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ATTACHMENT ..............................................................................................................................

A. INTRO AND UNSECURED CREDITORS ............................................................................................... 2
B. CREATING THE SECURITY INTEREST ................................................................................................ 3
1. Scope............................................................................................................................................ 3
2. Further Scope- Legal Limits on Collateral ................................................................................. 3
3. What is “Attachment” ................................................................................................................. 5
C. CLASSIFYING COLLATERAL ............................................................................................................. 7
D. PROCEEDS ...................................................................................................................................... 11

CREDITOR’S REMEDIES IN BANKRUPTCY ............................................................................ 12

A. BANKRUPTCY AND THE AUTOMATIC STAY ................................................................................... 12
B. TREATMENT OF SECURED CREDITORS IN BANKRUPTCY ............................................................... 14

PERFECTION ............................................................................................................................... 15
A. HOW TO BECOME PERFECTED........................................................................................................ 15
1. What to File/Possess/Etc. .......................................................................................................... 16
2. Where to File/Possess/Etc. ........................................................................................................ 16
B. THE DEBTOR’S NAME .................................................................................................................... 17
C. EFFECTIVENESS AND FILING REQUIREMENTS................................................................................ 19
D. EXCEPTIONS TO THE FILING REQUIREMENT .................................................................................. 21
E. MAINTAINING PERFECTION ........................................................................................................... 22
1. Changes in Time and Collateral ................................................................................................ 22
1. Changes of the D’s Name, Identity, or Location ....................................................................... 24
F. MAINTAINING PERFECTION IN A CERTIFICATE OF TITLE SYSTEM................................................. 25

PRIORITY ..................................................................................................................................... 25
A. LIEN CREDITORS VS. SECURED CREDITORS ................................................................................... 25
B. SECURED CREDITOR VS. SECURED CREDITOR ............................................................................... 26
C. BUYERS VS. SECURED CREDITORS................................................................................................. 27

DEFAULT ...................................................................................................................................... 28
A. DEFAULT, ACCELERATION, AND CURE UNDER STATE LAW ......................................................... 28
B. DEFAULT, REPOSSESSION, REDEMPTION, AND FORECLOSURE ...................................................... 29
A. Intro and Unsecured Creditors
SP’s have the right to force sale of the debtor's property after default and have the sale proceeds applied to
the obligation. Debtors remain liable for deficiencies
 Unsecured creditors can become secured by obtaining a judgment on the debt, getting a writ of
execution, and levying on the specific property. (this is a "lien creditor")

A. Who is an Unsecured Creditor?

Someone owed a legal obligation reducible to money is unsecured unless a they contract with the debtor
for secured status or is granted secured status by statute.

A. How do Unsecured Creditors Compel Payment?

Unsecured creditors cannot execute self help seizure
Must use judicial process of that state.
 Steps: 1) file complaint and serve process and follow civ pro, 2) after judgment try to collect

Vitale v. Hotel California- (how unsecured creditors get their money)

P tries to hold the county sheriff responsible for the fine when he failed to execute the writ
Successive levies can be made.
Overview of execution of judgments:
 A plaintiff who obtains a judgment against a defendant may cause the personal property of the
defendant/judgment debtor to be seized and sold and the proceeds applied to the judgment and
costs by way of execution.
Reasonableness of Requested Levies-
 there is no limit to the number of executions that can be issued w/in 20 years of a judgment until
satisfied so there isn't a limit to the number of times a sheriff might have to levy.
 Levy under writ of execution can be at any time.
 Sheriff objects to "threat of violence
o So when is physical force ok to collect a levy? General rule is that:" [an] officer may
force an entry into any enclosure except the dwelling house of the judgment debtor in
order to levy a fieri facias on the debtor's goods and even in the case of the debtor's home,
when the officer is once inside, he may break open inner doors or trunks to come at the
Amercement- court concludes that the P was denied his writ benefit by the sheriff and so the sheriff has to
pay the P.

Ellerbee v. County of Los Angeles-

Facts- Ellerbee had judgment against Todd Shaw for the death of her son. She sues Los Angeles for
amercement when the sheriff failed to enforce the writ.
There was no mandatory statutory duty violated so the trial court erred when it denied the County's
motion for judgment.
 For amercement, the law at issue must be obligatory, rather than discretionary
o If the function itself requires discretion, the officer's obligation to perform won't be
enough. Whether a statue is supposed to create a mandatory duty rather than obligation to
perform discretionary function is a question of law

C. Limitations on Compelling Payment

Creditor has to everything they can to ID the property to be seized and instruct the sheriff on where to go
and what to seize
 If property seized ends up belonging to a 3rd party, the creditor can be liable for damages and
liable for conversion

D. Voidable Transfers
Transfers with intent to hinder delay, or defraud the creditor are voidable. Single element- "bad intent"- so
can reach any transfer.
Transfers made without receiving reasonable equivalent value are voidable if the debtor was insolvent at
the time of transfer.

B. Creating the Security Interest

1. Scope- Art. 9 applies to transactions, regardless of its form, that creates a security
interest in personal property or fixtures by contract. (9-109(a)(1)).
 “Security Interest” means an interest in personal property or fixtures which secures
payment or performance of an obligation. (1-201(b)(35)).
o A binding relationship created between the debt and debtor’s property
 UCC doesn't apply to leases of personal property. But, that doesn’t mean you can call
something a lease and get out from under the UCC.
o §2A-103(1)(J) defines a lease- “Means a transfer of rights to possession and use
of goods for a term in return for consideration, but a sale [including retention or
creation of a security interest] is not a lease.
o If a transaction creates a SI disguised as a lease, the transaction will be governed
by Art. 9 and the lessor will be required to file a FS/etc. to perfect its interest.
Comment to §2A-103(1)(J).
o How to make determination:
 §1R-203(a)- whether a lease or a SI is created if fact “is determined by the
facts of each case.” This contains no reference to the parties’ intent to
create a lease or not.
 Whether 1) it is terminal by lessee and 2)if there is economic
use at end of the lease.
 What is in focus is the economics of the transaction: a true lease
will have the lessor’s intention retained from the outset “an
economically meaningful reversionary interest” in the property.
 This means the parties take into account the fact the goods will
be returned to the lessor and that the goods as returned can
reasonably be anticipated to have some economic value left to
them at that time.
o The lessor truly, and not just on paper, retains what we see
as their ownership interest in the goods, and has the
ultimate stake in their value at the end of the lease.
2. Further Scope- Legal Limits on Collateral
Collateral must be “personal property or fixtures.”
 This is because UCC 1-201(b)(35) defines a security interest as “an interest in personal
property or fixtures”
State law defines fixtures in a way that only property can be fixtures. The effect being items
must be property or cannot qualify as collateral.

Excluded from UCC:

1. Other laws 9-109(c)(1)- a federal statute can preempt the UCC.
a. 9-109(c)(2)- state laws that expressly governs the creation, perfection, priority,
or enforcement of a security interest
2. Certain types of collateral- 9-109(d)- insurance isn't covered by Art. 9
a. Since insurance can't be collateral, they contract around it- require debtor to take
insurance and name secured party as benefactor.
b. (except maybe assignment by or to a health-care provider of a health-care-
insurance receivable)
3. Real property doesn't fall under UCC 9 (9-109(d)(11)
4. Tort claims, except commercial tort claims where described sufficiently and not
5. An assignment of a deposit accounts in a consumer transaction. Must have consumer
transaction on both sides.

