ABA Secured Transactions Tutorial - M08 Kate Marchyok (marchyok@ cooley.edu) PURPOSE: UCC: promote commercial transactions Art. 9: protect potential lenders DEFINITIONAL SECTIONS: 1-201 - applies to entire UCC 9-102 - applies to only Art. 9 SCOPE - 9-109: Applies to transactions that create Security Interests (S.I.) (9-109(a)) o Exceptions: - SEE 9-109(d)(l)-(13) Does not apply to true leases (governed by Art. 2A) SEE Lease vs. Disguised Sale below Art. 9 tells how to create S.I. so that it is enforceable against the Debtor o Lien - interest in property to secure a debt o S.I. - an interest in personal property or fixtures which secures: Payment; or Performance of an obligation (1-201(b)(35)) o Purchase-Money S.I. (PMSI) - when a Lender lends $ to Borrower to buy good & Borrower gives S.I. in good they are buying to Lender Can be consumer good, equipment or inventory but only PMSI in consumer goods automatically attaches But, can only have for consumer goods if Debtor acquires the goods w/in 10 days after S.P. gives value 3 Steps: Classify collateral; Does S.P. have PMSI; and Did S.P. comply w/ 9-324 to get priority? o Attachment - V-R-A; process of creating S.I.; once S.I. attaches to collateral, Creditor may enforce S.I. against that collateral (9-203) o Perfection & Priority - how the Secured Party's (S.P.) rights in the collateral measure up against rights of persons, other than Debtor, claiming an interest in collateral Perfection: steps a Creditor must take to give public notice of its S.I. Priority: hierarchy of competing claims, other than Debtor's, to the collateral - may depend on: Type of property involved Who the competing party is Which interest arose 1st OTHER TRANSACTIONS: Lease vs. Disguised Sale - l-203(b) If transaction is Lease Art. 2A applies If transaction is Sale w/ retained S.I. Arts. 2 85 9 apply 2A-103(p): a lease transfers the right to use a good in return for consideration In true sale: Seller/Lessor does not expect property back if Buyer/Lessee pays In lease: Seller expects goods back when they are still worth something 3-Step Test: 1. May Lessee terminate agreement @ will? YES it's a Lease1

NO > may be a Sale; go to Step #22. If Lessee can't terminate @ will, and it satisfies any of l-203(b)(l)-(4) it's a Sale Lease term > good's remaining economic life; or Lessee must (i) buy good, or (ii) extend agreement for good's remaining economic life; or Lessee may renew lease for nominal consideration; or Lessee may buy good for nominal consideration o 1-203(d) nominal - if Lessee spends less to exercise it than to not do so but not nominal - if price is FMV when Lessee must exercise the option 3. If #1 or #2 not satisfied, analyze under 1-203(a) - look @ facts. Use 1203(c)(l)-(6) for guidance; UCC says none by itself creates S.I. NPV (nominal present value) of rent > good's FMV @ lease execution. But rational Lessee may be willing to pay more to lease than to buy b/c of: o High maintenance costs o Large tax benefits o Bad credit - can't buy o No upfront cash Lessee assumes risk of loss of goods Lessee pays taxes, fees, maintenance, etc. Lessee has option to renew or buy Lessee has option to renew @ rent > FMV when it must execute the option Lessee has option to buy @ price > good's FMV when it must execute the option Consignment - 9-102(a)(20) 3 Categories: 1.Consignments that are disguised security transactions - w/in scope of Art. 9 b/c, regardless of form, it creates a S.I. in personal property by K (9-109(a)(1)) 2.True Consignments that fall w/in definition of consignment under 9102(a)(20) - w/in scope of Art. 9 (9-109(a) (4)) 1.Consignor/Owner interest in the property = S.I. 2.Consignor/Owner = S.P. 3.Consignee/Retailer = Debtor 4.See also 9-319 - true Consignor subjected to ability of Consignee to give interest in Consignor's goods to secure Consignee's debts or sell goods free of Consignor's interest in them unless Consignor perfects 3. Transactions that are true consignments but fall outside of 9-102(a)(20) definition are Bailment - outside scope of Art. 9 2-Step Test: 1. Is it a CL Consignment? - Factors Indicating Consignment a) Transaction more likely Consignment if Consignor: Keeps title to delivered goods until Consignee sells them & may @ any time demand Consignee return goods Exerts control over sale price Retains ROL (risk of loss) May inspect goods & books, records, & premises of Consignee b) Transaction more likely Consignment if Consignee: Must segregate consigned goods from its own inventory Must segregate proceeds it obtains from selling goods & forward them to Consignor Must keep separate books & records pertaining to goods May return goods it has not sold c) Transaction more likely Consignment if Shipping Papers / Other Documents refer to it as a Consignment

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2. If YES -> may or may not be Art. 9 Consignment; go to 9-102(a)(20) Party seeking to establish Consignment must show 7 things: i) Consignor delivered goods to Merchant (SEE 2-104) for sale; and ii) Merchant deals w/ goods under name other than Consignor's name; and iii) Merchant was not an Auctioneer; and iv) Merchant not generally known by its Creditors to be substantially engaged in selling goods of others; and v) Delivered goods were worth @ least $1,000; and vi) Consignor was not using goods as consumer goods before it delivered them to Merchant; and vii)Transaction was not a credit sale w/ a S.I. that parties disguised as Consignment

Analyzing transaction under 2-Step Test leads to 1 of 3 possible results: 1.If all requirements in 9-102(a) (20) met, transaction = Consignment subject to Art. 9 (Category #2) 2.If @ least 1 of the 1st 6 requirements in 9-102(a)(20) not met, transaction may be Consignment, but it is not subject to Art. 9 (other law governs) (Category #3) 3.If 7th requirement in 9-102(a)(20) is not met, transaction is not Consignment, but instead = Sale w/ S.I. (Art. 9 governs this transaction) (Category #1) 4.Identify the Parties 5.Identify & Classify the Collateral 6.Determine if each Creditor's S.I. ever Attached to the collateral (V-R-A) 7.Determine if each Creditor ever Perfected the attached S.I. 8.Determine if any Subsequent Event had an impact on a Creditor's perfected S.I. 9.If a Creditor obtained new collateral after it perfected its initial S.I., go back to Step # 1 10.Identify which Creditors are fighting over each piece of collateral (i.e. identify each Claimant's Status) 11.Isolate and apply the appropriate Priority rules to each battle. Remember Ostensible Ownership problem: whoever possesses collateral appears to own it, but that person could use it as collateral for another loan, sell it, etc. STEP #2 - IDENTIFY & CLASSIFY THE COLLATERAL COLLATERAL - property subject to the S.I. (9-102(a)(12)) GOODS (F-I-C-E) 9-102(a)(44) - movable things

Farm Products 9- 102(a)(34) Inventory 9-102(a)(48) Consumer Goods 9-102(a)(23) Equipment 9-102(a)(33)QUASI-INTANGIBLE PROPERTY - intangible interests represented by paper or other records that embody the intangible right Instruments 9-102(a)(47); 3-104(b) oPromissory Notes 9-102(a)(65) Certificated Securities (type of Investment Property) 9-102(b); 8-102(a)(4) Documents 9-102(a)(30); l-201(b)(16) Chattel Paper 9-102(a)) 11) Money l-201(b)(24) INTANGIBLE PROPERTY - right is evidenced by paper, but paper doesn't embody the right Accounts 9-102(a)(2) o Health Care Insurance Receivables 9-102(a) (46)

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Deposit Account 9-102(a)(29) Investment Property 9-102(a)(49) Letter of Credit (LOC) Rights 9-102(a)(51) General Intangible 9-102(a)(42)o Payment Intangible 9-102(a)(61) o Patent, Trademark, Copyrights

Quick Reference: (all sections from 9-102(a) unless otherwise indicated) GOODS (34) F (48)1 (23) C (33) E

