Secured TransactionsProfessor HarrellSpring 2014

Introduction In a secured transaction you will confront each of the above-mentioned issues (follow IRAC). 1. Scope and Definition (9-102 and 9-109) Not a big problem in class (bar exam big issue). Dealing w/secured trans. a. What?i. Article 9 deals w/SI in a piece of personal property or fixtures. Including:1. Goods movable personal property (including imbedded software);2. Fixtures personal property affixed to a structure;3. Documents documents of title;4. Instruments negotiable and other commercial instruments, checks, notes, etc.5. Chattell Paper writing(s) evidencing a monetary obligation and an interest in specific goods, e.g. lease or promissory note and SA.6. Accounts Account receivables for services rendered or to be rendered, or property sold, leased, licensed, assigned or disposed of, including contract rights.ii. Article 9 does not apply to:1. Most non-consensual liens: a. Judicial Liens > Judgment liens, execution liens, attachm3.4.5ent of garnishment liens.b. Statutory Liens > tax liens, artisans, mechanic liens, etc.c. Common Law liens > LL liens, innkeepers liens, etc.2. Real Property and Mortgages, except is applied to fixtures, timber to be cut, as extracted collateral (oil or gas) or other minerals.3. Sales of Accounts or Chattel Paper4. Loans on Consumer Deposit Accounts or Insurance Policiesiii. Some personal property not governed by Article 9, i.e. gen. intangibles intellectual property. b. Statute?i. Scope > 9-109ii. Definitions > 9-102 Created a uniform system applying to each creditor and each type of collateral. Different types of collateral will have different rules on how it can be perfected. Pay attention. 1. Debtor owner of the collateral2. Creditor secured party3. SA any contract granting personal property as security for an obligaion.4. SI any consensual interest in personal property which secured performance of an obligation.2. Attachment (9-203) Article 9 word that means the SA is an enforceable contract between secured party and obligor. Incorporates the requirements of contract law. Must be consensual encumbrance on property by agreement. a. What?i. When parties have an enforceable contract, you have attachment and a SI has come into existence.b. Statute?i. 9-203 Three (3) requirements for attachment:1. (1) Collateral must come into existence and debtor must have rights in the collateral;2. (2) Debtor must agree to give SI to creditor; anda. Authenticated Security Agreementb. Composite Document Rulec. Control/Possession3. (3) Creditor must give value to the Debtor, typically in the form of credit.3. Perfection (9-310) In order for the SI to be enforceable against 3rd parties, the SI must also be perfected. Against other competing creditors you must have perfection in order to collect. If it is perfected, and there are multiple creditors who have a similar claim, you must also have priority. a. What?i. Normal method of perfection is much like recording deeds and titles. Article 9 creates a similar recoding method in personal property. Filing a FS or a UCC-1 form is most common.ii. Ag. Liens and SIs are different, but are treated the same when perfection is concerned.iii. Article 9 does not create ag. liens, it just recognizes those liens, and allows procedure on how to perfect those liens in order to get perfection. Ag. Liens will only apply to certain parts of Article 9 if there is a distinction in the text, as in 9-310.iv. Financial Stmt a skeletal representation of the entire agreement. Otherwise, mirrors real estate filing. The reason for this is b/c in SI agreements the agreement is 100s of pages long. Article 9 is in favor and bias to filing of a FSs (cheap, efficient, leave collateral in hands of debtorb. Statute?i. ** Section 5 under UCC cover how to file a FS or a UCC-1ii. 9-310(a) General Rule Except as otherwise provided in (b) and 9-312(b), a FS must be filed to perfect all SIs and agricultural liens.iii. 9-310(b) Exceptions Filing of a FS is not necessary to perfect a SI:1. (1) that is perfected under 9-308(d), (e), (f), or (g)2. (2) that is perfected under 9-309 when it attaches;a. Notes: Applies only to PMSI consumer goods, except under 9-311(a),(b) for vehicles.3. (3) in property subject to a statute, regulation, or treaty described in 9-311(a);a. Notes: UCC 9-311, financing stmt is not necessary nor effective to perfect; and automatic perfection doesnt work. 9-311(a) doesnt apply if the consumer goods (vehicle) is part of the dealers inventory, see 9-311(d). This means that you must perfect a PMSI, vehicle on the dealers lot under 9-310(a).4. (4) in goods in possession of a bailee which is perfected under 9-312(d)(1) or (2);5. (5) in certificated securities, documents, goods, or instruments which is perfected w/o filing, control, or possession under 9-312(e), (f) or (g);6. (6) < Perfection by Possession > in collateral in the secured partys possession under 9-313;a. Notes: Not as good, b/c creditor must take care of the collateral, and debtor cannot use the collateral.7. (7) in a certified security which is perfected by delivery of the security certificate to the secured party under 9-313;8. (8) in deposit accounts, electronic chattel paper, electronic documents, investment property, or letter-of-credit rights which is perfected by control under 9-314.9. (9) in proceeds which is perfected under 9-315; or10. (10) that is perfected under 9-316iv. (c) Assignment of Perfected SIs: If a secured party assigns a perfected SI or agricultural lien, a filing under this article is not required to continue the perfected status of the SIs against creditors of and transferees from the original debtor.c. When can you NOT perfect a SI by filing a financing stmt?i. 9-309 situations where SI is perfected automatically when attached.1. 9-309(1): purchase money SI in consumer goods (goods that are purchased for household purposes, see UCC 9-103), except under 9-311(a) or (b) defers to state title laws, i.e. doesnt apply to vehicles. If the money borrowed was given to purchase the exact collateral, then it is a purchase money SI. Non-Purchase Money Secured would be where you already own a car and use it as collateral to get other funds.4. Priority (9-317, 9-320, 9-322) Only the creditor with first priority will collect on its SI when competing creditors exist. Personal property, unlike real property, doesnt have much prospect to increase in value.a. What?i. The creditor with the first priority will most likely lose money (about 95% of the time), the creditor that has 2nd priority will most likely not collect on anything. Cannot have priority against a 3rd party claimant w/o having perfection, you cannot have perfection w/o having attachmentb. Statutes?i. 9-317, 9-320, 9-322, 9-324ii. Priority Disputes:1. 9-317 > Resolves conflicts between [SI] and a [Lien Creditor].a. First to perfect.b. If ag lien has been perfected, ag lien is treated like a SI.c. Lien Creditor means non-consensual lien 9-102, i.e. a previously unsecured creditor who has obtained a lien by some non-consensual means (judgment and recording, or judgment and sheriff levy and execute against the property, statutory lien, common law lien liens that arise automatically).d. Trustee in BK has a lien creditor status. e. 9-317(a)(2)(A) First in time, first in right. Exception to the 1st in time 1st in right, is when dealing with PMSI, which gives 20 days for the goods to be delivered. In this 20 days, no creditor can have file and have priority over the PMSI.2. 9-322 > Resolves conflicts between [SI] v. [SI]:a. 9-322(a): First in time and first in right priority right.i. 9-322(a)(1) Rank in time of filing OR perfection. 9-317 only mentions perfection. This encourages early filing. If attachment has already occurred filing and perfection will occur at the same time. However, if a creditor files a fining stmt before attachment (during negotiations), then you can have filing w/o perfection. ii. Priority goes to the first to either file or perfect.iii. Purpose of this difference is to encourage early filing which is to give notice to other creditors that there is a pending deal. This is a public policy benefit that the record serves.iv. Good faith, actual knowledge are almost irrelevant under Article 9, b/c trials are expensive, and you need a trial to determine good faith, etc. personal property is normally lower in value than the cost of hearing.iii. Exceptions:1. 9-324 > Exception: Priority of a PMSIa. 9-324(a) provides for a super priority interest over a competing SI even if other SI was first in time. The purpose is to encourage PMSI. b. Not limited to consumer goods, can apply to commercial collateral as well.c. Specific rule for livestock, or inventory.2. 9-320 > Exception: Buyer in the ordinary course of business [BIOCOB]a. A purchaser buying goods from merchant. Can be consumer or business purchase.b. Buying goods from dealers inventory; you purchase free and clear of any SI previous to.5. Enforcement (9-609 9-615) What happens in Debtor defaults?a. What?i. Two (2) steps: 1. (1) Secured party can enforce SI by repossessing the personal property. If you do not have a SI you cannot repo. The general unsecured creditor only has a general contract claim against the debtor. That unsecured creditor has to sue the Debtor (maybe have a trial, judgment, garnishment, etc.). a. 2 ways to repo: i. (i) Sherriff can repossesses; replevin. Requires ct. process to get an order to the sheriff replevy the collateral, State action, triggers Due Process; ii. (ii) self-help repossession as long as it is done w/o the breach of peace. If it is done with breach of piece the repo agent is guilty of trespass, conversion, etc. 2. (2) Conduct a repossession sale, dispose of the collateral. Creditor has to give prior notice of the disposition to all Debtors and the disposition sale must be conducted in a commercial reasonable manner. Creditor can apply the proceeds of the sale toward the debt.b. Statutes?i. 9-609, 9-615

