Secured Transactions MEE Attack

Attachment
Attachment allows a creditor to enforce a security interest against the debtor, the collateral, and third parties
who know of the security interest. An enforceable security interest attaches (is created) when the parties have a
debtor-authenticated (debtor is agreeing to give the creditor a security interest) agreement that the security
interest will attach, the secured party gives value, and the debtor has rights in the collateral.

To be enforceable against the debtor, a security interest must attach to collateral. Attachment occurs once the
parties agree to create a security interest evidenced by the debtor signing a security agreement describing the
collateral, the creditor gives value, and the debtor has rights in the collateral. A debtor has acquires rights in
goods when it obtains an ownership interest in the goods.

Perfection establishes a secured party’s rights against those with competing interests in the collateral. A
security interest in goods is perfected by filing a properly completed financing statement or by the secured
party’s possession of the goods.

For a filing statement to be effective, the debtor must authorize it in an authenticated (non oral) record. The
debtor authorizes the financing statement if he authenticates the financing statement or authenticates a security
agreement covering the same collateral as the financing statement.

Collateral is categorized based on its primary use at the time of attachment.

Inventory goods are those held for sale or lease. Inventory goods also include supplies used in manufacturing.
It may be perfected by filing a financing statement or by the secured party’s possession of the collateral.

Equipment
Equipment is a category of goods that include goods used in a business. Equipment does not include goods
considered as inventory, farm products, or products purchased for personal, family, or household purposes
(consumer goods).

Accounts
Accounts involve a right to payment for goods and services, namely money in exchange for some kind of
service. Typically, accounts are perfected through filing.

Chattel Paper
Writings evidencing both a monetary obligation and a security interest in specific goods.

Automatic Perfection
Small Scale Assignments
Perfection may occur automatically in the case of a security interest in a small-scale assignment of an account
or payment intangible. This rule applies to an assignment of accounts or payment intangible that does not
alone, or in conjunction with other assignments to the same assignee, transfer a significant part of the assignor’s
outstanding accounts or payment intangibles to the creditor.

Consumer goods
A security interest is automatically perfected upon attachment if the goods are “consumer goods” and the
security interest is a “purchase-money security interest.”

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 Perfected vs. Unperfected Parties
Perfected Secured Creditor vs. Unperfected Creditor Retaining Title to Delivered Goods
Bank Lender vs. Clockwork Seller
An agreement that a seller will retain title to delivered goods until the buyer has paid for them is treated as an
Article 9 security agreement. A party need not have title to goods to have rights in them; the right to obtain
possession is sufficient. The secured party has an enforceable security interest in the collateral even if the party
does not have title.

A perfected security interest prevails over one that is unperfected.

Perfected Traditional Security Interest vs. Unperfected Lease-Purchase Agreement

Bank Lender vs. Vacuum Lessor

Lease Purchase Agreements

Article 9 applies to a lease purchase agreement intended for security, rather than true leases. A transaction will
be deemed to create a security interest when: (1) at the end of the lease period, the lessee becomes the owner of
the machine for little or no consideration (e.g., option to purchase for $1); or (2) the lessee is bound to purchase
the goods at the end of the lease or to renew the lease for the remaining economic life of the goods; or (3) the
lease is for the entire economic life of the leased goods, with or without renewal.

A security interest in a Lease Purchase Agreements is not perfected unless it has been filed or the secured party
retains possession of the vacuum.

PMSI Superpriority in Inventory

PMSI’s may obtain priority over goods; however a PMSI in inventory will have priority only if it was perfected
when the Debtor gets possession. Inventory is be perfected by attachment and filing. If a creditor with a PMSI
in the inventory fails to perfect by filing, it does not have priority over other perfected parties. The creditor with
the PMSI would have had to notify the previously perfected secured party of its intention to take a PMSI in the
inventory before the debtor received possession of the inventory.

Perfected PMSI Security Interest in Consumer Goods

A PMSI arises when a creditor sells goods to a debtor on credit, retaining a security interest in the goods for the
purchase price.

A security interest continues in collateral, even after a sale or other disposition of that collateral, unless the
creditor authorized the disposition “free of the security interest” or another Article 9 exception applies.