Two big things that can’t be collateral in after acquired property:

 consumer goods acquired after 10 days or more after lender makes loan and
 commercial tort claims. See §9-204(b)- must describe

Other Property that Can't be collateral

Property of Personal Nature-

Future Income of Individuals- Article 9 doesn't apply to an assignment of wages
Pension Rights- usually not assignable as collateral.
Future Property as Collateral
 A business can encumber future earnings, but an individual usually can't. Debtor can
grant SI in property he doesn't own yet, SI attaches when acquired.
Valuable Nonproperty as Collateral (Like Licenses)
You can encumber items of value that aren't property by creating "privileges" or "mere
expectancies" or some other term that implies they are not property.
UCC 9-408 governs the use of Nonproperty valuables as collateral:
a. Contractual anti-assignment clauses which term restricts or requires the consent of
the transferor are not effective. This rule applies if the clause would either impair the
creation of a SI or cause a default if D transferred the collateral.
a. So if Chik-fil-a says the franchisee can't assign a security interest in the granted
franchise, that clause isn’t legally binding
b. n/a
c. Pretty much the same as A, except as for state laws.
a. If a bar has a liquor license and the state says they can't grant a SI in license, 9-
408(c) disallows that. Basically invalidates anti- assignment laws or regulations
so that creditors can take this kind of collateral.
d. 9-408(d)-(4) the secured party cannot be the one that assigns the rights. I.e. the
secured party can't start operating the bar. SP can't use or assign the general intangible.
a. (6)- SP can't enforce the SI. Means they can't repossess, sell, liquidate the SI.
a. This rule doesn't seem to make sense but its here so the SP can sit around
and wait for the sale and collect the money, i.e. proceeds.

In re Tracy Broadcasting Case- FCC license; bankruptcy court said the holder of the FCC license
said the SP could take a SI but not enforce it, just wait for proceeds.

3. What is “Attachment”- If a security interest has been created and become enforceable
as between two parties, the debtor and Secured Party, with respect to a particular piece of
property, then we say that it has “attached” to that property. (9-203(a)).

What is a “Security Agreement?”- an agreement that creates or provides for a security interest.
 More, an “Agreement” is a bargain of the parties “in fact” 1-201(3)
 So an Art. 9 Security Agreement isn’t a physical thing- it’s a state of being for the two
parties involved- the condition of their having come to agreement as to the creation of a
particular type of interest in some specific piece or pieces of property.

When does attachment actually occur?

The moment of attachment is governed by 9-203(a):
“A security interest attaches to collateral when it becomes enforceable against the debtor with
respect to the collateral [i.e. when the 3 requirements of subsection (b)(1), (2), and (3) are met]
unless an agreement expressly postpones the time of attachment.”

UCC§9-203(b) has 3 formalities for creation of security interest:

1. Either
1. The collateral (not certificated security) must be in possession of secured creditor
2. The debtor must have "authenticated a security agreement which contains a
description of the collateral” OR
3. the collateral is a certificated security in registered form and the security
certificate has been delivered to the secured party under 8-301 pursuant to the
D’s SA, OR
4. the collateral is deposit accounts, electronic chattel paper, investment property, or
letter-of-credit rights, and the secured party has control under 9-104, 9-105, 9-
106, or 9-107 pursuant to the debtor's security agreement.
1. Be the bank where deposit maintained
2. Agreement in authenticated record that the bank will comply with requests
of SP without further agreement of the D
3. SP becomes the bank’s customer in regards to the account.
2. Value must be given, AND,
3. The debtor must have rights in the collateral.
Only when all 3 requirements are met does the SI attach and the collateral becomes enforceable
against the debtor.

1. Authenticated Records for Purposes of a SA

Besides possession, the only other way to get a valid SA is with an “Authenticated” SA
containing a description of the collateral.
 UCC §§9-102(a)(7)- "Authenticate" means:
o (A) to sign; or
o (B) with present intent to adopt or accept a record, to attach to or logically
associate with the record an electronic sound, symbol, or process.
 So you can authenticate a SA either by signing it or by intending to adopt a record.

So what is a Record for purposes of a SA?

UCC §§9-102(a)(70)- "Record", except as used in "for record", "of record", "record or legal
title", and "record owner", means information that is inscribed on a tangible medium or which is
stored in an electronic or other medium and is retrievable in perceivable form.

Comment 9 to 9-102 espouses the new view on Authentication and Recordings:

 “A record includes information that is in intangible form (e.g., electronically stored) as
well as tangible form (e.g., written on paper).
“A record need not be permanent or indestructible, but the term does not include any oral or
other communication that is not stored or preserved by any means. The information must be
stored on paper or in some other medium. Information that has not been retained other than
through human memory does not qualify as a record.”

In re Schwalb
Facts- Schwalb pawned her car, she signed as seller, buyer's name was left blank. Pawn kept title
of car, but Schwalb drove off in the car with money.
Did she authenticate a SA?
Held- Yes, a SI was created.
Basically the question comes down to whether the phrasing on the pawn ticket "you are giving"
(referring to the SI) actually "created or provided" for a SI.
 The traditional and safest language to use is: "I hereby grant a security interest in X to
secure repayment of my debt to you" or "I assign this property to you to secure what I
owe you."
Court says the distinction in the language is a quibble. Signing the pawn ticket indicated her
acknowledgment and adoption of the SI.
 Insistence on formal words of grant or transfer is inconsistent with structure and
intent of Art. 9. "No magic words are necessary to create a security interest." The SI
need not contain the words "security interest" Parties intent should be given priority over

Where elements of a SI are spread across 2 or more documents

In re Giaimo-
You don't need just one document showing intent to create SI- courts usually review all the
documents between the parties to determine whether a sufficient written foundation has been
established to create a SI (Silver Creek)
 This is the composite documents approach- where all docs are taken together to see
whether the writings adequately describe the collateral, has signature of debtor and actually
establishes that a security agreement was agreed upon.
In re Wyatt- different application of composite doc rule-
Principally difference is what docs the court will consider. Some use "all the docs executed
between debtor and a creditor" and most courts limit docs considered to docs created as a
part of the original loan transaction. A few courts have considered docs created after initial
loan transaction. Some require internal connection with one another/reference each other.

2. Value Has Been Given

SI is not enforceable till value has been given. The debtor's obligation to repay constitutes value
 Value includes and goes beyond anything that would count as consideration for contracts
 UCC§1-204 provides that a person gives value for a SI if he acquires them… (2) as
security for…a pre-existing claim.
o If a debtor grants SI to secure an outstanding debt and the creditor gives nothing new
in return, the creditor has still given value.

3. The Debtor Has Rights in the Collateral

You can't give out a SI in someone else's property.
1. If the debtor has a limited interest in the secured property, the SI attaches that part.
2. Some "owners" who acquired their rights in property by fraud have the power to transfer
to bona fide purchasers ownership rights they themselves do not have. (UCC §2-403).
3. When someone transfers a SI to a party for collateral they do not yet have, the SI
becomes enforceable the instant they acquire rights to the property.

C. Classifying Collateral

9-102(a)- tells us how to describe collateral. Collateral can only fit into ONE classification
9-102(a) (12) defines "Collateral" to mean the property subject to a security interest
NOTE: classify collateral based on its use at the time the SI attaches.
 Generally accepted rule is the debtor’s use at the time of attachment of SI, defines the
nature of the goods for the purposes of ascertaining the proper place for perfecting
the SI. (In re Rex Group).

