Secured Transactions Assignment 21

1
Secured TransactionsAssignment 21

• Characterizing Collateral and Transactions

2
The Big Picture

• Part Two The Creditor Third Party Relationship
• Chapter 6-7 Perfection
• Assignment 16 Personal Property Filing Systems
• Assignment 17 Financing Statements The
  Debtors Name
• Assignment 18 Financing Statements Other
  Information
• Assignment 19 Exceptions to Filing
• Assignment 20 Real Estate Recording Systems
• Assignment 21 Characterizing Collateral and
  Transactions

3
Characterizing Promises to Pay Money
9-102(a)(11). Chattel paper means . . .
records that evidence both a monetary obligation
and a security interest in specific goods . . . .
4
Characterizing Promises to Pay Money
9-102(a)(11). Chattel paper means . . .
records that evidence both a monetary obligation
and a security interest in specific goods . . . .
Chattel Paper
Chattel paper is chattel paper
5
Characterizing Promises to Pay Money
9-102(a)(47). Instrument means a negotiable
instrument
Chattel Paper
Chattel paper is chattel paper
6
Characterizing Promises to Pay Money
9-102(a)(47). Instrument means a negotiable
instrument or any other writing that 1
evidences a right to the payment of a monetary
obligation, is not itself a security agreement or
lease and 3 is of a type that in ordinary
course of business is transferred by delivery
with any necessary indorsement . . .
Chattel Paper
Chattel paper is chattel paper
7
Characterizing Promises to Pay Money
9-102(a)(47). Instrument means a negotiable
instrument or any other writing that 1
evidences a right to the payment of a monetary
obligation, is not itself a security agreement or
lease and 3 is of a type that in ordinary
course of business is transferred by delivery
with any necessary indorsement . . .
Instruments
Chattel Paper
An instrument is an instrument if it is not
chattel paper
Chattel paper is chattel paper
8
Characterizing Promises to Pay Money
9-102(a)(2). Account means a right to payment
of a monetary obligation . . . (i) for property
that has been . . .sold, (ii) for services
rendered . . .
Instruments
Chattel Paper
An instrument is an instrument if it is not
chattel paper
Chattel paper is chattel paper
9
Characterizing Promises to Pay Money
9-102(a)(2). Account means a right to payment
of a monetary obligation . . . (i) for property
that has been . . .sold, (ii) for services
rendered . . . The term does not include (i)
rights . . . evidenced by chattel paper or an
instrument.
Instruments
Chattel Paper
An instrument is an instrument if it is not
chattel paper
Chattel paper is chattel paper
10
Characterizing Promises to Pay Money
9-102(a)(2). Account means a right to payment
of a monetary obligation . . . (i) for property
that has been . . .sold, (ii) for services
rendered . . . The term does not include (i)
rights . . . evidenced by chattel paper or an
instrument.
Accounts
An account is an account if it is not an
instrument or chattel paper
Instruments
Chattel Paper
An instrument is an instrument if it is not
chattel paper
Chattel paper is chattel paper
11
Characterizing Promises to Pay Money
9-102(a)(61). Payment intan-gible means a
general intangible that is a monetary
obligation.
Accounts
An account is an account if it is not an
instrument or chattel paper
Instruments
Chattel Paper
An instrument is an instrument if it is not
chattel paper
Chattel paper is chattel paper
12
Characterizing Promises to Pay Money
9-102(a)(61). Payment intan-gible means a
general intangible that is a monetary
obligation.
Accounts
An account is an account if it is not an
instrument or chattel paper
Instruments
Chattel Paper
An instrument is an instrument if it is not
chattel paper
Chattel paper is chattel paper
9-102(a)(42). General intangible means
personal property other than accounts, chattel
paper . . . instruments . . .
13
Characterizing Promises to Pay Money
9-102(a)(61). Payment intan-gible means a
general intangible that is a monetary
obligation.
A payment intangible is a payment intangible if
it is not an account, instrument, or chattel paper
Payment intangibles
Accounts
An account is an account if it is not an
instrument or chattel paper
Instruments
Chattel Paper
An instrument is an instrument if it is not
chattel paper
Chattel paper is chattel paper
9-102(a)(42). General intangible means
personal property other than accounts, chattel
paper . . . instruments . . .
14
Characterizing Goods
This box represents the category of all goods.
15
Characterizing Goods
Inventory and farm products are goods held by
businesses for sale.
16
Characterizing Goods
Equipment is goods held by a businesses not for
sale.
17
Characterizing Goods
Consumer goods are goods used or bought for
personal, family, or household purposes not
business use.
18
Characterizing Goods
Equipment, farm products, or consumer goods may
be fixtures.
19
Characterizing Goods
Equipment, farm products, or consumer goods may
be fixtures.
20
Characterizing Goods
Equipment, farm products, or consumer goods may
be fixtures.
21
Characterizing Goods
Equipment, farm products, or consumer goods may
be fixtures.
22
Basic Concepts

