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Secured Transactions Outline Fall 2022

Secured Party v. Secured Party:
 General Rule: FTFOP: first creditor who filed or perfected.
o Look to filing & perfection date of competing SP’s. Earliest of those (4) dates will have priority.
o Takeaway: as a SP, file as soon as possible (as soon as D authorizes you to file).
 Unperfected SP v. Unperfected SP:
o Rule: first to attach is given priority.
 SP v. Unperfected SP:
o Rule: perfected SP has priority.
 PMSI Priority Rules:
o PMSI Rules allow PMSI lenders to move ahead of existing lenders & give D money to buy goods.
o PMSI lenders provide existing creditors with more collateral than they would have had, absent the PMSI
lender.
Ch. 1 & 2 - Unsecured Creditors, and Introduction to Secured Financing
1. Introduction
 Secured Transactions involve collateral (property) for a loan.
 Governed by U.C.C Article 9
 Article 9 governs the sale of accounts, chattel paper, payment intangibles, or promissory notes. U.C.C. § 9-109(a)(3).
An account is a right to payment of a monetary obligation for any of a variety of activities, including services
rendered. Id. § 9-102(a)(2).  ex. Selling your business.
 In general, the assignee of an account takes the account subject to all the terms of the original agreement between the
account debtor (the party obligated to pay the assignor under the account) and the assignor. U.C.C. § 9-404(a)(1).
 Note that Article 9 is not limited to transactions granting a security interest. Rather, Article 9 includes agricultural
liens, sales of certain intangible and quasi-tangible property, and consignments. Id. § 9-109(a).
 Purposes of the UCC S1-103(a):
o To simplify, clarify, and modernize the law governing commercial transactions
o To permit the continued expansion of commercial practices
o To make uniform the law among the various jurisdictions
2. Article 9 Section Index
 100s: General Provisions
 200s: Effectiveness of SA; Attachment of Sis, Rights of parties to SA
 300s: Perfection and Priority
 400s: Right of 3rd Parties
 500s: Filing
 600s: Default
3. Basics of Creditor Process; including Levy:
 Unsecured vs. Secured Credit
o Generally – the difference comes down to the ease of recovering the debt. A secured creditor enters into
an earlier agreement that secures their right to be paid.
 Creditor – anyone who is owed a legal obligation that can be reduced to a money judgment is a creditor of the
party owing the obligation.
 Unsecured parties can include those obligated through involuntary credit transactions. (e.g., tortfeasor and injured
party)
 ex – of Unsecured Parties
 Bank credit cards
 Employment
 Services (medical, legal, dental, plumber, mechanic)
 Utilities (phone, electric, gas, water, cable)
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 Student loans and signatory loans where we sign a promissory note promising to pay but
no interest in D’s property is established.
 UCC 9-102(a)(52)(A): Lien Creditor - definition
o (A) a creditor that has acquired a lien on the property involved by attachment, levy, or the like;
o (B) an assignee for benefit of creditors from the time of assignment;
o (C) a trustee in bankruptcy from the date of the filing of the petition; or
o (D) a receiver in equity from the time of appointment
 How does an unsecured creditor get paid?
o (1) obtain judgment
o (2) deliver writ of execution (judicial lien) to sheriff
o (3) have sheriff levy on D’s property
o (4) sell property at sheriff’s sale
o OR
 Garnishment: a collection of money from wages, not taking of physical assets.
 Lien: a hold on property right for the purpose of getting the creditor paid.
 Note on Writs of Execution:
o Court order granted to put into force a judgment of possession obtained by a (P) from the court.
o Until the sheriff arrives to levy (physical cease of property by sheriff that goes toward judgment creditor)
the debtor can continue to transact business with said property.
 Exemption from Execution:
 Even if one secures a judgment from judicial proceeding, there is still property that can
be exempt from seizure from the creditor.
 Prevents the sheriff from seizing certain property under a writ of execution.
 This is basically a safeguard against the judgment creditor from taking so much from the
judgment debtor that the judgment debtor can no longer maintain the necessities of life.
 Each state has their own exemption statutes.
 Liability is hollow until it is turned into a judgment, until levy or garnishment is imposed, and collection can
begin.
 Secured creditors alleviate the issue of locating items to garnish/levy because the loan is secured by collateral.
 Collateral  a consensual lien
o debtor has voluntarily given the lien to the lender
o the lien may be:
 personal property
 goods
 intangibles (IP, Copyright, etc)
 Section 9-336(a): Commingled goods are those goods that are physically united with other goods in such a
manner that their identity is lost in a product or mass.
o 9-336(c): If collateral becomes commingled goods, a security interest attaches to the product or mass.
Ch. 3 – Establishment and Perfection of Security Interests
1. Introduction and Attachment (UCC 9-203, 9-304)
 A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the
collateral.
 Definitions
o Debtor – 9-102(a)(28)(A) = buyer
o Secured party – 9-102(a)(72)(A) = seller
o Security agreement – 9-102(a)(73) = K creating SI
o Security interest – 102-(37) = granting interest to creditor in property possessed by debtor
o Collateral – 9-102(a)(12) = debtor’s property that the interest is created in
 Three Requirements of Attachment under 9-203(b)
o (1) value must have been given – 1-201(44)
o (2) debtor must have rights in the collateral
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o (3) One of the following has been met
 (a) The D has authenticated (“signed”) a security agreement that provides a description of the
collateral. 9-108(b) (description of collateral)
 (b) The collateral is not a certified SI and is in possession of the SP under 9-313 pursuant to the
debtor’s security agreement. 1-201(3)
 Basically, agreement does not have to be in writing if the SP has possession of the
collateral.
o Debtor must authenticate the security agreement’s description of the collateral and has to be appropriate
authentication and have a sufficient description of the collateral.
o All three requirements may not happen at the same time, but they must all happen for attachment to
occur.
 Security Agreement
o 9-102(73) –
 Sufficient if reasonably identifies what is described. (ex- category or types of collateral)
 “All Debtor’s assets and personal property” is not sufficient. (Although this would be okay on a
financing statement b/c FS gives notice and priority, not a K like SA).
o An agreement between a secured party and a debtor that prohibits the debtor’s transfer of rights in collateral or
makes the transfer a default does not prevent the transfer from being effective. U.C.C. § 9-401(b).

Assignment 2– obligations secured, future advances

 Any lien has 2 elements
o (1) Property
o (2) Obligation
 Security interest
 Prop can provide value for payment.
o Duckworth  promissory note enforceable is there is a K. Mistakes in K can be fixed, courts look to
intent.
 UCC 9-404(a): future advances
o (1) may provide that collateral secures future advances or other value.
o (2) legit if both parties agree on this.
o amounts that have not been paid yet but will in the future.
o The property is collateral for those future advances.
 Parties with ongoing financial relationships can create a floating lien by using an after-acquired property clause in
the security agreement. See U.C.C. § 9-204(a).
 UCC limits the circumstances under which debtors and creditors may use floating liens to attach to after-acquired
consumer goods.
o If the collateral securing the obligation consists of consumer goods, then the floating lien will attach only to
consumer goods acquired by the debtor within 10 days after the secured party gives value. Id. at § 9-
204(b)(1).
o Regardless of how the after-acquired property clause is worded, under the UCC, an after-acquired property
clause may never encompass consumer goods that the debtor acquires more than 10 days after the
secured party gives value. Id.
