook and most of their farm equipment. (The location
info is correct and Gs only own one farm.) Gs paid down the loan to $190k.
i. a. Does FNB have a S/I against the current crop?
1. U.C.C. 9-108(a): A description of personal/real property is sufficient if it
reasonably identifies what is described
2. Since crop isnt defined in the U.C.C., resort to K interpretation.
a. Since the document is ambiguous, look to parol evidence to determine
the parties intent.
3. A Kansas case w/ similar facts to these held that S/P only held a S/I in the crops
in existence at the time of the agreement.
ii. b. What should Gs do? The ambiguous S/A makes it too risky for PCA (2d creditor). PCA
could buy the debt and terminate the existing S/I.
g. Problem 9.2. Gs also raise sheep on the property. Are sheep covered by FNBs S/I? Maybe. The
dictionary defines crops as a plant or animal or plant or animal product that can be grown and
harvested extensively for profit or subsistence. MERRIAM WEBSTERS COLLEGIATE DICTIONARY 276
(10th ed. 1994). The S/A should have defined crops.
h. Problem 9.3. C lent $300k to AVMI four years ago and entered into a S/A that listed the
collateral as All of Ds equipment, including replacement parts, additions, repairs, and
accessories incorporated therein or affixed thereto. Without limitation the term equipment
includes all items used in recording, processing, playing back, or broadcasting moving or still
pictures, by whatever process. AVMI has acquired new equipment since the S/A was signed.
AVMI defaulted and FNB, another creditor, claims the after-acquired equipment.
i. U.C.C. 9-204(a): S/A may create or provide for a S/I in after-acquired collateral
1. The description would clearly indicate after-acquired collateral if it had
language like all property now owned or hereinafter acquired.
2. A Nebraska case held that additions does not sufficiently describe after-
acquired property.
ii. There probably isnt an implied after-acquired property clause b/c equipment is not
constantly sold or acquired.
i. Problem 9.4. Walters Department Store (W) takes S/Is in everything that a credit card holder
purchases on his/her account. W only repossesses appliances and household goods. The
application for a W credit card says and cardholder grants W a S/I in all items purchased on the
account. Is there a way for W to take S/Is that are good under In re Shirel?
i. Under Shirel, all items is too broad to be an effective description of collateral.
ii. U.C.C. 9-108(c): all Ds assets does not reasonably identify the collateral
iii. U.C.C. 9-108(e): all consumer goods is an insufficient description
iv. W could list only the items he normally repossesses
v. W could list categories of items under U.C.C. 9-108(b)(2).
vi. If the receipt contains language creating a S/I in the item listed on the receipt, it would
probably meet the requirements under U.C.C. 9-203.
IX. Assignment 10: Proceeds, Products and Other Value-Tracing Concepts
a. Proceeds Defined. Proceeds means the following property:
i. (A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of
collateral;
ii. (B) whatever is collected on, or distributed on account of, collateral;
iii. (C) rights arising out of collateral;
iv. (E) to the extent of the value of collateral and to the extent payable to D or S/P,
insurance payable by reason of the loss to collateral. U.C.C. 9-102(a)(64).
b. Automatic Attachment. A S/I attaches to any identifiable proceeds of collateral. U.C.C. 9-
203(f), 9-315(a)(2).
c. Security Interest After Disposition
22

i. Continuation. Generally, a S/I continues in collateral notwithstanding sale. U.C.C. 9-
315(a)(1).
ii. Termination of Security Interest in Money. A transferee of money takes the money
free of a S/I unless the transferee acts in collusion with the D in violating the rights of
the S/P. U.C.C. 9-332(a).
d. Lowest Intermediate Balance Rule. The amount of a S/Ps collateral remaining in a bank account
after the deposit of proceeds and subsequent transactions is the lowest balance of all funds in
the account from the time of the deposit to the completion of the transactions. (Think the
community-out first tracing aid from Marital Property.)
e. Other Value-Tracing Concepts
i. Product. A product is something the collateral produces. Note products may also be
proceeds b/c they arise out of collateral.
ii. Profit. A profit means (1) the excess of revenues of a business over the expenses
where the business itself is the collateral, or (2) a right exercised by one man in the soil
of another, accompanied with participation in the profits of the soil thereof.
iii. Rents. Rents are money paid for the temporary use of collateral.
iv. Offspring. Offspring means the descendants of animals.
f. Problem 10.1. F has a perfected S/I in all of the equipment, inventory, and accounts of PA,
who is d.b.a. PP. The contract makes no mention of proceeds, products, offspring, substitutions,
additions, or replacements. Are they included? The S/A could include an implied after-acquired
property clause in the inventory and accounts. The S/A would have to describe products,
offspring, substitutions, additions, and replacements (as categories in the U.C.C.). The S/A does
not have to describe proceeds. Under U.C.C. 9-315(a)(2) and 9-203(f), a S/I in proceeds
automatically attaches.
g. Problem 10.2. Which of the following are collateral of F under the S/A in Problem 10.1?
i. a. The money now in PAs bank account.
1. Bank account account
a. U.C.C. 9-102(a)(2): account means a right to pmt of a monetary
obligation . . . for property that has been or is to be . . . disposed of.
b. A bank account may be a right to payment, but it isnt for property
disposed of.
c. A bank account is probably a deposit account
i. U.C.C. 9-102(a)(29): deposit account is a demand, time,
savings, passbook, or similar account maintained with a bank.
2. Bank account could be proceeds
a. PA could have sold inventory or equipment, or collected on accounts.
This money (proceeds) could have been deposited in the bank account.
b. U.C.C. 9-102(a)(64)(A): proceeds means whatever collected on
collateral
i. U.C.C. 9-102(a)(12): collateral means property subject to
a S/I.
c. Note if funds in the bank account are proceeds, they must be
identifiable to be sufficiently described.
ii. b. A parrot that PA took in pmt of an overdue account.
1. U.C.C. 9-102(a)(64)(B): proceeds means whatever is collected on collateral
2. The bird is probably not original collateral
a. U.C.C. 9-102(a)(44): the bird is goods
3. The bird is proceeds and the S/I in it automatically attaches (i.e., it is
collateral).
iii. c. A new computer that PA bought to replace the computer she owned at the time she
granted the S/I to F.
1. The computer is not original collateral
a. After-acquired property clauses are not implied for equipment
23

2. If PA sold an old computer (original collateral) to buy the new one, the new
computer would be part proceeds and a partial S/I would attach.
h. Problem 10.3. ELP financed LPs acquisition of a thoroughbred racehorse. ELP took a S/I in the
horse and all proceeds, products and profits therefrom. LP defaulted on the $7.5M loan. ELP
repossessed horse and sold him for $2.7M. Shortly before the repossession, horse won $500k in
a race. Does ELP have a valid claim to the purse? Maybe.
i. U.C.C. 9-102(a)(64)(C): Proceeds includes rights arising out of the collateral
1. This definition has a broad reach and may include the horses winnings.
i. Problem 10.4. JT contracted to buy Bs Shop, including the leasehold, furniture, fixtures,
equipment, goodwill, A/R and trademarks. Banks prior S/A describes the collateral as
inventory. Is it possible that the S/I encumbers some of the A/R? The property JT is buying?
Yes, if B sold the inventory to buy furniture, fixtures and equipment, those are proceeds to which
Bank has a S/I. If the inventory was sold on account, the account receivable fits the account
definition in the U.C.C. and is proceeds to which Bank has a S/I.
j. Problem 10.5
i. a. ELP consults you about a $35k loan to G that was made for the express purpose of
purchasing an XT-100 copier. G signed a S/A granting ELP a S/I in the copier (w/ serial
#). The copier was destroyed in a fire. The loss was insured. What is ELPs collateral?
The insurance claim is proceeds under U.C.C. 9-102(a)(64)(E).
ii. b. ELP wasnt named as a loss payee, so the insurance company paid the $35k proceeds
to G. G deposited the check to a bank account that contained $5k at the time. Whats
ELPs collateral? The $35k check is proceeds and becomes comingled with $5k non-
proceeds in the bank account.
iii. c. From the bank account G wrote a check for $2k to rent another copier for the month
it would take to replace the old one, leaving $38k in the account. What is ELPs
collateral? Under the Lowest Intermediate Balance Rule, the non-proceeds are taken out
first. Thus, $35k of the bank account is proceeds, and $3k is non-proceeds.
iv. d. G then wrote a check from the account for $32k to pay the IRS, leaving only $6k in the
account. What is ELPs collateral? The $6k left in the account is proceeds.
1. U.C.C. 9-332: the S/I in the money sent to the IRS terminated on transfer

24

PART TWO: THE CREDITOR-THIRD PARTY RELATIONSHIP

CHAPTER 6. PERFECTION

X. Assignment 16: The Personal Property Filing Systems
a. Effectiveness of S/A. Except as otherwise provided in the U.C.C., a S/A is effective according to
the terms between the parties, against purchasers of the collateral, and against creditors. U.C.C.
9-201.
b. Continuation of S/I in Collateral. Generally, a S/I continues in the collateral notwithstanding
sale, lease, license, exchange, or other disposition thereof unless the S/P authorized the
disposition free of the S/I. U.C.C. 9-315(a)(1).
c. Perfection
i. Security Interest Subject to Other Law. Except as provided in (d), the filing of a F/S is
not necessary or effective to perfect a S/I in property subject to:
1. Federal Law that Preempts. A statute, regulation, or treaty of the United
States whose requirements for a security interests obtaining priority over the
rights of a lien creditor with respect to the property preempt Section 9-310(a).
2. Certificate-of-Title Statute. Any certificate-of-title statute covering
automobiles, trailers, mobile homes, boats, farm tractors, or the like, which
provides for a S/I to be indicated on the certificate as a condition or result of
perfection. U.C.C. 9-311(a)(1)(2).
a. Exception for Inventory. During any period in which collateral subject
to a statute specified in subsection (a)(2) is inventory held for sale or
lease by a person or leased by that person as lessor and that person is
in the business of selling goods of that kind, this section does not
apply to a security interest in that collateral created by that person.
U.C.C. 9-311(d).
ii. Filing Systems
1. State Law. If State law governs perfection of a S/I, the office in which to file a
F/S to perfect the S/I is:
a. Fixtures. The office designated for the filing or recording of a record
of a mortgage on real property if the F/S if filed as a fixture filing and
the collateral is goods that are or are to become fixtures. U.C.C. 9-
501(a)(1)(B).
b. Other Collateral. The Secretary of States office other cases. U.C.C.
9-501(b).
2. Certain Intangible Property: NOT ON THE EXAM
a. Patents. Article 9 governs the method for perfecting a security
interest in patents. In re Pasteurized Eggs Corporation (Pasteurized
Eggs Corporation v. Bon Dente Joint Venture). The issue isnt settled.
b. Copyrights. A S/P perfects an interest in copyrights and receivables of
copyrights in the US Copyright Office. National Peregrine, inc. v.
Capital Federal Savings and Loan Association of Denver (In re
Peregrine Entertainment, Limited). The issue isnt settled.
iii. Filing Procedure
1. What Constitutes Filing. 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. U.C.C. 9-516(a)
2. Two Day Lag-Time. The filing office shall index the F/S in the record w/in 2
business days. U.C.C 9-519
3. File First, then Search. Because of the lag time (and the possibility of missing a
filed but not-indexed F/S), its recommended that one file a F/S first, then wait
out the lag time to search for your own F/S to see if anyones ahead of you.
25

a. Filing F/S before S/A is allowed. A F/S may be filed before a S/A is
made or a S/I otherwise attaches. U.C.C. 9-502(d).
d. Priority
i. Article 9 S/P vs. Lien Creditor. A security interest is subordinate to the rights of a
person who becomes a lien creditor before (A) the S/I is perfected; or (B) a condition in
U.C.C. 9-203(b)(3) is met and a F/S covering the collateral is filed. U.C.C. 9-317(a)(2).
ii. S/P vs. Buyer
1. Buyer Without Knowledge of S/I and Before Perfection. A buyer, other than a
S/P, of tangible chattel paper, tangible documents, goods, instruments, or a
security certificate takes free of a S/I if the buyer gives value and receives
delivery of the collateral without knowledge of the S/I and before it is
perfected. U.C.C. 9-317(b).
2. Other Buyers. Buyers in the ordinary course of business and some buyers of
consumer goods to take free of a S/I. See U.C.C. 9-320.
iii. Equitable Claims. Footnote 4 in Peerless Packing Co. v. Malone & Hyde, Inc. provides
that equitable claims verging on actual fraud can change the priorities provided for in
Article 9.
e. Problem 16.1. L owns a $30k car. L owes about $30k to F, his ex-wife, for child support and
owes B $36k for money borrowed. F obtained a judgment, but before the sheriff could seize the
car, L granted B a S/I in the car to secure the $36k debt. L and B recorded notice of Bs lien on
the certificate of title.
i. a. Now where does F stand? F has no property interest in the car. To create and perfect
her judgment lien, she needs to get a writ of execution and have the sheriff execute the
writ and levy on any non-exempt property.
1. Priority Between Article 9 S/P and Lien Creditor
a. U.C.C. 9-317(a)(2): a S/I is subordinate to the rights of a person who
becomes a lien creditor before (A) the S/I is perfected; or (B) a
condition in U.C.C. 9-203(b)(3) is met and a F/S covering the
collateral is filed
2. How does B perfect his S/I?
a. U.C.C. 9-311(a)(2): F/S is not necessary or effective to perfect a S/I
subject to a certificate-of-title statute that provides for a S/I to be
indicated on the certificate as a condition or result of perfection.
b. U.C.C. 9-311(b): S/I may be perfected only by compliance with the
certificate-of-title statute.
3. Note: absent fraud, there is generally no problem when a debtor prefers one
creditor over another when he decides who gets a S/I
ii. b. Can you go ahead with the execution levy? If you can, should you? Note that L may
not be in default. But if the sheriff attempts to levy on the car, B will show the sheriff his
perfected S/I and the sheriff will give the car back to B. F may be liable for conversion
(i.e., interference with the right of possession).
f. Problem 16.2. S paid W $1k in cash and signed a $1k p/note for a street vendor cart. S received
(1) a notice that W filed for bankruptcy and (2) a letter from GFC demanding possession, w/ Ws
p/note to GFC, a S/A signed by W granting GFC a S/I in the cart, and a F/S bearing the date/time
stamp of the Secretary of State. GFC properly perfected its S/I before S bought the cart.
i. a. What do you tell S?
1. U.C.C. 9-201(a): generally, a S/A is effective according to its terms btwn the
parties, against purchasers of the collateral, and against creditors.
2. U.C.C. 9-315(a)(1): a S/I continues in the collateral notwithstanding the sale,
lease, license, exchange, or other disposition thereof unless the S/P authorized
the disposition free of the S/I
a. Thus, GFC has a S/I in the cart, even though W sold it to S
26

3. U.C.C. 9-317(b): a buyer, other than a S/P of . . . goods . . . takes free of a S/I if
the buyer gives value and receives delivery of the collateral without knowledge
of the S/I and before it is perfected
a. Here, S received delivery of the cart after GFC perfected its S/I
ii. b. If you discovered that GFC repossessed three vending carts in the past 12 months,
each time from a defrauded buyer, would that help your case? Footnote 4 in Peerless
Packing Co. v. Malone & Hyde, Inc. notes that in circumstances verging on actual fraud,
equitable claims can change priorities explicitly provided in Article 9. But, even if there
was fraud here, Ss claim is against W (the debtor), not GFC (the S/P). You should send a
letter to GFC saying youre going to put up a fight, so that you can try to get a more
favorable settlement.
g. Problem 16.4. In what filing system(s) will you make the filings and conduct the searches?
i. a. P applied to ITT for a consumer loan to be secured by $10k worth of tools, which P
bought to use at the service station that he and his wife own and operate.
1. U.C.C. 9-102(a)(44): the tools are goods (all things that are movable when a
S/I attaches).
a. U.C.C. 9-102(a)(33): the tools are equipment (a type of good)
2. U.C.C. 9-310: S/I in goods may be perfected by filing a F/S
3. U.C.C. 9-501(b): file the F/S in the central filing office
ii. b. B, an inventor, has applied to your client bank for a $400k loan to be secured by a
patent B obtained.
1. U.C.C. 9-311(a)(1): filing a F/S is not necessary or effective to perfect a S/I in
property subject to pre-empting federal law
2. U.C.C. 9-311(b): where federal law pre-empts 9-310(a), a S/I may be
perfected only by compliance
3. In re Pasteurized Eggs Corporation (Pasteurized Eggs Corporation v. Bon Dente
Joint Venture) held that Article 9 governs the method for perfecting a S/I in
patents.
a. But you would want to perfect the S/I with the USPTO if you were in a
different jurisdiction.
4. U.C.C. 9-102(a)(42): the patent is a general intangible
a. U.C.C. 9-501(b): file the F/S in the central filing office
iii. c. Bank plans to lend $500k to N. The loan is to be secured by royalty pmts N receives
from his publisher on books he has written.
1. National Peregrine, inc. v. Capital Federal Savings and Loan Association of
Denver (In re Peregrine Entertainment, Limited) held that a S/P perfects an
interest in copyrights and receivables of copyrights in the US Copyright Office.
2. But since the law is not settled, you should also comply with Article 9.
a. U.C.C. 9-102(a)(2): royalty pmts are accounts
b. U.C.C. 9-310: perfect S/I in accounts by filing F/S
c. U.C.C. 9-501(b): file the F/S in the central filing office
iv. d. Bank plans to make a $600k working capital loan to a car dealer. The collateral
includes (1) the dealers inventory, (2) cars that arent for sale, (3) A/R from the sale of
cars, and (4) all of dealers rights to its trademark.
1. (1) U.C.C. 9-311(d): where collateral subject to a statute in (a)(2) is inventory
held for sale or lease by a person or leased by that person as lessor and that
person is in the business of selling goods of that kind, this section does not apply
to a S/I in that collateral created by that person.
a. Inventory is a category of goods. So to perfect a S/I in inventory, file
a F/S with the Secretary of State.
2. (2) For cars that arent inventory, U.C.C. 9-311(a)(2) and (b) provide that you
perfect by noting the S/I on the certificate of title.
3. Determining the Status of the Cars
27

a. New cars have manufacturers certificate of origin
b. Used cars have certificates of title still in the original sellers name;
then the buyer puts it in his name
4. (3) U.C.C. 9-102(a)(2): A/R from sale of cars = accounts.
a. U.C.C. 9-310: to perfect, file with the secretary of state.
5. (4) A S/I in trademarks need not be perfected by recording in the USPTO. Thus,
youd file the TM as a general intangible (U.C.C. 9-102(a)(42)).
h. Problem 16.4. Bank is concerned that debtor might encumber the prospective collateral to a
competing creditor at any time, even as the debtor is negotiating with Bank. Should the U.C.C.
searches or filings be done first? File first, then search.
i. U.C.C. 9-516(a): 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
ii. U.C.C 9-519: the filing office shall index the F/S in the record w/in 2 business days
iii. If you search first and nothing turns up, you run the risk of missing an unsearchable F/S.
That is, the effective date of the search was a point in time when the F/S was effective
(filed and fee paid), but not indexed yet.
iv. Thus, you should file first, then wait for the 2-day lag to do a search request so you can
find your F/S and see if anyones ahead of you.
1. See U.C.C. 9-502(d): a F/S may be filed before a S/A is made or a S/I otherwise
attaches
2. See In re Ace Lumber Supply, Inc. (F/S alone is insufficient to create a S/I).
XI. Assignment 17: Article 9 Financing Statements: The Debtors Name
a. Content Requirements for F/S. A F/S is sufficient only if it:
i. Ds Name. Provides the name of the debtor;
ii. S/Ps Name. Provides the name of the secured party; and
iii. Collateral Description. Indicates the collateral covered by the F/S. U.C.C. 9-502(a).
b. Debtor. A debtor is a person having an interest, other than a S/I or other lien, in the
collateral, whether or not the person is an obligor. U.C.C. 9-102(a)(28)(A).
c. Sufficiency of Debtors Name
i. Registered Organization. If D is a registered organization, the F/S must provide the
name of the D indicated on the public record of the Ds jurisdiction of organization
which shows the debtor to have been organized. U.C.C. 9-503(a)(1).
1. Registered Organization. Registered organization means an organization
organized solely under State or Federal law and as to which the State or US
must maintain a public record showing the organization to have been
organized. U.C.C. 9-102(a)(70).
ii. Individuals. In cases other than registered organizations, estates, or trusts: if D has a
name, a F/S must provide the individual or organizational name of the D. U.C.C. 9-
503(a)(4)(A).
1. Individuals Legal Name. The Debtors legal name is the name by which the
debtor is generally known, for nonfraudulent purposes, in the community.
2. Cf. Texas. In Texass version of the U.C.C., the correct legal name of an
individual debtor is the name on her drivers license.
d. Error in Debtors Name
i. General Rule. Except as provided in (c), a F/S that fails sufficiently to provide the name
of the D in accordance with U.C.C. 9-503(a) is seriously misleading (i.e., the F/S is
ineffective). U.C.C. 9-506(b).
ii. Exception: Found in Search. If a search of the records under the debtors correct name,
using the filing offices standard search logic, if any, would disclose a F/S that fails
sufficiently to provide the name of the D in accordance with U.C.C. 9-503(a), the name
provided does not make the F/S seriously misleading. U.C.C. 9-506(c).
1. IACA Model Administrative Rules: NOT ON THE EXAM. The search logic:
a. Does not distinguish upper and lower case letters
28

b. Disregards punctuation marks and accents
c. Ignores words such as corporation, corp, incorporated, LLC, or a
Georgia corporation that indicate the existence or nature of an
organization
d. Ignores the word the at the beginning of the name
e. Ignores spaces
f. Treats an initial as the equivalent of a first or middle name beginning
with that letter
g. Treats no middle name as the equivalent of all middle names
e. Filing and Searching Procedure
i. Indexing Records. The filing office has a duty to index filed records. See U.C.C. 9-
519(a)(4).
1. Two Days to Index. The filing office must file the indexed F/S no later than two
business days after the filing office receives the F/S. See U.C.C. 9-519(h).
ii. Searching Procedure
1. Filing Office Can Backdate Search Three Days. When you make a search
request, the filing office can make the effective date of the search up to three
days before the request. U.C.C. 9-523(c).
2. Two Days to Communicate Search Results. The filing office must communicate
the search results to you within two business days after your request. U.C.C.
9-523(e).
iii. Rule of Thumb: Search Four Days After Filing. Four days after filing a F/S, you should
request a search. This accounts for: 2 days to index, 3 day search backdate, 2 days to
communicate search results, and 1 day in case the office backdates the search to a time
before you filed. See XI.i. Problem 17.5, infra.
iv. Filing Office Failure to Comply: No Effect. The filing offices failure to comply w/
performance standards has no effect on private rights of persons affected by the filing
of records. U.C.C. 9-523 cmt. 8.
f. Problem 17.2. Client plans to lend $2.5M against equipment, inventory, and A/R owned by Lee
Leasing and Bob Lee, the owner of the company.
i. a. How will you determine what names to search under? If Bob will be a source of
information, what questions will you ask him?
1. U.C.C. 9-502(a) sets forth minimum requirements for a F/S to be effective:
a. (1) Ds name
b. (2) S/Ps name
c. (3) description of the collateral
2. Who is the debtor?
a. U.C.C. 9-102(a)(28)(A): debtor means a person having an interest,
other than a S/I or other lien, in the collateral
3. If Lee Leasing is the debtor and is a corporation:
a. Lee Leasing is a registered organization
i. U.C.C. 9-102(a)(70): registered organization means an
organization organized solely under state or federal law and
as to which the State/US maintains a public record showing
the organization to have been organized
ii. To incorporate under state law, Lee Leasing would have to file
articles of incorporation w/ the Secretary of State
b. The Ds name on the financing statement must be the one on the
public record (w/ exact punctuation and capitalization). See U.C.C. 9-
503(a)(1).
i. This can be found on the Secretary of States website
29

c. Verify the corporation owns the collateral. For equipment, get invoices
and other purchase documents. For accounts, get the invoices on the
sales generating those accounts.
4. If Lee Leasing is a trade name and Bob runs the business as a sole proprietor:
a. U.C.C. 9-503(a)(4)(A): the F/S must have the individual Ds name
b. What is Bobs correct legal name?
i. The name by which the debtor is generally known, for
nonfraudulent purposes, in the community.
ii. Note: in Texass version of the U.C.C., the correct legal name
of an individual debtor is the name on her drivers license
c. U.C.C. 9-506(c): an error in Ds name on a F/S makes it ineffective,
unless it turns up on a search of the correct name.
ii. b. If Client lends to Bob and takes Lee Leasings property as collateral, which does Client
file against?
1. File the F/S against the debtor (i.e., whoever owns the collateral).
g. Problem 17.1. In a filing system that uses IACA standard search logic, which of these errors
would render a F/S ineffective?
i. U.C.C. 9-506(c): an error in Ds name on a F/S makes it ineffective, unless it turns up on
a search of the correct name.
Correct Name Name as shown on the F/S F/S Effective?
a. Heartland Corporation of
Iowa
Heartland Corporation Ineffective
b. Heartland Corporation of
Iowa
Heartland of Iowa, Inc. Effective; ignores corp.
c. Heartland Corporation Heartland Corporation, an
Iowa corporation
Effective; ignores an Iowa
corporation at the end
d. HeartLand Corporation Heartland Corp. Effective; d/n distinguish
upper and lower case letters
e. The Heartland Corporation Heartland Corporation Effective; ignores the at the
beginning of a name
f. K.W.M. Electronics
Corporation
K W M Electronics
Corporation
Effective; disregards
punctuation marks
g. Heartland Inc. Hartland Inc. Ineffective

Correct Name Name as shown on the F/S
Last Name First
Name
Middle
Name
Suffix Effective?
h. John Phillip
Smith IV
Smith John Effective;
No middle name =
all middle names;
Suffixes ignored
i. John Phillip
Smith IV
Smith John Philip IV Ineffective
j. John Phillip
Smith IV
Smith J. IV Effective;
Initial = name
beginning w/ that
letter
k. Robert Don
McErny
Mc Erny R. Don Effective;
Ignores spaces
l. Robert Don
McErny
McErny Robert Don Mr. Effective;
Ignores suffixes
30


m. Eduardo
Sanchez-Garcia
Sanchez-Garcia Eduardo Effective
n. Eduardo
Sanchez-Garcia
Garcia Eduardo Sanchez Effective
o. Eduardo
Sanchez-Garcia
Sanchez Eduardo Ineffective
p. Eduardo
Sanchez-Garcia
Sanchez Garcia Eduardo Ineffective;
Search logic will not
recognize last name
using two names
(need hyphen)
h. Problem 17.3. In response to a search request for John Phillip Smith, the secretary of state
sent you a list of 112 F/Ss. One is against John P. Smith, three are against John Smith, one is
against John Philip Smith, Jr., and the others are against persons w/ middle initials other than P.
Which F/Ss could, as a legal matter, be effective against John Phillip Smith? All the F/Ss could be
used against you. Under U.C.C. 9-506(c), they are all effective b/c they turned up from a search
of the correct legal name.
i. Problem 17.5
i. a. If the filing office receives an original F/S on Wednesday, by what day must the filing
office index it (and thereby render it searchable)? Friday.
1. U.C.C. 9-519(h): the filing office has two business days to index a filing
ii. b. If the filing office complies with these sections, the last search report that did not
include reference to this F/S would go out on the following Wednesday. Can you see
why?
1. U.C.C. 9-523(c): when you make a search request, the filing office can make
the effective date of the search up to three days before the request
2. U.C.C. 9-523(e): the filing office must communicate the search results to you
in two business days after your request
3. Rule of thumb: search 4 business days after you file
a. Note: if you searched Monday of week 2, the filing office could
backdate the effective date of the search to the day you filed (Week 1,
Wed.), but at a time before you actually filed the F/S!