Attachmenta. The Rules >i. Means the SI is effective and enforceable between the Debtor and the Secured Party.ii. If attachment hasnt occurred, then a SI is NOT enforceable. iii. Three (3) requirements for Attachment, found in 9-203 which if met a SI is most likely enforceable:1. (1) There must be a consensual grant of a SI by the Debtor (i.e. an authenticated SA) describing the collateral must be in a record and authenticated by the Debtor unless perfection is by possession or control;2. (2) Debtor must have rights in collateral or authority to transfer such rights (consideration); and3. (3) Secured party must give value to the Debtor (e.g. a loan, etc.)b. Case Law >i. In re Cheqnet Systems, Inc. > Prior to filing a chapter 7 BK debtor was in business of check collection. Debtor signed promissory notes in favor of Citizens Bank of Fordyce. The note granted the bank a SI in the property described in the documents executed in connection w/the note as well as other property designated as security for the loan now or in the future . . . The BK trustee objected to the Banks claimed SI b/c the security documents do not properly reference the collateral.1. Rules: Rules that the Ct. applies and adopts:a. In order for the secured party to have a perfected SI, the secured party must show:i. (a) that the debtor has rights in the collateral;ii. (b) the debtor signs a SA in favor of the secured party which contains a description of the collateral; iii. (c) value is given by the secured party to the debtor; andiv. (d) a valid FS is properly recorded.2. Reasoning: The Bank has three arguments:a. (1) Note is sufficient to constitute the SA. Ct. holds that if the Note was the SA the collateral would be what it describes, which is the Note itself and not the actual collateral. This argument fails. Although you dont need the form of SA the language is not clear to intend collateral. This is a matter of contract interpretation. Here to vague and other not helpful.b. (2) FS is the SA. Arkansas law is that a FS alone does not constitute a SA in the debtors property. This argument fails.c. (3) Composite Document Rule. The Bank argues that the composite document rule applies to create a perfected SIs in all of the collateral describe in all the documents. This rule is that there doesnt have to be a separate document labeled SA, but that all relevant loan documents may be examined to determine where a SA exists. The language in the documents must meet the requirements of 9-203 and indicate that the parties intend to create a SI. Ct. doesnt rule out this argument, but insists that there is not enough evidence to award summary judgment for the Bank b/c of vagueness in describing the collateral to be attached.3. Disposition: Motion for summary judgment is denied.c. Other Considerations >i. Security Agreement The security agreement must be:1. (i) Authenticated (signed or executed), and it must be in 2. (ii) Record form (something tangible or stored electronically), that 3. (iii) Describes the collateral.a. 9-102(a)(7) Authenticate to sign or to execute or otherwise adopt a symbol, or encrypt or similarly process a record in whole or in part, w/r/t the present intent of the authenticating person to identify the person and adopt or accept a record.b. 9-102(a)(69) Record info. that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form.c. 1-201(b)(37) Signed includes using symbols executed or adopted w/present intention to adopt or accept a writing.4. ** A complete signature is not necessary. Symbol may be printed, stamped or written, may be initials or by thumbprint. May be on any part of the document. Ask: Whether the symbol was executed or adopted by the party w/present intention to adopt or accept the writing. Not the form but the intent is required.5. ** Remember composite document rule; i.e. may be able to show SA with a number of documents compiled together if all elements are met.ii. Description of Collateral in SA 1. 9-108 Must provide a description that reasonably identifies what is described. Description not necessary if secured party takes possession or control of the collateral.2. ** Supergeneric descriptions, i.e. description as all the debtors assets or all the debtors personal property or using words of similar import DOES NOT reasonably identify the collateral.3. Article 9 authorizes a description of the collateral in the SA by:a. Specific listing;b. Category;c. Type (except for tort claims, consumer trans., and securities accounts and entitlements);d. Quantity;e. Computational or Allocational formula;f. Or any other objectively determinable method, i.e. All Assets.4. ** Remember composite document rule; i.e. may be able to show SA with full description of collateral w/a number of documents compiled together.d. Problems re Attachment:i. 3.2.2 Only document that is signed is demand note, which made no mention of collateral. Bank pays dealer for truckload of new cars. Owner dealership orally agrees that bank had a SI.1. (a) If dealer defaults, may Bank enforce SI? a. No. W/o a SA creditor is an unsecured debt. We need an authenticated SA: Authenticate (to sign or to execute or otherwise adopt a symbol) the SA, and the agreement must provide a description of the collateral. The agreement must be in record form (is inscribed on a tangible medium or stored electronically) for the debtor to be able to authenticate it. b. Note: You can combine composite document rule w/parol evidence. W/o being indicating agreement cannot use parol evidence2. (b) Would there be an enforceable SI if Bank had signed a promissory note w/description as Collateral: Motor Vehicles? Probably not.a. Two (2) issues in this question: (1) Do we have words of agreement? And (2) Do we have a description of collateral.i. (1) Answer: Yes, we do. Sufficient, no requirement of words to grant. Collateral is evidence enough to show intent, to create SA.ii. (2) Answer: Not sufficient3. (c) SI if the SI was orally recorded on voicemail? If so, would you advise FB to extend credit to MM in reliance on this agreement? Maybe.a. This possibly could fit into the requirements of authenticate. However, I would not advise FB to extend credit, we could lose in future collection lawsuit. Need a signature.4. (d) E-Mail message? Would you advise FB to extend credit to M in reliance on this agreement?a. Looks like this would work as well. We have more info. here to indicate a signature and it is a recorded document that can be retrieved. This I would rely on.ii. 3.2.3 FB and MM signed a letter that described terms and conditions to express intention but not obligation. Included in terms of intention is that the credit would be secured by collateral, defined to include inventory. Letter also allowed FB to pre-file FSs to all collateral. FB files this FS. After this, MM signed a demand note and FB paid GM for new cars delivered to MM.1. #1 First, do we have an enforceable SI, under 9-203(b)(3)(A). Attachment requires: value to the debtor, debtor has the rights in the collateral, and debtor has authenticated a SA. Should be okay b/c agreement doesnt have to be in Article 9 format, just need intent to form.a. Value to Debtor > Debtor receives the new vehicles, and the loan. Satisfied.b. Debtor Have Rights in Collateral > Yes, satisfied here.c. Authenticated SA > Here we have a bit more analysis:i. 1-201(b)(3) Agreement > means bargain not contract.ii. 9-102(a)(73) SA > An agreement that creates or provides for a SI.iii. 9-102(a)(7) Authenticate > (A) to sign, or (b) to execute or otherwise adopt a symbol, or encrypt or similarly process a record in whole or in part . . . 2. #2 Why would you file FS w/o intending to create a SIs?a. 9-502(d) > Filing before SA attaches, a FS may be filed before a SA is made or a SI otherwise attaches.b. 9-322(a)(1) > Rank in priority of SIs rank according to priority in time of filing or perfection. Scare away other potential lenders.iii. 3.2.4 By error a new Chevrolet was omitted from the Loan Request Form and this form and Demand Note were only documents executed by MM. Also, assume the note made no reference to collateral.1. (a) Does FB have an enforceable SI in the omitted Cavalier, for which it has paid Old Bank? NO.a. 9-108 > Needs a description of the collateral that would be reasonably certain to indicate what was secured.2. (b) Would the Dealer Inventory SA cover the slip-up? YES.3. (c) Would your answer to (b) be the same if paragraph 5 of the Dealer Inventory SA contained no subparagraphs and covered only all Dealers personal property, of every kind and nature whatsoever? YES. a. These types of general descriptions are not good enough.b. 9-108 > (c) A description of collateral as all the debtors assets or all the debtors personal property or using words of similar import does not reasonably identify the collateral.4. (d) Would your answer be the same in (b) if paragraph 5 contained no subparagraphs and covered only certain motor vehicles? NO. a. 9-108 Includes the phrase or using words of similar import, I dont think this is good enough. Also, we dont know what type of motor vehicles these are. The UCC could classify those vehicles as consumer goods, farm products, inventory, etc.iv. 3.2.5 FB picks up the floor plan financing for MM. FB pays GM for a new shipment of cars to MM. Does FB have an enforceable SI in the newly arrived cars? YES.1. 9-204(a) > A SA may create or provide for a SI in after acquired collateral. As long as the goods are not consumer goods (we are okay here b/c dealing w/inventory).v. 3.2.6 Facts are the same, except paragraph 5 of the Dealer Inventory SA covered only inventory.1. (a) Does FBs SI in the cars in MM inventory extend to the vast array of software used to keep major systems in the cars operating properly (exhaust, brakes, etc.)? Or only attach to frames, engines, and other tangible aspects of the cars? YES, includes software used to keep major systems operating. Because this software is part of the goods/inventory we can include it.a. First look up the definition of inventory > 9-102(a)(48) > i. Inventory means goods, other than farm products, which: (A) leased by a person as lessor; (B) held by a person for sale or lease or to be furnished under a contract of service; (C) are furnished by a person under a contract of service; or (D) consist of raw materials, work in process, or materials used or consumed in a business. b. 9-102(a)(44) > Goods includes computer program embedded in goods and any supporting info. provided in connection w/a transaction IF (i) the program is associated w/the goods in such a manner that it customarily is considered part of the goods OR (ii) by becoming the owner of the goods, a person acquires the right to use the program in connection w/the goods.c. 9-102(a)(75) > Software a computer program and any supporting info. provided in connection w/a transaction relating to the program. DOES not include a computer program that is included in the definition of goods.2. (b) Does FBs SI in MM inventory extend to electronic repair manuals, car-racing computer games, and other computer software that MM sells as a sideline? NO. I dont think software in this context fits into definition of goods b/c not part of transaction. If sold w/vehicles then would be.a. These distinctions of goods will also tell you if there is perfection, see 9-311. Steps to take:i. (1) Check definition of inventory: Two parts (i) Must be goods and (ii) must be either leased, held by a person to lease or sale, furnished by a person for contract of service, and consists of raw materials used up in the conduct of business.1. Contract for Services > Contract relating to services (plumber installs temporary items to fix the larger problem), i.e., means a contract whereby services are being performed and goods are part of that service.2. Types of Goods: consumer, inventory, farm, equipment, see 9-104(44).3. (c) Does FB have a SI in MM loaners? Probably not. Would call this equipment, b/c no formal contract for loaner cars.a. The loaner would most likely not be included in the definition of inventory. See 9-102(a)(33) Equipment > means goods other than inventory, farm products, or consumer goods.b. 9-102(a)(23) Consumer Goods > goods that are used or bought for use primarily for personal family, or household purposes (use by the owner).c. 9-102(a)(34) Farm Products > engaged in farming equipmentd. 9-102(a)(48) Inventory > goods other than farm products which are leased by person.4. (d) Does FB have a SI in the Chevrolet Monte Carol that MM owns but allows MMs president to use? NO. Same argument as above in (c). This is inventory leased to the president. See 9-102(a)(48)(C) furnished by a service contract here an employment contract.vi. 3.2.7 MM leases from Office!Office! a variety of office equipment on a 3 yr. lease. MM may terminate the lease w/o penalty, for any reason upon giving 30 days notice to Office!Office!1. (a) Can MM create an enforceable SI in equipment? If so, would you advice lender to extend credit to MM in reliance on a SI in the equipment? YES.a. 9-203(b) > MM can fulfill all the requirements of this section, however it will only be able to transfer the right to enjoy and use the collateral for the length of the lease. MM only has a leasehold; therefore the SIs would not be very valuable. I would not extend credit to MM.2. (b) Lease contains following provision: Lessee (MM) agrees not to assign this lease or its rights hereunder. Any purported assignment shall be void and shall constitute a default resulting in the immediate termination of this lease. Does this affect your answer in (a)? NO. An agreement not to assign doesnt mean it cant be done. 9-401(a) informs us that it can still be done, and 9-407 tells us that terms restricting assignment are ineffective.a. 9-401(a) > An agreement not to transfer the debtors rights in collateral does not prevent the transfer from taking effect. Article 9 overrides clauses of inalienability if they prohibit a creation of securing interests. It doesnt however perfect, just prohibits the cant create. This means cannot enforce w/o permission of lessor. Enforcement is different than creation. Why? Purpose to enforce interests against sale proceeds.b. 9-407 > Terms restricting assignment ineffective.vii. 3.2.8 Counsel for Bob Financing, a judgment creditor of MM. MM borrowed $100,000 from FB, only document is a promissory note w/no reference to collateral. It appears that value of automobile inventory can satisfy all of FB loans and possibly Bob Financing IF $100,000 did not attach to inventory.1. (a) What are your best arguments that the inventory does not secure the $100,000? a. That there is no future advance clause in SA (no revolving credit arrangement). You could also argue that at original SA, there was no attachment. If there was no future advance clause, you need a new SA at time the $100,000 is issued do not have here.2. 9-204(c) > A SA may provide that collateral secures, or that accounts, chattel paper, payment intangibles, or promissory notes are sold in connection with future advances or other value, whether or not the advances or value are given pursuant to commitment.3. Comment 5 > SA can secure future advances IF the SA or agreement between the parties provides for it. Comment rejects the relatedness test.4. (b) Assuming that $100,000 loan would be secured, what result if MM $100,000 obligation to FB arose not out of a loan but out of an accident in which MM tow-trucks ran through FBs window?a. Same result. You would want to argue the same class obligation test. A tort claim is clearly not part of the original transaction. A tort claim is not a loan. 5. (c) As FB counsel, how could you draft the Dealer Inventory SA so as to ensure that the collateral would secure MM obligations to FB in both (a) and (b).a. Put in specific language to cover those types of situations.

