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Definitions:
I. Mortgage- conveyance of an interest in real property to secure interest in the debt
a. Action for mortgage foreclosure- bank (mortgagee) goes to court to enforce the mortgage and declare that
D breached the promissory note- court orders a judicial sale of the real property & gives corporate funds to
the bank
b. sale of house does not cover all debt/expenses : court enters judgement against the borrower for whatever
the deficiency may be
II. Assignment 1: Hard Way- no security agreement- go through full litigation process & judge will issue judgement
in favor of the CR entitles them to
III. LIEN: 2 kinds of liens- VOLUNTARY & INVOLUNTARY- lien priority?
a. Judgement is NOT a lien
b. Must use the judgement to get a lien on the property
IV. INVOLUNTARY traditional lien: 5/12-222:
V. Non-wage garnishment proceeding on bank to secure a lien on judgement debtors
VI. Liens on Wages: article 12 involuntary wages- 5/12-10004 *would have to get all these liens individually*

Article 9- allows you to obtain a voluntary security interest!

 When does security interest in personal property have same level of enforcement aws a judicial lien- TWO STEP
PROCESS
1. When the security interest ATTACHES- becomes effective against the collateral
2. Have to make the lien effective against 3rd persons- file it with recorder of deeds (12-101)
a. Judgement becomes a lien against real property only when a certified copy is filed in office of recorder
of deeds in jurisdiction where property is located
 Security interest is valid against 3rd persons once it is PERFECTED!!!
o Now has the same force as a traditional involuntary lien .
Article 9 allows a secured party to enforce the obligation against the collateral without going to court.

Statutes provide for various involuntary liens.

Consensual Liens- agreed to by the person who owns the property

SECURITY INTEREST- voluntary actions giving a security interest in property to secure a debt
I. 1-201 Security Interest: means an interest in personal property or fixtures which secures performance of an
obligation (mortgage = security in real property)
II. 9-102 (73) Secured Party- (A): a person whose favor in security interest is created or provided for under a
security agreement whether or not any obligation to be secured is outstanding
a. Secured party: one who has a secutiy interest that can be enforced – 9-102 (73)
III. 9-102 (59) Obligor: a person that, with respect to an obligation secured by a security interest in or an
agricultural lien on the collateral (i) owes payment or other performance of the obligation, (ii) has provided
property other than the collateral to secure payment or other performance of the obligation or (iii) is
otherwise payment or other performance of obligation. The term does not include issuers or nominated
persons under a letter of credit.
a. The person who owes the money is the OBLIGOR- they do not have to be the owner of the property (3 rd
party cosigning on the house)
i. Spak cosigns for my loan- S signs the note as a guarantor and gives a security interest in his car
IV. 9-102 (28) Debtor- (A) person having an interest other than a security interest or other lien, in the collateral,
whether or not person is an obligor (B) seller of accounts, chattel paper, payment intangibles or promissory
note or (C) consignee

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a. Debtor- person having an interest in the collateral whether or not he is the obligor
b. Collateral- property subject to a security interest
V. 9-102 (72) Secondary Obligor- an obligor to the extent that:
a. (A) the obligors obligation is secondary; or
b. (B) the obligor has a right of recourse with respect to an obligation secured by collateral against the debtor,
another obligor, or property of either
c. Secondary Obligor- usually a guarantor or cosigner- NOT THE PRIMARY OBLIGOR- 9-102 (72)
i. Secondary obligors are often required by lenders as back up security in event that primary obligor
defaults
ATTACHMENT- 9-203 ** when does the security interest become effective against the collateral?**
A security interest attaches to collateral when it becomes enforceable against the DR with respect to the collateral, UNLESS
an agreement expressly postpones the time of attachment (9-203 (a))

3 REQUIREMENTS FOR SECURITY INTEREST TO ATTACH:

I. VALUE being given by the secured party (consideration or binding commitment)
a. 1-204 Value- except as otherwise provided in Articles 3, 4, and 5 a person gives value rights if the person
acquires them:
i. (1) in return for a binding commitment to extend credit or for the extension of immediately
available credit, whether or not drawn upon and whether or not a charge-back is provided for in
the event of difficulties in collection
1. Describing line of credit- binding commitment to extend credit is value/consideration- even
if funds are not advanced
2. Receipt giving Nordstrom’s a security interest in things you buy- valid
3. Accepting security for preexisting claim counts as giving value
ii. (2) as security for or in total or partial satisfaction of a preexisting claim
iii. (3) by accepting delivery under a preexisting contract for purchase or
iv. (4) in return for any consideration sufficient to support a simple contract
II. The DR has an INTEREST/RIGHTS in the collateral (ownership/right to possession) OR power to transfer rights
in the collateral (right to transfer or voidable interest)
a. Voidable interest- a DRs limited rights in collateral, short of full ownership, are sufficient for a security
interest to attach. However, in accordance with basic personal property conveyancing principles, the
baseline rule is that a security interest attaches only to whatever rights DR may have, broad or limited as
those rights may be (comment 6)
b. HYPO!! Somebody hits you in the side of the head and takes their water bottle.
i. Water bottle was not given voluntarily. Thief tries to go contract and give a security interest in the
bottle- does T have an interest in the bottle that he can give to a secured party? NO!! – bottle
belongs to the original owner.
ii. Original owner did not make a VOLUNTARY TRANSFER- did not voluntarily give any interest in the
bottle to Thief. Thief only gets whatever interest original owner gave.
c. HYPO!! X buys water bottle for $10, writes check, and check bounces (voluntary)
d. HYPO!! Agree to sale for $10- T takes bottle and runs away (Still voluntary)
i. D INTENDED TO transfer rights of the bottle- Voidable Title.
e. Void Title- Thief who takes bottle without consent (involuntary)- cannot convey to anyone else- no rights
are given.
f. Voidable Title- intended to transfer the bottle (voluntary)- under UCC Section 2- T has voidable title and
original owner can go to court to have the title voided. Voidable title can be changed to GOOD TITLE in the
hands of a bona fide purchaser.

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i. 3rd person buys bottle in good faith for value- 3P gets to keep the bottle!! 3 rd Partys trump the
original owners as a bona fide person.
III. POSSESSORY OR NONPOSSESSORY SECURITY INTEREST:
a. Possessory—(B) the collateral is not certificated security and is in the possession of the secured party
under Section 9-313 pursuant to the DR’s security agreement; (you own a watch and offer it as collateral)
-- **still need to have VALUE and DEBTOR RIGHTS in collateral**
i. **don’t need an authenticated record unless specified by statute
ii. To create a possessory security interest- must be an agreement (written or oral)
1. Does not need to describe the collateral bc the secured party already has it!!
2. Now you don’t have your watch and don’t know what time it is
b. Nonpossessory- (A) DR has authenticated a security agreement that provides a description of the
collateral and if the security interest covers timber to be cut, a description of the land concerned; (more
common in a commerce setting)
i. (3) (A)- DR might not know they are giving a security interest- DON’T CARE!!- the only intention we
are looking for is if the DR HAD THE PRESENT INTENTION TO SIGN THE AGREEMENT- Possible to
give a security interest without knowing it.
ii. Must have a security agreement containing a security interest that reasonably describes the
collateral- 9- 203 (b) (3) (A)
iii. AUTHENTICATE means (9-102 (7))
1. (A) to SIGN OR (B) with present intent to adopt or accept a record, to attach to or logically
associate with the record an electronic sound, symbol, or process
iv. RECORD, except as used in “for record”, “of record,” “record or legal title” and “record owner”
means information that is inscribed on a tangible medium or which is stored in an electronic or
other medium and is retrievable in perceivable form. (9-102 (7) or 1-201 (31))
1. HYPO!! Audio file?? Darth Vader needs to borrow money from Luke
a. DV going to give non-possessory security interest in his lightsaber
b. DV’s audio recording- VALID!!!
i. Audio file= authenticated in record (means it is retrievable)
ii. DV identifies himself, clearly stated his intent, describes collateral
2. 1-201 (37) “Signed”: includes using any symbol executed or adopted with present intention
to adopt or accept a writing
3. 1-201 (43) “Writing”: includes printing, typewriting, or any other intentional reduction to
tangible form. “Written” has a corresponding meaning.
4.
TYPES OF COLLATERAL:
I. 9-102(12) Collateral: means the property subject to a security interest or agricultural lien. Terms include:
a. (A) proceeds to which a security interest attaches;
b. (B) accounts, chattel paper, payment intangibles, and promissory notes that have been sold; and
c. © goods that are the subject of consignment
II. (44) GOODS- means all things that are moveable when a security interest attaches… The term also does not
include accounts, chattel paper, commercial tort claims, deposit accounts, documents, general intangibles,
instruments, investment property, letter of credit rights, letters of credit, money or oil, gas or other minerals
before extraction
III. CATEGORIES OF GOODS: (must determine who is the DR for each)
a. (23) Consumer Goods: goods that are used or bought for use primarily for personal, family, or household
purposes.
i. EXAMPLE: wife has same type of car and fills it up with gas
1. Now the car AND gas are consumer goods.