iii. c. What happens to a filing office that does not comply with these sections? Nothing
happens. Under U.C.C. 9-523 cmt. 8, failure to comply w/ performance standards has
no effect on private rights of persons affected by the filing of records.
j. Problem 17.6. Your clients (lender) closing is set for 16 days from today.
i. a. Assuming the secretary of state is in compliance with U.C.C. 9-523(e), what do you
do, and in what order? Can you be ready by the scheduled closing date? Under the
diagram above, it seems you have plenty of time to find out if there are filings ahead of
yours.
ii. b. Assuming that the filing office takes two weeks to index a F/S, that it does not back-
date the search (see U.C.C. 9-523(c)), that it takes up to 24 hours to run an
Week 1 Week 2
M T W R F M T W R
|----------|-----------|-----------|----------|-----------|----------|-----------|----------|
File F/S--------->>index F/S
@ 3 p.m.
Backdate<<----------------------Search------------>>Results
Search Request
@ 9 a.m.
31

expedited search, and that the filing office faxes the search to the searcher
immediately upon completion, what do you do, and in what order? Can you be ready by
the scheduled closing date? If it takes 2 weeks to get a filing indexed, and 24 hours to
get search results, thats 15 days (probably too close to the 16 day deadline). The
solution would be to insert a clause in the loan document that the lender withholds
funding until it gets a search report that ensures its priority.
1. U.C.C. 9-516(a): a properly filed F/S is effective on filing
2. U.C.C. 9-517: failure of a filing office to index does not affect effectiveness
XII. Assignment 18: Article 9 Financing Statements: Other Information
a. Rejected Filings
i. Mandatory Refusal to Accept Record. A filing office shall refuse to accept a record for
filing for a reason set forth in 9-516(b) and may refuse to accept a record for filing only
for a reason set forth in 9-615(b). U.C.C. 9-520(a).
1. Cannot Consider Accuracy. Neither 9-520 nor 9-516 requires or authorizes
the filing office to determine, or even consider the accuracy of information
provided in a record. U.C.C. 9-516 cmt. 3.
ii. Filing Does Not Occur When Refused. A record is not filed if the filing office refuses
to accept it b/c:
1. (3) the filing office is unable to index the record b/c:
a. (A) the record does not provide a name for the debtor;
b. (C) the F/S does not identify the debtors last name;
2. (4) the F/S does not provide a name and mailing address for the S/P;
3. (5) the F/S does not:
a. (A) provide a mailing address for the debtor;
b. (B) indicate whether the debtor is an individual or organization; or
c. (C) if the F/S indicates that the debtor is an organization, provide:
i. (i) a type of organization for the debtor;
ii. (ii) a jurisdiction or organization for the debtor;
iii. (iii) an organizational identification number for the debtor or
indicate the debtor has none. U.C.C. 9-516(b).
iii. Wrongfully Rejected Filings. If the filing office refuses to accept for a reason other than
one set forth in subsection (b), it 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. U.C.C. 9-516(d).
1. Reasonable Reliance. Reasonable reliance means the purchaser does a search
and does not find the F/S.
2. Purchaser. Purchaser means a person that takes by purchase. U.C.C. 1-
201(30). 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 (i.e., anybody who D
voluntarily gives an interest in the property to). U.C.C. 1-201(29).
3. Lien Perfected. Wrongfully rejected filings are referred as lien perfected,
as the S/P is perfected against lien creditors (including the bankruptcy trustee).
Lien creditors are not purchasers.
b. Accepted Filings
i. F/S Effective. A filed F/S satisfying 9-502(a) and (b) is effective, even if the filing office
is reqd to refuse to accept it for filing under subsection (a). However, 9-338 applies to
a filed F/S providing information described in 9-516(b)(5) which is incorrect at the time
the F/S is filed. U.C.C. 9-520(c).
1. Minimum F/S Requirements. A F/S is sufficient if it:
a. (1) provides the Ds name
b. (2) provides the S/Ps name
c. (3) indicates the collateral covered by the F/S. U.C.C. 9-502(a).
32

2. Priority of S/I Perfected by F/S Providing Incorrect Information. If a S/I is
perfected by a filed F/S providing information described in 9-516(b)(5) which
is incorrect at the time the F/S is filed, the S/I is subordinate to a conflicting
perfected S/I in the collateral to the extent the holder of the conflicting S/I
gives value in reasonable reliance upon the incorrect information. U.C.C. 9-
338(1).
a. Reasonable Reliance. The question of whether a new S/P reasonably
relied on the incorrect information really asks whether the F/S did not
effectively give notice of the S/I.
ii. Wrong S/P Name
1. Insufficient. Under U.C.C. 9-502(a)(2), a F/S is insufficient if it does not
provide the S/Ps legal name.
2. Still Effective. A F/S is effective unless its seriously misleading. U.C.C. 9-
506(a). An error in the name of the S/P will not be seriously misleading. U.C.C.
9-506 cmt. 2.
3. Estoppel. In an appropriate case, an error in the S/Ps name may give rise to an
estoppel in favor of a particular holder of a conflicting claim to the collateral.
U.C.C. 9-506 cmt. 2.
c. Problem 18.1
i. a. You know that the debtor is a Nevada corp., but you dont know its organizational ID
number. Would you be better of leaving the space for the number on the F/S blank, or
filling in the license plate number of your car? Youre better off filling in your license
plate number.
1. U.C.C. 9-516(b)(5)(C)(iii): a record is not filed if the filing office refuses to
accept it b/c the record does not provide an organizational identification
number for the debtor (if the debtor is an organization).
2. U.C.C. 9-516 cmt. 3: this section does not require or authorize the filing office
to determine, or even consider the accuracy of information provided in a record
ii. b. You filled in the license number of your car, and the filing office sent the F/S back to
you w/ a notice of rejection and instructions for obtaining the correct number. If you
dont do anything, are you perfected?
1. U.C.C. 9-516(d): if the filing office refuses to accept for a reason other than
one set forth in subsection (b), it 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
a. Reasonable reliance means the purchaser does a search and does
not find the F/S
b. U.C.C. 1-201(30): purchaser means a person that takes by
purchase
c. U.C.C. 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
(i.e., anybody who D voluntarily gives an interest in the property to)
2. Youre perfected, but the effectiveness is limited as against purchasers. You
should file w/ the correct organizational number.
iii. c. Contrary to the facts of b, the filing office accepted your F/S w/ the incorrect
organization ID number. Are you perfected? Do you need to take any further action?
1. F/S is effective
a. U.C.C. 9-520(c): a filed F/S satisfying 9-502(a) and (b) is effective,
even if the filing office is reqd to refuse to accept it for filing under
subsection (a). However, 9-338 applies to a filed F/S providing
information described in 9-516(b)(5) which is incorrect at the time
the F/S is filed
33

b. U.C.C. 9-502(a): a F/S is sufficient if it:
i. (1) provides the Ds name
ii. (2) provides the S/Ps name
iii. (3) indicates the collateral covered by the F/S
c. The F/S complies with U.C.C. 9-502(a), thus it is effective
2. U.C.C. 9-338(1): if a S/I is perfected by a filed F/S providing information
described in 9-516(b)(5) which is incorrect at the time the F/S is filed, the S/I is
subordinate to a conflicting perfected S/I in the collateral to the extent the
holder of the conflicting S/I gives value in reasonable reliance upon the incorrect
information
a. If a new S/P does not search, theres no reliance
b. If a new S/P searches and turns up the F/S and made the loan:
i. Did new S/P reasonably rely on the wrong organizational ID
number? The only way that the new S/P reasonably relied on
the wrong number is when the F/S didnt effectively give
notice of the S/I.
ii. Here, the F/S provides Ds name and address, S/Ps name and
address, whether D is an individual or organization, the type
of organization, and the JRD of organization.
d. Problem 18.2. Which of the following F/Ss are unperfected?
i. a. Irregularity is the complete absence of any address for the S/P.
1. The filing office should have refused the F/S
a. U.C.C. 9-520(a): a filing office shall refuse to accept a record for
filing for a reason set forth in 9-516(b) and may refuse to accept a
record for filing only for a reason set forth in 9-516(b)
b. U.C.C. 9-516(b)(4): a record is not filed if the filing office refuses to
accept b/c the F/S does not provide the S/Ps name or mailing address
2. F/S is effective
a. U.C.C. 9-520(c): a filed F/S satisfying 9-502(a) and (b) is effective,
even if the filing office is reqd to refuse to accept it for filing under
subsection (a)
b. U.C.C. 9-502(a): a F/S is sufficient if it:
i. (1) provides the Ds name
ii. (2) provides the S/Ps name
iii. (3) indicates the collateral covered by the F/S
c. The F/S complies with U.C.C. 9-502(a); thus it is effective
3. U.C.C. 9-338(1) does not apply
a. U.C.C. 9-338 only applies to incorrect, not missing, information
b. U.C.C. 9-338 only applies to errors in information provided in 9-
516(b)(5), not 9-516(b)(4)
ii. c. Irregularity is the use of the S/Ps trade name instead of its true name.
1. F/S not sufficient
a. U.C.C. 9-502(a)(2): F/S must provide the S/Ps legal name
b. U.C.C. 9-503(c): a F/S that provides only the debtors trade name
does not sufficiently provide the name of the debtor
i. This standard is presumably the same for the S/P
2. F/S is effective
a. U.C.C. 9-506(a): a F/S is effective, even if it has minor errors or
omissions, unless the errors or omissions make the F/S seriously
misleading
b. U.C.C. 9-506 cmt. 2: an error in the S/Ps name will not be seriously
misleading
34

c. Note: it may be easier to locate S/P by its trade name rather than its
legal name
iii. d. Irregularity is that the S/Ps name is listed as Elizabeth Warren instead of the
correct name, Lynn M. LoPucki.
1. Musselman: this is ineffective under U.C.C. 9-502(a)(2) b/c there is no way to
find out whos the S/P without relying on the debtor
2. U.C.C. 9-506 cmt. 2: in an appropriate case, an error in the S/Ps name may
give rise to an estoppel in favor of a particular holder of a conflicting claim to
the collateral
a. If someone detrimentally relies, she can probably bring an estoppel
claim to prevent them from claiming theyre the S/P
b. Here, that probably wont happen b/c a searcher is on inquiry duty to
find out the S/P
3. U.C.C. 9-338 doesnt apply b/c it does not apply to errors in 9-516(b)(4)
only errors in information provided in 9-516(b)(5)
iv. e. Irregularity is in the description of the collateral as Pizza ovens, equipment, and
fixtures located at 621 State Street, Madison, WI. The collateral has been at 514 East
Washington Ave, Madison, WI at all relevant times.
1. U.C.C. 9-502(a)(3): a F/S must indicate the collateral covered by the F/S
a. This description must put 3d parties on inquiry notice
2. The problem with restrictive descriptions:
a. From the description, a 3d party could conclude that the S/I is in the
items at State Street, not East Washington
b. Property can be moved to a different location
c. See In re Pickle Logging, Inc. (Deere Credit, Inc. v. Pickle Logging, Inc.)
(where S/Ps description of a 548 G skidder excluded 648G skidders).
3. U.C.C. 9-504: a F/S sufficiently indicates the collateral that it covers if the F/S
provides an indication that the F/S covers all assets or all personal property
4. Here, the F/S provides the wrong addressan actual location of Ds store
a. Compare Teel Construction, Inc. v. Lipper, Inc. (where F/S containing a
non-existent address was effective) (p. 319)
5. End result: could go either way
a. A court may impose a duty of inquiry to ask about which collateral is
covered by the F/S, OR
b. A court may hold that no duty exists b/c it looks like the F/S restricts
the S/I to one location
v. f. Irregularity is the complete absence of a description of the collateral.
1. U.C.C. 9-502(a)(3): F/S is ineffective b/c it doesnt indicate the collateral
covered by the F/S
e. Problem 18.6. Pablo (debtor) applied to SNB to borrow against his restaurant. SNB filed a F/S on
3/1 and conducted a search. The search was clean, and SNB closed the $320k loan on 3/15. At
the closing, Pablo signed a S/A. Pablo disappeared. SNB discovered a F/S in favor of NB filed
3/10. Pablo had borrowed $330k from NB. NB asked to see the authenticated record
authorizing the filing of SNBs F/S.
i. a. What record would that be?
1. U.C.C. 9-509(a): a person may file a F/S if the debtor authorizes the filing in
an authenticated record or pursuant to (b)
2. U.C.C. 9-509(b): by authenticating or becoming bound as debtor by a S/A, a
debtor authorizes the filing of an initial F/S
3. U.C.C. 9-510(a): a filed record is effective only to the extent that it was filed
by a person that may file it under 9-509
a. U.C.C. 9-509 cmt. 3: a filed F/S is ineffective to perfect a S/I if the
filing is not authorized
35






ii. b. Should SNB change its procedures? If so, how? SNB should get an authorization
when it files a F/S.
XIII. Assignment 19: Exceptions to the Article 9 Filing Requirement
a. Must File for Accounts, Payment Intangibles, and Commercial Tort Claims. A S/I in accounts
and payment intangibles may be perfected only by filing. U.C.C. 9-313 cmt. 2.
b. Possession
i. Collateral
1. Money. A S/I in money may be perfected only by the S/Ps taking possession
under 9-313. U.C.C. 9-312(b)(3).
2. Goods, Instruments, Tangible Chattel Paper. A S/P may perfect a S/I in goods,
instruments, money, or tangible chattel paper by taking possession of the
collateral. U.C.C. 9-313(a).
a. Priority for Perfecting S/Is in Instruments
i. Filing. A S/I in . . . instruments . . . may be perfected by filing.
U.C.C. 9-312(a).
ii. Possession Wins over Filing. A purchaser of an instrument
has priority over a S/I in the instrument perfected by a
method other than possession if the purchaser gives value
and takes possession of the instrument in good faith and
without knowledge that the purchase violates the rights of
the S/P. U.C.C. 9-330(d).
b. Priority for Perfecting S/Is in Chattel Paper
i. Filing. A S/I in chattel paper . . . may be perfected by filing.
U.C.C. 9-312(a).
ii. Possession Wins over Filing. A purchaser of chattel paper
has priority over a S/I in chattel paper either claimed as
proceeds of inventory or not, if the purchaser gives new value
and takes possession of the chattel paper. U.C.C. 9-330(a),
(b).
ii. Possession by Independent 3d Party. A S/P takes possession of collateral in the
possession of a person other than the debtor, the S/P, or a lessee of the collateral from
the debtor in the ordinary course of the debtors business, when:
1. (1) the person in possession authenticates a record acknowledging that it holds
possession of the collateral for the S/Ps benefit; or
2. (2) the person takes possession of the collateral after having authenticated a
record acknowledging that it will hold possession of collateral for the S/Ps
benefit. U.C.C. 9-313(c).
3. Not Required to Disclose. A person in possession of collateral is not required
to acknowledge that it holds possession for a S/Ps benefit. U.C.C. 9-313(f).
iii. Possession by Secured Partys Agent. If the collateral is in possession of an agent for
the secured party for the purposes of possessing on behalf of the S/P, and if the agent is
not also an agent of the debtor, the S/P has taken actual possession, and subsection (c)
does not apply. . . . The debtor cannot qualify as an agent for the S/P for purposes of the
S/Ps taking possession. U.C.C. 9-313 cmt. 3.
c. Control
i. Deposit Accounts. Deposit account means a demand, time, savings, passbook, or
similar account maintained with a bank. U.C.C. 9-102(a)(29).
3/1 3/10 3/15
|-------------------------|--------------------------------------------|
SNB NB files Debtor signs S/A w/ SNB
Files F/S F/S F/S effective (after NB)
36

1. Certificates of Deposit. A negotiable CD is an instrument. A nonnegotiable CD
could be an instrument; otherwise its a deposit account. U.C.C. 9-102 cmt.
12.
2. Must Perfect by Control. A S/I in a deposit account may be perfected only by
control under 9-314. U.C.C. 9-312(b)(1). A S/I in . . . deposit accounts . . .
may be perfected by control of the collateral under section . . . 9-104. U.C.C.
9-314(a).
3. Control of Deposit Account. A S/P has control of a deposit account if:
a. (1) the S/P is the bank with which the deposit account is maintained;
b. (2) the debtor, S/P, and bank have agreed in an authenticated record
that the bank will comply with instructions originated by the S/P
directing disposition of the funds in the deposit account without
further consent by the debtor; or
c. (3) the S/Ps name is on the bank account. U.C.C. 9-104(a).
ii. Investment Property (including stock). Investment property means a security,
whether certificated or uncertificated, security entitlement, securities account,
commodity contract, or commodity account. U.C.C. 9-102(a)(49).
1. Perfecting a S/I in Investment Property
a. Filing. A S/I in . . . investment property may be perfected by filing.
U.C.C. 9-312(a).
b. Control. A S/I in investment property . . . may be perfected by control
of collateral under Section . . . 9-106. U.C.C. 9-314(a). A person has
control of a certificated security . . . as provided in Section 8-106.
U.C.C. 9-106(a). A purchaser has control of a certificated security
in registered form if the certificated security is delivered to the
purchaser, and:
i. (1) the certificate is indorsed to the purchaser or in blank by
an effective indorsement; or
ii. (2) the certificate is registered in the name of the purchaser,
upon original issue or registration of transfer by the issuer.
U.C.C. 8-106(b).
c. Possession or Delivery. A S/P may perfect a S/I in certificated
securities by taking delivery of the certificated securities under 8-
301.
2. Priority: Control Wins. A S/I held by a S/P having control of investment
property under 9-106 has priority over a S/I held by a S/P that does not have
control. U.C.C. 9-328(1).
d. Automatic Perfection of Purchase-Money Security Interests in Consumer Goods
i. Automatic Perfection of PMSI in Consumer Goods. A PMSI in consumer goods is
perfected on attachment, except as otherwise provided in 9-311(b) with respect to
consumer goods that are subject to a statute described in 9-311(a). U.C.C. 9-309(1).
1. Certificate of Title Property. Where a certificate of title statute controls, one
can perfect only by complying with the statute. U.C.C. 9-311(a), (b).
ii. Consumer Goods. Consumer goods means goods that are used or bought for use
primarily for personal, family, or household purposes. U.C.C. 9-102(a)(23).
iii. PMSI. A S/I in goods is a PMSI:
1. (1) to the extent that the goods are purchase-money collateral with respect to
that S/I
2. (2) if the S/I is in inventory that is or was purchase-money collateral, also to the
extent that the S/I secures a purchase-money obligation incurred with respect
to the inventory in which the secured party holds or held a PMSI. U.C.C. 9-
103(b).
37

3. Purchase-Money Collateral. Purchase-money collateral means goods that
secure a purchase-money obligation incurred w/ respect to that collateral.
U.C.C. 9-103(a)(1).
4. Purchase-Money Obligation. Purchase-money obligation means an
obligation of an obligor incurred as all or part of the price of the collateral or
for value given to enable the debtor to acquire rights in or the use of the
collateral if the value is in fact so used. U.C.C. 9-103(a)(2).












e. Security Interests Not Governed by Article 9 or Another Filing Statute
i. Assignment of Deposit Accounts in Consumer Transactions. Art. 9 does not apply to an
assignment of deposit accounts in consumer transactions. U.C.C. 9-109(d)(13).
ii. Non-Commercial Tort Claims. Article 9 does not apply to non-commercial tort claims.
U.C.C. 9-109(d)(12).
1. Commercial Tort Claim. Commercial tort claim means a claim arising in tort
with respect to which the claimant is an individual and the claim (i) arose in the
course of the claimants business or profession; and (ii) does not include
damages arising out of personal injury to or the death of an individual. U.C.C.
9-102(a)(13)(B).
a. Perfecting Commercial Tort Claims. Commercial tort claims can only
be perfected by filing. U.C.C. 9-310, 9-313 cmt. 2.
iii. State Law. When a S/P wants to perfect a S/I in something that Article 9 doesnt apply
to, look to local state law. See Bluxome Street Associates v. Firemans Fund Insurance
Co. (looking to state statute to determine perfection requirements for a S/I in a legal
malpractice claim).
f. Problem 19.1. Explain the permissible ways to perfect in each of these items of collateral.
i. a. The cash in the cash registers of a D that operates the food/drink concession in a
football stadium.
1. U.C.C. 9-312(b)(3): only way to perfect a S/I in money is possession
a. U.C.C. 1-201(b)(24): money means a medium of exchange
currently authorized or adopted y a domestic or foreign government
2. Get possession through independent 3d party
a. U.C.C. 9-313(c): a S/P takes possession of collateral thats in the
possession of a person other than the debtor, the S/P, or a lessee of the
collateral from the debtor when the person in possession agrees to
hold the collateral for the S/Ps benefit
3. Get possession through S/Ps agent
a. U.C.C. 9-313 cmt. 3: if the collateral is in possession of an agent of
the S/P for the purposes of possessing on behalf of the S/P, and if the
agent is not also n agent of the debtor, the S/P has taken possession
b. U.C.C. 9-313 cmt. 3: a debtor cannot qualify as an agent for the S/P
for purposes of the S/Ps taking possession
ii. b. A negotiable promissory note.
Lenders PMSI
Loan Sell Consumer Good

S/I in Loan Proceeds
Consumer Good
Lender Debtor Seller
Sellers PMSI
Sell Consumer Good

Promissory Note +
S/I in Consumer Good
Debtor Seller
38

1. The collateral is an instrument
a. U.C.C. 9-102(a)(47): instrument means a negotiable instrument or
any other writing that evidences a right to pmt of a monetary
obligation, is not itself a S/A or lease, and is of a type that in ordinary
course of business is transferred by delivery with any necessary
indorsement or assignment
b. All p/notes (negotiable and non) are instruments
2. May perfect by filing
a. U.C.C. 9-312(a): a S/I in . . . instruments . . . may be perfected by
filing
3. May perfect by possession
a. U.C.C. 9-313(a): a S/P may perfect a S/I in . . . instruments . . . by
taking possession of the collateral
4. Priority: possession wins over filing
a. U.C.C. 9-330(d): a purchaser of an instrument has priority over a S/I
in the instrument perfected by a method other than possession if the
purchaser gives value and takes possession of the instrument in good
faith and without knowledge that the purchase violates the rights of
the S/P
iii. c. Money the debtor is keeping in a bank account.
1. The collateral is a deposit account
a. U.C.C. 9-102(a)(29): deposit account means a demand, time,
savings, passbook, or similar account maintained with a bank
2. Perfect by control
a. U.C.C. 9-312(b)(1): a S/I in a deposit account may be perfected only
by control under 9-314
b. U.C.C. 9-314(a): a S/I in . . . deposit accounts . . . may be perfected by
control of the collateral under section . . . 9-104
c. U.C.C. 9-104(a): a S/P has control of a deposit account if:
i. (1) the S/P is the bank with which the deposit account is
maintained;
ii. (2) the debtor, S/P, and bank have agreed in an authenticated
record that the bank will comply with instructions originated
by the S/P directing disposition of the funds in the deposit
account without further consent by the debtor; or
iii. (3) the S/Ps name is on the bank account
3. Certificates of deposit
a. U.C.C. 9-102 cmt. 12
i. A negotiable CD is an instrument
ii. A nonnegotiable CD could be an instrument; otherwise its a
deposit account
iv. d. Shares of stock in General Motors, for which a certificate has been issued.
1. The collateral is investment property
a. U.C.C. 8-102(a)(4): certificated security means a security that is
represented by a certificate
b. U.C.C. 9-102(a)(49): investment property means a security,
whether certificated or uncertificated, security entitlement, securities
account, commodity contract, or commodity account
2. Perfection of investment property
a. U.C.C. 9-312(a): perfect by filing
b. Perfect by control:
i. U.C.C. 9-314(a), 9-106(a), 8-106(b)(1): delivery to
purchaser and indorsement to purchaser
39

ii. U.C.C. 9-314(a), 9-106(a), 8-106(b)(2): delivery and
registering in name of purchaser
c. U.C.C. 9-313(a): perfect by possession or delivery under 8-301(a)
3. Priority: control wins
a. U.C.C. 9-328(1): a S/I held by a S/P having control of investment
property under 9-106 has priority over a S/I held by a S/P that does
not have control
v. e. The obligations of customers of a used car lot to pay for the cars they purchased. The
obligations are evidenced by promissory notes and S/Is in the cars purchased.
1. The collateral is chattel paper
a. U.C.C. 9-102(a)(11): chattel paper means a record or records that
evidence both a monetary obligation and a S/I in specific goods [or] a
lease of specific goods. . . . If a transaction is evidenced by records that
include an instrument or series of instruments, the group of records
taken together constitutes chattel paper
2. May perfect by filing
a. U.C.C. 9-312(a): a S/I in chattel paper . . . may be perfected by filing
3. May perfect by possession
a. U.C.C. 9-313(a): a S/P may perfect a S/I in . . . tangible chattel paper
by taking possession of the collateral
4. Priority: possession wins
a. U.C.C. 9-330(a): a purchaser of chattel paper has priority over a S/I
in chattel paper as proceeds if the purchaser gives new value and takes
possession of the chattel paper
b. U.C.C. 9-330(b): a purchaser of chattel paper has priority over a S/I
in the chattel paper which is claimed other than merely as proceeds of
inventory subject to a S/I if the purchaser gives new value and takes
possession of the chattel paper
g. Problem 19.2. Cs sold their franchise to W, receiving a Contract for Pmt, containing a promise
to pay $500k in yearly installments. Client CG is about to lend $300k to Cs, secured by what they
have from W.
i. a. How should CG perfect?
1. The collateral is not chattel paper
a. U.C.C. 9-102(a)(11): the record does not evidence a S/I in specific
goods
2. The collateral is probably not an instrument
a. U.C.C. 9-102(a)(47): the contract is probably not of a type that in
ordinary course of business is transferred by delivery with any
necessary indorsement or assignment
3. The collateral is probably an account
a. U.C.C. 9-102(a)(2): account means a right to pmt of a monetary
obligation, whether or not earned by performance, (i) for property that
has been or is to be sold . . .
4. Perfect S/I in an account by filing
a. U.C.C. 9-313 cmt. 2: a s/I in accounts and payment intangibles may
be perfected only by filing
5. If youre not sure whether its an account or an instrument, file and take
possession of the contract
ii. b. What if the document gives the Cs a S/I in the franchise and Cs perfected that S/I
properly at the time of the sale? Here, it would not be chattel paper, but an account.
h. Problem 19.3. Instead of the Contract for Pmt, Cs received only a negotiable promissory note
thats an instrument. Cs cannot give CG possession of the instrument b/c G is holding it. G has
40

