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1
Secured TransactionsAssignment 22
Maintaining Perfection Through Lapse and Bankruptcy
2
The Big PicturePart Two: The Creditor Third Party Relationship
Chapter 6: Perfection
Chapter 7: Maintaining Perfection
Assignment 22: Through lapse and bankruptcy
Assignment 23: Through changes in name, identity and use of collateral
Assignment 24: Through interstate movements of debtors and collateral
Chapter 8-9: Priority
3
The Big PicturePart Two: The Creditor Third Party Relationship
Chapter 6: Perfection
Chapter 7: Maintaining Perfection
Assignment 22: Through lapse and bankruptcy
Assignment 23: Through changes in name, identity and use of collateral
Assignment 24: Through interstate movements of debtors and collateral
Chapter 8-9: Priority
4
The Big PicturePart Two: The Creditor Third Party Relationship
Chapter 6: Perfection
Chapter 7: Maintaining Perfection
Assignment 22: Through lapse and bankruptcy
Assignment 23: Through changes in name, identity and use of collateral
Assignment 24: Through interstate movements of debtors and collateral
Chapter 8-9: Priority
5
The Big PicturePart Two: The Creditor Third Party Relationship
Chapter 6: Perfection
Chapter 7: Maintaining Perfection
Assignment 22: Through lapse and bankruptcy
Assignment 23: Through changes in name, identity and use of collateral
Assignment 24: Through interstate movements of debtors and collateral
Chapter 8-9: Priority
6
The Lapse Problem
RE recording system UCC filing system
7
The Lapse Problem
RE recording system
Adds documents, never removes documents
UCC filing system
8
The Lapse Problem
RE recording system
Adds documents, never removes documents
1. Mortgage
UCC filing system
9
The Lapse Problem
RE recording system
Adds documents, never removes documents
1. Mortgage
2. Satisfaction of mortgage
UCC filing system
10
The Lapse Problem
RE recording system
Adds documents, never removes documents
1. Mortgage
2. Satisfaction of mortgage
UCC filing system
May physically destroy documents after six years
11
The Lapse Problem
RE recording system
Adds documents, never removes documents
1. Mortgage
2. Satisfaction of mortgage
UCC filing system
May physically destroy documents after six years
1. Financing statement
12
The Lapse Problem
RE recording system
Adds documents, never removes documents
1. Mortgage
2. Satisfaction of mortgage
UCC filing system
May physically destroy documents after six years
1. Financing statement
2. Termination statement
13
The Lapse Problem
RE recording system
Adds documents, never removes documents
1. Mortgage
2. Satisfaction of mortgage
UCC filing system
May physically destroy documents after six years
1. Financing statement
2. Termination statement
Automatic termination at five years
14
The Lapse Problem
RE recording system
Adds documents, never removes documents
1. Mortgage
2. Satisfaction of mortgage
UCC filing system
May physically destroy documents after six years
1. Financing statement
2. Termination statement
Automatic termination at five years, so:
3. Continuation statement (at approximately five year intervals)
15
Basic ConceptsTemporary (automatic) perfection:
16
Basic ConceptsTemporary (automatic) perfection:
General rule: Perfection by possession “continues only while the secured party retains possession.” §9-313(d)
17
Basic ConceptsTemporary (automatic) perfection:
General rule: Perfection by possession “continues only while the secured party retains possession.” §9-313(d)
Exception: Secured party who “makes goods available” for “ultimate sale” remains perfected for 20 days. §9-312(f).
18
Basic ConceptsTemporary (automatic) perfection:
General rule: Perfection by possession “continues only while the secured party retains possession.” §9-313(d)
Exception: Secured party who “makes goods available” for “ultimate sale” remains perfected for 20 days. §9-312(f).
Searcher on goods has three tasks:
19
Basic ConceptsTemporary (automatic) perfection:
General rule: Perfection by possession “continues only while the secured party retains possession.” §9-313(d)
Exception: Secured party who “makes goods available” for “ultimate sale” remains perfected for 20 days. §9-312(f).
Searcher on goods has three tasks:
1. Search filings
2. Examine goods for possession
20
Basic ConceptsTemporary (automatic) perfection:
General rule: Perfection by possession “continues only while the secured party retains possession.” §9-313(d)
Exception: Secured party who “makes goods available” for “ultimate sale” remains perfected for 20 days. §9-312(f).
