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Secured Transactions
University of Dayton School of Law
Hallinan, Charles G.

Secured Transactions Outline

Nature of the Security Interest

Article 9 as an Assets Reservation System

The Key Attributes of Security Interests

Property rights good against the debtor
Priority rights good against third parties

Article 9 as a Reified Priority System

Not general priority, but priority as to designated assets

The First-to-File Rule

Priority is usually, but not always, tied to the date of filing of a financing statement

Possible Distribution Rules for USC

Pro Rata – proportional
Equal Asset – assets paid out equally until debt is satisfied
Equal Loss – assets pd out to distribute losses as evenly as possible

Equal Asset and Equal Loss make both total other debts and distribution of those debts matter
Under Pro Rata, only total matters
EA or EL would increase monitoring: good if we want to, bad if we do not

9-322(a)(1) Priority Rule –

ii. (ignoring perfection through possession), the first to file a FS wins

Ostensible Ownership Problem

. inference of ownership from possession

Two Key Problems with Possession as perfection method

Loss of use of goods
Put goods in third-party hands and didn’t own, so no solution

Perfection through Possession

. Holdover
i. Adds complexity to 9-322: early of first to file or perfect
ii. Can create misleading record of priority in FS record
Attachment Requirements

Description requirement – 9-203(b)(3)(A)

Interest can be limited in scope- 1-201(37) says nothing about the scope of the positive rights that are required to have an interest in property
After-Acquired Property:

Clark (the wrong way)

Facts: At time of transaction license is NOT property, so debtor cannot grant SI. Instead signs acknowledgement to creditor that will not sell or transfer license. Subsequently state passes law that recognize rights in license as property.
Issue- Could acknowledgement suffice to create security interest. And if so, when did SI attach?
Ct held SI failed -Court seems to suggest mere leverage not enough

The Right Way – creat interest in after-acquired property in the SA.

SI attaches at the time property is received by the debtor, not before.

The Interest in Property Requirement

Organize cases along lines of positive rights v. negative rights in property

Securing Payment or Performance

Court seems to suggest mere leverage not enough
Why not? Accomplishes goal; secured creditor doesn’t want to grab the property and often can’t

Top Down v. Bottom Up Approaches

Top down = Assume full rights then take specifically enumerated rights away
Bottom up = specifically enumerate positive rights
Top down approach probably better, easier

Negative Pledges-

Do not grant SI, instead just contractual right
Why the NP? Debtor might prefer it, and if done correctly, may serve as anti-later SI commitment
If allowed SI to be granted, possibility of inconsistent priorities pairwise (crops up a lot)

Separating SA’s and FS’s

Key design feature
SA grants interest, FS reserves spot in line vis-à-visother creditors
consequences: file first before pursuing SA to reserve place in line

When is an interest granted?

Two approaches Bollinger and Martin Grinding

Bollinger says: Sort through all of the relevant documentation and the course of dealing between the parties to see if something can be pieced together that will satisfy the written security agreement requirement
Marting Grinding says:

Close to insisting that a single document memorialize the secured arrangements between the parties
Nothing in Article 9 supports this

Martin Grinding is probably better because easier for 3rd parties to know when there is a security interest

But not clear because presumably the debtor would internalize these costs
No real answer

Formalities and Descriptions

9-203’s Description Requirement

Implements Article 9’s reified priority system
Defines the collateral between the parties

9-108 Description Rules

Must reasonably identify collateral
Revised statute blesses Article 9 categories









General Intangible




Electronic Chattel Paper



Certificated Securities




9-313 – When Possession Perfects
9-314 – When Control Perfects

Newman – Ct. held annuity contract was not an “instrument” under UCC, but a “general intangible” À creditors interest was NOT perfected through possession, filing of FS was required.

Key defs:

9-102(a)(47): Instrument

A negotiable instrument or any other writing that evidences a right to the payment of a monetary obligation, is not itself a security agreement or lease, and is of a type that in ordinary course of business is transferred by delivery with any necessary endorsement or assignment.

9-102(a)(42): General Intangible

any personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money, and oil, gas, or other minerals before extraction. The term includes payment intangibles and software.