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Consignment Analysis Model

Step 1
Is the transaction a sale + security interest (9-109(a)(1)) disguised as a consignment?
[Apply Ten Factors] 1) Consignee reserves title to the delivered goods until they are sold 2) Consigner reserves the right to demand return of the goods at will 3) Consignee has right to return goods not sold 4) Consignor exerts control over the sale price 5) Consignee is obligated to segregate the consigned goods from its own inventory 6) Consignee is obligated to hold the proceeds of sales and forward them to the consignor 7) The consignee is required to keep separate books and records pertaining to the goods 8) Consignor has the right to inspect the goods and books, records, and premises of the assignee 9) Shipping papers and other documents refer to the transaction as a consignment 10) The risk of loss remains with the consignor [Apply 9-102(20) All elements must be met] A transaction, regardless of form, in which a person delivers goods to a merchant for the purpose of sale and: A. The Merchant: i. Deals in goods of that kind under a name other than the name of the person making the delivery; ii. Is not an auctioneer; AND iii. Is not generally known by its creditors to be substantially engaged in selling the goods of others B. The aggregate value of the goods is $1,000 or more at delivery C. The goods are not consumer goods immediately before delivery; AND D. The transaction does not create a security interest that secures an obligation

IF YES:
Consignor must file a financing statement to avoid an obstensible ownership problem. *Stop Analysis*

IF NO:
Goto Step 2

Step 2
Is the transaction an Article 9 -109(a)(4) Consignment?

IF YES:
Does not mean the transaction involves a security interest, BUT notice is necessary by consignor. *Stop Analysis*

IF NO:
Goto Step 3

Step 3
The transaction is a True Consignment outside the scope of Article 9.

[N/A]

Lease vs. Security Interest Analysis Model


Step 1
As a practical matter, does the lessee have the right to terminate during the term of the lease?
[N/A]

IF YES:
It is a True Lease *Stop Analysis*

IF NO:
Goto Step 2
[Apply 1-203(b)] 1) The original term of the lease is equal to or greater than the remaining economic life of the goods; 2) The lessee is bound to renew the lease for the remaining economic life of the goods or is bound to become the owner of the goods; 3) The lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement; OR 4) The lessee has an option to become the owner of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement.

Step 2
Is any of the following four sections met?

IF YES:
Not a True Lease, creates a security interest. *Stop Analysis*

IF NO:
Goto Step 3

Step 3
Balance the following sections to subjectively to determine whether a security interest or a True Lease. Note: A reversionary or residual interest in lessor is a key fact in the balancing test.

[Balance 1-203(c)] 1) Present value of the consideration of the lessee is obligated to pay lessor for the right and possession of the goods is substantially equal or greater than the fair market value of the goods at the time the lease is created; 2) The lessee assumes risk of loss of the goods; 3) The lessee agrees to pay, with respect to the goods, taxes, insurance, filing, recording, or registrations fees, or service or maintenance costs; 4) The less has an option to renew the lease or to become the owner of the goods; 5) The lessee has an option to renew the lease for a fixed rent that is equal to or greater than the reasonably predictable fair market rent for the use of the goods for the term of renewal at the time the option is to be performed 6) The lessee has an option to become the owner of the goods for a fixed price that is equal to or greater than the reasonably predictable fair market value of the goods at the time the option is performed.

Collateral Classifications
Goods
All things that are movable when security interest attaches Value of the collateral is based upon the physical characteristics of the value itself Consumer Goods [9-102(a)(23)]
Goods that are used or bought for primarily personal, family, or household purposes.

Equipment [9-102(a)(33)]
Goods other than inventory, farm products, or consumer goods.

Farm Products [9-102(a)(34)]


Goods, other than standing timber, with respect to the debtor is engaged in a farming operation which are: (a) crops grown, growing, or to be grown; (b) livestock; (c) supplies used in farming operation; (d) products of crops or livestock in their unmanufactured state

Inventory [9-102(a)(48)]
Goods, other than farm products, which: (a) are leased by a person as lessor; (b) are held by a person for sale or lease or to be furnished under a contract of service; (c) are furnished by a person under a contract of service; or (d) consist of raw materials, work in process, or materials used or consumed in a business.

Intangibles Rights (Paper)


Whoever has the paper has the right to payment Value of collateral is not based upon the physical collateral itself, but what the paper represents.

Chattel Paper [9-102(a)(11)] Documents [9-102(a)(30) & 1-201(15) ]


Warehouse receipts and bills of lading.

Instruments [9-102(a)(47) & 3-104] Investment Property [9-102(a)(34)]


Stocks, bonds, and rights to accounts containing the same.

Letters of Credit Rights [9-102(a)(51)] Promissory Notes [9-102(a)(65)]


Subcategory of Instruments

Pure Intangibles
Collateral has no significant physical form The rights can be evidenced by a piece of paper, but note wrapped-up in the paper Possession of the paper does not give rise to the collateral it reflects.

Accounts [9-102(a)(2)] Health Care Insurance Receivables [9-102(a)(46)]


Subcategory of Accounts

Deposit Accounts [9-102(a)(29)] General Intangibles [9-102(a)(42)]


Catchall Very Broad

Payment Intangibles [9-102(a)(61)]


Subcategory of Accounts

Security Agreement Attachment Enforceability Analysis Model


Step 1
Are the basic elements of attachment enforceability met?
[9-203(b)] Enforceable against the debtor and third parties with respect to collateral only if: 1) Value has been given; 2) Debtor has rights in the collateral (or the power to transfer rights to secured party); AND 3) There must be a Security Agreement between the creditor and debtor.

IF YES:
Goto Step 2

IF NO:
No enforceability. *Stop Analysis*

Step 2
Is the debtor in possession and control of the collateral?

[9-203(b)(3)(A)] The debtor is required to have (under Article 9 Statute of Frauds): An agreement in writing (or an electronic record); That is authenticated; AND Contains a description of the collateral.

IF YES:
Analyze 9-203(b)(3)(A) *Stop Analysis*

IF NO:
Goto Step 3
[9-203(b)(3)(B)] An oral agreement between the parties is acceptable.

Step 3
Is the creditor or secured party in possession of the collateral?

IF YES:
Analyze 9-203(b)(3)(B) *Stop Analysis*

IF NO:
Goto Step 4
[9-203(b)(3)(D)] An oral agreement between the parties is acceptable.

Step 4
Is the creditor or secured party in control of the collateral but NOT in possession?

IF YES:
Analyze 9-203(b)(3)(D) *Stop Analysis*

IF NO:
No enforceability.