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Secured Transactions
University of Toledo School of Law
Bruce, Kara J.

I.                   Definitions:
a.       Creditor. Person that is owed the money
b.      Debtor. Owns the collateral.
c.       Obligor. Owns the obligation to repay.
d.      Security Interest: A Debtor, who has rights in some personal property (or fixtures), agrees by contract (the “security agreement”) to give the creditor (the “secured party”) an interest (“a security interest”) in that property to secure the debtor’s obligations. 
e.       Lien Creditor: A creditor that has acquired an interest in the property by attachment, levy or the like.
II.                Classifications of Collateral: Any form of personal property can be used as an obligation.
a.       General Intangibles: Any personal property other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods,  instruments, investment property, investment property, letter of credit rights, letters of credit, money, and oil, gas or other minerals before extraction.
b.      Goods: All things moveable and includes “embedded software.”
i.        The category of the good is determined by the principal use OR function in the debtor’s hands.
1.      Sometimes a category is determined by the intent of D upon purchase and C remains classified as such even if D later changes the primary use.
2.      For an interest to pass in goods, they must be both existing and identified; goods which are not are considered to be future goods.
3.      **Note: Goods can change their category of collateral:
a.       Ex: fridge at store before being sold = inventory; but sold to a family = consumer goods
ii.      4 Types:
1.      Consumer Goods: Those goods used primarily for personal, household, or family purposes.
2.      Farm Products: Goods with respect to which the debtor engages in farming operations.
a.       Crops, livestock, supplies used, supplies produced, and products of crops of livestock in their un-manufactured state
3.      Inventory: Goods held by the debtor for sale or leased, furnished under contracts of service, raw materials, work in progress, and goods used up relatively quickly.
a.       Example: Computer paper
4.      Equipment: Goods bought and used primarily for business purposes.
a.        Default provision, i.e., if C is a good but unclear of what kind of good, fallback = equipment.
c.       Commercial Receivables: Right to be paid money at a future time.
i.        Paperized Rights to Payment: Right is embodied in paper form.
1.      Chattel Paper: Evidences both a monetary obligation and a security interest or lease in the goods.
2.      Instruments: Negotiable notes, promissory notes, drafts, or checks.
3.      Letters of Credit.  Definite undertakings by an issuer to a beneficiary at the request or for the account of any applicant to honor a documentary presentation by payment or delivery of an item of value (usu. in int’l trade)
ii.      Intangible Rights to Payment: When a commercial receivable is not embodied in a piece of paper (in some cases there may be evidence of the obligation in written form but the paper form is not the agreement obligation itself)
1.      Accounts: Such as keeping an account with the supplier, which holds a continuing duty to pay the supplier for goods dispersed over time.
a.       Does not include the right to be repaid a loan of money
2.      General Intangibles. Discussed above.
3.      Payment Intangibles. A form of general intangible under which principal obligation is monetary.
4.      Electronic chattel paper. Like chattel paper, discussed above, but not in a tangible format.
5.      Deposit Accounts: A bank account that is treated differently than accounts
a.       An account where money is deposited such as in a savings, but not a rolling line of credit that must be repaid to a supplier
6.      Commercial Tort Claims: Amount owed due to a court judgment
7.      Letter of Credit Rights: When the lender authorizes a future grant and in turn obligation of money
iii.    Investment Property:
1.      Investment Securities (Covered by Article 8)
a.       Uncertified and Certified Securities
b.      Securities Account
c.       Securities Entitlement
2.      Investment Securities (Not covered by Article 8)
a.       Commodity Account
b.      Commodity Contract
iv.    Miscellaneous:
1.      Money. General intangible because it represents currency and not in itself valuable due to its form
2.      Documents
I.       Included w/in Art. 9 (9-109(a)):
a.      A transaction that creates a security interest in personal property or fixtures by contract.
i.        “Security Interest” means an interest in personal property or fixtures which secures payment or performance of an obligation. 1-201(b)(35).
b.      an agricultural lien;
c.       a sale of accounts, chattel paper, payment intangibles, or promissory notes;
d.      a consignment;
e.       an article 2 or 2A security interest; and
f.        an article 4 or 5 security interest.
III.             Excluded:
a.       9-109(c) [Extent to which article does not apply.] i.        (1) fed. statute, regulation, or treaty of the United States preempts this article;
ii.      (2) another statute of the same state governing SI created by the State or a governmental unit of the State;
iii.    (3) a statute of another State, a foreign country, or a governmental unit of another State or a foreign country, governing SI created by the State, country, or governmental unit.
b.      Exclusions in all cases (9-109(d)):
i.        landlord's lien, other than an agricultural lien;
ii.      statutory or common law lien for services or materials
iii.    assignment of a claim for wages, salary, or other comp. of an employee;
iv.    sale of accounts, chattel paper, payment intangibles, or promissory notes as part of a sale of the business out;
v.      assignment of accounts, cha

the SI will attach to whatever rights the D has.
ii.      Power to Transfer:
1.      A person with voidable title has power to transfer a good title to a good faith purchaser for value.
III. Scope of the Security Interest:
a.       After Acquired Collateral: a security agreement may create or provide for a SI in after-acquired collateral.
i.        If SA is silent re: after-acquired C, look at contract interpretation.
ii.      NOTE: Cannot do after-acquired clauses for consumer goods or commercial tort claims.
iii.    Majority: inventory and accounts receivable presumptively include after-acquired inventory and receivables, but don’t chance it! Draft SA clear!
b.      Proceeds: What you get for when C goes away for whatever reason.
i.        9-203(f): attachment of a SI in collateral gives the secured party the rights to proceeds provided by section 9-315.
ii.      Definition: 9-102(a)(64)àwhatever is acquired upon disposition of C.
iii.    Attachment of SI in collateral… is also attachment of a SI in a supporting obligation (guaranty of payment) for C.
c.       Future Advances: in return for a binding commitment to extend credit or for the extension of immediately available credit.
i.        A security agreement may provide that collateral secures, or that accounts, chattel paper, payment intangibles, or promissory notes are sold in connection with, future advances or other value, whether or not the advances or value are given pursuant to commitment.
IV. If the requirements are not met the security interest does not attach AND the loan is unsecured.
a.       Creditor does have a remedy under contract law, but it has not created an interest in the property.
I.       Perfection: process by which the creditor puts the world on notice that he has a prior interest in C.
a.        Indicates that SP’s SI is enforceable against competing creditors, 3Ps, or trustee in BR.
II.    Timing of Perfection: A security interest is perfected when (can occur in any order):
a.       SI has been properly attached AND
b.      Applicable requirements for perfections (if any) have been satisfied.
III. Continuity of Perfection: Tacking allows a SI to be perfected by one method and remain continuously perfected if there is a shift to another method of perfection (provided there is no gap period of non-perfection).