Exceptions
Buyer in the Ordinary Course of Business, Buyer of Consumer Goods, and Consumer to Consumer Sales

1. Perfected Security Interest in Inventory vs. Buyer in the course of ordinary business
Bank v. BOCB telescope
Generally, buyers take goods subject to any perfected security interest; however an exception exists for buyers
in the ordinary course of business (BOCB). A BOCB is one who buys goods from a seller engaged in the
business of selling goods of that kind. A BOCB takes free of nonpossessory security interests created by his
seller unless he knows the sale violates a security agreement.

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2. Buyers who give value and receive delivery of goods without knowledge of an unperfected security interest
in the goods can take free of a prior security interest in those goods
Bicycle Retailer to Man Who Buys a Bicycle
A buyer of goods from a person who used them for personal, family, or household purposes takes free of a
perfected security interest in the goods if (1) the buyer had no knowledge of the security interest, (2) the buyer
gave value for the goods, (3) the buyer purchased the goods primarily for personal, family, or household
purposes, and (4) the purchase occurred before the filing of a financing statement covering the goods.

3. Buyer of consumer goods in a consumer-to-consumer transaction who gives value

Astronomy vs. consumer to consumer sale
Generally, PMSI in consumer goods are perfected automatically; however if the secured party does not file its
interest, it does not have priority over a consumer who buys goods (gives value) from another consumer, before
a financing statement ahs been filed and without knowledge of the interest. The consumer takes free of the
perfected PMSI.

***There’s a difference between Consumer to Consumer sales, Buyer in the Ordinary Course of Business Sales
and, ordinary buyer of consumer goods.

BIOC and buyer of consumer goods always takes free of interest, even a properly filed, perfected interest.

Consumer to Consumer sales: If no authorization, buyer had to have given value. Also, buyer will take free
only if it wasn’t file perfected.

After Acquired Clause Perfected by Filing

Perfected Party vs. Unperfected PMSI in Equipment : Bank vs. Copperco PMSI seller

After Acquired Clause

When a security agreement contains an after-acquired property clause, the security interest will attach to the
specified collateral when the debtor acquires an interest in it. Priority of after acquired goods dates back to the
time the party filed its financing statement covering the goods, even though its interest did not attach or become
perfected at the time of filing.

When a seller delivers goods to a buyer and attempts to reserve title in the delivered goods until they are paid
for, the seller’s interest will be treated only as a security interest.

Proceeds
Because the computer was “acquired upon the . . . exchange . . . of collateral,” the computer is “proceeds” of
that collateral. A security interest in collateral extends to identifiable proceeds of that collateral.

Perfected Party (No attachment) vs. Unperfected PMSI

A security interest attaches to collateral only when the debtor has rights. If it was never delivered, never paid
for, and/or the parties contracted that no interest would arise until delivery, debtor has not acquired any rights to
the collateral. Collateral is not part of after acquired property subject to the clause because it has not attached.

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 Equipment: Perfected Secured Party vs. Unperfected PMSI

Article 9 Lease
Article 9 does not govern true leases. Nonetheless, if a transaction is characterized as a lease but is intended to
have effect as security, Article 9 governs the transaction as a security interest. A transaction will be deemed to
create a security interest rather than a lease if the rental obligation not terminable by the lessee and at the end of
the lease, the lessee has an option to purchase the goods for no or nominal consideration.

Priority
If two creditors are competing for priority in collateral, a perfected creditor will have priority over an
unperfected creditor.

Subordinate Security Interests Discharged

If a secured party sells the collateral after default by the debtor, its security interest and all subordinate security
interests in the collateral that was sold are discharged—absent bad faith on the part of the purchaser.

Accessions, Equipment, PMSI, Certificate of Title for Truck

Perfected Party vs. Certificate of Title Perfected Party

If a state statute provides that a security interest in motor vehicle scan only be perfected by notation of the
security interest on the certificate of title, filing a financing statement is not effective to perfect a security
interest in property subject to such a statute.

Certificate of Title Perfected Party that did not file vs. File Perfected Party of Accessions
Accessions
When goods are physically united with other goods in such a manner that the identity of the original goods is
not lost, the goods become accessions. A security interest in goods that is created and perfected before the
goods become accessions continues after the goods become accessions.