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ii. EXAMPLE: thousand-dollar pen used only at home- consumer goods
b. (33) Equipment: goods other than inventory, farm products, or consumer goods.
i. EXAMPLE: thousand- dollar pen- equipment- not inventory because it is not used up or consumed
in the business
ii. EXAMPLE: zoo has elephant- what is the elephant? Zoo is not a farming operation. Not inventory-
not used up and not for sale. Elephant is equipment!! (race horse is equipment)
c. (34) Farm Products: goods other than standing timber, with respect to which D is engaged in farming Op &
are:
i. (A) crops grown, growing or to be grown, including:
1. (i) crops produced on tress, vines, and bushes; and
2. (ii) aquatic goods produced in aquacultural operations;
ii. (B) livestock, born/unborn, including aquatic goods produced in aquacultural operations;
iii. © *supplies used or produced in farming operation; or
iv. (D) products of crops or livestock in their unmanufactured states
v. (35) Farming Operation- raising, cultivating, propagating, fattening, grazing, or any other farming
livestock or aquacultural operation. **farmer (person engaged in farming operations)**
1. EXAMPLE: security interest in Cow- Cow has baby- baby cow is product of the cow- but the
baby cow is not part of the secured collateral unless it was adequately described in the
agreement (what about after-acquired collateral??)
a. At moment security interest is created, must determine what is nature of
collateral- if “present collateral” as described in security agreement is just the
cow- then the cows products (baby/milk) are NOT INCLUDED AS COLLATERAL
2. 2 Part test:
a. Look to the status of the DR- do they engage in farming operations?
b. Is the collateral crops, livestock, supplies or unmanufactured products??
i. EXAMPLE: sap coming out of trees & going into buckets- still need to be
manufactured into syrup- description needs to be of collateral in
unmanufactured state- “Grade A unprocessed syrup”
ii. EXAMPLE: Farmer fills up truck- gas is SUPPLIES used in his farming
operation
d. (48) Inventory- goods, other than farm products, which:
i. (A) are leased by a person as lessor;
ii. (B) are held by a person for sale or lease or to be furnished under a K of service
iii. © are furnished by a person under a contract of service; or
iv. (D) consist of raw materials, work in process, or materials used/consumed in a business.
v. Something that is owned by someone engaged in business and is used up or furnished in the court
of that business (other than someone engaged in farming operation)
1. EXAMPLE: car dealer holds cars for sale or lease- cars are INVENTORY
2. EXAMPLE: dentist gives you toothbrush when you leave- INVENTORY for the dentist and a
consumer good once it is in the patients hands
3. EXAMPLE: dentist uses floss to clean your teeth- INVENTORY!!!- the floss is “furnished” by
the dentist under the K to clean your teeth
a. Furnished can mean used and discarded to perform the service
4. EXAMPLE: raw unmanufactured syrup= FARM PRODUCTS- once manufactured and turned
into syrup- INVENTORY
e. GOODS EXAMPLES:
i. Gas used in a farming operation is a FARM PRODUCT- unrefined petroleum at refinery is
INVENTORY- once it is refined, it is STILL INVENTORY- put into trucks, it is STILL INVENTORY- gas

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station has it, it is STILL INVENTORY- once it is SOLD to the END USER and is in the hands of the
consumer, it is CONSUMER GOODS.
ii. EXAMPLE: UPS fills truck with gas- inventory- UPS driver not engaged in farming operation and is
NOT consumer- using the gas to perform his line of business so the gas in his truck is INVENTORY
iii. EXAMPLE: gas used in tuck for farming operation = FARM PRODUCT
iv. EXAMPLE: inventory in Law office: pens, paper, (NOT COPIER/PRINTER bc it is not USED
UP/FURNISHED)
v. EXAMPLE: Farmer has a cow & used in farming operation- FARM PRODUCT
1. Farmers daughter races the cow- consumer good
2. Farmers personal vegetable garden- consumer good
3. Farmer sells cow to distributor- inventory
4. Distrbutor takes it to slaughter house- inventory
5. Oscar Meyer makes it into hot dogs- inventory
6. Hot dogs in my freezer- consumer good
f. ***depending on WHO is using it and WHAT using it for- gas can be a consumer good, inventory, or farm
product***
i. Mixed use- the primary use predominates for classification purposes
1. i.e. goods used most of the time for personal reasons and occasionally in the owners
business are continuously classified as consumer goods
g. Computer Software- certain computer programs are goods, and others are not goods
i. Term also includes computer program embedded in goods and any supporting information
provided in connection with a transaction relating to the program if (i) program is associated with
the goods in such manner that customarily is considered part of goods or (ii) by becoming owner of
the goods, person acquires right to use the program in connection with the goods.
1. EXAMPLE: buying a computer program with a copyright to be used in business operation-
computer program is an INTANGIBLE protected by copyright.
a. The disc itself is a GOOD
b. The software on the disc is NOT A GOOD
2. EXAMPLE: Cell Phone- computer program is embedded in the goods and necessary part of
the goods. Cannot use the phone without the program- THIS IS GOODS 44(i)
3. EXAMPLE: download app onto phone- NOT A GOOD- doesn’t become part of the phone-
can STILL USE WIHTOUT APP

DESCRIBING COLLATERAL- 9-108:

** except as otherwise provided in subsections ©, (d) and €, a description of personal or real property is sufficient, whether
or not it is specific, if it reasonably identifies what is described **
I. HYPO!! Security interest in car- “2016 Camry” no need to give VIN #??
a. “2016 camry” is valid
b. Car dealer: “all the cars on my lot” -valid!
c. X owns two white pickup trucks- only says “white truck”- which one?
i. “all of the trucks on my lot” VALID!
ii. “one of the trucks” VALID!
d. EXAMPLE- SEARS CREDIT CARD: signing the receipt with Sears Card is valid security agreement- printing
out what the person bought is a reasonable description that identified the collateral
II. EXAMPLES OF REASONABLE IDENTIFICATION: except as otherwise provided in subsection (d), a description of
collateral reasonably identifies the collateral if it identifies the collateral by
a. Specific listing;
b. Category;

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c. Except as otherwise provided in subsection €, a type of collateral defined in (the UCC);
d. Quantity;
e. Computational or allocational formula or procedure; OR
f. Except as otherwise provided in subsection ©, any other method, if the identity of the collateral is
detminable.
III. 9-108 Comment 2- purpose of the description is evidentiary- to prove what the collateral is in the event of a
dispute. Need a reasonable description so SP can obtain collateral without getting in trouble.

