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Commercial Transactions
University of Michigan School of Law
White, James J.

Secured Transactions
Prof. J.J. White
Fall 2010

OVERVIEW OF SECURED TRANSACTIONS
I. CERTAIN DEFINED TERMS
a. LC: one who acquires lien by attachment, levy or the like. 9-102(a)(52)(A).
i. Includes TIB. 9-102(a)(59)(C).
b. Agriculture Lien: 9-102(a)(5) refers to farm products in 9-102(a)(34).
i. For priority, like a security interest and require filing as such.
ii. Gets claim from statute and files in UCC as if consensual security interest, even though not consensual.
c. Inventory Loan: a line of credit, which fluctuates over time.
d. Equipment Loan: a loan gradually and continuously paid down to zero over time.
e. Attachment: when it becomes enforceable against the debtor. 9-203(a).
i. Implication: (1) on default, SP can foreclose; (2) security interest enforceable against third parties.
ii. Exceptions: (1) lack of perfection, (2) Part 6 Default Procedures, (3) Unconscionability.
f. Perfection: affords SP maximum protection against third parties.
g. Registered Form: 8-102(a)(13)
h. Bearer Form: 8-102(a)(2).
i. Security Agreement (SA): Both a deed (i.e., a conveyance of a property interest), and a K.
i. When security interest attaches à conveyance of property interest as if parties used a deed.
j. Collusion: knowledge that payment violates another’s security interest isn’t good enough. The Junior has a right to payment and the Senior failed to protect the proceeds (e.g. require lockbox).

II. SCOPE OF ARTICLE 9
a. Includes
i. Security Interests, regardless of form. 9-109(a)(1).
ii. Agricultural Liens. 9-109(a)(2)
iii. Sales of accounts, CP, payment intangibles or promissory notes. 9-109(a)(3).
1. 9-109 cmt 4: Article 9 includes sales of accounts.
iv. Consignments. 9-109(a)94)
1. Consignments are new to Article 9!
b. Excludes
i. Preemption: expressly bows to three things. 9-109(c)
1. Conflicting federal law. 9-109(c)(1).
2. Conflicting state law regarding government debtors. 9-109(c)(2)-(3)
3. Section 5-114 letters o f credit. 9-109(c)(4).
ii. Specific Exclusion
1. Landlord’s lien 9-109(d)(1)
2. Tradesman’s lien 9-109(d)(2), 9-333/9-310 (Priority of the lien) still applies
3. Assignment of Claim for Wages 9-109(d)(3)
4. Sale of a business which includes sale of accounts etc. 9-109(d)(4)
5. Assignment of accounts etc. for collection 9-109(d)(5)
6. Subcontracting, i.e. assignment of a right to payment under a contract to an assignee that is obligated to enforce the contract – §R 9-109(d)(6)
7. Debt for account swaps – §R 9-109(d)(7)
8. Transfer of an insurance claim (other than an assignment of benefits to a provider) – §R 9-109(d)(8) §R 9-315 & §R 9-322 (Proceeds) still apply.
9. Assignment of a judgment 9-109(d)(9)
10. A right of recoupment or set-off 9-109(d)(10)
a. Effect vs. Deposit Account still applies. 9-337
b. Defenses of account debtor still apply. 9-404/
11. Leases and other interests in real property. 9-109(d)(11)
a. Many exceptions
12. Assignment of a tort claim 9-109(d)(12).
a. 9-315 & 9-322 (Proceeds) still apply.
b. Exception: commercial tort claims are included.
13. Assignment of a deposit account 9-109(d)(13)
a. 9-315 & R-322 (Proceeds) still apply.
c. Promise to Pay Secured by Excluded Transaction
i. The mere fact that a security interest is a promise to pay which is itself secured by an excluded transaction (e.g. real estate) does not exclude the security interest from Article 9. 9-109(b), 9-102(3)