Oil (47) I (incl. (65) PN) 8-102(a)(4) CS (30) D (11) CP l-201(b)(24) M

INTANGIBLES (2) A (incl. (46) HCIR) (29) DA (49) IP (51) LOC (42) GI (incl. (61) PI & P, T, C)

STEP #3 - DETERMINE IF EACH CREDITOR'S S.I. EVER ATTACHED TO THE COLLATERAL (V-R-A) Value 9-203(b)(l) o Creditor must give value Rights 9-203(b)(2) o Debtor must have rights in collateral or power to transfer such rights to Creditor Agreement 9-203(b)(3) o Must be a S.A. that meets certain criteria

Value - 9-203(b)(l) 1-204: extension of credit, commitment to lend, or consideration sufficient to support a simple K S.A. does not have to expressly reference Value Generally S.P. gives value, and Obligor gets the value Rights - 9-203(b)(2) Debtor must have rights in collateral or power to transfer such rights to Creditor 3-Step Process - Ask: 1.Is it really property? 2.If so, what are Debtor's rights in it? 3.Can Debtor convey to the S.P. greater property rights than it actually has? Agreement - 9-203(b)(3) S.A.: agreement that creates or provides for a S.I. (9-102(a)(73)) o 9-201(a): except as provided otherwise, S.A. is effective between the parties, & against Purchasers & Creditors Does not have to be written - can have S.A. by: o Possession - Creditor possesses collateral (9-203(b)(3)(B)) o Control Creditor exercises control over collateral difficult to possess (9-203(b)(3)(C)) But, must be written if Debtor continues to possess collateral; doesn't have to contain

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specific words or be in specific form but must describe collateral & be authenticated by Debtor (9-203(b)(3)(A) o 9-108 - defines "describe" Prohibits super-generic descriptions E.g., "all Debtor's assets", "all Debtor's personal property" Permits descriptions by category, etc. - just has to reasonably identify it But, description by type of collateral insufficient in consumer transaction, securities account (9-108(e)(2)) o Insufficient = "securities account" o Sufficient = "all securities accounts held @ brokerage house" (SEE 9-108, cmt. 5) S.A. vs. F.S. S.A. must describe collateral F.S. must give indication of collateral o What does "indicate" mean? - only needs to be sufficient to cover collateral concerned (SEE 9-502, cmt. 2) Financing Statement Purpose: to give notice of S.P.'s interest in collateral so people wishing to acquire S.I. in same property or buy outright can learn about that interest F.S. only provides inquiry notice - provides enough information to: o Alert searcher to inquire more, and o Direct it to who has more information 9-501 Where to file - Filing Office (generally Sec. of State's office) o May be filed before or after Attachment 9-502(a) F.S. sufficient if: o Provides Name of Debtor; and Name change - seriously misleading F.S. (9-507(c)); S.I. isn't unperfected retroactively - it remains perfected as to collateral before the 4 mo. grace period expires New Debtor - don't need a new S.A. but need new F.S.; a PSP's S.I. remains perfected for collateral Debtor acquired before changing its name or w/in 4 mos. after changing its name o Provides Name of S.P.; and New Creditor - no secrecy problem b/c a new F.S. is required o Indicates collateral covered Sale of Collateral/Disposition - Creditors' F.S. remains effective for collateral Debtor sells (9-507(a), 9-315(a)(l)) New Accounts/Collateral After Sale - Creditor must file a F.S. to perfect S.I. in collateral the new entity later obtains 9-516(b) - not required but helpful o Parties mailing addresses o Whether Debtor is individual or organization, etc. 9-515(a) - F.S. generally effective for 5 years from date of filing o To continue effectiveness, must file Continuation Statement w/in last 6 mos. of 5 year period 9-515(d) 9-513 Termination Statement - S.P. will file o Consumer goods - (1) w/in 1 mo. after no obligation or (2) w/in 20 days if receive authenticated demand from Debtor o Non-consumer goods - w/in 20 days

Remember: clerk should not accept F.S. if 9-516 requirements are not satisfied, but

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if clerk does accept F.S. still valid if satisfies 9-502(a), 9-520 Location Summary Registered Organization (e.g. corporation) = State of Registration (i.e., where incorporated) Individual = Residence Any other Debtor = @ Place of Business If more than 1 Place of Business = Chief Executive Officer * If in doubt, file everywhere! Quick Reference: Type of Filing FS Amendment: Continuation Statement Termination Statement Other 9-515 9-513 9-512, 9-514 To continue effectiveness beyond 5 yrs. To remove cloud from title To change names & addresses; add or release collateral; assign the filing Code Provision 9-502 When Needed @ conception of deal

After-Acquired Property: property acquired by Debtor after Debtor authenticates the S.A. (9-204(a)) Presumed unless: o S.A. doesn't cover A-A-P, or o Party presents clear, contrary evidence, or o Debtor can show named collateral does not regularly turn over Can't have for consumer goods unless the Debtor acquires rights in them w/in 10 days after the S.P. gives value Future Advances: a new loan or other extension of credit after authentication of S.A. (9-204(c)) Composite Document Doctrine Used when no single document creates S.I. in described collateral; must have evidence of intent to create S.I. 2-Step Test: 1.Is there a document w/ language that objectively indicates parties wanted to create S.I.? ? of law 2.Did parties actually intend to create S.I. ? of fact Also look to common law (CL) of mistake Proceeds 9-102(a)(64)(A): whatever rights are acquired upon disposition of the collateral, incl. disposition by sale, lease, or license of collateral Attachment of proceeds is automatic (9-203(f)) b/c S.P. has rights to proceeds given by 9-315 o Do not have to describe in S.A. Specific Situations: o Whatever is collected or distributed on account of collateral (9102(a)(64)(B)); o Rights arising out of collateral (9102(a)(64)(C)); o Claims arising out of loss, defects, infringement, or other impairment of the value of collateral (9-102(a)(64)(D)); and o Insurance payable by

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reason of claims arising out of loss, defects, infringement or other impairment of the value of collateral (9102(a)(64)(E)) Remember: o Can have cash proceeds (9-102(a)(9)); or o Noncash proceeds (9- 102(a)(58)) o Proceeds discussed in following provisions: 9-315, 9-203, 9-322, 9-324, 9-608, 9-615, 552

Effect of Disposition on Proceeds - 9-315(a)(1) S.I, attaches automatically to all proceeds - even if S.A. is silent o Remember: Proceeds of proceeds are proceeds S.P. has rights to proceeds (9-203(f)) o S.I. continues in collateral after it is disposed unless S.P. authorized Debtor to dispose of it free of the S.I. (9-315(a)(1)) o Even if S.P. authorized Debtor to dispose of collateral free of the S.I., the S.I. attaches to identifiable proceeds that can be traced (9-315(a)(2)) Lowest Intermediate Balance Rule (LIBR) - 9-315, cmt.3 When proceeds are commingled (e.g. proceeds deposited into bank account that contains nonproceeds) uses tracing rule such as LIBR LIBR is the lesser of: o The amount of proceeds, or o The lowest daily balance in the account between when The proceeds were deposited, and When Creditor seeks to enforce its S.I. E.g: Day 0 Day 1 $6,875 $6,875 $18,000 $24,875 Day 2 Day 3 ($325) $24,550 $3,450 $28,000 w/drawn & spent deposit of non-proceeds in Debtor's Acct. in Debtor's Acct. Proceeds deposited