Perfection Even if a SI is enforceable, secured party does not necessarily prevail over competing claims to collateral. The concern here is to explain the steps that a secured party must undertake to enhance position w/r/t potential competing claimants.1. The Rules >a. Perfection requires attachment and one of the following forms of notice to the world (method may depend on the type of collateral):i. (1) Filing a FS (a form designed to give notice to title searches also the general rule, all other options are technically exceptions to this rule);ii. (2) Possession of the collateral by the secured party;iii. (3) Possession by a third party (bailee) acting as agent for the secured party. Requires bailee acknowledge this is an authenticated record;iv. (4) Automatic Perfection in limited circumstances:1. Statutory temporary automatic perfection (instruments, securities, certain goods held by bailee;2. For a PMSI in consumer goods. v. (5) Certificate of title entry perfection for vehicles, boats, and manufactured homes. vi. (6) Perfection by control (investment property, commercial deposit accounts, letter of credito rights, and electronic chattel paper).b. Remember > Perfection has no bearing on relationship between debtor and secured party; unperfected secured party has the right to enforce its SI if default occurs. By perfecting the SIs, a secured party reduces the risk that a 3rd party can successfully assert a superior claim to the collateral.e. When Does Perfection Occur? > When SI has attached and when all of the applicable steps for perfection have been satisfied. See 9-308(a).

Perfection By Filing The Default/Primary Method of Perfection1. In General >f. A SI in almost all types of collateral can be perfected by filing.g. Analogous to the public recording of a mortgage to indicate an encumbrance on real estate.h. Doesnt work for deposit accounts and letter of credit rights.2. What Constitutes a Filing? > a. Communication to filing office w/the fee, IF the filing office accepts the FS.3. Why File? >a. Fraud in Law Doctrine Twynes case, where Debtor transferred goods to another creditor in an attempt to hinder, defraud, or delay the attachment of his property.b. Ostensible Ownership A debtor retains possession of property after it has been secured, creditors may believe that debtor owns property free and clear. A 3rd party has interest in goods, but debtors continued possession tricks creditors into believing that debtor owns goods free and clear.4. What to File? > A Financing Statement. Requirements:a. To be sufficient to perfect a SI, initial FS must include 9-502(a):i. (1) Name of debtor (See 9-503(a)-(c) for specifics).ii. (2) Name of the secured party or its representative;iii. (3) An indication of the collateral covered.1. Must reasonably identify collateral; not as detailed as SA (indicate is broader).2. FS is sufficient if covers all assets or all personal property.3. Interest in after acquired property does not have to be specified.4. Functions w/o regard to the time when Debtor acquires collateral.5. Meant only to be a alert to searching party to conduct further search.6. If real property, timber, or fixtures MUST include description not just an indication.iv. ** Even if filing office accepts FS w/less than this info. it is not effective to perfect the SI.v. ** No debtors signature required on the FS.b. A filing officer can, and should, reject a financing stmt w/o the following info. However, this info. is not necessary for the financing stmt to be legally sufficient to perfect 9-516(b): i. (1) Mailing address for the debtor;ii. (2) Mailing address for the secured party;iii. (3) Whether the debtor is an individual or an organization; andiv. (4) If the debtor is an organization: 1. (i) the type of organization, 2. (ii) the jurisdiction of organization, and 3. (iii) either an organizational ID number or an indication that the debtor has no such number.v. ** Why should you include this information on the FS? Safe Harbor Provision1. Filing office according to Article 9 is required to reject the FS if this info. is omitted. If omitted and rejected the FS is not effective to perfect. However, if we include this info. and it is subsequently rejected then the FS is STILL effective to perfect.a. Except as to an innocent purchaser who reasonably realizes, see 9-520(c).2. If FS is rejected = FS must meet requirements of 9-516 to be effective.3. If FS is filed and accepted = requirements of 9-502 must be met to be effective.5. Where to File? >a. Should file in the States central UCC filing office. In OK it is filed w/County Clerk for Oklahoma County.b. ** Must be filed in appropriate office to be effective. Likely only to search in the office that Article 9 indicates.c. If FS is filed in incorrect office is there an argument that it is still effective?i. Yes. But argument has never been used EVER. The text of 9-317(a)(2)(B) includes the words filed not specifying a specific office. Professor doesnt think this would work, but the argument exists.d. If your FS is rejected, what then?i. 9-520(a) can only reject FS for reasons under 9-516(b). Notice must be given of the rejection.ii. 9-520(a) If FS is accepted even if fails 9-516(b), it will be okay if met under 502(a).6. Effect of Errors and Changes > a. ** Failure of filing office to index correctly does not affect effectiveness of filed recordb. Errors 9-506(a): Only seriously misleading errors in requirements of 9-502 will lead FS from being ineffective, and therefore no perfection.i. Financing stmt substantially satisfying the requirements is effective, even if it has minor errors or omissions, UNLESS the errors or omissions make the financing stmt seriously misleading.ii. Places degree of care on the searcher rather than the secured party.iii. Error in Debtors Name = Seriously Misleading.iv. Error in Creditors Name = Not seriously misleading, depending on facts could be seriously misleading.c. Changes 9-507, 9-508: Financing stmt NOT ineffective if change in info. becomes seriously misleading.i. Even if FS doesnt include errors, changes might be necessary after filing that left unchanged could be seriously misleading, but not enough to be ineffective.ii. Such changes do NOT render a properly completed, properly filed financing stmt ineffective. Exception:1. Changes in the debtors name w/i or before 4 months. See 9-507(c).7. Effective Life of a FS >a. FS is effective to perfect for 5 yrs. If not continued it will lapse at the end of this period, and become unperfected.b. A FS may be extended for another 5 years by filing a continuation statement. This must be filed w/i 6 months prior to lapse. If filed earlier it is not effective to continue perfection.c. The period of continuation is 5 years from the end of the previous 5 years, NOT 5 years from the filing of the continuation statement.d. If FS would have to be filed in another jurisdiction to be continued, it can be continued ONLY by filing an initial FS in the new jurisdiction, i.e. filing in the old jurisdiction will not continue perfection.e. For consumer goods, the creditor must file a termination statement w/i 20 days after written demand by the Debtor (if debt is paid), or in any event w/i 1 month after termination of the debt.f. 4 Month Rule > A FS is effective for 4 months after a change in the name of the debtor or the debtor location which effect perfection. There is a 1 year grace period for interstate sales of collateral to a new debtor.8. Other Considerations >a. Debtors Namei. Who is a Debtor?1. 9-102(a)(28) Includes person having a non-SI of non-lien interest in collateral, whether or not the person is an obligor. Why? Include names who might have a claim to the collateral.ii. Name of Debtor 9-503(a)1. Registered Organization (i.e., organized solely under State or federal law) a. FS must reflect precise legal name as shown on articles of incorporation. 2. Other Debtors (including organization not organized under State/Federal) a. FS is sufficient ONLY if provides name of individual or organizational [9-503(a)((4)(A)]. If no name, then must provide name of partners, members, associates. [9-503(a)(4)(B)].3. Individual Named Debtors 9-503(a)(4)(A)a. Individuals may have many names (legal, nicknames). No requirement of legal name.b. Two (2) cases suggest how to interpret requirement of name for an individual Debtor:i. (1) Kinderknecht (10th Cir.) > FS is ONLY sufficient if it has legal name of the Debtor. Requiring legal name is close to intent of drafters. ii. (2) In re Erwin > Absent statutory provision stating legal name is required, name should be ordinary meaning, including Debtors nickname.c. ** Critique: Kinderknecht too restrictive, i.e. no reliable indicator of persons legal name is. Erwin too flexible, no one could know all potential variations of a persons name. d. ** There is a proposed revision due Summer 2010 that inter alia will address this issue.iii. Errors in Debtors Name1. Minor errors do not render FS ineffective, UNLESS error makes FS substantially misleading. 2. Error in Debtors name is seriously misleading.3. If FS omits a trade name or members, partners, etc. the FS is still okayiv. Trade Names1. FS that includes only trade name does not sufficiently name debtor [9-503(C)], UNLESS trade names meets sufficiency requirements of incorrect name under 9-506(b), (c), search logic test.b. Secured Partys Name 9-502(a)(2)i. The person whose name is provided is the secured party of record. See 9-511(a).ii. The secured party of record has the power to authorize certain amendments to a filed FS, including the power to terminate the FSs effectiveness, see 9-509(d)(1).iii. An error in the secured partys name will NOT render the FS ineffective.iv. Secured party and secured party of record can be different people or entities. c. Description of Collateral After Acquired Collaterali. Article 9 permits a secured party to take a Si in after-acquired property. One filing is sufficient to perfect as to both present and after-acquired collateral. SI floats over whatever collateral the Debtor owns and acquires.ii. Not necessary that FS have specific after acquired property clause; however, if description is too narrow it may exclude coverage of after-acquired property. Example: all equipment and cash registers including cash register #2 is sufficient to cover after acquired. However, cash register #2 would not be.iii. SA must indicate an intent to cover after-acquired property. It is not necessary to use any specific language. Cts. will apply contract principles in interpreting. Some Cts. have interpreted it differently:1. Some have refuse to uphold claims in the absence of explicit reference2. Other more generous courts will allow, especially when collateral is accounts or inventory.iv. ** If a new Debtor obtains the SI (merger, etc.), the SI will be enforceable as to after-acquired property. New FS will be needed if the old one is now seriously misleading.v. ** May want to include words expressly, after-acquired property of the same type to protect yourself.vi. ** Definitions of inventory and accounts Cts. have interpreted to automatically include after acquired property. With other types of goods must specifically state an after-acquired clause.vii. Exceptions > An after-acquired property clause is valid as to all types of collateral and all parties except:1. Consumer goods that are accessions, unless consumer requires them w/i 10 days of the loan.2. After acquired property clause is subordinate to the rights of a properly perfected purchase money security interest.d. Future Advancesi. The Problem Creditor #1 makes a loan to Debtor, obtains a SI, and files a FS. Creditor #1 is the first to file and perfect. Creditor #2 then makes a loan and perfects a SI in the same collateral. Creditor #1 later makes an additional advance on the same collateral (a future advance). Does this future advance have the same priority as the original loan?

