Where we are

1
Where we are

• Part One The Creditor-Debtor Relationship
• Part Two The Creditor Third Party Relationship
• Chapter 6 Perfection
• Assignment 16. Which filing system?
• Assignment 17. Debtors name
• Assignment 18. Other financing statement
  information
• Assignment 19. Perfection by possession,
  control, or
• automatic perfection

2
Perfection without filing Key statutes

• 9-310(a) Except as otherwise provided in
  subsection (b), a financing statement must be
  filed to perfect all security interests.
• 9-310(b) Filing not necessary to perfect
• (2) if perfected when it attaches (automatic
  perfection) (9-309)
• (3) if preempted by another filing system
  (9- 311(a))
• (6) if in secured partys possession (9-313)
• (8) if perfected by control (9-314).

3
Perfection without filing Possession

• 9-310(b) Filing not necessary to perfect
• (6) if in secured partys possession (9-313)
• Possession-gives-notice theory
• 1. Searcher will look at the collateral
• 2. Possession will be evident
• Possession The detention and control, or the
  manual or ideal custody, of property. Blacks
  Law Dictionary.
• 9-313 A secured party may perfect a security
  interest in negotiable documents, goods,
  instruments, money, or tangible chattel paper by
  taking possession of the collateral.

4
Perfection without filing Possession -
Definitions

• 1-201(15), 9-102(a)(30). Negotiable documents
  a receipt evidencing that the person in
  possession of it is entitled to receive the goods
  it covers (e.g., warehouse receipt).
• 9-102(a)(44). Account is right to payment of
  a monetary obligation.
• 9-102(a)(44). Goods means all things that are
  moveable, excluding accounts, chattel paper,
  instruments, etc. (stuff).
• 9-102(a)(47). Instrument means a writing that
  evidences a right to payment and is of a type
  that in the ordinary course of business is
  transferred by delivery with any necessary
  endorsement or assignment (pay to the order
  of).
• 1-201(24). Money is government medium of
  exchange (cash).
• 9-102(a)(11). Chattel Paper is a record that
  evidence both a monetary obligation and a
  security interest in specific goods (can include
  instruments).

5
Definitions for monetary obligations to debtor
Lisa promises to repay loan
Obligor/ Debtor
I owe Lisa 10

• Creditor

Burns lends 10
I owe Lisa (or whomever she assigns this to) 10
Collateral
Lisa grants Burns a security interest in accounts
(Homer), instruments (Barney), and chattel paper
(Marge)
I owe Lisa 10, backed by a security interest in
my necklace
6
Perfection without filing Control

• 9-310(b) Filing not necessary to perfect
• (8) if perfected by control (9-314).
• 9-314(a) A security interest in investment
  property, deposit accounts, letter-of-credit
  rights, or electronic chattel paper may be
  perfected by control under 9-104 (deposit
  account), 9-105 (electronic chattel paper),
  9-106 (investment property), 9-107 (letter of
  credit).
• 9-102(a)(29). Deposit account means an
  account maintained with a bank. The term does
  not include accounts evidenced by a Certificate
  of Deposit.

7
Perfection without filing Control (Deposit
accounts)

• 9-104. A secured party has control of a deposit
  account if
• The secured party is the bank with which the
  deposit is maintained
• The debtor, secured party, and the bank have
  agreed in an authenticated record that the bank
  will comply with instructions originated by the
  secured party
• The secured party becomes the banks customer
  (4-104(a)(5)).

8
Perfection method depends on the type of
collateral
9
Perfection without filing Automatic perfection

• 9-310(b) Filing not necessary to perfect
• (2) if perfected when it attaches (automatic
  perfection) (9-309).
• 9-309 The following security interests are
  perfected when they attach
• (1) a purchase-money security interest (PMSI)
  in consumer goods, except as provided in 9-311.
  
• 9-103 PMSI is a security interest retained
  by the seller of the collateral to secure the
  purchase price, or by a third party that advances
  the purchase price.
• 9-102(a)(23). Consumer goods means goods that
  are used or bought primarily for personal,
  family, or household purposes.

10
When do we have a PMSI?
Obligor/ Debtor
Lisa promises to repay loan

• Creditor

Burns lends 10 to Lisa
Lisa grants Burns a security interest
1. Loan funds purchase of good (PMSI)
2. Good is a consumer good (automatic perfection)
Collateral
11
Problem 19.1.

• How does a secured creditor perfect in
• The cash that comes into the cash register?
• 9-312(b)(3) Security interest in money can
  only be perfected by secured party taking
  possession.
• Can take possession of the cash in the register
  by agreement with debtor.
• Can take possession by having a written agreement
  with an agent at the cash registers under
  9-313(c).
• Must have the cash deposited with the secured
  creditor to take possession.
• None of these answers is satisfying.