 A floating lien is a security interest that remains consistent despite an ever-changing class of collateral.
o Parties to a secured transaction may create a floating lien by including an after-acquired property clause in
their security agreement.
o An after-acquired property clause enables a security interest to attach to property in which a debtor acquires
rights after entering a security agreement.
o U.C.C. § 9-204(a)
 Dragnet clause:
o Broad clause
2. Basics of Perfection (UCC 9-308)
 What is perfection?
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o Perfection others on notice that there may be a security interest in the particular property (9-502 cmt 2)
o Essential for creditor to be protected against third parties.
 UCC 9-308(a): When Security Interest is Perfected (pt)
o A SI is perfected if it has attached (UCC 9-203(b)) and all of the applicable requirements for perfection in
section 9-310 through 9-316 have been satisfied.
 In addition to attachment the SI must be filed or filing substitute is satisfied.
o You can pre-file your SA.
 Collateral Covered in Security Interest
o UCC 9-108 – Sufficiency of Description
 (a) Description of personal or real property is sufficient, whether or not it is specific, if it
reasonably identifies what is being described.
 (b) Description of personal or real property is sufficient, whether or not it is specific, if it
reasonably identifies the collateral by:
 (1) specific listing
 (2) category
 (3) a type of collateral defined under the UCC
 (4) quantity
 (5) computational or allocational formula or procedure; or
 (5) any other method if the identity of the collateral is objectively determinable
 (c) A description of collateral as “all debtors assets” or “all debtors personal property” or using
words of similar import does not reasonably identify the collateral for the purposes of a security
agreement. FS this would be fine.
 FS gives notice and priority, not a K like SA
o Types of Collateral
 UCC 9-102(a)(2)  Accounts
 UCC 9-102(a)(33)  Equipment: a catchall class consists of goods that are not consumer goods,
farm products, or inventory. Usually, goods that are used or bought primarily for use in a business
such as desks or machinery.
 UCC 9-102(a)(48)  Inventory: goods (other than farm products) that are held for sale or lease;
are furnished under a service contract or consist of raw materials, works in process, or materials
used or consumed in a business.
 UCC 9-101(a)(23)  Consumer Goods: goods acquired primarily for personal, fam, or
household purposes.
 Consumer goods are those used for personal, household, or family purposes. U.C.C. § 9-
102(a)(23). A secured party may perfect a security interest in consumer goods by filing a
financing statement. U.C.C. § 9-310(a).
 Not all security interests in consumer goods perfect automatically upon attachment. If a
transaction creates a purchase-money security interest (PMSI) in consumer goods, then that
interest perfects automatically upon attachment. U.C.C. § 9-309(a)(1).
 A PMSI arises when a debtor uses the value extended by the creditor to acquire rights in the
property the debtor is using as collateral to secure her obligation to the creditor. U.C.C. § 9-
103(a)
 UCC 9-102(a)(42)  general intangibles
 Five Ways to Perfect
o (1) Filing – works for almost all good except those that require certificate of title. It is usually an
alternative way to protect.
 Filing is only way for perfection for accounts and general intangibles
 Filing is permissible for goods, chattel paper, documents, and instruments
 Filing is not permissible for money 9-312(b)(3), deposit accounts 9-312(b)(1), goods subject to
certificate of title 9-311(a)(2) & (d)
 A creditor may perfect a SI in investment property, such as stocks and bonds through
control or by filing a financing statement. 9-312(a) (perfection from filing) 9-314(a)
(perfection by control)
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o (2) Possession by the secured party
o (3) Automatic upon attachment (limited)
o (4) Notation of security interest on certificate of title
o (5) Control
3. Essentials of the Bankruptcy Process
 See attached bankruptcy process document.
 Notes:
o Strong Arm Clause. §544(a): gives the trustee the status of a JLC so that he can supersede unsecured
creditors in a hypothetically unlimited amount.
o UPSP loses to BT
o PSP wins over BT
4. Perfection by Filing
 3 elements of a financing statement - 9-502(a)(1-3)
o (1) name of the debtor
 9-503: name of debtor and secured party
o (2) the name of the secured party
o (3) description of the collateral
 Public notice is crucial because this all comes down to reliance.
 The name of the debtor is the most crucial component
o Searches will run against the name of the debtor, so it needs to be right
o Most debtors are organized as organizations. Art 9 refers to an “organic record” because it has to do with
birth and health of the company. It is publicly accessible.
o Searches will run against the name of the debtor, so it needs to be right
o Most debtors are organized as organizations. Art 9 refers to an “organic record” because it has to do with
birth and health of the company. It is publicly accessible.
o If the debtor is a corporate entity, make sure you pull the name as it appears from the organic record. For
trade names/ celebrities with state names, note d/b/a.
 UCC 9-506 – governs the effects of errors or omissions on financing statement
o Minor errors where the FS substantially satisfies the requirements unless the errors make the FS seriously
misleading.
o Failure to sufficiently satisfy name of debtor is seriously misleading
o Search logic test – searching under the debtor’s correct name using
 Less accuracy required with secured party’s name because that is not what is going to be used to
search.
 The Safe Harbor Rule: This rule adopted only in a few jurisdictions says that the financing statement may include
the debtors individual name, the name on the debtor’s driver’s license, or the debtor’s surname.
 Indication of Collateral (Collateral Description) - when filing a financing statement– UCC 9-504:
o Must include:
 Description of the collateral pursuant to 9-108; or
 An indication that the financing statement covers all assets or personal property
 Note: super-generalization is okay for FS as it is just supposed to provide notice to
outside parties; a SA does not allow it as it does not make debtor aware enough.
 Note: as with K law, ambiguity to be held against the drafter.
 Duration and Effectiveness of Filing Statement – UCC 9-515(a):
o General rule: FS is effective for a period of 5 years after the date of filing
o Lapse and continuation:
 Lapse occurs at end of period of effectiveness unless SP has filed a continuation statement
pursuant to (d).
 If lapse occurs, the FS ceases to be effective and the SI is unperfected and is deemed to
never have been perfected as against a purchaser of collateral for value.
 Continuation Statement: may only be filed within 6 months before expiration of the 5 year period.
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o The effect of FS may be extended by filing a continuation statement which extends the effect for another
5 years.
o Financing statement can be filed in advance of attachment. In fact, A9 sets no limit on the amount of time
that can elapse between filing and attachment, except that a financing statement is only good for 5 years.
§9-515(a)
 Effectiveness of Filing – UCC 9-516
o Communication of record to a filing office and tender of the filing fee or acceptance of the record by the
filing office.
 Not sufficient for filing:
 Not communicated in any way authorized by filing office
 Failure to tender filing fee
 Filing office unable to index because FS does not provide debtor’s name
 Does not identify debtor’s surname
 Does not provide sufficient indication of collateral
 Does not have SP’s name and mailing address
 Failure to provide mailing address or identify whether individual or corporate debtor
 Continuation not filed within 6-month window
o Priority of SI Perfected by Filed FS Providing False Information – UCC 9-388
 Is SI is perfected by financing statement providing information set forth in 9-561(b)(5) which is
incorrect at the time of filing:
 SI is subordinate to a conflicting perfected SI in the collateral to the extent that the holder
of the conflicting SI gives value in reasonable reliance upon the incorrect information;
and
o A purchaser other than a SP of the collateral takes free to the SI, to the extent that
in reasonable reliance upon incorrect information. The purchaser gives value and
receives delivery of the collateral.
