Secured Transactions Jacoby Fall 2014
I. Nature of the Security Interest
a. Article 9 as an Assets Reservation System
b. The Key Attributes of Security Interests
i. Property rights good against the debtor
ii. Priority rights good against third parties
c. Article 9 as a Reified Priority System
i. Not general priority, but priority as to designated assets
d. The First-to-File Rule
i. Priority is usually, but not always, tied to the date of filing of a financing statement
e. Possible Distribution Rules for USC
1. Pro Rata – proportional
2. Equal Asset – assets paid out equally until debt is satisfied
3. Equal Loss – assets pd out to distribute losses as evenly as possible
ii. Equal Asset and Equal Loss make both total other debts and distribution of those debts matter
iii. Under Pro Rata, only total matters
iv. EA or EL would increase monitoring: good if we want to, bad if we do not
f. 9-322(a)(1) Priority Rule –
i. (ignoring perfection through possession), the first to file a FS wins
g. Ostensible Ownership Problem
i. inference of ownership from possession
h. Two Key Problems with Possession as perfection method
1. Loss of use of goods
2. Put goods in third-party hands and didn’t own, so no solution
i. Perfection through Possession
ii. Adds complexity to 9-322: early of first to file or perfect
iii. Can create misleading record of priority in FS record
II. Attachment Requirements
a. Decription requirement – 9-203(b)(3)(A)
b. 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
c. After-Acquired Property:
i. Clark (the wrong way)
1. 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.
2. Issue- Could acknowledgement suffice to create security interest. And if so, when did SI attach?
3. Ct held SI failed -Court seems to suggest mere leverage not enough
ii. The Right Way – creat interest in after-acquired property in the SA.
1. SI attaches at the time property is received by the debtor, not before.
iii. The Interest in Property Requirement
1. Organize cases along lines of positive rights v. negative rights in property
a. Securing Payment or Performance
i. Court seems to suggest mere leverage not enough
ii. Why not? Accomplishes goal; secured creditor doesn’t want to grab the property and often can’t
2. Top Down v. Bottom Up Approaches
a. Top down = Assume full rights then take specifically enumerated rights away
b. Bottom up = specifically enumerate positive rights
c. Top down approach probably better, easier
3. Negative Pledges-
a. Do not grant SI, instead just contractual right
b. Why the NP? Debtor might prefer it, and if done correctly, may serve as anti-later SI commitment
c. If allowed SI to be granted, possibility of inconsistent priorities pairwise (crops up a lot)
4. Separating SA’s and FS’s
a. Key design feature
b. SA grants interest, FS reserves spot in line vis-à-vis other creditors
c. consequences: file first before pursuing SA to reserve place in line
iv. When is an interest granted?
a. Two approaches Bollinger and Martin Grinding
i. 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
ii. Marting Grinding says:
1. Close to insisting that a single do
Electronic Chattel Paper
iii. 9-313 – When Possession Perfects
iv. 9-314 – When Control Perfects
1. 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.
a. Key defs:
i. 9-102(a)(47): Instrument
1. 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.
ii. 9-102(a)(42): General Intangible
1. 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.
2. Vienna Park – Ct held Right to receive funds from escrow was not “money” under UCC, but instead was a “general intangible” À creditor’s interest was not perfected through possession, but required filing.
a. Key defs:
i. 1-201(24): Money
1. a medium of exchange authorized or adopted by a domestic or foreign government as a part of its currency.