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Secured Transactions
South Texas College of Law Houston
Hague, David R.

Secured Transactions

David Hague

Spring 2015

Part I. Introduction and Collateral Classification

Chapter 1. Typical Secured Transaction


§9-109(a)(1) “Secured Transaction”

“a transaction, regardless of it’s form, that creates a security interest in personal property or fixtures by contract;”

§1-201(b)(35) “Security Interest means an interest in personal property or fixtures which secures payment or performance of an obligation

§9-102(a)(73) “Secured Party”

A person in whose favor a security interest is created or provided for under a security agreement, whether or not any obligation is to be secured is outstanding;

§9-102(a)(28) “Debtor”

“A person having an interest, other than a security interest or other lien, in the collateral, whether or not the person is an obligor.”

Does not necessarily have to be the person owing the money, can be the one who has the right to pledge the particular collateral in question.


The one who actually owes the money.

§9-102(a)(12) “Collateral”

Property subject to a security interest or agricultural lien.



· Problem 1.4

o Exhibit A of the agreement would not be covered by Article 9 because it concerns real property.

o Exhibit B of the agreement would most likely be covered by Article 9 because it seems to concern machinery which is often, not always, considered personal property.

Chapter 2. Types of Goods

Classification of collateral:

Why do we even care how we classify it?

If not classified collateral properly, you will not be perfected secured creditor and someone who has classified their collateral correctly will collect before you. Same thing applies to bankruptcy trustee.

Four mutually exclusive categories of Collateral

Consumer Goods

Personal, Family or Household uses.

Farm Products

If debtor is primarily engaged in farming operations.

If he is, then basically anything that is in his inventory on the farm will fall under farm products.


Fixed asset with relatively long period of use.

Farmers tractor would still be labeled equipment.


Anything used up in the business for producing a product or providing a service.


· In Re Estate of Joseph Silver

o Several pieces of artwork offered as part of security trust were found to be classified as “equipment” because they were primarily used for his business and were displayed in model homes, condominiums and various offices of Conti’s company.

· Cooperative Finance Association, Inc. v. B&J Cattle Co.

o Classification of goods under Article 9 is a question of fact and includes consideration of the purposes for which the debtor intended to use the goods. Thus, as an example, cattle used for recreational cattle drives can properly be classified as equipment. Morgan County Feeders, Inc. v. McCormick

· In Re Palmer

o Classification of collateral is to be determined as of the time of the creation of security interest. The classification does not change because of a later change in the manner in which the collateral is used. Nelson v. John Deere Credit (In re Troupe)

o Where the debtor makes an affirmative representation in a loan documents that he or she intends to use goods primarily for personal, family, or household purposes, the creditor is protected even if the representation turns out to be erroneous.

Chapter 4. Investment Property


· Certificated Security §8-102(a)(4)

o A “security” represented by a certificate

· Uncertificated Security §8-102(a)(18)

o A “security” not represented by a certificate

· Securities Account §8-501(a)

o Account to which financial assets may be credited (1) in accordance with an agreement under which the person maintaining the account (2) Undertakes to treat the account holder as entitled to exercise the rights comprising the financial asset.

· Security Entitlement §8-102(a)(17)

o Rights and property interest of an entitlement holder with respect to a financial asset § 8-501(b): [A] person acquires a security entitlement if a securities intermediary:

§ (1) Makes a book entry of a financial asset being credited to the person’s security account;

§ (2) Receives a financial asset from or for the person and accepts it for credit to the person’s securities account; or

§ (3) Becomes obligated to credit a financial asset to the person’s securities account.

· Problems

o 4.3

§ Yes, it would be a securities account §8-501(a) because it probably includes shares, stocks etc. and is being managed by Hale and Hardy Associated which is a brokerage firm and is therefore considered a securities intermediary under §8-102(a)(14).

o 4.4

§ A) §8-102(a)(17), entitlement holder, means rights and property interest of an entitlement holder with respect to a financial asset specified in part 5. Furthermore §8-501(b) provides, “except as otherwise provided in subsections (d) and (e), a person acquired security entitlement if a securities intermediary: (1) indicated by book entry that a financial asset has been credited to the person’s securities account.” A security differs from a security entitlement because in a security the person holding the security has a direct interest in the security. Here Lance does not own a direct interest in the security because he is holding it in a securities account and therefore has an security entitlement.

Chapter 3. Intangibles and Quasi-Intangibles


· Intangible

o Account §9-102(a)(2)

§ Promise to pay for services rendered or to be rendered.

o General Intangible §9-102(a)(42)

§ Software

§ Payment Intangibles

· A payment intangible means a general intangible where the account debtors principal obligation is a monetary obligation

§ Other general Intangibles (ie. patent rights)

· Quasi-Intangibles

o Instrument § 9-102(a)(47)

§ Check or promissory note.

o Document § 9-102(a)(30)

o Chattel Paper § 9-102(a)(11)

§ (1) A promise to pay and (2) a security interest in collateral.

o Deposit Account § 9-102(a)(29)

§ I.e. a bank account

o Commercial Tort Claim § 9-102(a)(13)

· §9-102(a) “Record”

o Means information that is inscribed on a tangible medium or which is stored in a electronic or other medium and is retrievable in perceivable form.

Title retention language really just creates a security interest. This was put into the UCC to protect consumers from losing equity in things such as vehicles when

ral, or articulate the creation of or intent to create a security interest.

· Shelby County State Bank v. Van Diest Supply Company

o Rule

§ Ambiguous language susceptible to two or more differing interpretations will be construed against the drafter of the document.

· In Re Southern Illinois

o Issue

§ Whether description of collateral (which included a certain number of railcars amongst thousands of railcars owned by debtor) was adequate?

o Rule

§ Where a debtor owns numerous similar items of collateral, a description of collateral is insufficient without the correct serial numbers of collateral.

§ A description of collateral in a security agreement is not sufficient if the writing had unfilled blanks or omitted attachments that normally would provide the description of the collateral.

· Rice v. Miller

o Issue

§ Whether security agreement which defaulting debtor (CATI) entered into, and which provided that Secured Party (Rice) had in interest in and to all “…chattel paper, documents, instruments, investment property, general intangibles etc.” was enforceable under the UCC and whether this also included two patents the creditor (Rice) requested the debtor to deliver upon default?

o Rule

§ UCC §9-108(b)(3) tells us that we can list whatever is defined by the UCC as a general category, including general intangibles.

§ §9-102(a)(42) Def. of General Intangibles does not specifically list patents as belonging under General Intangibles but Comment 5(d) lists “intellectual property”

§ Blacks Law Dictionary defines “intellectual property” as including patents.

o Holding

§ Security agreement obviously encompassed intellectual property by describing “general intangibles” and it was allowed to do so under Article 9.

o Hague: beware for general intangibles in practice because they generally include anything else that doesn’t fit into the other definitions set out by UCC

· In Re Filtercorp

o Issue

§ Whether under Wash. law a security agreement that grants an interest in “inventory” and “accounts receivable” without further description, presumptively includes after-acquired inventory or accounts receivable?

o Rules

§ Majority Rule on Security Interest in After-Acquired Inventory & Accounts Receivable:

· A security interest in inventory or accounts receivables presumptively includes an interest in after-acquired inventory or accounts receivables, respectively. This presumption is rebuttable where security agreement language manifests intent to limit the collateral to specific identified property.

§ When a security interest in inventory is described by reference to a list, it suggests an intent to limit the collateral rather than cover inventory as a floating mass including after required inventory.