Legal Forums arrow FREE Law School Outlines arrow List by Subject arrow Secured Transactions arrow Secured Transactions Fall 2004
Secured Transactions Fall 2004 PDF Print E-mail
Want this Outline in MS Word format? JUST LOGIN !

   No account yet?
Course: Secured Transactions Fall 2004
School: unknown
Year: 2004
Professor: unknown
Course Outline provided by

Secured Credit Outline


Background and Macro Policy Considerations


  1. Raison d’etre of SC

    1. SC evolved as a way of hedging creditor’s exposure to risk by requiring any debtor to grant a security interest in some collateral with a value substantial enough to allow the creditor to feel adequately hedged in the case of default.

    2. SC is especially necessary in developing, primitive States where extending credit without security is an excellent way to lose one’s capital. The more complex the financial arena, the less necessary SC becomes.

    3. So-called secret liens were a central focus for writing Article 9. Being in possession of property secretly belonging to another creditor leaves other future creditors out in the cold both in terms of information on which they might judge their risks, and also ultimately on the capital they extend to the debtor. *The duke who lives on a grand estate in a castle may appear to be solvent, but a future creditor may find out subsequent to lending on the façade of wealth, that the castle is mortgaged, and the duke is insolvent, and that he is leveraged to the eyeballs.*


Coverage, Scope, Collateral of Article 9


  1. Overview

    1. For Article 9 to Apply:

      1. Parties must intend to create a security interest in personal property or fixtures.

      2. Collateral must be covered by Art.9

      3. The transaction must be explicitly covered by Art.9

  2. Terms: Debtor v. Obligor

    1. A debtor is the owner of the goods being used as collateral. An obligor is the person who owes the debt for which the collateral is applied. A person who uses his parent’s yacht as collateral becomes the obligor, the parent’s become the debtor, and the bank is the secured party.

  3. Collateral Eligible for Art.9 Coverage

    1. Tangible collateral is classified by its usage by the debtor. Quasi-tangible and intangible collateral is determined by its nature. Thus, a piano can be consumer goods, equipment, or inventory, but a promissory note will always be an instrument.

    2. Tangible (§9-102(a)(44), §9-102 Comment 4a)

      1. Goods

        1. Consumer Goods (§9-102(a)(23))

          1. Goods are consumer goods if they are used for personal, family, or household purposes.

        2. Inventory (§9-102(a)(48))

          1. Held for sale or lease to others in the ordinary course of business.

        3. Farm Products (§9-102 Comment 4a)

          1. Must be used or produced for farming purposes:

            1. Crops

            2. Livestock

            3. Unmanufactured Products of i. or ii. (like manure). If they are manufactured after “production” they become inventory – like bagging up the manure and selling it. Manure would then become inventory.

        4. Equipment (§9-102, Comment 4a)

          1. Catchall Category for “other goods”

    3. Quasi-Tangible

      1. Legal rights usually represented by pieces of paper

        1. Instruments

          1. Negotiable and Nonnegotiable instruments like checks, promissory notes, drafts, certificates of deposit, under Art. 3. (§3-104(a)(2)).

          2. NOT Chattel Paper

        2. Documents

          1. Documents of Title such as bills of lading, and warehouse receipts. (§9-102(a)(30))

          2. NOT research reports or other corporate papers. (§1-201(15))

        3. Chattel Paper

          1. Record that evidences a monetary obligation AND a security interest in the sale or lease of goods. (§9-102(a)(11))

          2. 2 types of chattel paper:

            1. Electronic Chattel Paper. (§9-102(a)(11))

            2. Tangible Chattel Paper. (§9-102(a)(78))

        4. Investment Property (§9-102(a)(49)

          1. Certificated Securities: Stocks, Bonds accompanied by a certificate.

          2. Uncertificated Securities: Stocks, Bonds not accompanied by a certificate.

          3. Commodity Contracts

          4. Securities Accounts

    4. Intangible

      1. No Physical Form

        1. Accounts, i.e. Accts Receivable

          1. A right of payment for goods or services that is not evidenced by instrument or chattel paper. Rights to Credit card payments or lottery winnings count as accts. (§9-102(a)(2))

        2. Letter of Credit Rights

          1. Seller sells good to buyer. Seller doesn’t trust buyer to make payments. Seller requires buyer’s bank to pay seller directly – this is a letter of credit. The seller becomes the “beneficiary.” (§9-102(a)(51).

        3. Deposit Accounts

          1. Checking, banking or passbook accounts with a bank. This used to not be covered under article 9. Unless the account includes proceeds however, the account cannot count if it is a personal account. (§9-102(a)(29), §9-109(d)(13), §9-109 Comment 16).