Sufficiency of Description: Article 9 Security Agreements

Use of 9-108(e)(2)'s description by type is sufficient description of collateral.
9-108(a)- a description is sufficient, whether or not is is specific, if it reasonably identifies
what is described.
The description need be no more specific than "merchandise" or "goods" "purchased on the
account" is the majority view.
 Description is good whether or not it is specific if it reasonably ID’s what is described.
 The test of sufficiency of a description…is that the description do the job assigned to
it: make possible the ID of the collateral described.

A description of collateral under the UCC is sufficient if it reasonably identifies what is

described. UCC 9-108(a)
 UCC 9-108(b)(3) using the UCC definition of the collateral sufficiently describes the
 Exception UCC 9-108(e)(1&2): UCC definitions to describe collateral would be
o For a commercial tort claim, or
o In a consumer transaction- to describe consumer goods, security entitlement,
a securities account, or commodity account.

Goods- things that are moveable (i.e. physical/tangible and not real property) at the time the SI
attaches. If something is a good, it must be ONE AND ONLY ONE of the four sub-categories
(Comment 4a to (a)(44)- classes of goods are mutually exclusive)
 Consumer Goods-
o Goods used or bought primarily for personal, family, or household purposes.
o In borderline cases where something is used for both business and personal
manners, look at the principle use of the product as controlling.
 Usually this results in case by case analysis (Davenport v. Bates- guy’s
corvette was found to be equipment b/c his primary use of the car was to
go check on his landscaping business sites).
 Farm Products-9-108(a)(34)
o Includes growing crops and crops once harvested.
 Also includes crops produced on trees, vines, and bushes.
o Includes supplies used [up] or produced in farming operation. (a)(34)(c)
 Ex. seeds, tractor fuel, pesticides, etc.
o Includes products of livestock in unmanufactured state.
 But once transformed into a more sophisticated product, likely becomes
inventory or something else.
o Only includes crops to the extent that they are “with respect to which the D is
engaged in farming operations.”
 Prevents a reseller from having a farmer’s carrots being classified as farm
products. In that case they would be inventory.
 Inventory-
o Things held for sale or lease
o Includes raw material, work in progress, or material used or consumed in the
business. (9-108(a)(48)(D)
 Comment A4- in general goods used in a business are equipment if they
are fixed assets or have a relatively long period of use.
 But, goods are inventory even though not held for sale or lease,
if they are used up or consumed in a short period of time in
producing product/service..
 Equipment-
o The residual category. If not one of the other 3 goods, it’s equipment.
 This can lead to unusual things being classified as equipment (ex. Morgan
County Feeders v. McCormick- 46 longhorn cattle were “equipment” b/c
they were used on “recreational cattle drives”)

The “Intangibles”-
 Account-9-102(a)(2)
o A right to payment of monetary obligation, whether or not earned by performance
for property that you sold/leased/etc. or of services rendered.
o Accounts doesn’t extend to rights to payment evidenced by chattel paper or
instruments or deposit accounts or investment property.
 General Intangible- 9-102(a)(42)
o Found by process of elimination.
o Basically any personal property that isn’t another intangible category
 Includes “things in action” like the right to do something by contract, etc.

Document- 9-102(a)(30)
 Not just a regular piece of paper but is a special type issued by a class of business
entities, those that store good as a commercial enterprise.
 Documents can be negotiable or nonnegotiable, unlike instruments.
 Also can include IP things

 Includes “negotiable instruments” like checks
 Includes any other writing that
1) Evidences a right to payment of a monetary obligation
2) Is not itself a SA OR LEASE, and
3) Is a type in ordinary course of business transferred by delivery with any
necessary indorsement or assignment.
 NOTE: difference in accounts and instruments is that accounts specifically excludes right
to payments evidenced by chattel papers or an instrument.
o The language of negotiability (“to the order of”), not merely an I.O.U., separates
an account from an instrument.
Chattel Paper-9-102(a)(11)
 A record (not necessarily a writing) that evidences both
1. a monetary obligation (from promissory note?)
a. (ex. a customer’s monetary obligation to make payments on
something, and
2. a SI OR LEASE in specific goods
a. (note that instruments cannot evidence a SI)
 Both the monetary obligation and SI evidenced in the same record/records makes
for a chattel paper
o Note: can be a set of papers that are normally physically held together.
 NOTE: a lease of goods can satisfy the second prong.
o Ex. written lease agreement for rental cars- has a monetary obligation and a lease,
therefore is a chattel paper.

Investment Property- 9-102(a)(49)

 Means a security, certificated or not, securities entitlement, securities account,
commodity contract, or commodity account.
o These are restricted to things we might refer to as “corporate securities,” not just
anything you might invest in like paintings/gems/rare books.

Deposit Account- 9-102(a)(29)

 A demand, time, savings, passbook, or similar account maintained with a bank.
 Doesn't include investment property or accounts evidenced by an instrument.
o Ex. – when a certificate of deposit is issued, if issued without an actual writing
but just on the books, counts as a deposit account. If given with actual certificate,
it is an instrument.

Credit Card Payments- change categories depending on who issues the card, because the issuer is
the person who has the right to repayment.
 From credit card companies- it’s an account because Visa has a right to repayment
 From the store itself- it’s a general intangible/payment intangible
o Payment intangible is a general intangible but the right that is intangible is a right
to payment.

9-204- allows for after acquired property and future advances

After Acquired Property- "now owned or whenever acquired" would cover equipment or
inventory and an AAP clause. No magic language, but that would cover it.
 With equipment, there must be an explicit AAP clause or it isn’t covered by the
agreement. (Stoumbos v. Kilimnik)
 With INVENTORY OR ACCOUNTS, you don't need an AAP clause b/c it is
assumed the high turnover rate, the collateral is sold quickly. "Roll-Over
Collateral" There is an implied AAP clause in inventory. This isn't true everywhere but
it is the majority rule. (Stoumbos)
9-204(b)- says you can’t give an AAP clause in two things:
1. Consumer goods, unless the debtor acquires rights in them within 10 days after the
secured party gives value, and
2. Commercial tort claims

Future Advance Clause- when there is a future advance, creditor gives value at the moment the
security interest is attached.
1. Phrasing: “To secure payment of all Ds obligations to Lender, now existing and
whenever arising, the D hereby grants a SI in the all the D's equipment, now owned or
whenever acquired”
Common law required future advance clause to have a relation to the underlying loan
 However, Article 9 rejects the relationship requirement.

D. Proceeds

“Proceeds” are defined by UCC 9-102(a)(64), and “means the following property:
(A) whatever is acquired upon the sale, lease, license, exchange, or other
disposition of collateral;
1. Note: the term “collateral” as defined by UCC 9-102(a)(12) itself includes
“proceeds to which a SI attaches”
If identifiable, proceeds are themselves disposed of in exchange for something else, that
something else is itself proceeds of the original collateral.
 Basically, proceeds of proceeds are proceeds.
 BUT, inventory usually isn’t covered as proceeds binding on 3rd parties
o Besides inventory, proceeds are usually binding on 3rd parties.

9-203(f)- When a SI in collateral attaches, it gives the SP the rights to proceeds provided by 9-
315 and is also attachment of a security interest in a supporting obligation for the collateral.
 So there is a SI in proceeds to the extent 9-315 makes one.
 But proceeds are implied as a matter of law in the description of collateral. So
if the SI provides for "equipment," the proceeds of the equipment is implied in the
description of collateral. Most creditors put proceeds in the description anyway
just to be safe.
 Takeaway: proceeds are auto attached.

