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Secured Transactions
SUNY Buffalo Law School
Buckley, Elizabeth F.

I.          Creating a Security Interest
A. Generally:
1.        Rights of Unsecured Creditor
a)         Case #1: Seller v. Debtor
(1)      Facts: Debtor makes cash down payment to seller upon delivery of product, then debtors fails to make some payments. Seller exercised its right under the note by declaring the entire unpaid balance due.
(2)      How does Seller collect from debtor?
(a)      Seller must sue debtor on the promissory note and obtain a money judgment against Debtor. Then Seller must levy on D’s assets and sell them for payment of the judgment. (Judicial Lien). 
(b)      Seller is now a lien creditor and has rights = to a secured party.
b)        Case #2: Seller v. Other Unsecured Creditors + Trustee in Bankruptcy
(1)      C1 sold product to D in September, Seller sold product to D in October, C2 sold product to D in November.  C2 followed the above procedures first. (None are secured). As a result, C2 got the barrels as part of the levy. Seller is now out of luck. “Race to the Courthouse”. Even though Seller advanced credit to Debtor before C2, it is now subordinate to C2’s rights as a lien creditor.
(2)      If Debtor filed for bankruptcy before any party acquired a judicial lien, then the C’s and Seller must share the distribution of Debtor’s assets pro rata. If D filed for bankruptcy after C2’s judicial lien, he is still viewed as a secured party and will receive his assets prior to pro rata sharings.
2.        Rights of Secured Creditor
a)         Case #1: Seller took a security interest in the product it sold D. Seller has a consensual lien /security interest. Must be evidenced by a record. Once record established, S’s interest has attached and becomes enforceable against D under §9-203(a). Usually, no court proceedings are necessary.
b)        Case#2: C1 and C2 are unsecured with respect to the product Seller sold D (by judicial lien etc), and Seller has rights to product superior to C1 and C2 under §9-201(a).
c)         Exception:
(1)      §9-317: until seller ‘perfects’ his interest, he can have his interest primed by C1, C2, debtors trustee in bankruptcy etc. (Unperfected security interests are subordinate to lien creditors).  
3.        Secured Credit and Equitable Remedies
a)         Knox v. Phoenix Leasing Inc. 29 Cal. App.4th 1357 (1994) – Domaine buys some barrels from Knox and Phoenix is hired to provide financing for the purchase. Knox sends 1st invoice to Domaine, and Domaine forwards it to Phoenix for payment. Knox sends the second invoice directly to Phoenix. Phoenix declares Domaine in default. Knox brings suit because Phoenix got the barrels (as secured party) and he wants his just restitution from Phoenix/Domaine’s barrels. Phoenix had perfected its security interest and properly acquired priority over other creditors.
(1)      Can restitution be

sumer goods
(b)      Equipment
(c)      Farm products + operation
(d)      Inventory
f)      Financing Statement: §9-102(a)(34)
g)         Attachment: §9-203(a)
h)         Perfection: §9-203(a)
i)            Proceeds: §9-102(a)(64)
j)            Record: §9-102(a)(69)
C. How to become a secured party?
1.        Attachment (§9-203) + Notice (usually filing under §9-308)
II.       Attachment (usually by security agreement)
A.   §9-203: How to attach
1.        §9-203(b)(1) Value – secured party does this by making a loan or a credit sale to the debtor.
2.        §9-203(b)(2) The debtor has rights in the collateral (debtor must own collateral).
3.        And one of the following conditions of §9-203(b)(3)
a)         Authenticated Security Agreement – Authenticate: §9-102(1)(7) – sign, recording, etc.
b)        D has taken possession
c)         Certificated security
d)        Control
4.        Problems:
a)         Phone conversation ≠ record, unless recorded. Recorded – authenticated.
b)        Possession of ring = perfection (9-203(b)(3)(B)à not certificated, is a good (9-313). Also, see §9-203 comment 3 + 4