        4. Commercial Tort Claims

          1. New for 1999 revision. Applies only to Partnership or corporation tort claims. Can also apply to an individual if the claim arises out of the individual’s small business. (§9-102(a)(13). The individual’s business tort claim though cannot arise out of personal injury or death of an individual. (§9-102(a)(13)(B)(ii))

        5. General Intangibles

          1. Catchall for Intangibles. (§9-102(a)(42)), also In re Certified Packing, Inc., 8 U.C.C. Rep. 95 (D. Utah 1970).

            1. Note

              1. i.e. Liquor License. (See Gibson v. Alaska Alcoholic Beverage Control Board, 377 F. Supp. 151 (D. Alaska 1974).

            2. Software

              1. Must not be embedded in goods (like a toy robot). Software, even if sold in a box, is an intangible. (§9-102(a)(42))

            3. Payment Intangibles

              1. Oral Promises to Repay. (i.e. orally committed accts receivable.) (§9-102(a)(61).

    5. Types of Transactions under Art 9

        1. Finance Arrangements

          1. Any financing transaction can be under Art 9. If the purpose of the financing is to create a security interest, it falls under art 9.

        2. Certain Leases

          1. True Leases ARE NOT subject to Article 9.

          2. Figuring out true lease versus disguised sale depends on the facts of each case

          3. Test though under §1-201(37)

            1. There is likely a disguised sale falling under Art 9, if the lessee has:

              1. No right to terminate the lease, AND

              2. Either

                1. the goods have no economic value at the end of the lease, or

                2. the lessee can purchase the goods for nominal value at the end of the lease.

        3. Consignments

          1. True Consignments are usually not covered under Article 9. If a consignment does not fall under Article 9, the consignor can rely on common law to get his goods back if there is a problem against the consignee upon the goods not being sold. (Ludwigh v. American Woolen Co., 231 U.S. 522 (1913)).

          2. Consignors who are unsure if it is a true consignment or not can protectively file themselves on a financing statement without admitting that article 9 applies at all.

          3. Some True Consignments are covered though under §9-102(a)(20):

            1. If the goods are NOT consumer goods, and

            2. The goods have a value of over $1,000 at the time of delivery to the consignee, and

            3. The consignee is a merchant not generally known by its creditors to be substantially in the selling of goods of others, and

            4. The consignee’s professional name is different than the consignor’s.

    6. Excluded Types of Transactions

      1. Federal Statutes (§9-109(c)(1))

      2. Landlord’s Liens, Real Property Liens (§9-109(d)(1), (11))

      3. Mechanic’s Liens, but NOT agricultural liens (§9-109(d)(2))

      4. Judicial Proceedings

      5. Wage Claims

      6. Consumer Deposit Accts, Insurance Policies

      7. Surety’s Subrogation Rights

      8. Subordination Agreements

      9. Consumer Protection Statutes


Creation of Security Interest


  1. Background

    1. Must answer yes to the Three Essential Elements to Construction of Security Interest - §9-203

      1. Is there a Security Agreement (i.e. agreement accompanied by possession, control or authentication).

      2. Did SP give proper value for security interest.

      3. Did debtor have existing rights in goods to obtain security interest.

    2. Security interests cannot be good against other people until the security interest is good between the debtor and creditor.


  1. Security Agreement

    1. There is a general necessity of a RECORD of the agreement!

      1. If collateral is not in SP’s possession or control, an authenticated record is required. (§9-203(b)(3)(A)).

      2. BUT,

        1. Oral agreement is OK in following circumstances:

          1. Collateral is in possession of SP (§9-203(b)(3)(B))

          2. Collateral is in control by SP (§9-203(b)(3)(D))

        2. A non-possessory, non-control s.i. not authenticated by the record can never be an enforceable s.i. §9-203, Comment 3

    2. The collateral must be described in the security agreement (§9-203(b)(3)(A)).

      1. The description must only be a reasonably accurate one. §9-108.

      2. Any method of description is fine as long as it is not confusing. §9-108(b).

      3. BUT, if the collateral is consumer goods, commercial tort claims, consumer securities accounts, or consumer commodity accounts, the collateral must be described more specifically. §9-108(e)

      4. Saying “All he’s got” is not specific enough in any case. §9-108(c).

      5. NOTE – the description in the Security agreement is different from the description in the financing statement. The description in the financing statement can be “supergeneric” – i.e. all property. §9-504.

      6. Effect of Error in the Description in Security Agreement

        1. NOT fatal as long as something else in the agreement adequately describes the collateral. §9-108, Comment 2

      7. After-Acquired Property as Collateral

        1. This is fine to put in the Security Agreement under §9-204(a), as long as the term after-acquired or future good is expressly stated. §9-204(b)(2).