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Day 4

$21,000 $7,000

w/drawn & spent = LIBR

Commingled Goods - 9-336 Goods united w/ other goods in such a manner that their identity is lost in product or mass Commingled Good + Commingled Good = Mass or Product o Product - flour + eggs = cake o Mass - fungible property + fungible property Do not have to mention in S.A. (like Proceeds) o You lose your S.I. in the original good after it's commingled (9-336(b)) o But, you get a S.I. in the product or mass resulting from the commingling (9-336(c)) STEP #4 - DETERMINE IF EACH CREDITOR EVER PERFECTED THE ATTACHED S.I. Perfection: when S.I. enforceable against rest of world; way to put them on notice; solve the Ostensible Ownership problem 9-308 o 1st, attach S.I. o Then complete applicable perfection steps o If complete steps before it attaches, it's perfected when it attaches (SEE 9-308, cmt. 2) Date for Perfection: occurs simultaneously w/ V-R-A - can't bake cookies w/o the cookie dough! 4 Ways to Perfect: Filing-9-310(a) Possession - 9-313 (Goods, Q-I) Control - 9-314 (Intangible - varies based on type of collateral) Automatic (attachment) o PMSI - 9-309 o Temporary-9-312 Also remember Certificate of Title (COT) - 9-311 Not necessary to file F.S. to perfect S.I. in property subject to state COT (e.g., automobiles, trailers, mobile homes, boats, farm tractors, etc.) - does not apply to inventory 1. Filing F.S. - most common way of putting world on notice - 9-310, 9102(a)(39), 9-502(a), 9-521(a), 9-102(a)(37) Filing necessary - 9-310(a) unless Exception under 9-310(b): o Possession o Control o Automatic E.g., PMSI in consumer goods 9-309 2. Possession - goods, quasi-intangible property o 9-313(a) 3. Control - intangible property - varies based on type of collateral 4. Automatic (occurs upon Attachment) o PMSI - 9-309 Consumer goods - automatically perfected Equipment - NOT automatically perfected but have 20 day grace period; must file w/in 20 days of Debtor acquiring equipment Inventory - NOT automatically perfected but must give notice to previously PSP (i.e. file FS) before Debtor receives inventory Any notice given to pre-existing Creditors good for only 5 years, so give every 5 years & file continuation statement o Temporary - 9-312 Temporary perfection goods - S.P. can let Bailee make goods available to Debtor for legitimate business purpose and remains perfected (9-

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Temporary perfection instrument - if S.P. perfecting its S.I. in instrumentby possession, may be able to relinquish possession (i.e., to collect) & stay perfected for 20 days (9-312(g)) When 20-day period expires, S.I, becomes unperfected unless S.P. has perfected in another permitted manner (9-312(h)) Temporary perfection proceeds - does not extend to proceeds; if collateral sold, S.I. will continue in proceeds for 20 days unless meet requirements of 9-315(d) (SEE 9-312, cmt. 9) Perfection of Proceeds - 9-315 (a)(2) - (b): S.I. automatically attaches to identifiable proceeds of collateral

312(f)

(c): If S.I. in original collateral perfected, S.I. in proceeds will also be perfected butexpires under 9-315(d) after 20 days unless (d)(1), (2), or (3) are satisfied

(d): Proceeds becomes unperfected on 21st day after S.I. attaches to them unless S.P.perfects S.I. in proceeds in 1 of 3 ways (i.e., will remain perfected beyond 20-days if 1 of 3 ways satisfied): o (d)(1) - Same Filing Office Rule: automatic perfections beyond initial 20day period if all 3 criteria met: 1.S.I. in original collateral is perfected by filing of F.S.; 2.Proceeds are collateral of type that F.S. filed in same office as F.S. covering original collateral could be filed to perfect a S.I. in proceeds; and 3.Proceeds are not acquired w/ cash proceeds o (d)(2) - Identifiable Cash Proceeds Rule: if proceeds are identifiable "cash proceeds" (9-102(a)(9)), S.P. perfected in original collateral remains perfected beyond 20-day period o (d)(3) - Cash-Phase Rule: whatever S.P. has already done to perfect S.I. in original collateral (or whatever it does in 20-day period) is sufficient to perfect S.I. in proceeds; E.g., S.P. w/ S.I. in inventory files F.S. covering inventory & accounts Debtor sells some inventory, proceeds from sale go into accounts S.I. in accounts as proceeds remains perfected for as long as the filing remains effective Quick Reference: (d)(1) is a trade - property for property (d)(2) is cash proceeds - cash and only cash (d)(3) cash for property, aka "intervening cash" - remember that you'll always see cash buy something; and, proceeds of proceeds are proceeds Remember to always talk about (d)(2) & (d)(3) together!

Perfection of Fixtures 9-102(a)(41) Fixtures: goods that have become so related to particular real property that a S.I. in them arises under real property law (e.g., wood-burning stove, dishwasher, shelving, air conditioning unit) 3 ways to perfect S.I, in Fixtures - S.P. needs to make one to protect S.I. in fixture against real-estate mortgagees, lien creditors, etc.: Art. 9 F.S. -9-501 ( a ) ( 2 ) Fixture Filing - see requirements below o 9-102(a)(40); o 9-501(a)(l)(B), cmt. 4; o 9-502(b)(3) (contents of F.S.);

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o 9-334, cmt. 3 (allows "protective" fixture filings) Mortgage - recorded in real-property records that meets requirements of F.S. will suffice

Fixture F.S. - must include: 9 502(a) F.S. requirements: o Name of Debtor; o Name of S.P.; o Indicate collateral covered by the F.S. 9-502(b) Plus, these additional requirements: o Indication that it covers this type of collateral; o Indicate it is to be filed (recorded) in real property records; o Provide description of real property to which collateral is related (i.e., ask if description would be adequate in a record of a mortgage of the real property); and o If Debtor does not have an interest of record in real property (e.g., tenant), provide name of record owner Accessions - 9-335 Goods are affixed to goods, not realty (9-102(a)(1)) o E.g., radiator installed in tractor Radiator becomes accession to tractor Tractor becomes accession to radiator Perfection: o If S.P. perfected S.I. in radiator prior to it becoming an accession to tractor, the S.I. remains perfected in the radiator, o Whether S.P.'s S.I. in tractor is perfected depends on whether S.P. took necessary perfection steps as to radiator or to tractor as whole - not automatic in tractor! Commingled Goods - 9-336 Goods united w/ other goods in such a manner that their identity is lost in product or mass Commingled Good + Commingled Good = Mass or Product o Product - flour + eggs = cake o Mass - fungible property + fungible property Do not have to mention in S.A. (like Proceeds) 16 o You lose your S.I. in the original good after it's commingled (9-336(b)) o But, you get a S.I. in the product or mass resulting from the commingling (9-336(c)) Perfection: o If S.I. in commingled goods is attached and perfected before commingling, resulting S.I. is also perfected (9-336(d))PERFE CTION PROVI SIONS 9-301 1 Non-possessory S.I. - Debtor's Location

2Possessory S.I. - Collateral's Location 3Goods/Q-I - Collateral's Location9-303 - 9-306 9-303 (b) (c) 9-304 9-305 9-306 EXCEPTIONS If car owner moves to new state & gets new COT, car no longer covered by 1st COT and New state's law governs Deposit Accounts Investment Property LOC Rights

9-307 (b)(1) (b)(2) (b)(3)

DEBTORS LOCATION Individual = Residence Organization = Place of Business Organization w/ more than 1 Place of Business = Chief Executive Office

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(e)

Registered Organization - see 9-102(a)(70)

9-308 See Cmt. 2 (a)

PERFECTION 1) Attach S.I.; (2) Complete applicable Perfection steps; 3) If complete steps before it attaches, it's perfected when attaches If party must perfect using alt. method before temporary period expires, interest remains (c) effective S.P. doesn't have to rely on automatic perfection - could file F.S.

d)When perfect S.I. in right to payment, automatically perfect S.I. in any supporting obligation e)Lien securing right to payment9-309 AUTOMATIC PERFECTION PMSI in Consumer Goods Arises if you borrow $ to buy good & you use that good to secure payment

1PMSI in consumer goods automatically perfected Exception:motor vehicles (also see 9-204(b))

2Assignment of Accounts & Payment IntangiblesAssignment covers collateralized borrowings & sales, both of which are Art. 9 trans. - see 9109(a)(3) 3 fit 4 Appropriate 5, 10, 11, 13 fic 14 7 fit 8 12 Automatic Perfection

Involve highly-specialized financing trans. Deal w/ S.I.'s that arise by operation of law under other UCC articles Not really financing transaction

9-310

(a)