But when the collateral of one creditor becomes united with the collateral of another creditor, each creditor’s
collateral is an “accession” to the other creditor’s collateral, and the two items of collateral together are
regarded as “the whole.” Whether either creditor’s security interest applies to “the whole” or applies only to its
original collateral, turns on the description of the collateral in that creditor’s security agreement.

The first party to perfect in compliance with the requirements of the certificate of title statute has priority over
the security interest in the accession.

File Perfected Party vs File Perfected PMSI of Accessions

A security interest in goods is a PMSI if the collateral secures a purchase money obligation incurred with
respect to that collateral. It can arise when the creditor sells the goods to the debtor on credit, retaining a
security interest in the goods for all or part of the purchase price or the creditor advances funds that are used by
the debtor to purchase the goods.

A PMSI in equipment perfected when the debtor takes possession of the collateral (i.e. the secured party filed a
valid financing statement) prevails over a conflicting perfected interest in the same equipment, even if the
conflicting interest is earlier in time.

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 Deposit Accounts

Perfection by Control for Deposit Accounts

A security agreement for a nonconsumer deposit account is evidenced by control. A security interest may be
perfected by filing as to all kinds of collateral except deposit accounts. The bank in which the nonconsumer
deposit account is maintained automatically has control over a deposit account. Other means of gaining control
over a nonconsumer deposit account are (1) putting the deposit account in the secured party’s name; or (2)
agreeing in an authenticated record with the debtor and the bank in which the deposit account is maintained that
the bank will comply with the secured party’s orders regarding the deposit account without the debtors consent.

Generally, perfected beats unperfected. Control perfection beats all types of perfection.

Financing Statement

Financing Statement Errors

For a financing statement to be effective, it must contain three pieces of information: (1) the name and address
of the debtor; (2) the name and address of the secured party; and (3) an indication of the collateral covered by
the financing statement.

Minor errors in the debtor’s name will not render the financing statement ineffective unless those errors make
the financing statement seriously misleading.
Name
If the debtor is a registered organization (corporation, limited partnership, or limited liability company), the
debtor’s name is seriously misleading if it does not match the name under which the debtor was organized.

Use of the debtor’s trade name is insufficient.

Under a safe harbor provision, the incorrect name is not seriously misleading if the financial statement would be
discovered in a filing office search under the debtor’s correct name, using the filing office’s standard search
logic, if any.

Judicial Lien
Judicial Liens
Prior perfected security interest in collateral trumps a judicial lien.

*Do date analysis of when one party’s interest was perfected vs. when the other party became a judicial lien
creditor evidenced by the sheriff levying the collateral.

Accounts, Financing Statement (Trade Name Flub)

Consignment Agreement, Proceeds, Superpriority in Inventory Through Notice

Consignment
Where: (1) consigned goods are worth a total of $1000 or more; (2) the consignor did not use the goods for
personal, family, or household purposes; (3) the consignee is a person who deals in goods of that kind under a
name other than the consignor’s; (4) the consignee is not an auctioneer; and (5) the consignee is not generally
known by his creditors to be substantially engaged in selling the goods of others, the consignor’s interest in the
consigned goods is treated like a PMSI in inventory vis a vis other creditors of the consignee. The consignee is
treated like the owner (debtor) of the goods.

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Senior Creditor vs. Junior Creditor
What rights, if any, does junior creditor have against senior creditor to recover proceeds from the sale
of the collateral?
When a secured creditor repossesses collateral, interests junior to the repossessing secured creditor’s interests
are wiped out.

PMSI Superpriority in Inventory

A PMSI in inventory will have priority over even prior perfected security interests in the same collateral if: (1)
the PMSI is perfected at the time the debtor obtains possession of the inventory (i.e. the PMSI holder must have
filed a financing statement covering the inventory before delivering it to the debtor) and (2) the PMSI holder
gives notice to each creditor with a conflicting interest in the same collateral before delivering the collateral to
the debtor.

PMSI in Fixture vs. Judicial Lien Holder

Sal’s Oven and Finance
Judicial Lien Holder
A judicial lien creditor (JLC) is a person who has acquired a lien on collateral through judicial attachment, levy,
or the like. A JLC prevails over the holder of a security interest in collateral if the lien creditor becomes such
before the security interest is perfected. However, a secured party who attaches a PMSI on the debtor’s
collateral before a judicial lien creditor acquires an interest in the collateral will have priority over the judicial
lien creditor if the security party files within 20 days after debtor receives the collateral.
Do an attachment discussion of when the perfected party attached.