          1. NOTE – inventory is presumed to be a rotating entity, so any s.i. in inventory ASSUMES, whether stated or not, that after acquired inventory is part of the security agreement. Borg-Warner Acceptance Corp. v. Wolfe City National Bank, 544 S.W.2d 947, (Tex. 1976).

        2. BUT, after acquired goods in consumer goods is NEVER allowed, unless the debtor acquires the after-acquired goods 10 days or less after the SP gives value. §9-204(b)(1). Non PMSI, non-possessory by SP Household goods are also banned from the after acquired rule under 16 CFR 444 and 12 CFR 227.

          1. ALSO, after acquired property clauses do not apply to commercial tort claims. §9-204(b)(2)


  1. Value Given By SP

    1. The s.i. can not attach until value is given to the debtor under §9-203(b)(1). Value is defined in §1-201(44), §1-204. The dispersion of funds does not have to happen immediately however. See §1-204.


  1. Debtor Must Have Rights in the Collateral

    1. A debtor cannot grant a security interest in something he has no interest in himself. I.e. I can’t grant a S.I. in Henry’s new Volvo to a bank in return for a loan. §9-203(b)(2)

    2. The concept of who (either SP or D) has title can be ignored for the element of rights in the collateral though., see §9-202.

      1. Possession is not requisite for one to have rights. A buyer who is waiting for delivery, as long as the item has been “tagged” by the seller for the buyer, the buyer (D) is said to have rights in the collateral.


    1. NOTE- any provision by the SP that the debtor’s property for which he has used as collateral, cannot transfer that property to someone else, is immaterial. This is one of the rights of all debtors. §9-401(b).


Perfection of Security Interest


  1. General Background

    1. There is no definition of perfection in the UCC

    2. Oblique reference to unperfection in 9-317

      1. Perfection SP have preference over unperfected SPs.


  1. Methods of Perfection

    1. Applicability of Method depends on type of Collateral

      1. Filing a Financing Statement

        1. A FS documents the SPs interest and generally describes the type of collateral.

        2. Filing is the most common method of perfection.

        3. For accounts and general intangibles filing is the ONLY way to perfect. §9-310.

      2. Possession

        1. A pledge occurs when the SP gets possession of the collateral. The possession itself results in perfection as long as the other requirements are met (value, debtor has rights in collateral). §9-313

        2. With one step, SoF is irrelevant and perfection is assured. §9-310(b)(6)

        3. Helps protect 3rd parties from being misled about the debtors solvency, i.e. the duke in the castle example from before.

        4. NOTE – Perfection by Possession can be troublesome. A D that pledges his priceless wine collection does so for X value. If the SP doesn’t take care of the wine through proper storage, etc., and if the D defaults, the collateral will be worth little to nothing, and the SP will be out of luck.

        5. NOTE – Possession allows SP to perfect and attach simultaneously, as long as the other elements of attachment are met (debtor’s rights in property, value given by SP).

        6. Possession is good for the following types of collateral §9-313(a)-(b):

          1. GOODS

          2. MONEY

          3. Negotiable Documents

          4. Certificated Securities

          5. Instruments

          6. Tangible Chattel Paper

        7. For inventory, field warehousing is a common way to possess inventory. The SP then gets possession of the warehouse receipt. Nobody can access the warehouse without the warehouse receipt, so this constitutes possession under §9-312(c).

          1. BUT, watch out if the person in charge of the warehouse receipt is employed by the debtor!

        8. When a s.i. is perfected by possession, the s.i. lasts from the moment the SP had possession to the moment it does not. §9-313(d)

        9. SP in possession of collateral has duties:

          1. Reasonable care: in storing the collateral. §9-207(a)

          2. Notice: must give notice to D whenever some action must be taken with regard to the collateral and allow the D to do that action.

          3. Market Slump: Collateral that go down in value does not affect the D’s obligations, nor the SPs rights.

          4. Exculpatory clauses are VOID. §1-102(3), but unreasonable standards by the D for the care of the collateral is also not ok – see Brodheim v. Chase Manhattan Bank, 75 Misc. 2d 285 (1973).

        10. SP has right to reimbursement for Expenses with Regard to Care

          1. SP may charge the D for costs of care to collateral. §9-207(b)(1).

        11. Accounting Issues

          1. SP may keep increase in profits from the collateral as additional security, but money received from the collateral must be applied toward the D’s debt obligation. §9-207(c)

        12. Risk of Loss

          1. Risk of accidental loss is borne to the D if the SPs insurance is insufficient.

            1. Arguably unreasonable for SP to have no or little insurance though under §9-207(a).

        13. SP Right to Repledge

          1. SP can repledge to a 3rd party if it doesn’t impair the Ds ability to redeem the collateral. §9-207(c)(3), Comment 5.

        14. SP Right to USE Collateral

          1. SP may operate the collateral ONLY for purposes of preserving the value of the collateral, or if a court order says so, or, except for consumer goods, if the D agrees to it. §9-207(b)(4).