Searcher on goods has three tasks:
1. Search filings
2. Examine goods for possession
3. Determine if goods were possessed in previous 20 days
21
Basic ConceptsTemporary perfection/bankruptcy: Schwinn Cycling case
22
Basic Concepts
Bailee perfected by possession
Temporary perfection/bankruptcy: Schwinn Cycling case
23
Basic Concepts
Baileesurrenderspossession
Bailee perfected by possession
Temporary perfection/bankruptcy: Schwinn Cycling case
24
Basic Concepts
20 days
Baileesurrenderspossession
Deadlineto perfect
Bailee perfected by possession
Temporary perfection/bankruptcy: Schwinn Cycling case
§9-312(f) A perfected security interest in a negotiable document or goods in the possession of a bailee . . . remains perfected for 20 days without filing if the secured party makes available to the debtor the goods or documents representing the goods for the purpose of
(1) ultimate sale or exchange; or
(2) . . . otherwise dealing with them . . . preliminary to their sale or exchange.
25
Basic Concepts
§9-312(f) A perfected security interest in a negotiable document or goods in the possession of a bailee . . . remains perfected for 20 days without filing if the secured party makes available to the debtor the goods or documents representing the goods for the purpose of
(1) ultimate sale or exchange; or
(2) . . . otherwise dealing with them . . . preliminary to their sale or exchange.
20 days
Baileesurrenderspossession
Deadlineto perfect
Temporary perfection/bankruptcy: Schwinn Cycling case
Bailee perfected by possession
Bankruptcy
26
Basic Concepts
§9-312(f) A perfected security interest in a negotiable document or goods in the possession of a bailee . . . remains perfected for 20 days without filing if the secured party makes available to the debtor the goods or documents representing the goods for the purpose of
(1) ultimate sale or exchange; or
(2) . . . otherwise dealing with them . . . preliminary to their sale or exchange.
20 days
Baileesurrenderspossession
Deadlineto perfect
Temporary perfection/bankruptcy: Schwinn Cycling case
Bailee perfected by possession
Bankruptcy
Now
27
Basic Concepts
§9-312(f) A perfected security interest in a negotiable document or goods in the possession of a bailee . . . remains perfected for 20 days without filing if the secured party makes available to the debtor the goods or documents representing the goods for the purpose of
(1) ultimate sale or exchange; or
(2) . . . otherwise dealing with them . . . preliminary to their sale or exchange.
20 days
Baileesurrenderspossession
Deadlineto perfect
Temporary perfection/bankruptcy: Schwinn Cycling case
Bailee perfected by possession
Bankruptcy
Now
Bailee should have filed!
28
Basic Concepts
9-210(b). [A] secured party . . . shall comply with a request within 14 days after receipt:
29
Basic Concepts
9-210(b). [A] secured party . . . shall comply with a request within 14 days after receipt:
(2) in the case of a request regarding a list of collateral or a request regarding a statement of account, by authenticating and sending to the debtor an approval or correction.
30
Basic Concepts
9-210(b). [A] secured party . . . shall comply with a request within 14 days after receipt:
(2) in the case of a request regarding a list of collateral or a request regarding a statement of account, by authenticating and sending to the debtor an approval or correction.
14 days
Authenticatedrequest withcollateral list
Authenticatedapproval or correction
31
Basic Concepts
9-210(b). [A] secured party . . . shall comply with a request within 14 days after receipt:
(2) in the case of a request regarding a list of collateral or a request regarding a statement of account, by authenticating and sending to the debtor an approval or correction.
This is the only (non-contract) obligation for secured to furnish information
14 days
Authenticatedapproval or correction
Authenticatedrequest withcollateral list
32
Basic Concepts
9-210(b). [A] secured party . . . shall comply with a request within 14 days after receipt:
(2) in the case of a request regarding a list of collateral or a request regarding a statement of account, by authenticating and sending to the debtor an approval or correction.
This is the only (non-contract) obligation for secured to furnish information
Only the debtor may make a request.
