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Secured Transactions
St. Johns University School of Law
Sharfman, Keith

Sharfman Secured Transactions Fall 2011

Security Interest: 9-201(35)

1. “Security Interest”: an interest in personal property that secures payment or performance of an obligation.

a. Creditor’s Without a SI: Groupo Mexicano

i. USC have no right to preliminary injunctive relief against a D that is dissipating assets.

ii. Getting paid back by an insolvent D, depends upon who among the USCs wins the “race to the court house.”

b. Creditor’s With a SI

i. Generally, the creditor can have priority over a particular asset of the D and get paid back, even if:

1. D is insolvent, AND

2. The creditor has not won the race to the court house.

* NOTE: A SI CANNOT exceed the value of the debt!

2. How do you Create a SI?

a. Basic Requirements are: (1) attachment AND (2) perfection.


1. 9-203(a): a SI attaches to collateral when it becomes enforceable against the D with respect to the collateral.

2. 9-203(b): A SI becomes enforceable against D, ONLY IF:

a. (1): Value Has Been Given

i. 1-201(44): anything that would be sufficient consideration to support a K.

1. Includes: (1) actual transfers, (2) conditional promises to lend money in the future, AND (3) pre-existing indebtedness to secure a loan.

b. (2): D has Rights in the Collateral OR Power to Transfer Rights

i. This requirement is construed quite broadly and is fairly easy to satisfy. E.g. In re Watley.

1. A limited interest can attach, but D CANNOT give an interest in more than he has.

a. Peoples Bank v. Bryan Bros.

i. Sole Proprietorship: individual CAN grant a SI in property owned by his sole proprietorship.

ii. Partnership: a partner CANNOT, without the consent of any other principals, encumber property owned by the Partnership.

1. NOTE: Sharf-dog says maybe he can, argue this out if there is no consent!

iii.LLC: individual owner CANNOT encumber specific LLC property in a personal loan agreement.

b. Bank of America v. Moglia

i. Rabbi Trust: assets of the trust must be subject to the claims of the settlor’s general creditors –> SCs have no claim to the rabbi trust assets.

1. HOWEVER: if a rabbit trust is funded AFTER the SA, then D’s contribution of assets to the trust is subject to the SA.

c. (3)(A): D has Authenticated a SA that provides a Description of the Collateral

i. Security Agreement

1. 9-102(a)(73): Agreement that creates or provides for a SI.

a. SA may be a writing(s), regardless of label (In re Weir-Penn), HOWEVER…

i. SAs are read strictly!

1. If they do not specifically grant a SI in a particular piece of property, such a grant will NOT be presumed. In re Clark.

2. BUT a court might infer from extrinsic documents an intention to create a SI, even in the absence of an explicit agreement. In re Bollinger Corp.

a. E.g. Financing Statement or Promissory Note

i. NOTE: a FS ALONE ≠ sufficient

ii. BUT: FS + Promissory Note = OKAY! In re Weir-Penn.

ii. Description of Collateral

1. 9-108(a): a description is sufficient if it reasonably identifies what is described.

a. Ambiguous Descriptions ≠ Sufficient!

i. Shelby County v. Van Diest: the term (all inventory) was followed by a qualifier (including all) and then another (sold to D by Van Diest). Court held that the SI extended only to the inventory Van Diest furnished.

2. 9-108(b): Examples of Reasonable Identification…

a. (1): Specific Listing

b. (2): Category

c. (3): Type of Collateral Defined in the UCC (e.g. equipment or inventory)

i. 9-108(e): description by type ONLY is NOT sufficient for:

1. Commercial Tort Claims; OR

a. Must contain a descriptive component beyond the “type” alone. Hems v. Certified Packaging.

2. In a Consumer Transaction, consumer goods, a security entitlement, a securities account or a commodity account.

ii. (4): Quantity

iii.(6): Any other method, if:

1. The identity of the collateral is objectively determinable!

3. The description may be broad so long as not misleading.


i. E.g. “all the D’s assets” or “all the D’s personal property”

3. Effect of Attachment

a. General Rule: once a SI has attached, 9-203 confers upon the unperfected SC priority over General Creditors with respect to the property in which it has a SI.

i. BUT this priority is tenuous because it can be trumped by:

1. A bankruptcy trustees’ “strong arm” power under Bankruptcy Code § 544;

2. Lien Creditors (9-317); AND

3. Perfected Secured Creditors (9-322).

4. Other Methods of Attachment

a. 9-203(b)(3)(B)

i. The collateral is NOT a certificated security and SC has POSSESSION

b. 9-203(b)(3)(C)

i. The collateral IS a certificated security in registered form and the security certificate has been DELIVERED to the SC.

c. 9-203(b)(3)(D)

i. The SC has CONTROL of the collateral and the collateral is: (1) deposit accounts, (2) electronic chattel paper, (3) investment property, OR (4) letter-of-credit rights.