5. Perfection other than by filing: certificate of title; possession; control; automatic perfection for PMSIs in
consumer goods
 Perfection by Methods other than Filing:
o A FS is the most prevalent method of perfection, the default way. It is simple and widely applicable,
serving the purpose of perfection: letting everyone who wants to know, know who has interests in the
collateral/property.
 Four ways to perfect other than filing:
 (1) Perfection by Possession – UCC 9-313(a)
o Only method of perfection for money. Optional method for documents, goods,
instruments, and tangible chattel paper.
o Not a great means of perfection for business assets because debtor will want to
use the property for their business. This is non-business purposes generally.
o Need not be a third party that possess, third party may perfect through possession
by an agent.
o Possession was also a way for SI to attach.
o Bailees:
 A third party besides an agent of the SP. 9-131(c) requires a bailee to
authenticate a record (sign a document) acknowledging that it holds
possession of collateral for SP’s benefit.
 BUT… perfection lasts only as long possession does. So, independent
bailee is not a good way to perfect by possession, they could just give the
collateral back to the debtor and perfection would be destroyed.
 (2) Perfection by Control – UCC 9-607(a)(5)
o Only applicable to bank accounts – Art 9 calls them deposit accounts.
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o Allows for agreement where SP holding SI in a deposit account perfected under
control under UCC 9-104(a)(2) or (3) instructs the bank to pay the balance of the
deposit account to or the benefit of SP.
o UCC 9-104 – Control of Deposit Accounts
 SP has control if:
 (1) SP is the bank with which the deposit account is
maintained.
 (2) Debtor, SP, and Bank have agreed in an authenticated
record that the bank will comply with instructions originate
by the SP directing disposition of the funds in the deposit
account without further consent by the debtor; or
 (3) The SP becomes the bank’s customer with regards to the
deposit account.
o If SP has satisfied the above – they have control even if debtor retains the right to
direct the disposition of funds from the
o Bjerre: if SP has gone to the trouble to obtain control is relying on the collateral.
 (3) Perfection upon Attachment 9-309
o A type of Perfection upon Attachment:
 Purchase Money Security Interest (PMSI) in consumer goods, except
as provided in 9-311(b) are subject to the statute or treaty described in 9-
311(a).
o 9-311(a) – PMSIs sub to other law
 Certificate of title included here
o 9-102(23) – “consumer goods” – means goods that are used or bought for use
primarily for personal, family, or household purposes.
 Only intended use determines whether an item is a consumer good.
 Change of intent of use can change status of the goods. (In Re
Lockovich)
o 9-102(24) – “consumer goods transaction” –
 Means a consumer transaction in which:
 (a) an individual incurs an obligation primarily for personal,
family, or household purposes.
 (b) a security interest in consumer goods secures the obligation.
o 9-102(26); “consumer transaction”
 Means a transaction in which
 (i) an individual incurs an obligation primarily for personal,
family, or household purposes,
 (ii) a security interest secures the obligation and
 (iii) the collateral is held or acquired primarily for personal,
family, or household purposes.
 NOTE: collateral held for personal, family, or household
purposes could be intangible (family bank accounts) while
consumer goods, are inherently goods. Difference in the two
definitions.
o When ascertaining whether or not something is a “consumer good”, the debtor’s
representation at the time the agreement is signed is determinative.
 BUT… if SP knows the representation is false, fraudulent, or
unreasonable then no. Bjerre says we should be troubled by this rule.
o It would be too burdensome to have an SP check on the change of use after the SI
is formed.
o Why are PMSI’s allowed to automatically perfect?
 Because they are so prevalent, it would be very burdensome to require
financing statement for each one, and very low benefit.
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 We want to encourage buyers purchasing on credit, so that
sellers can continue to sell and economy keeps ticking over.
o Bjerre is a bit skeptical about the process but
acknowledges that it is a massive segment of the
economy.
o Description of goods in consumer transaction cannot be super generic, nor can it
be a type.
 (4) Certificate of Title– UCC 9-311
o Items subject to non-UCC filing systems, e.g., automobiles under a state
certificate of title loans
 1. Motor vehicles required to be registered. General rule: method of
perfection is notation of the security interest on the certificate of title
 2. Exception: vehicles that are inventory in the hands of a dealer--you
perfect by filing
 Note: Consumer to Consumer Sale Exception for PMSI
o “garage sale exception: a consumer who buys consumer goods from another
customer without knowledge of the SI takes free even if perfected. UNLESS filing
statement has been filed.
o UCC 9-320(b):
 A buyer of goods from a person who used or bought the goods for use
primarily for personal, family, or household purposes takes free of SI,
even if perfected if the buyer:
 (1) Without knowledge of the SI
 (2) For value
 (3) Primarily for buyer’s personal, family, or household
purposes; and
 (4) before filing of a financing statement covering the goods (by
the SP)
 (e) Subsections (a) and (b) do not affect security interest in goods in the
possession of the secured party
 Meaning: if one is a BIOCOP or a consumer-to-consumer sale
 if the collateral that the buyer just bought is in possession of
the SP  buyer will not take free of the SP’s SI.
 The buyer in consumer-to-consumer sale is protected from an
automatically perfected PMSI in the consumer goods.
3. Choice of Law
 Where to file?
o (1) Goods covered by certificate of title - state that issued the certificate 9-303
o (2) fixtures and real-estate related collateral - location of real estate 9-301(3)(A)
o (3) all other security interests - location of the debtor 9-301(1)
 While the parties to a secured transaction may incorporate a choice-of-law provision, Article 9 overrides the parties’
choice of law and supplies its own rules regarding perfection, the effect of perfection or non-perfection, and the priority
of a security interest. U.C.C. §§ 1-301(a), 1-301(c)(8); §§ 9-301-9-307.
 Because these issues also affect the rights of third parties, the drafters of the Uniform Commercial Code thought it
would be unfair to permit the parties to a secured transaction to unilaterally select the controlling law.
 UCC 9-301: Law Governing Perfection and Priority of Security Interests:
o Choice of law depends on where the debtor is located
o While a debtor is located in a jurisdiction, the local law of that jurisdiction governs perfection, the effect
of perfection or non-perfection and the priority of a possessory SI in that collateral. (with the exceptions
of 9-303 to 9-306)
 NOTE: individual debtors are located at the individual’s principal residence (UCC 9-307(b)(1).
Corporate debtors with more than one place of business are located at their Chief Executive
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Office (UCC 9-307(b)(2). If foreign company, DC is jurisdiction/ place to file. If foreign and has
filing system, file in the foreign nation and maybe DC as well just to be safe.
 UCC 9-301(2): When SI is possessory, choice of law depends on where collateral is located.
 UCC 9-316(a)(1)-(2): Change in Location of Debtor
o Generally, provides for continued perfection until the earliest of:
 The time perfection would have ceased under the law of the original jurisdiction
 UCC 9-316(a)(2) - the expiration of four months after a change of the debtor’s location to
another jurisdiction; or
 UCC 9-316(a)(3) - the expiration of one year after the transfer to a different debtor in another
jurisdiction.
o If the SI becomes perfected under the law of the new jurisdiction in appropriate time, it remains perfected.
If it does not become unperfected in a timely manner in the new jurisdiction is deemed never to have been
perfected as against a purchaser of the collateral for value.
o NOTE: while mostly uniform in terms of grace periods, some states differ. If states differ, look to the law
of the state where the debtor is now/currently located.
