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Debtors and Creditors
University of Tennessee School of Law
Plank, Thomas E.

Bankruptcy Outline

Secured Transactions

1. Scope of Article 9

1. Purpose: to regulate balance between goals of debtor and creditor.
– Art. 9 applies to any transaction intended to create a security interest in personal property or fixtures including goods, documents, instruments, general intangibles, chattel paper or accounts (9-102(a)(A)).

2. Scope of Security Interests
– Definition: an interest in personal property or fixtures which secures payment or performance of an obligation.
– Either Debtor or Secured Party may have title.
1. Seller who retains title in goods delivered to Buyer has a reserved security interest.
2. A special property interest under 2-501(1) is not an automatic security interest.
3. Buyer of accounts or chattel paper subject to Article 9 is treated as if security interest.
Chattel paper: a writing that contains both a monetary obligation and a security interest in or lease of specific goods.
4. Reservation of title in lease or consignment not intended as security does not create a security interest.
5. Article 9 covers security interests created in any manner except statutory liens.

3. Exclusions (9-104)
– Some transactions are excluded from Article 9 because they have nothing to do with commercial financing.

General Exclusions
1. Interests in real estate
– Except for mortgage assigned as collateral for seperate loan or fixtures (9-313)
2. Interests in timber and minerals
– Except timber under contract to be cut and extracted minerals
3. Statutory liens
4. Landlord and artisan liens
5. Transfers of claims for compensation
6. Transfers of interests in insurance policies and tort claims
7. Transfers of interests in bank accounts
– Except if account is proceeds of collateral

Specific Exclusions (9-104(F))
1. Sale of accounts or chattel paper as part of sale of business
2. Assignment of accounts or chattel paper for purpose of collection only.
3. Transfer of right to payment under contract to assignee who also must perform under contract.
4. Transfer of single account to assignee in satisfaction of pre- existing debt.

4. Definitions
1. Secured party:
– Lender, seller, or other person in whose favor there is a security interest, including a person to whom accounts or chattel paper have been sold.
– Includes a creditor who creates a security interest and creditor to whom it is assigned (9-302(2)).

2. Debtor
– One who owes payment or other performance of the obligation secured.
– Seller of accounts or chattel paper
– Owner of Article 9 collateral
– Obligor under a security agreement.

3. Creditor
– Includes general creditor, secured creditor, lien creditor, an

subject to filing requirements of Article 9
– Except for sales of accounts and chattel paper, the test for whether a transaction comes under Article 9 is:
– Is the transaction intended to have effect as security?

2. Procedures of Article 9

1. Creating a Security Interest

A. Classification of Collateral
1. Goods (Tangible Personal Property of Fixtures
– Consumer goods (9-109(1))
– Goods used primarily for personal, family, or household purposes.
– A radio is inventory in the hands of a debtor and consumer goods in the hands of a householder.

– Equipment
– Goods used in business or by a non-profit or government Debtor
– Cannot fall within definition of inventory or farm products.

– Farm Products
– Crops or livestock or supplies used or produced in farming operations, or
– Products of crops or livestock in their unmanufactured state, and
– If they are in possession of debtor engaged in farming operations.

– Inventory
– Goods held for sale or lease, raw materials, work in progress, or materials consumed in business.