SUFFICIENCY OF DESCRIPTION:
**(b) (3)- allows you to describe something by listing collateral type- CANNOT have description as only “consumer goods”

I. 9- 108© SUPERGENERIC NO GOOD: a description of collateral as “all the DR’s assets” or “all the DRs personal
property” or using words of similar import does NOT reasonably identify the collateral
II. 9-108 (e) When DESCRIPTION BY TYPE IS INSUFFICIENT: A description only by type of collateral defined in (the
UCC) is an insufficient description of:
a. (1) a commercial claim; or
b. (2) in consumer transaction, consumer goods, security entitlement, securities account, or a commodity
account
i. The reference to “only by type” in subsection € means that a description is sufficient if it satisfies
subsection (a) and contains a descriptive component beyond the “type” alone
** NEED a security agreement authenticated in a record that reasonably describes the collateral **
III. HYPO: cars for sale at Toyota dealership are INVENTORY
IV. HYPO: dealership has cars that are not for sale- company car- EQUPMENT
V. HYPO: “security interest in security account at XYZ brokerage”- INSUFFICIENT (9-108 € (2))
VI. HYPO- “security interest in X’s equipment”- SUFFICIENT DESCRIPTION

SALE & PURCHASE:

I. 2-106- SALE: a sale consists of the passing of title from the seller to a buyer for a price
II. 2-401- PASSING OF TITLE: When do you have a sale?
a. (2) unless otherwise explicitly agreed, title passes to buyer at time & place at which seller completes
performance with reference to physical delivery of goods, DESPITE any reservation of security interest &
even though document title is to be delivered at a different time or place; and in particular and despite any
reservation of a security interest by the billing of lading
i. (a) if the contract requires or authorizes the seller to send the goods to the buyer but does NOT
require him to deliver them at destination, title passes to the buyer at the time and place of
shipment; but
ii. (b) if the contract requires delivery at destination, title passes on tender there.
b. HYPO- want to buy my bottle for $10? -not sale yet- sale is complete when bottle is physically delivered-
voluntarily transfer the goods to buyer (now title passes) – voluntary transfer of the goods passes title.
i. Buyer doesn’t pay- still a sale bc there was PHYSICAL DELIVERY of the goods. **Passing of Title
does not depend on the payment of the consideration**
1. Bad check = still a sale. Buyer would have voidable title.
c. HYPO- Thief hits you in head & takes bottle- can this ever be a sale? NO!! bc there was no price (void)
III. TWO TYPES OF SALES:
a. Cash Sale: property paid for at time or before delivery
b. Credit Sale: seller allows possession to transfer voluntarily to the buyer and the buyer has agreed to pay for
these goods (on credit) and at a later time

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IV. 1-201 (29) Purchase: means taking by sale, lease, discount, negotiation, mortgage, pledge, lien, security
interest, issue or reissue, gift, or any other voluntary transaction creating an interest in property. ** don’t
need value for a purchase- just need a voluntary transaction with or without value**
V. 1-201 (20) Good Faith: except as otherwise provided in Article 5, means honesty in fact and the observance of
reasonable commercial standards of fair dealing.
a. 2 part test:
i. Subjective: honesty in fact (what did the guy think?)
ii. Objective: reasonable commercial standards of fair dealing
b. HYPO!! Air Force Lt.- purchased car secured by loan at local bank
i. Quits AF- banker honestly thought the Lt. defaulted
1. Commercial standards likely require banker to contact Lt. for further info
2. **Decision to call loan into default = BAD FAITH (even though there was honesty in fact) bc
he did not follow reasonable commercial standards)
c. HYPO!! D granting security interest in equipment and inventory that belongs to P
i. Does not comply with first two requirements of 9-203
1. NO VALUE GIVEN BY SECURED PARTY
2. D DOES NOT HAVE RIGHTS OR RIGHTS TO TRANSFER THE COLLATERAL
d. HYPO!! J gave security interest in law office printer to SP- J stopped practicing law year later & used printer
at home
i. At the moment of attachment of the security interest, the printer was EQUIPMENT
ii. RULE: characterization of a security interest is at the time of the granting of the security interest-
moment of the authentication of the security agreement
3 TYPES OF TITLE:
I. Good Title: there has been a sale and delivery of the property
II. Voidable Title: property/title to the property was procured through fraud or deceit (voluntary)
III. Void/No Title: no voluntary transfer

2-403. Power to Transfer; Good Faith Purchase of Goods; Entrusting:

I. (1) a purchaser of goods acquires all title which his transferor had or had power to transfer except that a
purchaser of a limited interest acquires rights only to the extent of the interest purchased. A person with
voidable title has power to transfer good title to a good faith purchaser for value. When goods have been
delivered under a transaction of purchase the purchaser has such power even though
a. (a) the transferor was deceived as to te identity of the purchaser, or
b. (b) the delivery was in exchange for a check which is later dishonored, or
c. © it was agreed that the transaction was to be a “cash sale”, or
d. (d) delivery was procured through FRAUD punishable as larcenous under criminal law.
II. (2) any entrusting of possession of goods to a MERCHANT who deals in goods of that kind gives him power to
transfer all rights of the entruster to a BUYER IN THE ORDINARY COURSE OF BUSINESS (BIOCOB)
III. (3) “ENTRUSTING” includes any delivery and any acquiescence in retention of possession regardless of any
condition expressed between the parties to the delivery or acquiescence and regardless of whether the
procurement of the entrusting or the possessors disposition of the goods have been such as to be larcenous
under the criminal law.

GFPV Examples:
I. HYPO!! Rightful owner voluntarily transfers possession of shoes in exchange for cash- buyer takes shoes & runs
= (1) ©
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II. HYPO!! Bad guy steals goods from building in burglary- VOID TITLE (thief is NOT a purchase)
a. Transfers party of proceeds to accomplice who knows of the burglary and exchanges something of value for
proceeds- VOID TITLE- good faith doesn’t matter
III. HYPO!! Truck in alley of 2 men selling TV’s and you know the TVs are being sold super cheap
a. Not a good faith purchaser for value- you know/suspect the real price so not in good faith.
IV. HYPO!! Bad guys goes to orphanage and delivers TV to orphanage
a. TV was A GIFT!!- so the orphanage was a good faith purchaser- but there was no value!!
b. Past consideration IS NOT CONSIDERATION!!
c. Can only be a good faith purchaser for value if bad guy has voidable title
i. Cant be GFPV if bad guy has void title or if no value was given (i.e. gift)
V. HYPO!!- A “gives” 20K of jewelry to B in voidable transaction- B gave jewelry to C in a possessory security
interest to secure a 5K debt due in 4 months- what did C get??
a. C is rightful owner!! *giving a security interest is a purchase!!** C is a GFPV
VI. HYPO!! Thief gets 50 K in fraud/extortion- buys a 10K cashiers check with proceeds- buys gold and diamond
bracelet with 10K cashiers check and gives bracelet to his GF
a. Can rightful owner (victim) recover bracelet- from thief’s GF? YESS!! No value was given by girlfriend so she is
not a GFPV – bracelet was a gift – no value for the transfer. Thief had VOIDABLE TITLE thus Girlfriend has VOIDABLE
TITLE.
b. Trust tracing- 50K theft- converted 10K to a bracelet- trace proceeds to bracelet

ENTRUSTING & BIOCOB:

I. 2-104(1) Merchant – a person who deals in goods of the kind or otherwise by his occupation holds himself out as
having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill
may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out
as having such knowledge or skill.
II. 1-201(9) Buyer in Ordinary Course of Business – a person that buys goods in good faith, without
knowledge that the sale violates the rights of another person in the goods, and in the ordinary course from a person, other
than a pawnbroker, in the business of selling goods of that kind. A person buys goods in the ordinary course if the sale to
the person comports with the usual or customary practices in the kind of business in which the seller is engaged or with
the seller's own usual or customary practices. (BIOCOB)
a. EXAMPLE: Person that sells oil, gas, or other minerals at the wellhead/minehead is a person in the business of selling
goods of that kind. BIOCOB may buy for cash, by exchange of other property, or on secured or unsecured credit, and
may acquire goods or documents of title under a preexisting contract for sale.
b. Only a buyer that takes possession of the goods or has a right to recover the goods from the seller under Article 2
may be a buyer in ordinary course of business. BIOCOB does not include a person that acquires goods in a transfer in
bulk or as security for or in total or partial satisfaction of a money debt.