a first S/I in the instrument, securing a $60k debt to them. CG is willing to make their loan as a
second S/I, but they are not willing to risk being unsecured. What do you suggest?
i. U.C.C. 9-330(d): CG could file, but a new purchaser could loan the Cs money and
perfect by possession, leaving CG with a S/I behind the new purchaser
ii. CG could loan Cs enough to pay G off
iii. U.C.C. 9-313(c): CG could get G to authorize a record acknowledging theyre holding
possession for CG too
1. U.C.C. 9-313(g)(2): if a person acknowledges that it holds possession for the
S/Ps benefit, the acknowledgement is effective, even if the person does not
owe any duty to the S/P and is not reqd to confirm the acknowledgement to
another person
a. But, G could get paid off and give the instrument to Cs, then Cs gives
possession to another S/P (without telling CG)
2. CG could include a provision that G is liable to CG if they give the instrument to
Cs, but then G would not sign the agreement without additional consideration
i. Problem 19.4. Is it possible there might be liens against the collateral that wouldnt show up on
a diligent search that included a viewing of the collateral? Are there other steps you might take
to discover automatically perfected S/Is?
i. a. A $40k mobile home, located in a remote corner of Ks (debtor) estate. State law
does not allow for the issuance of a certificate of title for a mobile home.
1. Search the filing records
2. Determine who has possession of the collateral
3. The mobile home could be a purchase money security interest (PMSI) in
consumer goods
a. U.C.C. 9-309(1): a PMSI in consumer goods is perfected on
attachment
i. U.C.C. 9-102(a)(23): consumer goods means goods that
are used or bought for use primarily for personal, family, or
household purposes
1. If K lives in the mobile home, its used for personal
purposes
2. If K uses it for his business, its not a consumer good
ii. U.C.C. 9-103(b): a S/I in goods is a PMSI:
1. (1) to the extent that the goods are purchase-money
collateral with respect to that S/I
2. (2) if the S/I is in inventory that is or was purchase-
money collateral, also to the extent that the S/I
secures a purchase-money obligation incurred with
respect to the inventory in which the secured party
holds or held a PMSI
iii. U.C.C. 9-103(a)(1): purchase-money collateral means
goods that secure a purchase-money obligation incurred w/
respect to that collateral
iv. U.C.C. 9-103(a)(2): purchase-money obligation means an
obligation of an obligor incurred as all or part of the price of
the collateral or for value given to enable the debtor to
acquire rights in or the use of the collateral if the value is in
fact so used
b. Find out whether the mobile home is subject to a S/I by obtaining the
purchase documents. The terms of sale will tell you to look for a
lenders PMSI (cash sale) or sellers PMSI (sale on credit).
41

ii. b. A rare book collection currently on display at the Library of Congress. If the Library
were holding possession for someone who claimed a S/I in the books, would it have to
tell the searcher?
1. U.C.C. 9-313(c): a S/P takes possession of collateral in the possession of a
person other than the debtor or S/P when the person in possession
authenticates a record acknowledging it holds possession of the collateral for
the S/Ps benefit
2. The library would not have to tell the searcher if it held possession for a S/P
a. U.C.C. 9-313(f): a person in possession of collateral is not required to
acknowledge that it holds possession for a S/Ps benefit
iii. c. A Mercedes-Benz automobile. The certificate of title shows no liens.
1. No automatic perfection
a. U.C.C. 9-309(1): a PMSI in consumer goods is perfected on
attachment, except as otherwise provided in 9-311(b) with respect to
consumer goods that are subject to a statute or treaty described in 9-
311(a)
2. U.C.C. 9-311(a), (b): where a certificate of title statute applies, a S/P can only
perfect by compliance with the statute
iv. d. A solid gold ingot and 20 unset diamonds.
1. Does K have possession?
2. PMSI in consumer goods?
a. These are likely consumer goods (used for personal purposes)
v. e. Computer equipment in Ks office, where he uses it principally to review stock
quotations.
1. How is K using the equipment?
a. If hes using it for business purposes, its equipment
b. If hes using for personal purposes, its consumer goods
c. This is a fact question
2. What if the goods were bought for one purpose and then used for another?
a. Nobody knows
b. White & Summers: determine purpose when collateral is purchased
c. The purchase documents may indicate how Debtor plans to use the
collateral
vi. f. A checking account at Bank of the West in Ks name. Bank stmts show no interest in
favor of Bank of the West or anyone else.
1. U.C.C. 9-102(a)(29): the collateral is a deposit account
2. U.C.C. 9-312(b)(1): perfect only by control
3. U.C.C. 9-104(a)(1): ask the bank if it has a S/I in the deposit account
a. U.C.C. 9-210(b)(1): a S/P shall comply with a request for accounting
w/in 14 days
4. U.C.C. 9-104(a)(2): has the bank authenticated a record that the bank will
comply with S/Ps instructions?
a. Theres nothing to indicate that the bank has to disclose
b. U.C.C. 9-342: a bank that has entered into this kind of agreement is
not required to confirm the existence of the agreement to another
person unless requested to do so by its customer (the debtor)
5. U.C.C. 9-109(d)(13): Art. 9 does not apply to an assignment of deposit
accounts in consumer transactions
a. Look for other state law for requirements to perfect
j. Problem 19.5. J wants to borrow $100k from her brother, W, using a professional malpractice
lawsuit (going to trial next week) as collateral. What should W do to perfect?
i. U.C.C. 9-109(d)(12): Article 9 does not apply to non-commercial tort claims
42

1. U.C.C. 9-102(a)(13)(B): commercial tort claim means a claim arising in tort
with respect to which the claimant is an individual and the claim (i) arose in the
course of the claimants business or profession; and (ii) does not include
damages arising out of personal injury to or the death of an individual.
a. Does the claim arise in the course of Js business or profession?
i. Probably not (probably had to do w/ private financial affairs)
2. See Bluxome Street Associates v. Firemans Fund Insurance Co. (looking to state
statute to determine perfection requirements for a S/I in a legal malpractice
claim).
ii. If the collateral was a commercial tort claim, Article 9 applies
1. U.C.C. 9-310, 9-313 cmt. 2: commercial tort claims can only be perfected by
filing
2. U.C.C. 9-108(e): F/S cannot describe a commercial tort claim by type
iii. If the collateral was a breach of contract claim, it would be a general intangible under
9-102(a)(42).
XIV. Assignment 20: The Land and Fixtures Recording Systems
a. Article 9 Inapplicability to Real Property Interests. Article 9 does not apply to the creation or
transfer of an interest in or lien on real property, including lease or rents thereunder, except to
the extent that provision is made for (A) liens on real property in Sections 9-203 and 9-308,
[fixtures and fixture filings]. U.C.C. 9-109(d)(11)(B)(C).
i. Lien Securing Right to Payment. See XIV.d. Problem 20.1.e, infra.
1. Attachment. The attachment of a S/I in a right to payment or performance
secured by a S/I or other lien on personal or real property is also attachment of
a S/I in the mortgage. U.C.C. 9-203(g).
2. Perfection. Perfection of a S/I in a right to payment or performance also
perfects a S/I in a S/I, mortgage, or other lien on personal or real property
securing the right. U.C.C. 9-308(e).
b. Fixtures. Fixtures means goods that have become so related to particular real property that an
interest in them arises under real property law. U.C.C. 9-102(a)(41).
i. Perfecting a S/I in a Fixture
1. File F/S. U.C.C. 9-501(a)(2).
2. Automatically. A PMSI in consumer goods is automatically perfected. U.C.C.
9-309(1).
3. Fixture Filing. U.C.C. 9-501(a)(1)(B).
ii. Fixture Filing
1. Defined. Fixture filing means the filing of F/S covering goods that are or are
to become fixtures. U.C.C. 9-102(a)(40).
2. Requirements
a. Regular F/S Requirements. A F/S is sufficient only if it:
i. (1) provides the name of the debtor;
ii. (2) provides the name of the S/P; and
iii. (3) indicates the collateral covered byt eh F/S. U.C.C. 9-
502(a).
b. Special Fixture Filing Requirements. A fixture filing must also:
i. (1) indicate that it covers this type of collateral;
ii. (2) indicate that it is to be filed in the real property records;
iii. (3) provide a description of the real property to which the
collateral is related; and
iv. (4) if the debtor doesnt have an interest of record in the real
property, provide the name of a record owner. U.C.C. 9-
502(b).
3. Priority Rules. See U.C.C. 9-334 (fixture filers have priority over certain
creditors [including lien creditors]).
43

c. Problem 20.1.a. How should SLP perfect in PIs one-third interest in a 160 acre tract of land?
Does the form in which title is held matter?
i. Two ways to take title:
1. Co-ownership (e.g., tenants in common)
a. Perfect by recording mortgage in real property records
2. Create an entity to take title to the land
ii. How to perfect S/I
1. If co-owners, take a lien on the real estate itself (look to real prop. law)
a. U.C.C. 9-109(d)(11): Art. 9 doesnt apply
2. If the property is owned by the entity, SLP would take a S/I in PIs share of his
interest in the entity
a. U.C.C. 9-102(a)(42): general intangible
b. U.C.C. 9-310: perfect by filing
d. Problem 20.1.e. PI holds a mortgage and note from M to PI. The debt is for the purchase price
of certain real property. The note that evidences the promise to pay is physically incorporated
into the purchase money mortgage. How should SLP perfect a S/I in the note and mortgage?
i. The p/note alone is an instrument under U.C.C. 9-102(a)(47)
ii. But a mortgage is a lien on real property (to which Art. 9 doesnt apply)
iii. U.C.C. 9-109(d)(11)(A): Art. 9 doesnt apply except in U.C.C. 9-203 and 9-308.
1. U.C.C. 9-203, 9-308: S/I in personal property attaches and perfects a S/I in a
mortgage
2. Thus, perfecting a S/I in an obligation (p/note) also perfects a S/I in a mortgage
interest
iv. The interest is not an instrument under U.C.C. 9-102(a)(47)
1. Not negotiable (p/note would have to be by itself)
2. Not transferred by delivery and indorsement
3. This is really an obligation secured by an interest in real estate
v. This interest is an account under U.C.C. 9-102(a)(2) (right to pmt of monetary
obligation for property sold)
vi. Perfect an account by filing
vii. Practically, you should both file and take possession of the note, just in case a goofball
judge thinks this is an instrument
viii. Note: if the p/note had been secured by a S/I in equipment, the interest would be chattel
paper (monetary obligation in specific goods)
e. Problem 20.1.h. PI offers store fixtures (shelving, counters, cages, cash registers) as collateral.
Some are bolted to the building; some are freestanding.
i. U.C.C. 9-102(a)(41): fixtures means goods that have become so related to particular
real property that an interest in them arises under real property law
1. Go to real property law to determined what a fixture is
2. If its a fixture under real property law, its a fixture under Art. 9
3. One factor is whether one can objectively determine that the parties intended
to create a permanent fixture
ii. Options to Perfect a S/I in a Fixture
1. U.C.C. 9-501(a)(2): file a F/S
2. Automatically: consumer goods + PMSI
3. U.C.C. 9-501(a)(1)(B): fixture filing
a. U.C.C. 9-102(a)(40): F/S covering goods that are or are to become
fixtures
b. U.C.C. 9-502(a): regular F/S requirements
c. U.C.C. 9-502(b): special fixture filing requirements
iii. Priority Rules
44

1. U.C.C. 9-334(c): generally, a S/I in fixtures is subordinate to a conflicting
interest of an encumbrancer or owner of the related real property other than
the debtor
a. U.C.C. 9-334(d), (e)(1): fixture filer has priority in some
circumstances
2. U.C.C. 9-334(e)(3): a perfected S/I in fixtures has priority over a lien creditor
3. U.C.C. 9-334(e)(2): for certain fixtures, a perfected S/I in fixtures has priority
f. Problem 20.3. B bought a mobile home from F. B disappeared and F was served with a
summons and complaint in a mortgage foreclosure brought by PSF. PSF financed Bs purchase of
the lot and B defaulted on his mortgage to them.
i. a, b. Is Fs interest unperfected? Does F win or lose against PSF?
1. If the mobile home is a good:
a. Already perfected b/c F already filed
b. May already be perfected b/c consumer good + PMSI
c. PSF doesnt have an interest in the mobile home just b/c it has a
mortgage
2. If the mobile home is a fixture:
a. F is perfected, but may not have priority. See U.C.C. 9-334.
b. Generally, PSF would win under U.C.C. 9-334(c)
c. No exceptions apply here
ii. c. Would F win or lose if the challenger was a trustee in bankruptcy?
1. F would win if the challenger was a trustee in bankruptcy
2. U.C.C. 9-334(e)(3): perfected S/I in fixtures has priority over conflicting
interest if conflicting interest is a lien on real property obtained by legal or
equitable means after S/I was perfected by any method.
iii. d. How should F perfect its S/I in the mobile homes it sells in the future?
1. F should make a fixture filing to ensure priority
XV. Assignment 21: Characterizing Collateral and Transactions
a. Characterizing Collateral: Analysis Framework. See APPENDIX 1: PERFECTION.
i. Tangible Collateral: Goods. All things that are movable when a security interest
attaches are goods. U.C.C. 9-102(a)(44). A good may fall into one of four categories,
depending on its use (think hog example).
1. Consumer Goods. Consumer goods means goods that are used or bought for
use primarily for personal family, or household purposes. U.C.C. 9-102(a)(23).
2. Farm Products. Farm products means goods with respect to which the
debtor is engaged in a farming operation which are: crops grown, growing or
to be grown . . . livestock . . . supplies used or produced in a farming operation;
or products of crops or livestock in their unmanufactured states. U.C.C. 9-
102(a)(34).
3. Inventory. Inventory means goods, other than farm products, which: (A) are
leased by a person as lessor; (B) are held by a person for sale or lease or to be
furnished under a contract of service; (C) are furnished by a person under a
contract of service; or (D) consist of raw materials, work in process, or
materials used or consumed in a business. U.C.C. 9-102(a)(48).
4. Equipment. Equipment means goods other than inventory, farm products, or
consumer goods. U.C.C. 9-102(a)(33).
ii. Intangible Collateral
1. STEP ONE: Is the collateral chattel paper, a commercial tort claim or
investment property?
a. Chattel Paper. Chattel paper means a record or records that
evidence both a monetary obligation and a S/I in specific goods [or] a
lease of specific goods. . . . If a transaction is evidenced by records that
45

include an instrument or series of instruments, the group of records
taken together constitutes chattel paper. U.C.C. 9-102(a)(11).
b. Commercial Tort Claims. Commercial tort claim means a claim
arising in tort with respect to which (A) the claimant is an organization;
or (B) the claimant is an individual and the claim: (i) arose in the
course of the claimants business or profession; and (ii) does not
include damages arising out of personal injury to or the death of an
individual. U.C.C. 9-102(a)(13).
c. Investment Property. Investment property means a [stock
certificate]. U.C.C. 9-102(a)(49).
2. STEP TWO: Is the collateral an instrument? Instrument means a negotiable
instrument or any other writing that evidences a right to the payment of a
monetary obligation, is not itself a S/A or lease, and is a type that in ordinary
course of business is transferred by delivery with any necessary indorsement.
U.C.C. 9-102(a)(47). E.g., a promissory note by itself.
3. STEP THREE: Is the collateral a deposit account? Deposit account means a
[regular bank account]. U.C.C. 9-102(a)(29).
4. STEP FOUR: Is the collateral an account? Account means a right to payment
of a monetary obligation for property that has been or is to be sold, leased,
licensed, assigned or otherwise disposed of, [or] for services rendered or to be
rendered. U.C.C. 9-102(a)(2).
5. STEP FIVE: The collateral is a general intangible. General intangible means
any personal property other than accounts, chattel paper, commercial tort
claims, deposit accounts, [] goods, instruments, [and] investment property.
U.C.C. 9-102(a)(42).
a. Payment Intangible. Payment intangible means a general intangible
under which the account debtors principal obligation is a monetary
obligation. U.C.C. 9-102(a)(59).
b. Perfection
i. Account: Filing. S/P can only perfect a S/I in an account by filing. U.C.C. 9-310, 9-
313 cmt. 2.
ii. Chattel Paper: Filing or Possession. Perfect a S/I in chattel paper by filing or
possession. U.C.C. 9-312(a), 9-313.
iii. Commercial Tort Claim: Filing. Perfect a commercial tort claim by filing. U.C.C. 9-
310.
iv. Deposit Account: Control. Perfect a S/I in a deposit account by control. U.C.C. 9-
312(b)(1), 9-314(a), 9-104(a).
v. General Intangible: Filing. Perfect by filing. U.C.C. 9-310.
vi. Goods: Filing or Possession. Perfect goods by filing or possession. U.C.C. 9-310, 9-
313(a).
vii. Instrument: Filing or Possession. Perfect an instrument by filing or possession. U.C.C.
9-312(a), 9-313(a). Possession wins over filing. U.C.C. 9-330(d).
viii. Investment Property: Filing, Control, Possession/Delivery. Perfect a S/I in investment
property by one of three methods:
1. Filing. U.C.C. 9-312(a).
2. Control. U.C.C. 9-314(a); 9-106(a); 8-106(b)(1), (2).
3. Possession or delivery. U.C.C. 8-301.
c. True Lease vs. Security Interest
i. Overriding Idea. Examine the terms of the lease to determine if the value of the
property is being transferred to the lessee when the lease is executed, or if there is a
reversionary interest left in the lessor after the lease period.
1. Significance. Besides tax considerations, if a lessee defaults, she can retrieve
the leased property w/o complying with Art. 9. But, if the transaction is
46

governed by Art. 9, the lessor-S/P must make sure her S/I attaches (the lease
agreement is likely a S/A) and is perfected.
2. F/S Language. If a lessor files a S/A, naming the parties debtor and secured
party, theres an argument that she intended to create a S/A. Thus, the U.C.C.
allows a filer to use lessor and lessee in a protective F/S. U.C.C. 9-505.
ii. Security Interest Per Se. A lease creates a S/I if the consideration that the lessee is to
pay to 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. (1) the original term of the lease is equal to or greater than the remaining
economic life of the goods;
2. (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. (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. (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. U.C.C. 1-203(b).
iii. Facts and Circumstances. Whether a transaction in the form of a lease creates a lease
or S/I is determined by the facts of each case. U.C.C. 1-203(a).
d. Problem 21.1. How should the S/P perfect a S/I in each of the following?
i. a. The money owing to the debtor from the purchaser of the debtors liquor license
under an oral agreement.
1. Classify
a. U.C.C. 9-102(a)(11): not chattel paper
i. U.C.C. 9-102(a)(69): the oral agreement is not a record
b. U.C.C. 9-102(a)(47): not an instrument
i. Not a negotiable instrument
ii. Not a writing
c. U.C.C. 9-102(a)(2): the collateral is an account
2. Perfection
a. U.C.C. 9-310: perfect an account by filing
ii. b. A mortgage the debtor bought for 80% of its face amount three months ago.
1. Option 1: the obligation to repay is encompassed in a p/note and a mortgage.










a. U.C.C. 9-102(a)(11): not chattel paper
i. Not a S/I in specific goods
b. U.C.C. 9-102(a)(47): the p/note is an instrument
i. Perfect by filing or possession
ii. U.C.C. 9-330(d): possession is better
2. Option 2: the obligation to repay is solely encompassed in the terms of the
mortgage.
Loan $

S/I p/note + mortgage
p/note
loan mortgage
or
sold prop. on credit
S/P D P
T
47











a. U.C.C. 9-102(a)(11): not chattel paper
i. Not a S/I in specific goods
b. U.C.C. 9-102(a)(47): not an instrument
i. Mortgage is not a negotiable instrument
ii. Mortgage is not transferred by delivery and indorsement
c. If P acquired the mortgage by the sale of property on credit, then the
mortgage is an account.
d. If P acquired the mortgage from a loan, then the mortgage is a general
intangible.
3. Perfect an account or general intangible by filing.
iii. c. If the S/P in b. perfects by filing, against whom should it file?
1. File in the debtors name
a. U.C.C. 1-201(b)(35): Security interest includes any interest of a
buyer of accounts, chattel paper, a payment intangible, or a
promissory note in a transaction that is subject to Article 9
b. U.C.C. 9-109(a)(3): Article 9 applies to a sale of accounts, chattel
paper, payment intangibles, or promissory notes
c. Thus, Article 9 treats Ds purchase as a loan (not a sale) secured by a
S/I.











2. D
1
must figure out what kind of collateral the obligation is (i.e., an account or a
general intangible) and perfect his S/I
3. S/P needs possession of the p/note from D
1

4. U.C.C. 9-309(3), (4): S/I from a sale of a payment intangible or promissory
note is perfected when it attaches
5. If the collateral is a general intangible:
a. Perfect by filing in the debtors name
b. Auto perfected under U.C.C. 9-309
6. If the collateral is an account:
a. Make sure the F/S is in Ps name
iv. d. The lessees interest under a lease of real property.
1. Lessees interest
Loan $

S/I mortgage
p/note
loan mortgage
or
sold prop. on credit
S/P D P
T
Loan $ / Loan

S/I mortgage
S/I
loan mortgage
or
sold prop. on credit
S/P D
S/P
P
D
1
T
48

a. U.C.C. 9-109(d)(11): Art. 9 d/n apply to the creation or transfer of an
interest in or lien on real prop., including a lease or rents thereunder
2. Lessors interest
a. U.C.C. 9-102(a)(2): account
3. Lessors interest in an equipment lease
a. U.C.C. 9-102(a)(11): chattel paper (lease of specific goods)
v. e. Wheat growing in the farmer-debtors field.
1. U.C.C. 9-102(a)(42): crops are goods
2. U.C.C. 9-310: perfect by filing
3. Note: grape vines are fixtures b/c they permanently exist on the land
(perennial)
vi. f. The franchise to operate a Burger King restaurant. (The franchise agreement was
signed yesterday. The franchise has not yet contracted to purchase the land where the
restaurant will be located.) The franchise is issued to the debtor and specifically states
that it is nontransferable.
1. U.C.C. 9-102(a)(42): a franchise is a general intangible
2. U.C.C. 9-310: perfect by filing
e. Problem 21.3. SC owns a satellite that the parties expect will circle the earth for exactly five
years and then enter the atmosphere and vaporize.
i. a. SC leases the satellite to C for 60 monthly rental payments of $99k. Is that a true
lease or a S/I? This is a S/I.
1. U.C.C. 1-203(b) (flush language): obligation for the full term of the lease and
lessee cannot terminate
2. U.C.C. 1-203(b)(1): original term of the lease is equal to the remaining
economic life of the goods
ii. b. Same facts as a., except that the lease provides that C can terminate the lease at the
end of 59 months.
1. Here, we do not meet the safe harbor under U.C.C. 1-203(b)
2. But, the lessor does not retain any meaningful reversionary interest
iii. c. Same facts as a., except that the lease is for 48 months. C has an option to rent for an
additional 12 months at the same monthly rate. The parties expect C to renew b/c C has
60-month leases with several customers.
1. Here, we do not meet the safe harbor under U.C.C. 1-203(b)
2. But does the lessor retain anything of meaningful value after the 48 mo.
period? This depends on the facts/circumstances. U.C.C. 1-203(a).
3. See U.C.C. 9-505 (protective filing language).

49

CHAPTER 7. MAINTAINING PERFECTION

XVI. Assignment 22: Maintaining Perfection Through Lapse and Bankruptcy
a. Effective for 5 Years. A F/S is effective for 5 years. U.C.C. 9-515(a).
b. Continuation Statement (C/S). A C/S is an amendment of a F/S which identifies the initial F/S by
filing number and indicates that it is a continuation statement. U.C.C. 9-102(a)(27).
i. Filing. A C/S must be filed within the last 6 months of expiration. U.C.C. 9-515(d).
ii. Effect. A C/S makes the F/S effective for 5 more years after it would have expired.
U.C.C. 9-515(e).
1. Lapse. If the S/P does not file a C/S within the time window, the F/S lapses.
The F/S ceases to be effective and any S/I that was perfected becomes
unperfected. The S/I is deemed never to have been perfected against a
purchaser of the collateral for value. U.C.C. 9-515(c).
iii. Filing a New F/S After Initial F/S Lapses. If the F/S has already lapsed, the S/P can only
file a new F/S and hope there are no new filings during the period of unperfection.
Under U.C.C. 9-515(c), if an intervening interest is filed between the F/S lapses and the
new F/S is filed, the S/P loses priority as to the intervening S/P. See XVI.g. Problem 22.2,
infra.
iv. Does Not Violate Stay. A debtors filing bankruptcy does not stay the S/P to file a C/S.
11 U.S.C. 362(b)(3), 546(b)(1)(B).
c. Continuous Perfection. A S/I is perfected continuously if it is originally perfected by one method
under this article and is later perfected by another method under this article, without an
intermediate period when it was unperfected. U.C.C. 9-308.
i. Worthen Bank & Trust Co., N.A. v. Hilyard Drilling Co. (In re Hilyard Drilling Co.). HELD:
NBC was not continuously perfected under U.C.C. 9-308 b/c it did not perfect in a
different way the second time.






