Secured Transactions Outline
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
i. Holdover
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 righ
OK
iii. Laminated Veneers and Worldwide Tracers
1. Lamintated Veneers – Oldsmobiles were not considered as “equipment” pledged under SA’s omnibus clause. Ct. found
a. cars not typically considered EQ
b. specific listing of truck implied exclusion of other vehicles
2. Worldwide Tracers – creditor described property as “any property”. Ct. held this did not perfect SI in intangible property because
a. creditor should have said “any property, tangible or intangible” and
b. description was found with list of tangible property
iv. 9-203 and Rights in the Collateral
1. Debtor cannot grant interest in rights it doesn’t have or control – Monalisa hypo
a. The Whatley problem – In closed corp setting, need to be sensitive to right way for creating and perfecting SI in pledged assets of owner of corp
i. SA signed by individual as such
ii. FS filed against individual
III. Perfection
a. Creates independent second source of information about the underlying transaction
b. Implementing Perfection
i. Three key methods:
1. file,
2. possess,
control