14 days
Authenticatedapproval or correction
Authenticatedrequest withcollateral list
33
Basic Concepts
9-210(b). [A] secured party . . . shall comply with a request within 14 days after receipt:
(2) in the case of a request regarding a list of collateral or a request regarding a statement of account, by authenticating and sending to the debtor an approval or correction.
This is the only (non-contract) obligation for secured to furnish information
Only the debtor may make a request. The debtor can request on behalf of the searcher.
14 days
Authenticatedapproval or correction
Authenticatedrequest withcollateral list
34
Problem 22.1, page 39212/30/01
FS
7/7/06
CS
a. Bank filed financing statement 12/30/01, continuation statement 7/7/06.
35
Problem 22.1, page 39212/30/01
FS
7/7/06
CS
a. Bank filed financing statement 12/30/01, continuation statement 7/7/06. Was it timely?
36
Problem 22.1, page 39212/30/01
FS
7/7/06
CS5 years
6 mo.
12/30/06
a. Bank filed financing statement 12/30/01, continuation statement 7/7/06. Was it timely? Yes, in last six months, §9-515(d).
37
Problem 22.1, page 39212/30/01
FS
7/7/06
CS5 years
6 mo.
12/30/063/22/10
a. Bank filed financing statement 12/30/01, continuation statement 7/7/06. Was it timely? Yes, in last six months, §9-515(d).
Today
38
Problem 22.1, page 39212/30/01
FS
7/7/06
CS5 years
6 mo.
12/30/063/22/10
a. Bank filed financing statement 12/30/01, continuation statement 7/7/06. Was it timely? Yes, in last six months, §9-515(d).
b. When is the next continuation statement due?
Today
39
Problem 22.1, page 39212/30/01
FS
7/7/06
CS CS5 years
6 mo. 6 mo.
12/30/06 12/30/116/30/11
5 years
3/22/10
a. Bank filed financing statement 12/30/01, continuation statement 7/7/06. Was it timely? Yes, in last six months, §9-515(d).
b. When is the next continuation statement due? 6/30/11 to 12/30/11, §9-515(d)
40
Problem 22.1, page 39212/30/01
FS
7/7/06
CS CS5 years
6 mo. 6 mo.
12/30/06 12/30/116/30/11
5 years
3/22/10
a. Bank filed financing statement 12/30/01, continuation statement 7/7/06. Was it timely? Yes, in last six months, §9-515(d).
b. When is the next continuation statement due? 6/30/11 to 12/30/11, §9-515(d)
c. Does a 3/29/10 bankruptcy change your advice?
Bky
41
Problem 22.1, page 392c. Does bankruptcy change your advice (to file a continuation
statement between 6/30/11 and 12/30/11)?
42
Problem 22.1, page 392c. Does bankruptcy change your advice (to file a continuation
statement between 6/30/11 and 12/30/11)?
§362(a)(4). [A] petition . . operates as a stay . . of . . any act to create, perfect or enforce any lien against property of the estate.
43
Problem 22.1, page 392c. Does bankruptcy change your advice (to file a continuation
statement between 6/30/11 and 12/30/11)?
§362(a)(4). [A] petition . . operates as a stay . . of . . any act to create, perfect or enforce any lien against property of the estate.
§362(b)(3). The filing of a petition . . . does not operate as a stay . . . of any act to perfect, or to maintain or continue the perfection . . . to the extent that the trustee’s rights . . . are subject to such perfection under section 546(b) . . .
44
Problem 22.1, page 392c. Does bankruptcy change your advice (to file a continuation
statement between 6/30/11 and 12/30/11)?
§362(a)(4). [A] petition . . operates as a stay . . of . . any act to create, perfect or enforce any lien against property of the estate.
§362(b)(3). The filing of a petition . . . does not operate as a stay . . . of any act to perfect, or to maintain or continue the perfection . . . to the extent that the trustee’s rights . . . are subject to such perfection under section 546(b) . . .
§546(b)(1)(B). The rights . . . of a trustee . . . are subject to any generally applicable law that . . . provides for the . . . continuation of perfection of an interest in property to be effective against an entity that acquires rights . . . before the date on which action is taken to effect such . . . continuation.