1. When NBCs F/S lapsed, it was though the initial F/S was never filed as against
purchasers. U.C.C. 9-515(c).
2. Since NBC filed F/S #2, it was perfected as against the bankruptcy trustee (a lien
creditor).
d. Amending and Terminating the F/S
i. Amendment. A S/P may amend the F/S. U.C.C. 9-512.
ii. Termination Statement. The debtor can force the S/P to record a termination
statement if there is no obligation secured by the collateral. U.C.C. 9-513(c)(1).
e. Accounting
i. Request Regarding a List of Collateral. Request regarding a list of collateral is a
record authenticated by a D requesting that the recipient approve or correct a list of
what the debtor believes to be the collateral securing an obligation and reasonably
identifying the transaction or relationship that is the subject of the request. U.C.C. 9-
210(a)(3)
ii. S/P Shall Comply Within 14 Days. A S/P shall comply with a request within 14 days
after receipt of a request regarding a list of collateral. U.C.C. 9-210(b)(2).
f. Problem 22.1. Bank perfected its S/I in equipment owned by HM by filing a F/S on 12/30/01.
Bank filed a C/S on 6/7/06.
i. a. Did Bank file its prior C/S at the proper time? Yes. A F/S is effective for 5 years.
U.C.C. 9-515(a). A C/S must be filed within the last 6 months of expiration. U.C.C. 9-
515(d).
4/26/79 6/18/83 7/8/83 4/26/84 1/25/85
|----------------------|----------------------|----------------------|----------------------|
NBC Worthen NBC NBC D files
F/S #1 F/S F/S #2 F/S #1 bankr.
Lapsed
50

1. 12/30/01 + 5 years = 12/30/06. Bank had to file a C/S btwn 6/30/06 and
12/30/06.
2. Bank filed a C/S on 6/7/06
3. Thus, Bank filed its C/S on time.
ii. b. When should Bank file the next C/S? A C/S makes the F/S effective for 5 more years
after it would have expired. U.C.C. 9-515(e).
1. 12/30/01 + 5 years = 12/30/06 + 5 years = 12/30/11.
2. Bank should file its next C/S btwn 6/30/11 and 12/30/11
iii. c. 3/29/10 HM filed for Chapter 11 bankruptcy. Does this change advice about the
proper time for filing the banks next C/S? No.
1. 11 U.S.C. 362(b)(3): filing bankruptcy does not operate as a stay to continue
the perfection of an interest in property to the extent the trustees rights and
powers are subject to such perfection under 546(b)
2. 11 U.S.C. 546(b)(1)(B): rights and powers of a trustee are subject to any law
that provides that the continuation of perfection of an interest in property is
effective against an entity that acquires rights in such property before action is
taken to continue the perfection
g. Problem 22.2. You discover that a F/S was filed 5 years and 2 months ago. No C/S is on file for
the F/S you filed. What do you do now?
i. U.C.C. 9-520: the filing office will not accept the C/S
1. U.C.C. 9-516(b)(7): reject b/c outside the 6 mo. window
2. U.C.C. 9-510(c): if it is wrongly filed, its still ineffective
ii. Re-perfect the F/S with a new F/S
1. This new perfection is dated at time of filing the new F/S
2. Search for a new F/S to see if anyone filed before you in the two months after
the F/S lapsed.
3. If there are no new filings, then theres no harm done.
iii. Do you have debtors authorization to file a new F/S?
1. U.C.C. 9-509(b): by authenticating a S/A, a debtor authorizes the filing of an
initial F/S and an amendment
2. But, does the new F/S become an initial F/S? A court may hold that U.C.C.
9-509(b) only refers to one F/S and one amendment.
3. Solution: get D to sign a blanket authorization to file a F/S or C/S. See page
259 11.
iv. If there is an intervening interest filed before the second F/S, does it matter when it was
filed? Yes.
1. U.C.C. 9-515(c) (last sentence): if the S/I becomes unperfected upon lapse, it
is deemed never to have been perfected as against a purchaser of the collateral
2. If the intervening interest was filed before the first F/S lapsed, the F/S is
perfected against all creditors, but if the intervening interest was filed after the
F/S lapsed, the F/S is unperfected as against purchasers (anyone w/ a voluntary
interest from D).
h. Problem 22.3. R filed a F/S for a S/I in goods. R filed before A on the same day. A claims she had
possession of the collateral on the day the two filings were made.
i. a. Would it matter if A was right about possession?
1. Goods can be perfected by possession or filing
2. U.C.C. 9-322: if A had possession when R filed, A would have priority
3. But sooner or later, A had to relinquish the property (b/c the show must go on)
4. U.C.C. 9-308(c): a S/I is perfected continuously if it is originally perfected by
one method and is later perfected by another method, without an intermediate
period when it was unperfected
a. So if A is correct and there was no intermediate period btwn
possession and filing where A was not perfected, A has priority
51

ii. b. How would you handle this matter if you had it to do over again from when R
retained you? In addition to searching the U.C.C. records, determine who has possession
before you file.
i. Problem 22.5
i. a. Fs S/A covers forklifts. Fs F/S identifies the collateral as equipment. B, the debtor, is
trying to borrow money against its drill presses. B wants F to put a release in the filing
system for the drill presses. Does F have to file the amendment? No.
1. U.C.C. 9-513(c)(1): the debtor can force the S/P to record a termination
statement if there is no obligation secured by the collateral
a. Here, B still owes money on the collateral
b. Thus, B cannot force F to file a termination statement
2. U.C.C. 9-512: A S/P may amend a F/S
a. Thus, B cannot force F to file an amendment to the F/S
ii. b. Will B be able to assure another lender, S, that it will have the first filed S/A against
the drill presses? No.
1. Just showing the S/A that describes the collateral as forklifts will be
insufficient to convince S to lend against the drill presses. Since the F/S
description (equipment) is broad enough to cover drill presses, if F files a S/A
against the drill presses, perfection will relate back to the date of the F/S (which
is filed before Ss).
2. S and F may enter into agreement where F promises not to take a S/I in the drill
presses, but this is unlikely.
3. Bs agreement not to give a S/I in the presses to F is not viable
a. If D breaches the agreement and files bankruptcy, the transfer is
unaffected by the agreement
b. U.C.C. 9-401(b): an agreement btwn debtor and S/P which prohibits
a transfer of the debtors rights in collateral or makes the transfer a
default does not prevent the transfer from taking effect
iii. c. Could B solve its problem by demanding from F a written statement of collateral and
showing it to S? No.
1. U.C.C. 9-210(b)(2): a S/P shall comply with a request within 14 days after
receipt of a request regarding a list of collateral
a. U.C.C. 9-210(a)(3): request regarding a list of collateral is a record
authenticated by a D requesting that the recipient approve or correct a
list of what the debtor believes to be the collateral securing an
obligation and reasonably identifying the transaction or relationship
that is the subject of the request
2. But the list just says that F doesnt have a S/I in the drill presses now. If he
takes a S/I in it later, hes perfected as of the time of the F/S.
XVII. Assignment 23: Maintaining Perfection Through Changes of Name, Identity, and Use
a. Change in Debtors Name
i. Information Becoming Seriously Misleading. Except as provided in subsection (c), a F/S
is not rendered ineffective if, after the F/S is filed, the information provided in the F/S
becomes seriously misleading under 9-506. U.C.C. 9-507(b).
ii. Changes in Debtors Name: Effective for 4 Months. If a debtor so changes its name
that a filed F/S becomes seriously misleading under 9-506:
1. The F/S is effective to perfect a S/I in collateral acquired by the debtor before,
or within 4 months after, the change; and
2. The F/S is not effective to perfect a S/I in collateral acquired more than 4
months after the change, unless an amendment to the F/S which renders the
F/S not seriously misleading is filed within 4 months after the change. U.C.C.
9-507(b), (c)
52

iii. Late Amendment. If an amendment that provides the new correct name is filed more
than 4 months after the change, the F/S as amended would be effective with respect to
collateral acquired more than 4 months after the change, but only from the time of the
filing of the amendment. U.C.C. 9-507 cmt. 4.
b. Change in Use
i. Certificate of Title Property
1. Noting S/I on Certificate of Title. Generally, the only to perfect a S/I in
certificate-of-title property is by noting the S/I on the certificate of title. U.C.C.
9-311(b).
2. Inventory. If certificate-of-title property is inventory, perfect by filing. U.C.C.
9-311(d).
c. Change in Identity
i. Proceeds
1. Automatic Attachment. A S/I attaches to any identifiable proceeds of
collateral. U.C.C. 9-315(a)(2). The attachment of a S/I in collateral gives the
S/P the rights to proceeds provided by 9-315 and is also attachment of a S/I in
a supporting obligation for the collateral. U.C.C. 9-203(f).
2. Perfection of S/I in Proceeds. A S/I in proceeds is a perfected [for 20 days] S/I
if the S/I in the original collateral was perfected. U.C.C. 9-315(c).
3. Continuation of Perfection. A perfected S/I in proceeds becomes unperfected
on the 21st day after the S/I attaches to the proceeds unless:
a. (1) the following conditions are satisfied:
i. (A) a filed F/S covers the original collateral;
ii. (B) the proceeds are collateral in which a S/I may be
perfected by filing in the office in which the F/S has been
filed; and
iii. (C) the proceeds are not acquired with cash proceeds;
b. (2) the proceeds are identifiable cash proceeds; or
i. Cash Proceeds. Cash proceeds means proceeds that are
money, checks, deposit accounts, or the like. U.C.C. 9-
102(a)(9).
c. (3) the S/I in the proceeds is perfected other than under subsection (c)
when the S/I attaches to the proceeds or within 20 days thereafter.
U.C.C. 9-315(d).
4. Authorization
a. No Additional Authorization for Filing. By authenticating or becoming
bound as debtor by a S/A, D authorizes the filing of an initial F/S, and
an amendment covering property that becomes collateral under 9-
315(a)(2), whether or not the S/A expressly covers proceeds. U.C.C.
9-509(b)(2)
b. Other Methods. See National Bank of Alaska v. Erickson (In re Seaway
Express Corporation) (Bank-S/Ps S/I in accounts did not perfect
continuously where the debtor sold an account for real property and
would not give authorization to a deed of trust).
d. Problem 23.1. GBT finances BBWs inventory under a F/S that describes the collateral as
inventory, accounts, and chattel paper. The agreement contains no restrictions on BBWs
ability to finance equipment or real estate elsewhere. Assume the JRD does not maintain a
certificate of title system for boats.
i. a. B (owner of BBW) kept one of the boats at her house and used it personally.
Assuming no transfer of ownership to B personally, does this affect GBTs perfected S/I?
1. The boat was covered by the F/S as inventory. Now that B uses it at home, it is
equipment. Note: the boat is not consumer goods b/c BBW still owns it.
53

2. U.C.C. 9-506: a F/S is effective, even if it has minor errors or omissions, unless
the errors or omissions make the F/S seriously misleading
a. Here, the change in character is not a minor error
3. F/S is still effective
a. U.C.C. 9-507(b): except as provided in subsection (c), a F/S is not
rendered ineffective if, after the F/S is filed, the information provided in
the F/S becomes seriously misleading under 9-506
4. If this was a certificate of title JRD:
a. U.C.C. 9-311(d): when the boat was inventory, perfect by filing
b. U.C.C. 9-311(c): when the boat became equipment, the only way to
perfect was by noting the S/I on the certificate of title
ii. b. If B transferred ownership of the boat from BBW to herself, what evidence would
exist of that fact? Is GBT still perfected?
1. S/I continues in the boat
a. U.C.C. 9-315(a)(1): S/I continues in the property notwithstanding
disposition unless the S/P authorized the disposition free of the S/I
2. F/S still effective
a. U.C.C. 9-507(b): a F/S is not rendered ineffective if, after the F/S is
filed, the information provided in the F/S becomes seriously misleading
under 9-506
iii. c. BBW traded one of the boats for a forklift. BBW now uses the forklift to move the
boats in and out of storage. Does GBT need to do anything about perfection?
1. Forklift is proceeds
a. S/I automatically attaches
i. U.C.C. 9-203(f): the attachment of a S/I in collateral gives
the S/P the rights to proceeds provided by 9-315 and is also
attachment of a S/I in a supporting obligation of the collateral
ii. U.C.C. 9-315(a)(2): a S/I attaches to any identifiable
proceeds of collateral
b. Perfection in proceeds
i. U.C.C. 9-315(c): a S/I in proceeds is a perfected S/I if the S/I
in the original collateral was perfected
c. Continuous perfection
i. U.C.C. 9-315(d)(1): a perfected S/I in proceeds becomes
unperfected on the 21st day after the S/I attaches to the
proceeds unless:
1. (A) a filed F/S covers the original collateral;
2. (B) the proceeds are collateral in which a S/I may be
perfected by filing in the office in which the F/S has
been filed; and
3. (C) the proceeds are not acquired with cash proceeds
ii. F/S covers the forklift
iii. Inventory and proceeds are perfected by filing in Secretary of
States office
iv. The proceeds (forklift) is not acquired with cash proceeds
v. Thus, the F/S is continuously perfected
iv. d. What if BBW bought the forklift in subpart c using cash it received from a customer
who bought a new boat?
1. The forklift was acquired with cash proceeds
2. Under U.C.C. 9-315(d)(1), theres no continuous perfection b/c the forklift was
acquired with cash proceeds
3. Under U.C.C. 9-315(d)(2), theres no continuous perfection b/c the forklift (the
current proceeds) is not cash proceeds
54

4. U.C.C. 9-315(d)(3): the S/I in proceeds is perfected other than under
subsection (c) when the S/I attaches to the proceeds or within 20 days
thereafter
5. S/A as authorization
a. U.C.C. 9-509(b)(2): by authenticating or becoming bound as debtor
by a S/A, D authorizes the filing of an initial F/S, and an amendment
covering property that becomes collateral under 9-315(a)(2),
whether or not the S/A expressly covers proceeds
v. e. Two of the boats in inventory suffered storm damage. S/A provided that BBW would
insure the boats and reqd GBT be named as a loss payee on the policy. GBT was not
named as a loss payee. Does GBT have a perfected S/I in the claim against the former
insurer and, if not, what does GBT need to do to get one?
1. GBT does not have an interest in the claim as original collateral
a. U.C.C. 9-109(d)(8): Article 9 d/n apply to interests in insurance
policies
b. Figure out a way to create a non-Article 9 S/I in the local JRD
2. Insurance claim may be proceeds
a. U.C.C. 9-102(a)(64)(E): proceeds means insurance payable by
reason of . . . damage to the collateral
3. S/I automatically attaches
a. U.C.C. 9-203(f): the attachment of a S/I in collateral gives the S/P the
rights to proceeds provided by 9-315 and is also attachment of a S/I
in a supporting obligation of the collateral
4. Automatic S/I in proceeds
a. U.C.C. 9-315(a)(2): a S/I attaches to any identifiable proceeds of
collateral
5. Perfection of proceeds
a. U.C.C. 9-315(c): since GBT filed on the boats, the F/S is effective to
perfect a S/I in the proceeds for 20 days
b. U.C.C. 9-315(d)(1): failed b/c Art. 9 doesnt apply
c. U.C.C. 9-315(d)(2): not cash proceeds
d. U.C.C. 9-315(d)(3): continuously perfected if get perfected S/I in the
claim as if it was original collateral (according to state law) w/in 20
days







6. Debtor authorization
a. Its the S/Ps tough luck if D wont give authorization
i. See National Bank of Alaska v. Erickson (In re Seaway Express
Corporation) (Bank-S/Ps S/I in accounts did not perfect
continuously where the debtor sold an account for real
property and would not give authorization to a deed of trust).
b. If U.C.C. 9-315(d)(3) had required filing a F/S, the S/P would not need
additional authorization under U.C.C. 9-509(b)(2)
7. What if GBT waits until the claim is paid (cash proceeds)?
a. U.C.C. 9-315(c): the original collateral of the check is the insurance
claim
b. Once youve lost the S/I in proceeds, you cant get it back
U.C.C. 9-315(d)(3)
U.C.C. 9-315(c): continuous perfection
proceeds perfected if perfect S/I in claim
|------------------------------|-------------------------------|---------------------------->>
F/S Storm 20 days
Inventory claim = proceeds
55

e. Problem 23.2. GBT made an inventory loan to South West Appliance Corporation. Six months
ago, D changed its corporate name to South West General, Inc.
i. a. What does GBT need to do to remain perfected in its collateral?
1. U.C.C. 9-502(a)(1): a F/S must provide the Ds name
2. U.C.C. 9-503(a)(1): a F/S sufficiently provides the Ds name if the D is a
registered organization, only if the F/S provides the name of the D indicated on
the articles of incorporation
3. U.C.C. 9-507(c): if D so changes its name that a filed F/S becomes seriously
misleading under 9-506, its effective until 4 months after the change unless
an amendment was filed within that 4 months
a. U.C.C. 9-506(c): if a search of the records under the Ds correct name
would disclose a F/S that fails sufficiently to provide the name of the D,
the name provided does not make the F/S seriously misleading
4. The S/I in inventory has an implied after-acquired property clause
5. File an amendment now
a. U.C.C. 9-507 cmt. 4: if an amendment that provides the new correct
name is filed more than 4 months after the change, the F/S as
amended would be effective with respect to collateral acquired more
than 4 months after the change, but only from the time of the filing of
the amendment
b. File the amendment, search and pray that nobody filed a F/S in the
period between 4 months after the name change and when you file
6. U.C.C. 9-509(b): dont need new authority to amend
ii. b. What if, instead of inventory, GBT had only a S/I in South Wests construction
crane? Does GBT need to do anything to remain perfected? GBT doesnt really care if
D changes its name b/c theres no S/I in after-acquired cranes. U.C.C. 9-507(c) has to
do with whether a F/S is effective to perfect a S/I in collateral acquired after Ds name
change.
iii. c. What if the crane was the only collateral, and South West sold it for $235k a year after
the name change? Does knowing this change your answer to b?
1. Perfected in cash proceeds
a. U.C.C. 9-315(c), (d): the S/I in proceeds is perfected for 20 days
b. U.C.C. 9-315(d)(2): continuous perfection b/c proceeds are
identifiable cash proceeds
2. If the cash proceeds were used to buy a new crane:
a. U.C.C. 9-315(d)(1): continuous perfection b/c:
i. (A) a filed F/S that covers original collateral
ii. (B) proceeds perfected by filing in the office in which the F/S
has been filed
iii. (C) proceeds were acquired with cash proceeds
b. If the F/S described the collateral as crane, this would result in
continuous perfection under U.C.C. 9-315(d)(3)
i. BUT, the problem is that D changed his name and GBT didnt
file an amendment within 4 months
ii. U.C.C. 9-507(c): the S/I in the new crane is rendered
ineffective b/c GBT didnt file an amendment after the name
change
f. Problem 23.4
i. a. ONB lent $1M to B. The S/A and F/S describe the collateral as equipment, inventory,
accounts, chattel paper, general intangibles, fixtures, money, and bank accounts. Does
ONB have a S/I in Bs bank account? Yes, ONB has a S/I in the bank account as original
collateral.
ii. b. If ONB has a S/I in the bank account, is it perfected?
56

1. The deposit account is not perfected as original collateral b/c there is no
control over the bank account. See U.C.C. 9-312(b)(1), 9-314, 9-104(a).
2. If the deposit account is proceeds:
a. U.C.C. 9-315(c): perfected for 20 days after the collateral becomes
proceeds
b. U.C.C. 9-315(d)(2): continuous perfection if the proceeds are
identifiable cash proceeds
iii. c. Does it matter that some of the proceeds have been in the bank account for as long as
45 days? No, that doesnt matter.
iv. d. Does it matter if B commingled $100 of its own money into the bank account? U.C.C.
9-315(b): if the proceeds are commingled, they are not identifiable; ONB loses its S/I
g. Problem 23.5
i. a. How often would GBT have to check the corporate records to make sure she could
amend GBTs F/S in time to avoid loss of collateral? U.C.C. 9-507(c): check every 3
months or so to give yourself enough time to file a new F/S within the 4 months after Ds
name change.
ii. b. Must a C/S include the new name of a debtor that changed its name since the original
filing? No.
1. U.C.C. 9-102(a)(27): continuation statement means an amendment of a F/S
which (A) identifies, by its file number, the initial F/S to which it relates; and (B)
indicates that it is a continuation stmt.
2. In the C/S form in U.C.C. 9-521, there is a space for the Ds name, but this is
b/c the form doubles up as a form for an amendment
iii. c. In the investigation of a loan applicant, how old a change of name could be relevant?
1. How old is the collateral?
2. Inventory and accounts were probably acquired in the previous year
3. Equipment
a. If D changed its name in the last 15 years, an old S/P is still perfected
b. If it was acquired 5-10 years ago, look for name changes. If the F/S on
file is under an old name, its still effective. You wont find it under the
new name.
XVIII. Assignment 24: Maintaining Perfection Through Relocation of Debtor or Collateral
a. Initial Filing
i. File Where Debtor is Located. While a D is located in a JRD, the local law of that JRD
governs perfection, the effect of perfection or nonperfection, and the priority of a S/I in
collateral. U.C.C. 9-301(1).
1. Who is the Debtor? The debtor is the individual/organization that owns the
collateral (and not necessarily the obligor). U.C.C. 9-102(a)(28).
a. Sole Proprietorships. An organization means a person other than an
individual. U.C.C. 1-201(b)(25). Thus, a sole proprietorship is not an
organization.
2. Individuals: Principal Residence. A debtor who is an individual is located at
the individuals principal residence. U.C.C. 9-307(b)(1).
a. Not Defined. The term principal residence is not defined. U.C.C.
9-307 cmt. 2 (5th paragraph). But logically, a principal residence is
where the debtor spends most of his time.
b. When in Doubt. When doubt arises, prudence may dictate perfecting
under the law of each JRD that might be the debtors principal
residence. U.C.C. 9-307 cmt. 2 (5th paragraph, last sentence).
3. Unincorporated Organizations
a. Place of Business. A D that is an organization and has only one place
of business is located at its place of business. U.C.C. 9-307(b)(2).
57

b. Chief Executive Office. A D that is an organization and has more than
one place of business is located at its chief executive office. U.C.C. 9-
307(b)(3).
i. Defined. Chief executive office means the place from
which the debtor manages the main part of its business
operations or other affairs. This is the place where persons
dealing with the debtor would normally look for credit
information, and is the appropriate place for filing. U.C.C.
9-307 cmt. 2 (4th paragraph).
ii. When in Doubt. A S/P may protect itself by perfecting under
the law of each possible JRD. U.C.C. 9-307 cmt. 2 (4th
paragraph, last sentence).
4. Registered Organizations. A registered organization organized under state law
of a State is located in that State. U.C.C. 9-307(e).
ii. Sufficiency of Debtors Name
1. Sole Proprietorships (Individuals) and Unincorporated Entities. A F/S
sufficiently provides the name of the D if it provides the individual or
organization name of the D. U.C.C. 9-503(a)(4)(A).
2. Registered Organizations. A F/S sufficiently provides the same of the D if the D
is a registered organization, if the F/S provides the name of the D indicated on
its articles of incorporation. U.C.C. 9-503(a)(1).
b. Changes in Location of the Debtor
i. Effect on Perfection of Change in Governing Law
1. Change in Location. A perfected S/I remains effective for 4 months after a
change of the Ds location to another JRD. U.C.C. 9-316(a)(2).
2. Transfer of Collateral. A perfected S/I remains effective for 1 year after a
transfer of collateral to a person that thereby becomes a debtor and is located
in another JRD. U.C.C. 9-316(a)(3).
ii. Security Interest Perfected or Unperfected Under Law of New Jurisdiction. If a S/I
described in subsection (a) becomes perfected before the earliest time/event described,
it remains perfected thereafter. If the S/I does not become perfected before the
earliest time/event, it becomes unperfected and is deemed never to have been
perfected as against a purchaser of the collateral for value. U.C.C. 9-316(b).
iii. Monitoring
1. Individual. If the debtor is an individual, monitor the debtors principal
residence.
2. Registered Organization. If the debtor is a registered organization:
a. Merger. D could merge with a corporation in another JRD by having
the acquiring corporation acquire all assets and liabilities of D. Easy to
monitor b/c the parties to the merger file articles of merger with the
Secretary of State.
b. Transfer Assets. D could form a corporation in another JRD and
transfer all its assets to the new corporation. This is hard to monitor
b/c this transfer is all internal. A creditor in the new JRD may be able
to find out about the collateral by its transfer documents.
3. Unincorporated Organization. If the debtor is a partnership, monitor for
change in the chief executive office.
iv. Changes in Business Structure. A change in business structure would change the
location of the debtor. E.g., if D (a partnership) becomes a sole proprietorship, Ds
location changes from the chief executive office to Ds principal residence.
c. Problem 24.1. Client F loaned $250k to Shatner, an inventor and professor. The collateral is
equipment, accounts and inventory of Shatner Engineering, a business located in Arizona.
Shatner is the sole owner of the business. Shatners ex-wife runs the business day-to-day, but
58

Shatner makes all the big decisions. Shatner is tenured at U of Missouri. Shatner lives in Kansas,
but is looking for a house in Missouri. During the summers, Shatner returns to his Arizona home.
Friend says Shatner intends to quit teaching and move to Hawaii.
i. a. On the foregoing facts, in what states should you file?
1. Who is the debtor?
a. U.C.C. 9-102(a)(28): debtor means whoever owns the collateral
(not necessarily the obligor)
b. Look at invoices to determine who the debtor is
2. If the debtor is a sole proprietorship:
a. U.C.C. 9-301(1): while a D is located in a JRD, the local law of that
JRD governs perfection, the effect of perfection or nonperfection, and
the priority of a S/I in collateral
i. Thus, you should file in the JRD where D is located
b. The debtor is an individual, not an organization
i. U.C.C. 1-201(b)(25): organization means a person other
than an individual
c. U.C.C. 9-307(b)(1): a D who is an individual is located at the
individuals principal residence
i. U.C.C. 9-307 cmt. 2 (5th paragraph): the term principal
residence is not defined
ii. Kansas is probably his principal place of residence b/c its
where he spends most of his time
iii. U.C.C. 9-307 cmt. 2 (5th paragraph, last sentence): when in
doubt, file in more than one JRD
1. You probably want to file in Arizona b/c he has a
house there
2. May want to file in Missouri b/c he intends on
moving there
3. It if was a really big loan, it may be worth the cost to
file in Hawaii too
3. If the debtor is a partnership:
a. U.C.C. 9-301(1): while a D is located in a JRD, the local law of that
JRD governs perfection, the effect of perfection or nonperfection, and
the priority of a S/I in collateral
i. Thus, you should file in the JRD where D is located
b. U.C.C. 1-201(b)(25): a partnership is an organization
c. U.C.C. 9-307(b)(2): a D that is an organization and has only one
place of business is located at its place of business
d. U.C.C. 9-307(b)(3): a D that is an organization and has more than
one place of business is located at its chief executive office
i. The partnership probably has more than one place of business
1. There is a business location in Arizona
2. But, Shatner makes all the business decisions in
Kansas, making Kansas a business location
ii. U.C.C. 9-307 cmt. 2 (4th paragraph): chief executive office
is not defined. Chief executive office means the place from
which the debtor manages the main part of its business
operations or other affairs. . . . A S/P may protect itself by
perfecting under the law of each possible JRD.
1. Here, you probably want to file in Kansas, Arizona,
and Missouri (maybe Hawaii too).
ii. b. What debtor names should be listed on each of the filings?
59

1. U.C.C. 9-503(a)(4)(A): a F/S sufficiently provides the name of the D if it
provides the individual or organization name of the D
a. If D is a sole proprietorship, you should use the individual name of D
(i.e., his legal name)
b. If D is a partnership, use the name of the organization
iii. c. Three years ago Shatner formed a Nevada corporation under the name Shatner
Engineering Products, Inc. Now where do you file?
1. U.C.C. 9-307(e): a registered organization organized under state law is
located in that state
2. File a F/S in the state of incorporation (i.e., Nevada)
iv. d. Contrary to the facts initially give you, the business is unincorporated and ex-wife
owns a 1/3 interest as a T in C. In what states should you file? What names should be
listed on each of the filings?
1. If unincorporated org, look to see if there is more than 1 place of business
a. U.C.C. 9-307(b)(3): a D-organization that has more than one place of
business is located at its chief executive office
2. U.C.C. 9-503(a)(4)(A): a F/S sufficiently provides the name of the D if it
provides the individual or organization name of the D
d. Problem 24.2
i. a. What, if anything, should F do to monitor the location of the debtors in Problem 24.1?
1. U.C.C. 9-316(a)(2): a perfected S/I remains effective for 4 months after a
change of the Ds location to another JRD
2. U.C.C. 9-316(a)(3): a perfected S/I remains effective for 1 year after a transfer
of collateral to a person that thereby becomes a debtor and is located in
another JRD
3. U.C.C. 9-316(b): If a S/I described in subsection (a) becomes perfected before
the earliest time/event described, it remains perfected thereafter. If the S/I
does not become perfected before the earliest time/even, it becomes
unperfected and is deemed never to have been perfected as against a purchaser
of the collateral for value.
4. If the debtor is an individual:
a. Monitor Shatners principal residence in case he moves or starts
spending more time in Arizona
5. If the debtor is a corporation
a. D could merge with a corporation in another JRD by having the
acquiring corporation acquire all assets and liabilities of D
i. U.C.C. 9-316(a)(3): S/I becomes unperfected 1 year after a
transfer of collateral to a person that becomes a debtor
located in another JRD
ii. Easy to monitor b/c the parties to the merger file articles of
merger with the Secretary of State
b. D could form a corporation in another JRD and transfer all its assets to
the new corp
i. U.C.C. 9-315(a)(1): S/I continues in the collateral
ii. U.C.C. 9-316(a)(3): S/I becomes unperfected 1 year after the
transfer
iii. Hard to monitor b/c this transfer is all internal. A creditor in
the new JRD may be able to find out about the collateral by its
transfer documents
6. If the debtor is a partnership
a. Monitor for change in the chief executive office
b. D could start making business decisions in another state
c. D could change the structure of the business:
60

i. Ex-wife could drop out, changing the pship to a sole
proprietorship
ii. Then the place to file becomes Ds principal residence
ii. b. How would your answer change if the loan were for $25M? F would engage in more
monitoring.
XIX. Assignment 25: Maintaining Perfection in Certificate of Title Systems
a. Original Certificate of Title (COT) Ceases to Cover Goods. Goods cease to be covered by a COT
[when] the goods become covered subsequently by a COT issued by another JRD. U.C.C. 9-
303(b).
i. Not Unperfection. The fact that the law of one State ceases to apply . . . does not mean
that a S/I perfected under that law becomes unperfected automatically. U.C.C. 9-303
cmt. 4.
b. Perfection
i. Continues Perfection Against Lien Creditors. Except as provided in subsection (e), a S/I
in goods covered by a COT which is perfected by any method under the law of another
JRD when the goods become covered by a COT from this State remains perfected.
U.C.C. 9-316(d)
ii. Four Months to Re-Perfect Against Purchasers. A S/I described in subsection (d)
becomes unperfected as against a purchaser of the goods for value and is deemed never
to have been perfected as against a purchaser of the goods for value if the applicable
requirements under 9-311(b) are not satisfied before the expiration of four months
after the goods have become so covered. U.C.C. 9-316(e).
c. Priority: Protection for Non-Dealer Buyers and New S/Ps Without Knowledge. If, while a S/I in
goods is perfected by any method under the law of another JRD, this State issues a COT that does
not show that the goods are subject to a S/I or contain a stmt that they may be subject to S/Is
not on the certificate:
i. (1) a non-dealer buyer takes free of the S/I if the buyer gives value and receives delivery
of the goods after issuance of the certificate and w/o knowledge of the S/I; and
ii. (2) the S/I is subordinate to a conflicting S/I in the goods that attaches, and is perfected
under 9-311(b), after issuance of the certificate and without the conflicting S/Ps
knowledge of the S/I. U.C.C. 9-337.
d. Problem 25.1.a. 1st Bank perfects by notation on Ks WI COT and takes possession of the
certificate. K moves to AL and obtains a clean COT. One month after issuance of the new
certificate, K borrows $50k from 2d Bank, which takes a S/I and perfects on the AL certificate. Six
months after issuance of the AL certificate, K borrows $45k from 3d Bank, which perfects on the
AL certificate. Seven months after issuance of the AL certificate, K filed bankruptcy. Is 1st Bank
perfected?








