1 Secured Transactions Assignment 23 Maintaining Perfection Through Changes of Name, Identity, and Use

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Secured TransactionsAssignment 23

Maintaining Perfection Through Changes of Name, Identity, and Use

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The Big PicturePart Two: The Creditor Third Party Relationship

Chapter 6: Perfection

Chapter 7: Maintaining Perfection

Assignment 22: Through lapse and bankruptcy

Assignment 23: Through changes in name, identity and use of collateral

Assignment 24: Through interstate movements of debtors and collateral

Chapter 8-9: Priority

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The Big PicturePart Two: The Creditor Third Party Relationship

Chapter 6: Perfection

Chapter 7: Maintaining Perfection

Assignment 22: Through lapse and bankruptcy

Assignment 23: Through changes in name, identity and use of collateral

Assignment 24: Through interstate movements of debtors and collateral

Chapter 8-9: Priority

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Perfection-maintenance ProblemS1 Filing

Debtor’s name

Collateraldescription

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S1 Filing

Debtor’s name


Changes

Perfection-maintenance Problem

Name changeSale to new ownerCollateral transformedChange of useProceeds exchangeNew debtor

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S1 Filing S2 Search

Debtor’s name


New name

New owner

Differentdescription

Changes



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S1 Filing S2 Search

Debtor’s name


New name

New owner


Changes

Two approaches mixed:



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S1 Filing S2 Search

Debtor’s name


Changes


1. Filer updates the filings as changes occur



New name

New owner


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S1 Filing S2 Search

Debtor’s name


Changes


1. Filer updates the filings as changes occur

2. Searcher must discover history of name and description



New name

New owner


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Name Changes, §9-507(c)

Filing

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Filing

A seriously misleading name change creates a four-month window.

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Filing

Seriously misleadingname change


4 months

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Filing


4 months


If filer amends within four months, filing is valid for all collateral

Amendment

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Filing


4 months



Amendment

If collateral is acquired this date

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Filing


4 months



If filer does not amend within four months, filing is valid against collateral acquired before the end of four months


Now

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Filing


4 months





Now

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Filing


4 months




If filer amends late, amendment is effective, Comment 4. but priority is only from the Amendment

Amendment

If collateral is acquired this date If acquired this date

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Change in owner (debtor), §9-507(a)

S1 files againstSam Seller

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Change in owner (debtor), §9-507(a)Sam sells the

collateralto Beth Buyer


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“A filed financing statement remains effective with respect to collateral that is sold . . . even if the secured party knows of . . . the disposition.”


Sam sells the collateral

to Beth Buyer

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S1 filing is effective. How would S2 find it?

Beth Buyerborrowsfrom S2



to Beth Buyer

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Comment 3. “[A]ny person seeking to determine whether a debtor owns collateral free of security interests must inquire as to the debtor’s source of title and, if circumstances seem to require it, search in the name of a former owner.”



to Beth Buyer


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Comment 3. “[A]ny person seeking to determine whether a debtor owns collateral free of Every searcher must inquire as to the debtor’s source of title and, if circumstances seem to require it, search in the name of a former owner.”



to Beth Buyer


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Filing

Physical/use change incollateral Search

Changes in collateral: Physical/use

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Filing

§9-507(b). A financing statement is not rendered ineffective if, after the financing statement is filed, the information provided in the financing statement becomes seriously misleading under Section 9-506.


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Filing


The financing statement remains effective


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Filing


The financing statement remains effective

The secured party may not remain perfected. E.g., auto parts become an auto; auto use changed from equipment to inventory.


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Filing

Collateral exchangedfor proceeds Search

Changes in collateral: Proceeds

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Filing

Three kinds of changes:



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Filing


Type 0: The description still indicates the collateral (No change)



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Filing



Type 1: The description is seriously misleading, but the filing is in the right office for the new collateral.



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Filing



Type 1: The description is seriously misleading, but the filing is in the right office for the new collateral.

Type 2: The filing is in the wrong office for the new collateral



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9-315(c). A security interest in proceeds is a perfected security interest if the security interest in the original collateral was perfected.


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(d) A perfected security interest in proceeds becomes unperfected on the 21st day after [attachment] unless


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(d) A perfected security interest in proceeds becomes unperfected on the 21st day after [attachment] unless:

(1) The following conditions are satisfied:

(A) a filed financing statement covers the original collateral

(B) . . . a security interest [in the proceeds] may perfected by filing in [that same office]

(C) the proceeds are not acquired with cash proceeds


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(2) the proceeds are identifiable cash proceeds; or


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(2) the proceeds are identifiable cash proceeds; or

(3) the security interest in the proceeds is perfected . . . when the security interest attaches or within 20 days . . .


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More Big PicturePerfection requires:

1. Attachment and

2. Compliance with perfection requirements

§9-308(a). [A] security interest is perfected if it has attached and all of the application requirements for perfection in Sections 9-301 through 9-316 have been satisfied.

If secured party doesn’t have a security interest, secured party isn’t perfected.

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Problem 23.1, page 407GBT is monitoring collateral of Bonnie’s Boat World, Inc. The

description is: “inventory, accounts, and chattel paper”

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a. Bonnie took an inventory boat home; used it personally. Is the boat still inventory? §9-102(a)(48)

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a. Bonnie took an inventory boat home; used it personally. Is the boat still inventory? §9-102(a)(48) No.