45
Problem 22.1, page 392c. Does bankruptcy change your advice (to file a continuation
statement between 6/30/11 and 12/30/11)? No
§362(a)(4). [A] petition . . operates as a stay . . of . . any act to create, perfect or enforce any lien against property of the estate.
§362(b)(3). The filing of a petition . . . does not operate as a stay . . . of any act to perfect, or to maintain or continue the perfection . . . to the extent that the trustee’s rights . . . are subject to such perfection under section 546(b) . . .
§546(b)(1)(B). The rights . . . of a trustee . . . are subject to any generally applicable law that . . . provides for the . . . continuation of perfection of an interest in property to be effective against an entity that acquires rights . . . before the date on which action is taken to effect such . . . continuation.
46
Problem 22.2, page 392
FS
5 years
No continuation statement was filed.
Now
Notedue
47
Problem 22.2, page 392
FS
5 years
No continuation statement was filed.
Now
Notedue
Was continuation our job or the client’s job?
48
Problem 22.2, page 392
FS
5 years
No continuation statement was filed.
Barnes v. Turner, 606 S.E. 2d 849 (Ga. 2004).
Now
Notedue
Was continuation our job or the client’s job?
49
Problem 22.2, page 392
FS
5 years
No continuation statement was filed.
Barnes v. Turner, 606 S.E. 2d 849 (Ga. 2004). We do not, as the dissent contends, demand that the lawyer “ascertain the full extent of the client's 'objectives;’ only that the lawyer take reasonable, legal steps to fulfill the client's main, known objective -- to be paid for the business he sold. . . .”
Now
Notedue
Was continuation our job or the client’s job?
50
Problem 22.2, page 392
FS
5 years
No continuation statement was filed.
1. Should we file a continuation statement now?
Now
Notedue
51
Problem 22.2, page 392
FS
5 years
No continuation statement was filed.
1. Should we file a continuation statement now? No. §9-510(c).
Now
Notedue
52
Problem 22.2, page 392
FS
5 years
No continuation statement was filed.
1. Should we file a continuation statement now? No. §9-510(c).
2. File a financing statement now?
Now
Notedue
53
Problem 22.2, page 392
FS
5 years
No continuation statement was filed.
1. Should we file a continuation statement now? No. §9-510(c).
2. File a financing statement now? Ask debtor’s permission?
Now
Notedue
54
Problem 22.2, page 392
FS
5 years
No continuation statement was filed.
1. Should we file a continuation statement now? No. §9-510(c).
2. File a financing statement now? Ask debtor’s permission?
9-509(b). By authenticating . . . a security agreement, a debtor . . . authorizes the filing of an initial financing statement . . . covering the collateral described . . . .”
Now
Notedue
55
§1-106(1). [U]nless the context otherwise requires . . . words in the singular number include the plural. . .
Problem 22.2, page 392
FS
5 years
No continuation statement was filed.
1. Should we file a continuation statement now? No. §9-510(c).
2. File a financing statement now? Ask debtor’s permission?
9-509(b). By authenticating . . . a security agreement, a debtor . . . authorizes the filing of an initial financing statement . . . covering the collateral described . . . .”
Now
Notedue
56
Problem 22.3, page 392
Ryersonfiles
9 years
Ryerson filed first and is supposed to have the first.
Associatesfiles Now
Bky
57
Problem 22.3, page 392
Ryersonfiles
9 years
Ryerson filed first and is supposed to have the first. §9-322(a)
Associatesfiles
Associatespossesses Now
Bky
58
Problem 22.3, page 392
Ryersonfiles
9 years
Ryerson filed first and is supposed to have the first. §9-322(a)
How could Associates possess a traveling circus?
Associatesfiles
Associatespossesses Now
Bky
59
Problem 22.3, page 392
Ryersonfiles
9 years
Ryerson filed first and is supposed to have the first. §9-322(a)
How could Associates possess a traveling circus? Example: Allied Van Lines had the circus in trucks and authenticated record saying they held for Associates?
Associatesfiles
Associatespossesses Now
Bky
60
Problem 22.3, page 392
Ryersonfiles
9 years
Ryerson filed first and is supposed to have the first. §9-322(a)
a. How could Associates possess a traveling circus? Example: Allied Van Lines had the circus in trucks and authenticated record saying they held for Associates?
b. Parker right?