i. Car ceases to be covered by WI COT
1. U.C.C. 9-303(b): Goods cease to be covered by a COT [when] the goods
become covered subsequently by a COT issued by another JRD
ii. 1st Bank becomes unperfected
1. U.C.C. 9-303 cmt. 4: The fact that the law of one State ceases to apply . . .
does not mean that a S/I perfected under that law becomes unperfected
automatically
|--U.C.C. 9-316(e): 4 month window--|
1 month 5 months 1 month
----|----------------------|-----------------------|----------------------------------|-------------------------|
1st Bank D moves 2d Bank 3d Bank D files
$65k loan to AL $50k loan $45k loan bankruptcy
WI COT clean COT S/I COT S/I COT
Perfected
61

2. U.C.C. 9-316(d): except as provided in subsection (e), a S/I in goods covered
by a COT which is perfected by any method under the law of another JRD when
the goods become covered by a COT from this State remains perfected
3. U.C.C. 9-316(e): A S/I described in subsection (d) becomes unperfected as
against a purchaser of the goods for value and is deemed never to have been
perfected as against a purchaser of the goods for value if the applicable
requirements under 9-311(b) are not satisfied before the expiration of four
months after the goods have become so covered
4. Here, since 1st Bank did not get its S/I noted on the AL COT, it is deemed never
to have been perfected against 2d Bank or 3d Bank
a. Note: 1st Banks S/I has priority over lien creditors (e.g., bankruptcy
trustee)
iii. Priority
1. U.C.C. 9-337: if, while a S/I in goods is perfected by any method under the law
of another JRD, this State issues a COT that does not show that the goods are
subject to a S/I or contain a stmt that they may be subject to S/Is not on the
certificate:
a. (1) a non-dealer buyer takes free of the S/I if the buyer gives value and
receives delivery of the goods after issuance of the certificate and w/o
knowledge of the S/I; and
b. (2) the S/I is subordinate to a conflicting S/I in the goods that attaches,
and is perfected under 9-311(b), after issuance of the certificate and
without the conflicting S/Ps knowledge of the S/I.
2. Assume AL does not have a stmt that says the goods may be subject to S/Is not
on the certificate
3. Under U.C.C. 9-337(2), 2d Bank and 3d Bank have priority over 1st Bank,
assuming they did not know about 1st Banks S/I
a. Note: U.C.C. 9-337 eliminates the 4 month window in U.C.C. 9-
316(e) that allows S/Ps and non-dealer buyers to continue perfection
e. Problem 25.1.b. Change one fact: 1st Bank learned of the issuance of the new certificate three
months after issuance. 1st Bank demanded 2d Bank apply for notation of 1st Banks lien on the
AL certificate. 2d Bank promptly complied, and 1st Banks lien was noted on the AL certificate.
Who has priority btwn 1st Bank and 2d Bank?
i. U.C.C. 9-316(e): 1st Bank has priority b/c it complied with U.C.C. 9-311(b) within 4
months of the COTs issuance
1. 1st Banks priority dates back to when its S/I was noted on the WI COT
ii. If there was no statement on the AL COT that the goods may be subject to S/Is not on the
certificate, look to U.C.C. 9-337(2):
1. 2d Bank probably did not know about 1st Banks S/I. Thus, 2d Bank has priority
over 1st Bank.
2. 3d Bank knew about 1st Banks S/I b/c 1st Bank applied for notation on the AL
certificate before 3d Bank noted its S/I on the certificate. Thus, 1st bank has
priority over 3d Bank.
f. Problem 25.2. B lives in MO and owns a car titled in MO. Bank financed her purchase, applied
for the title, had its lien noted on it, and has possession of the certificate. B recently moved to
NY w/o notifying Bank.
i. a. B hasnt obtained a COT or a certificate of registration from NY. Is Banks S/I still
perfected? How long will Banks S/I remain perfected?
1. Yes.
2. U.C.C. 9-303(b): goods cease to be covered by a COT [when] the goods
become covered subsequently by a COT issued by another JRD
a. Here, NY hasnt issued a COT yet
b. It doesnt matter where the car ends up
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ii. b. Suppose B registers the car in NY and gets NY license plates a week after she arrives.
Bank still has the MO COT and NY d/n issue a COT. Is Bank still perfected? For how
long?
1. Same result as part a
2. Registration doesnt affect the answer under the current U.C.C.
iii. c. Suppose B, rather than Bank, holds the MO COT. B applies for a NY COT. She
surrenders the MO title to NY Department and tells them (falsely) that Banks lien has
been satisfied. NY issues a clean COT. Is Bank still perfected? For how long?
1. U.C.C. 9-303(b): goods cease to be covered by a COT [when] the goods
become covered subsequently by a COT issued by another JRD
a. Goods cease to be covered by the MO COT
2. Look to the MO COT statute to see the effect of surrendering a COT
a. If surrendering a COT makes Banks S/I unperfected, Bank loses priority
iv. d. Suppose B gave NY Department her affidavit stating she lost her MO COT and that it
had no liens on it. NY issues a clean COT. Is Banks lien still perfected? For how long?
1. U.C.C. 9-303(b): car ceases to be covered by WI COT
2. U.C.C. 9-316(e): Bank becomes unperfected in 4 months if it does not re-
perfect
3. U.C.C. 9-337: If the NY COT does not contain a stmt that goods may be
subject to S/Is not on the certificate, non-dealer buyers and new S/Ps w/o
knowledge take free of Banks S/I

63

CHAPTER 8. PRIORITY

XX. Assignment 26: The Concept of Priority: State Law
a. Priority in Foreclosure
i. Two Basic Principles
1. Absent an agreement to the contrary, any lien holder may foreclose while the
debtor is in default to that lien holder.
2. No lien holder is compelled to foreclose.
ii. Discharge of Liens
1. Discharges Lien on Which Sale is Held. A S/Ps disposition of collateral after
default discharges the S/I under which the disposition is made. U.C.C. 9-
617(a)(2).
2. Discharges Subordinate S/Is and Liens. A S/Ps disposition of collateral after
default discharges any subordinate S/I or other subordinate lien. U.C.C. 9-
617(a)(3).
3. Senior Lien Holders Unaffected. A prior lien holder can enforce its lien against
the purchaser.
a. Calculating Asking Price. Since senior lien holders are unaffected by
foreclosure sales of junior liens, a buyers asking price= [maximum
price willing to pay] [amount of senior liens]
iii. Applying Proceeds
1. Proceeds first apply to expenses of sale,
2. Then, to payment of the lien under which the sale was held,
3. Then to payment of subordinate liens in order of their priority.
4. Any remaining surplus is paid to the debtor.
5. Deficiencies. Payment to a lien holder reduces the balance owing. The lien
holder is then entitled to a judgment against the debtor for any deficiency.
iv. Notice of Foreclosure Sale
1. Foreclosing Creditor is an Article 9 S/P. The S/P shall send an authenticated
notification of disposition to:
a. (A): any person who sends S/P an authenticated notification of a claim
of an interest in the collateral
b. (B): any other S/P or lien holder that, 10 days before the notification
date, held a S/I in or other lien on the collateral perfected by filing a
F/S. U.C.C. 9-611(c)(3).
c. Exception: Filing Office Does Not Respond. S/P complies with U.C.C.
9-611(c)(3)(B) if:
i. (1) S/P searches the filing records 2030 days before the
notification date; and
ii. (2) before the notification date:
1. (A) did not receive a response to the search; or
2. (B) received a response and sent notification to each
S/P named in the response whose F/S covered the
collateral. U.C.C. 9-611(e).
b. Right to Possession Between Lien Holders
i. S/Ps Right to Repossession. Most S/As define default as including foreclosure by a
junior lien holder. If D defaults, a S/P has the right to repossession w/o breaching the
peace. U.C.C. 9-609(a).
1. Commercially Reasonable Disposition. Once S/P has possession, it has the
option to sell in a commercially reasonable manner. See U.C.C. 9-610(b).
ii. S/Ps Motive in Exercising Repossession Right
64

1. Grocers Supply (MAJ): Motive Irrelevant. In Grocers Supply jurisdictions, a S/P
has the right to repossess, even if its intentions are to keep the debtor in
business and prevent a junior lien holder from foreclosing on the collateral.
a. Conversion. If the junior lien holder already has control and refuses to
give up the collateral, some courts hold that this constitutes
conversion
2. Frierson (MIN): Motive Relevant. Under Frierson, a S/P cannot repossess and
refuse to exercise its rights under the S/A, keeping the debtor in business, while
impairing the status of other creidtors by preventing them from exercising valid
liens.
c. Problem 26.1. Sheriff is conducting a foreclosure sale under a final judgment on a mortgage
securing $10k debt. The judgment forecloses a subordinate mortgage of $29k, but does not
mention a senior mortgage of $17k. K is willing to pay up to $25k to own the property free and
clear of all liens. Sheriffs expenses are $200. How much should K bid at the sale?
i. U.C.C. 9-617(a): a S/Ps disposition of collateral after default:
1. (2) discharges the S/I under which the disposition is made
a. Thus, the $10k mortgage is discharged
2. (3) discharges any subordinate S/I or other subordinate lien
a. Thus, the $29k subordinate mortgage is discharged
ii. Foreclosure does not affect senior liens
iii. Since the senior lien holder can still foreclose on the property, K must take into account
how much she would pay the senior mortgage holder to have the property free and clear
of liens
1. $25k willing to pay $17k senior mortgage = $8k
2. K should bid $8k
iv. Note: the mortgage holder whose mortgage is being foreclosed on (here, the $10k
mortgage holder) bears the brunt of the sheriffs expenses
v. Proceeds of the foreclosure sale
1. $8k proceeds $200 sheriffs expenses = $7,800 goes to the 2d mortgage
holder
2. 2d mortgage holder can bring a deficiency action against the debtor for $2,200
a. $10k mortgage $7,800 proceeds from foreclosure sale = $2,200
deficiency
vi. What if the mortgage was for $5k instead of $10k?
1. $8k proceeds $200 sheriffs expenses = $7,800
2. $7,800 $5k mortgage = $2,800 goes to the junior mortgage holder
d. Problem 26.3. DH holds a first S/I against mobile equipment owned by W securing a debt of
$27k. W is current on his payments. DH is confident the equipment would bring at least $40k.
The holder of some kind of second lien is forcing a sale of the equipment.
i. a. If the information is correct, is there any reason for DH to be concerned?
1. U.C.C. 9-617: buyer takes subject to DHs lien
a. U.C.C. 9-315(a)(1): S/I continues in the good
2. Is D in default?
a. S/As usually have broad definitions of default
b. Its almost a certainty that DHs S/A includes foreclosure of junior liens
in the definition of default
3. Since this is mobile equipment (rather than real property), certain concerns
arise:
a. Who is the buyer?
i. Will the buyer use it such that it loses value fast?
ii. Buyer might fail to insure the equipment
iii. Buyer might mistreat the equipment
b. Where will the equipment be used?
65

i. Buyer might move the equipment out of state, making it hard
to track it down when DH wants to foreclose on it
4. Notice
a. U.C.C. 9-611(c)(3): the S/P shall send an authenticated notification
of disposition to:
i. (A): any person who sends S/P an authenticated notification
of a claim of an interest in the collateral
ii. (B): any other S/P or lien holder that, 10 days before the
notification date, held a S/I in or other lien on the collateral
perfected by filing a F/S
b. U.C.C. 9-611(e): S/P complies with U.C.C. 9-611(c)(3)(B) if:
i. (1) S/P searches the filing records 2030 days before the
notification date; and
ii. (2) before the notification date:
1. (A) did not receive a response to the search; or
2. (B) received a response and sent notification to each
S/P named in the response whose F/S covered the
collateral
c. Thus, if the junior lien holder is an Article 9 S/P, he must send
notification to DH (unless the search d/n come back)
d. But, if the junior lien holder is not an Article 9 S/P, hes not subject to
Article 9 and is probably not required to notify DH
ii. b. Can DH protect its position by purchasing the equipment at the sale?
1. It can, but it probably doesnt want to
2. It could bid $10 to save some trouble about finding information about the buyer
3. But, it would probably have to pay thousands of dollars. If DH bought the
equipment for $5k, it would go to the second lien holder.
iii. c. Can DH prevent the sale?
1. Yes.
2. U.C.C. 9-609(a): if D defaults, DH has the right to repossession w/o breaching
the peace
a. Here, DHs S/A certainly defined default as including a junior lien
holder foreclosing
b. Here, since the sheriff has the collateral, DH wouldnt be breaching the
peace when it repossesses
3. Once DH has possession, it has the option to sell in a commercial reasonable
manner w/ proper notice
4. Could DH ask the sheriff for the property and give it back to the debtor?
a. In a Frierson jurisdiction, no
b. But, in a Grocers Supply jurisdiction, yes
c. Note if the junior lien holder already has control and refuses to give up
the collateral, some courts hold that this constitutes conversion
iv. d. Assuming that the creditor forcing this sale was an Article 9 secured party, was DH
entitled to receive notice of this sale?
1. Yes
2. U.C.C. 9-611(c): junior lien holder (Art. 9 S/P) is obligated to notify DH b/c DH
filed a F/S

66

CHAPTER 9. COMPETITIONS FOR COLLATERAL

XXI. Assignment 28: Lien Creditors Against Secured Creditors: The Basics
a. How Creditors Become Lien Creditors
i. Levying. Generally, Creditor wins a judgment against Debtor, obtains a writ of
execution, and then obtains a lien by levying on specific property of the debtor.
b. Priority Among Lien Creditors
i. Date of Levy (MAJ). Generally, state law provides that the critical date for priority is the
date on which the sheriff takes possession of the property.
c. Priority Between Lien Creditors and Secured Creditors
i. Priority Rule. A S/P has priority over a lien creditor if (A) the S/I is perfected; or (B) one
of the conditions in 9-203(b)(3) is met and a F/S is filed, before the unsecured creditor
levies on the property. U.C.C. 9-317(a)(2).
1. Perfection. A S/I is perfected if it has attached and all applicable requirements
for perfection are satisfied. U.C.C. 9-308(a).
a. Attachment. A S/I attaches to collateral when it becomes
enforceable. U.C.C. 9-203(a).
b. Enforceability. A S/I is enforceable if:
i. (1) value has been given;
1. Value Given. A person gives value for rights if the
person acquires them:
a. (1) in return for a binding commitment to
extend credit
b. (2) as security for, or in total or partial
satisfaction of a pre-existing claim;
c. (3) by accepting delivery under a preexisting
contract for purchase; or
d. (4) in return for any consideration sufficient
to support a simple contract. U.C.C. 1-204.
ii. (2) the debtor has rights in the collateral; and
iii. (3)(A): the debtor signed a S/A describing the collateral.
U.C.C. 9-203(b).
d. Purchase-Money Priority. See XXI.h. Problem 28.5, infra.
i. PMSI in Consumer Goods
1. Automatic Perfection. A PMSI in consumer goods is perfected on attachment.
U.C.C. 9-309(1).
2. Priority. If a PMSI in consumer goods attaches (and thus, is perfected) before a
person becomes a lien creditor, the S/P has priority. See U.C.C. 9-309(1), 9-
317(a)(2)(A).
ii. Other PSMIs. If a person files a F/S w/ respect to [any] PMSI within 20 days after the
debtor receives delivery of the collateral, the S/I takes priority over the rights of a lien
creditor which arise between the time the S/I attaches and the time of filing. U.C.C. 9-
317(e).
e. Problem 28.2. P lends M $20k, secured by equipment. On 3/7, M signs a F/S, S/A and p/note,
but P does not disburse the money. P files the F/S that same day and orders a search. On 3/10,
the sheriff levies on the equipment pursuant to a writ of execution in favor of S. On 3/11 P
receives the report of the search showing Ps interest is the first filed against the equipment.
i. a. Is P perfected?
1. No.
2. U.C.C. 9-308(a): a S/I is perfected if it has attached and all of the applicable
requirements for perfection have been satisfied
3. Attachment
a. U.C.C. 9-203(a): a S/I attaches when it becomes enforceable
67

b. U.C.C. 9-203(b): a S/I is enforceable if:
i. (1) value has been given;
ii. (2) D has rights in the collateral; and
1. Here, M owns the equipment
iii. (3)(A): D has authenticated a S/A that describes the collateral
1. M has signed a S/A
c. No Value Given
i. U.C.C. 1-204: a person gives value for rights if the person
acquires them:
1. (1) in return for a binding commitment to extend
credit
a. Probably not a binding commitment b/c P
didnt want to lend if the search wasnt
clean
2. (2) as security for, or in total or partial satisfaction of
a pre-existing claim;
3. (3) by accepting delivery under a preexisting contract
for purchase; or
4. (4) in return for any consideration sufficient to
support a simple contract
4. Since there was no attachment, there was no perfection
ii. b. If P makes the $20k loan despite the levy, will she have priority over S in the
equipment?
1. Priority battle between S/P and lien creditor
2. U.C.C. 9-317(a)(2): a S/P has priority over a lien creditor if (A) the S/I is
perfected; or (B) one of the conditions in 9-203(b)(3) is met and a F/S is filed,
before the unsecured creditor levies on the property
a. Here, the S/I was perfected (b/c value was given after S levied) after S
levied
b. Here, M signed a S/A (condition in U.C.C. 9-203(b)(3)) and the F/S
was filed before S levied
3. Thus, P has priority over S
f. Problem 28.3. S got a $125k judgment against C. RFT is a $50k unsecured creditor of C. How
can RFT get priority over S?
i. Priority battle between unsecured creditors
ii. If RFT brings a lawsuit, it will not get priority over S. S cant get a judgment and levy
quick enough before S levies.
iii. RFT should become a secured creditor before S levies on the property
1. U.C.C. 9-317(a)(2): a S/P has priority over a lien creditor if (A) the S/I is
perfected; or (B) one of the conditions in 9-203(b)(3) is met and a F/S is filed,
before the unsecured creditor levies on the property
a. U.C.C. 9-203(b): a S/I attaches and is enforceable if:
i. (1) value has been given;
1. Here, this is the pre-existing debt under U.C.C. 1-
204(2).
ii. (2) D has rights in the collateral; and
iii. (3)(A): D has authenticated a S/A that describes the collateral
2. If RFT perfects its S/I before S levies, it has priority
iv. Why would the debtor agree to this?
1. If RFT has priority, the sheriff cant repossess the collateral
2. In a Grocers Supply jurisdiction, RFT can keep C in business.
g. Problem 28.4. N procedure is as follows. First, it files a F/S. Then it searches to make sure no
one filed ahead of N and ensure the collateral is in the debtors possession. Within two weeks of
68

filing and within a few days after N receives the search report, N makes the loan. Is there any
way an execution creditor could come out ahead of N?
i. Yes
ii. U.C.C. 9-317(a)(2): a S/P has priority over a lien creditor if (A) the S/I is perfected; or
(B) one of the conditions in 9-203(b)(3) is met and a F/S is filed, before the unsecured
creditor levies on the property
1. Under (B), if a lien creditor levies before N satisfies a condition in U.C.C. 9-
203(b)(3) (e.g., signing a S/A), a lien creditor would have priority
h. Problem 28.5. BBW sold a boat to E. E made a down-pmt and signed a p/note for the balance. E
signed a S/A and F/S. E took possession of the boat. O held an unrecorded judgment against E.
After E left BBW, the sheriff levied on the boat and took possession of it. Can E get the boat back
from the sheriff today? (The S/A provides that any levy is a default.) What should BBW do?
i. S/I could be a PMSI in consumer goods
1. Requirements
a. Consumer Goods
i. U.C.C. 9-102(a)(23): consumer goods means goods that
are used or bought for use primarily for personal, family, or
household purposes.
b. PMSI
i. U.C.C. 9-103(a), (b): this is a sellers PMSI:
1. The S/P sold the collateral to the D on credit
2. The S/P took a S/I in the goods to secure the
purchase price
2. Perfection
a. U.C.C. 9-309(1): PMSI in consumer goods is perfected on attachment
b. Requirements for Attachment
i. U.C.C. 9-203(a): a S/I attaches when it becomes enforceable
ii. U.C.C. 9-203(b): a S/I is enforceable when:
1. (1) value is given
2. (2) D has rights in the collateral
3. (3)(A): D signs a S/A describing the collateral
iii. Application
1. Value is given when E drives the boat off the lot
2. D has rights in the collateral when title passes
3. D signed a S/A
iv. The S/I attached when E drove the boat off the lot
3. Priority
a. U.C.C. 9-317(a)(2)(A): S/P has priority over lien creditor if the S/I is
perfected before the person becomes a lien creditor
b. Here, since the S/I perfected when it attached (before the sheriff levied
on the boat), BBW has priority
ii. If the boat is not consumer goods, then its equipment (9-102(a)(33))
1. Priority
a. U.C.C. 9-317(e): if a person files a F/S w/ respect to a PMSI within 20
days after the debtor receives delivery of the collateral, the S/I takes
priority over the rights of a lien creditor which arise between the time
the S/I attaches and the time of filing
2. BBW has priority if it files a F/S w/in 20 days after E drove off w/ the boat
3. Then, under Grocers Supply, BBW can show the signed F/S to the sheriff and
get the boat back
i. Problem 28.6. E signed the F/S but not the S/A. E is sitting in BBWs office, willing to sign the
S/A. What do you tell BBW?
i. Here, there was no attachment
69

1. U.C.C. 9-203(a): a S/I attaches when it becomes enforceable
2. U.C.C. 9-203(b): a S/I is enforceable when:
a. (1) value is given
b. (2) D has rights in the collateral
c. (3)(A): D signs a S/A describing the collateral
3. Here, D did not sign the S/A
ii. U.C.C. 9-317(e) is no help
1. This section only applies when the person became a lien creditor between
attachment and filing. In this case, the sheriff levied before the S/I even
attached.
iii. Have E sign the S/A and present the filed F/S to the sheriff. The sheriff probably wont
ask when the S/A was signed.
iv. If the sheriff does ask when the S/A was signed, youll have to argue the S/I attached
before the sheriff levied under the composite document rule.
XXII.Assignment 29: Lien Creditors Against Secured Creditors: Future Advances
a. Priority of Future Advances
i. Secured Party vs. Lien Creditor. A S/Ps S/I in a future advance has priority over a lien
creditor if:
1. The advance was made within 45 days of levy;
2. The S/P did not know of the lien when the advance was made;
3. The S/P did not know of the lien when the S/P made a binding commitment to
make an advance. See U.C.C. 9-323(b).
ii. Secured Party vs. Buyer. A buyer takes free of a S/I securing a future advance if the
advance (or commitment to make an advance) is made after the earlier of:
1. (1) the time the S/P acquires knowledge of the buyers purchase; or
2. (2) 45 days after the purchase. U.C.C. 9-323(d), (e).
b. Priority of Nonadvances. S/Ps nonadvances have the priority of the advances to which they
relate, unrestrained by U.C.C. 9-323(b). See Uni Imports, Inc. v. Exchange National Bank of
Chicago.
c. Problem 29.2. D borrows $50k from S/P and executes a note and S/A that state that the S/P may
provide up to $25k in future advances. S/A secures interest at 10%/yr and S/Ps attorneys fees
in any collection action. S/P perfects. J obtains a judgment for $100k against D and becomes a
lien creditor by levying on the collateral. S/P has actual knowledge of the lien. Sixty days after
the levy, S/P lends D an additional $25k. D defaults, owing the full balance, interest and
attorneys fees. Who has priority btwn S/P and J?
i. S/P has priority over the original $50k loan
1. U.C.C. 9-317(a)(2)(A): S/P has priority over a lien creditor if the S/I is
perfected before the person becomes a lien creditor
2. Here, S/P perfected his S/I in the $50k loan before J levied
ii. S/P does not have priority over the $25k advance
1. Priority of Future Advances: S/P vs. Lien Creditor
a. U.C.C. 9-323(b): S/P has priority if:
i. The advance is made within 45 days of levy
ii. The S/P did not know of the lien when the advance was made
iii. The S/P did not know of the lien when the S/P made a binding
commitment to make an advance
b. Application
i. Here, the S/P made the advance 60 days after levy
ii. Here, the S/P had knowledge of the lien when he made the
advance
iii. Here, the S/P was not obligated to make an advance
c. Thus, S/P does not have priority over the $25k advance
iii. Interest and Attorneys Fees
70