 UCC 9-301(1)(3)(c): tells us which analysis to use dependent on where the debtor is and whether or not the
collateral is where the debtor is as well.
o Article 9 of the Uniform Commercial Code specifies that the law of the state where the collateral is
registered governs whether a lien is properly recorded by a secured party seeking to perfect an interest
via the state’s certificate-of-title system. See U.C.C. § 9-311(a)(2).
4. Proceeds
 Quick Reference
o The SI does not need to specifically refer to the proceeds of the collateral and is covered as long as it
is
 (1) proceeds (9-203f) and
 (2) identifiable (9-315(a)(2)).
o 9-315(c) – Perfection of SI in Proceeds
 A SI in proceeds is a perfected SI if the SI in the original collateral was perfected.
o 9-315(d) – Continuation of Perfection in Proceeds
 A perfected SI in proceeds becomes unperfected on the 21 st day after the SI attaches to the
proceeds unless the following conditions are satisfied
 (a) a filed FS covers the original collateral
 (b) the proceeds are collateral in which a SI may be perfected by filing in the office
in which the FS has been filed; and
 (c) the proceeds are not acquired with cash proceeds.
o (1) the proceeds are identifiable cash proceeds; or
o (2) the SI in proceeds is perfected other than under subsection (c) when the
SI attaches to the proceeds or within 20 days thereafter.
 Lowest Intermediate Balance Rule: a debtor is spending identifiable cash proceeds from an eount last.
 There is a difference between Sales of Inventory v. Sales of Equipment
o Inventory is expected to be sold so proceeds in that scenario are good.
 Often proceeds will be attached in the security agreements if the collateral is inventory.
 You have attachment via the security agreement, perfection due to the financing statement, and
SP’s access to the deposit account.
o Sales of equipment could be bad, indicative of failing biz, and a breakdown in debtor’s business and
therefore, obligations to the SP.
 9-102(a)(12)(A) – Collateral includes Proceeds
 9-102(a)(64) – “Proceeds” includes anything exchanged for the collateral. Very broad and simply means anything
replaced for collateral.
 9-315(a)(2) – SI attaches to identifiable proceeds of collateral
 Important difference between Cash Proceeds, 9-102(a)(9) and Non-Cash proceeds, 9-102(a)(58))
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 9-203(f) – attachment of SI in collateral gives Secured Creditor rights to proceeds provided by 9-312(a)(2) (any
identifiable proceeds)
o Identifiable is not defined in the code.
 UCC 9-315(d)(3) – Secured Party’s Rights on Disposition of Collateral in Proceeds
o (a)(1) A SI in collateral will continue notwithstanding sale, lease, license, exchange, or other disposition
unless the SP authorized the disposition free of the SI; and
o (a)(2) A SI attaches interest attaches to the identifiable proceeds of collateral.
o (b) proceeds that are comingled with other property are identifiable if:
 (1) The proceeds are goods to the extent provided by (9-336); and
 (2) If not goods, to the extent that the SP identifies the proceeds by a method of tracing that is
permitted under law other than the UCC.
o (c) a SI in proceeds is a perfected SI if the SI in the original collateral was perfected.
 Bjerre says this is another type of automatic perfection.
o (d) a perfected SI in proceeds becomes unperfected on the 21 st day after the SI attaches to the proceeds
unless:
 (A) A filed FS covers the original collateral
 Bjerre calls this the “don’t bother filing another FS rule.” Old one is deemed to have
given sufficient public notice when proceeds are traceable to the original collateral.
 (B) The proceeds are collateral in which a SI may be perfected by filing the office in which the
FS has been filed; and
 (C) The proceeds are not acquired with cash proceeds.
 (2) The proceeds are identifiable cash proceeds; or
 NOTE: deposit account and proceeds
o (1) not all or nothing – think of it dollar by dollar. When proceeds and other
funds become comingled, it becomes impossible to tell which stemmed from the
collateral and which did not.
o (2) once money goes out, becomes impossible to identify completely, so we have
the lowest indeterminate balance rule: non-proceeds funds are deemed to be
spent first.
 (3) the SI in the proceeds is perfected other than under (c) when the SI attaches to the proceeds or
within 20 days thereafter.
o Note: when deposit account is the original collateral v. deposit accounts as proceeds.
 When a deposit account is perfected by control as original collateral, SP has access to the whole
account.
 When deposit account is proceeds, SP only has access to the portion that is deemed proceeds.
 Thus, (d)(2) protection is second best to control of whole account.
 Down to reliance: SP using deposit account as collateral is relying on the totality of the
account; when proceeds, you are relying on the original collateral. When sold, you recoup
some/all of the that money, but you’re not relying on the account as a whole.
 More on 9-102(a)(64)  plug in more notes here!
 UCC 9-315(a)(1) – Termination after Authorized Disposition
o SP’s can authorize their debtors to dispose of the collateral free of the SI
o The buyer takes the collateral free of the SI
o Creditor must look to the debtor and the proceeds of the sale of the collateral.
 Continuation of SI in the Collateral after Unauthorized Disposition:
o The SI attaches to everything ever a part of a transaction concerning the collateral (proceeds)
 This includes of collateral and what is later received in return for the collateral when the
unauthorized buyer transfers it
Ch. 4 – Competing Security Interests – Priority
Ref to: Art 9, Part 3, Subpart 3 (9-317-9-339) deal with establishing various creditors’ rights to property vis a
vis the debtor and other debtors and lien holders.
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1. Competing Claims to Collateral - generally
 SP v. SP, SP v. LC, SP v. SP-2: governed by UCC 9-322(a).
 General Rules:
o (1) Conflicting perfected SI’s rank according to priority in time of filing or perfection (FTFOP). Earlier of
the time of filing covering the collateral is made or the SI is first perfected, if there is no period
subsequent without filing or perfection. (FTFOP) (9-322(a)(1)).
 Also covers the priority between SI in accounts and general intangibles.
o (2) Perfected SI has priority over conflicting unperfected SI. (9-322(a)(2)).
o (3) First SI to attach or become effective has priority if conflicting SI’s are unperfected. (9-322(a)(3)).
 Secured Party v. Secured Party
o FTFOP has priority
o Look at filing or perfection date of competing SPs.
o First to attach is given priority when both are unperfected.
o PMSI rules allow lenders to move ahead of existing lenders and give D money to buy goods.
 In re Tuscany: provides that a transferee of money or funds from deposit account takes free of any SI unless the
transferee acts in collusion with the debtor in violating the rights of the SP.
 MORE
2. FTFOP: First to file of perfect
 When parties have conflicting claims to same collateral whoever filed or perfected first has a superior claim. 9-
322(a), 9-317(a).
o Difference between filing – submitting an effective financing statement to filing office and having it
accepted – and perfection – having an attached security interest and either having an effective financing
statement filed or having perfection occur by some other method (automatic in case of purchase money
interest, by possession of collateral, etc.)
o Because most security interests are perfected by filing, rule is most often referred to as the first to file
rule.
 9-317: Interests that take priority over or take free of SI
o (a) – SI is subordinate to
 (1) a person entitled to priority under section 9-322; and
 (2) except as otherwise provided in (e)-(PMSI!) a person that becomes a lien creditor before the
earlier:
 (A) the security interest is perfected; or
 (B) one of the conditions specified in 9-203(b)(3) is met and a financing statement
covering the collateral is filed.
 the UCC does permit possessory liens to be held by persons providing services on the goods that they are holding as
security for payment
 9-317(a) in sum: Interests that take priority over or take free of SI
o Lien creditor v. PSP = PSP wins
o Lien creditor v. USP = Lien creditor wins unless SP files FS and gets a SA before the lien attaches
(and becomes a PSP after lien attaches)
 9-322(a) in sum: Priority with Conflicting Security Interests
o PSP v. PSP = FTFOP
o PSP v. USP = PSP wins
o USP v. USP = first to attach
 9-322 comment 5, example 4
o If both SI are perfected simultaneously in new collateral, the secured party who filed first has
priority.
