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

Secured Transactions Worley Spring 2011
        I.            Scope of Article 9
a.       This article applies to (1) a transaction, regardless of its form, that creates a SI in personal prop or fixtures by K.
      II.            Definitions
a.       Security Interest – an interest in personal prop or fixtures which secures payment or performance of an obligation.
b.      Collateral – the prop subject to a SI
c.       Security Agreement – an agreement that creates or provides for a SI.
d.      Secured Party – a person in whose favor a SI is created or provided for under a SA, whether or not any obligation to be secured is outstanding
e.      Obligor – a person that, with respect to an obligation secured by a SI in collateral owes payment or other performance of the obligation.
f.        Debtor – A person having an interest, other than a SI or other lien, in the collateral, whether or not the person is an obligor.
    III.            The retention or reservation of title by a seller of goods not withstanding shipment or delivery to the buyer is limited in effect to reservation of a SI.
    IV.            You cannot K out of Article 9.
        I.            Goods – All things that are movable at the time the SI attaches.
a.       Inventory – Not farm products, and held for sale or lease; Raw material, work in progress, or materials used or consumed in business are also inventory.
b.      Farm Products – Debtor is engaged in a farming operation (a farmer) and it has to be crops (but not standing timber), livestock, stuff produced or unmanufactured products of the farming products.
                                                              i.      Once they have been manufactured the farm products become inventory.
c.       Consumer Goods – goods used or bought for use primarily for personal, family or household purposes.
d.      Equipment – goods other than inventory, farm products, or consumer goods.
      II.            Intangibles – Valuable types of personal prop but which take no material form.
a.       Accounts – A right to payment of a monetary obligation, whether or not earned by performance:
                                                              i.      for prop that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of,
                                                            ii.      for services rendered or to be rendered,
                                                          iii.      for a policy of insurance issued or to be issued,
                                                           iv.      for a secondary obligation incurred or to be incurred,
                                                             v.      for energy provided or to be provided,
                                                           vi.      for the use or hire of a vessel under a charter or other K,
                                                         vii.      arising out of the use of a credit or charge card or information contained on or for use with the card, or
                                                       viii.      as winnings in a lottery or other game of chance
b.      General Intangibles – any personal prop including things in action (legal claims), other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment prop, letter-of-credit rights, letters of credit, money, and oil, gas, or other minerals before extraction. The term includes payment intangibles and software. (This is the ultimate residual category.)
                                                              i.       “Payment intangible” means a general intangible under which the account debtor's principal obligation is a monetary obligation.
1.       Ex: Borrowing a large sum of money and promising to pay back that money in monthly installments. (it is not in writing)
a.       This is not an account because there is no prop being sold, leased, or licensed. The primary obligation is monetary. Furthermore the definition of accounts specifically excludes rights to payment for money or funds advanced or sold.
b.      If we put it in writing such as “to the order of” then it is a negotiable instrument.
                                                                                                                                      i.      If we further add a SI to this paper then it becomes chattel paper.
                                                            ii.      “Software” means a computer program and any supporting information provided in connection with a transaction relating to the program.
1.       The term does not include a computer program embedded in goods and any supporting information provided in connection with a transaction relating to the program if:
a.       the program Is associated with the goods in such a manner that it customarily is considered part of the goods, or
b.      by becoming the owner of the goods, a person acquires a right to use the program in connection with the goods. The term does not include a program embedded in goods that consists solely of a medium in which the program is embedded.”
                                                          iii.      “Commercial tort claim” means a claim arising in tort with respect to which:
1.       the claimant is an organization; or
2.       the claimant is an individual and the claim:
a.       arose in the course of the claimant's business or profession; and
b.      does not include damages arising out of personal injury to or the death of an individual.
    III.            “Deposit account” – a demand, time, savings, passbook, or similar account maintained with a bank. The term does not include investment prop or accounts evidenced by an instrument.
    IV.            “Document” means a document of title or a receipt.
a.        “Document of title” includes bill of lading, dock warrant, dock receipt, warehouse receipt or order for the delivery of goods, and also any other document which in the regular course of business or financing is treated as adequately evidencing that the person in possession of it is entitled to receive, hold, and dispose of the document and the goods it covers. To be a document of title, a document must purport to be issued by or addressed to a bailee and purport to cover goods in the bailee's possession which are either identified or are fungible portions of an identified mass.