1. Uni Imports, Inc. v. Exchange National Bank of Chicago: S/Ps nonadvances
have the priority of the advances to which they relate, unrestrained by U.C.C.
9-323(b)
a. To the extent the S/I secures accrued interest that is attributable to the
$50k original loan, it has priority
b. To the extent the S/I secures accrued interest that is attributable to the
$25k advance, it does not have priority
2. Attorneys Fees
a. Attorneys fees arent really severable between the original loan and
the advance
b. A court would probably prorate the fees btwn the loans
c. To the extent the S/I secures fees allocated toward the $50k original
loan, it would have priority
d. Problem 29.3. C lent $1k to B. B gave a S/I in his boat (FMV = $32k) and filed a F/S. BCA
recovered a $45k judgment against B. BCA levied on the boat. B wants a $31k advance from C.
i. a. If C doesnt make the requested advance, what is likely to happen and how do BCA, B,
and C come out?
1. A judicial sale will be held
a. U.C.C. 9-617(a)(2): BCAs lien would be foreclosed
b. Cs S/P remains b/c her interest is senior to BCAs
ii. b. If C makes this advance, will the advance be secured?
1. No
2. It wouldve been secured if the original S/A had a future advance (dragnet)
clause
3. To make the future advance secured by the boat, execute a new S/A that
provides for a $31k loan secured by a S/I in the boat
iii. c. If C makes this advance and the sale is later held, how do BCA, B and C come out?
1. U.C.C. 9-323(b): Cs S/I in the future advance has priority if she makes the
advance w/in 45 days of BCAs levy
2. If the sale is held, Cs (senior) lien is increased to $32k
3. Because the boat is worth $32k, nobody will bid at the judicial sale
4. Since C has priority, under Grocers Supply, she can get the boat from the sheriff
5. Did C and B commit fraud?
a. Under the Uniform Fraudulent Transfer Act, a court has the power to
avoid fraudulent transfers
b. To prove actual fraud, BCA would have to prove that B and C conspired
to create a fraudulent transaction
i. This is very hard to prove
c. To prove constructive fraud, BCA would have to prove that there was a
transfer of an interest in property where the transferor did not get
reasonably equivalent value
i. Here, C got value (a S/I) for the $31k loan
ii. Thus, there is no constructive fraud here
e. Problem 29.4. Instead of representing C, you represent BCA in its attempt to collect the $45k
judgment. You assess the boat at $32k. The sheriffs sale is set for 3/29. You discovered Cs F/S.
You dont want to bid more than Bs equity and you need to know the amount of Cs S/I.
i. a. How do you get the information?
1. U.C.C. 9-210(b)(1): a S/P must comply with the debtors request for an
accounting
2. Here, B probably will not cooperate with BCA
3. BCA, as a creditor, has rights of discovery to find out how much B owes C
a. But, this information isnt that helpful b/c C can make future advances
up to 45 days after levy
71

ii. b. If you cant get the information, what will be your bidding strategy at the sale?
1. Priority of Future Advances: S/P vs. Buyer
a. U.C.C. 9-323(d): a buyer takes free of a S/I to the extent it secures
advances made after the earlier of:
i. (1) the time the S/P acquires knowledge of the buyers
purchase; or
ii. (2) 45 days after the purchase
b. Buyers strategy will be to make sure C knows about the sale
2. If the sheriff sells the boat for $10k, C has priority over this amount under U.C.C.
9-323(b).
XXIII. Assignment 30: Trustees in Bankruptcy Against Secured Creditors: The Strong Arm Clause
a. Power to Avoid. A bankruptcy trustee has the power to avoid S/Is that remain unperfected as of
the time of filing of the bankruptcy case.
i. Effect: Becomes Unsecured. If the trustee is successful in avoiding a S/I, the interest is
treated as unsecured. See 11 U.S.C. 551.
b. Judicial Lien Creditor. The bankruptcy trustee steps into the shoes of a hypothetical creditor
that:
i. Extends credit to the debtor at the time of the commencement of the case, and that
ii. Obtains, at such time and with respect to such credit, a judicial lien on all property on
which a creditor on a simple contract could have obtained such a judicial lien. 11 U.S.C.
544(a)(1).
c. Priority: Secured Party vs. Lien Creditor (Bankruptcy Trustee). A S/P has priority if, before the
bankruptcy petition is filed, the S/I is perfected. See U.C.C. 9-317(a)(2)(A).
d. Problem 30.1. G filed bankruptcy on 4/15. Which of the following can the bankruptcy trustee
avoid under 11 U.S.C. 544(a)?
i. a. Bank d/n file a F/S until 4/22.
1. U.C.C. 9-317(a)(2)(A): the trustee has priority b/c no F/S was filed when the
bankruptcy petition was filed
2. 11 U.S.C. 362(a)(4): filing the F/S violates the automatic stay
ii. b. Same facts as above, but the bank discovered its error and filed the F/S on 4/14.
1. U.C.C. 9-317(a)(2)(A): S/P has priority b/c filed before bankruptcy petition
was filed
2. Note: this is an avoidable preference. See XXIV. Assignment 31: Trustees in
Bankruptcy Against Secured Creditors: Preferences, infra.
iii. c. S/P listed D as Gargantuan Industries on the F/S, but omitted info reqd by U.C.C.
9-516(b)(5). The filing shows up on a search under the correct name of G, but its
impossible to tell whether the filing is against G or a bus. using a trade name.
1. The filing office should have rejected the F/S
a. U.C.C. 9-520(a): filing office shall refuse to accept a record for filing
for a reason set forth in U.C.C. 9-615(b)
b. Here, the F/S did not contain information reqd by U.C.C. 9-516(b)(5)
2. F/S is still effective
a. U.C.C. 9-520(c): a filed F/S satisfying U.C.C. 9-502(a) and (b) is
effective, even if the filing office is reqd to refuse to accept it under (a)
b. Satisfaction of U.C.C. 9-502(a)
i. U.C.C. 9-502(a): a F/S is sufficient only if it:
1. (1) provides the Ds name
2. (2) provides the S/Ps name
3. (3) indicates the collateral covered by the F/S
ii. Here, the F/S does not provide Ds legal name
iii. U.C.C. 9-506(c): if a search under Ds correct name discloses
a F/S that fails sufficiently to provide Ds name, the name
provided does not make the F/S seriously misleading
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iv. Since the F/S turns up on a search under Ds correct name,
the F/S is not seriously misleading
c. U.C.C. 9-338 does not apply
i. The information here is missing, not incorrect
ii. This section only applies to S/Ps and purchasers, not
bankruptcy trustees
iv. d. S/P filed a F/S 5 years prior to 7/15. S/P has not filed a C/S.
1. F/S has lapsed
a. U.C.C. 9-515(a): F/S lasts for 5 years
b. U.C.C. 9-515(c), (d): F/S lapses on the expiration of its effectiveness
unless a C/S is filed within 6 mo. before expiration
c. Here, S/P has not filed a C/S
2. Note: filing a C/S does not violate the automatic stay
a. 11 U.S.C. 362(b)(3): bankruptcy petition does not operate as a stay
to maintain perfection to the extent the trustees rights and powers
are subject to such perfection under 546(b)
b. 11 U.S.C. 546(b)(1)(B): the trustees rights and powers are subject to
any law that provides for maintenance/continuation of perfection of
an interest in property to be effective against an entity that acquires
rights in such property before the bankruptcy action
3. Still perfected against the bankruptcy trustee
a. U.C.C. 9-515(c): if the S/I becomes unperfected upon lapse, it is
deemed never to have been perfected as against a purchaser of the
collateral for value
b. The bankruptcy trustee is not a purchaser
c. Thus, under U.C.C. 9-317(a)(2)(A), the S/P has priority if it was
perfected when the bankruptcy petition was filed
d. Here, S/P filed a F/S which was effective when the bankruptcy petition
was filed
e. Thus, S/P has priority over the trustee
4. Note: S/Ps still need to file C/Ss to protect their priority as to other S/Ps
v. e. The description of the collateral in the S/A was left blank. Associate filled in the
blank.
1. U.C.C. 9-308(a): a S/I is perfected if it has attached and all applicable
requirements for perfection have been satisfied
2. U.C.C. 9-203(b)(3)(A): attachment requires D sign a S/A that describes the
collateral
a. Here, there was no description when the bankruptcy petition was filed
b. Thus, there was no attachment (and no perfection) when the petition
was filed
c. The trustee can avoid this S/I
3. 11 U.S.C. 362(a)(4): filling in the bland violated the automatic stay (creating a
lien)
4. S/P will argue that the S/I attached under the composite document rule
vi. f. On 4/6, G bought a car. G signed a S/A in favor of Bank, but when G filed bankruptcy,
Banks application for COT showing its lien wasnt filed. On 4/25, Bank delivered the
application. Did Bank violate the automatic stay?
1. Bank was unperfected when the bankruptcy was filed
a. U.C.C. 9-311(b): a S/I in COT property can only be perfected by
compliance with a COT statute (i.e., noting a S/I on a COT)
b. Here, when the bankruptcy petition was filed, the bank had not noted
its S/I on the cars COT
2. The S/I is probably a PMSI
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3. Purchase-Money Priority
a. U.C.C. 9-317(e): if a person files a F/S for a PMSI before or within 20
days after the debtor receives delivery, the S/I takes priority over the
rights of a lien creditor, which arise between the time the S/I attaches
and the time of filing
b. Bank filed within 20 days after delivery
i. G got delivery on 4/6
ii. Bank delivered the application for COT on 4/25
1. U.C.C. 9-317 cmt. 8: compliance with a COT statute
is equivalent to the filing of a F/S
c. Thus, Bank has priority over the bankruptcy trustee
4. Bank did not violate the automatic stay
a. 11 U.S.C. 362(b)(3): bankruptcy petition does not operate as a stay
to maintain perfection to the extent the trustees rights and powers
are subject to such perfection under 546(b)
b. 11 U.S.C. 546(b)(1)(A): the trustees rights and powers are subject to
any law that permits perfection of an interest in property to be
effective against an entity that acquires rights in such property before
the date of perfection
XXIV. Assignment 31: Trustees in Bankruptcy Against Secured Creditors: Preferences
a. General Priority. Generally, a S/P has priority over a bankruptcy trustee if the S/P perfected her
S/I before the bankruptcy petition was filed. See U.C.C. 9-317(a)(2)(A); 11 U.S.C. 544(a)(1).
b. Voidable Preference Analysis Framework
i. STEP 1: When was the transfer made?
1. Transfer Occurs on Attachment if Perfected in 30 Days. A transfer is made on
attachment if the transfer is perfected within 30 days of attachment. 11 U.S.C.
547(e)(2)(A).
a. Attachment. A S/I is enforceable (i.e., attaches) if:
i. (1) value has been given;
ii. (2) D has rights in the collateral; and
iii. (3)(A) D has authenticated a S/I describing the collateral.
U.C.C. 9-203(b).
b. When Last Requirement Met. Attachment occurs when the last of
these requirements is met.
c. Perfection. A S/I is perfected if it has attached and all of the
applicable requirements for perfection . . . have been satisfied. U.C.C.
9-308(a).
2. Transfer Occurs on Perfection if Perfected After 30 Days. A transfer is made
on perfection if the transfer is perfected after 30 days after attachment. 11
U.S.C. 547(e)(2)(B).
ii. STEP 2: Is this a voidable preference? The elements of a voidable preference are the
following. See 11 U.S.C. 547(b).
1. Transfer. 11 U.S.C. 547(b). Transfer means . . . the retention of title as a
security interest. 11 U.S.C. 101(54)(B).
2. To or for the benefit of a creditor. 11 U.S.C. 547(b)(1). A S/I is always for the
benefit of a S/P (a creditor).
3. For or on account of a pre-existing debt. 11 U.S.C. 547(b)(2).
4. Made while D was insolvent. 11 U.S.C. 547(b)(3).
a. Insolvent Defined. Insolvent means . . . the sum of [the debtors]
debts is greater than all of [the debtors] property. 11 U.S.C.
101(32)(A).
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b. Presumption of Insolvency. The debtor is presumed . . . insolvent on
and during the 90 days immediately preceding the date of the filing of
the petition. 11 U.S.C. 547(f).
5. Made within the preference period
a. 90 days. By default, the preference period is the 90 days before the
bankruptcy petition is filed. 11 U.S.C. 547(b)(4)(A).
b. 1 year. If the creditor was an insider, the preference period is the year
before the bankruptcy petition is filed. 11 U.S.C. 547(b)(4)(B).
i. Insider. If the debtor is a corporation, [insider includes a]
relative of a general partner, director, officer, or person in
control of the debtor. 11 U.S.C. 101(31)(B)(vi).
6. Enables S/P to receive more than she would receive if the case were under
Chapter 7 and the transfer was not made. 11 U.S.C. 547(b)(5). Since S/Ps
get their claim paid and unsecured creditors share any residual amount pro-
rata, a S/P will always be better off w/ the S/I (transfer).
iii. STEP 3: Does the transfer fall into an exception?
1. Contemporaneous Exchange. The trustee may not avoid a transfer that was
a. (A) intended by D and S/P to be a contemporaneous exchange for new
value give to the D; and
i. Secured LoansAlways Met. Secured loans are always
intended to be a contemporaneous exchange.
b. (B) in fact a substantially contemporaneous exchange. 11 U.S.C.
547(c)(1).
i. Delayed Perfection Not Substantially Contemporaneous.
Some courts hold that a transfer is never substantially
contemporaneous if perfection is delayed by more than 30
days. See 11 U.S.C. 547(e)(2)(A), (B) (effect of delayed
perfection on the date of transfer).
2. PMSI Exception. The trustee may not avoid a transfer that creates a S/I in
property acquired by the debtor
a. (A) to the extent such S/I secures new value that was
i. (i) given at or after the signing of a S/A describing the
collateral;
ii. (ii) given by or on behalf of the S/P;
iii. (iii) given to enable the D to acquire such property;
iv. (iv) in fact so used by the D to acquire such property; and
b. (B) that is perfected on or before 30 days after D receives possession
of such property. 11 U.S.C. 547(c)(3).
3. After-Acquired Inventory and Accounts
a. General Non-Avoidance. Generally, a trustee may not avoid a transfer
that creates a perfected S/I in inventory or a receivable or the
proceeds of either. 11 U.S.C. 547(c)(5).
b. Avoidable Transfer. A trustee can avoid the amount of a transfer in
this formula: X Y
i. X = [loan balance 90 days before bankruptcy] [inventory
value 90 days before bankruptcy]
1. If negative. If this variable is negative, the trustee
cannot avoid any S/I in the property acqd w/in 90
days of bankruptcy.
ii. Y = [loan balance on the date of bankruptcy filing]
[inventory value on the date of bankruptcy filing]
1. If negative. If this variable is negative, use zero in
the formula.
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c. Problem 31.1. W filed bankruptcy on 9/1. Which of the following are avoidable preferences?
i. a. On 8/15, W borrowed from FB. W executed a S/A and F/S covering equipment. On
8/16, FB filed the F/S.
1. STEP 1: When was the transfer made?
a. 11 U.S.C. 547(e)(2)(A): a transfer is made on attachment if the
transfer is perfected within 30 days of attachment
b. Attachment
i. U.C.C. 9-203(b): S/I attaches when:
1. (1) value has been given
a. Here, the loan was made on 8/15
2. (2) D has rights in the collateral
a. Here, D already owned the equipment
3. (3)(A): D signed a S/A describing the collateral
a. Here, D signed the S/A on 8/15
ii. Thus, attachment occurred on 8/15
c. Perfection
i. Here, W filed a F/S on 8/16
ii. Thus, perfection occurred on 8/16
d. W perfected within 30 days of attachment
e. Thus, the transfer occurred on 8/15
2. STEP 2: Is this a voidable preference?
a. The transfer, to or for the benefit of a creditor, and enables S/P to
receive more than she would have if the transfer wasnt made
elements are always met
b. 11 U.S.C. 547(b)(2): for or on account of a pre-existing debt
i. Here, the transfer occurred on the same day the loan was
made
ii. Thus, the debt was not pre-existing and the transfer is not
avoidable
c. 11 U.S.C. 547(b)(3): made while D was insolvent
i. 11 U.S.C. 547(f): D is presumed insolvent w/in 90 days
before the bankruptcy petition is filed
ii. Thus, W is presumed insolvent when the transfer occurred
d. 11 U.S.C. 547(b)(4): made during the preference period
i. 11 U.S.C. 547(b)(4)(A): the preference period = 90 days
ii. Here, the transfer was made within 90 days of the bankruptcy
petition
3. What if W signed the S/A on 8/16?
a. STEP 1: When was the transfer made?
i. W signing the S/A would be the last element in U.C.C. 9-
203(b) to be satisfied for attachment
ii. 11 U.S.C. 9-547(e)(2)(A): W filed the F/S w/in 90 days of
attachment
iii. Thus, the transfer occurred on 8/16
b. STEP 2: Is this a voidable preference?
i. 11 U.S.C. 547(b)(2): here, the transfer is on account of a
pre-existing debt
1. The loan was made 8/15
2. The transfer occurred on 8/16
c. STEP 3: Does the transfer fall into an exception?
i. 11 U.S.C. 547(c)(1): the trustee may not avoid a transfer
that was
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1. (A) intended by D and S/P to be a contemporaneous
exchange for new value give to the D; and
a. Here, a secured loan is always intended to
be contemporaneous
2. (B) in fact a substantially contemporaneous
exchange
a. Here, the loan and the transfer occurred
within 1 day
b. Thus, this is probably substantially
contemporaneous
ii. This exception is met
iii. The transfer is not avoidable
ii. b. On 2/7, W borrowed from SB on an unsecured one-year note. On 7/11, W signed a
S/A granting SB a S/I in equipment. SB immediately filed a F/S.
1. STEP 1: When was the transfer made?
a. 11 U.S.C. 547(e)(2)(A): a transfer is made on attachment if the
transfer is perfected within 30 days of attachment
b. Attachment
i. U.C.C. 9-203(b): S/I attaches when:
1. (1) value has been given
a. Here, the loan was made on 2/7
2. (2) D has rights in the collateral
a. Here, D already owned the equipment
3. (3)(A): D signed a S/A describing the collateral
a. Here, D signed the S/A on 7/11
ii. Thus, attachment occurred on 7/11
c. Perfection
i. Here, W filed a F/S on 7/11
ii. Thus, perfection occurred on 7/11
d. W perfected within 30 days of attachment
e. Thus, the transfer occurred on 7/11
2. STEP 2: Is this a voidable preference?
a. The transfer, to or for the benefit of a creditor, and enables S/P to
receive more than she would have if the transfer wasnt made
elements are always met
b. 11 U.S.C. 547(b)(2): for or on account of a pre-existing debt
i. Here, the loan was made on 2/7
ii. Here, the transfer occurred on 7/11
iii. Thus, the debt was for a pre-existing debt
c. 11 U.S.C. 547(b)(3): made while D was insolvent
i. 11 U.S.C. 547(f): D is presumed insolvent w/in 90 days
before the bankruptcy petition is filed
ii. Thus, W is presumed insolvent when the transfer occurred
d. 11 U.S.C. 547(b)(4): made during the preference period
i. 11 U.S.C. 547(b)(4)(A): the preference period = 90 days
ii. Here, the transfer was made within 90 days of the bankruptcy
petition
e. Since the transfer meets all the elements, the transfer is avoidable
3. STEP 3: Does the transfer fall into an exception?
a. 11 U.S.C. 547(c)(1): the trustee may not avoid a transfer that was
i. (A) intended by D and S/P to be a contemporaneous exchange
for new value give to the D; and
1. Here, the loan was originally unsecured
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2. The transfer was probably not intended to be a
contemporaneous exchange for value
ii. (B) in fact a substantially contemporaneous exchange
1. Here, the loan and the transfer occurred 5 months
apart
2. Thus, this is probably not substantially
contemporaneous
iii. This exception does not apply
b. Thus, the transfer is avoidable
iii. c. On 2/7, W borrowed from TB on a secured one-year note. W singed a F/S, but was
lost. On 7/11, the U.C.C. filing office received the F/S and accepted the filing.
1. STEP 1: When was the transfer made?
a. 11 U.S.C. 547(e)(2)(B): a transfer is made on perfection if the
transfer is perfected after 30 days after attachment
b. Attachment
i. U.C.C. 9-203(b): S/I attaches when:
1. (1) value has been given
a. Here, the loan was made on 2/7
2. (2) D has rights in the collateral
a. Here, D already owned the equipment
3. (3)(A): D signed a S/A describing the collateral
a. Here, D signed the S/A on 2/7
ii. Thus, attachment occurred on 2/7
c. Perfection
i. Here, W filed a F/S on 7/11
ii. Thus, perfection occurred on 7/11
d. W did not perfect within 30 days of attachment
e. Thus, the transfer occurred on 7/11
2. STEP 2: Is this a voidable preference?
a. The transfer, to or for the benefit of a creditor, and enables S/P to
receive more than she would have if the transfer wasnt made
elements are always met
b. 11 U.S.C. 547(b)(2): for or on account of a pre-existing debt
i. Here, the loan was made on 2/7
ii. Here, the transfer occurred on 7/11
iii. Thus, the debt was for a pre-existing debt
c. 11 U.S.C. 547(b)(3): made while D was insolvent
i. 11 U.S.C. 547(f): D is presumed insolvent w/in 90 days
before the bankruptcy petition is filed
ii. Thus, W is presumed insolvent when the transfer occurred
d. 11 U.S.C. 547(b)(4): made during the preference period
i. 11 U.S.C. 547(b)(4)(A): the preference period = 90 days
ii. Here, the transfer was made within 90 days of the bankruptcy
petition
e. Since the transfer meets all the elements, the transfer is avoidable
3. STEP 3: Does the transfer fall into an exception?
a. 11 U.S.C. 547(c)(1): the trustee may not avoid a transfer that was
i. (A) intended by D and S/P to be a contemporaneous exchange
for new value give to the D; and
1. Here, a secured loan is always intended to be
contemporaneous
ii. (B) in fact a substantially contemporaneous exchange
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1. Here, the loan and the transfer occurred 5 months
apart
2. Thus, this is probably not substantially
contemporaneous
b. The exception is not met
4. The transfer is avoidable
iv. d. On 7/21, W purchased equipment from EMS. W financed the purchase w/ a loan
from FB. W signed a p/note, a S/A and a F/S. FB issued the check on 7/21. EMS
delivered the equipment to W the following day. FB filed the F/S on 8/4.
1. STEP 1: When was the transfer made?
a. 11 U.S.C. 547(e)(2)(A): a transfer is made on attachment if the
transfer is perfected within 30 days of attachment
b. Attachment and Perfection
i. U.C.C. 9-203(b): S/I attaches when:
1. (1) value has been given
a. Here, the loan was made on 2/7
2. (3)(A): D signed a S/A describing the collateral
a. Here, D signed the S/A on 2/7
3. (2) D has rights in the collateral
a. When did title pass? See U.C.C. Article 2
b. Title passes no later than delivery
c. Title may have passed on 7/21 or 7/22
ii. Scenario 1: if title passed on 7/21:
1. Attachment occurred on 7/21
2. F/S was filed on 7/21
3. W perfected w/in 30 days of attachment
4. Thus, the transfer occurred on 7/21
iii. Scenario 2: if title passed on 7/22
1. Attachment occurred on 7/22
2. F/S was filed on 7/21
3. W perfected w/in 30 days of attachment
4. Thus, the transfer occurred on 7/22
2. STEP 2: Is this a voidable preference?
a. Scenario 1
i. The transfer, to or for the benefit of a creditor, and
enables S/P to receive more than she would have if the
transfer wasnt made elements are always met
ii. 11 U.S.C. 547(b)(2): for or on account of a pre-existing debt
1. Here, the loan was made on 7/21
2. Here, the transfer occurred on 7/21
3. Thus, the debt was not for a pre-existing debt
iii. 11 U.S.C. 547(b)(3): made while D was insolvent
1. 11 U.S.C. 547(f): D is presumed insolvent w/in 90
days before the bankruptcy petition is filed
2. Thus, W is presumed insolvent when the transfer
occurred
iv. 11 U.S.C. 547(b)(4): made during the preference period
1. 11 U.S.C. 547(b)(4)(A): the preference period = 90
days
2. Here, the transfer was made within 90 days of the
bankruptcy petition
v. The transfer is not avoidable
b. Scenario 2
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i. The transfer, to or for the benefit of a creditor, and
enables S/P to receive more than she would have if the
transfer wasnt made elements are always met
ii. 11 U.S.C. 547(b)(2): for or on account of a pre-existing debt
1. Here, the loan was made on 7/21
2. Here, the transfer occurred on 7/22
3. Thus, the debt was for a pre-existing debt
iii. 11 U.S.C. 547(b)(3): made while D was insolvent
1. 11 U.S.C. 547(f): D is presumed insolvent w/in 90
days before the bankruptcy petition is filed
2. Thus, W is presumed insolvent when the transfer
occurred
iv. 11 U.S.C. 547(b)(4): made during the preference period
1. 11 U.S.C. 547(b)(4)(A): the preference period = 90
days
2. Here, the transfer was made within 90 days of the
bankruptcy petition
v. All the elements are met
vi. The transfer is avoidable
3. STEP 3: Does the transfer fall into an exception?
a. 11 U.S.C. 547(c)(1): the trustee may not avoid a transfer that was
i. (A) intended by D and S/P to be a contemporaneous exchange
for new value give to the D; and
1. Here, a secured loan is always intended to be
contemporaneous
ii. (B) in fact a substantially contemporaneous exchange
1. Here, the loan and the transfer occurred within 1 day
2. Thus, this is probably substantially contemporaneous
b. This exception is met
v. What result if you change the delivery date to 8/25 and change the F/S filing date to
8/30?
1. Scenario 1: attachment occurs on 7/21
a. STEP 1: When was the transfer made?
i. 11 U.S.C. 547(e)(2)(B): a transfer is made on perfection if
the transfer is perfected after 30 days after attachment
ii. S/I attached on 7/21
iii. F/S was filed on 8/30
iv. W perfected w/in 30 days of attachment
v. Thus, the transfer occurred on 8/30
b. STEP 2: Is this a voidable preference?
i. The transfer, to or for the benefit of a creditor, and
enables S/P to receive more than she would have if the
transfer wasnt made elements are always met
ii. 11 U.S.C. 547(b)(2): for or on account of a pre-existing debt
1. Here, the loan was made on 7/21
2. Here, the transfer occurred on 8/30
3. Thus, the debt was for a pre-existing debt
iii. 11 U.S.C. 547(b)(3): made while D was insolvent
1. 11 U.S.C. 547(f): D is presumed insolvent w/in 90
days before the bankruptcy petition is filed
2. Thus, W is presumed insolvent when the transfer
occurred
iv. 11 U.S.C. 547(b)(4): made during the preference period
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1. 11 U.S.C. 547(b)(4)(A): the preference period = 90
days
2. Here, the transfer was made within 90 days of the
bankruptcy petition
v. All the elements are met
vi. The transfer is avoidable
c. STEP 3: Does the transfer fall into an exception?
i. 11 U.S.C. 547(c)(1): the trustee may not avoid a transfer
that was
1. (A) intended by D and S/P to be a contemporaneous
exchange for new value give to the D; and
a. Here, a secured loan is always intended to
be contemporaneous
2. (B) in fact a substantially contemporaneous
exchange
a. Here, there was a 39 delay in perfection
b. Some courts hold that a transfer is never
substantially contemporaneous if theres a
delay in perfection of more than 30 days
3. The exception is not met
ii. 11 U.S.C. 547(c)(3): the trustee may not avoid a transfer
that creates a S/I in property acquired by the debtor
1. (A) to the extent such S/I secures new value that was
a. (i) given at or after the signing of a S/A
describing the collateral;
i. Here, the loan was made on 7/21
ii. Here, the S/A was signed on 7/21
b. (ii) given by or on behalf of the S/P;
i. Always the case w/ S/Is
c. (iii) given to enable the D to acquire such
property;
i. Here, the loan was made to finance
the purchase of equipment
d. (iv) in fact so used by the D to acquire such
property; and
i. Here, D used the money to buy the
equipment
2. (B) that is perfected on or before 30 days after D
receives possession of such property
a. Here, F/S was filed on 8/30
b. Here, W received delivery on 8/25
3. This exception is met
d. The transfer is not avoidable
2. Scenario 2: attachment occurs on 8/25
a. STEP 1: When was the transfer made?
i. 11 U.S.C. 547(e)(2)(A): a transfer is made on attachment if
the transfer is perfected within 30 days of attachment
ii. S/I attached on 8/25
iii. F/S was filed on 7/21
iv. W perfected w/in 30 days of attachment
v. Thus, the transfer occurred on 8/25
b. STEP 2: Is this a voidable preference?
81

i. The transfer, to or for the benefit of a creditor, and
enables S/P to receive more than she would have if the
transfer wasnt made elements are always met
ii. 11 U.S.C. 547(b)(2): for or on account of a pre-existing debt
1. Here, the loan was made on 7/21
2. Here, the transfer occurred on 8/25
3. Thus, the debt was for a pre-existing debt
iii. 11 U.S.C. 547(b)(3): made while D was insolvent
1. 11 U.S.C. 547(f): D is presumed insolvent w/in 90
days before the bankruptcy petition is filed
2. Thus, W is presumed insolvent when the transfer
occurred
iv. 11 U.S.C. 547(b)(4): made during the preference period
1. 11 U.S.C. 547(b)(4)(A): the preference period = 90
days
2. Here, the transfer was made within 90 days of the
bankruptcy petition
v. All the elements are met
vi. The transfer is avoidable
c. STEP 3: Does the transfer fall into an exception?
i. 11 U.S.C. 547(c)(1): the trustee may not avoid a transfer
that was
1. (A) intended by D and S/P to be a contemporaneous
exchange for new value give to the D; and
a. Here, a secured loan is always intended to
be contemporaneous
2. (B) in fact a substantially contemporaneous
exchange
a. Here, there was a 34 delay in perfection
b. Some courts hold that a transfer is never
substantially contemporaneous if theres a
delay in perfection of more than 30 days
ii. 11 U.S.C. 547(c)(3): the trustee may not avoid a transfer
that creates a S/I in property acquired by the debtor
1. (A) to the extent such S/I secures new value that was
a. (i) given at or after the signing of a S/A
describing the collateral;
i. Here, the loan was made on 7/21
ii. Here, the S/A was signed on 7/21
b. (ii) given by or on behalf of the S/P;
i. Always the case w/ S/Is
c. (iii) given to enable the D to acquire such
property;
i. Here, the loan was made to finance
the purchase of equipment
d. (iv) in fact so used by the D to acquire such
property; and
i. Here, D used the money to buy the
equipment
2. (B) that is perfected on or before 30 days after D
receives possession of such property
a. Here, F/S was filed on 8/30
b. Here, W received delivery on 8/25
82