** Pawnshop, Bankruptcy Sale, etc.- NOT merchants and NOT in the ordinary course of business **

III. 9-320 BUYER OF GOODS – BIOCOB:

a. (a) [Buyer in ordinary course of business.] Except as otherwise provided in subsection (e), a BIOCOB, other than a
person buying farm products from a person engaged in farming operations, takes free of a security interest created by
the buyer's seller, even if the security interest is perfected and the buyer knows of its existence.
i. ***HYPO – Go into Nordstrom’s to buy shoes – you know that there is a perfected security interest that
Nordstrom gave to its secured lender in its inventory – buyer still takes free of the security interest even
though he knows of the security interest
1. Usually, the store would get a line of credit, and take out money as they need it and the lender
would have a security interest in the purchased collateral –
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b. (b) Buyer of CONSUMER GOODS: except as otherwise provided in subsection €, a buyer of goods from a
person who used or bought the goods for use primarily for personal, family or household purposes takes
free of a security interest, even if perfected if the buyer buys
i. (1) without knowledge of the security interest;
ii. (2) for value;
iii. (3) primarily for the buyer's personal, family, or household purposes; AND
iv. (4) before the filing of a financing statement covering the goods.
c. [Effectiveness of filing for subsection (b).] To the extent that it affects the priority of a security interest over a buyer
of goods under subsection (b), the period of effectiveness of a filing made in the jurisdiction in which the seller is
located is governed by Section 9-316(a) and (b).
d. (d) [BIOCOB at wellhead/minehead.] A BIOCOB buying oil, gas, or other minerals at the wellhead/minehead or after
extraction takes free of an interest arising out of an encumbrance.
e. (e) [Possessory security interest not affected.] Subsections (a) and (b) do not affect a security interest in goods in the
possession of the secured party under Section 9-313.

ENTRUSTING EXAMPLES: TITLE??

I. HYPO!! Carousal slide projector breaks- takes it to camera shop- come back week later and shop is out of
business- sold the projector to someone else
a. ENTRUSTER = person who brought the camera to the shop
b. MERCHANT = camera shop
i. If he sells to BIOCOB- buyer has priority over the ENTRUSTER
c. **If buyer did not have notice of the true ownership of the projector- valid sale- buyer bought projector
from merchant in good faith and thus is a BIOCOB
II. HYPO!! Leave suit at the dry cleaner and they give it to the wrong person- NOT a merchant or a BIOCOB bc dry
cleaners are not in the business of selling shirts
III. HYPO!! Owners  thief (fraud – voidable title)  T1 (no value/good faith)  T2 (for value/good faith)
a. T2 is a GFPV if they can prove value and good faith- GOOD TITLE
IV. HYPO!! Thief got the goods by force – no voluntary delivery – thief has void title
a. Can owner get the property back from T2? – YES – no matter how much good faith or value is involved – void title is
void title!
b. Owner’s Rights – replevin or chancery to recover goods
c. T2 – has action against T1 – there was a warranty of title under 2-312 that T2 was receiving good title free of any
encumbrance.
i. Breach of Patent – 2-312 remedy for breach of title
V. HYPO!! Victim has goods stolen from him without title passing (involuntary)
a. How can V get the goods back? Judge orders thief to return the goods. Or Replevin.
b. Get an order of Replevin – but the goods were already transferred to an accomplice – cannot get the goods back
because Replevin only allows sheriff to take good from the specific person – would need a new order of replevin to
get goods from the accomplice.

REPLEVIN- TRUST TRACING DOCTRINE:

 If a bad guy takes money that was entrusted to him in a trust, and does something he was not authorized to do with the money
– the court of equity will trace the trust property into whatever form it has now taken.
 HYPO – H&W steal 400K from a couple who hired H&W to fix their home – immediately purchased a new home & furnishings –
action in replevin to merely recover the property wouldn’t work because the money has now transformed into a
home/furniture.
o Need chancery court to trace the property in whatever form – subject to the rights of a bona fide purchaser (a good
faith purchase for value).

2 methods of Recovery/Equitable Remedies- return the goods or replevin?

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I. HYPO!! Buys pen with check that bounces (2-403(b)) – prayer for relief = order the bad guy to deliver the goods or the
proceeds, subject only to the rights of a GFPV.
a. Line most often used to describe voidable title- “victim was tricked into putting these goods into the
stream of commerce” therefore 2-403 could apply because it was voluntarily put into the stream of
commerce and
II. LARCENY- taking of property of another with the intent to take it and deprive the owner of title
a. EX: English bank teller convicted of larceny- over-turned bc it was a country transaction!! Had to pass a new
law called “embezzlement”

ARTICLE 2- WARRANTIES:
I. 2-312- Warranty of Title & Against Infringement; Buyer Obligation:
a. (1) subject to subsection (2) there is in a contract for sale a warranty by the seller that:
i. (a) the title conveyed shall be good, and its transfer rightful; and
ii. (b) the goods shall be delivered free from any security interest or other lien or encumberance
which the buyer at the time of contracting has no knowledge.
b. (2) a warranty under subsection (1) will be excluded or modified only by specific language or by special
circumstances which give the buyer reason to know that the person selling does not claim title in himself or
that he is purporting to sell only such right or title as he or a third person have
c. (3) Unless otherwise agreed seller who is a merchant regularly dealing in goods of kind warrants that goods shall be
delivered free of rightful claim of any third person by way of infringement or the like but buyer who furnishes
specifications to the seller must hold the seller harmless against any such claim which arises out of compliance with
the specifications.
** WARRANTY THAT TITLE IS GOOD AND TRANSFERABLE **

2-313- EXPRESS WARRANTIES BY AFFIRMATION, PROMISE, DESCRIPTION, SAMPLE:

I. (1) Express Warranties: by seller as follows
a. (a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of
the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.
b. (b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the
goods shall conform to the description.
c. (c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of
the goods shall conform to the sample or model.
i. HYPO!! Manufacturer changes fabric between years- provided a sample last year but not this year- M
BREACHED his express warranty by sample bc Buyer thought they were buying same fabric as last year
ii. HYPO!! $300 value for $25! NO express warranty- just an option
iii. HYPO!! $300 list price at 10 retail stores!! -express warranty
II. (2) It is not necessary to the creation of an express warranty that the seller use formal words such as "warrant" or
"guarantee" or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or
a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty.
2-314- IMPLIED WARRANTY: MERCHANTABILITY; USAGE OF TRADE:
I. (1) Unless excluded or modified (2-316), a warranty that the goods shall be merchantable is implied in a contract for
their sale if the seller is a merchant with respect to goods of that kind. Under this section the serving for value of food or
drink to be consumed either on the premises or elsewhere is a sale.
II. (2) Goods to be Merchantable must be at least such as:
a. (a) pass without objection in the trade under the contract description; and
b. (b) in the case of fungible goods, are of fair average quality within the description; and
c. (c) are fit for the ordinary purposes for which such goods are used; and
d. (d) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and
among all units involved; and
e. (e) are adequately contained, packaged, and labeled as the agreement may require; and

