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Secured Transactions
John Marshall Law School, Chicago
Lewis, Paul B.

SECURED TRANSACTIONS
OUTLINE
LEWIS
 
Introduction
 
I.          Effect. Article 9 of the UCC has radically changed the rules on priority between competing assignees of contract rights subject to the Code. Most assignements are protected in order of their filing §9-312. To achieve that result, Article 9 employs two basic concepts: attachment and perfection.
A.       Transactions covered: The UCC provisions apply both to outright sales of accounts of contract rights and to assignments for security purposes. However, recall that Article 9 does not apply to certain types of claims and certain types of transactions. In addition, under Article 9 a financing statement does not have to be filed to perfect certain security interests, such as an assignment of accounts that do not, alone or in conjunction with other assignments to the same assignee, transfer a significant part of the assignor’s outstanding accounts
B.       Attachment. Creditor must have possession of the collateral under an agreement with the debtor, or the debtor has executed a security agreement
1.         Historically. In the old days no written security agreements were allowed only possession would attach an interest. Now security agreements act as a proxy to possession.
II.       Property rights – the secured creditor receives property rights against the debtor to short-circuit the collection process faced by an unsecured creditor.
A.       If the debtor defaults, the secured creditor can repossess the property without going to court first. Property rights exist as soon as the debtor grants a security itnerest to the creditor, even if the creditor never gives notice of that itnerest to the public.
B.       If notice is given, the security interest is perfected and the secured creditor receives priority rights.
III.    Priority rights – if the secured creditor gives notice to the public of its security interest, the secured creditor reserves a place in line for its collateral– it creates a priority to those assets.
 
Collateral Classification
 
Collateral Types
Tangible
Quasi-Tangible
Intangible
Consumer goods
Inventory
Equipment
Farm products
Instruments
Documents of title
Chattel paper
Stocks and bonds
Accounts
General intangibles (e.g., copyrights, trademarks..)
 
I.          Generally. There are 9 types of collateral divided into 2 broad classifications: tangible and intangible property, and 4 special classes known as proceeds, products, fixtures, and accessions. The classification of collateral determines the other rules that will be followed for attachment and perfection, and also determine priority among multiple secured parties.
II.       Tangible Property. Includes all things movable at the time the security interest attaches. §9-105(h)  Tangible property can become a fixture or an accession as defined in §§9‑313, 9‑314.
A.       Goods. “Includes all things which are movable at the time the secutiy interest attaches or which are fixutres, but does not include money, documents, insturments, … accounts, chattel paper, general intangibles, or minerals or the like (including oil and gas) b/f extraction….”§9-105(h)
1.         Consumer Goods. Goods used primarily for personal, family or household purposes. §9-109(1)
2.         Equipment. Goods bought or used primarily in business (including farming or a profession) or by a debtor who is a nonprofit organization or a governmental subdivision or agency. Any goods not defined as inventory, farm products or consumer goods are equipment. §9-109(2)
3.         Farm Products. Crops or livestock or supplies used or produced in farming operations or products of crops or livestock in their unmanufactured states (e.g., ginned cotton, woolclip, milk and eggs), and if they are in possession of a debtor engaged in raising, fattening, grazing or other farming operations, are considered farm products. §9-109(3)
4.         Inventory. Property held for sale or lease or to be furnished under contracts of service. Includes raw materials, work in process or any materials used or consumed in a business. §9-109(4)
B.       Fixtures. Not defined by the UCC except that they do not include ordinary building materials incorporated into an improvement on land. §9‑313(2). Goods become fixtures when they are so physically attached to the r.e.that they become part of the r.e. so that they cannot be removed

he goods it covers. A document must purport to be issued by or addressed to a bailee and purport to cover goods in the bailee’s possession which are either identified or are fungible portions of an identified mass. §1‑201(15)
2.         Letters of Credit. An obligation of the issuer to pay drafts drawn upon the customer by the beneficiary of the letter of credit. The agreement is between the issuer and the customer to advance funds on the customer’s behalf when requested by the beneficiary. Usually, a contract exists between the customer and the beneficiary underlying this transaction which requires the furnishing of good services or some other transaction arrangement to justify the use of the letter of credit. Granted by a reliable intermediary bank to a seller on behalf of a buyer that the seller does not necessarily know, or dealt with. §BC §5-102, 5-104
C.       Accounts (A/R) . Any right to payment for goods sold or leased or services rendered which is not evidenced by an instrument or chattel paper, whether or not it has been earned by performance. §9‑106
D.       Chattel Paper. A writing or writings which evidence both a monetary obligation and a security interest in or a lease of specific goods. §9‑105(1)(b)
1.         “Chattel Paper” is a separate category of collateral, and a security interest in “accounts receivable” will not include chattel paper.
2.         “Such paper has become an important class of collateral in financing arrangements.” §9-308, comment 1  (SEE ASSET SECURITIZATION SECTION)
E.        General Intangibles.  Any property that does not fit in the other categories, i.e. goods, accounts, chattel paper, documents, instruments, and money. These may inclue e.g., patent and trademark rights, copyrights and goodwill. §9-106