• 9-109(a)(3). Article 9 applies to . . . a
  sale of accounts, chattel paper, payment
  intangibles, or promissory notes
• 1-201(b)(35). Security interest includes any
  interest of a buyer of accounts . . . .
• 9-102(a)(72). Secured party means . . . a
  person to which accounts . . . have been sold
• 9-102(a)(28). Debtor means . . . a seller of
  accounts . . .
• Comment 5. The principal effect . . . is to
  apply this articles perfection and priority
  rules to these sales transaction

23
Basic Concepts
Sale of accounts
Seller
Buyer
Debt and equity
Accounts owing
Account debtors
Investors
24
Basic Concepts
Article 9 tells us to re-label.
Sale of accounts
Seller
Buyer
Debt and equity
Accounts owing
Account debtors
Investors
25
Basic Concepts
Article 9 tells us to re-label.
Security interest
Debtor
Secured party
Debt and equity
Accounts owing
Account debtors
Investors
26
Basic Concepts
Article 9 tells us to re-label. Who owns the
accounts? 9-623(c)
Security interest
Debtor
Secured party
Debt and equity
Accounts owing
Account debtors
Investors
27
Basic Concepts
Article 9 tells us to re-label. Who owns the
accounts? 9-623(c) Octagon Gas the debtor
Security interest
Debtor
Secured party
Debt and equity
Accounts owing
Account debtors
Investors
28
Basic Concepts
Article 9 tells us to re-label. Who owns the
accounts? 9-623(c) Octagon Gas the debtor
Security interest
Debtor
Secured party
Debt and equity
Accounts owing
Account debtors
Investors
Bankruptcy Code 541(a). The estate owns all
legal or equitable interests of the debtor in
property of the estate.
29
Basic Concepts
Article 9 tells us to re-label. Who owns the
accounts? 9-623(c) Octagon Gas the debtor
Security interest
Debtor
Secured party
Debt and equity
Accounts owing
Account debtors
Investors
Bankruptcy Code 541(a). The estate owns all
legal or equitable interests of the debtor in
property of the estate. 362(a). Bankruptcy
stays any act . . . to exercise control over
property of the estate.
30
Basic Concepts
Article 9 tells us to re-label. Who owns the
accounts? 9-623(c) Octagon Gas the debtor
Security interest
Debtor
Secured party
Debt and equity
Accounts owing
Account debtors
Investors
Bankruptcy Code 541(a). The estate owns all
legal or equitable interests of the debtor in
property of the estate. 362(a). Bankruptcy
stays any act . . . to exercise control over
property of the estate. 363(b)(1). The
trustee . . . may use . . . property of the
estate
31
Basic Concepts
Article 9 tells us to re-label. Who owns the
accounts? 9-623(c) Octagon Gas the debtor
Security interest
Debtor
Secured party
Debt and equity
Accounts owing
Account debtors
Investors
Bankruptcy Code 541(a). The estate owns all
legal or equitable interests of the debtor in
property of the estate. 362(a). Bankruptcy
stays any act . . . to exercise control over
property of the estate. 363(b)(1). The
trustee . . . may use . . . property of the
estate 9-318(1). A debtor that has sold an
account . . . does not retain a legal or
equitable interest in the collateral sold.
32
Basic Concepts
Security interest
Debtor
Secured party
9-310(a). A financing statement must be filed
to perfect all security interests except
9-309(2), (3), and (4).
Debt and equity
Accounts owing
Account debtors
Investors
Bankruptcy Code 541(a). The estate owns all
legal or equitable interests of the debtor in
property of the estate. 362(a). Bankruptcy
stays any act . . . to exercise control over
property of the estate. 363(b)(1). The
trustee . . . may use . . . property of the
estate 9-318(1). A debtor that has sold an
account . . . does not retain a legal or
equitable interest in the collateral sold.
33
Problem 21.1, page 373

• How should a secured party perfect in
• Money owing from sale of liquor license (oral
  agreement)?

34
Problem 21.1, page 373

• How should a secured party perfect in
• Money owing from sale of liquor license (oral
  agreement)?
• Chattel paper? 9-102(a)(11).

35
Problem 21.1, page 373

• How should a secured party perfect in
• Money owing from sale of liquor license (oral
  agreement)?
• Chattel paper? 9-102(a)(11). No record.

36
Problem 21.1, page 373

• How should a secured party perfect in
• Money owing from sale of liquor license (oral
  agreement)?
• Chattel paper? 9-102(a)(11). No record.
• Instrument? 9-102(a)(47).

37
Problem 21.1, page 373

• How should a secured party perfect in
• Money owing from sale of liquor license (oral
  agreement)?
• Chattel paper? 9-102(a)(11). No record.
• Instrument? 9-102(a)(47). No writing.

38
Problem 21.1, page 373

• How should a secured party perfect in
• Money owing from sale of liquor license (oral
  agreement)?
• Chattel paper? 9-102(a)(11). No record.
• Instrument? 9-102(a)(47). No writing.
• Account?