F.S. - Filing most common & default method

good for MC ?s

(b) (c)

Exceptions to Filing - organized by Perfection method, not type of collateral S.P. can assign its 8.1.; can file notice but not required (see also 9-514)

9-311

(a)(1) (a)(2)

When fed. law preempts Art. 9 w/ own filing sys. COT If new COT issued & fails to list existing lien, it is subordinated to 2nd interest that is noted on 2nd COT if S.P. acquired & perfected its S.I. w/o knowledge of the unnoted S.I. Compliance w/

(b) (d)

other law Inapplicability to certain inventory

9-312 (a) (b)(1) (b)(3)

TEMPORARY PERFECTION Perfection by filing permitted Only way to perfect a S.I. in deposit acct. as original collateral is to control it Creditor can only perfect S.I. in $ by possession

e)New value f)In goods g)In instruments(h) When 20-day period of temporary perfection expires, S.I. becomes unperfected unless S.P. has perfected in another permitted manner

9-313

(a) See Cmt. 3 (c)(1) See Cmt. 7 (d)

POSSESSION S.P. may perfect S.I. if Bailee issues authenticated record that it holds collateral for S.P.'s benefit Bailee issues non-negotiable DOT covering goods: (1) S.P. may perfect S.I. a.) by having Bailee issue DOT in its name or b.) by telling Bailee of its interest

2)Bailee doesn't have to respond to this notice or agree to hold goods on S.P.'s behalf & 3)filing as to goods also works, butBailee doesn't have to do so - no duties to S.P. if Bailee hasn't issued DOT covering goods or collateral isn't certificated securities

(g )

9-314 (b)-(c)

CONTROL Lose perfection when you lose control

9-315

*one of

the most important provisions in all of Art. 9!

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DISPOSITION; PROCEEDS (a)(1) (a)(2) (b)(2) * will talk about (d)(2) & (d)(3) @ same time See Cmt. 5, Example 2 S.I. continues in collateral after disposed unless S.P. authorized Debtor to dispose it free of S.I. Even if S.P. authorized Debtor to dispose collateral free of S.I., S.I. attaches to identifiable proceeds When Commingled Proceeds Identifiable - UCC does not say what proceeds traceable; use CL & equitable tracing methods (c) (d) (d)(1) (d)(2) (d)(3) Automatically perfected if S.I. in underlying collateral is perfected Perfection for proceeds expires after 20 days unless: doesn't matter what description; applies if Debtor "trades" collateral; collateral to non-cash item identifiable cash proceeds; applies if Debtor gets cash proceeds; collateral to cash proceed intervening cash proceeds; if intial F.S. described collateral broadly; applies if Debtor uses cash proceeds to buy a non-cash item; collateral to cash proceed to non-cash item Perfection lasts as long as original filing is valid, unless original expires w/in 20-day grace period

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h state's Art. 9 will govern? ansaction is brought in State A. in State A will decide whether State A's Art. 9 or another state's Art. 9 provide the governing law. s made using COL principles such as If no exceptionthe transaction and the partiesperiod expires whether available, have to perfect before 20-day grace bear a reasonable relationship to S will look at COL provisions for perfection purposes in ?9-301 - ?9-307.9-316 CONTINUED PERFECTION of S.I. Following Change in Governing Law

See Cmt. rties' agreement Example 2, significant relationship or most (a) 4 If collateral transferred to someone in new jurisdiction, S.P. must re-perfect w/in 1 yr. S.P. must perfect and which state's If Buyer in new jurisdiction, Seller had 1 yr. to re-file in it; if Seller fails to do so, perfection priority rules govern lapses AND (b : ) Possessory S.I. in goods (other than COT) remains continuously perfected even if move to new state

d

( c )(d ) (e See Cmt. Example 8 ) 5,

Goods covered by COT from this state When (d) S.I. becomes unperfected against purchasers

thing (w/ exceptions)

9-301(1) 9-307 COL for Debtor's Location (1) o Priority & the o Registered Organization = State of Registration 9-102(a)(70) Effects of Perfection - Debtor's Location o Individual = Residence Collateral's location ?9-301(3) Debtor = Place of Business o Any other timber & minerals - use collateral's location for all o If s location ?9-301(2) more than 1 Place of Business, @ Chief Executive Office Post-Closing

Changes OT o ?9-304 COL for Deposit Accounts o ?9-305 COL for Investment Property o ?9-306 COL for LOC Rights Perfection is not final - S.P. must take appropriate action to maintain perfection of its S.I. as events unfold. Common changes that may affect Perfection: o S.P. can lose possession o F.S. expires (5 years) o Debtor sells collateral or moves it to a new state o Debtor changes name, location, or organizational structure o SP changes name or location 4 Post-Closing Changes to examine (details below): 1.Changes in Location or Use of Collateral 2.Changes in the Loan 3.Changes in the Debtor a)Change in Debtor's Name b)Adding or Subtracting Debtors on F.S. c)Change in Debtor's Location d)Disposition of Collateral e)Debtor Bankruptcy 4. Changes in the S.P. 1. Changes in Location or Use of Collateral Usually don't have to do anything to stay perfected o If Debtor begins using inventory as equipment, does not affect F.S. 9-507(b) o If Debtor moves equipment from 1 state to another - no impact b/c Debtor's location determines where to file. 9-301(1) o If S.P. perfecting through possession moves to new state, governing law changes to new state 9-301(2), but no change in perfection b/c possession appropriate. 9-316(c) But, change in Collateral's Location or Use will affect perfection if it changes: (i) Perfection method; or (ii) Governing law o If Bank has S.I. in Car Dealer's inventory by filing and Car Dealer starts using car as equipment, Bank is no longer perfected > it has to be noted on COT. 9311(a)(2), (d) o If car owner moves to new state and gets a new COT:

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9-303(b) - car is no longer covered by 1st COT and, 9-303(c) - new state's law governs. S.P. loses perfection as to Purchasersfor-Value unless it notes S.I. on the new COT w/in 4 mos. 9-316(d), (e) 2. Changes in the Loan If S.A. doesn't have a FA clause, future loans won't be secured unless they amend their S.A. or sign a new one. 9-204(c) If S.I. perfected when S.P. loans more $, it is also perfected as to new advance. FA clause doesn't have to be in the F.S. 9-204, Cmt. 7; 9-502, Cmt. 2 If you re-flnance a consumer loan that resulted in PMSI, you could destroy the PMSI. o If it's a non-consumer loan, it remains a PMSI to the extent that loan debt was a purchase-$ obligation. 9-103(f) 3. Changes in the Debtor a) Change in Debtor's Name Changes in Debtor's name irrelevant to S.I. perfected by way not indexed by Debtor's name (i.e., possession, control, COT, or automatic) Key words "seriously misleading" - if change in Debtor's name makes F.S. seriously misleading under 9-506, it won't perfect a S.I. in collateral Debtor acquires more than 4 mos. after the name change. 9-507(b), (c) F.S. remains valid & continues to perfect S.I. in collateral Debtor owned @ time of name change or acquired up to 4 mos. after the name change. S.P. must file amendment to its F.S. 9-509. If it waits until after the 4 mo. period, it gets a new priority date. 9-507, cmt. 4 b) Adding or Subtracting Debtors on F.S. S.P. may file an amendment to add or subtract Debtors from a F.S. 9-512(d), (e) It's only effective as to new Debtors from the time of the addition. A Debtor must authorize being added. c) Change in Debtor's Location When Debtor's location governs Choice-of-Law for perfecting S.I., Debtor changing its location changes where the S.P. must perfect. 9-301(1); 9305(c) S.P. must re-perfect in Debtor's new location the earlier of: o 4 mos.; or o When its F.S. expires in the old state. 9-316(a), (b) If Debtor only changes an address and not the state, the old F.S. is sufficient to perfect. 9-502. It's not "seriously misleading" under 9-506. d) Disposition of Collateral S.I. remains attached to collateral despite its transfer to new owner, unless S.P. authorized collateral disposition free of it. 9-315(a)(1) Filing: Generally, F.S. filed against original Debtor is effective to perfect the S.I. even though named Debtor no longer has an interest in the collateral - no new filing required.