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f. (f) conform to the promise or affirmations of fact made on the container or label if any.
III. (3) Unless excluded or modified (2-316) other implied warranties may arise from course of dealing or usage of trade.
a. HYPO – allergic to sesame seeds – eat big mac – NO breach of warranty because buyer had notice from advertisement
that burger had seeds on it
b. CASE HYPO – fish bone in fish chowder – NO breach – not uncommon for fish bone to be in the chowder – should
expect a bone – especially in Boston!
2-315- IMPLIED WARRANTY: FITNESS FOR PARTICULAR PURPOSE!!!
Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the
buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded or modified (2-316) an
implied warranty that the goods shall be fit for such purpose.

I. HYPO – walk into seller & if seller has reason to know of any particular purpose for which the goods will be used and
buyer is relying on seller’s skills to select/furnish suitable goods for that purpose – implied warranty of fitness!
II. HYPO – go to shoe store – do not tell seller that she was going to use boots to kick boyfriend – NO breach of warranty for
fitness for particular purpose
a. buyer tells seller that she wants shoes that are good for kicking her boyfriend – now there is an implied warranty of
fitness

2-316 EXCLUSION OR MODIFICATION OF WARRANTIES:

I. Words or conduct relevant to creation of an express warranty and words or conduct tending to negate or limit warranty shall
be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or
extrinsic evidence (2-202) negation or limitation is inoperative to the extent that such construction is unreasonable.
II. (2) Subject to subsection (3), to exclude or modify the implied warranty of MERCHANTABILITY or any part of it the language
must mention merchantability and in case of a writing must be conspicuous, AND
a. **to exclude or modify any implied warranty of FITNESS the exclusion must be by a writing and conspicuous.
Language to exclude all implied warranties of fitness is sufficient if it states, for example, that "There are no
warranties which extend beyond the description on the face hereof."
III. (3) Notwithstanding subsection (2)
a. (a) unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like "as is", "with
all faults" or other language which in common understanding calls the buyer's attention to the exclusion of
warranties and makes plain that there is no implied warranty; and
b. (b) when the buyer before entering into the contract has EXAMINED the goods or the sample or model as fully as he
desired or has refused to examine the goods there is no implied warranty with regard to defects which an
examination ought in the circumstances to have revealed to him; and
c. (c) an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of
trade.
IV. (4) Remedies for breach of warranty can be limited in accordance with the provisions of this Article on liquidation or limitation
of damages and on contractual modification of remedy (2-718 & 2-719).

“as is” – excludes implied warranties except for fitness & merchantability (subsection 2)
 To exclude implied warranty of merchantability if in writing it must be conspicuous, and must specifically mention
merchantability

PROCEEDS:
I. 9-102 (64) Proceeds: except as used in Section 9-609 (b), means the following property
a. (A) whatever is acquired upon sale, lease, license, exchange, or other disposition of collateral
b. (B) whatever is collected on or distributed on account of, collateral;
c. © rights arising out of collateral;
d. (D) to the extent of the value of collateral, claims arising out of the loss, nonconformity, or interference
with the use of defects or infringement of rights in or damage to the collateral or

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e. € to the extent of the value of collateral and to extent payable to the DR or the secured party, insurance
payable by reason of the loss or nonconformity of defects or infringement of rights in or damage to the
collateral
i. HYPO: sell watch (that has a security interest) and collect $7K in proceeds – if there is a security interest
attached to the watch the security interest will also attach to the proceeds!
II. 9-203 (f) Proceeds & Supporting Obligations : attachment of security interest in collateral gives SP the rights to
proceeds provided by section 9-315 and is also attachment of a security interest in a supporting obligation for
the collateral
III. 9-102 (9) Cash Proceeds: means proceeds that are money, checks, deposit accounts or the like.

IV. (18) Fungible Goods: means (A) goods of which any unit, by nature or usage of trade, is the equivalent of any other
like unit; or (B) goods that by agreement are treated as equivalent.
a. HYPO – nuts on clark – big barrel says, “grade A” – assumption that all nuts in barrel are of grade A quality
b. To be merchantable -- (b) in the case of fungible goods, are of fair average quality within the description; and

9-315. SECURED PARTY RIGHTS- DISPOSITION OF COLLATERAL & PROCEEDS :

I. [Disposition of collateral: continuation of security interest or AgLien; proceeds .] Except as otherwise provided in this
article and in Section 2-403(2):
a. (1) a security interest or agricultural lien continues in collateral notwithstanding sale, lease, license, exchange, or other
disposition thereof UNLESS SP authorized the disposition free of the security interest or agricultural lien; and
b. (2) a security interest attaches to any identifiable proceeds of collateral.
i. *must be able to identify the proceeds and trace directly from the collateral*
c. HYPO!! -baker borrows money to buy eggs & flour- buys these agreements from merchants & gives sellers two
separate purchase- money order- giving security interest in this INVENTORY- baker now makes cake – goods are now
commingled!!
i. Security interest attaches to the whole cake! (9-336 (b))- when they are no longer distinguishable because
they are in the product or mass – the original security interest goes into the mass/product
ii. HYPO!!! – security interest attached to flour inventory- flour used to make Twinkies- Twinkies are
commingled goods and indefinable 9-336(b).
1. The security interest does not attach to the flour “as such” – but does not attach to the
product/mass that results when the goods and indefinable (9-336 (b))
d. Product = if collateral becomes subsumed and no longer exists (the new thing is DIFFERENT)
e. Mass = each individual item in the mass retains STRUCTURAL INTEGRITY.
i. HYPO!! – barrel of nuts- each nut is FUNGIBLE GOODS- it is mass because you have big barrel of individual
nuts that retain individual characteristics- nuts not changed into something new and exciting!
f. HYPO!!: bank loan $$ to air carrier to buy 10 aircraft- all 10 insured & subject to security interest- plane severely
damaged in fire- Bank has rights to insurance proceeds- ** Insurance Proceeds on a loss collateral is still proceeds*

***Attachment to collateral means that the security interest is automatically attached to proceeds

***Commercial Lending – retail store goes into business and needs money to buy inventory – what happens when they sell the
inventory? – they get cash proceeds which goes into company bank account – security interest is still attached

9-315 (b) Commingled proceeds identifiable.] Proceeds that are commingled with other property are identifiable proceeds:
(1) if the proceeds are goods, to the extent provided by Section 9-336; AND

(2) if the proceeds are not goods, to the extent that the secured party identifies the proceeds by a method of tracing, including
application of equitable principles, that is permitted under law other than this article with respect to commingled property of the type
involved. *this is what happens when the proceeds are money*

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II. HYPO!!- thief had $3K in bank account- he stole $3K more and dumped it into his account- now he has a total
of $6K- takes out $5K that cannot be traced- now $1K in account (heavy money sinks to the bottom)
a. Rightful owner has $1K security interest in the account
b. Rule= people spend their own money first
c. HYPO!!- takes out all money ($6K total) & buys piece of art- EQUITABLE LIEN= art is sold at auction and you
have $3K interest in proceeds
i. Thief has no money- uses your $3K to buy a piece of art- Artwork appreciates to $50K value- I have
an interest in the proceeds of the stolen $$, but the thief has acted inequitably- Rightful owner
has 100% interest and thief has no interest

© PERFECTION of security interest in proceeds.] A security interest in proceeds is a perfected security interest if the security interest
in the original collateral was perfected.