39
Problem 21.1, page 373

• How should a secured party perfect in
• Money owing from sale of liquor license (oral
  agreement)?
• Chattel paper? 9-102(a)(11). No record.
• Instrument? 9-102(a)(47). No writing.
• Account? 9-102(a)(2) right to payment of a
  monetary obligation (i) for property that has
  been sold.

40
Problem 21.1, page 373

• How should a secured party perfect in
• Money owing from sale of liquor license (oral
  agreement)?
• Chattel paper? 9-102(a)(11). No record.
• Instrument? 9-102(a)(47). No writing.
• Account? 9-102(a)(2) right to payment of a
  monetary obligation (i) for property that has
  been sold.
• Payment intangible?

41
Problem 21.1, page 373

• How should a secured party perfect in
• Money owing from sale of liquor license (oral
  agreement)?
• Chattel paper? 9-102(a)(11). No record.
• Instrument? 9-102(a)(47). No writing.
• Account? 9-102(a)(2) right to payment of a
  monetary obligation (i) for property that has
  been sold.
• Payment intangible? Not if it is an account.
  9-102(a)(42)

42
Problem 21.1, page 373

• How should a secured party perfect in
• Money owing from sale of liquor license (oral
  agreement)?
• Chattel paper? 9-102(a)(11). No record.
• Instrument? 9-102(a)(47). No writing.
• Account? 9-102(a)(2) right to payment of a
  monetary obligation (i) for property that has
  been sold.
• Payment intangible? Not if it is an account.
  9-102(a)(42)
• How does one perfect in an account? 9-310(a)
  and (b).

43
Problem 21.1, page 373

• How should a secured party perfect in
• Money owing from sale of liquor license (oral
  agreement)?
• Chattel paper? 9-102(a)(11). No record.
• Instrument? 9-102(a)(47). No writing.
• Account? 9-102(a)(2) right to payment of a
  monetary obligation (i) for property that has
  been sold.
• Payment intangible? Not if it is an account.
  9-102(a)(42)
• How does one perfect in an account? 9-310(a)
  and (b).
• File.

44
Problem 21.1, page 373
b. How does Secured perfect a security interest
in this mortgage?
Secured
Security interest
Buyer
Sale
Mortgagee
Mortgagor
45
Problem 21.1, page 373
b. How does Secured perfect a security interest
in this mortgage? Article 9 applies. 9-109(b).
Secured
Security interest
Buyer
Sale
Mortgagee
Mortgagor
46
Problem 21.1, page 373
b. How does Secured perfect a security interest
in this mortgage? Article 9 applies.
9-109(b). Secured perfects in the payment right.
That perfects in the mortgage. 9-308(e)
Secured
Security interest
Buyer
Sale
Mortgagee
Mortgagor
Payment right
47
Problem 21.1, page 373
b. How does Secured perfect a security interest
in this mortgage? Article 9 applies.
9-109(b). Secured perfects in the payment right.
That perfects in the mortgage. 9-308(e)
Secured
Security interest
Buyer
Payment right
Sale
Mortgagee
Mortgagor
48
Problem 21.1, page 373
b. How does Secured perfect a security interest
in this mortgage? Article 9 applies.
9-109(b). Secured perfects in the payment right.
That perfects in the mortgage. 9-308(e)
Secured
Security interest
Buyer
Sale
Mortgagee
Mortgagor
The payment right could be
49
Problem 21.1, page 373
b. How does Secured perfect a security interest
in this mortgage? Article 9 applies.
9-109(b). Secured perfects in the payment right.
That perfects in the mortgage. 9-308(e)
Secured
Security interest
Buyer
Sale
Mortgagee
Mortgagor

• The payment right could be
• An instrument, if it is negotiable note or rough
  equivalent

50
Problem 21.1, page 373
b. How does Secured perfect a security interest
in this mortgage? Article 9 applies.
9-109(b). Secured perfects in the payment right.
That perfects in the mortgage. 9-308(e)
Secured
Security interest
Buyer
Sale
Mortgagee
Mortgagor

• The payment right could be
• An instrument, if it is negotiable note or rough
  equivalent
• An account, if it is not an instrument and the
  mortgage was given as the purchase price of the
  property

51
Problem 21.1, page 373
b. How does Secured perfect a security interest
in this mortgage? Article 9 applies.
9-109(b). Secured perfects in the payment right.
That perfects in the mortgage. 9-308(e)
Secured
Security interest
Buyer
Sale
Mortgagee
Mortgagor

• The payment right could be
• An instrument, if it is negotiable note or rough
  equivalent
• An account, if it is not an instrument and the
  mortgage was given as the purchase price of the
  property
• A payment intangible, if it is not an instrument
  and not an account. E.g., the mortgage secured
  repayment of a loan.