      1. Control

        1. Control over Investment Property

          1. For investment property, there are two methods of perfection: filing a financing statement, and gaining control over the property.

            1. If one creditor perfects by control and another has filed a financing statement, the creditor with control prevails over the creditor who perfects only by filing. §9-328(1).

            2. If 2 creditors have control (somehow), the first to gain control wins. §9-328

          2. Methods of Gaining Control

            1. For certificated securities, the creditor gains control by taking delivery of the certificates with any necessary endorsements. §8-106(a)-(b)

            2. For uncertificated (see §8-102(a)(18)) securities, the creditor gains control either by becoming the registered owner in the records of the issuer or by having the issuer agree to consent with instructions by the creditor. §8-106(c), §8-301(b)

            3. For Security accounts, i.e. securities located with securities intermediaries, the s.i. can be taken by gaining control over the entire account. This is done by changing the name of the account holder to the creditor, or by having the broker/dealer acknowledge that the debtor has consented to the creditors’ control over the account. §8-108(d)

            4. BUT, if the securities intermediary itself becomes the creditor, the intermediary itself gets “super priority” over ALL other creditors. See §9-328(3)

        2. Control over Deposit Accounts

          1. Filing is not an available method of perfection. Control is the ONLY way to perfect. §9-312(b)(1).

            1. The bank where the deposit is located has control if the bank loans to the account holder by using the account as collateral.

            2. Otherwise, a lending bank has to either:

              1. change the name of the account to that of the creditor, or

              2. have the bank agree in an authenticated record that the bank will follow the instructions of the creditor.§9-104(a)

        3. Control over Letter of Credit Rights

          1. Filing not possible to perfect. Have to have control. §9-312(b)(2). The issuer of the letter of credit has to give the lending bank consent to an assignment by the creditor of the proceeds of the letter of credit.

            1. The issuer is not obligated to grant that consent however. If that is the case, the seller’s creditor will be unperfected. §5-114(c)

        4. Control over Electronic Chattel Paper

          1. Can perfect by Control OR filing. A creditor has control over ECP if it can get a single authoritative copy of the ECP marked so that the creditor is the assignee of record and such that it cannot be altered in the public forum. §9-105, see Comments.

      2. Automatic

        1. Upon attachment, sometimes perfection occurs automatically.

          1. PMSI §9-309(1)

            1. A PMSI is credit advanced by the SP to the D in order for the D to buy the collateral. §9-103.

              1. The seller of the collateral in PMSI transactions does not have to be the party who extended the credit, as long as the actual credit is actually used to buy that certain collateral. §9-103(a)(2)

            2. For a PMSI to have force, the SP needs to have a valid security agreement with the D. §9-203.

            3. To classify PMSI goods, the actual use of the goods may not be determinative if it differs from what the consumer told the creditor at the time of attachment.

            4. Motor Vehicles do not count for PMSI. §9-311(a), (d).

            5. Refinanced Previous PMSI transactions, so that some of the refinanced collateral is PMSI, some is non PMSI. As long as the transaction is non consumer, the dual status rule is effective, forcing a D to allocate which amount of the debt is PMSI, and which is nonPMSI. §9-103(e)-(g).

          2. Promissory Notes

            1. The buyer of promissory notes is automatically perfected on attachment and need take no other steps to assure perfection. §9-309(3)

          3. Payment Intangibles

              1. “ “ 9-309(4)

          4. See 9-309 for other automatic perfections (mostly involving securities transactions)

        2. Temporary Automatic Perfection

          1. 9-312

          2. A SP in negotiable documents, certificated securities, or instruments, who advances new value has a temporary automatic perfection period of 20 days. §9-312(e)

  1. Time of Perfection

    1. S.i. perfects when it has attached and all other required steps have taken place (value given, etc.)

    2. A s.i. can be perfected multiple times. The later perfection date is deemed to relate back to the date of the original perfection provided there has been no intervening unperfection time period. §9-308(a).

  2. Place of Perfection

    1. See §9-301

    2. General Rule is Debtor’s Location governs perfection

      1. §9-301(1)

    3. §9-307 gives some rules about determining the location if a debtor

    4. Corporations have the location of their place of incorporation. §9-307(e)

    5. Unincorporated business entities have their location as the place of primary business. §9-307(b)(2)

    6. Individuals are located at their primary residence §9-307(b)(1)

    7. The Federal Government as a debtor is located in DC. §9-307(h)

    8. For foreign debtors see §9-307(c)

    9. NOTE – Although the location of the debtor tends to dictate the law w/ regard to perfection, the jurisdiction where the collateral is located dictates the effect of perfection and issues of priority. §9-301(3)

      1. SEE also §9-316(a), (b).

    10. Protective Filings are Good tools – “Filings are Cheap, And Law Suits are Expensive!”




  1. The Financing Statement in General

    1. Purpose of the FS is to put all future creditors (“the world”) on notice of the extension of credit and what the collateral is.

