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Secured Transactions
South Texas College of Law Houston
Zinnecker, Timothy R.

Fall 2001: Professor Zinnecker

UCC (Uniform Commercial Codes) “CODE”
· Since 1940s
· 11 Articles at present
· State law and is interpreted by state courts
· Drafters of UCC (comprised of judges, lawyers from all states)

Article 1: General Provisions
· §1-102(1): This Act shall be liberally construed and applied to promote its underlying purposes and policies.
· §1-103: Supplementary General Principles of Law Applicable
· Applies to ALL articles of the UCC (§1-101, §1-102, §1-103)
· §1-201 Definitions apply throughout the Code
· §1-203 Obligation of Good Faith (§1-201-19) Non-Waivable (§1-102)

Article 2 — Sales of goods
Article 2A — Lease of goods
Article 3 — Negotiable Instruments
Article 4 — Bank Deposits and Collections
Article 4A — Funds Transfers
Article 5 — Letters of Credit
Article 6 — Bulk Transfers and Bulk Sales
Article 7 — Documents of title
Article 8 — Investment Securities
Article 9 — Secured Transactions *
Article 10 — Effective Date and Repealer
Article 11 — Effective Date and Transition Provisions

· What we are primarily concerned with in this class.
· Promulgated the Revised Article 9 (effective July 1, 2001):
-ALI-American Law Institute
-NCCUSL-National Conference of Commissioners on Uniform State Laws
· Primary source of state law regarding obligations secured by interest in personal property and fixtures,
so-called “Asset-Base Financing”
· Focus is on “secured financing”
· Applies to secured transactions involving deposit accounts, commercial tort claims and interests in certain insurance policies
· In a secured credit transaction, the creditor’s right to payment and ability to collect are safeguarded by an interest in property called collaterals (cannot be realty assets); §9-102(12) and §9-105(1)9c)
· Modern law of ST distinguishes between obligations secured by interest in real estate and obligations secured by interest in personalty and fixtures.
· §9-109(a)(1) General Scope of Article 9; a transaction, regardless of its form, that creates a security interest in personal property or fixture by contract

Bankruptcy Code, 11 U.S.C. §101 is the principal source of federal law governing the debtor-creditor relationship

Making Loan Securities
· §9-102(12) Collaterals: property subject to a security interest or agricultural lien.
· §9-102(28)(A) 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 or a cosignee.
· §1-201(37) Security Interests: an interest in personal property or fixtures which secures payment
performance of an obligation
· §9-102(72)(A) Secured Party: 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.
· §9-102(73) Security Agreement: an agreement that creates or provides for a security interest.
· §9-102(a)(7) Authenticate: to sign; or (b) to execute or otherwise adopt a symbol, or encrypt or
similarly process a record in whole or in part, with the present intent of the authenticating person to identify the person and adopt or accept a record.
· §9-102(a)(59) Obligor: 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. Term does not include issuers or nominated persons under a letter of credit.
· §9-102(a)(69) Record: except as used in “for record”, “of record”, “record or legal title”, and “record
owner” , means information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form

Process by which we create the enforceable security interest:
· §9-203(a) Attachment: a security interest attaches to collateral when it becomes enforceable
against the debtor with respect to the collateral, unless an agreement expressly postpones the time of attachment.
· §9-203(b) Enforceability: a security interest is enforceable against the debtor and third parties with
respect to the collateral only if:
(1) Value has been given by secured party;
(2) Debtor has rights in the collateral to a secured party; and
(3) Debtor has authenticated a security agreement with description of

ntly losing $5,000 a month. The terms of A’s loan agreement with C require A to make monthly payments of $10,000.

a) C is very concerned and comes to you. It wants to know its rights. What do you tell the client? Cannot get collateral until statement of default—creditor could be sued for conversion. Assume there is a default—do you seize collateral yet? You can do it.

b) Assume the loan documents permit C to proceed against the collateral, thereby closing A down. Should it repossess A’s inventory? What further information might be useful in making this decision? If C does not foreclose immediately, should it take any other action? Would your answer change if C were a supplier of component parts to A? Yes. The computers could then be sold and the proceeds would go towards satisfying the debt. Other useful info before repossessing Ace’s inventory is, does Ace have any other real or personal property and whether they are non-exempt assets. If C was a supplier of component parts to A, then C may want to not repossess the computers b/c A would no longer be able to run its business and have money to pay its debts.

c) Based on your discussions with C, what provisions might you, as creditor’s counsel, add to the loan agreement? What protections or limitations might you seek as debtor’s counsel? An upfront provision that sets out the consequences in the event that Ace could not make its payments. Warn C of the risks of A not being able to pay and provide and recommend strategies for avoidance.

§ 1-201(36): “Rights” include remedies
§2-105(1) & (2): Definitions; Transferability; Goods; Future Goods; Lot; Commercial Unit.
§2-501(1): Insurable Interests In Goods; Manner of Identification of Goods
§2-509(1): Risk of Loss In the Absence of Breach
§2-401(2): Passing of Title; Reservation for Security; Limited Application of This Section