52
Problem 21.1, page 373
b. How does Secured perfect a security interest
in this mortgage? Article 9 applies.
9-109(b). Secured perfects in the payment right.
That perfects in the mortgage. 9-308(e)
Secured
Security interest
Buyer
Unperfected sale
Mortgagee
Mortgagor

• The payment right could be
• An instrument, if it is negotiable note or rough
  equivalent
• An account, if it is not an instrument and the
  mortgage was given as the purchase price of the
  property
• A payment intangible, if it is not an instrument
  and not an account. E.g., the mortgage secured
  repayment of a loan.
• If Buyer failed to perfect, Secureds collateral
  is an unperfected interest in a perfected
  mortgage.

53
Problem 21.1, page 373
Secured Party
How should secured party perfect in d. The
lessees interest in a lease?
Security interest
Lessee
Lessor
54
Problem 21.1, page 373
Secured Party
How should secured party perfect in d. The
lessees interest in a lease? Article 9 probably
doesnt apply 9-109(d)(11). This article does
not apply to . . . the transfer of an interest in
. . . real property.
Security interest
Lessee
Lessor
55
Problem 21.1, page 373
Secured Party
How should secured party perfect in d. The
lessees interest in a lease? Article 9 probably
doesnt apply 9-109(d)(11). This article does
not apply to . . . the transfer of an interest in
. . . real property. e. Wheat growing in the
farmer-debtors field?
Security interest
Lessee
Lessor
56
Problem 21.1, page 373
Secured Party
How should secured party perfect in d. The
lessees interest in a lease? Article 9 probably
doesnt apply 9-109(d)(11). This article does
not apply to . . . the transfer of an interest in
. . . real property. e. Wheat growing in the
farmer-debtors field? Step 1. Does article 9
apply?
Security interest
Lessee
Lessor
57
Problem 21.1, page 373
Secured Party
How should secured party perfect in d. The
lessees interest in a lease? Article 9 probably
doesnt apply 9-109(d)(11). This article does
not apply to . . . the transfer of an interest in
. . . real property. e. Wheat growing in the
farmer-debtors field? Step 1. Does article 9
apply? 9-109(d)(11). Are crops real
property? No, because they are not
permanently affixed Comment 12 to 9-334.
Article 9 overrides real estate law
Security interest
Lessee
Lessor
58
Problem 21.1, page 373
Secured Party
How should secured party perfect in d. The
lessees interest in a lease? Article 9 probably
doesnt apply 9-109(d)(11). This article does
not apply to . . . the transfer of an interest in
. . . real property. e. Wheat growing in the
farmer-debtors field? Step 1. Does article 9
apply? 9-109(d)(11). Are crops real
property? No, because they are not
permanently affixed Comment 12 to 9-334.
Article 9 overrides real estate law Step
2. What does Article 9 require?
Security interest
Lessee
Lessor
59
Problem 21.1, page 373
Secured Party
How should secured party perfect in d. The
lessees interest in a lease? Article 9 probably
doesnt apply 9-109(d)(11). This article does
not apply to . . . the transfer of an interest in
. . . real property. e. Wheat growing in the
farmer-debtors field? Step 1. Does article 9
apply? 9-109(d)(11). Are crops real
property? No, because they are not
permanently affixed Comment 12 to 9-334.
Article 9 overrides real estate law Step
2. What does Article 9 require? Filing.
9-310(a)
Security interest
Lessee
Lessor
60
Problem 21.1, page 373
Secured Party
How should secured party perfect in f. A
franchisees interest?
Security interest
Franchisee
Franchisor
61
Problem 21.1, page 373
Secured Party
How should secured party perfect in f. A
franchisees interest? Step 1 Does Article 9
apply?
Security interest
Franchisee
Franchisor
62
Problem 21.1, page 373
Secured Party
How should secured party perfect in f. A
franchisees interest? Step 1 Does Article 9
apply? 9-109(a)(1). This article applies to a
. . . a transaction . . . that creates a security
interest in personal property. . .
Security interest
Franchisee
Franchisor
63
Problem 21.1, page 373
Secured Party
How should secured party perfect in f. A
franchisees interest? Step 1 Does Article 9
apply? 9-109(a)(1). This article applies to a
. . . a transaction . . . that creates a security
interest in personal property. . . Step 2 What
does Article 9 require?
Security interest
Franchisee
Franchisor
64
Problem 21.1, page 373
Secured Party
How should secured party perfect in f. A
