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Secured Transactions
UMKC School of Law
Hoffman, Paul M.

Perfection – Creating a security interest
Obtaining Status of a Secured Creditor
§ Attachment
o Creating a security interest in collateral
o Relationship b/w debtor & creditor
§ Perfection
o Sets priority via other creditors
o Perfection = attachment + other necessary steps to perfect
o Relationship b/w Creditors
§ Priority
o Contests over rights to collateral
o Who’s first in line for money – Bling! Bling!

Assignment 8: Attachment of security interest
§ SA (security agreement) is effective against other parties, meaning it continues w/ the collateral – UCC 9-201(a)
§ Security Interest attaches when it becomes enforceable against the debtor – UCC 9-203(a)
§ UCC 9-203(a), (b), (c) – elements for attachment
o Value given
o Debtor has rights in collateral (or power to transfer rights)
o One of the following conditions are met
§ ***Debtor authenticated a security agreement w/ collateral description
§ Possession of collateral (under 9-313)
· Exception: Certificated security
§ Certificated Security in registered form w/ delivery to SP
§ Control of: deposit account, electronic chattel paper, investment property, or letter of credit
§ UCC 9-203(3) – SA gives the SP the right to proceeds automatically

Assignment 9: Security Agreements – Description of Collateral and Obligations
§ SA – Contract b/w debtor and creditor and laws of contracts interpretation generally apply
§ Description of collateral in SA
o UCC 9-108 – “Reasonable identification” if:
§ Specific listing
§ Category
§ *** Type of collateral defined in UCC
§ Quantity
§ Computational Formula
§ Other objective methods
§ Article 9 defined categories of collateral
o Accounts, equipment, inventory, instruments, consumer goods, & general intangibles
§ Ambiguous description of collateral:
o Unreasonable descriptions
§ All assets of debtor
o Cases
§ In re Shirel
· Credit Card application w/ language of SI in all merchandize purchased on back
· Description was to broad and not sufficient to reasonably define collateral
§ Stoumbos
· Inventory and accounts can be inferred as after acquired property b/c of their revolving nature

Assignment 10: Proceeds, Products, and Value Tracing upon Disposition of Collateral
§ Proceeds (Value tracing)
o Applies automatically even if not listed in SA through UCC 9-203(3)
o Defined under UCC 9-102(64)
§ Whatever is acquired upon the sale, lease, license, exchange, or other distribution…
§ Basically whatever replaces you collateral
o Limitation on proceeds UCC 9-315
§ Proceeds cut off when SP authorizes a sale
§ Only collect in satisfaction of debt, therefore SP cannot keep surplus – UCC 9-608
§ Limitations on Secured Creditor’s ability to trace collateral
o Commingled proceeds – UCC 9-315
§ To put in a mass with identical items that are noncollateral, so that the collateral is unidentifiable
§ SP only has rights to identifiable proceeds (not commingled)
· Commingling commonly takes place when proceeds are cash & placed into an account
· Burden on SP to show that proceeds came directly from collateral
§ If goods 9-336 applies
§ If not goods SP may use any method to trace
o Tracing in accounts – UCC 9-315
§ Intermediate balance rule – comment 3
· Lowest balance of the account from the time proceeds of collateral is placed in account
§ Other Value Tracing Concepts (may overlap proceeds)
o Product
§ Something that the collateral produces
§ Usually agriculture
o Profits (two meanings)
§ Revenues of business over expenses
§ Term derived from property
· Right to take from the land
· Ex: crops, lumber, mining
o Rents
§ Received for use of collateral
o Offspring
§ Used with regard to animals (livestock)
§ Non Valuing concepts
o Property acquired by debtor with value not derived from previous existing collateral, but may nonetheless collateral under the SA
o Terms
§ After-acquired property
· UCC 9-204 –SA can attach to After Acquired property if stated in the SA
§ Replacements
§ Additions
§ Substations