    2. Filed by the Debtor’s name

    3. See §9-521 for a sample


  1. Necessary Elements of the FS

    1. Name and Address of Debtor

    2. Name and Address of SP

    3. Description of the Collateral


  1. Rejection of FS as Valid

    1. In rare circumstances the filing office itself can reject the validity of a FS. See §9-516. This is extremely limited though. Also, if the office wrongfully rejects, the SP remains perfected despite the ruling, unless a purchaser purchases the collateral in reliance of the absence of a proper FS. §9-516(d)


  1. Requests to see a FS

    1. must be honored by the office within 2 business days. §9-523(e)


  1. If a FS expires

    1. the office MUST keep the record for a year. §§9-519(g)


  1. Debtor must sign the FS

    1. or have it authorized by an authenticated record. §9-509(a). Authenticating the SA is automatic authorization of the right for the SP to file the FS. §9-509(b)


  1. Sufficiency of FS

    1. If a FS substantially complies with all the rules it is “good enough.” Minor errors are irrelevant. Only seriously misleading errors will void a FS. §9-506(a), Comment 2.

    2. An error in the debtor’s name need only make a logical test, i.e. is it basically the right name or not? §9-506(c)

    3. Address

      1. The code merely requires an address that is reasonable under the circumstances. §9-516, Comment 5. Also, if the Filing office accepts the FS without an adequate address, the FS will be effective anyway.


    1. A creditor can use another name other than the business name. §9-503(d)

    2. Debtors may not use their trade names on the FS – have to use personal name. §9-503(c)

    3. A partnership name for debtor is sufficient however. §9-503(a)(4)

    4. NOTE: Change of name:

      1. If the D changes her name so that a FS becomes seriously misleading, the filing ceases to be effective as to NEW collateral acquired by the D after FOUR MONTHS, unless a new statement or an amendment is filed before then. §9-507(c), 9-508(b).


  1. Description of Collateral

    1. Must be sufficient to allow a party to identify it by reasonable further inquiry. Far less description is required in the FS than in the SA, because the FS is intended only as a notice mechanism.

    2. A trade description or just a description of the type of collateral will usually suffice. §9-108, §9-504.

    3. A supergeneric description is fine. §9-504(2)

    4. For fixtures or timber or minerals, the FS MUST provide an expressed statement about this fact, i.e. that the type of collateral is timber to be cut. §9-502(b). LOOK AT 502b if this comes up on final.

    5. If an amendment to the FS adds collateral to the FS, the effective date of perfection is only from the filing date of the amendment that added collateral. §9-512.


  1. Where to File

    1. Usually the office of the Secretary of State (i.e. the central state office).

    2. If the FS covering collateral cover collateral related to realty that is not crops, must file in the real estate mortgage office – usually the county recorder’s office. §9-501


  1. Mechanic of Filing

    1. Effective when the SP presents a statement and pays the fee. §9-516(a)

    2. Filing office monkey files the files in the last name of the D.

    3. If the filing monkey messes up, the SP is still secured.

    4. The financing statement is good for 5 years from the date of filling. §9-515(a)

      1. Unless a continuation is filed within 6 months of expiration, the security interest becomes unperfected.§9-515(c)

        1. All other SPs, JLCs get priority over this SP now.

    5. The Continuation Statement

      1. Adds an additional 5 yr period. It must identify the previous FS #, and must state it is a continuation statement.§9-102(a)(27)

      2. Succeeding continuation statements can add only additional 5 years to the FS. §9-515(e)

    6. Termination of Agreement

      1. SP must send a termination statement within 20 days of D demand for one, if all debts have been paid off. §9-102(a)(79). The D can then file this statement.

      2. If the SP does not send a termination statement within 20 days of the rightful demand, the D may recover damages plus a $500 statutory penalty.§9-625(b), §9-625(e)(4)

        1. The SP MUST file a termination statement regardless if the D has demanded one, within 1 month of receiving payment for the CONSUMER GOOD. In all other cases, the SP is under no obligation to commence the termination process.§9-513(b)

      3. Who can demand?

        1. Only the D

      4. Release of Collateral

        1. A SP can also release collateral under §9-512

      5. Bogus Filings

        1. Filings by bogus filers have no effect, except to cloud up the title of property belonging to the bogus filer’s enemy. §9-510(a)

          1. D can file a termination statement

          2. D can file a correction statement

          3. D can sue Bogus man for conversion

          4. D can recover statutory damages under 615a of $500

      6. SP can assign collateral to someone else. §9-514

        1. 9-514, Comment 2 provides that a SP who assigns a s.i. to another creditor need not file – the perfection remains.