** Only an issue IF (1) Same collateral is at issue in each transaction; (2) Type of Advance is NOT different (although some controversy even though comments reject the same obligation test and allow different advances to attach, Cts. have yet to embrace it), (3) Statute of limitations has NOT run on the FS via renewal or insufficient time lapse.

Trans. #1 - - - - - - - - - - - - - -> Trans. #2 - - - - - - - - - - - - - -> Trans. #3 (future advance)Creditor #1Lien Creditor (#2)Creditor #1

ii. The Solution If original agreement contained a future advance clause a provision specifically covering future advances, Creditor #1 will have priority as to ALL advances. UNLESS:1. (1) Creditor #2 was a purchase money secured party who perfected: (i) before debtor obtained possession if inventory collateral, or (ii) w/i 20 days of delivery to debtor for other collateral.2. (2) Creditor #1 terminated his/her perfection (e.g. by terminating the original FS), otherwise released the collateral, or signed a subordination agreement.3. (3) Future advances by a perfected secured party have priority over a lien to extent advance was made before lien attached or w/i 45 days thereafter, or to the extent the advances were made or committed to w/o knowledge of the lien.4. (4) Advances have priority over a buyer NOT in ordinary course of business only if made before or within 45 days after the purchase, or if made or committed to w/o knowledge of the purchaser.5. ** Five (5) different scenarios w/r/t future advances:AgreementOutcome

1No SA in trans. #1CR #1 is unsecured in transactions 1 and 3

2SA in trans. #1, but no future advance clauseCR #1 secured in trans. 1, lien creditor has priority over Cr #1 in trans. 3, CR #1 in trans. 3 is unsecured

3SA in trans. #1, w/future advance clauseCR #1 has priority in trans. #1 and #3.

4aCR #1 at trans. #1 files FS (to trigger earliest priority date), but does not execute a SA, nor is there an future advance clause. At trans. #3, there is a SA and loan is funded.SA attaches and priority date becomes date of previous FS being filed. So, CR #1 has priority at Trans. #3.** Typical of what often happens. Most wouldnt call this a future advance, but technically it is (therefore technically all secured trans. could be future advances). No requirement that the SA and the FS reference each other, it is sufficient if each covers the same collateral.

4bSame as in 4a, except trans. #1 CR advances funds to Debtor.Same result as in 4a. Doesnt matter when funds arrive.

5aSA and FS and funds at trans. #1, no future advance clause. At trans. #3 there is a new SA, new funds, but no new FS on same collateral.Same result as in 4a and 4b.

5bSame as 5a, except that CR #1 files additional FS at trans. #3.Same result. 2nd FS is irrelevant. 1st FS governs priority. You could have a million FSs.