1. General Rule: 9-308(a)

a. A SI is perfected if:

i. It has attached and all of the applicable requirements for perfection have been satisfied; OR

ii. When it attaches if the applicable requirements are satisfied before the SI attaches.

2. Classify the Collateral

a. Tangibles

i. Goods: 9-102(a)(44): all things movable when a SI attaches; 4 mutually exclusive types, determined by their principle use:

1. Consumer Goods: 9-102(a)(23)

a. Good used/bought for: (1) personal, (2) family, or (3) household purposes.

2. Equipment: 9-102(a)(33)

a. Goods other than inventory, consumer goods or farm products.

i. Catch All –> if you cannot determine the principle use, the good is equipment.

3. Inventory: 9-102(a)(48)

a. Goods other than Farm Products, that are held by a person: (1) for sale, (2) lease, or (3) to be furnished under a K of service.

i. Includes –> raw materials, work in process, or materials used or consumed in a business.

4. Farm Products: 9-102(a)(48)

a. Goods, other than standing timber, with respect to which the D is engaged in a farming operation and which are:

i. Crops grown, growing, or to be grown, including:

1. Crops produced on trees, vines, and bushes; and

2. Aquatic goods produced in aqua-cultural operations

ii. Livestock, born or unborn, including aquatic goods produced in aqua-cultural operations

iii.Supplies used or produced in a farming operation

iv.Products of crops or livestock in their unmanufactured states.

ii. Fixtures: 9-102(a)(41)

1. Personal property that is so related to real property. Generally, either:

a. Equipment, if D is a business, OR

b. Consumer Goods, if D is an individual.

b. Intangibles

i. Money: 9-102(b)(24)

1. Medium of exchange currently authorized or adopted by a: (1) domestic or (2) foreign government.

a. K’ual right to obtain money in the future





no unless assignment of small portion (§ 9-309) or sale of lottery winnings (§ 9-309(14))

Agricultural Lien

yes (only

§ 9-310 Filing)




General Intangibles





Payment Intangibles




yes if its a true sale



YES § 9-313(a)



4. Perfection by Filing: By authenticating a SA, the D authorizes the filing of a FS. 9-509(b).

a. Where to File

i. 9-301: perfection is accomplished by the SC filing an appropriate, debtor-authorized FS in the jurisdiction where the debtor is located.

1. 9-307(b): Debtor’s Location

a. Individuals: located at the individual’s principal residence. (b)(1).

b. Unincorporated Organizations

i. Organization that has ONLY 1 place of business is located at that place of business. (b)(2).

ii. Organization that has MORE than 1 place of business is located at its chief executive office. (b)(3).

1. Where D manages the main part of its business operations

2. Where creditors would reasonably be expected to search for creditor information.

c. Registered Organizations: located in the stated where it is organized. (e).

b. What to File: 9-502(a) –> FS must contain:

i. (1): The Name of the Debtor

1. 9-503: FS must provide D’s full legal name.

a. Registered Organizations: name of D indicated on the public record where D was organized. (a)(1).

b. Individual: name of D on driver’s license, etc.. (a)(4).

c. (a)(4)(6): In other cases:

i. (A): If D has a name, FS must provided the individual OR organizational name of D; AND

ii. (B): If D does not have a name, it must provide the names of the partners, members, associates, etc.. (e.g. General Partnership).

2. 9-503(c): D’s Trade Name = NOT SUFFICIENT!

ii. (2): The Name of the Secured Party OR Representative Thereof

1. FS must provide the SC’s correct legal name.

iii.(3): Indication of the Collateral Covered by the FS

1. 9-504: the indication of collateral is sufficient, if:

a. It complies with 9-108 descriptions; OR

b. Indicates that it covers all D’s personal property.

i. ProGrowth v. Wells Fargo

* NOTE: FS differs from SA because: (1) FS does NOT have to indicate after-acquired property and (2) the FS can state “all D’s personal property” and still be valid.