Spring 2016: East
Part I- Introduction to Article 9 & Classification of Collateral
Chapter 1: The Typical Secured Transaction
UCC Article 1.201(b)(35): Security Interest
(35) “Security interest” means an interest in personal property or fixtures which secures payment or performance of an obligation. “Security interest” includes any interest of a consignor and a buyer of accounts, chattel paper, a payment intangible, or a promissory note in a transaction that is subject to Article 9. “Security interest” does not include the special property interest of a buyer of goods on identification of those goods to a contract for sale under Section 2-505, the right of a seller or lessor of goods under Article 2 or 2A to retain or acquire possession of the goods is not a “security interest”, but a seller or lessor may also acquire a “security interest” by complying with Article 9. The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer under Section 2-401 is limited in effect to a reservation of a “security interest.” Whether a transaction in the form of a lease creates a “security interest” is determined pursuant to Section 1-203.
Article 9.109(a)(1): (a) [General scope of article.] Except as otherwise provided in subsections (c) and (d), this article applies to:
(1) a transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract;
Go to 1.201(b)(35) use definition of “security interest” see above. A has a interest in E’s watch and it secures the loan by A = security interest.
(a) The transaction between Ed (E) and Alexandra (A) is governed by Article 9 bc E is providing A with a security interest (i.e. the watch) as an interest in person property which secures payment of the performance of an obligation à the obligation of E paying back A the $20K + 7% interest in order to receive his watch back. The watch is A’s security interest that E will pay her $20K + 7% interest. Legally binding bc it’s a value exchange, by passing over the watch for the check.
Collateral: the watch 9-102(a)(12)
Debtor: Ed 9-102(a)(28)
Obligor: Ed 9-102(a)(59)
Secured Party: Alexandra 9-102(a)(73)(A)
IN MOST TRANSACTIONS THE OBLIGOR AND DEBTOR ARE THE SAME.
Collateral 9-102(a)(12): (12) “Collateral” means the property subject to a security interest or agricultural lien. The term includes:
(A) proceeds to which a security interest attaches;
(B) accounts, chattel paper, payment intangibles, and promissory notes that have been sold; and
(C) goods that are the subject of a consignment.
Debtor* (9-102(a)(28)): (28) “Debtor” means:
(A) a person having an interest, other than a security interest or other lien, in the collateral, whether or not the person is an obligor;
(B) a seller of accounts, chattel paper, payment intangibles, or promissory notes; or
(C) a consignee.
*usually it’s one that owes an obligation. But that’s not what it says in Art. 9. They have an interest in collateral. Ed is the debtor – he has an interest in that watch.
Obligor (9-102(a)(59)): (59) “Obligor” means a person that, with respect to an obligation secured by a security interest in or an agricultural lien on the collateral, (i) owes payment or other performance of the obligation, (ii) has provided property other than the collateral to secure payment or other performance of the obligation, or (iii) is otherwise accountable in whole or in part for payment or other performance of the obligation. The term does not include issuers or nominated persons under a letter of credit.
– Ed is obligated to pay A back to get his watch back.
Secured Party (9-102(a)(73)(A): (73) “Secured party” means:
(A) a person in whose favor a security interest is created or provided for under a security agreement, whether or not any obligation to be secured is outstanding;
(B) a person that holds an agricultural lien;
(C) a consignor;
(D) a person to which accounts, chattel paper, payment intangibles, or promissory notes have been sold;
(E) a trustee, indenture trustee, agent, collateral agent, or other representative in whose favor a security interest or agricultural lien is created or provided for; or
(F) a person that holds a security interest arising under Section 2-401, 2-505, 2-711(3), 2A-508(5), 4-210, or 5-118.
(b) No, still Art. 9 secured trans. 9-109(a)(1) the scope provision. Makes no difference in the answers in part A. Still a valid security interest. (attachment) “This article applies to a transaction  regardless of its form that creates a security interest in personal property or fixtures by contract…” The written agreement, like the oral one, gives A an interest in personal property. A’s interest in the watch still secures E’s obligation to repay the loan.
(c) Yes, the secured party is still Alexandra, the obligor is Ed. But debtor is now John. John is the debtor even though he does not owe the obligation. Ed is NOT the debtor. Ed is obligor because he owes the payment of the obligation.
Focus here on the “by contract” aspect of the article. “Contract” as distinguished from “Agreement”, means the total legal obligation that results from the parties agreement. 1-201(b)(12)
An “Agreement”, as distinguished from ‘contract’ means the bargain of the parties in fact as found in their language or inferred from other circumstances…”
No Art. 9 security interest because the agreement when the $300 was loaned made no mention of a collateral backing. No agreement between Winger and Bucks that would create a security interest. Bucks only has bare possession (if he keeps the plane he’ll have the civil tort of conversion). Even if we did grant Bucks a possessory interest, he certainly did not acquire that interest by contract. It was an unsecured debt. Owner of the property has to create the security interest by contract.
One important consideration – creditors can acquire property interests –liens- on personal property but they are created by statute. (ex judicial liens, mechanics liens, tax liens). These liens are created by statute, not contract and not governed by Art. 9
Article 9 transaction. The retention of the title even w
take possession and go through process, but that property is already subject to bank’s security interest.
Basically you can take a security interest in a contract. And Brown was owed no duties. Looking at difference between creation of security interest and outright assignment. Had the bought the contract outright they would have owed him the money. However, they only had a security interest in it, therefore, not owing Brown a duty. Demonstrates that creating a security interest is NOT the same as an outright, unconditional assignment of Brown’s contract to INB. An outright assignee
A clause that says contract is governed by common law of NY. All the states have Article 9. But foolish to try and restrict to common law because the available rules from common law do not cover as much as Article 9. And 9-109 says it will govern/apply. There are some provisions in the UCC that allow waiving or modify that particular section. Yes, because it is the intent of the parties to enter into a security agreement through the specific designations in the contract.
A. Collateral: Industrial Machinery
Final Clause: “The parties hereto agree that their contract is to be governed solely by the terms of the is agreement as interpreted under the CL of the State of New York. No other document, statute, treaty, or convention shall affect the rights or duties of the parties hereto.”
*Can’t do this. The Law is the LAW. And the UCC is the law in NY as well as in TX. à go back to 9-901(a)(1). Article 9 applies and you can’t just write it out in the contract that Article 9 doesn’t apply.
a) 9-901(a)(1) à “this article applies to a transaction, regardless of form, that creates a security interest in personal property…”
b) 1-201(b)(35) à “security interest” definition
Chapter 2: Types of Goods
Classification of Collateral
perfection: making it good against 3P
The Role of Collateral Classification in Article 9
o Description or Identification of Collateral
– Security Agreement- creates a security interest
– Financing Statement- Perfects the security interest
o Perfection of Security Interests
– Method(s) of providing public notoriety of a secured part’s interest is a function of the type of collateral
o Priority of Security Interests
– Special priority rules applicable to particular collateral types
The Pedagogy of Collateral Classification
– Begin working w/ Article 9 language
– Develop some foundational concepts and terminology