iii. Priority Rules for Future Advances 1. 9-317(a)(2) [SI] v. [Lien Creditor]a. Presumption > SI has priority, UNLESS Article 9 states otherwise. See 9-201.b. Lien Creditor wins IF > (i) lien creditor obtains lien before SI was perfected or (ii) one condition in 9-203(b)(3) is met and a FS is filed. See 9-317. So, analyze under both:i. (i) A lien creditor most likely will obtain lien before SI is perfected w/future advance, b/c value is not given until advance is made, so you cannot have perfection until time of advance. So, 9-317(a)(2)(A) will never work.ii. (ii) Must look to 9-317(a)(2)(B) > If SA and FS are filed before lien was obtained then future advance will have priority.iii. Exception > 9-317(e) If SIs, including FA, is a PMSI (9-103) and secured party has filed a FS, the SI takes priority over lien creditor which may arise 20 days between the filing of the FS and attachment, even if lien creditor obtains the lien before attachment.iv. Exception > Priority will be based on the time of advance IF (i.e. FA will be subordinate to lien creditor):1. Advance is made 45 days or more after lien creditor becomes a lien creditor UNLESS the advance was made (i) w/o notice of the lien, OR (ii) pursuant to an commitment w/o knowledge of the lien.2. This is a narrow exception that probably will never apply. c. Comment 4 Filed but Unattached SI vs. Lien Creditor Article 9 treats all future advances the same. Meaning, under 9-317(a)(2)(B) if secured party has FS and SA covering FAs, FAs will have priority over intervening lien creditors.2. 9-322(a)(1) [SI] vs. [SI]a. Priority ranks according to first to either (i) file a FS or (ii) to perfect the SA. This encourages early filing of the FS.b. Exception > Priority will be based on the time of advance IF:i. If a FS is filed when the SI is one that is automatically perfected, priority date will be date of filing of the FS.ii. This is a narrow exception that probably will never apply.c. Exception > If the initial advance is paid off, and a new future advance is made, the priority of the new advance is on the date of the original FS.e. The Filing System > A filing office can choose to accept FS only in electronic form. No State has chosen to do so yet. Article 9 attempted to increase efficiently, speed, accuracy and uniformity of the UCC filing system. Generally, it has been successful. Reduced man hours at the office, and reports can be compiled much easier.f. Post-Filing Changes > 9-507, 9-508i. Even IF no errors in initial FS, changes occur after filing that can mislead searchers. However, [ 9-507(b)] such changes do not render a properly filed FS ineffective, even if changes make is seriously misleading.ii. Article 9 doesnt impose a duty to correct information in a filed FS.iii. Exception > 9-507(c) Changes in the Debtors Name1. If a Debtor changes name such that it renders FS seriously misleading under 9-506, the FS is:a. STILL effective for 4 months after collateral is acquired; BUTb. NOT effective to perfect after 4 months grace period, unless amendment is filed.2. Secured party not relying on after acquired collateral need not worry about name changes.3. Original filing remains effective as to any collateral acquired by the debtor prior to the name change if the SA has an after-acquired property clause.9. Problems >a. 3.3.1 FB and MM entered financing arrangement as described in Prototype. SB became interested in providing floorplan to MM. SB asks you, its counsel, to check the public record to discover whether, and to what extent MM assets may be subject to SIs.i. What does the public record reveal?1. We will find a FS (pg. 98) from both FB and OB. FS meets the requirements of 9-502(a), which means that if a valid SA is later filed, FB, would be first in time, and first in right of that collateral.ii. Does it show whether any motor vehicles in fact are subject to Old Banks of FBs SIs?1. No. FS is just a skeletal representation of possible agreements. The FS doesnt have to be as detailed as the SA, but it does mention vehicles, inventory, etc. We dont know from this stmt alone if there has been a SA.iii. Does it show whether MM is obligated to Old Bank or FB?1. The FS does not show whether MM is obligated to OB or FB, it only shows that there is a deal at the door between MM and FB.b. 3.3.2 Transaction followed exactly as Prototype explained. Bob, the holder of a judgment against MM, subsequently caused the sheriff to levy the cars on MMs inventory. i. Is Bobs lien senior or junior to FBs SI? 1. JUNIOR. Perfection and filing occur before lien creditor is perfected.2. 9-201 > Effectiveness of SAs. Except as otherwise provided in UCC a SA is effective according to its terms between parties, against purchasers of the collateral, and against creditors.3. 9-203(a),(b) > As long as Attachment requirements are met, we have an effective SI between the parties, FB and MM. Can only be enforced against 3rd parties if SA is or has been perfected.4. 9-317(a)(2) > Conflict Between SI and Lien Creditor. SI is subordinate to the rights of (2) a person that becomes a lien creditor before (A) SI lien is perfected OR (B) Debtors authorizes a SA and files a financing stmt covering the collateral.5. 9-308(a) > Perfection of SI. Perfected if it has attached and all of the applicable requirements for perfection in 9-310 9-316 have been satisfied.6. 9-310 > When Filing Required to Perfect SI. (a) Except as in (b), FS must be filed to perfect.7. 9-102(a)(52) > Definition of Lien Creditor Lien on the properly involved by attachment, levy.8. 9-311(d) > Finance Statement Not Sufficient to Perfect Exception. If collateral is inventory this section does not apply to a SI in that collateral.c. 3.3.3 Transaction followed precisely as Prototype explained, except that FBs clerk neglected to file the FS, Bob, judgment creditor, caused sheriff to levy on MM inventory. Is Bobs execution lien senior or junior to FBs SIs?i. SENIOR to FBs SI, the judgment creditor attached the lien before FB perfected its SI, and I cannot see an exception to the requirement to file a FS to perfect in 9-310(b)(6). ii. 9-317(a)(2) > SI is subordinate to the rights of (2) a person that becomes a lien creditor before (A) SI lien is perfected OR (B) Debtors authorizes a SA and files a financing stmt covering the collateral.iii. 9-310 > Gives exceptions to when filing stmt is not needed.d. 3.3.4 Transaction followed exactly like Prototype except that instead of filing the FS at Penn. office as required by 9-301(1) and 9-501(a)(2), FBs clerk filed it in the N.J. Bob caused sheriff to levy MM inventory. Is Bobs junior or senior to FBs lien?i. SENIOR. The entire purpose for the perfection requirement is to put other creditors on notice. If you do not follow the statutes and file in the correct office, then the whole purpose of perfection disappears. ii. Revised Article 9 Place to file is where the Debtor is located. For corp. the pace of incorporation.iii. 9-501 > Where to File Must be filed in the appropriate office to be effective. Interested parties are likely only to search in the office that Article 9 indicates.e. 3.3.5 FB followed prototype but there was an error in the process of inputting data into the computer. The error reflected that FB was the debtor and MM was the secured party. This error was reflected in a receipt mailed to FB by the filing officer, but none of FBs staff noticed the error. i. (a) SB becomes interested in providing a floorplan for MM, and wants to learn whether MMs inventory is subject to a SI. Would SB be able to discover the Financing Stmt?i. No. Search is conducted in Debtors name, this was miss-indexed. However, creditor could (i) be put on notice that there should be some creditor on inventory, and be required to do further inquiry. It would be insane to see a car dealer w/o a secured creditor; (ii) credit report also would disclose this information and creditor can access one of these easily.ii. 9-519(c) > FS lapses, and when it does the SI is deemed to have never been perfected.iii. 9-523(c) > Filing office must provide if there is a FS or not when a request is made on that day.ii. (b) Was the filing effective to perfect FBs SI?i. YES. Perfection occurs when the documents are given to the correct office. FS according to 9-516(a) was filed, and according to 9-517 an error by the filing office does not affect the effectiveness of a SI.ii. 9-516(a) > Except in (b) [rejection] (i) communication of a record to a filing office and tender of the filing fee or (ii) acceptance of the records by the filing office constitutes filing.iii. 9-517 > Failure of filing office to index correctly does not affect effectiveness of filed record.iv. In re Flagstaff Foodservice Corp. > Filing officers complete failure to index FS did not impair effectiveness of filing under Former Article 9, notwithstanding that 3 yrs. after filing the secured party had not yet received a copy of the filed financing stmt and its check for the filing fee had not cleared.v. In re Enos > Former Article 9 case burden of proof that FS was presented to filing office was not satisfied by evidence of mailing and the presumption of receipt; proof of actual delivery is required.iii. (c) If SB were to extend financing to MM secured by MMs inventory, and if SB failed to pick up FBs floor plan by satisfying MM indebtedness to FB, would SBs SI in the cars be junior or senior?i. JUNIOR. In a conflict between two secured interests the first to be filed or perfected is going to win. Here FB was the first.ii. 9-322(a)(1) > Conflicting perfected SIs rank according to priority in time of filing or perfection; AND (2) perfected SIs has priority over a conflicting unperfected SI.iv. (d) Do creditors or lien holders who may be damaged by the erroneous indexing have any recourse other than to attack the effectiveness of the SA?i. Negligence action against filing office, however it is very hard to get money from this type of lawsuit. You are better off exhausting all due diligence.ii. 9-523(c) > Comment 8 The failure of the filing office to comply w/performance standards, has no effect on the private rights of persons affected by the filing or records.iii. Mobile Enterprises Inc. v. Conrad > Complaint against Secretary of State for negligent failure to disclose to P the existence of a filed financing stmt was sufficient to withstand a motion to dismiss.f. 3.3.6 On March 19 MM executed and delivered the documents described in the Prototype and FB advanced funds to GM for a trailer-load of new cars. New cars were delivered on March 23, that same day Bob levied the newly delivered cars. March 26 FB filed the FS in the proper office. Is Bobs execution lien senior or junior?i. JUNIOR. In this problem we are asked to look at the exception for PMSI perfection rule which allows a grace period of 20 days to file the FS. The goods here, the inventory, is a PMSI, therefore FB had 20 days to file the financing stmt.ii. 9-317(a) > General description of first in time first in right.iii. 9-317(e) > (most important exception to 1st in time, 1st in right) If person files a financing stmt w/r/t a PMSI before or w/i 20 days after debtor received delivery of collateral, the SI takes priority over the rights of a lien creditor.iv. 9-103(b) > A SI in goods is a PMSI (1) to the extent that the goods are PM collateralv. Note: Filing a FS after Debtor has filed a BK? Filing the FS could be viewed as a violation of the automatic stay, so BK Code provides a similar grace period (however, it is longer at 30 days) to avoid that problem.g. 3.3.7 FB established the financing arrangement w/MM as described in prototype. SB became interested in providing floorplan financing to MM.i. (a) If the only reference to collateral was inventory, would the FS be adequate to perfect the SI in the inventory at that time? What about to inventory obtained after filing?1. YES to both. Article 9 requires just a reasonable description or all assets or all personal property. I dont see a time requirement in the section. 2. 9-502(a)(3) > FS is sufficient ONLY IF mentions name of debtor, name of secured party, and the collateral covered by the financing agreement.3. 9-504 > FS sufficiently indicates collateral that it covers IF the stmt provides: (1) a description of the collateral pursuant to 9-108; OR (2) an indication that the financing stmt covers all assets or all personal property.4. 9-108 > Sufficient if it reasonably identifies what is described.5. If so, how can an interested party like SB discover the relevant facts?a. 9-210 > Individual can make a request on the secured party to see what has been secured. They have 14 days to respond. According to this , the creditor has a legal obligation to respond.b. There is no requirement on the Debtor to talk.ii. (b) What if the only reference to collateral was certain motor vehicles would the FS be sufficient?1. Yes, sufficient. Different purposes of the SA and the FS. Purpose of FS is merely to give notice to a possible further inquiry. But should not advise to use just certain motor vehicles.2. 9-504 > Financing stmt sufficiently indicates collateral IF: [safe harbors] (i) a description of collateral pursuant to 9-108 OR (ii) indication that the financing stmt covers all assets or all personal property. This is more lenient than 9-108.iii. (c) Should the UCC require more complete info. to appear in the public record? Should the answer turn on the purposes of Article 9 filing?1. I dont think so. FS just indicates there might be a deal at the door.h. 3.3.8 Procedures in the Prototype were followed except that FS filed by FB set forth the name of the debtors as Main Motors instead of Main Motors, Inc. Bob, MM judgment creditor, caused the sheriff to levy on all cars. Is Bobs lien senior or junior to FBs?i. JUNIOR. Only way FS can be sufficient is to look at 9-503. Look up certificate of incorporation at the secretary of states office to see if name is exactly as FS. It must be. However, under 9-506(a)-(c) minor errors or omissions that dont lead to be seriously misleading are okay, and if a search w/the incorrect name leads to discover then the name was not seriously misleading.ii. SEARCH LOGIC TEST of 9-506(b): conduct search logic test by typing into offices search mechanism a search under debtors precise correct name. if search under correct name turns up this FS (under incorrect name), then the error is not seriously misleading. If search does NOT reveal FS, then it tells you that error was seriously misleading. If minor error, the search logic test will probably pick up the DS1. 