 PSP: perfected secured party
 Remember – financing statements are good for 5 years and can be continued – the FTFOP rule can lock up all
rights to debtor’s property in the event of bankruptcy.
 Three possible ways for junior creditors to get out from under senior creditor(s):
o (1) Purchase money security interests (PMSIs)
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o (2) Senior creditor agrees to subordinate its security interest at least in part to junior creditor (law is very
accommodating to subordination agreements. Also effective in bankruptcy proceedings.) 9-339.
o (3) Junior creditor buys out senior creditor (assigns secured creditor’s security interest to the junior
creditor)
3. FTFOP: as applied to proceeds
 UCC 9-322(b)(1): FTFOP as applied to proceeds:
o (1) time of filing or perfection as to SI in collateral is also the time of filing or perfection as to a SI in
proceeds
o (2) time of filing/perfection as to SI in collateral is also the time of filing or perfection as to SI in the
supporting obligation.
4. Subordination Agreement
 K used to alter statutory priority – if all parties agree.
 Cannot hinder third parties.
 A way for junior creditor to get out from under senior creditor  with permission!
 UCC 9-339: the code does not preclude subordination agreements by folks entitled to priority
o Payouts are weird.
5. Transformation rule rejected in favor of Dual Status Rule
 UCC 9-103(f): Dual status rule: We have a PMSI but the loan covers more than just the collateral in question.
What result?
o Art. 9 has rejected the transformation rule:
o Allows for retention of PMSI status for a SI in PMSI financed collateral when that collateral also
secures obligations other than purchase money obligation.
 E.g., the SI is recognized as having dual status:
 They are part PMSI (to the extent they secure a purchase-money obligation) and part non-
PMSI (to the extent they secure other debts)
o Art 9 follows the deal status rule.
 Thus, a PMSI does not lose its status even if the purchase money collateral also secures an
obligation that is not purchase money collateral, collateral that is not purchase money obligation,
collateral that is not purchase money collateral also secures the purchase money obligation or the
purchase money obligation has been renewed, refinanced, consolidates, or reconstructed.
6. PMSI Super-Priority in Inventory and Equipment  an exception to the FTFOP rule!
 PMSI PRIORITY
o 9-324(a) - PMSI has priority over SI in the same collateral (except with inventory or livestock) if PMSI is
perfected when debtor receives possession of collateral or within 20 days thereafter. (EQUIPMENT)
o If collateral is inventory go to  9-324(b)
 9-324(b)(1): PMSI is perfected when debtor receives possession
 (b)(2): The purchase money secured party sends an authenticated notification to the holder of the
conflicting SI.
 (b)(3): The holder of the conflicting SI receives the notice within 5 years before the debtor
receives possession of the inventory.
 (b)(4) The notice states that the secured party has or expects to acquire a PMSI in inventory and
describes said inventory.
 PMSI has priority over everything if they perfect before the debtor receives the good AND the Secured party
sends authenticated notice to all conflicting parties of this collateral before the debtor receives possession of the
collateral. 
 The notification must state that the purchase-money secured party has or expects to have a PMSI in the debtor's
inventory or livestock and it must include a description.
 If property already acquired cannot obtain PMSI after the fact.
o Bjerre says this is a safe harbor rule. We want to encourage and allow for effective commerce.
 This will give SP2 priority over SP1 when SP2 holds a PMSI.
o Think separately about PMSI in equipment v. PMSI in inventory.
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7. PMSI Super Priority in Proceeds
 UCC 9-324
o (a) PMSI super priority in equipment and its proceeds.
o (b) PMSI super priority in inventory and its proceeds.
 Ex: SP1 holds SI in all equipment with a NOOHAA clause.
Perfected at all times.
 SP2 obtains SI in Centric bulldozer, holds a PMSI in the bulldozer.
 Priority status will only extend to proceeds that are in the form of cash + perfection occurred on or before the
debtor received the inventory + you provide an authenticated notice to any conflicting secured interest revealing
the secured party's intent to acquire a PMSI in the inventory of the debtor and describing the inventory.
8. PMSIs in the consumer context
 For personal use – automatically perfected. PMSI in inventory or equipment must be filed to be legit.
 FTC Credit Practice Rules
o (1) Prohibition of a non-PMSI, non-possessory interest.
 “Unfair act for lender or retail installment seller to receive from a consumer an obligation that
constitutes a nonpossessory security interest in household goods other than a PMSI.”
 1. Household goods – clothing, furniture, appliances, linens, China, personal effects of
the consumer and his or her dependents, provided
o (2) FTC rules goes one level further than consumer protection according to Bjerre.
 Note: FTC rules are not exceptions to Art 9 rather a different dimension of governmental power.
Ch. 5 – Buyers of Goods
 Two ultimate options, buyer either takes free of a SI or takes subject to …
 Is the buyer a BIOCOB 1-201(b)(9) and was the SI created by the buyer’s seller? 9-320(a).
o  If yes, then buyer takes free of security interest.
 If not a BIOCOB then there is another opportunity for the buyer to take free as a “garage sale buyer”
under r9-320(b).
o  If the buyer is a GSB then buyer takes free of security interest, unless secured party filed to
perfect.
 Concerning Financing Statements
o A buyer in the ordinary course of business takes free and clear of any prior security interest, even if
the filing of a financing statement has already perfected the security interest. See U.C.C. § 9-320(a).
 In contrast, a buyer of consumer goods takes free and clear only if, among other
requirements, the buyer purchases the consumer goods before a financing statement is filed.
U.C.C. § 9-320(b)(4).
1. Subject to; lack of perfection
 UCC 9-201(a): The Basic Rule
o provides secured lenders with assurance their SI is effective against purchasers of the collateral and
against lenders.
o Buyer will be in the same position as SP2 or LC because SP is senior.
 Thus, buyer will take subject to SP’s SI.
o There are circumstances where buyer may take free of SP’s SI (see below)
 UCC 9-317(b): Interests that take priority over or take free of SI
 Delivery: buyers that receive delivery will take free of a SI if the buyer gives value and receives
delivery of the collateral without knowledge of the SI and before it is perfected.
 Note: we apply the PMSI grace period under 9-317(e) (20 days) to the delivery requirement of 9-
317(b)
 (e) provides that PMSI SP’s takes priority over the rights of a buyer or lien creditor
 UCC 2-403(1): Shelter Principle
o The buyer can get everything and does get everything that the transferor has. The transferor we know has
freedom from the SI.
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o The buyer takes shelter in the predecessor.
o Why do we have this shelter principle?
 We believe in protecting B1 here.
 It was right for B1 to take free, and perfection did not happen which was all about protecting
people who are coming in after the fact.
 If we really believe in protecting B1 we want to give them the ability to sell to someone else even
if the og figures it out and files a financing statement after the fact.
2. Authorized disposition; intro to SP of seller versus creditor of buyer
 Authorized disposition:
o UCC 9-315(a)(1): disposition of the collateral allows the buyer to take the collateral free and clear of any
SI so long as SP has authorized this.
o Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to
transfer all rights of the entruster to a buyer in the ordinary course of business. (2-403)
 Consequences of Unauthorized Disposition:
o A SP whose SI survives an unauthorized disposition is entitled to exercise its rights against the collateral
such as right to take possession from the debtor, the purchaser, or any other junior party following the
buyer’s default.