      7. Demand for News by D

        1. D can demand info of the SP like how much he owes, etc. §9-210

        2. A D may not harass the SP though – can only request info once every 6 months, lest he can get charged $25 for each request by the SP.




  1. Background

    1. Questions to ask:

      1. When other parties are competing for the Ds assets, there are three questions you need to address:

        1. What is the type of collateral

        2. If the collateral is goods, how are the goods used

        3. What is the type of party competing for the asset (buyer, lien creditor, SPs)

      2. Virtually every good analysis consists of determining whether the basics of getting a security interest have been accomplished (9-203) and then determining whether perfection has been achieved (9-308). Also determine how perfection can be accomplished with the particular type of collateral and whether any perfection has been achieved. The basic clearing house section for the requirements of filing for a certain type of collateral is 9-302.

  2. The Potential Claimants

    1. Unsecured Creditor

      1. i.e. a doctor to whom bills are owed

        1. if this kind of creditor sues and wins, the creditor becomes a JLC.

    2. JLC

      1. A formerly unsecured creditor

      2. This includes the TIB? See §9-102(a)(52)

    3. SP

      1. §9-203

    4. Buyers of Property


  1. 2 Unperfected Secured Creditors (2 Dummy Rule)

    1. First to perfect will win. This issue is hardly ever litigated because one of the creditors can simply perfect to avoid litigation over the issue. §9-322(a)(3)

  2. Unperfected SP vs. Perfected SP

    1. Unperfected SP is always subordinate to perf. SP. §9-322(a)(2). Doesn’t matter if the perf. SP knew the unperf. SP was unperf.

  3. Unperfected SP v. JLC

    1. JLC wins. §9-317(a)(2)

  4. Unperfected SP v. SLC

    1. SLC wins (unless the statute says they do not). §9-333

  5. Unperfected SP v. Buyer

    1. Buyer wins IF §9-317(b):

      1. He is not a SP

      2. He buys tang. Chat. Paper, tang. Documents, goods, instruments, or a sec. cert.

      3. He gives value

      4. He receives delivery (not applicable to account, elec. Chatt. Paper, or investment property other than a certif.. security) §9-317(d)

      5. He didn’t know about the s.i. in the collateral


    2. ALSO, if the buyer:

      1. Purchases in the ordinary course of his business (applies primarily to inventory)

        1. The buyer takes free of a s.i.

          1. EVEN IF THEY KNOW OF THE S.I. §9-320(a), See Comment 3

  6. Two Perfected SPs

    1. General Rule: First to File wins.

      1. §9-322(a)(1)

      2. The rule is really: First to File or Perfect will ultimately win.


  1. Two Perfected Creditors: PMSI Complexities

    1. Exception to the First to File/Perfect Rule

    2. A PMSI (in collateral other than livestock or inventory) takes priority over conflicting s.i.s in the same collateral and its identifiable proceeds, if the D takes possession of the collateral or within 20 days thereafter. §9-324(a)

    3. PMSI Chart



Consumer Goods:


Automatic Attachment


Covers ALL identifiable proceeds








Perfection before 20 days after D receives equipment


ALL identifiable proceeds

Farm Products:


Perfection before 20 days after D receives farm products


ALL Id. Proceeds



Perfection and authenticated notice given to other filed SPs before D receives inventory


Cash proceeds received on or before delivery of inventory to buyer, chattel paper proceeds, instrument proceeds



Perfection and authenticated notice given to other filed SPs before D receives livestock


All identifiable proceeds and Unmanufactured products.

    1. PMSI Priority in Inventory

      1. SP will only get superpriority if:

        1. The PMSI must already be perfected at the time the debtor receives possession of the collateral. There is no 20 day grace period. §9-324(b)(1)

        2. In addition, the PMSI SP must give authenticated notice to any other s.i. holder who has previously filed a FS covering inventory of the same type of goods as those that will be covered in the PMSI. The notice must be given prior to the date on which the D takes possession of the collateral. §9-324(b)(2)

          1. Contents of the Notice:

            1. Notice must state that the person filing has or expects to acquire a PMSI in the Ds inventory and it must describe the inventory. §9-324(b)(4)

            2. The notice lasts for 5 years. If after the 5 yrs is up the financing is still continuing, a new notice must be sent to and received by the conflicting interest holder. §9-324(b)(3)

    2. Art. 9 Consignments as PMSI inventory

      1. If the consignment is covered under Art 9 (i.e. the consumer goods, which are not consumer goods in the hands of the consignor, have a value of at least $1000 at the time of delivery to the consignee, the consignee is a merchant not known by its creditors to be substantially engaged in the selling of goods to others, and the consignees professional name is different than that of the consignor.