9-315(a)- Except as otherwise provided…a SI attaches to any identifiable proceeds of

 9-315(a)(1)- the SI travels along with the collateral.
 BUT- 9-315(a)(2)- says that the proceeds must be identifiable. Identifiable means you
can draw the connection between the sold collateral and proceeds.
 Burden is on secured party to trace the collateral for whatever was exchanged for
it. This can be hard to do (think oriental rug case).
 NOTE: if the transfer is authorized by the secured creditor, then the SI doesn't transfer
with the collateral.

What if it’s hard to identify the proceeds?

UCC 9-315(b) tells when comingled proceeds are still identifiable if:
(1) if the proceeds are goods, to the extent provided by Section 9-336; and
(2) if the proceeds are not goods, to the extent that the secured party identifies the
proceeds by a method of tracing, including application of equitable principles, that is
permitted under law other than this article with respect to commingled property of the
type involved.

Lowest Intermediate Balance Rule- the amount of the secured creditor's collateral remaining in
a bank account after the deposit of proceeds and subsequent transactions is the lowest balance of
all funds in the account from the time of deposit to the completion of transactions.
 i.e. the debtor is presumed to have spent his money first in an account.
 In re Oriental Rug Warehouse Club

Creditor’s Remedies in Bankruptcy

Art. 9 covers personal property, sale of accounts, etc. but bankruptcy provides a way for debtors
to get out of their debt under federal law.
 Bankruptcy is a code and it uses some of the same terminology and some different and
has its own logic.
 Titles and Chapters- Title 11 is all Bankruptcy code and his chapters inside
o Chapter 1- definitions and scope- lien has different meaning in bankruptcy v.
o Chapter 3- administration-
 how do you file- 362(a)-
 establishes auto stay, 362(d)-
 grounds for getting stay lifted, 362(g)-
 puts burden of proof on party trying to get lift to show equity but
gives other party burden on everything else, 362(k)-
 penalty for violating the stay.
o Chapter 5: 541 the moment D files bankruptcy, a bankruptcy estate is created.
This is a legal fiction; creditors are prevented from collecting by auto stay under
o Chapters 7- liquidation- the trustee who is appointed to rep the interest of
unsecured creditors sells everything and divides it among the creditors.
o Chapter 11- reorganization- rather than require D to liquidate the assets, maybe
the D can take a breath and a trustee can make a plan to pay off debts over time
o Chapter 13- for individuals only, more limited reorganization- like chapter 11
but limited to people with a small amount of debt. Don't need to know anything
really about ch13 for this class

A. Bankruptcy and the Automatic Stay

Automatic Stay
In theory the stay locks up the estate so an accurate accounting can be had and even distribution
 Language in Bankruptcy Code fixing scope of auto stay is broad: §362(a)- a stay is
"applicable to all entities" against "any act" to collect a prepetition debt.
 Only actions to collect prefilling obligations are halted, criminal proceedings go forward
 Stay is in effect until conclusion of bankruptcy case

Lifting the Stay for Secured Creditors

Secured party can get stay lifted in certain circumstances:
 Must lift if the trustee or debtor doesn't provide adequate protection, OR
 If there is
o no equity or collateral that debtor/trustee might realize for unsecured
creditors and
o the collateral is not necessary to an effective reorganization.
 these are called bankruptcy purposes. To be entitled to retain the
collateral, the D must show at a minimum that its retention of the
collateral serves a bankruptcy purpose. Without that justification, the stay
can be lifted.
 D must also protect secured creditor against loss as a result of the delay in foreclosure
that is caused by the stay. D must furnish adequate protection, which is defined by
§361- generally speaking, SP is adequately protected when provisions the court considers
adequate have been made.
 Excess of collateral value over the loan amount is called cushion of equity.
o A Cushion of Equity of sufficient size may alone adequate protect a SP against
loss. How large the cushion must be to protect depends on key circumstances:
 Nature of factors that might change the value of collateral
 Volatility of the market in which the creditor might have to sell it
 Rate at which the secured debt is likely to increase in amount.

Creditors are entitled to protection against decline in value of their collateral that happens during
the stay, but not against other losses resulting from imposition of stay.

In re Craddock-Terry Shoe Corp-. D went into bankruptcy. Question over value of mailing list.
Somewhere $5mil- $330k. Creditors are trying to lift stay.
Is mailing list necessary for an effective reorganization (§262(D)(2))?
 D has no equity based on both sides' estimations. So first part of D2 is met.
 Both parties agree that the collateral would be essential to a reorganization, but creditors
say no effective reorganization is possible.
o Court quotes that a court "should not precipitously sound the death knell for a
debtor by prematurely determining that the debtor's prospects for economic
revival are poor."
 So reorganization here is still a prospect, and the collateral is necessary for
that reorganization. Stay not lifted pursuant to 262D2

SP can get relief if D cannot provide protection and stay will be lifted
 Bankruptcy code give no specific guidance on valuing collateral for adequate protection
o 506(a) says value of interest for creditor shall be "determined in light of the
purpose of the valuation and of the proposed disposition or use of such property
and in conjunction with any hearing on such disputation or use or on a plan
affecting such creditor's interest."
o Legislative history gives valuation methods that should not be rigid: "value
doesn't contemplate forced sale or liquidation value…nor full going concern
value…case by case basis, taking into account facts of each case and competing
interests in the case."
 Here the purpose of the valuation is adequate protection- to insure creditor
receives in value essentially what he bargained for." So adequate
protection means creditor gets same measure of protection in
bankruptcy that he would have gotten outside bankruptcy, though the
type of protection might be different.
 Basically, the value should be the same as if the SC foreclosed

B. Treatment of Secured Creditors in Bankruptcy

Bankruptcy can change the amount of money collectors are entitled to collect

Debts can be discharged in bankruptcy. The discharge enjoins the creditor from attempting to
collect. When this happens it is called nonrecourse.
 SP can still foreclose on nonrecourse collateral if the debt is not paid. Excess of the sale
will be distributed to junior lien holders or the owner.

The Claims Process

 Determine amount of creditor's claims under §502- i.e. amount credits owed under non-
bankruptcy laws as of the date of bankruptcy
 When bankruptcy filed, auto stay prevents creditors from taking those previous steps. But
it is also easier for creditor to make their claim:

Calculating Claim Amounts

Unsecured Claims- 502(b)- says the amount of an unsecured claim in a bankruptcy case is the
amount owing under non-bankruptcy law as of the date of the filing of the petition
 Unsecured claims don't grow with the accrual of interest in bankruptcy cases. This is
because unsecured creditor's claims may not include 'unmatured interest." 502(b)(2).
 Unsecured creditors also can't include post-petition attorney's fees in the amount of their
claims, but lower courts are now split on the issue because of dicta in Travelers Cas. &
Surety v. Pacific Gas

Secured Claims- first calculate the amount owing the same as unsecured, via 502.
 Next, bifurcate the claim as required under 506(a)(1)- the claim of a SC can be a secured
claim only to the extent of the value of the collateral. The leftover portion of the claim is
 If value of collateral is less than SC claim, the effect is a dividing of the SC claim into
two: one will be secured in amount equal to value of collateral and other unsecured claim
for deficiency.
 506(b) entitles holder of secured claim to accrue post-filing interest, attorney's fees, and
costs on its claim when three conditions are met:
o Attorney's fees and costs must be reasonable
o Payment of attorney's fees and cost by D must be provided for under the
agreement or state statute under which the claim arose
o Interest, attorney's fees, and costs can be accrued only to the extent that the value
of the collateral exceeds the amount of the claim secured by it.
Bankruptcy Sales
Sale Process- trustee sells property in whatever manner will maximize profits, under supervision
of court.
Trust usually sells only the D's equity in the property subject to the SI.
Trustee can abandon property of estate that is burdensome or of inconsequential value to the
estate. Ownership returns to the D.


