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

A. Obligator v. debtor
B. Applicability of A9: 9-109. Does not apply to real property.
C. General
1 Article 9 (Secured Transaction is) governs (study of )“consensual” “security interest” in “personal property and fixtures.”
2 Attachment(creation) àPerfection (notice) àpriority (conflict resolution)
3 Benefits of Security: Self-help repossession rights, Priority over competing creditors, Rights to exempt property.
4 Terms:
1) A debtor (the owner, lessee, etc of goods) grants a security interest in collateral to a secured party by executing a security agreement.
2) The obligator owes the debt secured by the security interest.
① Ex: A needed money, ask A’s parent to give his lender a SI in his parents’ yacht to borrow moneyàA is “obligator” who owns debt, and his parents are “debtors” who granted a SI in collateral to the bank (secured party).
3) Secured creditor is a creditor with an attached SI in the C.
D. The scope of Article 9 coverage
1 To determine whether A9 applies,
1) Ask
① did the parties intend to crate a security interest in personal property or fixtures
② The COLLATERAL is of a type covered by A9—look for “goods, quasi-intangible, intangibles”
③ The TRASACTION is of a type covered by A9
④ Any applicable exceptions?
2 General: A9 applies to 1> “any transaction (regardless of form) which is intedned to create a SI in personal property or fixtures,” 2> any sale of accounts, chattel paper, payment intangibles, or promissory notes, 3> consignments, 4> agricultural liens, and 5> SI arising under other UCC articles. (9-109(a).
3 Type of collaterals.
1) Tangible collateral–goods
① consumer goods; primarily for personal, family, or household purposes.
② inventory for sale or lease to other in the ordinary course of business such as raw material, pencils and stationary in the office.
③ farm products (until in their manufactured states)
④ equipment—long-lasting goods such as machinery, painting in the office wall, computer
2) Quasi-tangible collateral: legal rights usually represented by pieces of paper
① Instruments: checks, promissory notes, drafts, and certificates of deposits.
i) Chattel paper—refers to a record that evidences both a monetary obligation and a SI or lease of specific goods; that is, singes promissory note and granted a SI and sells to banks;
(i) Cf: Promissory notes (which is instruments); it
(ii) Cf: Accounts: If consumer buys goods on credit, it is just oral promise of repayment as collateral for a loanàit is an account, not chattel paper.
② Documents: refers to documents of title such as bills of lading and warehouse receipts.
③ Investment property: refers to stocks and bonds.
3) Intangible collateral (no physical form)
① Accounts (commonly called “account receivables): refers to a right of payment for goods and services sold or leased that is not evidenced by an instrument or chattel paper such as rights to payment arising out of the use of credit card or for lottery winning. [so debtor use this as collateral] i) Cf: Instrument—if the loan of money is coupled with the signing of a written promise to repay the money, it would be an instrument such as promissory notes.
ii) Cf: “general intangibles”—A Bank loans money to customers, then borrow money from another B Bank using the money that it loaned to customer as collateral; this is not accounts but general intangibles [a loan of money is not account] ② Letter of credit rights: refers to when the beneficiary’s rights guaranteed by issuing banks is used as collateral.
③ Deposit accounts: A9 covers the use of deposit accounts as ORIGINAL collateral, but does not cover consumer deposit accounts except to the extent the include proceeds.
④ Commercial tort claims
⑤ General intangibles: vaguely defined to include any personal property other than fitting in any of the above categories which allows for commercial usage to make use of new forms of personal property as collateral such as goodwill, literary rights, and rights of performance, blueprints, bid package, and research reports which has the right to payment of a federal tax refund.
i) Payments intangible (=subcategory of general intangible): A “payment intangible” is any general intangible under which the account debtor’s principal obligation is the payment of money. Ex: you borrow money from your parents with an ORAL promise to pay—payment intangible.
ii) Cf: But if you sign a WRITTEN promise to repay, then it would be classified as an “instrument” since it now has physical form.
4) Notes:
① Liquor license can be perfected under A9 (most courts), so it is collateral.
② Software: Software not embedded in goods qualifies as a general intangible, even if sold in a package in a computer store. So it could be collateral.
5) Important Notes:
① A promissory note will always be an “instrument,” regardless of who owns it or how it used.
② Remember that types of tangible collateral are determined according to their use by the debtor, while types of quasi-tangibles and intangible collateral are determined according to their nature. Ex: A book can be “inventory” if it is on the selves of a bookstore, a “consumer good” if it is bought from the bookstore by a person intending to use it for PERSONAL enjoyment, and “equipment” if it is bought from the bookstore by a person intending to use it as a reference book in her business.
4 Types of transactions; Lease and Consignments***
1) If the purpose of the transaction was to create a SI in collateral, A9 applies. [What appeared to be an outright SALE of goods was held to be intended only as a security device and hence subject to A9 (“sale” was far below market and “seller” had reserved the right to repurchase.)] 2) Distinguish True lease ( which A9 not applied) v. a sale on credit (A9 –secured transaction—applied)
3) Distinguish true consignments—not option to return goods (in which case A9 may be or may not be applied) v. disguised as a consignment; that is sale on credit? see page 24.
① If the consignee must keep and pay for the consigned goods if they are unsold, this is a secured transaction disguise as a consignment. Thus the consignor must comply with A9 to protect its interest in the consigned goods.
***Leases and Consignments
E. Lease
1 What is a lease? What is a secured transaction?
1) Article 9 governs any transaction, regardless of form, that creates a security interest in personal property.
2) 2A-103(1)(j) “Lease” means a transfer of the right to possession and use of goods for a term in return for consideration.
① A sale . . . or the creation of a security interest, is not a lease.
3) 1-201(35) defines security interest
① “whether a transaction in the form of a lease creates a security interest is determined pursuant to section 1-203.”
2 1-203. Lease Distinguished from Security Interest.
1) Step 1: Is the Bright Line Test met?
(1) lessee cannot terminate