9-317(a)(2) > Priority . . . 2. 9-502 > Requirements of financing stmt.3. 9-503(a)(1) > FS sufficiently provides for the name of the debtor IF: (a)(1) if the debtor is a registered organization then the name must be that which shows on the public record of the state under which it was organized.4. 9-102(a)((70) >Registered Organization: an organization organized solely under the law of State of U.S. and that entity must maintain a public record showing the organization to have been organized.5. 9-102(a)(50) > Jurisdiction of Organization: means the jurisdiction under whose law the organization is organized.6. 9-506(a)-(c) > Minor errors are okay; AND if searching under the incorrect name leads to the financing stmt, that financing stmt is not seriously misleading.7. Note: Actual notice by the secured party doesnt matter for perfection. It doesnt matter whether the searcher has knowledge of the FS.iii. Debtors name important on FS because indexed under Debtors name on filing. Not as essential for SA.i. 3.3.9 Assume MM operates under Center City Chevrolet Sales and Service (letterhead, business forms, telephone etc.) Would the FS under Main Motors, Inc. be sufficient to perfect FBs SI? Would a filing of Center City . . . be sufficient?i. MM, Inc. > Yes. This would definitely be sufficient according to the statute.ii. Center City . . . > Probably not. Statute states that a trade name may not be sufficient. The statute expressly says trade names not enough, but in some situations it might be. The statute directs one to look at 9-506(b), (c), to determine if the trade name used is sufficient. I would imagine that this trade name would not be good enough.iii. If trade name is similar then apply the search logic test of 9-506(c), and if found then the FS is sufficient.iv. 9-502(a) > FS needs (i) debtors name; (ii) creditors name; and (iii) describe collateral.v. 9-503(a) (c) > Sufficiency of Debtors Name: Sufficient only if FS contains the name as it appears on the public record.j. 3.3.10 Assume that FB carries out its business under trade name of Phirst of Philly and that the FS put that trade name as the secured partys name. Is FS sufficient?i. Most likely it is sufficient. Restriction of trade name doesnt apply to secured partys name. Here a trade name is used, but the search for FS wont be conducted for the secured partys name. The comments to 9-506(a) indicate that this error could lead to an estoppel argument by a competing interest.ii. 9-102(a)(72) > Secured Party means:1. (A) person in whose favor a SI is created 2. (B) person who holds an ag lien;3. (C) a consignor;4. (D) person to which accounts, chattel paper, etc. have been sold;5. (E) a trustee, indenture trustee, agent, collateral agent, etc.6. (F) a person that holds a SI arising from . . . iii. 9-506(a) Comment 2 > Searches are not conducted under the secured partys name, therefore an error in the name of the secured party is not seriously misleading. However, in an appropriate case, an error of this kind may give rise to an estoppel in favor of a particular holder of a conflicting claim to collateral.k. 3.3.11 Suppose that line of credit extended to MM was not by FB alone but by a syndicate of banks, including FB. Assume the SA named all of these parties. Banks all agreed that the FS would show only FB. Is the FS sufficient?i. Yes, it is sufficient. FB is acting as a representative of the Banks, and as long as the name of the representative is on the FS (even if the representative is not a secured party) the FS is sufficient.ii. 9-503(d) > Failure to indicate represented party doesnt render FS insufficient.iii. 9-503(d) Comment 3 > A FS which indicates a representative, even w/o the mention to the representatives capacity, is sufficient.iv. 9-503(a)(2) > FS is sufficient if FS provides name of secured party or a representative.v. Related Issue > C1 transfers to C2, FS doesnt have correct name of C2. Does FS become insufficient for C2? No. Perfection transfers w/transfer. See 9-310(c). However, where there is not significant relationship between C1 and C2, C2 may have trouble convincing Ct. that name on the FS is sufficient.l. 3.3.12 FS filed by FB is the uniform form in 9-521. Would the FS be sufficient if it lacked boxes 1c through 1g, and 3c? If so, would you advice FB to adopt a cost-saving policy of leaving those boxes bland?i. Sufficient, yes. However, would not advise filing it as such. If accepted the FS would be sufficient. However, the statute requires that a filing office reject a FS w/o that info. A FS w/o that info would possibly be sufficient, but the filing office according to Article 9 is required to reject the FS if that info. is omitted. I would not advice to adopt that policy of leaving those boxes empty. If it is rejected it is not effective. However, if we include that info. and it is rejected then the FS is STILL effective.ii. 9-520(a) > Filing office SHALL refuse a FS for reasons set forth in 9-516(b); may refuse for reasons ONLY in that section. iii. 9-516(b)(4), (b)(5) > Safe Harbor Provision Filing office can refuse IF: initial FS, or amendment which adds secured party, does not include address of secured party [(b)(4)]; and IF initial FS or amendment, does not include the address and type of Debtor [(b)(5)].iv. 9-520(c) > Filed FS is effective even if filing office is required to reject it.m. 3.3.13 FS is sufficient under Article 9 even w/o a signature from the Debtor.i. (a) Why does Article 9 eliminate the signature requirement (authentication)?1. To allow for electronic FS.2. 9-502 Comment 3 > Also, signature on FS is useless. Unlike the Bank, UCC filing office does not have signatures cares on file to compare the signature to.3. Authentication is not authorization. Debtor still must authorize the FS. Authorization is typically done on a written record.ii. (b) What course of action would you recommend to a client against whom a FS had been filed for the purpose of impairing the clients ability to obtain secured credit?1. Request that such FS be terminated, or do so yourself. If request is denied seek damages against the secured party. Debtor can file termination stmt. You have two options, see below under (1)(a),(b),(c), and (2).2. 9-510(a) > FS is effective only to extent that it was filed by a person that may file it under 9-509.3. 9-509(a) > Person may file initial FS (or amendment adding Debtor) ONLY IF:a. The debtor authorizes the filing orb. The person holds an ag lien that has become effective.4. 9-625(e)(3) > Debtor may recover $500 from person who files FS who is not entitled 9-509(a).5. (1)(a) 9-509(d) > Person may file an amendment to cover more collateral ONLY IF:a. The secured party of record authorizes the filing;b. Amendment is a termination statement that secured party failed to send. FS will not be removed from record, but will be included as proof that Debtor disputes the FS.6. (1)(b) 9-513(c) > Termination statement if no relationship between the parties then Debtor has right to demand secured party terminate the FS.7. (1)(c) 9-512(a) > What an amended FS can do.a. 9-513 comment 3 bogus filingsb. 9-518 bogus filings8. (2) 9-518 > Correction of the FS, no exactly a termination. Filed by Debtor concerning inaccurate or wrongfully filed record.9. 9-102(a)(79) > termination statement10. 9-513(d) > Effect of filing the termination statement.11. 9-625(e)(4) > Debtor may recover $500 if person required to file termination stmt fails to do so.iii. (c) Do you suppose the elimination of a signature requirement has lead to more abuse?1. Not really, the signature requirement is not a serious impediment to fraud.n. 3.3.14 FB followed prototype except that SA did not include paragraph 5b. 5b gave FB a SA in accounts, chattel paper, general intangibles, and instruments and all obligations of securities and guarantors for the payment and satisfaction thereof.i. (a) Lien creditor against MM, caused a sheriff to serve garnishment on G.S. Gessell, who had borrowed $10,000 from MM, effectively giving Bob a judicial lien against MMs right to collect from Gessell. Who has the better right to collect Bob or FB?1. Bob. At first glance I would say Bob, b/c SA would not have included general intangibles in the SA between FB and MM. FS includes more than SA. Try to make sure FS = SA in description. If collateral is not in SA you dont have SI. The only argument for FB is that the money loaned was from proceeds of inventory sales.2. 9-203(b) > Looks like the SA did not contain the needed general intangible.3. 9-102(a)(42) > The right to payment is a general intangible.ii. (b) Bob, the holder of a judgment against MM, subsequently caused the sheriff to levy the cars on MM inventory. Is Bobs lien junior to FBs SI in the cars?1. Bob would be junior. FB was the 1st to perfect and file a FS on the collateral of inventory.2. Arguments that the FS was not authorized b/c of the difference. This issues is not resolved in cts. Creditor will argue what is in (i), and debtor will argue that the FS was not authorized.o. 3.3.15 > FB establishes financing according to prototype. SB became interested in providing a floorplan to MM. A search of UCC filing revealed FBs FS. SB refuses to advance funds to MM in the face of the FS in favor of FB, even though FB has been paid in full. What would you advise MM to do?i. File a termination statement. Debtor will encounter difficulty in obtaining secured financing against property that is described as collateral on a filed FS. Solution for the debtor is to file a termination statement or ask FB to issue one.ii. Generally, no duty on secured party to file a termination notice. Unless the FS covers consumer goods. If FS covers consumer goods, secured party must file w/i 1 month after the debt is paid. If secured party fails to file, debtor can file one.iii. 9-513(c) > Debtor can make a demand on the secured party to provide a termination statement if there is no obligation secured by the collateral. Failure to comply w/i 20 days brings a civil penalty of $500 in favor of the debtor.iv. 9-513(d) > Upon the filing of a termination stmt w/the filing office, the FS to which the termination stmt relates ceases to be effective.p. 3.3.16 > FB picked up floorplan as indicated in prototype on September 3, 2001. On October 1, 2001, MM changed its name to Center City Chevrolet Sales and Services. FB did nothing to amend the FS. MM received new cars on Nov. 15, Dec, 20, and Feb. 14. Bob, MM judgment creditor caused the sheriff to levy MM inventory on Feb. 20. Is Bobs lien senior or junior to FBs SI?i. MM is senior to all inventory acquired up to Feb. 1st. So, Feb. 14th shipment MM would be junior to Bobs judgment.ii. 9-507(a), (b) > General rule; changes in properly filed FS do not render FS ineffective. Even changes post-filing that make is seriously misleading are okay.iii. 9-507(c) > Exception; if Debtors name change makes is seriously misleading under 9-506, then the FS is ineffective for collateral acquired 4 months after the name change; UNLESS amendment filed w/i 4 months to make it not seriously misleading.iv. Does the answer depend on whether FB knew that MM had changed its name? Should it? No. Should it? Maybe. You should ask the Debtor and secured party if the changed name in last 4 months and due diligence search. Motive is irrelevant under Article 9. v. This is different if goods are covered by a certificate of title. If so, it is analyzed under the State certificate of title law (which can be very complicated).q. 3.3.17 > You are an attny in FBs office. 2 yrs. after the transaction in prototype, the general counsel informs you that FB plans to changes its name to Phirst of Philly, NA. and asks whether the bank risks becoming unperfected. What advice do you give?i. No worries, no need to do anything. Except in the debtors name change that makes it seriously misleading other changes do not render the FS ineffective. There is no duty to change FS.ii. 9-507(b) > Changes do not render a properly filed FS ineffective, except as in (b) Debtors name.r. 3.3.18 > Assume that FB assigned its SI to SB, but nothing indicating the assignment is filed w/the filing office.i. (a) Does the FS remain sufficient to perfect the SI now held by SB?1. Yes. FS remains sufficient to perfect SBs SI even if amendment is not filed to reflect name transfer. If no amendment is made FS remains secured party of record. 2. 9-310(c) > If secured party transfers a perfected SI a filing under this article is not required to continue the perfected status of the SIs against creditors.3. 9-507(b) > Changes after FS even if seriously misleading do not need to be corrected.4. Related BK/Mortgage Issue > If loan is secured by a negotiable promissory note, the main question is if the promissory note is enforceable. However can enforce negotiable promissory note can enforce the SI. 3-301 holder of note can enforce. Whoever can enforce not can and is entitled to enforce mortgage.ii. (b) Assume also that one of FBs clerks having become aware that FB no longer has loans to MM sends a termination stmt to the filing office. What is the effect on SBs interest?1. SBs interest would not be effective, b/c of the termination of the FS on which it relies. Meaning that SB has an unsecured loan. How do you avoid this? Indemnification clause to avoid SB having all liability.2. 9-513(d) > If secured party sends a termination notice, the FS becomes ineffective to that secured party.3. 9-514(b) > Assignment of filed FS. A secured party may assign the powers of a FS and the powers to amend it to another which it transfers its SI to.4. 9-511 > Person remains secured party on record until amended to FS is made. An amended FS naming another secured party, which secured party becomes the new secured party on record.5. 9-509(d) > When can you amend by adding a secured party? (1) When the secured party of record authorizes it; or (2) the amendment is a termination statement for a FS.