UNPERFECTION:
(d) [Continuation of perfection.] A perfected security interest in proceeds becomes unperfected on the 21st day after the security
interest attaches to the proceeds unless:

1) The following conditions satisfied:

a. (a) a filed financing statement covers the original collateral
b. (b) the proceeds are collateral in which a security may be perfected by filing in the office in which the
financing statement has been filed
c. (C) the proceeds are not acquired with cash proceeds;
2) The proceeds are identifiable cash proceeds or
3) The security interest in the proceeds is perfected other than under subsection © when security interest attaches to
the proceeds or within 20 days thereafter

e) when perfected security interest becomes unperfected : if a filed financing statement covers the original collateral,
a security interest in proceeds which remains perfected under subsection (d) (1) becomes unperfected at the later of:
1) when effectiveness of filed FS lapses under section 9-515 or is terminated under section 9-513 OR
2) the 21st day after the security interest ATTACHES to the proceeds

9-226 COMMINGLED GOODS: in this section, "commingled goods" means goods that are physically united with other goods
in such a manner that their identity is lost in a product or mass.
I. (b) no security interest in commingled goods as such. A security interest does not exist in commingled goods as
such however, a security interest may attach to a product or mass that results when goods become commingled
products.
II. © Product or mass. If collateral becomes commingled goods, a security interest attaches to the product or
mass
III. (d) Perfection of Security interest. If a security interest in collateral is perfected BEFORE the collateral becomes
commingled goods, the security interest that attaches to the product or mass under subsection © is perfected.
IV. (e) Priority of Secured Interest. Except as otherwise provided in subsection (f), the other provisions of this part
determine the priority of a security interest that attaches to the product or mass under ©
V. (f) Conflicting Security interests in Product or Mass. If more than one security interest attaches to the product
or mass under subsection ©, the following rules DETERMINE PRIORITY:
a. (1) a security interest that is perfected under subsection (d) has priority over a security interest that is
unperfected at the time the collateral becomes commingled goods
b. (2) if more than one security interest is perfected under subsection (d), the security interests rank equally
in proportion to the value of collateral at the time it became commingled goods

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AFTER-ACQUIRED PROPERTY:
9-204. After Acquired Property; Future Advances:
I. (a) (after acquired collateral) except as otherwise provided in subsection (b), a security agreement may create
or provide for a security interest in after-acquired collateral.
II. (b) When After-Acquired Property Clause NOT Effective. A security interest does NOT attach under a term
constituting an after-acquired property clause to:
a. (1) consumer goods, other than an accession when given as additional security, unless the DR acquires
rights in them within 10 days after the secured party gives value ORRR
b. A commercial tort claim
III. © Future Advances and Other Value: a security agreement 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
IV. HYPO!! $100K line of credit- if agreement provides for future advances and after acquired collateral- saves
them from having to redo the agreement every couple of months
V. HYPO!! Borrow $$ to buy inventory- sell it- buy more inventory, does bank security interest attach to the
second round of inventory? YES- only if explicitly provided in security agreement- after acquired property (this
is better than arguing that the new inventory is traceable proceeds)
** AFTER ACQUIRED PROPERTY CLAUSE DOES NOT INCLUDE CONSUMER GOODS**

Review Questions:
I. HYPO!! Security Agreement gives a security interest in D’s inventory – promptly sells out all of the inventory and puts
money into deposit account – uses money to buy more inventory – does the perfected security interest in inventory follow
into the new inventory?? MAYBE.
II. HYPO!! Store keeper buys cases of cola – store gives security interest in the cola – sell all the inventory and put money
into deposit account – go buy more cola – does security interest follow into the new inventory? ONLY IF the agreement
includes after-acquired property!!! **(but the security interest is still perfected for the 20-day automatic period)**

****Security interest follows automatically into cash proceeds (9-315(a)) – but need an after-acquired property clause to follow into the
new inventory (9-204(b))

III. HYPO!! Guy wants to borrow money to buy consumer goods – gives security agreement to seller under PMSI in “all my
personal property and stuff I acquire in the future” – good security agreement? NO – 9-204(b)
a. (b) [When after-acquired property clause not effective.] A security interest does not attach under a term constituting
an after-acquired property clause to:
i. (1) CONSUMER GOODS, other than an accession when given as additional security, unless the debtor
acquires rights in them within 10 days after the secured party gives value; or
1. Consumer goods case and asking for after-acquired property – security interest does not attach to
after-acquired property of consumer goods unless debtors acquires within 10 days after secured
party gives value – exception to the sufficiency of description in 9-108(e)(2).

PERFECTION: (filing gives constructive notice to others- cannot be good faith purchaser if you have notice)

Determining Priority – general rule is priority goes to person who has priority of filing or perfection.
I. HYPO!! Vader borrows money from Luke – security interest in lightsaber – recorded audio (authenticated in a record) –
Luke does not advance the money on the spot, says he’ll decide in a month – 10 days later Vader walks into bank and
borrows money and gives security interest in lightsaber to bank – bank gives the money and the interest is attached and
then the bank perfects it – week later – Vader asks Luke for the money – advances the funds – and perfects
a. Luke had not perfected until after he had already furnished the money – how could Luke have gotten priority? – UCC
allows the filing of a FS before attachment if:
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i. Debtor authenticates security agreement giving security interest
ii. Security agreement today – going to give the money in two weeks – the security interest won’t attach until
the money is given – but the executing of a security agreement authorizes the filing of a FS!
iii. Allows the filing of a financing statement BEFORE attachment if:
1. Must have security agreement authenticated in a record OR
2. A separate authenticated record where Debtor gives permission to file the FS
II. PRIORITY = FIRST TO FILE OR PERFECT!!!
III. Citation Lien (Judgment Lien)- becomes effective when served on the judgement DR or party holding the property- mere
fact of entry of judgement does not create a judgement lien- effective judgment lien is treated the same as a perfected
security interest for the purposes of time.
a. HYPO!! SP1 attaches his security interest on day 1 to equipment – Judgment against debtor on day 10 -- **depends
when SP1 filed the FS and also depends on when the judgment lien is served**

Unattached vs. Unattached – priority? – probably no priority

Attached v. Unattached – attached wins
Perfected v. Attached – perfected wins
Perfected v. Perfected – first to file or perfect (subject to many exceptions)

IV. 9-308: When security Interest or AgLIEN IS PERFECTED; CONTINUITY OF PERFECTION.

a. (a) [Perfection of security interest.] Except as otherwise provided in this section and Section 9-309, a security interest
is perfected if it has attached and all of the applicable requirements for perfection in 9-310 through 9-316 have been
satisfied. Security interest is perfected when it attaches if applicable requirements satisfied before security interest
attaches.