A. How to Become Perfected

Perfection is basically a putting the world on notice.

 Perfection is the mechanism through which the SP asserts its rights in the collateral,
should push come to shove, against 3rd parties who might make some claim of their
own against the D’s property.

There are lots of parties, including the bankruptcy trustee, who take priority over a non-perfected
security interest. (UCC 9-317).

The steps that must be taken to perfect differ with the type of lien, but nearly all include acts in
one of the 4 categories (9-308(a)):
 Filing notice in a public records system established for that purpose
 Taking possession of the collateral
 Taking control of the collateral by means of the stake holder’s agreement to hold for the
 Posting notice on the property or where it will be seen by persons dealing with the

A SI cannot be perfected unless it has attached. Also, a SI cannot be perfected until it has
attached. This stems from 9-308(a):

Except as otherwise provided in this section and Section 9-309, a security interest
is perfected if it has attached and all of the applicable requirements for
perfection in Sections 9-310 through 9-316 have been satisfied. A security interest
is perfected when it attaches if the applicable requirements are satisfied before
the security interest attaches.
1. What to File/Possess/Etc.

How to become Perfected? Perfection is attachment plus all necessary steps for
perfection (UCC-308) (which differ based on type of collateral).
 General rule is that you file a financing statement in the state files, called a
UCC- (9-310)
 Exceptions-9-311
o A registered copyright under federal copyright act, you have to file in the
federal copyright office (In Re Peregrine)
o Patents are under article 9 because of the working of the patent act-
"hypothecation" is missing? Not clear

2. Where to File/Possess/Etc.

9-301(1)-general rule- The general rule that while a D is located in a state, the local law
of the state governs perfection and priority of a SI.
 If you fail to file in the proper state, you have failed to perfect. So 301 tells us its
extremely important to file in right area:
 Debtor's location (either individual or corporation) is the place to file. Not
location of collateral.

9-301(2)-FOR POSSESSORY SI (exception to general rule)-

 the location of the collateral governs where to file.
o How does this not conflict with 9-301(1)? If it is if it is perfected by
possession, you look at the location of the collateral.
 9-301(3)- collateral closely associated with real estate- perfection will be
determined by D's location if it is tangible collateral (like kinds listed) but priority
will be found by collateral location?
o There are fixture filings and UCC filing regarding fixtures; both are
9-307- How to tell what the D's residence is:
 Individual- their principal residence
 Registered organization- place where articles incorporated/organization filed with
 Unregistered organization (everyone else, like partners):
o For one place of business- that location
o For more than one place of business- chief executive office or nerve center
test (where decisions are made)

B. The Debtor’s Name

Article 9 filing offices usually index financing statements by name of the debtor.
A. Sometimes they do indexes based on description of collateral, like real estate and
cars, because those have stable, identifiable identities.
UCC 9-506(a) says that
B. “A financing statement substantially complying with the requirements with [part 5
of Art. 9] is effective, even if it includes minor errors or omissions, unless the
errors or omissions make the financing statement seriously misleading"
Errors- 9-506- sets out the general rule which is that minor errors are ok and will result
in perfection. But, if it is seriously misleading then the F.S. is ineffective, which means
probably the creditor is unperfected.
 If the D's name has an error, then it is per se seriously misleading under 9-
o This is because the D's name is what holds the system together.
 But- 9-506(c) - safe harbor- if the standard search logic, using the
correct name of D, pulls up the D's name even with the error, then
the F.S. actually does perfect the loan. Must use the actual search
logic. Then it counts as a minor error.

What is the correct name of the debtor?

9-503 says that a financing statement sufficiently provides the name of the registered
entity only if it provides the name of the D indicated on the public record of the D's
jurisdiction of origin.
 9-503(a)(4) says that it applies to an individual or organizational name.
 The statement isn't ineffective for not giving the individual's trade name, and use
of trade name doesn't alone sufficiently provide the name of the D.

Individual Names- names of human beings. A person's birth certificate may indicate their
name, but black letter law says that a person's name is what he is generally known, for
non-fraudulent purposes, by in the community. So birth certificate is not determinative.
UCC was changed in 2010 with two alternatives:
 One- makes the correct legal name irrelevant. Filing and searching is to be in the
name on the debtor's driver's license. 9-503(a)(4)
 So Roger McGinty gets a loan and changes his name but not driver's
license, then loan is still perfected.
 Two- driver's license name is merely a safe harbor. Filings are valid if made in
the D's correct legal name, in the correct first name and surname, or in the driver's
license name.
 Most states have adopted the first choice

Registered Organization- UCC 9-102 -a registered organization- is an entity formed or

organized solely under the law of a single state or the US.
C. Their name is their name listed on their articles of incorporation, etc. This
includes any periods, ampersands, punctuation. 9-503(a)(1)
 Corps can only be formed by obtaining a charter or certificate of incorporation
from a secretary of state of one of the 50 states.
 The name of the corp must show that the entity is a corporation
 Second, no state will permit the formation of 2 corporations with the same
name or confusingly similar names.

Unregistered Organization - rules from corporations apply to partnership names.

D. Legal name of the partnership is the name which it is generally known in the
community. 9-503(a)(6)
o Need not indicate that it is a partnership in the name.
o Unregistered Organizations are the residual category like equipment for
goods. If the debtor isn't a registered organization or an individual, they
are an unregistered organization, and get the standard from (a)(6)- use the
organizational name of the debtor or the one from their partnership
Trade names- a name under which a person or entity conduct business that is not its legal

When sufficiency of a name on a financing statement is challenged, it doesn't matter if

the searcher actually found the prior filing. Instead, it matters only if they would have
found the financing statement in a hypothetical search. UCC 9-506.

IACA Search logic- used to find common error forgiveness:

 Not distinguishing between upper and lower case letters
 Disregards punctuation marks and accents
 Ignores ending noise words like corporation, corp, incorporated
 Ignores the word "the" at the beginning of the name
 Ignores spaces
 Treats an initial as the equivalent of a first or middle name beginning with the
 Treats no middle name as the equivalent of all middle names
 Ignores suffixes
 Initial of a first or middle name is treated as all those names that begin with that
Typos of real words (as opposed to noise words) are pretty much unforgiveable.

As a creditor, just list multiple names on the filing, to try to get the right one.
In re EDM Corportation- debtor is registered as EDM Corporation but is known as EDM
Equipment and did business in that name. There is an issue of priority of liens in
proceeds of an ambulance owned by EDM. Hastings, TierOne, and Hungtion all gave
 Hastings filed in 2003 and ID'd D as EDM Corp d/b/a EDM Equipment,
The state adopted revised UCC, used search logic on electronic index- listed exact name
in field submitted by SP.
Was the mistake by the SP in the name of the debtor seriously misleading under 9-506
and did it sufficiently provide the D's name in accordance with 9-502 and 9-503?
 Court says no to both counts.
o Purpose of filing is to put creditors on notice of liens. So complete
accuracy of debtor's name is more important than the description of the
collateral. Plus, legislative language and purpose of revised UCC showed
intent to shift responsibility of getting the D's name right to the party filing
the financing statement.
o This shows that adding superfluous info to a register organization’s name
is not allowed. Instead, the D's name must be the name of the debtor
indicated on the public record of the debtor's jurisdiction of organization.
UCC 9-503(b)(1).
o Trade names can be added, but not as part of the organizational name
o Because of the extra addition and the state's UCC logic, a search of "EDM
Corporation" did not turn up the previous loans. Hastings assets that
standard search logic should have found their UCC statement.
 But the code provides for the secretary of state to add everything
found in the name field.