12
Problem 19.1.

• How does a secured creditor perfect in
• The cash that comes into the cash register?
• A negotiable promissory note?
• Money the debtor is keeping in a bank account?
• Shares of stock in General Motors?
• Obligations of customers of used car lots to pay
  for cars (evidenced by promissory notes and
  security interests in cars)?

13
What is a negotiable promissory note?

• Instrument or negotiable document?
• 1-201(15), 9-102(a)(30). Negotiable documents
  a receipt evidencing that the person in
  possession of it is entitled to receive the goods
  it covers (e.g., warehouse receipt).
• 9-102(a)(47). Instrument means a writing
  that evidences a right to payment and is of a
  type that in the ordinary course of business is
  transferred by delivery with any necessary
  endorsement or assignment (pay to the order of).

14
Problem 19.1.

• How does a secured creditor perfect in
• A negotiable promissory note?
• 9-102(a)(47) An instrument is a negotiable
  instrument that evidence a right to receive
  payment and can be transferred.
• 9-312(a) A security interest in chattel
  paper, negotiable documents, instruments, or
  investment property may be perfected by filing.
• 9-313(a) A security interest in tangible
  negotiable documents, goods, instruments, money,
  or tangible chattel paper may be perfected by
  taking possession.
• Should perfect interest in negotiable promissory
  note by filing.
• Should perfect interest in negotiable promissory
  note by possession.
• Either method of perfection is equally useful.
• None of these answers is satisfying.

15
Problem 19.1.

• How does a secured creditor perfect in
• Money the debtor is keeping in a bank account?
• 9-102(a)(29) Deposit account means a
  savings or similar account maintained at a bank.
• 9-104 Control over a deposit account if the
  bank holding the account, debtor agrees to give
  secured creditor control, or secured creditor
  bank customer.
• 9-312(b)(1) A security interest in deposit
  account can only be perfected by control.
• 9-314(a) and (b) A security interest in
  deposit account perfected when controlled by
  secured creditor.

16
Problem 19.1.

• How does a secured creditor perfect in
• Shares of stock in General Motors?
• 8-102(a)(4) Certificated security is a
  security represented by a certificate.
• 8-106(b) Two ways purchaser gets control of a
  certificated security.
• 9-102(a)(49) Investment property means a
  security, whether certificated or not.
• 9-106(a) Control of investment property
  defined in Section 8.
• 9-312(a) A security interest in negotiable
  documents, goods, instruments, or investment
  property may be perfected by filing.
• 9-313(a) A security interest in negotiable
  documents, goods, instruments, money, or tangible
  chattel paper, or investment property may be
  perfected by taking possession.

17
Problem 19.1.

• How does a secured creditor perfect in
• Obligations of customers of used car lots to pay
  for cars (evidenced by promissory notes and
  security interests in cars)?
• 9-102(a)(11) Chattel paper means a record
  that evidences both a monetary obligation and a
  security interest.
• 9-312(a) A security interest in chattel
  paper, goods, instruments, or investment property
  may be perfected by filing.
• 9-313(a) A security interest in tangible
  chattel paper, goods, instruments, money, or
  tangible chattel paper, or investment property
  may be perfected by taking possession.
• Should perfect interest in car repayments by
  filing.
• Should perfect interest in car repayments by
  possession.
• Either method of perfection is equally useful.
• None of these answers is satisfying.

18
Problem 19.2.
Ruth and Gene Canard sold their Turkey Burger
franchise to Watson Family Restaurants, Inc. In
Contract for Payment Watson promised to pay
500,000 in yearly installments at stated
interest rate. Casa Grande is about to lend
300,000 to the Canards secured by the obligation
from the Watsons.
Watson Family Rest.
Casa Granda
Canards
500K contract
300K loan
Franchise
19
Problem 19.2.

• a. How should Casa Granda perfect its interest?
• Casa Granda should perfect by possession, since
  this is an instrument.
• Casa Granda should perfect by filings, since this
  is an account.
• Casa Granda should perfect by filing and
  possession.

Watson Family Rest.
Casa Granda
Canards
500K contract
300K loan
Franchise
20
Problem 19.2.

• b. If the Canards had a security interest in
  the franchise
• Casa Granda should perfect by possession, since
  this is an instrument.
• Casa Granda should perfect by filings since this
  is an account.
• This is chattel paper, so Casa Granda should
  perfect by filing and possession (preferred).

Watson Family Rest.
Casa Granda
Security Interest
Canards
500K contract
300K loan
Franchise
21
Problem 19.3.
Garp has a first security interest in
instrument for 60,000. How can Casa
Granda get second interest perfected? 9-312(a)
Instruments may be perfected by filing. 9-313,
Comments 3 4 Provides for perfection by
possession when collateral possessed by third
party that is not an agent. 9-330(d) For
instruments only perfection by possession
protects.
Watson Family Rest.
Casa Granda
60K to Garp
Canards
500K instrument
300K loan
Franchise
22
Problem 19.4.