 UCC 9-609: gives SP to take possession after default
 UCC 9-315(a)(2) – SP not only entitled to the original collateral but also to identifiable proceeds
of collateral.
 UCC 9-507(a) - a financing statement continues to be effective following a disposition of
collateral even if secured party knows of or consents to the disposition. Unless they do so free
and clear then the SI ends and the financing statement would not matter.
 Waiver, Estoppel, Course of Performance, and Course of Dealing  determining if authorization occurred
in an express or non-express manner.
o UCC 9-315(a)(1): Waiver
 does not specify a method which a SP must authorize the disposition of collateral free of its
security interest.
o Course of Performance:
 because buyers usually lack the clear evidence needed to establish a waiver or an estoppel, they
often argue that an authorization should be inferred by SP conduct.
 Inferred by conduct.
o UCC 1-303(b): Course of dealing
 Sequence of conduct concerning previous transactions between parties to a particular transaction
that is fairly regarded as establishing the common basis of understanding for interpreting their
expressions and other conduct.
 Conditional Authorization of Sales
o When debtor fails to comply with the condition a buyer acquires the goods subject to the SI.
o Otherwise, the courts reliance on the SP conduct as authorizing the sale would not be necessary.
3. Buyers in ordinary course of business
 UCC 9-317(e): referenced earlier
o Except as otherwise provided in Sections 9-320 and 9-321, if a person files a financing statement with
respect to a purchase-money security interest before or within 20 days after the debtor receives delivery
of the collateral, the security interest takes priority over the rights of a buyer, lessee, or lien creditor which
arise between the time the security interest attaches and the time of filing.
o BIOCOB will defeat PMSI exception of 9-317(e).
 UCC 1-201(b)(9): definition
o A buyer in the ordinary course of business takes free of a security interest created by the buyer’s seller
even if the security interest is perfected and the buyer knows of its existence. A BIOCOB is someone
who:
 (1) buys GOODS
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 The buyer can purchase goods for cash, on credit, or in exchange for other goods, but
does not receive BIOCOB status if he acquires the goods in total or partial satisfaction of
a money debt.
 (2) in the ordinary course of business
 (3) from a merchant who is in the business of selling goods of that kind
 (4) in good faith and
 (5) without knowledge that the sale violates the rights of another in the same goods.
o NO FARM ANYTHING PROTECTED BY THE UCC
 UCC 9-320(a): Buyer of Goods
o (a) except as provided in (e), a BIOCOB takes free of a SI created by the buyer’s seller, even if the SI is
perfected and the buyer knows of its existence.
 This protects ordinary commerce; we want buyers to have confidence they can go to a store and
buy products without fear of them being taken.
 SP can still get proceeds, and with inventory they will often rely on proceeds, rather than actual
inventory to pay off debt, shows biz is healthy.
 UCC 2-403: Entrusting Rule
o A merchant can transfer all rights of the entruster to a BIOCOB.
 Merchant can get rid of SI, provided buyer is a BIOCOB.
o Answer to who wins in a SP v. B situation, after buyer bought in consumer-to-consumer transaction is
dependent on whether or not SP filed a FS.
o Then ask is it filed in the right jurisdiction?
 Needs to be filed in the jdx of the debtor.
 So, if debtor moves, simply refiled in the jdx to which they have moved within the grace period,
or else you are deemed unperfected and never perfected and the buyer takes free.
 Bjerre says we will the perfection statute for that issue.
 Exceptions to BIOCOB
o If there is an SI created before the seller obtains it, and then sells it to a BIOCOB then that SI remains.
(Buyer-Seller Limitation)
 9-102(a)(28): BIOCOB becomes a debtor to the SP
 9-509(c): SP can file a financing statement against the BIOCOB
4. Transferees of funds from deposit account – TOFFADA
 UCC 9-322(b)
o Transferee of funds from deposit account takes free of a SI in the deposit account unless the transferee act
in collusion with the debtor in violating the rights of the SP.
 Payee’s knowledge of a superior SI does not mean that the payee knows the payment violates
SP’s rights.
 Between a transferee of money from a deposit account and a secured party who has an interest, who has priority?
o The transferee, so long as no collusion.
5. Consumer to consumer sales
 UCC 9-320(b): Buyer of Goods
o Except as otherwise provided in e (possessory SI not affected) a buyer of goods from a person who used
or bought the goods primarily for personal, family, or household purposes takes free of a SI even if
perfected if the buyer buys:
 (1) Without knowledge of the SI
 (2) For value
 Does not have to be new value
 (3) Primarily for the buyer’s household purposes
 (4) Before the filing of a financing statement
 This is going to turn on whether SP has filed a FS.
 The garage sale exception!
 Unlike 9-320(a) – buyer here cannot have knowledge of the SI whatsoever and value has a different meaning
here. No new value required.
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o Unlike the BIOCOB exception the garage sale exception merely requires a buyer gives value rather than
new value. Consequently, acquisition of the consumer goods in total or partial satisfaction of a money
debt constitutes giving value.
6. Double debtor problem
 Security interests perfected against a transferee are subordinated to those against the transferor
 A priority contest that arises when (i) a person acquires collateral subject to a SI created by another and (ii) the
person creates a SI in the same collateral in favor of another SP.
 Here, FTFOP rule results in outcomes at odds with purpose of the UCC.
 UCC 9-325: governs priority of SI’s in Transferred Collateral
o (a) SI created by a debtor is subordinate to an SI in the same collateral created by another person if:
 (1) debtor acquired collateral subject to the SI created by another person.
 (2) SI created by the other person was perfected when debtor acquired the collateral; and
 (3) there is no period after when the SI is unperfected.
o (b) (a) subordinates an SI only if the SI:
 (1) Otherwise, would have priority solely under 9-322(a) or 9-324 or
 FTFOP and PMSI.
 (2) Arose solely under 2-711(c) or 2A-508(5).
 9-325 created to alleviate issues that arose under FTFOP. The proper construction of the code requires that its
interpretation and application be limited by its reason.
o FTFOP intended to provide certainty. When you introduce a second debtor and apply FTFOP then SP1 is
undercut, as is the reason/rationale of the code. Thus, we promulgate 9-325.
7. Choice of Law
 UCC 9-316(a): Effect of Changing Law – Effect on Perfection of Change in Governing Law
 UCC 9-316(a), cmt 2: If debtor moves to another state, a perfected SI remains perfected for four months after the
debtor’s change in location, unless perfection would have ceased earlier under the law of the debtor’s former
state.

Ch. 6 – Lien Creditors Revisited

 9-317(a) in sum: Interests that take priority over or take free of SI
o Lien creditor v. PSP = PSP wins
o Lien creditor v. USP = Lien creditor wins unless SP files FS and gets a SA before the lien
attaches (and becomes a PSP after lien attaches)
1. Lien creditors revisited
 UCC 9-102(a)(52)(A): Lien Creditor definition
o (A) a creditor that has acquired a lien on the property involved by attachment, levy, or the like;
o (B) an assignee for benefit of creditors from the time of assignment;
o (C) a trustee in bankruptcy from the date of the filing of the petition; or
o (D) a receiver in equity from the time of appointment
 A lien creditor is typically an unsecured creditor who obtained a judgment, got a writ of execution, and levied via
sheriff, either actually or symbolically, on the property of the debtor.