Possession & Control: If S.P. perfected by possession or control, it is perfected aslong as retain possession or control, even if Debtor transfers the collateral. 9313, 9-314, 9-205 Automatic: If S.I. automatically perfected, it stays perfected if Debtor transfers its interest in the collateral, unless it's only temporary perfection. 9-312(e), (f), (g); 9-309(6) Exception: o If collateral transferred to someone in new jurisdiction, S.P. must re-perfect w/in 1 year. 9-316(a) o If S.P. does not do so, it is retroactively unperfected as against Purchasers-for-Value. 9-316(b) Same rules apply when corporate Debtor re-incorporates in a new state. Not treated as a re-location of Debtor - treated as a transfer of collateral to14

Transferee in different state. 9-316, Cmt. 2, e.g. 4 e) Debtor Bankruptcy If Debtor files bankruptcy: o The assets in which the S.P. has a perfected S.I. become the estate's property, o The Trustee can sue the S.P. for possession or control of the collateral. o The automatic stay prevents the S.P. from taking any action to create, perfect, or enforce its S.I. in the estate or Debtor's property. Exception to Automatic Stay which permits S.P. to maintain perfection - file continuation statement or take steps to prevent automatic perfection period from expiring. Remember: bankruptcy invalidates an AAP clause, but doesn't interfere w/ S.I. automatically attaching to proceeds. Changes in the S.P. Generally nothing that happens to S.P. will affect its perfected status. S.P. can change its name or location w/ no impact on its perfected status. S.P. can assign its interest. S.P. can file notice of the assignment, but not required to. 9-310(c); 9-514 STEP #5 - DETERMINE IF ANY SUBSEQUENT EVENT HAD AN IMPACT ON A CREDITOR'S PERFECTED S.I. STEP #6 - IF A CREDITOR OBTAINED NEW COLLATERAL AFTER IT PERFECTED ITS INITIAL S.I., GO BACK TO STEP #1 Default - 9-601 Not defined by Art. 9 What constitutes default is governed by parties S.A. Upon default parties may: o Follow 9-625 Remedies o Use remedies in S.A. o Rely on other law to collect the debt Rights Upon Debtor Default: Acceleration & Cure o Acceleration Clause - allows lender to make all payments due immediately when Debtor misses a payment; not implied (must be written in documents) Repossession 9-609 o Can trespass to Repossess but better if: Commercial over residential Open /unlocked property Enter detached garage, not home Also depends on timing, reaction of people present, & whether S.P. gained possession through deceit o Key words - Breach of Peace: may be liable for conversion, trespass to chattel, or similar CL tort Redemption 9-623 o Debtor can redeem collateral up until foreclosure but must pay (9-623(b)) o Debtor may waive right to redeem but only by authenticated agreement entered into after default (9-624(c)) Strict Foreclosure 9-620 o S.P. can accept collateral in full or partial satisfaction of debt o May only have full satisfaction for consumer goods o Debtor can't consent in advance, such as in a S.A.

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Disposition of Collateral After Default 9-610 o S.P. can sell, lease, or license the collateral o Debtor may waive right to notification of disposition (9-624(a)) or waive right to mandatory disposition (9-624(b)) but only by authenticated agreement entered into after default Notice must be: o Reasonable; and Reasonable time is question of fact (9-612(a)) Non-consumer transaction, notification must be sent after default and @ least 10 days prior to disposition (9-612(b)) o Authenticated Required to give Debtor chance to: Protect interest by exercising any redemption right or by bidding @ sale; Challenge any aspect of disposition before it's made; or Interest potential purchasers in the sale 9-613(1) Generally contents of notification deemed sufficient if: Describe Debtor & S.P.; Describe collateral subject of intended disposition; States method of intended disposition; States Debtor entitled to accounting of unpaid debt; States time & place of public disposition or time after which private disposition is to be made But, notification lacking some of above information may still be deemed sufficient by trier of fact (See 9-613(2), (3), cmt. 2) 9-614 Consumer-Goods Transaction contents of notification must provide: All listed above in 9-613(1); Description of liability for deficiency sent to Debtor; S.P.'s telephone number so Debtor can obtain amount to be paid if want to redeem collateral; and

S.P.'s telephone number or mailing address so Debtor can obtain But,additional information on disposition unlike 9-613, if 9-614 consumer-goods transaction notification lacks anything required by 9-613(1) then it is deemed insufficient

Notification not waivable (9-602(7)) unless, parties agree otherwise (9-603) or waiver entered into after default (9-624)

S.P. Breach of Duties & Remedies Can breach while enforcing S.I. when: o Mistakenly believe Debtor has defaulted o Breach the peace while repossessing o Fail to give notice or give improper notice o Be commercially unreasonable when collecting on or disposing of collateral o Accept collateral in Full/Partial Satisfaction when required to conduct disposition Remedies: o Actual damages caused by non-compliance (1-305(a), 9-625(b), cmt. 3) o S.P. penalties for failure to comply (9-625(e)-(g)) o Eliminating S.P.'s right to deficiency judgment (9-625(d)) o Tort remedies not precluded (1-103, 9-625, cmt. 3) o Remember: difference between S.P.'s liability in consumer transactions and commercial (non-consumer) transactions adds more complications (SEE 9-625(c)(2), cmt. 4) Bankruptcy - Effect of Debtor's Bankruptcy on Attachment of S.I.

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Debtor gains: o Automatic stay o Ability to use collateral o Collateral limited to property in which it had an interest when it filed (& proceeds) o Relief from accruing interest and other changes if S.P. is under-secured S.P. gains: o Adequate protection of its secured claim o Ability to follow proceeds or original collateral o Ability to accrue interest and other changes if over-collateralized

552 - After-acquired property provision is unenforceable; S.I. attaches to proceeds 362 - Automatic Stay imposed against enforcing claims against Debtor (can't touchproperty in Debtor's estate)

Remember: Bankruptcy definitions under Bankruptcy Code trump UCC definitions! Trustee's Status - Judicial Lien Creditor (JLC) 9-317 o Strong-Arm Statute 544(a)(l) - Trustee is JLC @ Bankruptcy; have powers as of date Debtor files its bankruptcy petition (look to state law for what those powers are) o 9-317(a)(2) Trustee/JLC has priority over unperfected S.I. (US.I.) Trustee argues that secured Creditors aren't perfected under Art. 9 (if so, they become general Creditors); also argue that: S.I. not properly perfected; or S.I. never attached (Creditor did not satisfy 9-203) o If Trustee prevails, 544(a) says Trustee avoids those secured claims o Preferential Transfers 547(b) requirements - Trustee must demonstrate: Debtor transferred property; o Transfer defined 101 (54) To a Creditor/Claimant; For a debt incurred before the transfer; While Debtor is insolvent (presumed for 90 days before filing (547(f)); W/in 90 days of filing petition; and Creditor gets more than would get under normal bankruptcy distribution 547(c) - Trustee cannot avoid transfer: (c)(1): Contemporaneous exchanges for value; o AKA Substantially Contemporaneous Doctrine - the Weekend Exception: if more than a weekend passes between loan and transfer, it might not be considered substantially contemporaneous (c)(1)(A): Parties intend loan and S.I. to be exchanged @ same time; and (c)(1)(B): Debt was created and S.I. was transferred (c)(2): Ordinary Course of Business - not preferential transfer if (i) Debtor incurred debt in OCOB or (ii) either Debtor made payment in OCOB for both parties or transfer made according to ordinary business terms (c)(3): PMSI but applies to all types of collateral - broader than Art. 9 547(e)(l)(B)(2)(A)-(B) - Transfer made: As it occurs - if perfected w/in 30 days; As it's perfected - if perfected more than 30 days after it occurs 547(g) - Creditor has burden of proof to show nonavoidability of transfer