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a. Bonnie took an inventory boat home; used it personally. Is the boat still inventory? §9-102(a)(48) No. Is GBT still perfected?

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Type 1 change, inventory to equipment. §9-507(b). No new filing needed. (Assuming no boat certificate of title law.)

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b. Bonnie transferred ownership to herself. What evidence would exist?

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b. Bonnie transferred ownership to herself. What evidence would exist? Maybe a bill of sale, check.

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Does GBT still have SI? §9-315(a).

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Does GBT still have SI? §9-315(a). Perfected? §9-507(a).

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c. BBW trades an inventory boat for a forklift.

Does GBT have a security interest in the forklift? Yes. §9-315(a)(2).

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Is that security interest perfected? Yes. §9-315(d)(1).

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Is that security interest perfected? Yes. §9-315(d)(1).

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Problem 23.1, page 407Description of collateral: “inventory, accounts, and chattel paper”

d. Inventory boat sold for cash, cash used to buy forklift.

Does GBT have a security interest in forklift? §9-315(a)(2)

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Is GBT perfected in the forklift? §9-315(d)(3).

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Is GBT perfected in the forklift? §9-315(d)(3). Not after 20 days

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e. Inventory boat suffered insured storm damage. Does GBT have a security interest in the insurance claim? Yes. §9-102(a)(64)

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GBT is not named as a loss payee. Is GBT perfected in the insurance proceeds?

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Only for 20 days. §9-109(d)(8); §9-315(c) and (d)

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How can GBT continue perfection after 20 days?

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Is GBT perfected in the forklift? §9-315(d)(3). Not after 20 days.




How can GBT continue perfection after 20 days?

Be named loss payee on policy. §9-315(d)(3) governs.

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Problem 23.2, page 408

Filing

GBT files against Southwest Appliance Corporation in that name

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Filing Name change Now

6 months


Six months ago, debtor changed its name to Southwest General, Inc.

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6 months



Is GBT’s filing seriously misleading?

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6 months



Is GBT’s filing seriously misleading? Almost certainly. 9-506(c).

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Filing


§9-507(c). The seriously misleading name change created a four-month window for amending our financing statement. We missed it. Where do we stand?

4 months

Now

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Filing



Not perfected in recently acquired inventory.

Now

4 months

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Filing




a. What do we do now?

Now

4 months

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Filing




a. What do we do now? Amend.

Amendment

4 months

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Filing





Then what is our priority date?

Amendment

4 months

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Filing





Then what is our priority date? Filing date (collateral acquired through four months); amendment date (collateral acquired after four months). §9-507 Comment 4.

Amendment

4 months

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Filing


4 months

b. What if GBT’s collateral had been a construction crane?

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Filing


4 months


The financing statement remains effective against the crane

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Filing


4 months



Do we need to amend?

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Filing

Seriously misleadingname change Sale

4 months



c. What if Southwest sells the crane for $235,000?


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Filing


4 months






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Filing


4 months





The financing statement is not effective against the cash


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Filing







GBT is perfected in the cash §9-315(c) and (d)(2)

Sale

4 months


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Filing







GBT is perfected in the cash §9-315(c) and (d)(2)

What if Southwest buys a replacement crane? §9-315(d)(3)

Sale

4 months


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GBT’s proposed loan: $500,000 to RLE, secured by:

1. Equipment

2. Inventory (minus “lawn dogs manufactured by Suti”)

3. Accounts

4. Money in bank accounts


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1. Equipment


3. Accounts


Prior financing statement: “Lawn dogs manufactured by Suti.”


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1. Equipment


3. Accounts



Could that security interest be attached to more than the lawn dogs?


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1. Equipment


3. Accounts




Yes. As proceeds, Problem 10.4.


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1. Equipment


3. Accounts




Yes. As proceeds, Problem 10.4. Or by SA description


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1. Equipment


3. Accounts





Could that security interest be perfected in more than the lawn dogs?


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1. Equipment


3. Accounts





Could that security interest be perfected in more than the lawn dogs?

Yes, accounts, barter, cash. §9-315(c), (d)(1), (d)(2)


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October’s description of collateral: “equipment, inventory, accounts, chattel paper, general intangibles, fixtures, money, and bank accounts.”

a. Does October have a security interest in debtor’s bank account at Gargantuan?

Yes. By description

Yes. If proceeds.

b. Is October perfected in the bank account?

As original collateral: Only if October has “control”

As proceeds: Yes, to the extent “identifiable,” §9-315(d)(2)

c. Does it matter how long the proceeds are in the account?

Problem 23.5

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Yes. By description

Yes. If proceeds.





Problem 23.5

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Yes. By description

Yes. If proceeds.





Problem 23.5

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Yes. By description

Yes. If proceeds.





Problem 23.5

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Yes. By description

Yes. If proceeds.





Problem 23.5

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Yes. By description

Yes. If proceeds.





Problem 23.5

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Yes. By description

Yes. If proceeds.




c. Does it matter how long the proceeds are in the account? No

Problem 23.5

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Yes. By description

Yes. If proceeds.





d. Does it matter if Beaver commingles other money in the account?

Problem 23.5

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Yes. By description

Yes. If proceeds.





d. Does it matter if Beaver commingles other money in the account? No.

Problem 23.5

Documents

1 Secured Transactions Assignment 23 Maintaining Perfection Through Changes of Name, Identity, and Use