 When two lien creditors compete for priority, the general rule is first come, first served, or in other words, the
creditor to obtain lien first has priority.
 Lien Creditors are not purchasers – they give value and then try to levy
 SP that files appropriately thus giving notice, will be protected. LC is only protected where SP does not give
public notice. Bjerre says this is about reliance.
 Notice gives subsequent parties the ability to check the record. Without notice, you may erroneously rely on the
property since you are unaware of SP’s presence.
o Notice would be filing a financing statement.
 9-317(a)(2)(A): SI must be perfected before it trumps other claims. If unsecured debtor acquires lien creditor
status before SI is perfected, SI becomes subordinate to lien creditor.
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Ch. 7 – Default and Enforcement
XXX
1. Default and repossession
 Repossession – the debtor cannot have protest to this. The location of the collateral matters. Either way
there cannot be objections.
 Default not defined by Art 9. The parties to a security agreement are free to agree to the circumstances
that give rise to a default, such as debtor’s transfer of the collateral without authorization. Without said
agreement then default would be the failure of the obligor to make timely payments to the secured party.
 The availability of Article 9’s remedies does not depend upon whether a secured party has perfected its
security interest. The secured party need only be attached. See U.C.C. § 9-102(a)(73).
 Once default has occurred, the secured party may:
o (1) seek possession of the collateral and, in order to satisfy the obligor’s outstanding obligation,
either:
 (a) sell the collateral; or
 (b) retain it in full or partial satisfaction of the obligation
 (c) initiate a judicial action to obtain a judgment based on that obligation; or
 (d) subject to statutory limitations, pursue any course of action to which the debtor and
obligor have agreed.
 The SP may pursue any or all of these remedies (even simultaneously), provided the
secured party acts in good faith. If SP ignores default may constitute a waiver of the
secured party’s rights that would otherwise arise upon the default.
 9-609:
o Upon default, a secured creditor is entitled to take possession of tangible collateral and sell
them to satisfy the secured debt.
 Unless the security agreement provides otherwise, a SP is not required to give notice of default, nor is
he required to give notice of his intent to take possession of the collateral.
 A SP is required to use judicial process to obtain possession of the collateral unless possession can be
obtained without breach of peace.
 Replevin  If SP does not do self-help can go through this procedure:
o Procedure: To obtain the remedy, the secured creditor must file a civil action against the debtor;
immediately upon filing, the creditor can move for an order granting immediate possession
pending the outcome of the case. The plaintiff can usually secure a hearing on the motion in 10
to 20 days (sometimes sooner). Some states require notice of hearing to debtor, in others the
hearing can be held, and writ of replevin issued before the debtor is aware the case has been
filed. If secured creditor establishes that it is likely to prevail in the action, the court issues the
writ of replevin.
2. Foreclosure; deficiency; commercial reasonableness; rebuttable presumption
 Rules of Foreclosure
o Sale discharge lien under which sale was made 9-617, and buyer take subject to prior liens
Distribution 9-615(a) [Note Senior Liens don't get anything, they keep their S/I]
 (1) To expenses of sale
 (2) To lien under which the sale was held
 (3) To subordinate liens
 (4) To the debtor
 Every aspect of the foreclosure must be commercially reasonable. 9-611 says that SP should give notice to the
debtor before the foreclosure sale happens. The debtor has a right to redeem the collateral before the foreclosure
happens.
 UCC 9-610(a): Disposition of Collateral after Default
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o After default, a SP may sell, lease, license, or otherwise dispose of all or any of the collateral. Within
limits, the SP may keep the collateral (strict foreclosure) in full or partial satisfaction of the obligation.
 UCC 9-610(b): Commercially Reasonable Disposition
o All aspects of the disposition of collateral (method, time, manner, and place) must be conducted in a
commercially reasonable manner. The price need not be the highest or best but just reasonable.
o SP may sell at a public auction. SP may only sell at private disposition if collateral is of kind that is
customarily sold on a recognized marked with price quotations.
o § 9-627. DETERMINATION OF WHETHER CONDUCT WAS COMMERCIALLY REASONABLE.
 A disposition is commercially reasonable when conducted:
 (1) in the usual manner on a recognized market, such as a stock exchange, that has
standardized price quotations for fungible goods;
 (2) at the price current in any recognized market at the time of disposition; or
 (3) otherwise in conformity with reasonable commercial practices among dealers in the
type of property that was the subject of the disposition.
 UCC 9-10(c): SP can purchase the collateral themselves.
 Notice Requirements  Foreclosure  Disposition of Collateral
o UCC 9-611: Notice before Disposition of Collateral:
 A SP is generally required to send an authenticated notification of disposition. The notification is
required to be reasonable as to its content, manner in which it was sent, and its timeliness.
 If SP intends to dispose of collateral in a sale, it must send a reasonable, authenticated
notification to at least the debtor.
 For consumer sales notice must occur during a reasonable time.
 For non-consumer transactions the UCC specifies that notifications sent after default but 10
days or more before the earliest date of disposition indicated in the notification are sent
within a reasonable time.
 Notification of disposition is required to be sent to
 The debtor
 Any secondary obligor
o co-signer
 In the case of consumer goods – any other SP or lien holder who held a security
interest that was perfected by filing or pursuant to a statute, and
 Any other party from who the secured party has received authenticated notice of a
claim of interest in the collateral.
o Notice Requirements in non-consumer goods transaction:
 (1) a description of the debtor and the SP
 (2) a description of the collateral
 (3) a statement as to the method of disposition
 (4) a statement that the debtor is entitled to an accounting of the unpaid indebtedness and the
charge is any, for providing that accounting; and
 (5) A statement of the time and place of a public disposition or the time after which a private
disposition was made.
o Notice Requirement in consumer goods transaction:
 In addition to all 5 requirements above must also include:
 (1) a description of any liability for a deficiency of the person to whom the notification is
sent
 (2) telephone number from which redemption amount available and
 (3) telephone # or mailing address from which additional information concerning the
disposition and secured obligation.
o UCC 9-612: Timeliness of Notification before Disposition of Collateral:
 (1) reasonable time is a question of fact  consumer good transaction
 (2) 10-day period is sufficient in a non-consumer transaction.
 UCC 9-615(a): Application of the Proceeds from a Disposition  Cash Proceeds
o SP must apply or pay over for application cash proceeds of a disposition in the following order:
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 (1) reasonable expenses for collection and enforcement
 (2) SI that disposition was made – what the foreclosure sale was meant to cure.
 (3) satisfaction of any subordinate SI if the junior secured party made an authenticated
demand for proceeds before distribution of the proceeds is complete (why you need to give
notice)
 (4) the remainder of the proceeds to the debtor
 UCC 9-615(c): Application of the Proceeds from a Disposition  non-cash proceeds
o A SP must apply or pay over for application of non-cash proceeds of a disposition only if the failure to do
so would be commercially unreasonable. If the SP does apply or pay over for such proceeds, then he must
do so in a commercially reasonable manner.
 Remedies for Commercially Unreasonable Sales
o UCC 9-625(b): gives debtor a cause of action if secured party harms them, inclusive of loss resulting
from the debtor’s inability to obtain, or increased costs of, alternative financing.
o UCC 9-626: Action in which Deficiency or Surplus in Issue
 (a)(1): SP need not prove compliance relating to collection, disposition, or acceptance unless
debtor or secondary obligor places SP’s compliance in issue.
