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Secured Transactions
South Texas College of Law Houston
Worley, John J.

Secured Transactions – Obligation to repay a loan using collateral as security under Article 9
 
I. Analysis: 
1.       Is it covered under art 9 (9-109)?  True leases are not covered
2.       Classification of collateral: goods, equipment, farm products, etc. § 109
3.       Is there attachment? (security agreement)
A.      authenticated Security agreement in a record
B.      Creditor gives value
C.      Debtor has some rights in the collateral
4.       Is there perfection? Has paperwork been filed? Financing statement. When did perfection occur?
 
II. The Process
1)       Attachment- making the security interest effective (formation)/creditor’s claim becomes effective against the debtor
2)       Perfection- satisfying the legal requirements of the UCC/ creditor’s interest becomes effective against the rest of the world.
3)       Priority- process of gaining superior rights to regain/reclaim the collateral. Always the most senior or bankruptcy trustee.
 
III.       Scope of 9-109 🙁 a) (1) a transaction creating a security interest in personal property (not real property or fixture) by contract securing payment or performance of a promise. Multiple parties with one party putting up his property as collateral to the loan. 
 
Included (9-109) (a):
1.       contractual security interest
2.       agricultural liens
3.       sales of accounts, chattel paper, payment intangibles, or prom. notes
4.       consignments
5.       security interest under 2-401 & 2-505
6.       Security interest under 4-210 & 5-118
 
 Exclusions: 9-109(d): the types of transactions that article 9 will not apply:
·         No tort claims
1.       Exception: Acceptable in commercial torts claims
·         Liens: Landlord & statutory liens
1.       Exception: Agricultural liens included
·         no wage assignments
·         Collection paper- no assignment of accounts for purely collection purposes
·         Sale of business- papers attached to the sale of a business are excluded
·         Real Property-creation or transfer of interest in lien (includes leases or rents)
 
IV.   Consignments 9-102 (20) – Are bailment’s for the purpose of sale. Where the owner of goods sends them to a retailer for sale to the public. If the consignee is not able to sell them, the goods are returned to the owner (consignor)
 
·         Consignor- owner of goods          vs.        Consignee- retailer
·         Issue: consignee takes loans for their business, creditor tries to resecure all consignee’s inventory as collateral, yet not all of the inventory is the property of the consignee
·         Obligation/ duty of the consignor to attach & perfect his interest in goods to protect him from actions by creditors
·         a consignor must comply with article 9 to protect his interest in the goods against the consignees creditor if :
            (1) the goods are worth $1,000 or more (total aggregate value of goods); AND
 
          (2) the consignor did not use goods for personal, family, or household                                                                                        purposes (clothes are not covered under article 9); AND
 
            (3) the consignee is the person who: (Consignee requirements)
                    a. deals of the goods of the kind under a name other than the consignor’s;                                                                          b. the consignee is not an auctioneer,
                    c. the consignee is not generally known by its creditors to be                                                                                                         substantially engaged in selling the goods of another. (does creditor have notice the                                                                 inventory includes consignments)
 
        Policy: Article 9 requires notice: if ALL requirements are not met; then the creditor has no duty to file under Art. 9. But if the creditor should know that the consignee does consignments then it should be check
 
V. Lease                       vs.  Secured transaction (disguised sale)
*K permits lessee to                                    * lessee becomes the owner of the property forlittle                           terminate at any time                                or no consideration
& return goods
                                                            *  lease is for the entire economic life of the leased                                                                                                                         goods
 
VII. Classification of collateral- creates of security interest: tells you how to file to perfect your title
 
GOODS: tangibles
·         Equipment-9-120 (a) (33)- goods used in business are equipment when they are fixed assets or have, as identifiable units, a relatively long period of use in the business.
·         farm products§9-102(a)(34)- livestock or crops
·         inventory §9-102 (a)(48)- goods are inventory (things on the shelf) if they are held by a person who holds them for sale or lease
1.       Includes timber or raw materials, work in progress
·         consumer goods §9-102 (a) (23): Goods for personal, family, or household purposes
 
QUASI TANGABLE PROPERTY: pieces of paper used as collateral:
·         Instruments § 9-102 (a) (47)
1.       Promissory notes  § 9-102 (a) (65)
·         Investment property § 9-102 (a) (49) :stocks & bonds and rights to accounts containing same
·         Documents § 9-102 (a) (30)- whse receipts & BOLs
·         Chattel paper § 9-102 (a) (11)- writing evidences monetary obligation AND security interest in specific goods. Purchaser has status of holder & secured party.
·         Letters of Credit Rights § 9-102 (a) (51)
 
INTANGIBLE PROPERTY: (Property having no significant physical form)
·         Accounts § 9-102 (a) (2)
1.       Health Care receivables § 9-102 (a) (

d up to default
·         Doesn’t require signature but requires authentication
·         If realty involved- it should describe the property & owner
 
            Two requirements of Financing statement:
·         It identifies the Debtor & Creditor
·         Provides a description of collateral- if it involves real property then must include a description of the property
 
5 types of Perfection:(Fin. statement)
1.       Possession  by creditor (pledge): 9-313- 20 days to perfect & use reasonable care while collateral in secured party’s possession
Perfection by possession=tangibles
 
·         In bailor/bailee arrangements 9-313(c) field whsing – there is no perfection unless bailee acknowledges the authenticated record which indicates he is possessing the collateral on the behalf of another. Simply telling the bailee is not enough, notice must be sent to bailee.
·         attachment must come before perfection. However, there are some cases of instantaneous attachment : 9-313 (a) {negt documents, checks, chattel paper}
 
2.       Perfection by Control 9-314 (a) –very close to perfection by possession.
                       
Perfection by control= intangibles
       perfection by possession= tangibles                                                                                                     vs. perfection by control=intangibles
 
      Any searchers would be able to see SI exist.SI perfected by simply having control over:
·         Investment property
·         Deposit accounts
·         Letter of credit rights
·         Electronic chattel paper
 
3.       Temporary Perfection 9-313 (e) -20 day window to perfect without filing (during which time a filing is unnecessary)
 
          Stages of temporary perfection:
                1) the initial 20 days – to allow debtor presentment
                2) post 20 days- perfection by possessor- to get the fin. statement get back into your possession
     
      Continuous Perfection: date of perfection- when Bank first gets the BOL.
        -perfection is said to be continuous when if there were any gaps, the perfections fill in gaps to from one large                      perfected period.
      -if banks exceeds the 20 daysà the chain is broken and the date of perfection changes to the date of filing once it                    is corrected.