3. This exception is met
d. The transfer is not avoidable
vi. e. Would the result be different if, on the facts of d, FB had issued the check to W and W
used other funds to purchase the equipment?
1. Yes
2. 11 U.S.C. 547(c)(3): the trustee may not avoid a transfer that creates a S/I in
property acquired by the debtor
a. (A) to the extent such S/I secures new value that was
i. (i) given at or after the signing of a S/A describing the
collateral;
ii. (ii) given by or on behalf of the S/P;
iii. (iii) given to enable the D to acquire such property;
iv. (iv) in fact so used by the D to acquire such property; and
b. (B) that is perfected on or before 30 days after D receives possession
of such property
3. Since the check was not in fact so used, the exception does not apply
4. Ws only hope is to argue a contemporaneous exchange under 11 U.S.C.
547(c)(1)
vii. f. On 3/9 W borrowed from E, the wife of W CEO, M. The F/S was filed 4/12. What do
you advise?
1. STEP 1: When was the transfer made?
a. 11 U.S.C. 547(e)(2)(A): a transfer is made on attachment if the
transfer is perfected within 30 days of attachment
b. Attachment
i. U.C.C. 9-203(b): S/I attaches when:
1. (1) value has been given
a. Here, the loan was made on 3/9
2. (2) D has rights in the collateral
a. Here, this is assumed
3. (3)(A): D signed a S/A describing the collateral
a. Here, D signed the S/A on 4/12
ii. Thus, attachment occurred on 4/12
c. Perfection
i. Here, W filed a F/S on 4/12
ii. Thus, perfection occurred on 4/12
d. E perfected within 30 days of attachment
e. Thus, the transfer occurred on 4/12
2. STEP 2: Is this a voidable preference?
a. The transfer, to or for the benefit of a creditor, and enables S/P to
receive more than she would have if the transfer wasnt made
elements are always met
b. 11 U.S.C. 547(b)(2): for or on account of a pre-existing debt
i. Here, the loan was made on 3/9
ii. Here, the transfer occurred on 4/12
iii. Thus, the debt was for a pre-existing debt
c. 11 U.S.C. 547(b)(3): made while D was insolvent
i. The transfer was made more than 90 days before the
bankruptcy petition was filed
ii. Thus, there is no presumption of insolvency under 11 U.S.C.
547(f)
iii. The trustee would have to prove insolvency on 4/12
d. 11 U.S.C. 547(b)(4): made during the preference period
83

i. 11 U.S.C. 547(b)(4)(B): If S/P is an insider, the preference
period is the year before the bankruptcy petition is filed
1. 11 U.S.C. 101(31)(B)(vi): If the debtor is a
corporation, [insider includes a] relative of a . . .
officer . . . of the debtor
2. Here, E is the wife of the debtors CEO
3. Thus, the S/P is an insider
ii. Thus, the preference period is 1 year
iii. Here, the transfer was made within 1 year of the bankruptcy
petition
e. Since the transfer meets all the elements, the transfer is avoidable
3. STEP 3: Does the transfer fall into an exception?
a. 11 U.S.C. 547(c)(1): the trustee may not avoid a transfer that was
i. (A) intended by D and S/P to be a contemporaneous exchange
for new value give to the D; and
1. Here, a secured loan is always intended to be
contemporaneous
ii. (B) in fact a substantially contemporaneous exchange
1. Here, there was a 34 delay in perfection
2. Some courts hold that a transfer is never
substantially contemporaneous if theres a delay in
perfection of more than 30 days
iii. The exception is not met
b. The transfer is avoidable
d. Problem 31.2. You won a verdict against M. The next day, four creditors of M filed F/S. The
court entered judgment and you are entitled to a writ of execution. Whats your next move?
i. 11 U.S.C. 303: the creditors may force M into an involuntary bankruptcy
ii. Then, you can ask the trustee to avoid those four S/Is as avoidable preferences
iii. Does this do you any good?
1. Not really
2. After the trustee avoids the S/Is, the S/Ps are unsecured creditors
3. As an unsecured creditor, you share any residual proceeds pro rata with other
unsecured creditors
iv. Threaten the creditors for an assignment of their S/Is
1. Tell them if they dont give you a share in the deal, youll force an involuntary
bankruptcy and have the trustee avoid their S/Is
e. Problem 31.3. S holds a perfected S/I in the inventory of GL. On 6/1, the outstanding balance on
the loan was $2,500,000 and the value of the inventory was $1,200,000. When GL filed
bankruptcy, the loan balance was $1,500,000 and the inventory was $700,000. Every item in
inventory at the tie of bankruptcy was acquired by GL on unsecured credit after 6/1. Does the
trustee have any rights against S?
i. The trustee cannot avoid the original S/I b/c it was perfected before the preference
period
ii. Can the trustee avoid S/Is in inventory acquired between 6/1 and 8/29 (i.e., within 90
days of the filing of the bankruptcy petition)?








6/1 8/29
------|----------------------------------------|-------------------------------------------------------|--------
S/I granted Loan balance = $2.5M Bankruptcy
Loan made Inventory value = $1.2M Loan balance = $1.5M
S/A in inventory Inventory value = $700k
After acqd prop. clause
F/S filed
84

1. STEP 1: When was the transfer made?
a. 11 U.S.C. 547(e)(2)(A): a transfer is made on attachment if the
transfer is perfected within 30 days of attachment
b. Attachment
i. U.C.C. 9-203(b): S/I attaches when:
1. (1) value has been given
a. Here, the loan was made before 6/1
2. (3)(A): D signed a S/A describing the collateral
a. Here, GL signed the S/A before 6/1
3. (2) D has rights in the collateral
a. Here, GL acquired rights in the inventory
(acquired btwn 6/1 and 8/29) every time he
acquired new inventory
ii. Thus, attachment occurred as he acquired new inventory
c. Perfection
i. Here, GL filed a F/S before 6/1
ii. Thus, perfection occurred immediately when the S/I attached
d. E perfected within 30 days of attachment
e. Thus, the transfer occurred when GL received the inventory (btwn 6/1
and 8/29)
f. 11 U.S.C. 547(e)(3): to be sure, a transfer is not made until D
acquires rights in the property transferred
2. STEP 2: Is this a voidable preference?
a. Yes
b. See analysis outlined above
3. STEP 3: Does the transfer fall into an exception?
a. 11 U.S.C. 547(c)(5): a trustee can avoid the amount of: X Y
i. X = [loan balance 90 days before bankruptcy] [inventory
value 90 days before bankruptcy]
1. X = $2.5M $1.2M = $1.3M
ii. Y = [loan balance on the date of bankruptcy filing]
[inventory value on the date of bankruptcy filing]
1. Y = $1.5M $700k = $800k
iii. $1.3M $800k = $500k
iv. The trustee can avoid $500k of the $1.5M claim
b. 11 U.S.C. 506(a)(1): an allowed claim of a S/P is a secured claim to
the extent of the FMV of the property, and is unsecured for any
remaining value
c. The $500k avoided amount becomes unsecured
i. $700k secured claim $500k avoided = $200k secured claim
ii. $800k unsecured claim + $500k avoided = $1.3M unsecured
claim
f. Problem 31.4. Your firm has been lead counsel in a class action against a large, public company
for race and gender discrimination. You settled for $247 million to the class and $33 million to
the firm in fees. Defendants checks were deposited and cleared. Is it time to celebrate?
i. If the defendant files bankruptcy:
1. Cash payment is a transfer
2. The payment is for the benefit of creditors (your firm and your client)
3. The payment is on account of a pre-existing debt (the judgment)
4. There is a presumption of insolvency when the transfer was made
5. The transfer is made w/in the preference period
6. The transfer enabled creditors to receive more than they would have without
the transfer
85

ii. Thus, the transfer is avoidable
iii. Bye bye $33 million in fees!
XXV. Assignment 32: Secured Creditors Against Secured Creditors: The Basics
a. First to File or Perfect. As between conflicting S/Is, the first to file or perfect has priority. U.C.C.
9-322(a)(1).
i. Subordination Allowed. Parties can privately agree to subordinate their interests.
U.C.C. 9-339.
b. Priority in Deposit Accounts. A S/I held by a S/P having control of the deposit account has
priority over a conflicting S/I held by a S/P that does not have control. U.C.C. 9-327(1).
c. Priority in After-Acquired Property
i. Priority in the Double-Debtor Problem. A S/I created by a debtor is subordinate to a S/I
in the same collateral created by other person if:
1. (1) D acquired the collateral subject to S/I created by the other person;
2. (2) the S/I created by the other person was perfected when the D acquired the
collateral; and
3. (3) there is no period thereafter when the S/I is unperfected. U.C.C. 9-325(a).
d. Priority of Future Advances
i. General Rule: First to File or Perfect. U.C.C. 9-322(a).
ii. Rare Exception: NOT ON THE EXAM. Perfection of the S/I dates from the time an
advance is made if the S/I secures an advance that
1. (1)(A) is made while the S/I is perfected under 9-309 when it attaches
(referring to PMSI in consumer goods), and
2. (2) is not made pursuant to a commitment entered into before or while the S/I
is perfected by a method other than 9-309. U.C.C. 9-323(a).
e. PMSI: Superpriority
i. PMSI in Inventory. U.C.C. 9-324(b).
1. Priority over Certain S/Is. [If certain requirements are met,] a perfected PMSI
in inventory has priority over a conflicting S/I in:
a. The same inventory,
b. Chattel paper or an instrument constituting proceeds of the inventory,
c. Proceeds of the chattel paper, if so provided in 9-330, and
d. Except as otherwise provided in 9-327, identifiable cash proceeds of
the inventory to the extent the identifiable cash proceeds are received
on or before the delivery of the inventory to the buyer.
2. Requirements for Priority. A perfected PMSI in inventory has priority . . . if:
a. (1) the PMSI is perfected when the D receives possession of the
inventory;
b. (2) the purchase-money S/P sends an authenticated notification to the
holder of the conflicting S/I;
c. (3) the holder of the conflicting S/I receives the notification w/in 5
years before the D 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 D and describes the
inventory.
ii. PMSI in Proceeds. A PMSI in identifiable proceeds has priority, if the PMSI is perfected
when the D receives possession of the collateral or w/in 20 days thereafter. U.C.C. 9-
324(a).
iii. PMSI in Non-Inventory Goods. A PMSI in goods other than inventory has priority over a
conflicting S/I in the same goods. U.C.C. 9-324(a).
f. Problem 32.1. The facts are illustrated below. Who has priority?
86







i. Bank 1 vs. Lien Creditor
1. Priority Battle: S/P vs. Lien Creditor
2. U.C.C. 9-317(a)(2)(A): a S/P has priority over a lien creditor if the S/I is
perfected before the unsecured creditor levies on the property
3. Here, Lien Creditor levied on 8/7
4. Here, Bank 1 perfected on 8/10
a. U.C.C. 9-308(a): a S/I is perfected if it has attached and all
requirements for perfection have been satisfied
b. Requirements for Perfection
i. U.C.C. 9-310: perfect goods by filing
ii. Bank 1 filed F/S on 8/1
c. Requirements for Attachment
i. U.C.C. 9-203(b): a S/I attaches if:
1. (1) value is given,
2. (2) D has rights in the collateral, and
3. (3)(A) D signed a S/A describing the collateral
ii. Under (2), D already owned the equipment
iii. (1) and (3) occurred on 8/10
iv. Thus, Bank 1s S/I attached on 8/10
d. Thus, Bank 1s S/I perfected on 8/10
5. Thus, Lien Creditor has priority
ii. Bank 2 vs. Lien Creditor
1. Priority Battle: S/P vs. Lien Creditor
2. U.C.C. 9-317(a)(2)(A): a S/P has priority over a lien creditor if the S/I is
perfected before the unsecured creditor levies on the property
3. Here, Lien Creditor levied on 8/7
4. Here, Bank 2 perfected on 8/5
a. U.C.C. 9-308(a): a S/I is perfected if it has attached and all
requirements for perfection have been satisfied
b. Requirements for Perfection
i. U.C.C. 9-310: perfect goods by filing
ii. Bank 2 filed F/S on 8/5
c. Requirements for Attachment
i. U.C.C. 9-203(b): a S/I attaches if:
1. (1) value is given,
2. (2) D has rights in the collateral, and
3. (3)(A) D signed a S/A describing the collateral
ii. Under (2), D already owned the equipment
iii. (1) and (3) occurred on 8/5
iv. Thus, Bank 2s S/I attached on 8/5
d. Thus, Bank 2s S/I perfected on 8/5
5. Bank 2 has priority
iii. Bank 1 vs. Bank 2
1. Priority Battle: S/P vs. S/P
2. U.C.C. 9-322(a)(1): 1st to file or perfect wins
3. Here, Bank 1 filed 8/1
4. Here, Bank 2 filed 8/5
8/1 8/5 8/7 8/10
--|----------------------|----------------------------------|-----------------------------------|
Bank 1 Bank 2 Lien Creditor Bank 1
F/S in equip. Makes loan Levies Makes loan
S/A; F/S in equip. S/A equip.
87

5. Thus, Bank 1 has priority
iv. This is a circular priority problem








1. No clear answer who wins
2. NO CIRCULAR PRIORITY QUESTIONS WILL BE ON THE EXAM
g. Problem 32.2








i. a. The facts are illustrated above. Between CNB and FNB who has priority?
1. When FA sells the equipment to PU:
a. U.C.C. 9-315(a)(1): a S/I continues in collateral notwithstanding sale
unless the S/P authorized the disposition free of the S/I
i. Thus, FNB and CNBs S/I follows the collateral in PUs hands
b. U.C.C. 9-507(a): a filed F/S remains effective w/ respect to collateral
that is sold
i. Thus, FNB and CNBs F/S remain effective
c. S/Ps SI
i. FNB: original collateral
1. S/I in FAs equipment, sold to PU
ii. CNB: original collateral
1. S/I in FAs equipment, sold to PU
iii. CNB: after-acquired collateral
1. S/I in PUs after-acquired equipment
2. Priority
a. U.C.C. 9-325(a): a S/I created by a debtor is subordinate to a S/I in
the same collateral created by other person if:
i. (1) D acquired the collateral subject to S/I created by the
other person;
ii. (2) the S/I created by the other person was perfected when
the D acquired the collateral; and
iii. (3) there is no period thereafter when the S/I is unperfected
b. Application: Here,
i. (1) PU acquired the equipment subject to FNBs S/I
ii. (2) FNBs S/I was perfected when PU acquired the equipment
iii. (3) there was no period after PUs acquisition of the property
when FNBs S/I was unperfected
c. Thus, FNB has priority over CNB
ii. b. When FA opened the CNB bank account, FA granted a S/I to CNB. Between CNB and
FNB, who has priority?
1. When FA sold the equipment to PU for $750k (cash proceeds):
3/21 7/21 8/21 11/4
--|----------------------|----------------------|-----------------------------------|---------
CNB loans FNB loans CNB loans FA sells equip. to PU for $750k
$1M to PU $1.5M to FA $2.5M to FA FA deposits the $750k proceeds
S/I in equip. S/I in equip. S/I in equip. in a CNB bank account
S/A, a/a/p/c S/A, a/a/p/c S/A, a/a/p/c
F/S F/S F/S
Bank 1

priority priority


Lien Creditor Bank 2
priority
88

a. Attachment
i. U.C.C. 9-203(f); 9-315(a)(2): a S/I attaches to any
identifiable proceeds of collateral
ii. Thus, FNB and CNB have an attached S/I in the $750 cash
proceeds
b. Perfection
i. U.C.C. 9-315(c): a S/I in proceeds is a perfected S/I [for 20
days] if the S/I in the original collateral was perfected
ii. U.C.C. 9-315(d)(2): a S/I in proceeds remains perfected after
20 days if the proceeds are identifiable cash proceeds
iii. Assuming the proceeds are identifiable, FNB and CNB have a
perfected S/I in the $750k cash proceeds
c. Priority
i. U.C.C. 9-322(a)(1): first to file wins
ii. Thus, FNB has priority over CNB in the $750k cash proceeds
2. When PU deposited the $750k into its bank account with CNB (deposit account):
a. FNB
i. Attachment
1. U.C.C. 9-203(f); 9-315(a)(2): a S/I attaches to any
identifiable proceeds of collateral
2. Thus, FNB has an attached S/I in the deposit account
ii. Perfection
1. U.C.C. 9-315(c): a S/I in proceeds is a perfected S/I
[for 20 days] if the S/I in the original collateral was
perfected
2. U.C.C. 9-315(d)(2): a S/I in proceeds remains
perfected after 20 days if the proceeds are
identifiable cash proceeds
a. U.C.C. 9-102(a)(9): cash proceeds
means proceeds that are . . . deposit
accounts . . .
3. Thus, FNB has a perfected S/I in the deposit account
as cash proceeds
b. CNB
i. Attachment
1. U.C.C. 9-203(b): a S/I attaches to collateral if:
a. (1) value is given,
b. (2) D has rights in the collateral, and
c. (3)(A) D authenticated a S/A describing the
collateral
2. Here:
a. (1) CNB made the loan to PU on 3/21
b. (2) PU has rights in the deposit account
c. (3) PU signed a S/A describing the deposit
account
3. Thus, CNB has an attached S/I in the deposit account
as original collateral
ii. Perfection
1. U.C.C. 9-312(b)(1), 9-314(a), 9-104: perfect a S/I
in deposit accounts by control
2. U.C.C. 9-104(a)(1): a S/P has control of a deposit
account if the S/P is the bank with which the deposit
account is maintained
89

3. Here, CNB is the bank where the deposit account is
maintained
4. Thus, CNB has a perfected S/I in the deposit account
as original collateral
c. Priority
i. U.C.C. 9-327(1): S/P w/ control has priority over S/P without
control
ii. Thus, CNB has priority over FNB
h. Problem 32.3. The facts of the original problem are illustrated below in black.







i. Does ONB have to file a new F/S?
1. ONBs S/A must describe the collateral (dry cleaning equipment)
2. U.C.C. 9-502(a)(3): a F/S is sufficient only if it indicates the collateral covered
by the F/S
3. ONB does not need a new F/S b/c the old one sufficiently describes the
collateral
ii. What if S/P #2 loans money to George, takes a S/I in the dry cleaning equipment, and
files a F/S, as illustrated in red above?
1. Dry Cleaning Equipment
a. Priority Battle: S/P vs. S/P
b. U.C.C. 9-322(a): first to file or perfect has priority
c. ONB filed first
i. ONBs F/S describes the collateral as equipment
ii. This is sufficient to describe dry cleaning equipment
d. Thus, ONB has priority
2. $400k Advance
a. Attachment
i. ONBs 1st S/A probably does not have a future advance clause
ii. ONBs New S/A: describe the future advance
1. D grants a S/I in the dry cleaning equipment and the
computer to secure the earlier $75k loan and the
$400k loan
2. D grants a S/I in the dry cleaning equipment and the
computer to secure all current and future debts owed
to ONB
b. Perfection
i. ONB doesnt need to file another F/S b/c it is broad enough to
cover the collateral
c. Priority
i. U.C.C. 9-322(a): first to file or perfect has priority
1. U.C.C. 9-323(a): perfection of the S/I dates from
the time an advance is made if the S/I secures an
advance that
a. (1)(A) is made while the S/I is perfected
under 9-309 when it attaches (referring to
PMSI in consumer goods), and
--|-------------------------------------|------------------------------------|---------
ONB loans S/P #2 loans ONB loans
$75k to George $ to George $400k to George
S/A: computer S/A: dry cleaning (for dry-cleaning
F/S: equipment equipment equipment)
F/S: equipment S/A
90

b. (2) is not made pursuant to a commitment
entered into before or while the S/I is
perfected by a method other than 9-309
2. This exception does not apply
ii. Note: U.C.C. 9-323 cmt. 3. Example 1 (last sentence)
3. S/P #2s options
a. Loan enough to pay off ONB
b. Ask ONB to subordinate future advances
i. Problem 32.4
i. a. C loaned $1k to M, took a S/I in a boat, and filed a F/S. A month later, BCA loaned M
$45k, took a S/I in the boat, and filed a F/S. M defaulted and BCA repossessed the boat.
Will a $31k advance from C protect the boat from sale by BCA and prevent BCA from
collecting?
1. Priority over the boat
a. U.C.C. 9-322(a): first to file or perfect has priority
b. C filed before BCA
c. Thus, C has priority over BCA
2. Priority over the $31k advance
a. If there is no future advance clause in the original S/A, file a new S/A
b. The S/A should provide that the $31k advance is secured by the boat
c. U.C.C. 9-323 cmt. 3. Example 1: A would have priority if As April 1
advance was not made under the original agreement with the debtor,
but was under a new agreement.
ii. b. Assume that C filed a F/S before BCA repossessed, but M had not authorized a S/A
and C had not lent any money. Would the scheme work under these circumstances?
1. Yes
2. C would have priority b/c she filed first
3. Except for the rare exception in 9-323(a) which does not apply here, once a
S/P has priority, future advances also have priority
4. See U.C.C. 9-323 cmt. 3. Example 1.
j. Problem 32.5. How should BCA change the way it does business?
i. U.C.C. 9-339: parties can privately agree to subordinate their interests
ii. E.g., C will not give future advances against the boat and if she does, her interest in any
such future advance will be subordinated to BCA
k. Problem 32.6. S currently operates as illustrated below.