Associatesfiles
Associatespossesses Now
Bky
61
Problem 22.3, page 392
Ryersonfiles
9 years
Ryerson filed first and is supposed to have the first. §9-322(a)
a. How could Associates possess a traveling circus? Example: Allied Van Lines had the circus in trucks and authenticated record saying they held for Associates?
b. Parker right? §9-308(c). “A security interest . . . is perfected continuously if it is originally perfected by one method under this article and is later perfected by another method under this article, without an intermediate period when it was unperfected.”
Associatesfiles
Associatespossesses Now
Bky
62
Problem 22.3, page 392
Ryersonfiles
9 years
Ryerson filed first and is supposed to have the first. §9-322(a)
a. How could Associates possess a traveling circus? Example: Allied Van Lines had the circus in trucks and authenticated record saying they held for Associates?
b. Parker right? §9-308(c). “A security interest . . . is perfected continuously if it is originally perfected by one method under this article and is later perfected by another method under this article, without an intermediate period when it was unperfected.”
c. How will you do the closing next time? Evidence?
Associatesfiles
Associatespossesses Now
Bky
63
Problem 22.3, page 392
Ryersonfiles
9 years
Ryerson filed first and is supposed to have the first. §9-322(a)
a. How could Associates possess a traveling circus? Example: Allied Van Lines had the circus in trucks and authenticated record saying they held for Associates?
b. Parker right? §9-308(c). “A security interest . . . is perfected continuously if it is originally perfected by one method under this article and is later perfected by another method under this article, without an intermediate period when it was unperfected.”
c. How will you do the closing next time? Evidence? §9-339?
Associatesfiles
Associatespossesses Now
Bky
64
Problem 22.5, page 393
Firstbank: Security agreement: “12 fork lifts”
Authorized financing statement: “Equipment”
Forklifts
Drill presses
Equipment
65
Problem 22.5, page 393
Firstbank: Security agreement: “12 fork lifts”
Authorized financing statement: “Equipment”
Does Firstbank have a security interest in the drill presses?
Forklifts
Drill presses
Equipment
66
Problem 22.5, page 393
Firstbank: Security agreement: “12 fork lifts”
Authorized financing statement: “Equipment”
Does Firstbank have a security interest in the drill presses? No.
Forklifts
Drill presses
Equipment
67
Problem 22.5, page 393
Firstbank: Security agreement: “12 fork lifts”
Authorized financing statement: “Equipment”
Does Firstbank have a security interest in the drill presses? No.
a. Does Firstbank have to give a release?
Forklifts
Drill presses
Equipment
68
Problem 22.5, page 393
Firstbank: Security agreement: “12 fork lifts”
Authorized financing statement: “Equipment”
Does Firstbank have a security interest in the drill presses? No.
a. Does Firstbank have to give a release? No. Authorized FS.
Forklifts
Drill presses
Equipment
69
Problem 22.5, page 393
Firstbank: Security agreement: “12 fork lifts”
Authorized financing statement: “Equipment”
Does Firstbank have a security interest in the drill presses? No.
a. Does Firstbank have to give a release? No. Authorized FS.
b. Can Beaver borrow on the drill presses?
Forklifts
Drill presses
Equipment
70
Problem 22.5, page 393
Firstbank: Security agreement: “12 fork lifts”
Authorized financing statement: “Equipment”
Does Firstbank have a security interest in the drill presses? No.
a. Does Firstbank have to give a release? No. Authorized FS.
b. Can Beaver borrow on the drill presses?
Firstbank files “equipment”
2nd bank files “drill presses,”
SA, lends”
71
Problem 22.5, page 393
Firstbank: Security agreement: “12 fork lifts”
Authorized financing statement: “Equipment”
Does Firstbank have a security interest in the drill presses? No.
a. Does Firstbank have to give a release? No. Authorized FS.
b. Can Beaver borrow on the drill presses?
Firstbank files “equipment”
2nd bank files “drill presses,”
SA, lends”
Firstbank gets SA in drill presses and lends
72
Problem 22.5, page 393
§9-322(a)(1). Conflicting perfected security interests . . . rank according to priority in time of filing or perfection. Priority dates from the earlier of the time a filing covering the collateral is first made or the security interest . . . is first perfected . . . .