      2. Therefore, if the consignor takes proper steps to gain superpriority in inventory, it will have priority in the consigned goods over all other inventory financers. §9-103(d), §9-324 and Comment 7.

    3. 2 PMSI creditors with interest in same collateral

      1. If the D buys goods on credit (PMSI for the seller), the buyer may also borrow money to make the payments, thus creating a PMSI for the lender. Top priority is given to the seller of the goods. §9-324(g), Comment 13.

    4. Priority among perfected creditors for certain types of collateral

      1. Fixtures

        1. Only Real Property involvement of Art 9

        2. UCC never defines Fixture specifically. See §9-102(a)(41)

        3. Ordinary building materials are specifically excluded though – bricks, lumber, etc. §9-334(a)

        4. In a contest between a SP who has made a fixture filing and a party with an interest in the real estate to which the fixture is attached, the first party to file or record wins. However, if the security interest in the fixture is a PMSI filed within 20 days after the goods were affixed to the realty, the PMSI holder has priority unless the real estate interest is a construction mortgage and the fixture was affixed during construction.

    5. Accessions

      1. Goods that are attached to other goods are called accessions. §9-102(a)(1).

      2. If the s.i. in the accession is perfected when the accession is installed in other goods, its perfection continues in the accession. §9-335(b)

      3. See 9-335(c), Comment 6

        1. EXCEPTION – Goods installed in motor vehicles. The SP who is listed on the certificate of title has priority in all accessions added to the vehicle no matter whether the accessions are prior or subsequent to the certificate of title on the car. §9-335(d), Comment 7

    6. Commingled Goods

      1. When one good is put together on another good, so that the identity of both goods is lost, or one of the goods’ identity is lost. §9-336(a)

        1. Perfection extends to the whole product in commingled goods. §9-336(b)-(d)

      2. If more than 1 SP has an interest in the commingled goods, each SP gets an equal interest in proportion to the value of the collateral at the time of commingling. §9-336(f)(2)

      3. But if there is unperfected SP and a perfected SP, the unperfected SP is junior to the SP in the commingled goods. §9-336(f)(1)

    7. Proceeds

      1. Prior to art 9, if the D was allowed to use or dispose of the collateral or to retain the proceeds from the dale thereof, the cts treated the s.i. as a fraudulent transfer, which could be set aside by a TIB. Benedict v Ratner

      2. B v. R was overturned by §9-205, which specifically provides that a si is not invalid or fraudulent against creditors by reason of permission granted to the D.


      1. Proceeds can be 2nd generation proceeds – i.e. A buys car from B. A gives old car as part of payment to B for new car. B’s bank gains si in As old car, and if B sells As old car, Bs Bank gets si in the cash proceeds of As old car.

      2. Insurance/Tort Claims

        1. Only time these claims are covered under art 9 is when they are proceeds. The insurance policy must however have listed D or SP as beneficiary of the claim.§9-102(a)(64)(E).

      3. Expressed Intent

        1. No expressed intent is necessary. It is the presumed intent - §9-315(a)

      4. A SP is only entitled to the proceeds or the collateral but not both, if the debt is satisfied.

        1. No new filing is necessary if A transfers Banks collateral to B. §9-315(c)

      5. Cash Proceeds

        1. If cash proceeds (money, checks, bank accts) intervene in the creation of the new proceeds. In that case the SP is given temp. perfection for 20 days and must file a new FS describing the 2nd generation proceeds in the appropriate office or lost its perfection. §9-315(d)(1)(C), §9-315(e), Comment 5.

        2. Cash Proceeds Tracing Rule

          1. Perfection in the original collateral continues in cash proceeds of the collateral as long as the cash proceeds are still identifiable. §9-315(d)(2) – Whether cash proceeds remain identifiable remains to the common law of tracing money. §9-315(b)(2)

        3. If Unsure

          1. If a creditor has a perfected si in the original collateral and neither the same office rule or the cash proceeds rule applies to the proceeds of the collateral the creditor must obtain a a perfected si in the proceeds within 20 days after the debtor receives the proceeds to retain its perfected si.

        4. Rules of Priority with Re: Proceeds

          1. Usual priority rule of first to perfect wins govern most priority disputes for proceeds.

          2. “Lowest Intermediate Balance Rule” in §9-315, Comment 3:

            1. EXAMPLE: D had a bank acct with 2k in it. D deposits cash proceeds of 3k. D then withdraws 1k. The lowest int. balance rule presumes that the D withdrew $ that no one had an interest in, and the 3k is still in tact for the party who has an interest in it.

          3. Accounts as Proceeds of Inventory

            1. Wherever a si exists in the Ds inventory and another si exists in the in the Ds accts receivable, a conflict will occur if the D sells the inventory on credit bc the proceeds of inventory will be an acct receivable.