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Floating Liens - 547(c)(5) o Applies to after-acquired Accounts & Inventory that result in Preferential Transfers to Creditor o Trustee determines if secured Creditor improved it's status by comparing the debt/collateral ratio on: 90th day before Bankruptcy (or 1 year if Creditor an "insider" (SEE 547(b)(4) (B)); and Date of Bankruptcy o 7 Steps to determine debt/collateral ratio: i) Determine amount of debt on date of Bankruptcy petition; ii) Determine value of collateral on date of Bankruptcy petition; iii) Subtract Step #2 from Step #1; iv) Determine amount of debt 90 days before petition; v) Determine value of collateral 90 days before petition; vi) Subtract Step #5 from Step #4; vii) Subtract answer in #3 from answer in #6 = amount of preference o Becomes complicated if Creditor's position improves b/c Debtor makes payments on debt during 90 day period - ASK: Do payments on debt qualify as preferential transfers under 547(b)? Would it make any difference if payments constituted a series of monthly payments under terms of credit agreement? What if payments were from funds received from sale of inventory or unencumbered funds? Federal Tax Lien Statute - 6321 - 6323 o 6321 - when Taxpayer fails to pay federal taxes, lien created on all of Taxpayer's property, existing and after-acquired o 6322 - Federal Tax Lien (FTL) arises @ moment of assessment in IRS district office (it is a secret lien) o 6323(a) - IRS must file its FTL to beat Art. 9 perfected S.I.; though PS.I. can beat subsequent FTL, FTL beats an US.I. Therefore, FTL takes priority over: US.I. Later-perfected S.I.'s, but only if FTL filed But, FTL takes subject to: Previously perfected S.I. PMSI arising after FTL After-acquired property (6323(c)) - for S.I. in AAP to be prior to intervening FTL, must meet following requirements: (c)(1)(A): written S.A. exists before FTL filed; and (c)(1)(B): S.I. perfected before FTL filed; and (c)(2)(A): S.P. makes loan in OCOB; and (c)(2)(A): Debtor acquires collateral in OCOB; and (c)(2)(A): loan secured by AAP is made before 46th day after FTL filing; and (c)(2)(B): Debtor acquires collateral before 46th day from FTL filing Future Advances (6323(d)) - S.P. has priority over filed FTL if:27

Property covered by S.A. entered into before FTL filing; and Property owned by Debtor @ time of FTL filing; and S.I. perfected @ time of FTL filing; and F.A. is made before 46th day from FTL filing; and S.P. is w/o actual knowledge of FTL when it makes the advance STEPS #7 & 8 - PRIORITY Establishing Priority - 2 most important things:

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1.Order in which interests are created, and 2.Whether the interests are perfectedHow to determine which Priority Rules apply: 1.If, when, & how S.P. perfected 2.What type of interest in the Collateral the Competing Claimant has 3.Classification of Collateral/Property involved 4.Whether 1 or both interest is a PMSI 5.Whether secured obligation includes Future Advances 6.Whether property has been Commingled or become an Accession or Fixture Priority Rules built on 2 principles: 1.Rights - need rights to transfer rights; can't grant a S.I. w/o rights (or power to transfer rights) in collateral 9-203(b)(2) 2.1 st in Time - person who acquires property interest over anyone who later acquires interest in same property from same transferor STEP #7 - IDENTIFY WHICH CREDITORS ARE FIGHTING OVER EACH PIECE OF COLLATERAL (I.E. IDENTIFY EACH CLAIMANT'S STATUS) Potential Claimants: Lien Creditor Buyer Bankruptcy Trustee / JLC PSP USP General Creditor Statutory Lienor 3rd Party Situations STEP #8 - ISOLATE AND APPLY THE APPROPRIATE PRIORITY RULES TO EACH BATTLE. Summary of 6 Battle Types: 1. S.I. v. Judicial Lien (Non-Consenual Lien) 317(a)(2) 99-323(b) 9-333

PMSI v. Judicial Lien Secured FA. v. Judicial Lien S.I. v. Statutory Liens

(aka Possessory Liens Arising by Operation of Law)

2. S.I. v. S.I. (most battles occur here!)o

9-3229-324 9-322(f)(l)

PMSI Priority Remember Proceeds of PMSIs

Double-Debtor Rule Future Advances

9-325 !9-323(a)

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nd roperty

Deposit Accounts o Remember Proceeds of Deposit Accounts Chattel Paper

i9-327 19-

3. Buyer's S.I. v. Seller's Rights 330 r most US.I.'s o (a)(2)(b): TimingGoods - 2 requirements: S.P. v. Seller of Rule S.P. in 9-203(b)(3) met e conditions specified v. Lessor of Goods (agreement, possession or control); and j2-702(2), 2-507(2), 9-110 g collateral is filed 4. Seller'shave v. Buyer's Rights S.I. fulfilled 1st requirement of 9-203 (giving value), to have priority over a L.C. j2A-307(l) & has a S.A. need not yet S.P. v. Buyer of Goods may obtain a lien only on property that Debtor has an interest in @ time of levy - there is no AAP concept associaExceptions: US.I. BIOC Consumer-to-Consumer Sales Future Advances S.P. v. Lessee of Goods o LIOC o Future Advances o Consignments Future Advanceso

j9-201 Basic Rule j9-317(b) ;9-320(a) j9-320(b) j9-323(d), (e) \9-317(c), 2A-307(2), (3) |9-321(c) )9-323(f), (g) }9-323(c)

5. S.P. v. Rights of Purchasers of Non-Goods Collateralo S.P. v. Purchasers of Accounts o S.P. v. Purchasers of Chattel Paper o S.P. v. Purchasers of Instruments o Transferor's S.I. v. Transferee's Rights in Non-Goods Collateral o

S.P. v. Purchasers of General Intangibles

6. Fixture-Filing PSP v. Real-Estate Encumbrancer (REE) Misc.: Subordination

59-334

9-338, 9-325

(b): US.I.'s - if S.P. hasn't perfected S.I., Buyer takes goods free of S.I., w/o authorization, if: 1.Buyer gives value; AND 2.Takes delivery unaware of S.I. (c): if Lessee acquires right to goods before S.I. in them perfected, Lessee takes its leasehold free of the S.I. [similar to (b)]

PMSI v. Judicial Lien (exception to 9-317(a)(2)) (e): if S.P. has PMSI, 20-day grace period in which to perfect before or w/in Debtor receives delivery of collateral 9-323 - Future Advances Priority General Rule: subsequent advance has same priority as the 1st advance (a): Exception - applies only when S.I. automatically perfected under 9-309 (PMSI) or 9-312(Temporary Perfection) o If so, Perfection & Priority of S.I. dates from time advance is made (b): Lien Creditor o S.I. that secures a F.A. takes priority over Judicial Lien Creditor if advance is made: Up to 45 days after lien - even w/ knowledge of it; Any time if it is made w/o knowledge of the lien; or Consistent w/ commitment made w/o knowledge o Creditor has @ least 45 days to make advances free of a Judicial Lien Creditor's interest (c): Consignor takes free of the S.I. (d): BNIOC (remember BIOC 9-320(a))

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o Buyer takes free of S.I. securing F.A. if S.P. makes advance to Debtor earlier of: Knowledge of purchase; or 45 days after purchase o Creditor has @ most 45 days to make advances free of BNIOC's interest But, FTL 6323(e) says that 6323(d) doesn't apply if the Creditor makes the advance consistent w/ commitment it entered: o W/o knowledge; and o Before 45 days expires (e): Para, (d) does not apply if advance made pursuant to commitment (f): Art. 9 protects Lessees from same F.A.'s from which it protects Buyers 9-333 - Statutory Liens 9-333(a) - sometimes Art. 9 defers to whatever priority rules other statutes have (i.e., possessory liens are statutory liens) 9-333(b) - possessory liens on goods have priority over S.I. in same goods, if: Lienholder keeps possessing the goods, AND Lienor provided services or furnished materials in the ordinary course of business, (See 9-333(b), Cmt. 2)) UNLESS o Lien created by statute provides otherwise

