Select Page

Secured Credit
Rutgers University, Newark School of Law
Ondersma, Chrystin

Chrystin Ondersma, Rutgers School of Law – Newark.

Commercial law – Security Interest. Spring 2013

Security Interest General

What is security interest

Lease v. security interest (not in the exam)

· If security has a right when the rent is not pay, but no right when it is paid==> security interest (not lease)

· Ex lease car for a term of five yeas, and on the end, the leaser has right to purchase the car for one dollar

o The option to purchase for a dollar is not in the concern of the security interest (it is a nominal value)

9-109 (a)(1)


A rental agreement _ option to buy back for a dollar –> it is a seciurity interst ==> article 9 applies

· Can be self-help but still has to go through the forclosure

Priority issue

– Security Creditor v. Security Creditor

1. F/S v. F/S (NO S/A)

– Transferor >> Inventory >> PMSI >> normal F/s Perfection


2. Inventory

3. PMSI v. Inventory

– Future advance

1. Priority Relate Back 1st F/S date

§ 1st F/s (broad enough to cover 1st collateral and 2nd collateral) + original S/A covers future advance

§ 1st F/s (broad enough to cover 1st collateral and 2nd collateral) + original S/A NOT cover future advance + Later S/A to cover future advance

2. No relate back to 1st F/S date

§ 1st F/S (NOT broad enough)

– Security Creditor v. Lien Creditor

1. S/A + F/S v. levy

Transfer of collateral

– Normal



Foreclosure Sale

– How discharge of S/I

– Stay of s/i


Security Interest Created (Attached)– Assignment 49

Buyer in ordinary Course of Business – Assignment 68

Buyer in ordinary course of business (Not buyer in creditor’s deposition (see Assignment *****, the distribution)

9-315 S/I continues on the lateral unless the seller is authorized to disposition free of the S/I.

Buyer in ordinary course of business

– Buyer In good faith

– Buyer has no knowledge that the sale to him violates other’s right (merely know there is a S/a is NOT sufficient)

– In seller’s ordinary course in the business of selling goods of that kind (Not buyer’s ordinary course of business)


Not a buyer in ordinary course of business

– A person acquires food in total or partial satisfaction of a money debt is not a Buyer in ordinary course of business.

Buyer free of security interest if

– He is a buyer in ordinary course of business

– The S/I is created by the buyer’s seller

– Even if buyer knows the S/I and S/I is perfected


Buyer free of security interest if (Garage Sale exception)

– Consumer goods

– Seller does not have to be in the ordinary course of business

– Buyer does not have to be buyer in ordinary course of business

– But

o Seller used or bought the goods primary for personal, family, or household purpose

o Buyer buys the goods primary for personal, family, or household purpose

o No knowledge of the S/I

o For value

o Before the filing of the Financing Statement (NOT before perfect because some S/I does not have to file F/S to perfect)

Special rules

Daniel case

– Buyer become a buyer in OCB, at the time the good is identifiable by Contract

S/P possess the goods beats buyer in OCB. 5-320 (e)

– So possession through agent (the manufacturer as agent) under 9-313(a)/(c) (cmt 3) can beat Daniel case by possessing the collateral before it become available for buyer to have a contract to identify it.


Financing Statement – Assignment 58

Under 9-520(a), the officer can rightfully to refuse the F/S, if it does not provide information under 9-516(b). [520(a)]

– Not provide information of 516(b) if the filing office is Unable to read or to Decipher the information. [516 (c)]

502(a) information – required to be effective

– Debtor’s name

– Creditor’s name

– Indication of the collateral covered

516(b) information required to be accepted, but not reason to be ineffective

– Debtor’s name

– Creditor’s name

– Creditor’s mailing address

– 516(b)((5)

o Mailing address of debtor

o An indication of whether Debtor is an individual or organization

(NOTE: if f/s has not indication of f/s, but meets 516(b), officer can still accept it but it is ineffective)

Not necessary to check accuracy of the records. Cmt 3, 516.


1. Provide 502(a)/(b), provide 516(b)

è effective, accepted

è perfected and has record

2. Provide 50

topple to assert the s/I if crditor try to mislead its name.

Error in Creditor’s Address

– Still effective, and

– The error will not affect the effectiveness of notification sent to the wrong address of creditor. 516 cmt 5.

Collateral indication

– 504 (a) – same as S/A

– 504 (b) can use all debtor’s asset (that will also include the commercial tort claims before S/A, 9-108, cmt 5) or personal property

– If not meeting 504, then it is not perfected

Financing Statement filing System – Assignment 56

Financing statement

9-310(a)(B) – all f/s to be filed, except 311

311(a) – for state statute or fed statue, like for cars, patent, copyright preempt the UCC

– for real estate mortgage


– National Peregrine, inc. v. Capital Federal Savings and Loan Association of Denver

o S/P perfects an interest in copyrights and receivables of copyrights in the US Copyright Office

– Broadcase Music

o Assignment of royalty is not recordable in PTO


– Uspto office


– UCC filing (in re: Pasteurized Eggs Corporation)

– Ownership à USPTO (Cybernetic)

– Assignment à UCC (Cybernetic)

Aircraft/ railroad

– Preempt UCC

But best anser is to search both

Buyer take free of S/I after receive it v. Line 9-317

– Except PMSI, a buyer other than secured party, takes Goods, instrument take free of security interest if the buyer give value and received delivery of the collateral without Knowledge of the S?I and before it is perfected.

è Compare 9-317 with 9-320(a) (Buyer in Ordinary Course of Business), who has better position then buyer only since BOCB can take collateral free of S/I EVEN IF he knows the S/I and the S/I is perfected.

ð 9-317 Buyer is more like buyer of consumer goods who needs to have NO knowelge of S/I, Before perfect, seller/buyer of consumer goods.