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Securities Regulation
University of Kansas School of Law
Lovitch, Fred B.

Securities Regulations
Fall, 2007
1) Scope of Article 9

a) Article 9 Transactions UCC 9-109
i) Security Interest
(1) Transaction, regardless of form, that creates a security interest in personal property or fixtures by contract
(2) Security interest is an interest in personal property or fixtures to secure payment or to secure performance of an obligation UCC 9-102(37)
(a) Secured Party—person in whose favor a security interests is created UCC 9-102(72)
(b) Debtor—person with the interest in the collateral UCC 9-102(28)
(c) Obligor—person who owes payment or performance, usually the debtor UCC 9-102(59)
ii) Agricultural Liens (ALWAYS STATUTORY)
(1) Interest in farm products (not a security interest)
(2) Secures payment for goods, services, or real estate lease in connection with debtor’s farming operation
(3) Created by statute
(4) Creditor furnished goods/services or leased real property in the ordinary course of debtor’s business AND
(5) Statute does not require possession to effectuate the lien
iii) Sale of Intangibles (Debtor sells his rights to payment)
(1) Accounts
(2) Chattel paper
(3) Payment intangibles
(4) Promissory notes
iv) Consignments
(1) A consignment is a bailment for the purpose of sale. Article 9 applies if
(a) Merchant receiving goods
(i) Is not an auctioneer
(ii) Does not do business under name of the consignor
(iii) Is not generally know by creditors to be a consignee
(b) Each delivery is $1000 or more at the time of delivery
(c) Goods are not consumer goods immediately before delivery AND
(d) The transaction is not a security interest
v) Conditional Sales UCC 9-109(a)(5); 2-401
(1) Any attempt by a seller to retain title in goods shipped or delivered is limited to a security interest
vi) Leases Intended as Security UCC 1-201(37): Article 9 applies if:
(1) Lease is not subject to termination by the lessee AND one of the following:
(a) Term of the lease and economic life are equal
(b) Lessee is bound to buy
(c) Renewal or buyout at end of term for nominal consideration
(i) Nominal consideration is determined by comparing the buyout/renewal price to the “reasonably predictable fair market value”
(ii) Reasonably predictable fair market value is what the parties expected the goods would be worth at the time the parties entered into the lease agreement
(iii) If the only reasonable thing to do is pay the buyout price, the price is nominal
(2) Security interests are not created in the following situations UCC 1-201(37)
(a) Clause requiring the lessee to pay insurance, taxes, etc.
(b) Lessor files a financing statement
(c) Present value of the property is substantially greater than or equal to the fair market value at the time the lease was entered into
(d) Full payout leases where lessee pays the full price at the end of the term
(e) Renewals for consideration (not nominal)
b) Collateral: Determined by the debtor’s use of the property
i) Classification UCC 9-102
(1) Tangibles: Goods (movables at the time the interest attaches) including Fixtures UCC 9-102(a)(44).
(a) Goods Generally
(i) Classification of goods is mutually exclusive: goods must be one of the four classifications
(ii) Th

security interest in specific goods
(e) Instrument
(i) Right to payment of a monetary obligation represented by a negotiable instrument or by a writing commonly transferred by delivery and any necessary endorsement or assignment, unless it is a lease or security agreement, investment property, letter of credit, or writings evidencing a credit card receivable (9-102(a)(47))
(ii) Types
1. promissory notes
2. checks
3. negotiable certificates of deposit; drafts
(f) Deposit Account
(i) demand, time, savings, or passbook account maintained with a bank, but not investment property or an instrument (9-102(a)(29))
(g) Account
(i) right to payment of a monetary obligation that arises from (1) the disposition of property by sale, lease, license, or otherwise (2) the rendering of services, (3) the issuing of insurance, (4) the incurring of a secondary obligation, (5) the providing of energy, (6) the chartering of a vessel, (7) the use of a credit card, or (8) legal lottery winnings; unless the right to payment results from money advanced or comes within one of the other categories of intangible property
(h) Document
(i) warehouse receipts, bills of lading, and similar documents embodying rights to goods possessed by a bailee (9-102(a)(30))
documents means documents of title