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Secured Transactions
South Texas College of Law Houston
East, W. David

SECURED TRANSACTIONS
East
Spring 2013
 
 
 
I.                   INTRO
a.        A secured transaction is one that uses collateral.
b.      Watch the terms in the Code, they don’t always mean what they normally do.
c.       ST is state law, but it does crossroad with bankruptcy law.
                                                              i.      Biggest test is can the agreement stand up to fed bankruptcy laws.
d.      A ST is analogous to a mortgage. But it involves a SE secured by personal property rather than real property.
e.       Must know where the TX code differs from the model code, and what difference it makes.
f.       §1-102 –the act shall be liberally construed, … the policy purpose of the code is to simplify clarify and modernize the law of transactions
g.      §1-103(b) – the code is not a closed expression of the law, all other applicable laws still apply, including frauds ect.
h.      The ST is both a conveyance and a contract.
i.        Overview of the course
                                                              i.      Part 1.- Classification of collateral –(essential for everything else)
                                                            ii.      Part2.- Attachment – creation of the security interest attached to a particular collateral
                                                          iii.      Part 3. -Perfection- the action that needs to be taken in order to make the security valid b/t the parties and any potential 3rd parties.  (e.g. filing a financial statement)
                                                          iv.      Part 4. – Priority among conflicting securities.
                                                            v.      Part 5. – Bankruptcy and the interaction with Art 9
                                                          vi.      Part 6. – Specialized collateral.
                                                        vii.      Part 7. – Enforcement/Remedies e.g. foreclosure.
II.                Classification
a.       History
                                                              i.      Before Art 9 each state had different laws for each kind of property to be securitized.
                                                            ii.      Different kinds of vehicles were created, e.g. The Pledge – (like a pawn shop).
                                                          iii.      Grant Gilmore – creates the Article 9 System that codifies and uniforms the different security interest vehicles.
b.      Two main chategories
                                                              i.      Intangibles
1.      Semi intangible – a writing embodies a right to something (checks)
2.      Pure intangibles – rights that exists separate from the writing completely, e.g. accounts.
                                                            ii.      Goods
1.      Equipment
2.      Farm products
3.      Consumer goods
4.      Inventory
                                                          iii.      Matter of Ripley Oil Co.
1.      Mobile storage tanks lent by the oil co. to those who buy the oil.
2.      Are they inventory (given when oil is purchased) or equipment (lent only and used in order to sell)?
3.      Equipment/inventory, 9-102 comment 4, test : are they held for immediate or ultimate sale. If not, Or are they used or consumed in a relatively short period of time). If the answer to both if no than it is equipment, if yes to either than inventory.
                                                          iv.      Knostman v. West Loop
1.      Annuity a semi intangible or intangible?
a.       Annuity contract not an instrument (can’t get paid just with it) so need to file a financial statement b/c is an intangible.
                                                            v.      Problems Pg. 65
1.      2.5 –
a.       9-102 (a48d)-Inventory, Goods (b/c tangible) that are raw materials/ work in progress.
b.      9.102 (a38) if for sale, (a48d) if not for sale, and not used in a short period of time,
                                                                                                                                      i.      See 9.108 – describe the item in the security agreement.
                                                                                                                                    ii.      If don’t know which it is take security in both inventory and equipment.
c.       9.102 (a48d) – used in course of business
d.      (a42) – General Intangible – any personal property other than semi intangibles and goods.
2.      2.2-
a.       (a1ii) – Account- right to payment of a monetary obligation, for services rendered or to be rendered….
b.      (A62) Payment intangible – a general intangible that the principle obligation of is a payment of money., it does not matter if it was entitled, it can still be securitized.
3.      2.3-     
a.       (
b.      (
c.       (
d.      (
e.       (
1.      Problem 2.11
a.       C. Promissory note is an instrument, Conditional sales K (purchase money security interest) (historical SI when a seller sales on credit but retains a SI in the goods sold) is Chattel Paper (9.102a11). §2.401 any sale that reserves the title is treated a reservation of only a SI in the items sold in the contract.
b.      Chattel Paper 9.102(a)(11) means a record or records that evidence both a monetary obligation and [1]a security interest in specific goods, [2]a security interest in specific goods and software used in the goods, [3]a security interest in specific goods and license of software used in the goods, [4]a lease of specific goods, or [5]a lease of specific goods and license of software used in the goods.  In this subdivision, “monetary obligation” means a monetary obligation secured by the goods or owed under a lease of the goods and includes a monetary obligation with respect to software used in the goods.  The term does not include (i) charters or other contracts involving the use or hire of a vessel or (ii) records that evidence a right to payment arising out of the use of a credit or charge card or information contained on or for use with the card.  If a transaction is evidenced by records that include an instrument or series of instruments, the group of records taken tog

.501 If goods are ID in K then the buyer has special rights and insurable interest in them once they have been IDed in existence.
a.       Maybe is enough rights in the collateral to attach even though it has not transferred title yet. (no answer yet)
3.      C. §2.401(d) unless explicitly agreed, title passes from the seller at time of delivery of the goods. When shipped he would have rights in the collateral.
III.             Perfection and Notice
a.       Perfection is required in order to make the SI enforceable against 3rd parties including the trusty in a bankruptcy.
                                                              i.      Akin to recording of deeds in conveyance of property.
                                                            ii.      Can be done with and without notice.
b.      Starting point for perfection analysis
                                                              i.      9.308
1.      A SI is perfected if it has attached and all the applicable requirements for perfection in S9.310 and 9.316 have been satisfied.  A SI is perfected when it attaches if the applicable requirements are satisfied b/f the SI attaches.
a.       Perfected SI only comes once you have A SI.
c.       Methods of Perfection
                                                              i.      Filling a Financing Statement – works for all original collateral except
1.      Deposit accounts (control required)
2.      Letter of Credit Rights (control required)
3.      Money (possession required)
4.      Special Collateral in 9.311 (i.e. a certificate of title, and statute requires notation on the title , i.e. car loans)
                                                            ii.      Possession – 9.313
                                                          iii.      Control  – 9.314
                                                          iv.      Automatic (perfection upon attachment) – 9.309
                                                            v.      Certificate of title or other filings per 9.311 and other statutes or reg. (fed law preempts)
d.      Peoples bank v. Applewhite
                                                              i.      Lease purchase agreement in equipment viewed as a loan, without filling a financing statement the laon is unperfected and will lose to a completing claim.
e.       Problems – first classify the collateral, 2.determine how the SI could be perfected, 3. If options are available, which is the best option, 4. If filling where does one file.