UCC Security Interests in Payment Intangibles

UCC Security Interests in Payment Intangibles:

Intercompany Loans, Debt Obligations

and "Promissory Notes"Perfecting Interests in Financial Instruments and Contractual Payment Obligations

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WEDNESDAY, OCTOBER 2, 2019

Presenting a live 90-minute webinar with interactive Q&A

Dean T. Kirby, Jr., Principal, Kirby & McGuinn, San Diego

Professor Thomas E. Plank, Joel A. Katz Distinguished Professor of Law, University of Tennessee College of Law & Morgan Lewis & Bockius LLP, Knoxville, Tenn.

Steven O. Weise, Partner, Proskauer Rose, Los Angeles

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UCC Security Interests in Payment Intangibles: Intercompany Loans, Debt Obligations, and ‘Promissory Notes’

Dean T. Kirby, Jr.

Kirby & McGuinn, A P.C.

Professor Thomas E. Plank

U. Of Tennessee College of Law

Steve Weise

Proskauer Rose LLP

•Benefits

•Definitions + Examples

•Characterization

•Types of transactions

•Creation

•Perfection

•Priority

•Enforcement

Outline

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•Automatic perfection for sales

No public record

•Can't be primed by possession

Benefits of treatment as ‘payment intangible’

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•Reason for creating

•Core definition

•Expansion of ‘accounts’

Definition (§ 9-102)

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•Loan agreement

•‘Note’

•Electronic note

•Participation

•Intercompany loan entered on books

•Rights with respect to credit cards

Examples

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•Differentiate from:

Notes (paper)

Chattel paper

Accounts

Debt securities

Scope – characterization (§§ 8-102 + 9-102)

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• Chattel Paper is a record that evidences . . . (among other things)

Both a monetary obligation and a security interest

like a consumer installment purchase contract, or

A lease of specific goods

like a commercial equipment lease

• What happens when parties purport to separate the monetary obligations of the buyer or lessee from other obligations which are contained in the record, or from the record itself?

Are the severed payment obligations:

Accounts?

Payment intangibles?

Still chattel paper?

Chattel paper – Splitting the Atom?

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• In re Commercial Money Center, Inc., 350 B.R. 465 (Bankr. App. 9th Cir. 2006)

• UCC § 9-102, Comment 5.d

• In re Delano Retail Partners, LLC (Bankr. E.D. Calif. 2017) (unpublished)

• Animal, Vegetable or Mineral? In re Commercial Money Center, 39 U. Tol. L. Rev. 861 (2008)

• Classifying the Right to Rental Payment Streams Stripped Off a Lease, 86 Tex. L. Rev. 857 (2008)

Stripping to create ‘payment intangible’

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•Control of ‘transferrable records’ under:

UETA

E-Sign

Electronic notes

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•Security agreement

Sales agreement (for sales)

Creation – by agreement (§ 9-203)

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•Ancillary rights

•Guaranty

•Letter of credit rights

•Underlying mortgage

•Underlying security agreement

Creation – automatic (§ 9-203)

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•Sales v ‘pledge’

§§ 9-406(e) + 9-408(b)

•Effect of characterization

•Recent amendments to UCC §§ 9-406 and 9-408

Restrictions on transfer

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•Automatic for sale

Stripped payment rights?

Perfection – automatic (§ 9-309(3))

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•Filing

Should filing be dropped?

Perfection – filing (§ 9-310)

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•Not by possession (even if called a ‘note’) (§ 9-313)

•Not by control (§§ 9-104 – 9-107)

•Automatic for ancillary rights (§ 9-308(d) + (e))

•Proceeds (§9-315)

Perfection –other methods

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•Filing

Filing help in sales?

•Not by possession (even if called a ‘note’)

•Possibly by control?

Under UETA or E-SIGN

•Transferable records?

•Proceeds

Negotiable proceeds

Priority

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•Sale

Restrictions on transfer (§ 9-406(e) (revised))

Commercial reasonableness issues

Enforcement - sale

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•Notice to account debtor (§ 9-406)

•Notice to seller/borrower?

•Duty of commercial reasonableness?

Enforcement – collection

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•Account debtor defenses (§ 9-404)

•Hell-or-high-water term (§ 9-403)

•Offsets

Enforcement – account debtor defenses

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Dean T. Kirby

dkirby@kirbymac.com

Professor Thomas E. Plank

thomas.plank@morganlewis.com

Steven O. Weise

sweise@proskauer.com

Thank You

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