Notes: lots of filing systems will bring up close matches that reflect common errors. If the
search logic can overcome such an error, it will not be found as seriously misleading. By
definition, an error that is not seriously misleading won't mislead an actual searcher.

Note: if the filing officer filed a financing statement incorrectly, the prior filings are
nonetheless effective against a searcher who then doesn't find those filings. UCC 9-517

C. Effectiveness and Filing Requirements

If the FS lacks any of the 6 pieces of info, besides description of collateral covered, (9-
516(b)) the filing office should refuse to accept it and tell the filer why and the day/time
it would have been filed. 9-520(b).
E. BUT, the filing office should not refuse a filing based on incorrect
information, even if it is implausible. Comment 3 to 9-516 says

Effectiveness of FS: 4 steps

1. FS is effective if 9-502 requirements are met:
1) D's name 9-503- see section above
2) SP's name
i. Needed for 2 reasons:
1. Termination statements, release of collateral etc. are needed
to modify/eliminate prior filings to make way for a new
2. Searcher might need info from SP.
1. This is because Art. 9 only needs really to show
there might be a SA out there (unlike mortgages
which have to include the whole agreement). If
searcher wants to know the terms of the SA, they
have to ask the 3rd party
3) ID collateral 9-504
i. Includes address of collateral
ii. UCC 9-108, 9-504 says that a description of the collateral that
"reasonably identifies the collateral" is good enough
1. Grabowski case: said that it need merely notify subsequent
creditors that a lien may exist and that further inqury is
necessary to "disclose the complete set of affairs" This is a
really general description.
2. Teel Construction took it even further: statement said
furniture at a certain address but address was missing and
furniture at different location.
1. Court said it was ok because the particular searcher
"know where Lipper was located and is required to
make further inquirey of the SP in order to
determine whether a particular asset is covered by a
security agreement."
iii. So these cases really impose a duty to inquire further. Some people
say a description of collateral on financing statements should be

2. But, must also be FILED, 9-310, 9-501

9-516- filing requirement
4) SP's address 9-516 (b)(4)
5) D's address 9-516 (b)(5)
6) ID as individual or organization. (b)(5)
0. What if the FS was wrongly Rejected?
1) FS effective 9-516(d) except purchaser for value who relied on absence of
FS in files
1. FS wrongly Accepted?
1) FS is nonetheless effective 9-520(c) except if a SP or other purchaser who
gave value relies on the incorrect 9-516(b)(5) info.
i. 9-338 sets out the rule on detrimental reliance
So look at the type of error. If it is merely a 9-516(b)(4) (SP address) error, it doesn't
have the same power to remove the effectiveness of the FS. But if it is a 9-502 error, it is
much more likely to be an ineffective filing.

Behind all of this, the 9-506 standard also applies

 The question is, is the error seriously misleading? If yes, then the FS is
ineffective, but minor errors are ok
 Wrong debtor name under 9-503 is seriously misleading
 But if searcher under proper name pulls up FS with Wrong name, not seriously

D. Exceptions to the Filing Requirement

Possession gives notice theory: 9-313(a) permits taking possession in lieu of filing if the
collateral is negotiable documents, goods, instruments, money or tangible chattel paper.
 Based on ideas that lenders will look at collateral first before lending against it
and if collateral is in possession of SP it will alert them of the SI. This is the
possession gives notice theory.

 9-312 gives a list of may and must categories for perfection

o Musts:
 Money, must be perfected by possession
 Deposit account, must be perfected by "control" (see 9-104)
 Accounts/General intangibles- MUST file FS- only way to
perfect SI
o May is for everything else: if collateral doesn't show up on the MUST list,
then filing is just one of the ways you can perfect the interest. Filing is
permissible, not necessarily required.
 Possession is an alternative to filing: 9-313
 Possession works to perfect if the type of collateral is
tangible/has a physical existence. BUT, possession
ARENT INVENTORY- must note on title.
 Control- for things that don't have a physical existence.
o 9-309-, governs Purchase Money Security Interests-PMSIs (9-103 definition) and
consumer goods
 Auto perfection of PMSI in consumer goods.
 PMSI is a Purchase Money Security Interest- any time a seller or a lender
gives money in order to secure the price of specific goods. If given by seller,
it is known as vendor PMSI. If given by 3rd party who lends it is known as a
lender PMSI.
 We care about it for 2 purposes
 Here, when goods in question are consumer goods, the SP is
auto perfected upon attachment. Don't need to file financing
o 9-311- Other Statutes like for the FAA, can tell you how to perfect, also
o 9-313- Perfection by Possession. Possession is also an alternative way to attach
(instead of making a writing as evidence you can take possession)
 Can only be for tangible goods, things that are movable at time the
interest attaches. Can be perfected by possession.
o In addition, instruments and chattel papers can be perfected by possession.
Things that have an indispensable writing, (think promissory note or
checks) has a signed writing that you can possess can be perfected by
possession (9-313(a)).
 9-313(d)- Perfection by possession continues only while the SP retains
 Ex. If you have attachment + perfection by possession and you
give it back for a while and then regain possession, perfection
starts at that later dat.
 9-313(d)- Perfection occurs no earlier than the time the SP takes
o 9-314- Control- Deposits in Accounts (9-2014 gives 3 was to control deposit
 SP is the bank where deposit account in made
 SP is the customer, don't have to be the only customer. So control of a deposit
account is not exclusive.
 Contract between the D, SP and the bank, where the bank agrees to follow
SP's instructions for the account.
 Investment Property-defined as a "security…security entitlement, securities
amount, commodity K, or commodity account."
 Securities- include investment mediums like stocks and
bonds: must be 1) transferable, 2) divisible, 3) a type of
medium that is traded in securities markets or exchanges.
 Can be perfected by:
 Filing
 Taking delivery
 Taking control of security

E. Maintaining Perfection

A few situations call for the SP to protect its interest and refile following a change in
circumstances. The general concern is that the fundamental notice function of Art. 9 would be
compromised otherwise.

1. Changes in Time and Collateral

Lapse of Time- 9-515(a)- generally “ a filed financing statement is effective for a period of 5
years after the date of filing.” Upon a lapse of 5 years, the FS ceases to be effective and interests
become unperfected. If a lien becomes unperfected, it is deemed never to have been perfected as
against a purchaser of the collateral for value.
o But, you can file a continuation statement, which will allow the SI to remain

A Transfer of Collateral - 9-507(a)

 A SI travels with the collateral, meaning that the creditor remains perfected as to
transferred collateral.
o To a Person who Thereby Becomes a Debtor: The transferee must take
collateral subject to the SP’s SI and fall within the definition of a debtor given in
9-102(a)(28)(A) (“a person having an interest, other than a security interest or
other lien, in the collateral, whether or not the person is an obligor”)
 If the transfer was authorized, then the creditor is not perfected.
 Generally, perfection goes with collateral, unless it would hurt searchers.
 If transferee is located in same state as original D, no new filing is
required. See 9-507(a)
1. But, if transferee is in another state, the SP gets one year to
make a new filing in that state under the transferee’s name. 9-
o To a “New Debtor”- if the transferee agrees to take the collateral subject to the
SA, they will be bound to it by the doctrine of “successor liability.”
 Art. 9 refers to such a transferee as a new debtor.
 9-508(b) treats a new D located in the same state od the original D like a
name change of the original D. If the name change is seriously misleading,
the SP needs to make an amendment within 4 months. Comment 4 to 9-

A Change in Collateral Description or Use - 9-507(b)

 It usually doesn’t matter for perfection purposes if there is a change of use of the
description of the collateral, leading the FS to become seriously misleading.
 But, it does matter if the changed use requires the creditor to perfect in a different way.
o If the D is a car dealership and a motor vehicle is inventory but changes to
equipment, the way to perfect changes. Creditor would become unperfected.