Types of Collateral and Methods of PerfectionCollateralMethod of Perfection

Goods (movable personal property)1. Inventory goods held for sale or processing.2. Consumer Goods used for personal, family, or household use.3. Farm Products goods used, produced, or consumed in of farming operations (unborn animals and crops.4. Equipment Any other goods.1. Filing of a FS2. Secured party possession of collateral3. Motor Vehicles/Boats certificate of title lien-entry perfection system4. PMSI in consumer goods automatic perfection5. Ship Mortgages, Aircraft, etc. federal registration system

Paper Collateral (semi-intangibles)1. Instruments Negotiable and non-negotiable instruments, i.e. checks, money orders, promissory notes, CDs.2. Documents of Title Bills of landing, warehouse receipts.3. Chattel Paper Contractual obligations to pay and SI in goods. Anything that has these elements: an obligation to pay secured by an interest in recourse against goods in the event of a default.Instruments1. Filing of a FS2. Taking possession.3. If secured party (i) gives new value and (ii) obtains a written SA covering the collateral, secured party has automatic temporary perfection for 20 days to allow secured party to obtain possession.4. If SI is perfected and the collateral is released to the Debtor for a bona fide purpose (sale, exchange, renewal, collection, registration, etc.) the Si automatically remains perfected for 20 days.** Possession of the negotiable instrument indicates ownership, and a holder in due course is entitled to rely on the face of the instrument in purchasing it. Therefore, only way to perfect as against all is to take possession.Documents1. Filing a FS.2. Taking possession, which provides the highest priority.3. Automatic temporary 20 days of perfection after attachment if secured party gives new value and takes a written SA.4. Automatic, temporary perfection for 20 days after release of the document to debtor for sale, exchange, loading, or unloading goods.** Only way to perfect against due negotiation of a negotiable document is to take possession of the negotiable document.Chattel Paper1. Filing a FS2. Taking possession of the chattel paper** Only way to perfect against a purchaser of chattel paper is to take possession.

Intangible Collateral1. Account Receivables 2. General Intangibles

Filing a FS only.

** Copyrights, patents are general intangibles, but may be subject to federal registration systems.

Investment PropertyControl.