• Chuck Kettering, a former millionaire, has
  fallen on hard times.
• Wants to borrow from Little Silverado Savings
  and Loan (LSSL).
• Donald Paul, LSSLs president, wants to make
  loan against Ketterings collateral What can
  go wrong?

23
Problem 19.4. - Statutes

• 9-104 Three ways in which a secured party can
  control of a deposit account.
• 9-309 The following security interests are
  perfected when they attach (1) a purchase-money
  security interest (PMSI) in consumer goods.
• 9-311(b) Compliance with requirements of
  another statute for obtaining priority is
  equivalent to filing a financing statement.
• 9-313 A secured party may perfect a security
  interest in negotiable documents, goods,
  instruments, money, or tangible chattel paper by
  taking possession of the collateral.

24
Problem 19.4.

• How could the collateral still be encumbered?
• 20,000 mobile home on his estate?
• 1.5 million book collection at the Library of
  Congress?

25
Problem 19.4.B.

• Savings is lending to Kettering against this
  collateral. No UCC financing statements are on
  file. How could the collateral still be
  encumbered?
• 1.5 million book collection at the Library of
  Congress? (If Library held possession for
  someone with security interest, would they have
  to tell a searcher?)
• 9-210 Requests by debtor for information
  from secured party.
• 9-625(f) and (g) Damages for failure of a
  secured party to comply with 9-210.

26
Must the Library of Congress tell if it is
holding on behalf of a secured creditor
9-210(b). A secured party shall comply with a
request within 14 days after receipt (2) by
authenticating and sending to the debtor an
approval or correction. Comment 3 The debtor
may submit a request in connection with
negotiations with subsequent creditors and
purchaser 9-313(a)(2). A person that holds for
the secured partys benefit not required to
acknowledge that it holds for another person.
27
Problem 19.4.C.

• Savings is lending to Kettering against this
  collateral. No UCC financing statements are on
  file. How could the collateral still be
  encumbered?
• A Mercedes-Benz. (Certificate of title shows no
  liens).

28
Problem 19.4.

• How could the collateral still be encumbered?
• 20,000 mobile home on his estate?
• 1.5 million book collection at the Library of
  Congress?
• A Mercedes-Benz. (Certificate of title shows no
  liens).
• A solid gold ingot and 20 unset diamonds.

29
Problem 19.4.E.

• LSSL is lending to Kettering against this
  collateral. How could the collateral still be
  encumbered?
• Computer equipment worth 40,000 at retail and
  used in Ketterings office to review stock
  quotations.

30
Problem 19.4.F.

• LSSL is lending to Kettering against this
  collateral. How could the collateral still be
  encumbered?
• A checking account at Bank West in Ketterings
  name. (Bank statement shows no interest in favor
  of Bank of the West or anyone else.)

31
Problem 19.5.
Janet Dankin is suing her financial adviser,
Adam Hershey. Adam has offered Janet 800,000 to
settle, but she thinks she can win more (she lost
2 million). Janet wants to borrow 100,000 from
Will with lawsuit as collateral.
Will
100K loan
Security interest
Adam
Janet
Lawsuit
9-109(d)(12) Non-commercial tort claims not
covered by Article 9. 9-102(a)(2),(13),(42)
Definitions of account, commercial tort
claim, and general intangibles. Note that
general intangibles excludes commercial tort
claims.
32
Problem 19.5.
Is this a commercial tort claim?

• 9-102(a)(13). Commercial tort claim means a
  claim arising in tort with respect to which
• The claimant is an organization or
• The claimant is an individual and the claim
• (i) arose in the course of the claimants
  business or profession and
• (ii) does not include damages arising out of
  personal injury to or the death of an individual.
• Claimant One who asserts a right or title
  (Janet).

33
Problem 19.5.

• What should Will Dankin do to perfect his
  interest in Janets lawsuit?
• This claim is probably a general intangible, and
  so a financing statement should suffice.
• This claim is probably a commercial tort claim,
  and so a financing statement should suffice.
• This claim is probably a non-commercial tort
  claim, and Article 9 will not apply (following
  Bluxome Street - 9-109(d)(12)).
• None of these answers is satisfying.

34
Problem 19.5.
Is this a general intangible?
9-102(a)(42). General intangible means any
personal property, other than accounts, chattel
paper, commercial tort claims, deposit accounts,
documents, goods, investment property,
9-102(a)(2). Account means a right to
payment of a monetary obligation, whether earned
or not, (i) for property, (ii) for services
rendered,
35
Problem 19.6.
Sally took possession of Joes Rolex watch as
security for a loan, but there was no security
agreement. Can she have a valid claim?
9-203(b)(3)(B) Possession of collateral in
under Sec. 9-313 can substitute for an
authenticated security agreement. 9-310(b)(6)
Possession in lieu of filing okay for goods Sec.
9-313.