Review of Liens: The following liens are simply an interest, other than a S.I. or agricultural lien o Judicial Liens - arise by judicial process o Possessory Liens - arise by statute or common law o Consenual Liens - arise by contract

Battle #2: S.I, v. S.I 9322

(a)(1): PSP vs. PSP = 1st to File or Perfect (a)(2): PSP vs. USP = PSP wins (a)(3): USP vs. USP = 1st to Attach (b)(1): Perfection relates back in time to its filing (c) - (f): Priority among conflicting S.I.'s in same collateralo (f)(1): Exception to applying 1st to File or Perfect Rule for Proceeds 9-324 - PMSI Priority Priority of PMSIs - General Rule: S.P. must perfect its PMSI w/in 20 days of when Debtor gets the good (b) Priority of PMSIs - Inventory o But, PMSI priority in proceeds of inventory is much more limited than PMSI priority in other goods: Extends only to cash proceeds of inventory; and Only if Debtor receives such proceeds before Inventory delivered to Buyer, if Perfect before Debtor gets possession; and S.P. send authenticated notification to holder of conflicting S.I. not more than 5 years before Debtor gets possession; and Notification states that (i) S.P. has or expects PMSI in Debtor's inventory and (ii) describes inventory 9-325 - Double-Debtor Rule S.I. created by Debtor is subordinate to S.I. in same collateral created by another person if: o Debtor acquired the collateral subject to the S.I. the other person created; and o S.I. created by the other person was perfected when Debtor acquired the collateral; and o Original S.I. remains continually perfected 9-327 - Deposit Accounts Priority21

But, if both S.P.'s have control, priority determined by time control gained (9327(2)); see also 9-104 Control of Deposit Account Highest Priority: control by becoming the customer on the account 2nd Priority: control by becoming the depository bank 3rd priority: control by having agreement w/ depository bank 9-328 - Investment Property Priority General Rule: S.P. w/ S.I. in investment property having control has priority over conflicting S.P.'s S.I. in investment property w/ no control. 9-328(1) But, if both S.P.'s have control, priority determined by time control gained or type of collateral (9-328(2)) o 9-328(2)(A) - 9-328(5) Security o 9-328(2)(B) -1 9-328(3) Security Entitlement o 9-328(2)(C) -> 9-328(4) Commodity K See also 9-106 Control of Investment Property

9-329 - LOC Rights Priority General Rule: S.P. w/ S.I. in LOC right having control has priority over conflicting S.P.'s S.I. in LOC right w/ no control. 9-329(1); see also 9-107 Control of LOC Right But, if both S.P.'s have control, priority determined by time control gained under 9314 Perfection by Control. (9-329(2))

1 General Rule: S.P. w/ S.I. in deposit account having control has priority over

conflicting S.P.'s S.I. in deposit account w/ no control. 9-327(1) Battle #3: Buyer's S.I, v. Seller's Rights S.P. If S.P. perfects its S.I.-before lease 2-507(2), 9-110 v. Seller of Goods 2-702(2), executed, Lessee generally takes subject to it. of Goods usually loses priority to Buyer's S.P. after Buyer possesses the good. Seller o But, Art. 2 gives Seller rights to get the goods back if: Buyer was insolvent - 2-702(2), or Buyer paid w/ dishonored check - 2-507(2) o But those rights lose to a Purchaser for value If Seller retains title to good until Buyer pays, it has a S.I. under 2-401 and 1201(b)(35) but who has priority (Seller or S.P.) depends on perfection, PMSI, etc. If Buyer does not possess the good: o If good was not identified, Debtor /Buyer does not have rights - 2-501 o If good was identified, if Debtor/Buyer breaches K before delivery, Seller can stop delivery o If good was identified and S.P.'s S.I. has attached, Seller has priority if retained title to goods and before delivery SEE ALSO 9-110 S.I. Arising under Art. 2 or 2A S.P. v. Lessor of Goods - 2A-307(1) Creditors of the Lessee/Debtor take subject to the lease K.22

2A-103(l)(t) Lessee: person that acquires right to possession & use of goods under a lease 2A-103(l)(v) Lessor: person that transfers the right to possession & use of goods under a lease

Battle #4: Seller's S.I, v. Buyer's Rights S.P. v. Buyer of Goods When Debtor sells good in which it previously granted S.I. to S.P., when does Buyer take free of the S.I.? o 9-201 Basic Rule: unless Art. 9 provides otherwise, S.P. wins o Also SEE 9315(a)(1): a S.I. continues in collateral even if sold unless S.P. authorizes sale free of the S.I. If S.P. authorizes sale free of S.I. then no priority battle between Buyer and S.P. 4 Exceptions: o US.I. -9-317(b) o BIOC - 9-320(a) o Consumer-to-Consumer Sales (Garage Sale Exception) - 9-320(b) o Future Advances - 9-323(d), (e) Exception #1 - Unperfected S.I. 9-317(b) Buyer takes free of unperfected S.I. if: o Gives value; and o Takes delivery unaware of S.I. Exception #2 - BIOC 9-320(a) BIOC takes free of S.I. Seller created, even if Buyer knew about it Buyer is BIOC if can show ALL of the following (l-201(b)(9)): o Bought the goods in goods faith; and o Bought w/o knowledge; and o Bought in the ordinary course of business; and o Bought from a Seller in the business of selling goods of that kind (e.g., car from car dealer); and o Didn't buy in bulk (i.e., didn't buy entire inventoried business); and o Didn't take the interest to satisfy any part of an existing debt; and o Didn't buy farm products from a person engaged in farming operations; and o Has possession or right to possess; and o Seller created the competing S.I. Exception #3 - Consumer-to-Consumer Sales 9-320(b) AKA the Garage Sale Exception: o A consumer buyer who purchases consumer goods (must be consumer goods in Buyer's & Seller's hands) takes free of a S.I, (even if perfected) if: Buyer unaware of S.I.; and Buyer buys for value; and34

S.P. didn't file a F.S. Exception to this Exception - Buyers cannot take free of S.I. noted on COT (See 9320, cmt. 5)

Exception #4 - Future Advances 9-323{d), (e) General Rule: subsequent advance has same priority as the 1st advance (c): S.P. that is Buyer of accounts, chattel paper, payment intangibles, promissory notes, or consignment sale not subject to (a) & (b) (d): BNIOC23

o Buyer takes free of S.I. securing F.A. if S.P. makes advance to Debtor earlier of: Knowledge of purchase; or 45 days after purchase Creditor has @ most 45 days to make advances free of BNIOC's interest BIOC - will take free of S.I. and are not subject to F.A. (SEE 9-323, Cmt. 6) But, 6323(e) says that 6323(d) doesn't apply if the Creditor makes the advance consistent w/ commitment it entered: o W/o knowledge; and o Before 45 days expires (e): Para, (d) does not apply if advance made pursuant to commitment S.P. v. Lessee of Goods - 9-317(c), 2A-307(2), (3) 9-317(c): Lessee rules similar to Buyer Rules - Lessee takes its leasehold interest free of S.I. 2A-307(2), (3): o Creditors of the Lessee/Debtor take subject to the lease K. o If S.P. perfects its S.I. before lease executed, Lessee generally takes subject to it. o 2A-103(l)(t) Lessee: person that acquires right to possession & use of goods under a lease LIOC-9-321(c) o Art. 9 protects Lessees like BIOC Future Advances - 9-323(f), (g) o Art. 9 protects Lessees from same F.A.'s from which it protects Buyers Consignments F.A. - 9-323(c) o Parties: Consignor - has ownership interest in consigned goods Consignee - has rights of Bailee w/ permission to sell the goods o Under 9-319(a) Consignee can give S.I. in goods in its possession to Consignee's Creditors o Priority Battle usually between Consignor and S.P. of Consignee If Consignor has PMSI in inventory, then use PMSI priority rules and Consignor has priority over PS.I. in consigned goods granted by Consignee to Creditor If Consignor does not have PMSI priority, then 9-322 lst-to-File-orPerfect rules apply. Battle #5: S.P. v. Rights of Purchasers of Non-Goods Collateral Generally applies to Purchasers, not Buyers Purchaser - person that takes by purchase a voluntary transaction creating an interest in property 1-201(b)(29), (30) Therefore, these priority battles apply to: o S.P. v. Purchaser o S.P. v. Buyer o S.P. v. S.P. 1.) S.P. v. Purchasers of Accounts Generally, Art. 9 applies to Sale of Accounts subject to 9-109(d)(4)-(7) exceptions Parties: o Debtor - Seller of Accounts (9-102(a)(28)(B)) o S.P. - Buyer of Accounts and/or Lender w/ S.I. ((9-102(a)(72)(D)) E.g., Debtor borrows $ from Lender and grants Lender a S.I. in Debtor's accounts. Thereafter, Debtor sells its Accounts to Buyer. Priority governed by lst-to-File or Perfect 9-322(a)(l) If Buyer of Accounts does not file, Seller is deemed to have retained sufficient rights for subsequent S.I. to attach (9-318(b)) If Buyer of Accounts does file before Debtor purports to use accounts as collateral for loan from Lender, Debtor has no rights left in collateral. o But if Debtor uses accounts as collateral for loan from Lender before Buyer files, both Buyer and Lender have rights in the accounts and 1stto-File or Perfect governs priority.24