 (2): If S’s compliance is placed in issue, SP bears the burden of establishing that the
collection, enforcement, disposition, or acceptance was conducted in accordance with the
provisions.
 (b): the non-applicability to consumer transactions is intended to leave to the court the
determination of the proper rules in consumer transactions.
 Creates a rebuttable presumption that compliance with Article 9 would have yielded an amount
sufficient to satisfy the secured debt
 Noncomplying a SP has burden to prove that the amount that would have been recovered
by complying with Article 9, and the SP's deficiency recovery is limited to the difference
between that amount and the amount of the secured debt See UCC 9-626(a)(3)(B), (4)
and Comment 3.
9-626(a) [non-consumer]:
(1) Applies when sale does not comply with the requirements of article 9, brought to issue by the debtor
(2) Secured party must show they did comply
(3) if fails to show compliance, then the liability for deficiency is CALCULATED based on AMOUNT that WOULD'VE
been PAID/OBTAINED in COMPLYING sale
(4) presume that sale would've been all of debt, but may rebut the presumption for what would've actually sold then use
that amount showed by the secured party.
(b) [Consumer Goods]
majority is that it follows (a), but a minority states that it automatically wipes out the entire deficiency
9-615:
(1) Obligor is liable for any deficiency remains after application for the sale proceeds
(2) applies when the secured party buys at sell
(3) deficiency is CALCULATED based on AMOUNT that WOULD'VE been PAID in COMPLYING sale to a THIRD
party
NOTE: if there is a deficiency, the creditor is unsecured for the amount
3. Proceeds of foreclosure sale and alternative remedies
 Foreclosure Sale
 Strict Foreclosure  UCC 9-620 (Acceptance)
o Doing this you do not have to deal with commercially reasonable requirements.
o UCC 9-620(a): except as otherwise provided in subsection (g) a SP may accept collateral in full or partial
satisfaction of the obligation it secures only if:
 The debtor consents to the acceptance under (c)
 If consumer goods, the collateral cannot be in the debtor’s possession.
 This is to ensure collateral is not crucial to debtor.
o UCC 9-620(c):
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 Partial satisfaction: a debtor consents to an acceptance of collateral in partial satisfaction of the
obligation it secures only if the debtor agrees to the terms of acceptance in a record authenticated
after default; and
 Full satisfaction: if debtor agrees to terms of acceptance in a record authenticated after default or
 (1) SP sends to debtor after default a proposal that is unconditional or subject only to a
condition that the collateral not in possession of the SP be preserved or maintained.
 (2) in the proposal, proposes to accept collateral in full satisfaction of the obligation it
secures; and
 (3) does not receive a notification of objection authenticated by the debtor within 20 days
after proposal sent. Debtors silence can count as consent after 20 days wait.
o UCC 9-607: collection of the collateral
 Notice Requirements of Strict Foreclosure
o Whether a strict foreclosure is in full or partial satisfaction of a debt, a secured party should give notice to any
actual or potential competing claimants against the collateral, including any party that has filed a financing
statement against the collateral or given the secured party notice of a competing interest. U.C.C. § 9-621(a).
o Failure to give this notice does not invalidate the foreclosure. It may, however, expose the secured party to
liability for damages in favor of a party to which the secured party did not send notice but which suffered
damages because of the strict foreclosure. For example, a secured creditor that strictly forecloses may be liable
for damages to a junior creditor whose interest is extinguished by the strict foreclosure. U.C.C. § 9-622, cmt 2.
4. Redemption
 Redemption is accomplished by paying the full amount of the debt, including the secured creditor's attorney's fees
and expenses of sale. UCC 9-617(b).
 After default and repossession, a debtor may redeem the collateral. This means that the debtor pays off the loan in full
and reclaims her property. A secondary obligor, a subordinate secured party, or a lien holder may also have the right to
redeem the collateral. U.C.C. § 9-623(a).
 Occurs until…
o UCC 9-610: “disposition”
o UCC 9-620: “acceptance”
o UCC 9-607: “Collection of the Collateral”
 Mostly applies to receivables and deposit accounts.
 Debtors right to be paid by third parties
 Right to redeem exists until these things above happened – once that happens someone else has property rights!
5. Impact of bankruptcy on secured party’s remedies
 XX
6. Effect of Priority on foreclosures and distributions
 Both junior and senior SP’s can foreclose.
 If SP1 forecloses, junior interests are wiped out absent surplus existing.
 If SP2 forecloses, senior’s interest survives.
o A new buyer would not be liable for debt that encumbers the collateral but if debtor fails to pay then
buyer is vulnerable to Sp1’s repossession of collateral.
 New buyer of repossessed collateral becomes a debtor in that they have an interest other than a SI
or lien in the collateral whether or not buyer is an obligor.
 Warranty of Title of Goods
o There is an implied warranty of title unless someone disclaimed it.
o Bjerre: any buyer with any sense is going to pay less because we are getting less, and they would know
that from the disclaimer.
7. Scope: retention-of-title clauses and leases
 Agreements intended to have security effect:
o Retention of Title - if the buyer and seller of goods agree the seller will retain title to the goods after
they're delivered to the buyer and until the buyer pays for them --> the agreement is treated as seller's
retention of a SI (treated as SI for the price)
 (Scope of Article 9): Most notable exception –
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o Article 9 does not apply to transactions involving interests in/liens on land (EXCEPT transactions
involving fixtures)
 Can there be a security interest of the seller even though we do not have the clause specifically granting the
SI to the buyer?
o You can!!!
o You can give partial effect by treating it like a grant of the SI.
o Seller wants all of the rights until the good is paid off.
o Partial effect - let it be the grant of SI.
o The certificate of title - like buying a car would retain the certificate of title or the piece of paper!!
 There may or not be any piece of paper that announces by the state who has title.
 If not primarily for on the road use it is likely that certificate of title would not apply.
 2-401 takes supposed retention of title and converts them into merely having a SI.
o Now Art 9 applies - not just foreclosure but the rules too.
o Perfection and priority and all of that would apply.
o Overriding what the parties did by K.
 2-401(1) - don't believe the clauses have this full effect! Going to allow seller to keep some of those rights but not
all of them.
 All you are doing is reserving a SI. Limited in effect to reservation of SI.
 The seller is really a SP!
 The buyer is a debtor!
 Debtor who defaulted! --> they can repossess and have a sale.
 UCC 9-109(a) - Scope
o This article applies to:
 (1) a transaction, regardless of its form, that creates a security interest in personal property or
fixtures by contract;
 Note: Art 9 declaring what it applies to
 UCC 9-109(d)(13) Exceptions to Scope
o Consumer deposit accounts
o "Regardless of Its Form"
 We look at this through two different example: Retention of Title and Leases
 UCC 1-203 - Lease Distinguished from Security Interest - Leases that May Actually Grant a "Security
Interest"
o (a) Whether a transaction in the form of a lease creates a lease or security interest is determined by the
facts of each case.
o (b) A transaction in the form of a lease creates a security interest if the consideration that the lessee is to
pay the lessor for the right to possession and use of the goods is an obligation for the term of the
lease and is not subject to termination by the lessee, and: 
 Note:
 Two Part Test for this Statute: 
o (b) Consideration that lessee is to pay the lessor…
 The lessee has to be obligated to pay something
 There has to be a debt
o (1-4) there has to be a sale!
 Enumerated categories below show us what the sale would be!
 (1) the original term of the lease is equal to or greater than the remaining economic life of
the goods;