*FS filed before attachment becomes perfected once it attaches (Wisconsin must file with dept of institutions)

V. 9-309: Security interest Perfected Upon Attachment : perfected WITHOUT FILING

a. (1) a PMSI in consumer goods, except as provided in 9-311(b) with respect to consumer goods subject to a statute or
treaty described in Section 9-311(a);
b. (2) an assignment of accounts or payment intangibles which does not by itself or in conjunction with other
assignments to same assignee transfer a significant part of assignor's outstanding accounts or payment intangibles;
c. (3) a sale of a payment intangible;
d. (4) a sale of a promissory note;
e. (5) SI created by assignment of health-care-insurance receivable to provider of health-care goods/services;
f. (6) security interest arising under 2-401, 2-505, 2-711(3), or 2A-508(5), until debtor obtains possession of collateral;
g. (7) a security interest of a collecting bank arising under Section 4-210;
h. (8) a security interest of an issuer or nominated person arising under Section 5-118;
i. (9) a security interest arising in the delivery of a financial asset under Section 9-206(c);
j. (10) a security interest in investment property created by a broker or securities intermediary;
k. (11) a security interest in a commodity contract or a commodity account created by a commodity intermediary;
l. (12) an assignment for benefit of all creditors of transferor & subsequent transfers by the assignee thereunder; and
m. (13) a security interest created by an assignment of a beneficial interest in a decedent's estate.

****PMSI in CONSUMER GOODS – AUTOMATICALLY perfects upon attachment****

**Easiest way to perfect security interest in goods – POSSESSION – once possessory security interest
attaches – it automatically perfects!!** (9-313)

9-312 (b)(3) – security interest in money may be perfected only by the secured party's taking possession under Section 9-313.
***not perfected unless SP takes possession of the $20 bill ****Money is ONLY perfected by possession******
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Can I give a security interest in British pounds – yes – it is money – and the security interest cannot be perfected by filing

FINANCING STATEMENT:
I. 9-502: CONTENTS OF FINANCING STATEMENT; RECORD OF MORTGAGE AS FINANCING STATEMENT; TIME OF FILING
FINANCING STATEMENT..
a. General rule – zero tolerance for mistakes in entity names (subject to exceptions)
b. Different requirement from supergeneric in 9-108 – you don’t describe collateral – you indicate the collateral
c. Traditional financing statement does not require a signature – facilitates paperless filings
II. (a) Sufficiency of Financing Statement. Subject to subsection (b), a financing statement is sufficient only if it:
a. (1) provides the name of the debtor;
b. (2) provides the name of the secured party or a representative of the secured party; and
c. (3) indicates the collateral covered by the financing statement.
III. REQUIREMENTS FOR FS:
a. Name of Debtor…
i. For an individual/person – must be name on their Driver’s License (if you could find FS using search logic –
still good)
ii. For an organization/entity (corp) – the name on the certificate of organization/incorporation (public record) is
the name that must be used on the FS
1. US Olympic Committee is a Registered Federal Organization
2. Federal Deposit Insurance Corporation
3. **IIT registered in IL as Illinois Institute of Technology – using “IIT or Chicago-Kent” on financing
statement would not be sufficient & misleading
4. **A financing statement that provides only the debtor’s trade name is insufficient
iii. If the name is seriously misleading…..no good…..9-506
b. Name of the Secured Party
c. Indicates the collateral covered by the financing statement
i. different than 9-108 – allowed to be supergeneric because a prospective party can call the Secured Party to
determine what exactly the collateral is.
ii. “all consumer goods” – under 9-108(e) this is insufficient because it is a description by type of collateral that
is a consumer goods – **under 9-504 it would be permitted.
iii. SEE BELOW- 9-504
IV. 9-504 INDICATION OF COLLATERAL: A financing statement sufficiently indicates the collateral that it covers if the FS
provides:
a. (1) a description of the collateral pursuant to Section 9-108; OR
b. (2) an indication that the financing statement covers all assets or all personal property.
V. 9-502 (d) FILING BEFORE SECURITY AGREEMENT OR ATTACHMENT: A financing statement may be filed before a security
agreement is made or a security interest otherwise attaches.
a. -expressly allows for filing of a financing statement before attachment
VI. 9-509 WHO FILES A FS?? ANYBODY!!! – if the D has already done 1 of 2 things: **debtor must authorize**
a. (1) authenticate security agreement in a record OR
b. (2) debtor gives consent/permission in separate authenticated record
What happens if somebody who is not authorized to file, files – ineffective (9-510)
-MacNaughton filed the financing statement without an agreement – liquidated statutory damages in 9-510?
VII. 9-506 EFFECT OF ERRORS OR OMISSIONS.
a. (a) [Minor errors and omissions.] – FS substantially satisfying the requirements of this part is effective, even if it has
minor errors or omissions, unless the errors or omissions make the financing statement seriously misleading.
b. (b) [Financing statement seriously misleading.] – Except as otherwise provided in subsection (c), a FS that fails
sufficiently to provide the name of the debtor in accordance with Section 9-503(a) is seriously misleading.
c. (c) [Financing statement not seriously misleading.] – If a search of records of filing office under debtor's correct
name, using filing office's standard search logic, if any, would disclose a FS that fails sufficiently to provide name of
debtor in accordance with 9-503(a), the name provided does NOT make the FS seriously misleading.
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*if you could find it anyway, searching for the wrong name – it’s still good! If the FS incorrectly states debtor’s name – but
using search logic would still find the FS – then it is valid!
 HYPO – SP1 files FS with Donald F. Spak – SP2 searches “Don Spak” – maybe finds the FS – maybe not
 HYPO – always known as Bennie Miller – some creditors filed with Bennie and some filed with Benjamin – Would searching
“Bennie” find “Benjamin” ? NO! – searching “Bennie” would not find “Benjamin” and thus “Bennie” is seriously
misleading. – “Ben” Miller is also seriously misleading

d.
(d) ["Debtor's correct name."] – For purposes of 9-508(b), "debtor's correct name" in (c) means correct name of new
D.
e. HYPO – official name – Excel Stores, Inc. – FS filed against Excel Department Stores – searching “Excel” or “Excel
Stores” would likely find Excel Department Stores – thus FS would be valid.
f. HYPO – ABC Quick, Inc. – omit “Inc” – still valid
g. HYPO – Wordcorp, Inc. – FS filed against Word Corporation, Inc. – SERIOUSLY MISLEADING – searching “wordcorp”
would not find “Word Corporation”
h. HYPO – What happens if Debtor changes their name after the filing of a FS? – 9-507(c)
i. Day 1 – FS against Illinois Institute of Technology in all equipment (#1) and after-acquired equipment
ii. 3 months – gets more equip/gold (#2) – is security interest in the gold perfected? YES.
iii. 4 months – changes name to Illinois Tech – since #1 and #2 were acquired before the name change the
security interest in #1 and #2 is still perfected
iv. 5 months – gets more equipment/silver (#3) – perfected because it is within four months of the name change
v. 9 months – more equipment/crystal (#4) – NOT PERFECTED – more than 4 months after the name change
**a perfected FS remains perfected for 4 months after the name change – as long as the security interest included after-acquired
property – covered for 4 months after name change

***if the name change does not make the FS seriously misleading – then you don’t need to re-file/amend the FS

VIII. 9-516 What Constitutes Filing; Effectiveness of Filing.

a. (a) [What constitutes filing.] – Except as otherwise provided in (b), communication of a record to a filing office and
tender of the filing fee or acceptance of the record by the filing office constitutes filing.
b. (b) [Refusal to accept record; filing does not occur]… Examples…
i. HYPO – IL indexes last name first – file FS for “Elton John” – don’t know what his first name is! – would need
to clearly indicate last/first name
ii. Indexing – UCC 9-519
*Filing Rejected?
(d) [Refusal to accept record; record effective as filed record.] (rejected for improper reason)

A record that is communicated to the filing office with tender of the filing fee, but which the filing office refuses to accept for a reason
other than one set forth in subsection (b), is effective as a filed record except as against a purchaser of the collateral which gives value
in reasonable reliance upon the absence of the record from the files.