Assignment 15: Typical Secured Transaction (Documents)
§ Security Agreement + Loan agreement
o Above may be combined into same doc
o Contract that contains provisions and covenants that bind parties
§ Statement of Transaction
o Like a promissory note
§ Personal Guarantee
§ Financing Statement
o File at proper place to give notice

Assignment 16: Personal property filing system
§ The UCC defers to the states system to provide notice – basically the states filing systems under UCC 9-501
§ UCC 9-109 – governs the scope
o Preemption of Fed statutes (also 9-311)
o Preemption of State statutes (regarding certificate of title)
§ In general terms giving Notice can be accomplished by one of four steps depending on the type of collateral:
o Filing notice in the correct public record
o Taking possession of the collateral
o Taking control of collateral by means of an agreement
o Posting notice on property where it would be seen by persons dealing with such property
§ Usually to give notice, a Creditor would file a financing statement with the Secretary of State’s office in applicable state
§ Multiple Filing systems
o Definition or location of collateral may determine where the financing statement should be filed
o National Peregrine case
§ Needed to file with US copyright system not in a State system

Assignment 17: Financing statement & searches
§ Filing system index
o Indexing by debtor’s name with a filing number is required – UCC 9-503
o Searches of the system by debtor’s name
§ Correct names for use on Financing Statements (FS)
o A filed FS may still be effective even if it has minor errors – UCC 9-506
o The name of the debtor can be an “individual, partnership or corporate name whether or not it adds other trade names”
§ Individual
· Person – may not be legal name
· Crts. Prefer longer or formal name
§ Corporate Names
· Legal name of Corp
· Must show entity designation (ex: Corp, LLC, LLP)
§ Partnership Names (unregistered entities)
· Legal name is one generally known in the community
§ Trade Names
· Fictitious name other than legal name (ex: d/b/a)
· Not recognized by filing systems – UCC 9-503(c)
§ Errors in the debtor’s name
o The std. is whether the error is “seriously misleading” – UCC 9-506(a)
o A name is “seriously misleading” if the FS is not retrieved from a search using the official search logic of the system (usually the debtor’s correct name) – UCC 9-506(c)

Assignment 18: Required Info on Financing Statement & Error’s with filing and searching
§ Debtors name (Primary Info) – UCC 9-502(a)
o Three things for filing statement to be effective
§ 1.Debtor’s name
§ 2. Secured Creditor’s name
§ 3. Indication of collateral covered
· Can be a broader description of collateral (ex: All assets or all personal property) – UCC 9-504
§ Other information (Secondary Info)
o UCC 9-516(b)(4) & (5)
§ 4. Address of Secured Creditor
§ 5. Address of Debtor
§ 6. Debtor = Individual or Org
o If Debtor is an Org – UCC 9-516(b)(5)(C)
§ 7. Type of Org (ex: LLC, Corp)
§ 8. Jurisdiction of origin
§ 9. Org identification Number
§ Secretary of States procedures w/ filings
o Refuse to accept FS if lacking any of the above 9 pieces of info (for individual only 1-6 are required) – UCC 9-520(a)
§ Tell filer reasons for rejection
§ Record date & time of attempt
o Accept if FS contains all required parts, even if the info is inaccurate and implausible – UCC 9-516
§ Wrongly Accepted Filings (missing required info)
o Filing office (FO) mistakenly accepts a FS that contains items 1-3, but was required to reject FS b/c it was missing other items – UCC 9-520(a) & 9-516(d)
§ FS is nevertheless effective – UCC 9-520(c)
· Defeats – Lien creditors & Trustee
· Does not defeat – a SP or Bona Fide Purchaser (BFP) – UCC 9-338
§ Rationale: other searchers can not be mislead with the primary info
o FO mistakenly accepts a FS that is does not contain items 1-3
§ FS is ineffective–UCC 9-502, 506, 520
§ Wrongly Rejected Filings (contains all required info)
o FO should have accepted FS b/c it contained all required info, but rejects the FS
§ FS will not appear on the public record, stamped with date & time of rejection
o FS is nevertheless effective – UCC 9-516(d)
§ Defeats – Lien Creditors & Trustee
§ Does not defeat – a SP or BFP
o Rationale: Lien Creditors are not prejudice b/c they don’t usually search filing system, whereas SP and purchases would be prejudice
§ Filer Errors in Accepted Filings (Inaccurate or incorrect info)
o Required Info (primary info)
§ If FS includes items 1-3, then the FS will be effective despite minor errors – UCC 9-506(a)
§ Std. for errors on a FS