franchisees interest? Step 1 Does Article 9
apply? 9-109(a)(1). This article applies to a
. . . a transaction . . . that creates a security
interest in personal property. . . Step 2 What
does Article 9 require? Filing for a general
intangible (contract rights).
Security interest
Franchisee
Franchisor
65
Problem 21.1, page 373
Secured Party
How should secured party perfect in f. A
franchisees interest? Step 1 Does Article 9
apply? 9-109(a)(1). This article applies to a
. . . a transaction . . . that creates a security
interest in personal property. . . Step 2 What
does Article 9 require? Filing for a general
intangible (contract rights). The franchisor is
an account debtor. 9-102(a)(3). The
nontransferable restriction is not effective.
9-408(a).
Security interest
Franchisee
Franchisor
66
Problem 21.1, page 373
Secured Party
How should secured party perfect in g. An
electronic CD? Instrument?
Security interest
CD
Depositor
Bank
67
Problem 21.1, page 373
Secured Party
How should secured party perfect in g. An
electronic CD? Instrument? No, 1-201(b)(43)
Security interest
CD
Depositor
Bank
68
Problem 21.1, page 373
Secured Party
How should secured party perfect in g. An
electronic CD? Instrument? No,
1-201(b)(43) General intangible?
Security interest
CD
Depositor
Bank
69
Problem 21.1, page 373
Secured Party
How should secured party perfect in g. An
electronic CD? Instrument? No,
1-201(b)(43) General intangible? Not if it is
a deposit account.
Security interest
CD
Depositor
Bank
70
Problem 21.1, page 373
Secured Party
How should secured party perfect in g. An
electronic CD? Instrument? No,
1-201(b)(43) General intangible? Not if it is
a deposit account. Deposit account?
Security interest
CD
Depositor
Bank
71
Problem 21.1, page 373
Secured Party
How should secured party perfect in g. An
electronic CD? Instrument? No,
1-201(b)(43) General intangible? Not if it is
a deposit account. Deposit account? Yes.
9-102(a)(29) time account
Security interest
CD
Depositor
Bank
72
Problem 21.1, page 373
Secured Party
How should secured party perfect in g. An
electronic CD? Instrument? No,
1-201(b)(43) General intangible? Not if it is
a deposit account. Deposit account? Yes.
9-102(a)(29) time account How does secured
party perfect in a deposit account?
Security interest
CD
Depositor
Bank
73
Problem 21.1, page 373
Secured Party
How should secured party perfect in g. An
electronic CD? Instrument? No,
1-201(b)(43) General intangible? Not if it is
a deposit account. Deposit account? Yes.
9-102(a)(29) time account How does secured
party perfect in a deposit account? Control.
9-314, 9-104.
Security interest
CD
Depositor
Bank
74
Problem 21.1, page 373
Secured Party
How should secured party perfect
in h. Electronic chattel paper?
Security interest
Debtor
Acct debtor
Chattel paper
75
Problem 21.1, page 373
Secured Party
How should secured party perfect
in h. Electronic chattel paper? 1. Can secured
perfect by filing?
Security interest
Debtor
Acct debtor
Chattel paper
76
Problem 21.1, page 373
Secured Party
How should secured party perfect
in h. Electronic chattel paper? 1. Can secured
perfect by filing? Yes, 9-312(a)
Security interest
Debtor
Acct debtor
Chattel paper
77
Problem 21.1, page 373
Secured Party
How should secured party perfect
in h. Electronic chattel paper? 1. Can secured
perfect by filing? Yes, 9-312(a) 2. Can
secured perfect by control?
Security interest
Debtor
Acct debtor
Chattel paper
78
Problem 21.1, page 373
Secured Party
How should secured party perfect
in h. Electronic chattel paper? 1. Can secured
perfect by filing? Yes, 9-312(a) 2. Can
secured perfect by control? Yes, 9-314(a)
Security interest
Debtor
Acct debtor
Chattel paper
79
Problem 21.1, page 373
Secured Party
How should secured party perfect
in h. Electronic chattel paper? 1. Can secured
perfect by filing? Yes, 9-312(a) 2. Can
secured perfect by control? Yes, 9-314(a) How
can secured take control of chattel paper?
9-105
Security interest
Debtor
Acct debtor
Chattel paper
80
Problem 21.1, page 373
Secured Party
How should secured party perfect
in h. Electronic chattel paper? 1. Can secured
perfect by filing? Yes, 9-312(a) 2. Can
secured perfect by control? Yes, 9-314(a) How
can secured take control of chattel paper?
9-105 Create the authoritative copy and keep
possession
Security interest
Debtor
Acct debtor
Chattel paper
81
Problem 21.1, page 373

