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Secured Transactions
Washington & Lee University School of Law
Fairfield, Joshua AT

Secured Transactions
 
Security Interest — the interest in property that secures payment of the debt. (1-201(b)(35)).
 
Security Agreement — the private agreement that creates the security interest. (9-102(a)(73)).
 
Financing Statement — the record (tangible or electronic) that the secured party files in public records, usually the state’s filing office. (9-102(a)(39)).
 
Secured Party — the creditor in whose favor the security interest is created. (9-102(a)(72)).
 
Debtor — the person whose property is subject to the creditor’s security interest. (9-102(a)(28)). See also Obligor– the one who owes the payment. (9-102(a)(59)). These are usually the same, but can be different persons.
 
Collateral — the property subject to the security interest. It may be tangible, like “goods” or it may be intangible, like “accounts.” (9-102(a)(12)).
 
Attachment — the creation of a security interest that is enforceable by a Secured Party against a Debtor.  (9-203(a)). Attachment = SP v. Debtor
 
Attachment happens when (1) debtor has rights in collateral; (2) SP gives value; (3) the parties reach an agreement to create a security interest
 
Perfection — the creation of an interest that is enforceable by a Secured Party against third parties in the event of the Debtor’s bankruptcy. (9-308(a)). Perfection = SP v.  
 
Perfection happens when (1) the interest attaches (see requirements above) AND (2) the requirements for one of the several different means of perfection set forth in the code have been satisfied. (9-308).
 
I.                        The “Several Different Means of Perfection”
 
A.    File a Financing Statement. 9-310
 
Ø This is the basic way.  For collateral that the debtor wants to keep, you need something on file showing potential third party lenders that the collateral is already subject to a security interest.
 
B.     Perfect by Possession (“pledge”). 9-313
 
Ø Think “pawn shop” here. There is no need to perfect by a filing because the Secured Party keeps possession of the collateral. So a potential third party lender KNOWS something’s up with the collateral.
 
C.     Perfect by Control. 9-312; 9-314
 
Ø Used for some assets, e.g. bank deposit accounts, which don’t really exist physically.
 
D.    Perfect Automatically.
 
Ø The book calls this “perfection on attachment” but Fairfield calls it “automatic perfection.”
 
§ Example: Since Consumer Goods are small and not worth the filing fees, merchants aren’t required to file financing statements for every toaster they sell on secured credit. (Of course, hardly any toasters are sold on secured credit these days anyway.)
 
E.     Other, specific, Statutory Means of Perfection. 9-311
Ø Remember that some forms of collateral need specific means of perfection. See UCC § 9-311, relating to certificate-of-title statutes, etc.
 
II.        Sufficiency and Effectiveness
 
A.    For a Financing Statement to be Sufficient, it must have THE BIG THREE (9-502(a)):
 
a. the name of the debtor;
 
b. the name of the secured party;
 
c. an indication of the collateral covered.
 
§ The debtor’s name is the most important element of the FS. The Minor Errors in Spelling Rule from 9-506 is that errors are not seriously misleading IF a searcher can find the FS using the “Standard Search Logic.”
 
§ Pankratz stands for the new view that under electronic filing, the search engine must be able to find the debtor.  The burden is on the Filer and not the searcher.
 
§ If one of the Big Three is incorrect, it will cause the SI to be invalid.
 
B.     A Sufficient Financing Statement is Effective IF it is Filed by the recording officer. 9-520(c)
 
Ø (Except that a wrongfully filed Financing Statement may result in the security interest being subordinated under UCC § 9-338 to a conflicting perfected SI in the collateral to the extent that the holder of the conflicting SI gives value in reasonable reliance

by Debtor
 
A.    9-509(a) states that a person may file an initial financing statement only if the “debtor authorizes the filing in an authenticated record.” Thus, the *filing* of the financing statement must be authorized by the debtor.
 
Ø Note: the filing statement itself need not be signed or authenticated by the debtor.
 
B.     Executing a security agreement ipso facto authorizes the filing of a financing statement covering the collateral listed in the SA. 9-509(a)(1); 9-509(b)
 
C.     A filed financing statement is only effective “to the extent” authorized by the debtor. 9-510
 
Ø If the Secured Party files a financing statement that covers MORE than is set forth in the security agreement, the financing statement is EFFECTIVE to cover the collateral listed in the security agreement and INEFFECTIVE over the collateral not listed in the security agreement.
 
§ Example: Bank files a financing statement covering all of Debtors personal property. The security agreement lists only inventory and accounts receivable. The financing statement is effective as to inventory and accounts, but ineffective as to equipment and other assets.
 
Ø A bank that files an unauthorized financing statement risks being sued by the debtor under 9-625(b), and 9-625(e)(3). At least, the debtor can file a correction to the unauthorized financing statement, under 9-518(b). 
 
§ Despite that, banks do routinely file financing statements before reaching any kind of agreement with the Debtor, in order to preserve priority. 9-502(d)
 
IV.       Indication of Collateral