Perfection By Means Other Than Filing1. The Rules >a. Possession 9-313 aka The Pledgei. Possession is an appropriate method of perfection for tangible negotiable documents, goods, instruments, money, and tangible paper.ii. Secured party may perfect a SI in a certified security by taking delivery of certificate as provided in 8-301.iii. Does not work w/intangibles.iv. Possession by an agent suffices as well. See Comment 3 of 9-313, in determining whether a particular person has possession, the principles of agency apply. b. When Does Perfection Occur? 9-313(d) i. Perfection occurs no earlier than time secured party takes possession and continues only while the secured party retains possession. c. Perfection by Possession > Consumer Goods (distinction is important to determine if automatic perfection)i. **Consumer Good? used primarily for the household use. Not same as household goods under BK Code.ii. Non-PMSI1. Outlawed, b/c Bank doesnt want to repossess this material, just wants to have leverage. Also, pawn shops will accept this type of non-PMSI. People have emotional connection to collateral and w/that leverage pawn shops get paid.2. A non-PMSI in consumer goods in considered an unfair act or practice.3. Does not have an automatic perfection when SA attaches.iii. PMSI 9-1031. No FS required to be filed.2. Overrides any 1st in right 1st in time.3. Credit is being obtained to purchase the collateral.4. Does not include a refinance (normally) or a floorplan.5. Perfection occurs automatically when SA attaches; highly favored.6. Any loan could be a PMSI, depends on the loan and purchase.7. How to create a PMSI?a. Credit Saleb. Consumer Loan8. Why is perfection automatic?a. To avoid secret liens. Dont want trillions of filings. This would overburden the system.9. 9-309 > Exception to goods that have a certificate of title. These goods are covered by 9-311(a),which defers to the States certificate of title statute. Three (3) reasons why you would file a FS even though not required:a. (1) 9-317(e) A PMSI is allowed to have priority over a previous lien creditor, ONLY IF a FS is filed w/i 20 days of delivery. In priority conflicts between 2 Article 9 interests a perfected PMSI has priority. Automatic perfection is sufficient to perfect against a competing Article 9.b. (2) 9-507(a) A filed FS is not misleading or ineffective w/r/t a subsequent change. IF you file a FS secured party doesnt need to maintain UNLESS 9-507(c) Debtor changes name this includes a change in the use of the collateral (doesnt impair prior perfection). Needs FS to get this perk or benefit.c. (3) 9-320(a) BUYOCOB Rule When buyer purchases he does so free and clear of any previous SI. Under 9-320(b) which covers buyers that are not COB (consumer from consumer), those goods are free of any SI IF the purchaser purchases: (i) w/o knowledge of the SI; (ii) for value; (iii) primarily for household purposes; and (iv) before the filing of a FS covering the goods.d. Possession by Agents and Baileei. According to agency law, possession by agent acts as possession by principal.ii. Debtor cannot act as agent of the secured party (ostensible ownership).iii. If an individual takes possession, but that individual is closely connected to or controlled by the debtor, on behalf of the secured party, possession has not occurred and would not be sufficient for perfection.iv. If agent or bailee returns the collateral back to the Debtor perfection has not occurred, unless perfection was made by other means. Bailee has no duty to the secured party (unless otherwise in agreement), so secured party needs to be careful.e. Constructive Possessioni. Works for anything other than certificated securities and goods covered by a negotiable document.ii. This occurs when a bailee (person in possession of the collateral other than the debtor) receives notification of the secured partys interest. Bailees possession can constitute the secured partys possession if Bailee signs a record acknowledging that it holds collateral for the secured partys benefit.f. Field Warehouses - 9-312i. Secured party creates a segregated area in or adjacent to the Debtors facility (often used in manufacturing enterprises), where the inventory is stored. Creditor purchases inventory and places it in the Debtors facility. As long as the inventory stays in the facility the inventory belongs to the secured party. This is essentially a secured loan secured in that the creditor has possession of the inventory in the field warehouse. When the Debtor needs the inventory, the creditor will release that inventory to the Debtor as the Debtor pays (which reduces the loan amount).ii. Why use a field warehouse? Two (2) reasons:1. (1) Taking possession gets rid of need to resort to judicial process to recovery collateral.2. (2) Prevents the Debtor from disposing of the collateral, either outright or through a senior SI.iii. Three (3) issues related to Article 9 Each needs separate analysis and consideration:1. (1) Notice Does field warehouse provide notice to the world that the inventory is in possession of the creditor and not the Debtor? a. Normally, wouldnt provide notice unless there is signage. You must have open and notorious notice who owns the collateral. Sign could say Field Warehouse operated by . . . etc. Must have actual possession, but also open and notorious possession to not mislead a creditor. In essence, do you have a sign?2. (2) Creditor in Actual Possession and Control Sign will not work unless creditor has actual possession. If creditor is a fiction and in reality Debtor has access to collateral not sufficient.3. (3) Physical Security (Not really an Article 9 issue, but practical issue . . .) Creditor must have sufficient security system to ensure that the secured party does not obtain access to the goods.a. This element presents common problems. If field warehouse is located at Debtors plant, the employees of the field warehouse and the debtor will be at the same location, which might turn into a friendship later. b. Salad Oil scandal Field warehouse operated on East Coast of oil from Sicily. American Express was the creditor financing the storage and import of the oil. Oil was stored until Debtor could sell the oil. American Express hired the field warehouse. Bank representative would go to tank farm to read the level of oil in the tank(s). The field warehouse man had welded a pipe around the dip stick in the tank, meaning the pipe had oil, the rest of the tank was water. Almost put American Express out of business. Here there was no security in place to ensure Debtor doesnt get access of the collateral.2. Rights and Duties of Secured Party in Possession of Collaterala. 9-207(a) Requires the secured party to use reasonable care in the custody and preservation of collateral in the secured partys possession.3. Problems >a. 3.3.19 > Lee Abel purchases the car from MM and executed a vehicle Installment Sales Contract. MM assigned to FB its rights under this contract. No FS was filed.i. (a) FF, a judgment creditor of Abels, caused sheriff to levy car. Is Friendly lien senior or junior to FBs? JUNIOR. The transaction is subject to a certificate of title statute, and Abels possession is sufficient to give perfection.1. 9-317(a)(2) > Lien is junior to a SI that has been perfected.2. 9-310(a), (b)(2) > (a) except in as stated in (b), a FS must be filed to perfect all SI. (b)(2) exception: when it is perfected under 9-309 when it attaches.3. 9-309(1) > Following SIs are perfected when they attach . . . (1) a PMSI in consumer goods, except as provided in 9-311.4. 9-103(b)(1), (a) > PMSI if goods are PM-collateral. Contains definition of.5. 9-102(a)(23) > Consumer Goods means goods used or bought for use primarily for personal, family, or household purposes.6. 9-311(a),(b) > Filing of a FS not necessary to perfect a SI in property subject to a certificate-of-title statute.7. Is the result consistent w/the policy of requiring public notice as a condition to prevailing over judicial liens and the claims of many other 3rd parties? Yes. If the collateral is covered by a certificate of title statute, the creditor could look up the Debtors name and see if there is a title subject to a lien.ii. (b) Same as above, except Lee purchased a tractor which is not subject to the States license, register, and certificate of title laws. What result, is lien senior or junior? SENIOR. No perfection has occurred. The tractor is not subject to a states certificate of title statutes, and the tractor is not a consumer good b/c it will be used on his farm.1. 9-102(a)(33) > Equipment iii. (c) Same as in (b), except that Lee purchased the tractor to pull a lawn mower. What result?1. Friendly would be JUNIOR. The tractor was purchased primarily for household use, therefore we can categorize it as a consumer good under 102(a)(23), the tractor was converted into a consumer good, and we have a PMSI.iv. (d) Same as in (c), except that after awhile Abel switched over to using the tractor exclusively for his farming operation. What result, is lien senior or junior to FB?1. What is the result if nature of the good changes?a. There is no effect if the use of collateral changes. Friendly would still be JUNIOR. The collateral was perfected under being consumer goods, and it will stay that way.b. SI is created when it attaches, and at this point is when the use of collateral is determined. Debtor at that point will sign a statement giving what the primary use of the collateral would be. This stmt becomes strong evidence (purpose of loan stmt) as to the use of the collateral. Use or intended use at time of attachment (doesnt matter if it changes 5 min. later). This is the general rule, but the statute doesnt come out and state it. It can be incorporated under 9-102(a).c. Dual Intent? > Guided by the predominant purpose. If you have a predominant use and a purpose of loan stmt, that will be evidence of the use of the collateral even if collateral has a dual purpose. Most creditors try to document the transaction carefully to cover all bases.d. 9-628(c) > No liability of a secured party that reasonably relies on debtors representation concerning use of collateral or purpose for which obligation incurred. Used or bought for . . . Purpose of loan stmt.v. 3.3.20 > Dooley applied to Castle Finance Co. for a loan. Castles requests security. Dooley delivered to Castle a coin collection and received a $25,000 loan.1. (a) Bob, a judgment creditor, levies the coin collection. Who has priority? Does Castle even have an interest in the coins?a. Castle has priority. Pursuant to the loan agreement you can have attachment by possession, and perfection by possession. As long as attachment and possession occurs before lien is executed Castle has priority over lien.Is there a SI, i.e. attachment? YES. You can have attachment by possession. See 9-203(b) > value was given, debtor had rights, and one of the following occurs 203(b)(3)(A SA),(B if collateral is not certified security and is in the possession of the creditor),(C - ?? ),(D ?? )b. Except for (C) and (D) you must have a authenticated SA or collateral in possession of secured party.c. You can have perfection by possession w/o the Debtors consent. But, attachment by possession requires consent of the Debtor. This means that if you have a SA secured party can go out and grab collateral and have perfection.d. Is the SI perfected? YES. 9-313(a) list of items that can be perfected by possession. No need to have an agreement to do so. Only available for documents, goods (inventory, equipment, farm products, consumer goods), instruments, money, or tangible chattel paper. What is not on this list? i. Intangible chattel paper, intangible negotiable documents (electronic chattel paper and electronic documents of title). ii. General intangibles are also not subject to perfection by possession.iii. Accounts 9-102, an obligation to pay money rising out of a sale of goods or services this is a semi-tangibleiv. If goods are covered by certificate of title, not subject to perfection by possession, b/c under 9-313(b), must go to certificate of title statute. There is an exception to this > 9-316(d) > only time you can perfect to possession to certificate of title goods is if Debtor applies for a certificate of title in a 2nd State. Repossession in the 2nd State becomes possession enough for perfection. Ex. Debtor takes car to 2nd State in an attempt to title fraud. If this happens secured party can go and take the car even if in 2nd state secured party did not comply w/law, and this possession is perfection.e. Does Castle have priority? YES. In a conflict between Article 9 SI and lien creditor we look to 9-317 (1st in time 1st in right). Castle was first. Castle must be careful not to lose perfection when sheriff levies. This is a risk, not meaning that Castle would lose perfection, but still a risk.a. What type of Good is this? > i. 9-102(44) Goods Means all things that are movable when a SI attaches. The status of property at the time of attachment. All goods are personal property, not all personal property are goods. Personal property includes tangible and intangible. Goods do not include intangible goods.1. Goods do not include moneyii. 1-201(b)(24) Money is defined as an official medium of exchange currently authorized or adopted by a governmentiii. Therefore, under 9-313 you can perfect goods or money by possession.b. 9-201 > Except as provided by these rules a SI is valid according to its terms.c. 9-317(a)(2) > In a priority fight between a SI and a lien creditor, SI has priority if it perfected before lien executed OR if a FS was filed. d. 9-308(a) > Perfection of a SI occurs when all the requirements of attachment have been met and if requirements of perfection have been met. A SI is perfected when it attaches if those requirements are met.e. 9-203(a),(b) > 3 elements of a SI: Requirements of attachment (value given, debtor has rights, and collateral is in possession of secured party).f. 9-310(a),(b)(6) > Perfection doesnt require filing a FS, if creditor is in possession of collateral, see (b)(6).g. 9-313(a) > Perfection by possession allowable on . . . money.6. (b) What result if Castle filed a FS, but did not take possession of the coin collection?a. If the coin collection is money, then the SI has not been perfected. If it is money, then perfection can only occur if the money is in possession of the secured party.b. 9-312(b) > A SI in money can only be perfected by secured partys taking possession under 9-313. c. Not a good idea anyway to perfect by filing a FS. Money is too fleeting.7. (c) What result if Castle did not take delivery but instead appointed Dooley its agent for the purposes of holding the coins on its behalf? Dooleys lawyer?a. Dooley/Debtor = Not good enough for perfection. Conflict of interest between Debtor as Debtor and Debtor as agent of secured party. Lawyer = same result, but better than Debtor keeping collateral. The Debtor and the Debtors attorney are too closely connected or controlled by the Debtor. This creates a problem of ostensible ownership.b. 9-313(a) Comment 3 > In determining whether a person has possession the principles of agency apply. If the bailee is so closely connected to the debtor then it will not work for perfection. iii. 3.3.21 > Assume coin collection is from 18th Century Republic of Vermont on display at a museum. What steps should Castle take to protect its SI in the coins. Consider if the museum is cooperative and uncooperative. 2 difference from previous problem: (1) not money and (2) collateral is in possession of 3rd party bailee.1. (1) How should Castle perfect its SI while the coins are on display and thereafter?a. If the museum is cooperative I would have Castle have the museum authenticate a record indicating that it holds possession of the collateral for the secured partys benefit 9-313(c). b. If the museum is not cooperative I wouldnt change my advice, b/c under 9-313(f), the party in possession doesnt have to acknowledge that it holds the collateral on behalf of the secured party.c. 9-312(b) > SI in money perfected ONLY by possession according to 9-313.d. 9-313(a), (c), (d), (f) > see above.e. Can you have 3rd party bailee hold collateral? YES. As long as it is not the Debtor or is too connected or controlled by the Debtor. It must be an agent (w/a duty) of the secured party. Bailee must certify that it is holding the collateral for the secured party under 9-313(c). Under 9-313(f) the bailee (the museum) is not required to acknowledge that it holds possession for a secured party in order to perfect for the creditor. The museum doesnt have to do anything no requirement to respond to that.2. (2) How will Castle be able to enforce its SI if Dooley defaults on its obligation?a. Not sur