2.) S.P. v. Purchasers of Chattel Paper Generally same rules apply as for Purchasers of Accounts, i.e., priority governed by lst-to-File or Perfect 9-322(a)(l) But remember, Accounts perfect by filing but Chattel Paper can perfect by filing, possession (tangible CP.), and control (electronic CP.) Important b/c possession or control gives S.P. priority over one who only filed if (9330): o S.P. gave new value; and o S.P. took possession of CP. In good faith; In the OCOB; and W/o knowledge that its purchase violated the other's rights 3.) S.P. v. Purchasers of Instruments Generally priority in Instruments similar to priority in Chattel Paper - 3 differences: o Purchaser for value that possesses Instrument has priority over previously-perfected S.I. if Purchaser (9-330(d)): In good faith; and W/o knowledge that its purchase violated the other's rights No requirements of (i) in ordinary course of business and (ii) new value - no new value important if instrument is proceeds of other collateral o Holder-in-Due Course (HDC) takes free of S.I. in Instrument (9-331(a)) HDC: transferee of negotiable instrument who takes possession: For value; In good faith; and W/o notice of any property claims to the instrument or any defenses to payment on the instrument o Art. 9 applies to sales of Promissory Note (9-109(a)), and S.I. created by sale is automatically perfected (9-309) But automatic perfection under 9-309 is not relevant if 9-330(d) or 9-331 apply (protect Purchasers that take possession of Instruments) 4.) Transferor's S.I. v. Transferee's Rights in Non-Goods Collateral Money - coins & paper currency (l-201(b)(24)) o Parties: Debtor - has rights in $ S.P. - Transferor of $ Transferee - refers to someone who acquires possession of $ Transferee of $ - takes $ free of S.I. unless acting in collusion w/ Debtor to violate S.P.'s rights (9-332) o Attachment - use V-R-A, but usually arises as proceeds S.I. automatically perfected in proceeds under 9-315(c), (d)(2) but not possessing $ leaves S.P. vulnerable o Perfection - must possess (9-312(b)(3)) Deposit Account o Parties: Debtor - has rights in $ S.P. - Transferor of $ Transferee - refers to someone who acquires possession of $ Transferee of Funds from Deposit Account - also takes free of S J. unless acting in collusion (9-332(b)) o Attachment - use V-R-A, but usually arises as proceeds S.I. automatically perfected in proceeds under 9-315(c), (d)(2) but S.P. is vulnerable o Perfection - S.P. can perfect S.I. through control (9-312(b)(1), 9-314, 9104), but Debtor can still transfer funds out of account (9-104(b))

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5.) S.P. v. Purchasers of General Intangibles Payment Intangibles - 9-109(a)(3), (d)(4)-(7) o Payment Intangible Buyer is S.P. - priority governed by 9-322(a)(l) 1st-toFile or Perfect o But, Payment Intangible Buyer's S.I. is automatically perfected if sale not excluded from Art. 9 (9-109(d)(4)-(7), 9-309(3) o Therefore, determine whether S.P. perfected or filed prior to sale

If YES ^ S.P. has priority If NO - Buyer has priority General Intangibles - if not a payment intangible, selling it does not create a S.I. o Go to general rule of 9-201 & 9-315(a)(l) If Seller not authorized to sell General Intangible free of S.I., Buyer takes it w/ lien o Exception - Buyer takes free of S.I. if purchased G.I.: (9-317(d)) For value; and W/o knowledge of S.I.; and Before S.P. perfected its S.I.

Battle #6: Fixture-Filing PSP vs. Real-Estate Encumbrancer (REE) Fixture Filing Priority Disputes: I) In General: 9-322 S.P v. S.P 9-334 PSP v. REE An REE is any real estate claimant, other than the Debtor (e.g., Bank that holds the mortgage) 9-334 - 6 Steps: i) 9-334(c) - REE beats PSP under, but subject to (d)-(h) PSP losing is opposite of Golden Rule of 9-201 ii) 9-334(e)(l) - PSP beats REE under if it made a fixture filing before REE recorded its interest (AKA Race Rule) lst-to-File Rule - if Debtor possesses or has interest in realty, PSP w/ fixture filing prevails over later realty claimant (REE) iii) 9-334(d) - even if PSP lost the race, if PSP has PMSI it beats REE if 4 requirements met: (Exception - unless REE has construction mortgage under (h)) Debtor has interest of record in or in possession of real property; and S.I. is PMSI; and Interest of REE arises before goods becomes fixtures; and S.I. perfected by fixture filing before goods become fixtures or w/in 20 days iv) 9-334(h) - but REE w/ construction mortgage beats PSP w/ PMSI if 2 requirements met: Mortgage recorded before goods become fixtures; and Goods become fixtures before construction completion Even if 9-334(h) trumps 9-334(d) go to the following Exceptions (would give PSP priority): v) 9-334(e) Exceptions (e)(2): most popular exception - "readily removable"; does not require perfection by filing, just need to perfect before goods become fixtures (e)(3): Lien Creditors & Trustee; PSP defeats later Lien Creditors (e)(4): Manufactured Homes if: o Mobile home transaction under 9-102(a) (54); and o S.I. perfected under COT vi) 9-334(f) Exceptions - priority can be gained by written consent (f)(1) - if REE/Owner consents or disclaims S.I. (f)(2) - if Debtor has right to remove goods as against REE/Owner

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Misc. Priority Battles

Accessions - 9-335 Goods are affixed to goods, not realty (9-102(a)(1)) o E.g., radiator installed in tractor Radiator becomes accession to tractor Tractor becomes accession to radiator Priority: o Generally governed by 9-322(a) & 9-322(PMSI) o Exception - 9-335 If whole good (i.e. tractor) covered by COT, S.I. in accession (i.e. radiator) is subordinated to any S.I. in the whole. Commingling - 9-336 Goods so combined that they cannot be recovered o E.g., eggs in a cake mix Priority: o If 2 or more S.P.'s have perfected S.I. in commingled goods, S.P.'s share priority in proportion to value of their respective commingled goods Consignments - 9-323(c) Parties: o Consignor - has ownership interest in consigned goods o Consignee - has rights of Bailee w/ permission to sell the goods Under 9-319(a) Consignee can give S.I. in goods in its possession to Consignee's Creditors Priority Battle usually between Consignor and S.P. of Consignee o If Consignor has PMSI in inventory, then use PMSI priority rules and Consignor has priority over PS.I. in consigned goods granted by Consignee to Creditor o If Consignor does not have PMSI priority, then 9-322 lst-to-File-or-Perfect rules apply.

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