i. a. How does S get a first S/I in the speakers?
1. Attachment
a. U.C.C. 9-203(b): a S/I attaches to collateral if:
i. (1) value is given,
ii. (2) D has rights in the collateral, and
iii. (3)(A) D authenticated a S/A describing the collateral
b. Here, S needs Dealers to sign a S/A
i. (1) and (2) are already satisfied b/c shes selling the speakers
on credit
2. Perfection
a. U.C.C. 9-310: perfect S/I in inventory (goods) by filing a F/S
3. Priority
sell speakers loan


unsecured S/I in inventory
credit S/A, F/S
S Dealers Inventory
Lender
91

a. U.C.C. 9-322(a): first to file or perfect has priority
i. Here, the inventory lender already filed a F/S against Dealers
inventory (including the speakers)
ii. Thus, under this rule Inventory Lender has priority
b. U.C.C. 9-324(b): a perfected PMSI in inventory has priority over a
conflicting S/I in the same inventory . . . if:
i. (1) the PMSI is perfected when the D receives possession of
the inventory;
ii. (2) the purchase-money S/P sends an authenticated
notification to the holder of the conflicting S/I;
iii. (3) the holder of the conflicting S/I receives the notification
w/in 5 years before the D receives possession of the inventory;
and
iv. (4) the notification states that the person sending the
notification has or expects to acquire a PMSI in inventory of
the D and describes the inventory.
c. Application
i. S has a sellers PMSI
1. S sold speakers on credit
2. S acquired a S/I in the speakers
ii. U.C.C. 9-324(b)(1): PMSI perfected on delivery
1. U.C.C. 9-308(a): a S/I is perfected if it has attached
and all perfection reqs are satisfied
a. Since S will have already filed a F/S, she
perfects on attachment
2. U.C.C. 9-203(b): a S/I attaches to collateral if:
a. (1) value is given,
b. (2) D has rights in the collateral, and
c. (3)(A) D authenticated a S/A describing the
collateral
3. Have Dealer sign a S/A before delivery
4. On delivery, Dealer has rights in the collateral (i.e.,
title passes) and value is given (credit sale is made)
5. Note: unlike non-inventory PMSIs, there is no grace
period
iii. U.C.C. 9-324(b)(2): notice to Inventory Lender
1. Search the U.C.C. records for a F/S in inventory
2. See U.C.C. 9-324(c) (which S/Ps must be notified)
iv. U.C.C. 9-324(b)(3): Inventory Lender receives notice w/in 5
years before D receives possession
1. Send Inventory Lender a notification before the first
delivery
2. S need not send another notification until 5 years
later
3. Periodically check for new lenders
v. U.C.C. 9-324(b)(4): comply with content requirements
ii. b. What problems do you foresee?
1. Inventory Lenders S/A may provide that if Dealer grants a S/I in inventory to
another, he is in default. S would give notice to Inventory Lender under U.C.C.
9-324(b). Inventory Lender would declare Dealer in default, accelerate the
obligation and repossess and sell the property.
l. Problem 32.7. CNB is a $1M unsecured creditor of G. FNB holds a $5M S/I in all of Gs assets. A
search report shows no filings against G.
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i. a. Is there any way that FNB could have an effective F/S that doesnt show up on an
official search in the state in which Gs business is located?
1. Yes
2. CNB could be searching in the wrong state
a. U.C.C. 9-307(b)(1): if G is an individual, he is located at his principal
residence
b. G could have changed its location
i. U.C.C. 9-316(a)(2): S/I remains perfected until 4 months
after a change in Ds location
ii. CNB may be looking prematurely (w/in the 4 month window)
3. FNB may have filed under the wrong name
a. What is the debtors correct legal name?
b. Is the debtor an individual or organization?
c. See U.C.C. 9-503(a) (sufficiency of debtors name)
4. The Secretary of State may have wrongfully rejected FNBs F/S (with the correct
name)
a. U.C.C. 9-516(d): a wrongfully rejected F/S is effective, except against
purchasers of the collateral who give value and reasonably rely upon
the absence of the F/S
b. Here, reliance by CNB is probably not reasonable considering that CNB
has always considered FNBs $5M loan as perfected
5. The Secretary of State may have improperly indexed the F/S
a. U.C.C. 9-517: an improperly indexed F/S is still effective
ii. b. How can you find out if such a F/S exists, w/o shooting yourself in the foot?
1. Get G to authorize a F/S in all of Gs property, then file a F/S
a. This gives you priority under the first-to-file rule
2. Call FNB and suggest theres something wrong with their filing
a. They will let you know if they filed a F/S
3. If FNB hasnt filed, go ahead and make the loan
4. If you want to be extra-sure, withhold funding upon a finding that you have
priority
m. Hypothetical






i. Between A and B, who has priority?
1. Gs obligation to pay D is an account
a. U.C.C. 9-102(a)(2): account means a right to payment of a
monetary obligation for property that has been sold
2. A has a S/I in the account as original collateral
a. Attachment
i. U.C.C. 9-203(b): a S/I attaches if:
1. (1) value is given,
a. Here, A made a loan for the S/I
2. (2) D has rights in the collateral,
a. Here, D has rights in the account
3. (3)(A) D authenticates a S/A describing the collateral
a. Here, D signed a S/A
b. Perfection
i. U.C.C. 9-313 cmt. 2: perfect a S/I in accounts by filing
3/1 4/1 5/1
--|----------------------------------|----------------------------------------|------------------------------|
As S/I Bs S/I D sells inventory G owes D $100k
Accounts, a/a/p/c Inventory, a/a/p/c to G on credit D defaults
S/P, F/S S/A, F/S
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ii. Here, A filed a F/S in accounts
c. Thus, A has a perfected S/I in accounts as original collateral
3. B has a S/I in the account as proceeds
a. U.C.C. 9-102(a)(64)(C): proceeds means rights arising out of
collateral
b. Attachment
i. U.C.C. 9-315(a)(2): a S/I attaches to any identifiable
proceeds of collateral
c. Perfection
i. U.C.C. 9-315(c): a S/I in proceeds is a perfected S/I [for 20
days] if the S/I in the original collateral was perfected
1. Here, Bs S/I in inventory was perfected by filing a F/S
ii. U.C.C. 9-315(d)(1): a S/I in proceeds continues to be
perfected after 20 days if:
1. (A) a filed F/S covers the original collateral
a. Here, a filed F/S covered inventory
2. (B) the proceeds are collateral in which a S/I may be
perfected by filing in the office where the F/S was
filed
a. Here, the F/S in inventory was filed in the
Secretary of States office
b. Here, the proceeds is an account, which can
be perfected by filing in the same office
3. (C) the proceeds are not acquired with cash proceeds
a. Here, the proceeds were acquired with
inventory
iii. Thus, B has a perfected interest in the account as proceeds
4. Priority
a. Priority Battle: S/P vs. S/P
b. U.C.C. 9-322(a): first to file or perfect wins
c. A filed first
d. Thus, A has priority over B
ii. What if instead, B takes a PMSI in inventory and meets the requirements in U.C.C. 9-
324(b)?
1. B cannot take superpriority over A in the account
2. U.C.C. 9-324(b): [if certain requirements are met,] a perfected PMSI in
inventory has priority over a conflicting S/I in:
a. The same inventory,
b. Chattel paper or an instrument constituting proceeds of the inventory,
c. Proceeds of the chattel paper, if so provided in 9-330, and
d. Except as otherwise provided in 9-327, identifiable cash proceeds of
the inventory to the extent the identifiable cash proceeds are received
on or before the delivery of the inventory to the buyer
XXVI. Assignment 33: Priority in Land and Fixtures
a. General Rule: Lienholder on Real Property has Priority. Where no exception applies, an
encumbrancer or owner of the underlying real property has priority over a S/I in fixtures. U.C.C.
9-334(c).
b. Exceptions
i. First to File Fixture Filing. A perfected S/I in fixtures has priority over a conflicting
interest of an encumbrancer or owner of the real property if D has an interest of record
in the real property or is in possession of the property and the S/I is perfected by a
fixture filing before the encumbrancer/owner is of record. U.C.C. 9-334(e)(1)(A).
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ii. Certain Fixtures. A S/I in fixtures has priority over a conflicting interest of an
encumbrancer or owner of the real property if, before the goods become fixtures, the
S/I is perfected by any method and the fixtures are readily removable:
1. (A) factory or office machines;
2. (B) equipment that is not primarily used or leased for use in the operation of
the real property; or
3. (C) replacements of domestic appliances that are consumer goods. U.C.C. 9-
334(e)(2).
iii. S/P Priority over Lien Creditor. A S/I in fixtures has priority over a conflicting interest of
an encumbrancer or owner of the real property if the conflicting interest is a person
who became lien creditor (including a bankruptcy trustee) after the S/I was perfected by
any method. U.C.C. 9-334(e)(3).
iv. Notation of S/I on COT of Manufactured Home. A S/I in fixtures has priority over a
conflicting interest of an encumbrancer or owner of the real property if the S/I is
created in a manufactured home and is perfected pursuant to a COT statute. U.C.C. 9-
334(e)(4).
v. PMSI Priority. A perfected S/I in fixtures has priority over a conflicting interest of an
encumbrancer or owner of the real property if the debtor has an interest of record in or
is in possession of the real property and:
1. (1) the S/I is a PMSI;
2. (2) the interest of the encumbrancer/owner arises before the goods become
fixtures; and
3. (3) the S/I is perfected by a fixture filing before the goods become fixtures or
w/in 20 days thereafter. U.C.C. 9-334(d).
c. Lienholders Consent. A S/I in fixtures, whether or not perfected, has priority over a conflicting
interest of an encumbrancer or owner of the real property if:
i. (1) the encumbrancer/owner has, in an authenticated record, consented to the S/I or
disclaimed an interest in the goods as fixtures; or
ii. (2) the D has a right to remove the goods as against the encumbrancer or owner. U.C.C.
9-334(f).
d. Remedy for S/P Holding a S/I in Fixtures. If a S/P holding a S/I in fixtures has priority over all
owners and encumbrancers of the real property, the S/P, after default, may remove the
collateral from the real property. U.C.C. 9-604(c).
i. Reimbursement. A S/P that removes collateral shall promptly reimburse any
encumbrancer or owner of the real property for the cost of repair of any physical injury
caused by the removal. U.C.C. 9-604(d).
e. Priority of Construction Mortgages
i. Construction Mortgage. A construction mortgage secures an obligation incurred for
the construction of an improvement on land, including the acquisition cost of the land, if
a recorded record of the mortgage so indicates. U.C.C. 9-334(h).
ii. Priority. Except as provided in (e) and (f), a S/I in fixtures is subordinate to a
construction mortgage if the mortgage is recorded before the goods become fixtures
and the goods become fixtures before the completion of the construction. U.C.C. 9-
334(h).
f. Problem 33.3
i. a. M bought a mobile home on credit from F. F took a S/I in the mobile home and filed a
nonfixture F/S. The state does not issue COT for mobile homes. Under its law, the
mobile home is a fixture. Does Bankruptcy Trustee have priority over F?
1. Perfection
a. How do you perfect a S/I in a fixture?
i. U.C.C. 9-509(a)(1)(B): file a fixture filing
ii. U.C.C. 9-501(a)(2): file a F/S
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iii. U.C.C. 9-509: automatic perfection for a PMSI in consumer
goods
b. Here, F filed a non-fixture filing
2. Priority
a. U.C.C. 9-334(c): generally, the encumbrancer/owner of the real
property has priority over a S/I in fixtures
b. U.C.C. 9-334(e)(3): a perfected S/I has priority against a person who
became a lien creditor after the S/I was perfected by any method
c. Bankruptcy Trustee became a lien creditor upon the filing of the
bankruptcy petition
d. F perfected (i.e., filed a F/S) before the bankruptcy petition was filed
e. Thus, F has priority
ii. b. After M affixed the mobile home to the property, CF extended credit to M, took a S/I
in the mobile home, and made a fixture filing in the real estate records. Who has
priority between F and CF?
1. U.C.C. 9-334(c): generally, the encumbrancer/owner of the underlying real
property has priority over a S/I in fixtures
2. Here, CF does not have an interest in the underlying real property; CF only has
an interest in the mobile home
3. Priority Battle: S/P vs. S/P
4. U.C.C. 9-322(a)(1): first to file or perfect has priority
a. Note: does not distinguish between fixture and non-fixture filings
5. F filed first
6. Thus, F has priority
g. Problem 33.4
i. a. SC sold a sound system to J and installed it, making it highly integrated in the building.
Instead of paying for the sound system, he stalls for time. What do you recommend?
1. Construction Lien
a. Note: CONSTRUCTIONS LIENS WILL NOT BE ON THE EXAM
b. Threaten to file notice of a claim of lien
i. Actually bringing a claim of lien would probably halt
construction
c. New York Lien Law 3: [a listed person] who performs labor or
furnishes materials for the improvement of real property with the
consent or at the request of the owner . . . shall have a lien . . . upon
the [entire] real property . . .
2. Can M bargain for a S/I in the sound system?
a. U.C.C. 9-604(c): if a S/P holding a S/I in fixtures has priority over all
owners and encumbrancers of the real property, the S/P, after default,
may remove the collateral from the real property
b. U.C.C. 9-604(d): a S/P that removes collateral shall promptly
reimburse any encumbrancer or owner of the real property for the cost
of repair of any physical injury caused by the removal
c. This is problematic b/c the sound system is integrated into the property
ii. b. MB recorded their mortgage. Assuming the bank acted in good faith and w/o
knowledge that SC installed the sound system, where does this leave you?
1. Priority
a. U.C.C. 9-334(c): generally, the encumbrancer/owner of the
underlying real property has priority over a S/I in fixtures
b. U.C.C. 9-334(d): a perfected S/I in fixtures has priority over a
conflicting interest of an encumbrancer or owner of the real property if
the debtor has an interest of record in or is in possession of the real
property and:
96

i. (1) the S/I is a PMSI;
ii. (2) the interest of the encumbrancer/owner arises before the
goods become fixtures; and
iii. (3) the S/I is perfected by a fixture filing before the goods
become fixtures or w/in 20 days thereafter
iv. Application
1. Here, J is in possession of the real property
2. (1) here, SC has a PMSI
a. SC sold the sound system on credit
b. SC took a S/I to secure the purchase price
3. (2) here, MB recorded its mortgage after the goods
became fixtures
4. (3) here, its already been >20 days after the goods
became fixtures, and a fixture filing has not been
filed yet
v. Thus, SC does not meet this exception
c. Thus, MB has priority over SC
2. Remedy for S/P
a. U.C.C. 9-604(c): if a S/P holding a S/I in fixtures has priority over all
owners and encumbrancers of the real property, the S/P, after default,
may remove the collateral from the real property
b. SC does not have priority over all interests in the real property
c. Thus, SC cannot remove the fixtures
h. Problem 33.5. SC contracted for installation for DL. SC wants the right to rip everything back
out if they dont pay.
i. b. If SC makes a fixture filing, whose authorization does SC need?
1. U.C.C. 9-509(a)(1): a person may file a F/S if the debtor authorizes the filing
a. U.C.C. 9-102(a)(28): debtor means the person who owns the
collateral
b. DL owns the collateral (speakers)
c. Thus, SC needs DLs authorization
d. If DL rents the building, SC does not need the land owners
authorization
2. U.C.C. 9-502(b)(4): in fixture filings, if the debtor does not have an interest of
record in the real property, the fixture filing must provide the name of the
record owner
a. If DL rents the building, SC needs the name (but not the consent) of the
land owner
3. If there are mortgages against the property:
a. Priority
i. U.C.C. 9-334(c): generally, the encumbrancer/owner of the
underlying real property has priority over a S/I in fixtures
ii. U.C.C. 9-334(d): a perfected S/I in fixtures has priority over
a conflicting interest of an encumbrancer or owner of the real
property if the debtor has an interest of record in or is in
possession of the real property and:
1. (1) the S/I is a PMSI;
2. (2) the interest of the encumbrancer/owner arises
before the goods become fixtures; and
3. (3) the S/I is perfected by a fixture filing before the
goods become fixtures or w/in 20 days thereafter
iii. Here, (1) is met
97

iv. Here, (2) is met if there are mortgages on the property
already
v. Here, (3) is met if SC files a fixture filing before or w/in 20 days
after the sound system becomes a fixture
b. S/Ps Remedy
i. U.C.C. 9-604(c): if a S/P holding a S/I in fixtures has priority
over all owners and encumbrancers of the real property, the
S/P, after default, may remove the collateral from the real
property
ii. If the requirements in U.C.C. 9-334(d) are met, SC could
remove the fixtures as a remedy for default
iii. U.C.C. 9-604(d): BUT, this might be a problem b/c of the
reimbursement requirement
ii. c. Does your answer to question b change if SC is installing sound system in a new
building that is under construction? In the construction scenario, would DLs consent be
of help?
1. There is probably a construction mortgage on the property
a. U.C.C. 9-334(h): except as provided in (e) and (f), a S/I in fixtures is
subordinate to a construction mortgage if the mortgage is recorded
before the goods become fixtures and the goods become fixtures
before the completion of the construction
i. Here, the construction mortgage was probably recorded
before the goods become fixtures
ii. Here, the goods became fixtures before the completion of
construction
iii. Thus, the construction mortgage has priority
b. U.C.C. 9-604 does not apply b/c SC does not have priority over all
interests in the underlying property
c. Here, SC should ask the construction mortgage lender for
subordination
2. DLs consent would not help
a. U.C.C. 9-334(f): a S/I in fixtures, whether or not perfected, has
priority over a conflicting interest of an encumbrancer or owner of the
real property if:
i. (1) the encumbrancer/owner has, in an authenticated record,
consented to the S/I or disclaimed an interest in the goods as
fixtures; or
ii. (2) the D has a right to remove the goods as against the
encumbrancer or owner
b. Under (1), SC would need the construction mortgage lenders consent
c. SC should ask the construction mortgage lender to subordinate
XXVII. Assignment 36: Buyers Against Secured Creditors
a. General Rule: S/I Attaches Unless S/P Authorized Disposition Free of S/I. A S/I continues in
collateral notwithstanding sale, lease . . . or other disposition thereof unless the S/P authorized
the disposition free of the S/I. U.C.C. 9-315(a)(1).
b. Exceptions
i. Buyer in the Ordinary Course of Business. A buyer in the ordinary course of business
takes free of a S/I created by the buyers seller. U.C.C. 9-320(a).
1. Buyer in the Ordinary Course of Business
a. Elements. Buyer in the ordinary course of business means a person
who buys goods
i. In good faith,
98

ii. Without knowledge that the sale violates the rights of
another person in the goods,
iii. In the ordinary course [i.e., comports with the usual or
customary practices in the kind of business]
iv. From a person . . . in the business of selling goods of that
kind. U.C.C. 1-201(b)(9).
b. Not Bulk Buyer or Buyer for Satisfaction of Debt. Buyer in the
ordinary course of business does not include a person that acquires
goods in a transfer in bulk or as security for or in total or partial
satisfaction of a money debt. U.C.C. 1-201(b)(9).
ii. Consumer-to-Consumer. A buyer of goods from a person who used or bought the
goods for use primarily for personal, family or household purposes takes free of a S/I,
even if perfected, if the buyer buys:
1. (1) w/o knowledge of the S/I;
2. (2) for value;
3. (3) primarily for the buyers personal, family, or household purposes; and
4. (4) before the filing of a F/S covering the goods. U.C.C. 9-320(b).
iii. Buyer Buys w/o Knowledge Before Perfection. A buyer of chattel paper, goods, or
instruments takes free of a S/I if the buyer gives value and receives delivery of the
collateral without knowledge of the S/I before it is perfected. U.C.C. 9-317(b).
c. Multiple Transfers
i. Examine Each Transfer Individually. Where theres more than one transfer, examine
each transfer individually to determine if a buyer took free of a S/I.
ii. Shelter Doctrine. The shelter doctrine provides that if a buyer takes free of a S/I,
future transferees are sheltered from the prior lien.
d. Problem 36.5. S/P sold a TV to D and D signed a S/A and F/S. The S/A provided that D agrees
not to sell the collateral and that any purported sale is void. S/P filed the F/S. Six months later,
D sold the TV to Buyer (paying $960 by check), who did not know about the S/A. Is S/P entitled
to repossess the TV? Does S/P have to refund Buyers $960?
i. U.C.C. 9-315(a)(1): a S/I continues in collateral notwithstanding disposition unless the
S/P authorized the disposition free of the S/I
1. Here, the S/A provided that D may not sell the collateral
2. Thus, S/P did not authorize the disposition free of the S/I
3. Thus, the S/I continues in the TV unless an exception applies
ii. U.C.C. 9-320(a): a buyer in the ordinary course of business takes free of a S/I created
by the buyers seller
1. U.C.C. 1-201(b)(9): buyer in the ordinary course of business means a person
who buys goods
a. In good faith,
b. Without knowledge that the sale violates the rights of another person
in the goods,
c. In the ordinary course [i.e., comports with the usual or customary
practices in the kind of business]
d. From a person . . . in the business of selling goods of that kind
2. Application
a. Buyer in the ordinary course of business
i. Buyer bought the TV in good faith
ii. Buyer did not know about the S/A
iii. It isnt clear whether selling a TV by check is the customary
way in the business of selling TVs
iv. Here, D is not in the business of selling TVs
v. Thus, Buyer is not a buyer in the ordinary course of business
b. S/I created by the buyers seller
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i. Here, the S/I was created by the buyers sellerD
3. This exception is not met
iii. U.C.C. 9-320(b): a buyer of goods from a person who used or bought the goods for use
primarily for personal, family or household purposes takes free of a S/I, even if perfected,
if the buyer buys:
1. (1) w/o knowledge of the S/I;
2. (2) for value;
3. (3) primarily for the buyers personal, family, or household purposes; and
4. (4) before the filing of a F/S covering the goods
5. Application
a. The Seller, D, probably used the TV for personal/family/household
purposes
b. Buyer did not have knowledge of the S/A
c. Buyer bought for value$960
d. Buyer bought the TV for personal/family/household purposes
e. Here, S/P filed a F/S before Buyer bought the TV
6. This exception is not met
iv. U.C.C. 9-317(b): a buyer of goods takes free of a S/I if the buyer gives value and
receives delivery of the collateral without knowledge of the S/I before it is perfected
1. Application
a. Buyer gave $960 in value
b. Buyer received delivery without knowledge of the S/A
c. These events did not occur before S/P filed a F/S
2. This exception is not met
v. Thus, Buyer takes subject to S/Ps S/I
vi. S/P can repossess the TV from Buyer
vii. S/P does not have to refund Buyer the $960. Its his fault for not running a U.C.C. search.
e. Problem 36.6. Your client, Bank, has a S/I in the inventory of SC. S/A authorizes only sales in the
ordinary course of business, prohibits credit sales, and requires D to deposit all proceeds of sales
of collateral to Ds account at Bank. Bank perfected by filing. On 10/20, SC filed bankruptcy. The
following transactions took place before the filing of the bankruptcy petition:
i. a. SC sold a sound system to R partially on credit. R did not know of the S/A. Is Bank
entitled to repossess the sound system from R?
1. U.C.C. 9-315(a)(1): a S/I continues in collateral notwithstanding disposition
unless the S/P authorized the disposition free of the S/I
a. Here, the S/A provided that D cannot make credit sales
b. Thus, S/P did not authorize the disposition free of the S/I
c. Thus, the S/I continues in the sound system unless an exception applies
2. U.C.C. 9-320(a): a buyer in the ordinary course of business takes free of a S/I
created by the buyers seller
a. U.C.C. 1-201(b)(9): buyer in the ordinary course of business means
a person who buys goods
i. In good faith,
ii. Without knowledge that the sale violates the rights of
another person in the goods,
iii. In the ordinary course [i.e., comports with the usual or
customary practices in the kind of business]
iv. From a person . . . in the business of selling goods of that kind
b. Application
i. Buyer in the ordinary course of business
1. R bought in good faith
2. R did not know of the S/A
3. The sale was probably in the ordinary course
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4. SC is in the business of selling sound systems
5. Thus, R is a buyer in the ordinary course of business
ii. S/I created by the buyers seller
1. Here, the S/I was created by Rs seller, SC
c. This exception is met
d. Thus, R takes free of Banks S/I
ii. b. G is a lawyer who has been representing SC. As of 7/17, SC owed G $16,458 for legal
services. G agreed to accept a sound system as partial pmt. Is Bank entitled to
repossess the sound system from G?
1. U.C.C. 1-201(b)(9): buyer in the ordinary course of business does not include
a person that acquires goods in total or partial satisfaction of a money debt
2. Thus, G is not a buyer in the ordinary course of business
3. The exception under 9-320(a) is not met
f. Problem 36.1. The facts are illustrated below.





i. a. Alecia wants to sue to remove All Seasons lien from the title. How good is her case?
1. Where theres more than one transfer, examine each transfer individually to
determine if a buyer took free of a S/I
2. Shelter doctrine: if a buyer takes free of a S/I, future transferees are sheltered
from the prior lien
3. Transfer #1: Eddy to Sunrise
a. U.C.C. 9-315(a)(1): a S/I continues in collateral notwithstanding
disposition unless the S/P authorized the disposition free of the S/I
i. Here, the S/A provided that D may not transfer any interest in
the collateral
ii. Thus, S/P did not authorize the disposition free of the S/I
iii. Thus, the S/I continues in the TV unless an exception applies
b. U.C.C. 9-320(a): a buyer in the ordinary course of business takes free
of a S/I created by the buyers seller
i. U.C.C. 1-201(b)(9): buyer in the ordinary course of
business means a person who buys goods
1. In good faith,
2. Without knowledge that the sale violates the rights
of another person in the goods,
3. In the ordinary course [i.e., comports with the usual
or customary practices in the kind of business]
4. From a person . . . in the business of selling goods of
that kind
ii. Application
1. Buyer in the ordinary course of business
a. Sunrise bought the TV in good faith
b. Sunrise did not know about the S/A
c. It isnt clear whether this is the customary
way to sell RVs
d. Here, Eddy is not in the business of selling
RVs
e. Thus, Sunrise is not a buyer in the ordinary
course of business
2. S/I created by the buyers seller
Sold RV RV RV

S/I RV #2 $23k

All
Seasons
(S/P)
Eddy
(D)
Sunrise Alecia
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a. Here, the S/I was created by Sunrises
sellerEddy
iii. This exception is not met
c. U.C.C. 9-320(b): a buyer of goods from a person who used or bought
the goods for use primarily for personal, family or household purposes
takes free of a S/I, even if perfected, if the buyer buys:
i. (1) w/o knowledge of the S/I;
ii. (2) for value;
iii. (3) primarily for the buyers personal, family, or household
purposes; and
iv. (4) before the filing of a F/S covering the goods
v. Application
1. The Seller, Eddy, probably used the RV for
personal/family/household purposes
2. Here, Eddy had knowledge of the S/I
3. Sunrise bought for value in exchanging RV for RV #2
4. Sunrise did not buy the RV for
personal/family/household purposes
5. All Seasons did not file a F/S
vi. This exception is not met
d. U.C.C. 9-317(b): a buyer of goods takes free of a S/I if the buyer gives
value and receives delivery of the collateral without knowledge of the
S/I before it is perfected
i. Application
1. Sunrise gave valueRV #2
2. Sunrise received delivery without knowledge of the
S/A
3. These events did not occur before All Seasons noted
its S/I on the COT
ii. This exception is not met
e. Thus, Sunrise took subject to All Seasonss S/I
4. Transfer #2: Sunrise to Alecia
a. U.C.C. 9-315(a)(1): a S/I continues in collateral notwithstanding
disposition unless the S/P authorized the disposition free of the S/I
i. Here, the S/A provided that D may not transfer any interest in
the collateral
ii. Thus, S/P did not authorize the disposition free of the S/I
iii. Thus, the S/I continues in the TV unless an exception applies
b. U.C.C. 9-320(a): a buyer in the ordinary course of business takes free
of a S/I created by the buyers seller
i. U.C.C. 1-201(b)(9): buyer in the ordinary course of
business means a person who buys goods
1. In good faith,
2. Without knowledge that the sale violates the rights
of another person in the goods,
3. In the ordinary course [i.e., comports with the usual
or customary practices in the kind of business]
4. From a person . . . in the business of selling goods of
that kind
ii. Application
1. Buyer in the ordinary course of business
a. Alecia bought the TV in good faith
b. Alecia did not know about the S/A
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c. This is probably the customary way to sell
RVs
d. Sunrise is in the business of selling RVs
e. Thus, Alecia is a buyer in the ordinary course
of business
2. S/I created by the buyers seller
a. Here, the S/I was not created by Alecias
sellerSunrise
iii. This exception is not met
c. U.C.C. 9-320(b): a buyer of goods from a person who used or bought
the goods for use primarily for personal, family or household purposes
takes free of a S/I, even if perfected, if the buyer buys:
i. (1) w/o knowledge of the S/I;
ii. (2) for value;
iii. (3) primarily for the buyers personal, family, or household
purposes; and
iv. (4) before the filing of a F/S covering the goods
v. Application
1. The Seller, Sunrise used the RV for inventory, not
personal/family/household purposes
2. Sunrise had knowledge of the S/I
3. Alecia bought for value$23k
4. Alecia probably bought the RV for
personal/family/household purposes
5. All Seasons did not file a F/S
vi. This exception is not met
d. U.C.C. 9-317(b): a buyer of goods takes free of a S/I if the buyer gives
value and receives delivery of the collateral without knowledge of the
S/I before it is perfected
i. Application
1. Alecia gave value$23k
2. Alecia received delivery without knowledge of the
S/A
3. These events did not occur before All Seasons noted
its S/I on the COT
ii. This exception is not met
e. Thus, Alecia took subject to All Seasonss S/I
f. She must pay All Seasons the $23k or give the RV back (but she is not
personally liable on the debt)
ii. b. If Alecia insisted on seeing the COT for the RV, what would she have learned?
1. When car dealers buy used cars, they dont actually get the COT from the seller.
Instead, the seller signs a power of attorney to allow the dealer to apply for a
new COT for when the sells the car.
2. The COT will show Eddies name and All Seasons lien (noted on COT under
U.C.C. 9-311(a), (b)).
3. Alecia should ask if the lien has been released
a. Alecia should ask to see a lien release
b. But, Alecia does not have any recourse if the dealer makes up a story
about where the lien release is
g. Problem 36.2. Alecia found a piano she likes for $10,000 at American Piano Company. Alecia
wants you to represent her at the closing.
i. a. Is there anything to her fears?
1. Here, the same problems presented in Problem 36.1 arise
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2. Where did American Piano Company get the piano?
a. Ask for an invoice
b. Contact the seller
3. Search the U.C.C. records under the sellers name for a F/S covering the piano
(whether its inventory or consumer goods in the sellers hands)
4. Practical Solution: Alecia should pay cash and not give her name or address.
That way, a S/P wouldnt be able to track her down to repossess the piano.