• How should a secured party perfect in
• Software on a consumer debtors computer?
• Is this goods? Software? General intangible?

82
Problem 21.1, page 373

• How should a secured party perfect in
• Software on a consumer debtors computer?
• Is this goods? Software? General intangible?
• Not goods. Comment 4.a to 9-102
• General intangibles includes software
  9-102(a)(75), 9-102(a)(42).

83
Problem 21.1, page 373

• How should a secured party perfect in
• Software on a consumer debtors computer?
• Is this goods? Software? General intangible?
• Not goods. Comment 4.a to 9-102
• General intangibles includes software
  9-102(a)(75), 9-102(a)(42).
• File a financing statement. 9-310(a)

84
Problem 21.1, page 373

• How should a secured party perfect in
• Software on a consumer debtors computer?
• Is this goods? Software? General intangible?
• Not goods. Comment 4.a to 9-102
• General intangibles includes software
  9-102(a)(75), 9-102(a)(42).
• File a financing statement. 9-310(a)
• Documentation and manuals for software?

85
Problem 21.1, page 373

• How should a secured party perfect in
• Software on a consumer debtors computer?
• Is this goods? Software? General intangible?
• Not goods. Comment 4.a to 9-102
• General intangibles includes software
  9-102(a)(75), 9-102(a)(42).
• File a financing statement. 9-310(a)
• Documentation and manuals for software?
• Probably included in the software, 9-102(a)(75)

86
Sale-Lease Distinction

• 9-109(a)(1) This article applies to a
  transaction, regardless of its form, that creates
  a security interest in personal property

87
Sale-Lease Distinction

• 9-109(a)(1) This article applies to a
  transaction, regardless of its form, that creates
  a security interest in personal property
• 1-203. A transaction in the form of a lease
  creates a security interest if the consideration
  . . . is an obligation for the term of the lease
  not subject to termination by the lessee

88
Sale-Lease Distinction

• 9-109(a)(1) This article applies to a
  transaction, regardless of its form, that creates
  a security interest in personal property
• 1-203. A transaction in the form of a lease
  creates a security interest if the consideration
  . . . is an obligation for the term of the lease
  not subject to termination by the lessee, and . .
  . the lease is for the remaining economic life
  of the goods

Economic life
Security interest
Lease term
89
Sale-Lease Distinction

• 9-109(a)(1) This article applies to a
  transaction, regardless of its form, that creates
  a security interest in personal property
• 1-203. A transaction in the form of a lease
  creates a security interest if the consideration
  . . . is an obligation for the term of the lease
  not subject to termination by the lessee, and . .
  . the lease is for the remaining economic life
  of the goods by
• 1. Original term

Economic life
Security interest
Lease term
90
Sale-Lease Distinction

• 9-109(a)(1) This article applies to a
  transaction, regardless of its form, that creates
  a security interest in personal property
• 1-203. A transaction in the form of a lease
  creates a security interest if the consideration
  . . . is an obligation for the term of the lease
  not subject to termination by the lessee, and . .
  . the lease is for the remaining economic life
  of the goods by
• 1. Original term
• 2. Required renewal or purchase

Economic life
Security interest
Lease term
Mandatory renewal
91
Sale-Lease Distinction

• 9-109(a)(1) This article applies to a
  transaction, regardless of its form, that creates
  a security interest in personal property
• 1-203. A transaction in the form of a lease
  creates a security interest if the consideration
  . . . is an obligation for the term of the lease
  not subject to termination by the lessee, and . .
  . the lease is for the remaining economic life
  of the goods by
• 1. Original term
• 2. Required renewal or purchase
• 3. Renewal term for no (or nominal) additional
  consideration

Economic life
Security interest
Lease term
Free renewal
92
Sale-Lease Distinction

• 9-109(a)(1) This article applies to a
  transaction, regardless of its form, that creates
  a security interest in personal property
• 1-203. A transaction in the form of a lease
  creates a security interest if the consideration
  . . . is an obligation for the term of the lease
  not subject to termination by the lessee, and . .
  . the lease is for the remaining economic life
  of the goods by
• 1. Original term
• 2. Required renewal or purchase
• 3. Renewal term for no (or nominal) additional
  consideration
• 4. Option to buy for no (or nominal) additional
  consideration

Economic life
Security interest
Lease term
Option to buy for free
93
Sale-Lease Distinction

• 9-109(a)(1) This article applies to a
  transaction, regardless of its form, that creates
  a security interest in personal property
• 1-203. A transaction in the form of a lease
  creates a security interest if the consideration
  . . . is an obligation for the term of the lease
  not subject to termination by the lessee, and . .
  . the lease is for the remaining economic life
  of the goods by
• 1. Original term
• 2. Required renewal or purchase
• 3. Renewal term for no (or nominal) additional
  consideration
• 4. Option to buy for no (or nominal) additional
  consideration

Economic life
Lease
Meaningful reversion
Lease term
94
Problem 21.3

• a. Goods Satellite

95
Problem 21.3

• a. Goods Satellite
• Economic life Exactly five years

Economic life
96
Problem 21.3

• a. Goods Satellite
• Economic life Exactly five years
• Lease 99,000 a month for five years

Economic life
Lease term
97
Problem 21.3

• a. Goods Satellite
• Economic life Exactly five years
• Lease 99,000 a month for five years
• Sale or lease?

Economic life
Lease term
98
Problem 21.3

• a. Goods Satellite
• Economic life Exactly five years
• Lease 99,000 a month for five years
• Sale or lease? Sale (security interest)

Economic life
Lease term
99
Problem 21.3

• a. Goods Satellite
• Economic life Exactly five years
• Lease 99,000 a month for five years
• Sale or lease? Sale (security interest)
• b. Communications can terminate at 59 months.
  Sale or lease?