Firstbank files “equipment”
2nd bank files “drill presses,”
SA, lends”
Firstbank gets SA in drill presses and lends
Who’s first? §9-322(a)(1)
73
Problem 22.5, page 393
Firstbank files “equipment”
2nd bank files “drill presses,”
SA, lends”
Who’s first? §9-322(a)(1)
Will §9-210 help?
Firstbank gets SA in drill presses and lends
§9-322(a)(1). Conflicting perfected security interests . . . rank according to priority in time of filing or perfection. Priority dates from the earlier of the time a filing covering the collateral is first made or the security interest . . . is first perfected . . . .
74
Problem 22.5, page 393
Firstbank files “equipment”
2nd bank files “drill presses,”
SA, lends”
Who’s first? §9-322(a)(1)
Will §9-210 help?
Firstbank “No SI”
Firstbank gets SA in drill presses and lends
§9-322(a)(1). Conflicting perfected security interests . . . rank according to priority in time of filing or perfection. Priority dates from the earlier of the time a filing covering the collateral is first made or the security interest . . . is first perfected . . . .
75
Problem 22.7, page 394
Would the Suarezs be better off under the UCC rule?
Bill of saleTerminationSuarez Buyer
NewLender
$600K
Global
$407KTermination Termination$550K
76
Problem 22.7, page 394
Would the Suarezs be better off under the UCC rule?
UCC §9-513(c). [W]ithin 20 days after a secured party receives an authenticated demand . . . the secured party shall . . . send to the debtor a termination statement . . . if (1) . . . there is no obligation secured by the collateral . . . and no commitment to make an advance . . . .
Bill of saleTerminationSuarez Buyer
NewLender
$600K
Global
$407KTermination Termination$550K
77
Bill of saleTermination
Problem 22.7, page 394
Would the Suarezs be better off under the UCC rule?
UCC §9-513(c). [W]ithin 20 days after a secured party receives an authenticated demand . . . the secured party shall . . . send to the debtor a termination statement . . . if (1) . . . there is no obligation secured by the collateral . . . and no commitment to make an advance . . . .
Suarez Buyer
NewLender
$600K
Global
$407KTermination Termination$550K
TerminationPaymentand demand 20 days
78
Problem 22.7, page 394
Would the Suarezs be better off under the UCC rule?
UCC §9-513(c). [W]ithin 20 days after a secured party receives an authenticated demand . . . the secured party shall . . . send to the debtor a termination statement . . . if (1) . . . there is no obligation secured by the collateral . . . and no commitment to make an advance . . . .
Suarez Buyer
NewLender
$600K
Global
$407KTermination Termination$550K
Payment andterminationDemand
20 days
Bill of saleTermination
79
Problem 22.7, page 394
9-509(d). A person may file an amendment . . . only if . . . (2) the amendment is a termination statement . . . the secured party . . . failed to file or send . . . as required by Section 9-513(c), the debtor authorizes the filing, and the termination statement indicates that the debtor authorized it to be filed.
Suarez Buyer
NewLender
$600K
Global
$407KTermination Termination$550KBill of saleTermination
80
Problem 22.7, page 394
9-509(d). A person may file an amendment . . . only if . . . (2) the amendment is a termination statement . . . the secured party . . . failed to file or send . . . as required by Section 9-513(c), the debtor authorizes the filing, and the termination statement indicates that the debtor authorized it to be filed. [Otherwise, it is ineffective. 9-510(a).]
Suarez Buyer
NewLender
$600K
Global
$407KTermination Termination$550KBill of saleTermination
81
Problem 22.7, page 394
9-509(d). A person may file an amendment . . . only if . . . (2) the amendment is a termination statement . . . the secured party . . . failed to file or send . . . as required by Section 9-513(c), the debtor authorizes the filing, and the termination statement indicates that the debtor authorized it to be filed. [Otherwise, it is ineffective. 9-510(a).]
If you are New Lender, is this termination statement acceptable?
Suarez Buyer
NewLender
$600K
Global
$407KTermination Termination$550KBill of saleTermination