Maintaining Perfection in Proceeds 9-315

o Under 9-315- the general rule is that a SI perfected in original collateral under 9-315
 9-315 (a) If the SI attached to original collateral, the SI auto attaches to identifiable
proceeds (anything gotten in exchange for the collateral).
 9-315 (c) This auto attachment in proceeds is perfected if the attachment to
original collateral was perfected.
 9-315 (d) the auto perfection in proceeds only lasts for 20 days. After that, creditor
remains perfected only in 3 circumstances
1. Meets these 3 conditions to meet 315(d)(1) conjunctively:
a. FS convers original collateral (i.e. covers the collateral that got
exchanged for proceeds)
b. Proceeds can be perfected by filing in the same office AND
c. The proceeds are not acquired with cash proceeds
i. Ex. Bianca sells collateral ladder for cash. Uses cash to buy
new forklift. The forklift was acquired with cash proceeds, so
perfection is not continued under 9-315(d)(1). But, could still
be perfected if they refile under (d)(3) under 20 days
2. Identify cash proceeds, as long as creditor can continue to identify the
cash proceeds as gotten from collateral, interest remains perfected
a. What are cash proceeds? Money gotten in exchange for the
collateral; can include instruments or accounts.
3. Refiles in new office within 20 days, an amendment that includes
equipment or the forklift.
a. This is the residual category

1. Changes of the D’s Name, Identity, or Location

Change in D's name - 9-507(c)
 If D's name changes and change doesn't render the filing seriously misleading (like 9-
506) then creditor remains perfected. [9-503/9-506]
 9-507(c) only applies where the D's name change renders the filing seriously
o If the name change renders the FS seriously misleading, the 4-month rule applies-
allowing the SP a safe harbor period in which to discover the change and file and
o Property D acquires more than 4 months after the change, the creditor is
 Essentially cuts off after acquired property clause after 4 months after the
seriously misleading name change

A Change of the D's Identity - 9-508

 Makes a difference if it renders the FS seriously misleading.
 If the D's identity is changed, new property acquired 4 months after will not be

Change of D’s Location- UCC 9-316- what happens to perfection when D moves?

(a)(2) The old financing statement remains effective until 4 months after the move. The SP
can file a new FS in the new state in those 4 months and never lose perfection.
 After that it becomes unperfected and is deemed never to have been perfected as against
purchasers for value.
o Who are purchasers for value? Means people who give value and includes other
secured creditors. This is retroactive unperfection.
 Counts for same debtor and new state
(a)(3)- One Year Rule- the expiration of one year after a transfer of collateral to a person that
thereby becomes a debtor and is located in another jurisdiction.
 Counts when you have both a new debtor and a new state.
 Example: D1 is from PA and on Jan 1 SP perfects. D1 decides to reincorp in DE, merge
with original debtor and transfers collateral. SI therefore remains perfected for one year
after the merger.

F. Maintaining Perfection in a Certificate of Title System

Filing of a FS isn't necessary to perfect for property subject to certificate of title statutes of this
state." 9-311(a)(2)
Instead, the certificate of title act says what the SP must do to perfect. They vary, but the
UMVCTA is typical:
F. SP must file application (notice of lien) and the old title and some states require the
amount of the lien to be on it.

 Also submit filing fee.

 If the SI attached on June 1st, then as long as the application is delivered to DMV within
10 days, then perfection is as of June 1.
o As long as DMV gets notice on June 5th, then perfection is on June 1st. It is an
exception to the idea that first in time is first in line.
o Under section 20, there is a perfection as of day of attachment if the SP delivers
title and payment within 10 days of attachment. If they do, it is retroactive to day
of attachment.
o (note perfection occurs at same time as under UCC- when office receives docs
and filing fee)

Recall that Security Agreements between two parties is enforceable against more than just those
two parties-
o 9-201 says except as otherwise provided by the UCC, a SA is effective between the
parties, against purchasers of the collateral, and against creditors

The big general rule: perfected SI’s beat out unsecured creditors.
o 9-322(a)(2)- A perfected security interest … has priority over a conflicting unperfected
security interest...

A. Lien Creditors vs. Secured Creditors

1. Timing: first in time is first in line (has exceptions)
2. Types of creditor- perfected SP, Lien creditor, and Buyers
3. Method: classify collateral, classify claimant (by seeing if they are perfected SP, have
PMSI, or if they are unsecured or lien creditors)
Lien Creditors- 9-317-
A lien creditor is someone who obtained a judgment from a lawsuit (just one example)

Lien Creditors- defined in 9-102(a)(52)- - a creditor that has acquired a lien on the property
involved by attachment, levy, or the like;
 Also, 9-102(c)(52)- a trustee in bankruptcy from the date of the filing of the petition- this
is important because it's how they get paid. Bankruptcy trustees are lien creditors.
 If SP is unperfected by time of bankruptcy petition, §544 of Bankruptcy Code-
“strong arm” provision” will allow the trustee to avoid SP’s potentially secured

General rule: Perfected SP beats a Lien creditor when they perfect before the Lien creditor
levies 9-317(a)(2)(A).
 But there is a circumstance where a lien creditor will lose against an unperfected secured
creditor under 9-317(A)(2)(B). This is the "Financing Statement +" Exception
o It says event though a lien creditor generally beats an unsecured, that rule doesn't
apply if the unperfected secured creditor has a SA and FS signed by the D.
 The only thing that would be missing in this circumstance to make the
party perfected is if they haven't leant them the money yet. This would
come up if the lien creditor seizes the stuff right before the giving of value
and the party was unaware of it.

PMSI's- where there is a competition between PMSI and lien creditor, how does priority turn
 9-317(e)- says unperfected PMSI can retroactively perfect and win over a Lien Creditor if
they perfect (filing a FS or otherwise) within 20 days of delivery. This gives a kind of
retroactive priority.

A lien creditor will generally beat an unsecured creditor

B. Secured Creditor vs. Secured Creditor

General Rule:
 Timing: first to file OR Perfect (9-322)
 SI travels with collateral (9-201; 9-315; 9-507)

 9-322- first to file or perfect wins over later filed/perfected party. Also
perfection>unperfection; attached>unsecured

Exceptions to first to file or perfect:

 9-324- PMSI Superpriority- (a) non-inventory, (b) inventory

o Non-inventory: You have a 20 day grace period. As long as the PMSI is perfected
when the D receives or within 20 days after
o Inventory: SP notifies other SP's, which must be received by the recipients within
5 years of the D gets possession, and the SP must be perfected. Basically this cuts
off an AAP clause

 9-325- 2x Debtor Rule

o 9-325- Double Debtor Rule- in the situation where collateral is transferred, (thing
general rules conflicted, first in time vs. preventing defrauding creditors by
transferring collateral).
o The later filed financing statement would have priority because otherwise the D's
would be able to transfer collateral and defraud their creditors.
o So the collateral traveling with the SI is the stronger policy as the result.
9-103- defines a PMSI- note = the obligation plus SI

What is the priority of proceeds?

 Creditor has the same place in line for proceeds as the original collateral. The same is for
future advances.

C. Buyers vs. Secured Creditors

When does a buyer take free of a SI?