Economic life
Lease term
Termination right
100
Problem 21.3

• a. Goods Satellite
• Economic life Exactly five years
• Lease 99,000 a month for five years
• Sale or lease? Sale (security interest)
• b. Communications can terminate at 59 months.
  Sale or lease?
• Bright line test First requirement missing.
  Not SI by this test.

Economic life
Lease term
Termination right
101
Problem 21.3

• a. Goods Satellite
• Economic life Exactly five years
• Lease 99,000 a month for five years
• Sale or lease? Sale (security interest)
• b. Communications can terminate at 59 months.
  Sale or lease?
• Bright line test First requirement missing.
  Not SI by this test.
• Contextual analysis Is one month a meaningful
  reversion?

Economic life
Lease term
Termination right
102
Problem 21.3

• a. Goods Satellite
• Economic life Exactly five years
• Lease 99,000 a month for five years
• Sale or lease? Sale (security interest)
• b. Communications can terminate at 59 months.
  Sale or lease?
• Bright line test First requirement missing.
  Not SI by this test.
• Contextual analysis Is one month a meaningful
  reversion?
• c. Lease 48 months, 12 month option. Econ
  pressure to renew

Economic life
Lease term
Option
103
Problem 21.3

• a. Goods Satellite
• Economic life Exactly five years
• Lease 99,000 a month for five years
• Sale or lease? Sale (security interest)
• b. Communications can terminate at 59 months.
  Sale or lease?
• Bright line test First requirement missing.
  Not SI by this test.
• Contextual analysis Is one month a meaningful
  reversion?
• c. Lease 48 months, 12 month option. Econ
  pressure to renew
• Bright line test Not legally bound to renew.

Economic life
Lease term
Option
104
Problem 21.3

• a. Goods Satellite
• Economic life Exactly five years
• Lease 99,000 a month for five years
• Sale or lease? Sale (security interest)
• b. Communications can terminate at 59 months.
  Sale or lease?
• Bright line test First requirement missing.
  Not SI by this test.
• Contextual analysis Is one month a meaningful
  reversion?
• c. Lease 48 months, 12 month option. Econ
  pressure to renew
• Bright line test Not legally bound to renew.
• Contextual
• analysis?

Economic life
Lease term
Option
105
Problem 21.4

• Assignment Draft a contract effective as a
  lease.

106
Problem 21.4

• Assignment Draft a contract effective as a
  lease.
• Economic life 5 to 15 years

Economic life
5 15
107
Problem 21.4

• Assignment Draft a contract effective as a
  lease.
• Economic life 5 to 15 years
• Payment period 7 years. 1.2 million plus 10
  19,921.42 http//www.amortization-calc.com

Payment period 7
Economic life
5 15
108
Problem 21.4

• Assignment Draft a contract effective as a
  lease.
• Economic life 5 to 15 years
• Payment period 7 years. 1.2 million plus 10
  19,921.42 http//www.amortization-calc.com
• Lease term?

Payment period 7
Economic life
5 15
109
Problem 21.4

• Assignment Draft a contract effective as a
  lease.
• Economic life 5 to 15 years
• Payment period 7 years. 1.2 million plus 10
  19,921.42 http//www.amortization-calc.com
• Lease term?
• What Flexible Finance wants

Payment period 7
Economic life
5 15
Lease term 7
Monte option for 1
110
Problem 21.4

• Assignment Draft a contract effective as a
  lease.
• Economic life 5 to 15 years
• Payment period 7 years. 1.2 million plus 10
  19,921.42 http//www.amortization-calc.com
• Lease term?
• What Flexible Finance wants
• What might be a true lease.

Payment period 7
Economic life
5 15
Lease term 6
Monte option for 228,000
111
Problem 21.4

• Assignment Draft a contract effective as a
  lease.
• Economic life 5 to 15 years
• Payment period 7 years. 1.2 million plus 10
  19,921.42 http//www.amortization-calc.com
• Lease term?
• What Flexible Finance wants
• What might be a true lease. But Monte might
  not buy!

Payment period 7
Economic life
5 15
Lease term 6
Monte option for 228,000
112
Problem 21.4

• Assignment Draft a contract effective as a
  lease.
• Economic life 5 to 15 years
• Payment period 7 years. 1.2 million plus 10
  19,921.42 http//www.amortization-calc.com
• Lease term?
• This lease is for a term of six years. Lessee
  shall pay Lessor 19,921.42 on the first day of
  each month of the lease term. At the end of the
  lease term, Lessee shall have the option to
  purchase the press for its fair market value.