⑪ Interest in real property;
⑫ Assignment of non-commercial tort claim;
⑬ Assignment of deposit account in consumer transaction.
H. An article 9 security interest
1 A debtor, who has rights in some personal property (or fixtures), agrees by K (the “security interest”) to give the creditor (the “secured party”) an interest (a “security interest”) in that property to secure the debtor’s obligations.

A. Requirement for attachment
B. The composition document rule
C. The scope of security agreement—SI attached?
1 Sufficiency of description of collateral
1) Reasonably identifiable.
2) General v. specific description of collateral: depends whether SA or FS?
2 After-acquired collateral.
1) SI in inventory and account receivable presumption
D. Proceeds

Default and Enforcement
○ Overview

Lender Liability
Waiver & Estoppel

Cumulative Remedies
Disposition of Collateral
Secondary Obligors
Acceptance of Collateral
Affect of Disposition or Acceptance on 3d Parties
Collection of Rights of Payment

A. Def
B. Acceleration
1 Acceleration clause v. Insecurity clause (good faith)
C. Lender liability
D. Waiver and estoppel

Enforcement of SI
A. Judicial enforcement
B. It is cumulative remedies: retention, sale or other disposition, and an action for the debt.
C. Repossession
1 Self-help repossession: notice requirement.
1) Breach of peace.
2 Judicial action—court support.
D. Disposition of collateral
1 General
2 May be public or private
3 Notification before disposition—when, who, contents (if private sale or public sale, or if consumer goods?). After default or before default.
1) exception
4 Marshalling
5 Commercially reasonable disposition
1) Burden of proof of CRD
2) Greater amount?
6 Post-sale matters
1) General; Surplus and deficiency; payout order
2) Exception
E. Remedies for failure to comply with A9
1 Limiting SP’s deficiency claim
1) In non-consumer transaction; presumption
2) Consumer transactions
3) 9-625: injuctive relief, damages for loss, statutory damages, minimum damages in consumer goods transaction, supplemental damages in specified circumstances.
F. Secondary obligors
1 Generally Dt are both debtor and obligator; cosigners are secondary obligators.
G. Non-waivable rights before default.
H. Acceptance of collateral
1 Strict foreclosure—partial or full satisfaction
1) Consent