Select Page

Secured Transactions
University of Mississippi School of Law
Barnes, Richard L.

Secured Transactions
Exam Outline
Fall 2010
General Principles
I. ANALYSIS FRAMEWORK – EACH QUESTION
A. Scope
B. Attachment
i. Classify collateral
C. Perfection
D. Priorities
E. Exceptions
i. Bankruptcy
ii. Proceeds
F. Default and Remedies

II. IMPORTANT DEFINITIONS
A. Secured Transaction
i. Transaction, regardless of its form, that creates a security interest in personal property or fixtures that is governed by UCC Article 9
ii. Note: no special form or terminology is necessary to create a secured transaction
B. Lien – interest in the debtor’s property given by the law to protect a creditor
i. Consensual lien – voluntarily granted by debtor
a. Security interest – created in personal property or fixtures
b. Mortgage – created in real property
ii. Involuntary Liens
a. Judicial lien – imposed by judicial proceedings
b. Statutory lien – imposed by statue or CL
1. Landlord’s lien
2. Mechanics lien
3. Federal tax lien
4. Ag lien – interest in farm products involving the debtor’s farming operation, where lien created by statute. § 9-102(a)(5)
c. Note:
1. Generally exclude from Article 9, w/ ag liens being the exception.
2. However, if a dispute b/t the involuntary lien creditor and a security interest creditor arises, Article 9’s priority rules may govern.
C. Security Interest – § 1-201(35)
i. Interest (title, lease, license)
ii. In personal prop or fixtures
iii. Which secures
iv. Pmt or performance of an obligation
v. Note: also includes any interest of a:
a. Consignor; OR
b. Buyer of…
1. Accounts
2. Chattel paper
3. Payment intangibles
4. Promissory notes
D. Collateral – § 9-102(a)(12)
i. Property subject to a security interst or ag lien
ii. Also includes
a. Proceeds
b. Accounts, Chattel paper, Payment intangibles, and promissory notes that have been sold; AND
c. Goods subject to consignment
E. Account – § 9-102(a)(2)
i. Elements
a. Right to payment of a monetary obligation (debt owed);
b. Whether earned or unearned;
c. For property sold, leased, licensed or assigned; OR
d. For services rendered or to be rendered
ii. Does NOT include intangible items, i.e…
a. Chattel paper
b. Instruments;
c. Commercial tort claims;
d. Deposit accounts; OR
e. Promissory notes
iii. Significance: perfecting a security interest in an account does NOT require filing. §9-312(b)(1)

III.GOAL OF SECURED TRANSACTIONS
A. Structure transaction that will survive bankruptcy filing
B. Article 9 rest upon principle of public notice
i. If given, world can’t be cheated
ii. Cures the problem of ostensible ownership
iii. Public Notice = perfection

Scope: Does Article 9 Apply?
I. ANALYSIS FRAMEWORK
A. Did party’s intend to create a security interest in personal property or fixtures? 9-109
B. Is the collateral a type covered by Article 9? 9-102
i. Goods (tangible) – moveable when security interest attaches
ii. Quasi-intangibles – writing w/ legal significance, i.e. PNs
iii. Intangibles – no physical form, i.e. A/R
C. Any Applicable Exclusions?
i. Federal Preemption
ii. Statutory liens (other than ag)
iii. Judicial Liens
iv. Wage Assignments

II. SCOPE OF ARTICLE NINE – § 9-109(a)
A. (i) Transaction, regardless of its form, that creates a security interest in personal prop or fixtures by K
B. (ii) Includes sales of…
i. Accounts;
ii. Promissory notes;
iii. Payment Intangibles; and
iv. Chattel paper
v. *Logic? Avoid difficulty of distinguishing b/t transactions where receivable secures an obligation and transactions where receivable has been sold outright.
C. Also applies to…
i. (iii) Consignments
ii. (iv) Agricultural liens: and
iii. (v) Security interests arising under other articles, i.e. some leases