            2. First to File wins.

          4. Chattel Paper as Proceeds

            1. Where Interest in chattel paper claimed as proceeds of inventory. §9-330(a)

              1. If purchaser of CP gives new value and takes possession in the ordinary course of business, the purchaser has a priority over another si in the chattel paper that is claimed merely as proceeds of inventory subject to a si. This is true even though the purchaser of the CP knows that the paper being bought is subject to the si.

              2. REMEMBER: a creditor with a PMSI super priority in inventory can also claim super priority in CP proceeds of that inventory. HOWEVER, bc a purchaser of CP who takes possession and gives value prevails over all creditors who claim a si in the CP merely as proceeds of inventory the CP purchaser will prevail over the PMSI superpriority creditor.

          5. Where CP is Subject to s.i. other than as inventory proceeds.

            1. If the CP is subject to a si perfected other than as proceeds of inventory a stricter rule is applied. To take priority in this case the purchaser of CP must not only give new value but must also have no knowledge of the violation of rights of the original SP. §9-330(b)









You are a Buyer in the Ordinary Course of Business IF ALL APPLY to Scenario

The purchase is an ordinary purchase of the seller’s inventory, and

The buyer purchased the goods for value, and

Buyer purchased goods in good faith and w/o knowledge of violation of Sec. Ag., and

The s.i. was created by the buyer’s seller


  1. But see 9-323(d)-(e): The UCC says a buyer not in the ordinary course of business takes free of increases in the s.i. due to future advances, unless the advances are made by the creditor in the 45 days following the sale and are made either without knowledge of the sale or pursuant to a commitment without such knowledge.





Voidable Preferences

(all must be true)

There was a transfer of the Ds property that was made to or for the benefit of the Creditor

The transfer was made on account of an antecedent debt

The transfer was made while the D was insolvent and within 90 days of the filing of bankruptcy

The transfer allowed the creditor to receive a greater percentage of the debt than could otherwise been received

The transfer was not contemporaneous to the Ds ordinary course of business




























Junior creditors who sent an authenticated notice to repo creditor in order of filing

Repossessing creditor receives amount owed by the D

Repossessing creditor reimbursed for expenses incurred in sale

















True Lease or Secured Transaction

Secured Transaction Lease

The lessee has no right to terminate the lease and return the goods at any time

The lessee has an option to purchase for nominal consideration OR at end of lease goods have little or no value

































Consignments (ALL must be true)

Consignee’s name is not same as consignor

Not consumer goods and not in the hands of the consignor

Goods are worth more than $1,000 at the time of delivery

Consignee is a merchant known by its creditors to be in consignmen

True Consignment COVERED by Article 9


*** Also note: If the consignee must have to keep and pay for the goods if they are not sold this isn’t even a consignment at all, but rather a disguised sale and MUST comply with Art 9 ***












Copyright Property. This outline is © copyrighted 2006 by (Site). This outline, in whole or in part, may not be reproduced or redistributed without the written permission of Site. A limited license for personal academic use is permitted, as described below or in Site’s Terms and Conditions of Usage page on this site. This outline may not be posted on any other website without permission. Site reserves the exclusive right to distribute, change or modify this outline in whole or in part.


This Outlines does not constitute legal advice and is not a replacement for obtaining legal counsel.




Students Can Not Claim This Outline As Their Own. Furthermore, some law schools have policies which permit law students to bring their self prepared course outlines into final exams. If your law school has such a policy, you are expressly prohibited from claiming this outline as your own or from representing that any of the other outlines contained on this Site are your own unless you are the author of this outline. If you are not sure of your law school's policy, you should contact the appropriate staff at your school.


Notices and Procedures for Making Claims of Copyright Infringement. If you have a claim of copyright infringement against this outline or any other content of this Site, then please see this Site’s Terms & Conditions of Use page for procedures of notifying Site of any alleged infringement




< Prev

LegalNut Resources

Attorney jobs listings and sites with attorney salary information, attorney job search functions, and salaries by law firm.

Law school rankings show how competitive your lsat scores would be at top law schools in the US.

Law school admissions advice is available both at the LSAT forum and throughout the pre-law section, including LSAT prep options, law school personal statement help, LSAT score distributions and law school bar exam pass rates.

Latest Forum Posts

Re:anonymous tip - criminal charge
wetyj 16-02-12 06:43
Re:car accident
habbaspilaw1 08-02-12 04:33
Re:patent bar
timeless 31-01-12 07:06
Kobe Bryant to break the record was the...
Salessessdfsd 29-01-12 04:18
Re:no fault question
Dingo 08-01-12 23:22
Temporary US residence & w-2
Jackie 08-01-12 23:12
Copyright 2006 - 2019 Rochester Ideas, LLC. All rights reserved.