9-320(a)- buyer in ordinary course of business usually takes free of a perfected creditor's SI.

What is a buyer in ordinary course?

 Seller must sell goods of that kind (9-320)
 Seller must have created SI- usually this doesn't happen
 Buyer must take possession
 Buyer can know of the SI but can't know that the sale violates the SI
 Has to be given for value
 Must be in the ordinary course
 9-102(b)(9) and 9-320- says the sale must also go in good faith.
o UCC defines good faith as honesty in fact and reasonable commercial standards.

Consumer to consumer exception - 9-320(b)- "garage sale exception"

 Requires that consumer goods in seller customer who is now selling to another person
 Limits:
o New buyer cannot have knowledge of SI
o Has to be for value (very relaxed)
o Must be for buyer's personal use
o Must be before filing of FS- note this exception would still work even for PMSI's
in consumer goods which are auto perfected without a FS. So if a seller with auto
perfection in PMSI wants to beat a garage sale transfer, they need to file a FS.

Note: if a SP authorizes a transfer, then the buyer takes free of the SI. 9-210; 9-9-315; 9-507
 Look up waiver from the book, sale of cattle stuff, nuanced more than just explicit
So Exceptions:
 Authorization of transfer
 Buyer in ordinary course of business
 Garage sale Transfer
 Innocent buyer- i.e. Non-Buyer in Course of Business 9-317(b)


A. Default, Acceleration, and Cure Under State Law

Cause of Action - Breach of K


Breach (i.e. Default) UCC 9-601- doesn't say anything about what counts as default
o This means default is defined by contract. The common law rule says default is
failure to pay what you owe
Creditor Remedies:
 Acceleration: SP calls the rest of the loan due. Different types of acceleration
o Optional- reserves to the creditor to either declare default or not upon the event of
default. Test for when this occurs is when the bank makes "an unequivocal
decision" to accelerate.
o Automatic- upon the default event, the whole loan is due and owing.
 Beware of waiver, modification, and estoppel. Auto acceleration leaves
you open to these
 Judicial Foreclosure (i.e. Court Replevin)
 Repossession- UCC- 9-609 (make sure to not breach the peace)
o What constitutes breaching the peace? That's where the wiggle room is.
 Resale (i.e. liquidation) 9-610
o General principle: must be commercially reasonable
 Commercially reasonable in all aspects including:
 method,
 Public- open to everyone
 Private- everything else
 manner,
 time, and
 place
 Doesn't explicitly include the amount of money gotten for the sale.
 Notice: must provide notice 9-611-
 Notice is different for public and private methods of sale.
 Default standard of notice under 9-612 is 10 days
o Repaying the creditor's cost of preparing for and the actual sale is covered, also
you can recover attorney's fees, but only if it is in the contract.
o These general principles give the Debtor a claim, "sure I was in default but you
sold the stuff not in a commercially reasonably manner"
 Collect Deficiency- after a resale, if the D still owes money, the creditor has an
unsecured claim they can sue the D for

Debtor Remedies
o Opportunity to cure- 9-623-" right of redemption"- before the collateral has been sold the D
can redeem by paying all amounts due. How much is due turns on whether there was a valid
acceleration that was exercised.
 Only have to pay missing payments if they haven't accelerated. IF they did, you owe
the whole amount.
 Some courts have imposed a duty to notify, where the SP must give notice to D of
intent to accelerate and actual acceleration.
 When collateral has been foreclosed, the D can no longer redeem the loan
o Breach of Duty of Good Faith
 Art. 1-201(b) defines it as honesty in fact
 Ex. just lying to a person
 Art. 9 - defines as honesty in fact and reasonable commercial standards of fair dealing
 You can contract out of reasonable commercial standards as long as they
aren't manifestly unreasonable. 9-602&603.
 Rebuttable presumption from 9-626. If the creditor fails to make a
commercially reasonable disposition of the collateral, then the law presumes
that a reasonable disposition would have wiped out the deficiency in the debt.
 Three things used to find good faith besides the contract:
 Course of dealing (dealings in the past)
 Course of performance (what the parties have done under this
 Trade usage (what is the usual practice in the trade?)
o No repossession if breach of peace- the D can be the one to breach the peace and it won't be
a permissible repo-9-609
o Right to commercially redeemable sale
 This includes reasonable notice, which has a 10 day notice period 9-612.
o Surplus
o Commercially unreasonable sale gives the D a rebuttable presumption that no
deficiency if reasonable sale. 9-626 (see comment for good explanation)

Article 9 doesn't' tell us what default is. So what is it if the parties are silent about in in their SA?
 D's failure to pay or otherwise failing to perform the contract; usually only D's failure to
pay is the common law rule

B. Default, Repossession, Redemption, and Foreclosure

9-609 – self help repossession is allowed if it does not breach peace

 9-602- immutable terms (ie not breaching the peach)
 9-603- K for standards as long as they aren't manifestly unreasonable
 9-615- SP gets deficiency and junior SPs and D get surplus
9-610-general rule requires the SP to commercially reasonable disposal of collateral
 9-611-14- notice
 Once you repossess stuff, you have to sell it in a commercially reasonable way. The
exception is 9-620
9-620- strict foreclosure; partial vs. full
 When a creditor takes a collateral and keeps it instead of selling it to satisfy the debt
o Full- from old UCC- had to give notice and give a proposal to keep the collateral
in full satisfaction of the debt. If the D doesn't object in writing within 20 days
then SP can keep it.
o Partial- hybrid where rather than taking the collateral in full satisfaction of the
debt (wiping out sufficiency and surplus) the collateral changes the amount of
deficiency but there would still be a deficiency left over.
 Requires the D to consent and sign a writing about it, not just lack of
response like in full.
 Special rules of strict foreclosure- if collateral is consumer goods cannot foreclose at all.
If debt has been paid 60% or more, you must sell instead of keeping collateral.
9-626- rebuttable presumption rule,
 D's most powerful tool. If the creditor doesn't do what its supposed to under 609 and
610, there is a presumption that the D isn't liable for a deficiency in the debt b/c if the
SP had done what they were supposed to they would have gotten their money in full.
 has 4 steps
1. D claims that the disposition was done in commercially unreasonable way
2. SP then bears burden of proof that they complied with commercially reasonable
a. If they do meet burden of proof, we stop here and creditor gets deficiency
3. Then there is a rebuttable presumption that a commercially reasonable
disposition would equal the amount of the debt.
a. This means NO DEFICIENCY
4. Creditor can rebut the presumption by showing commercially reasonable
disposition would still leave a deficiency.
a. Think kelly blue book

9-627- low money for a sale alone isn't unreasonable disposition of collateral.

How to repo without breaching the peace:

 Stealth is ok, decreases chances of confrontation. Going at night is ok. Factors:
o Nature of premises (residential/commercial)
o Violence
o Repo people are privileged to go on the property- not a trespass- until the
occupant doesn't consent.
o Don't need violence to breach peace, can just be threat of violence. Can't use
police during self help, having a cop for self help can be breach of peace
 If D says get off my property/does not consent, the repo people have to leave. All the D
has to do to force the creditor into judicial process is to say I don't consent.
 You can't waive in K for breach of peace. But you can K for specific procedures for
repossession that diminish the trespass question (won't work if it isn't the D's property).
But you can K and say they can enter property anytime, etc.
 You cannot hide collateral for the purpose of sequestering it from a creditor trying to

Notice of disposition of collateral

 Public- time, place, and date must be given
 Private- must give date after which the sale might occur
o Ex. car dealer's auction