III. TYPES OF COLLATERAL 9-102(a)
a. Classification: principal use to which property is put is determinative at moment of attachment.
b. Fixture:
i. Perfect by Filing: 9-310(a) beats other Article 9 claimants and TIB.
1. Note: if PMSI, also beats real estate claimants under 9-334(d) if real estate claimants claim was from before the goods became fixtures (i.e. didn’t lend on reliance on fixture being part of collateral).
ii. Perfect by Fixture Filing: 9-334. This beats real estate claimants (including mortgagor).
c. GOODS: if a close call, look to the principal use. 9-102(a)(44)
i. CONSUMER GOODS: bought and used primarily for personal, family or household purposes. 9-102(a)(23).
1. Perfection (PMSI): automatic. 9-309(1).
ii. FARM PRODUCTS: ifengaged in farming operations with respect to goods. 9-102(a)(34).
1. Animals in a herd of livestock are covered whether debtor purchases them or they are result of natural increase.
2. Products of crop or livestock remain farm products as long as not subjected to manufacturing process.
a. Once transformed into sophisticated product, it becomes inventory.
b. Example: Packing cucumbers into individual jars isn’t so closely connected with farming as the pasteurization of milk or the boiling of sap à inventory.
c. Example: Chickens cared for by kids, on farm, for family’s use are consumer goods, not farm products!
d. Tractor is NOT farm products because while it is used in farming, it is not used up in farming.
3. Perfection: filing 9-310(a).
a. But, watch out for FSA RULES!
iii. INVENTORY: expansive definition; goods, other than farm products, to be leased, held for sale, furnished as part of contract for service (i.e. parts) or raw materials for work in progress. 9-102(a)(48). . Not just finished item!
1. Implicit in definition is requirement that the goods are used in ordinary course.
2. Also includes goods that are consumed in a business in short period of time in producing a product or service. 9-102 cmt. 4a.
3. Could be Equipment: goods used in business if fixed assets or have, as identifiable units, relatively long period of use
iv. EQUIPMENT 9-102(a)(33): the residual category of Goods.
1. Perfection:
a. Filing: 9-310(a).
v. Embedded Software: only part of goods if they’re embedded in goods. 9-102 cmt. 4a.
vi. As Extracted Collateral: if not extracted, they are real property. Upon extraction, they become goods. 9-102 cmt. 4c.
d. DOCUMENT 9-102(a)(30)
i. Warehouse Receipt: issued by commercial entity engaged in the storage of people’s goods for a fee.
ii. Bill of Landing: issued by commercial carrier on receipt of goods that it is hired to transport. 1-201(b)(6).
iii. Note: if it’s in your own warehouse/trucks, not applicable.
iv. Note: can be negotiable or nonnegotiable.
e. CHATTEL PAPER: a right to a payment, and either a security interest/lease of specific goods, if evidenced by a record. 9-102(a)(11).
i. Includes:
1. Evidence of monetary obligati

aches, but this include sonly if principal obligation.
2. Perfection:
a. Filing. 9-310(a).
b. Automatic, only if it’s a sale. 9-309(3) ß IMPT!
j. INVESTMENT PROPERTY 9-102(a)(49): securities (certified or uncertified), securities accounts and securities entitlements. Generally refers to corporate securities.
i. Certified Security: represented by certificate. 8-102(a)(4)
1. Perfection: after temporary (20 day) period, 9-312(e), possession. 9-313(e).
a. Stay perfected for 20 days if you give it back to debtor to sell/exchange. 9-312(g).
2. THIS IS THE ONLY ONE THAT IS TANGIBLE
ii. Perfection
1. Control (other than certificated security) 9-314
2. Delivery of a certificated security 9-313(a)
3. Filing 9-312 (but will have lower priority than other methods 9-328
3. Where to Perfect – These are governed by the law of the jurisdiction in which a certificate is located or the issuer is located. See 9-305 if it comes up.
ii. Uncertificated Security: 8-102(a)(18).
iii. Securities Entitlement: rights and property interest of entitlement holder with respect to Financial Asset. 8-102(a)(17). Must be a Financial Asset 8-102(a)(9).
1. BROKER CAN AGREE TO TREAT AS FINANCIAL ASSET. 8-102(a)(9)(iii) ß VERY IMPORTANT!
iv. Securities Account: 8-501(a).
v. Securities Intermediary: 8-102(a)(14)(ii).
vi. Excludes:
1. Assignments of accounts to collection agencies. 9-109(d)(5).
2. Assignment of a right to payment to assignee who assumes the obligation to perform. 9-109(d)(6).
k. DEPOSIT ACCOUNT: bank account other than investment properties or accounts evidenced by instruments. 9-102(a)(29)
iii. Perfection – Only by Control (except as proceeds). 9-312(b)(1), 9-314
i. Where to Perfect – These are governed by the jurisdiction that a bank is located in, unless an agreement varies that jurisdiction. 9-304.
ii. Certificate of Deposit: traditionally, were negotiable instruments issued by bank. 3-104(j). Often today, no tangible certificate, so deposit account.
l. Commercial Tort Claim: if claimant is organization or an individual, but claim arose out of business and is not personal injury. 9-102(a)(13).
m. Letter of Credit Rights:
i. Perfection: control only. 9-312(b)(2), 9-314.
ii. Where to Perfect – This is governed by law of the jurisdiction in which the issuer or nominated person is located. 9-306.
n. Manufactured or Mobile Home:
i. Perfection: filing. 9-310(a).
1. Check possibility of Certificate of Title. 9-311.
2. Check possibility of fixture filing. 9-334.
o. Money: Perfection: possession only. 9-312(b)(3).