Payment period 7
Economic life
5 15
Lease term 6
Monte option for fair market
113
Problem 21.5
Commercial Money Center
Lessees
Lease
Equipment
Equipment Seller
114
Problem 21.5
Commercial Money Center
Lessees
Chattel paper
Equipment
Equipment Seller
115
Problem 21.5
Commercial Money Center
Lessees
Surety
Chattel paper
Guarantee of lessees payments
Equipment
Equipment Seller
116
Problem 21.5
Indemnity
Commercial Money Center
Lessees
Surety
Chattel paper
Guarantee of lessees payments
Equipment
Equipment Seller
117
Problem 21.5
Net.Bank
Assignment of payment rights and guarantee
Commercial Money Center
Lessees
Surety
Indemnity
Chattel paper
Guarantee of lessees payments
Equipment
Equipment Seller
118
Problem 21.5
Net.Bank
Security interest in leases
Assignment of payment rights and guarantee
Commercial Money Center
Lessees
Surety
Indemnity
Chattel paper
Guarantee of lessees payments
Equipment
Equipment Seller
119
Problem 21.5
If transaction had been effective, what would CMC
own?
Net.Bank
Security interest in leases
Assignment of payment rights and guarantee
Commercial Money Center
Lessees
Surety
Indemnity
Chattel paper
Guarantee of lessees payments
Equipment
Equipment Seller
120
Problem 21.5
If transaction had been effective, what would CMC
own? Leases, but not the rents paid on the leases.
Net.Bank
Security interest in leases
Assignment of payment rights and guarantee
Commercial Money Center
Lessees
Surety
Indemnity
Chattel paper
Guarantee of lessees payments
Equipment
Equipment Seller
121
Problem 21.5
Net.Bank
Security interest in leases
Assignment of payment rights and guarantee
Commercial Money Center
Lessees
Surety
Indemnity
Chattel paper
Guarantee of lessees payments
Equipment
Equipment Seller

• Holdings
• The assignment is of a payment intangible, not
  chattel paper

122
Problem 21.5
Net.Bank
Security interest in leases
Assignment of payment rights and guarantee
Commercial Money Center
Lessees
Surety
Indemnity
Chattel paper
Guarantee of lessees payments
Equipment
Equipment Seller

• Holdings
• The assignment is of a payment intangible, not
  chattel paper
• If the assignment had been a sale it would have
  been automatically perfected

123
Problem 21.5
How did CMC strip the payment streams?
Net.Bank
Security interest in leases
Assignment of payment rights and guarantee
Commercial Money Center
Lessees
Surety
Indemnity
Chattel paper
Guarantee of lessees payments
Equipment
Equipment Seller

• Holdings
• The assignment is of a payment intangible, not
  chattel paper
• If the assignment had been a sale it would have
  been automatically perfected

124
Problem 21.5
How did CMC strip the payment streams? By stating
in the agreement with Net.Bank that they were
stripped?
Net.Bank
Security interest in leases
Assignment of payment rights and guarantee
Commercial Money Center
Lessees
Surety
Indemnity
Chattel paper
Guarantee of lessees payments
Equipment
Equipment Seller

• Holdings
• The assignment is of a payment intangible, not
  chattel paper
• If the assignment had been a sale it would have
  been automatically perfected

125
Problem 21.5
How did CMC strip the payment streams? By stating
in the agreement with Net.Bank that they were
stripped?
Did CMC change the rights of third parties (by
changing the perfection requirement?
Net.Bank
Security interest in leases
Assignment of payment rights and guarantee
Commercial Money Center
Lessees
Surety
Indemnity
Chattel paper
Guarantee of lessees payments
Equipment
Equipment Seller

• Holdings
• The assignment is of a payment intangible, not
  chattel paper
• If the assignment had been a sale it would have
  been automatically perfected

126
Problem 21.5
We represent Fidelity, buying chattel paper from
Auto Finance.
127
Problem 21.5
We represent Fidelity, buying chattel paper from
Auto Finance. We are worried about this possible
scenario
128
Problem 21.5
We represent Fidelity, buying chattel paper from
Auto Finance. We are worried about this possible
scenario
Auto Finance creates paper
After creation of the paper, payments went to
Auto Finance
129
Problem 21.5
We represent Fidelity, buying chattel paper from
Auto Finance. We are worried about this possible
scenario
Auto Finance strips/ sells the payment stream to X
Auto Finance creates paper
March 1
After creation of the paper, payments went to
Auto Finance Auto Finance sells the payment
stream to X on March 1.
130
Problem 21.5
We represent Fidelity, buying chattel paper from
Auto Finance. We are worried about this possible
scenario
Fidelity buys and takes possession of chattel
paper
Auto Finance strips/ sells the payment stream to X
Auto Finance creates paper
March 1
March 2
After creation of the paper, payments went to
Auto Finance Auto Finance sells the payment
stream to X on March 1. Auto Finance sells the
chattel paper to Fidelity on March 2.
131
Problem 21.5
We represent Fidelity, buying chattel paper from
Auto Finance. We are worried about this possible
scenario
Fidelity buys and takes possession of chattel
paper
Auto Finance strips/ sells the payment stream to X
Auto Finance creates paper
March 1
March 2
After creation of the paper, payments went to
Auto Finance Auto Finance sells the payment
stream to X on March 1. Auto Finance sells the
chattel paper to Fidelity on March 2. How can
Fidelity protect itself?