Fixture
Holder of an interest in Fixture vs. Holder of an Interest in the Real Property to which the Fixture is
attached
Fixture is a good that is so attached to real property that an interest in the good arises under real property law.
The first party to file a fixture filing or record its real property interest prevails. A fixture filing is accomplished
by filing a financing statement in the office where a mortgage on real property would be recorded. In addition
to the standard requirements for a financing statement, a fixture filing financing statement must contain a
description of the real property to which the fixture is attached.

Default
Rights of a secured creditor. Make sure you discuss Attachment
Self Help, repossess if the security interest attached to collateral. Attachment gives a creditor rights against the
debtor. To attach a security interest to collateral, the parties must agree to create a security interest. The
agreement must reasonably identify the collateral and be evidenced by: (1) debtor authenticated security record
that properly lists the debtor’s name, a sufficient description of the collateral in which the creditor is taking a
security interest, and the value the creditor is giving in exchange for the security interest (2) the creditor taking
possession of the collateral; or (3) the creditor’s being given control over having control over the collateral.

Default and Resale Notice

After a secured creditor repossesses collateral, he has a right to sell the collateral at a public or private (i.e.
auction) sale. A reasonable notice authenticated by the creditor must be given to the debtor and any surety on
the obligation. The notice must describe the debtor, the secured party, the collateral, and the method of sale. It
must explain the debtor’s right to an accounting; and state the time and place of any public sale. In
nonconsumer cases (i.e. cases not involving goods for personal or household use), notice will be deemed
reasonable if it was given at least 10 days before the sale. Moreover all aspect of the sale must be commercially
reasonable.

Debtor has a duty to mitigate damages and breaches it when they do not bid at the sale

Failure to Comply with foreclosure requirements

Failure to comply with all of Article 9’s foreclosure requirements creates a rebuttable presumption that the
value of the collateral was equal to the value of the loan (i.e. that if the sale had been conducted properly, it
would have generated enough money to pay off the debt in its entirety. Thus, the secured creditor cannot
recover any deficiency unless it can rebut the presumption.

Secured Party’s Right To Possess

Upon default on a security agreement, a secured party has the right to take possession of the collateral that
secured the debt, by self help without judicial process if she can do so without a breach of peace.

Repossession over a debtor’s protest constitutes a breach of peace even if no violence or significant disturbance
actually occurs. Earlier protests arguably do not prevent future attempts at repossession.

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Use of trickery may or may not be breach of peace. Breaking and entering a residence is a breach of peace, so
taking a mobile home could be a breach of peace. Threat of force like an armed deputy sheriff can constitute a
breach of peace.

Secured party will be liable to the debtor for any damages caused by a failure to follow article 9 rules and will
be prohibited from collecting any deficiency if any article 9 rules regarding the debtor’s default are broken
unless the secured party can show that he breach did not cause the deficiency.
This includes losses resulting from the debtor’s inability to obtain alternative financing. [Erroneous financing
statement, and subsequent failure to correct or terminate the financing statement is a failure to comply with Art
9 rules].

Waiver of redemption
Any time before the secured party has resold the collateral or has entered into a contract for its disposition, or
the obligation has been discharged by the secured party's retention of the collateral, the debtor may redeem the
collateral. To do so, the debtor must tender fulfillment of all obligations secured by the collateral. Because
most security agreements contain an acceleration clause, the debtor typically must tender the entire balance in
order to redeem.

This right can be waived but only after there has been a default. The security agreement cannot include the
waiver of the right to redeem.

Art II/Art IX Hybrids

The holder of a security interest in accounts receivable and chattel paper may notify an accounts debtor to pay
the secured party directly. Once notified, an account debtor has an obligation to pay the secured party. If
account debtor receives proper notification, it can discharge its obligation only by paying the secured party.

An assignee cannot be assigned greater rights than the assignor possessed. Therefore, the assignee takes the
contract subject to any valid defenses that the assignor was subject to prior to the assignment.