III.CONSIGNMENTS (IN) – § 9-109(a)(4)
A. Typically, consignor turns goods over to consignee who acts as a selling agent. If goods are not sold, consignor expects them back.
i. Sometimes difficult to distinguish a “true consignment” from a disguised financing arrangement
ii. If no option to return goods, but must pay, not a true consignment, and have an Article 9 transaction
B. But… some true consignments also covered – § 9-102(a)(20)
i. Person delivers goods to a merchant for the purpose of sale;
ii. Merchant deals in goods of that kind;
iii. Is NOT an auctioneer; AND
iv. Is NOT known to be substantially engaged in selling the goods of others
a. Ex: pawnbroker NOT a consignor
C. 2-236 – Sale on Approval and Sale or Return; Consignment Sales and Rights of Credit
i. SI attaches when buyer accepts the goods
D. 9-114 – Consignment

IV. LEASES: ARTICLE 2A (DISGUISED IN, TRUE OUT)
A. If have true lease, protected from creditors. If it’s a secured sale disguised as a lease, not protected, must take Article 9 steps.
B. Here, the focus is on economics, not the party’s intentions!
C. § 1-203 – Leases
i. (a) Determined by the facts of each case.
ii. (b) Creates ST if obligation for a term and not subject to termination by lessee; AND…
a. (1) Term = remaining EL of the goods (determined at lease’s inception);
b. (2) Lessee bound to renew for EL or to become owner;
c. (3) “” has option to renew for EL for no additional or nominal consideration (R business person test); OR
d. (4) Lessee has option to purchase goods for no additional or nominal consideration
iii. (d) Factors used to determine whether consideration was nominal;
a. Rent = FMV à NOT nominal
b. Determined at time option granted using the R Business Person Test
1. What would a R, sensible person similarly situ

t: sufficiently specific to resolve K disputes
B. Analysis Framework
i. Is there a complete SA?
a. Debtor has rights
b. Value given by SP
c. Authenticated SA describing the collateral
ii. If cannot answer YES to all of these, attachment has NOT occurred.
iii. If SP messes up here, entire process afterwards is a complete waste.
C. General Effectiveness of SA – § 9-201
i. (a) Except as otherwise provided, a SA is effective according to its terms b/t the parties, a/g purchasers of the collateral, and a/g creditors.
D. Attachment and Enforceability of Security Interest – § 9-203
i. (a) Security interest attaches when it becomes enforceable a/g debtor, unless agreement expressly postpones
ii. (b) Becomes enforceable only when…
a. (1) Value has been given;
b. (2) Debtor has rights in collateral or power to transfer rights to a SP;
c. (3) Agreement that security interest attach plus satisfaction of an evidentiary requirement…
1. (A) Debtor authenticates SA that describes the collateral (plus land if timber to be cut involved)
2. (B) Collateral is NOT a certificated security and is the SP’s possession under § 9-313 pursuant to the debtor’s security agreement;
3. (C) Delivery of a certificated security in registered form; OR
4. (D) Control of a deposit account, electronic chattel paper, investment property, or letter of credit rights
iii. Note: Barnes wants to us to also include…
a. Default conditions and events
b. Granting clause, i.e. “I grant to you an interest in my K”
E. When is Value Given? – § 1-204
i. (1) Binding commitment to extend credit, or the extension of credit;
ii. (2) Taking of property in satisfaction of or as security for a pre-existing contract for purchase;
iii. (3) Accepting delivery under a pre-existing contract for purchase; OR
iv. (4) Any consideration sufficient to support a simple K (check).
v. *Broader definition than consideration
F. Sufficiency of SA’s Description – § 9-108
i. Pontilius Correctness
ii. (a) Sufficient, whether or not specific, if R-ly IDs what is described
a. Must be able to resolve later disputes. Comment 1
iii. (b) Examples of R ID
a. (3) Category described by Code
(c) Super generic description – can’t use words “all debtor’s