ot controlling market use
§ Control/possession is perfection
o In re Leasing Consultants, Inc.
§ Crt. Classified interest in equipment was a true lease b/c it retained a reversionary interest in property
§ Thus failed to perfect under old law no longer applicable
§ Book disagrees w/ holding

Assignment 19: Exceptions to Article 9 Filing System
§ Ways to perfect w/o filing
o Possession to perfect
o Control to perfect
o Automatic perfection
§ Possession of collateral by SP – (constructive notice)
o Sole means of perfecting – UCC 9-312(b)
§ Cash
o Alternative – yet superior form of perfection – UCC 9-312(a), 9-313(a)
§ Possession in these forms of collateral trumps filing 9-330(d), 9-331(a):
· But filing still perfects against lien creditors & Trustee
§ Instruments
§ Tangible chattel paper
§ Negotiable documents
· Includes: negotiable warehouse receipts, negotiable bills of lading, and similar documents
· Does not include: negotiable promissory notes
· UCC 9-102(a)(30), 1-201
§ Certificated securities
o Alternative – neutral form of perfection
§ Goods may be perfected by either possession or filing a FS Ineffective form of perfection
o Impossible to perfect by possession – sole means is either filing or automatic perfection – UCC 9-313(a)
§ Accounts
§ General Intangibles
§ Control of collateral by SP – UCC 9-310(b)(8)
o Deposit accounts
§ Typically a bank account – UCC 9-102(a)(24)
· Except a certificate of Deposit (CD) b/c it is w/in the excluded category of instruments
§ Method of control – UCC 9-104
· SP is bank where bank account is maintained
· Debtor, SP, and bank create a written agreement to give SP control w/ regard to account
o Can create secret lien, but authorized by–UCC 9-104(a)(2)
· SP puts the account in their name – becoming banks customer
· SP – may still be in control even if debtor maintains rights to write checks and withdraws on account – UCC 9-104(b)
o Potential control is all that is required not actually control
o Electronic Chattel Paper
o Investment property
o Letter of credit rights
§ Purchase-Money Security Interests in Consumer Goods (PMSI) – UCC 9-309(1)
o Automatic perfection – if meets definition
o PMSI – UCC 9-103(b)(1) – either
§ Seller takes SI in the collateral sold to secure all or part of purchase price, or
§ Creditor advances money or incurred an obligation (gives value) to enable debtor to acquire rights in collateral – and that value given is in fact used to purchase collateral
· Usually Creditor will pay 3rd party directly or make a joint check to make sure value is in fact so used for purchase
· Not a PMSI if debtor deposits check received from creditor and then writes a check to 3rd party out of personal account
o Consumer Goods – UCC 9-102(a)(23)
§ Goods that are used or bought for use primarily for personal, family, or household purposes
§ Use for which goods are put is crucial not the nature of goods
§ Value of collateral is not dispositive, although usually PMSI in consumer goods are for small values
§ Security interests Excluded from Article 9 coverage
o Wage claims – UCC 9-109(d)(8)
o Real Estate interests – UCC 9-109(d)(11)
o Non-commercial tort claims – UCC 9-109(d)(12)
§ Cases
o Gallatin National Bank v. Lockovich
§ Definition of Consumer good
§ Boot was with definition as long as it is used for personal reasons – Value doesn’t matter
o Bluxome Street Associates v. Fireman’s Fund Insurance Co.
Attorneys rights to settlement