                                                              i.      “Bill of lading” means a document evidencing the receipt of goods for shipment issued by a person engaged in the business of transporting or forwarding goods.
                                                            ii.      “Warehouse receipt” means a receipt issued by a person engaged in the business of storing goods for hire.
1.       A warehouse receipt may be issued by any warehouse. If goods are stored under a statute requiring a bond against withdrawal or a license for the issuance of receipts, a receipt issued for the goods is deemed to be a warehouse receipt even if issued by a person that is the owner of the goods and is not a warehouse.
      V.            Quasi-Tangibles (There may be something tangible that you can touch)
a.       Instruments – a negotiable instrument or any other writing that evidences a right to the payment of a monetary obligation, is not itself a SA or lease, and is of a type that in ordinary course of business is transferred by delivery with any necessary indorsement or assignment.
                                                               i.      “Negotiable instrument” means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:
1.       is payable to bearer or to order at the time it is issued or first comes into possession of a holder;
2.       is payable on demand or at a definite time; and
3.       does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain:
a.       an undertaking or power to give, maintain, or protect collateral to secure payment,
b.      an authorization or power to the holder to confess judgment or realize on or dispose of collateral, or
c.       a waiver of the benefit of any law intended for the advantage or protection of an obligor.
4.       “Order” means a written instruction to pay money signed by the person giving the instruction.  The instruction may be addressed to any person, including the person giving the instruction, or to one or more persons jointly or in the alternative but not in succession.  An authorization to pay is not an order unless the person authorized to pay is also instructed to pay
5.       “Promise” means a written undertaking to pay money signed by the person undertaking to pay.  An acknowledgment of an obligation by the obligor is not a promise unless the obligor also undertakes to pay the obligation.
a.       “Chec

we can say that he “holds” so many shares of stock.)
                                                            iii.      Entitlement Holder – a person identified in the record of a securities intermediary as the person having a security entitlement against the securities intermediary. A person is the entitlement holder If a person acquires a security entitlement in one of the following ways:
1.       A securities intermediary:
a.       indicates by book entry that a financial asset has been credited to the person’s securities account;
b.      receives a financial asset from the person or acquires a financial asset for the person and, in either case, accepts it for credit to the person’s securities account; or
c.       becomes obligated under other law, regulation, or rule to credit a financial asset to the person’s securities account.
                                                           iv.      Entitlement Order – A notification communicated to a securities intermediary directing transfer or redemption of a financial asset to which the entitlement holder has a security entitlement.
        I.            WHAT IS A PMSI?
a.       A SI in goods is a PMSI:
                                                               i.      to the extent that the goods are purchase-money collateral with respect to that SI;
1.       “purchase-money collateral” means goods or software that secures a purchase-money obligation incurred with respect to that collateral; and
a.       “purchase-money obligation” means an obligation of an obligor
                                                                                                                                       i.      incurred as all or part of the price of the collateral (seller’s PMSI); or
                                                                                                                                     ii.      for value given to enable the debtor to acquire rights in or the use of the collateral IF the value is in fact so used (lender’s PMSI).
b.      A SI does not qualify as PMSI if a debtor acquires prop on unsecured credit and subsequently creates the SI to secure the purchase price.
      II.            AFTER-ACQUIRED FUNDS
a.       After-acquired funds may qualify for purchase money security status as long as there is a close nexus between the acquisition of collateral and the secured obligation.
b.      Factors:
                                                               i.      Temporal proximity – whether the value is given by the creditor “more or less contemporaneously with the debtor’s acquisition of the prop”
                                                             ii.      Intention of the parties – intent is best determined by the circumstances confronting the parties when the K was made.
                                                            iii.      Is the arrangement common in the trade and that party’s course of dealing?
                                                           iv.      Whether the availability of the loan was a factor in negotiating the sale, and/or whether the lender was committed at the time of the sale to advance the amount required to pay for the items purchased.
                                                             v.      Whether or not title had passed to the borrower before the loan was issued?
1.       Just because they received title before they got the loan, that doesn’t necessarily mean that it is not closely allied – if they got title only because they knew that they would have the funds advanced, then it favors “closely allied”.