HYPO – clerk is hungover and refuses to file a proper FS1 at 9am – at 4pm SP2 (purchaser of collateral) files FS2 for same collateral – FS1
is valid and takes priority – UNLESS SP2 diligently searched the records and did not find a FS and SP2 gave value in reasonable reliance
on their research and inability to find FS1 in the records – relied on the absence of filing by giving value for the collateral and filing FS2 –
similar to being a GFPV
HYPO – clerk makes mistake and does not index properly

IX. 9-517: Effect of Indexing Errors: The failure of the filing office to index a record correctly does not affect the effectiveness
of the filed record.
a. **How can SP1 protect himself? – keep checking the records to ensure it was filed – if you don’t see it within a couple
days – must contact Sec. of State and see what’s going on.
b. **Electronic Filing – you are sent an indexed copy of the accepted FS
c. ****File…..Search……Inquire (if you can’t find FS)
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HYPO – Day 1 – SP1 sends proper UCC-1 & fee to filing office. Improperly rejected, not indexed. Day 10 – SP2’s UCC-1 & fee is accepted
for filing (same collateral) – who has priority? *it depends* – SP2 if they are a good faith purchaser for value, did a full and complete
search, printed out the pages they looked at, and they reasonably relied – 9-516(d)
 SP2 must print out the pages of their UCC search to prove that they actually conducted a reasonable search and found and
absence of record in the files.
o If SP2 did not conduct a reasonable search then SP1 has priority.
 HYPO – SP1 FS was accepted but not indexed – still effective under 9-517 & SP1 has priority over SP2.

-------------------------------------------------------------------------------------------------------------------------------------------------------
X. 9-515. Duration and Effectiveness of Financing Statement; Effect of Lapsed Financing Statement . FIVE YEARS!!
a. (a) [Five-year effectiveness.] Except as otherwise provided in subsections (b), (e), (f), and (g), a filed financing
statement is effective for a period of five years after the date of filing.
b. (b) [Public-finance or manufactured-home transaction.] Except as otherwise provided in (e), (f), and (g), an initial
financing statement filed in connection with a public-finance transaction or manufactured-home transaction is
effective for a period of 30 years after the date of filing if it indicates that it is filed in connection with a public-finance
transaction or manufactured-home transaction.
9-102(53) Manufactured Home – means a structure, transportable in one or more sections, which, in the traveling mode, is eight body
feet or more in width

LAPSE & CONTINUATION: HAPPENS AFTER 5 YEARS!!!

I. 9-515 © Lapse and Continuation of Financing Statement: The effectiveness of a filed FS lapses on the expiration of the
period of its effectiveness unless before lapse a continuation statement is filed pursuant to subsection (d). Upon lapse, FS
ceases to be effective & any security interest or AgLien that was perfected by the financing statement becomes
unperfected, unless the security interest is perfected otherwise. If the security interest or agricultural lien becomes
unperfected upon lapse, it is deemed NEVER to have been perfected as against a purchaser of the collateral for value.
(who gives value!!)
II. If a FS lapses and becomes unperfected – SP1 is still protected against LC **if judgment became effective while the FS was
still perfected** if FS lapses and then judgment becomes effective – LC has priority
III. HYPO – Day 1 – SP1 same improper rejection – Day 10 – LC1 judgment lien becomes effective – who has priority? **Where
there is an improper filing – SP1 is protected unless there is a purchaser for value that reasonably relied on the absence
of the record – LC1 is NOT a purchaser because it is not voluntary – thus SP1 takes priority
a. A judgment lien creditor is not a purchaser (not a voluntary transaction ) – 735 ILCS 5/12-101 & 12-111 & 2-1402 –
once judgment is entered – you must serve the citation/levy/etc. on the debtor for it to become effective
i. judgment lien is effective when served on debtor
b. *********Effective judgment lien = perfected security interest

IV. (d) WHEN continuation statement may be filed.] A continuation statement may be filed only within six months before the
expiration of the five-year period specified in subsection (a) or the 30-year period specified in subsection (b), whichever is
applicable.
a. File on Day 1 – Expires on 5-year anniversary – must file within 6-month period before that 5-year anniversary.
b. No separate UCC Form titled “continuation statement” – covered on UCC 3 form by checking “Continuation” box –
UCC 3 is an amendment form.
V. (e) [Effect of filing continuation statement] Except as otherwise provided in Section 9-510, upon timely filing of a
continuation statement, the effectiveness of the initial financing statement continues for a period of five years
commencing on the day on which the financing statement would have become ineffective in the absence of the filing.
Upon the expiration of the five-year period, the financing statement lapses in the same manner as provided in subsection
(c), unless, before the lapse, another continuation statement is filed pursuant to subsection (d). Succeeding continuation
statements may be filed in the same manner to continue the effectiveness of the initial financing statement.
VI. (f) [Transmitting utility financing statement.] If a debtor is a transmitting utility & a filed initial financing statement so
indicates, the FS is effective until a termination statement is filed.
a. 9-102(80) Transmitting utility – means a person primarily engaged in the business of:
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i. (A) operating a railroad, subway, street railway, or trolley bus;
ii. (B) transmitting communications electrically, electromagnetically, or by light;
iii. (C) transmitting goods by pipeline or sewer; or
iv. (D) transmitting or producing and transmitting electricity, steam, gas, or water.
VII. (g) [Record of mortgage as financing statement.] A record of a mortgage that is effective as a financing statement filed as
a fixture filing under Section 9-502(c) remains effective as a financing statement filed as a fixture filing until the mortgage is
released or satisfied of record or its effectiveness otherwise terminates as to the real property.

HYPO – Spak Industries – all of SI was acquired and merged with Conviser Industries – SI no longer is the appropriate name – seriously
misleading – bought by Spak Co? – maybe still fine

NEW DEBTOR: 4 MONTHS ALL YOU HAVE TO REMEMBER, SOMEONE TAKES OVER!!
I. 9-508 Effectiveness of Financing Statement if New Debtor becomes Bound by Security Agreement .
a. (a) [Financing statement naming original debtor.] Except as otherwise provided in this section, a filed financing
statement naming an original debtor is effective to perfect a security interest in collateral in which a new debtor has
or acquires rights to the extent that the financing statement would have been effective had the original debtor
acquired rights in the collateral.
b. (b) [FS becoming seriously misleading.] If the difference between the name of the original debtor and that of the new
debtor causes a filed financing statement that is effective under subsection (a) to be seriously misleading under 9-506:
i. (1) the financing statement is effective to perfect a security interest in collateral acquired by the new debtor
before, and within four months after, the new debtor becomes bound under Section 9-203(d); and
ii. (2) the financing statement is not effective to perfect a security interest in collateral acquired by the new
debtor more than four months after the new debtor becomes bound under Section 9-203(d) unless an initial
financing statement providing the name of the new debtor is filed before the expiration of that time.
II. 9-520 Acceptance and Refusal to Accept Record:
a. (a) [Mandatory refusal to accept record.] A filing office shall refuse to accept a record for filing for a reason set forth
in Section 9-516(b) and may refuse to accept a record for filing only for a reason set forth in Section 9-516(b).
b. (b) [Communication concerning refusal.] If a filing office refuses to accept a record for filing, it shall communicate to
the person that presented the record the fact of and reason for the refusal and the date and time the record would
have been filed had the filing office accepted it. The communication must be made at time & in manner prescribed by
filing-office rule but [, in case of a filing office described in 9-501(a)(2),] in no event more than two business days after
filing office receives record.
c. (c) [When filed FS effective.] A filed FS satisfying Section 9-502(a) and (b) is effective, even if the filing office is
required to refuse to accept it for filing under subsection (a). However, Section 9-338 applies to a filed financing
statement providing information described in Section 9-516(b)(5) which is incorrect at the time the financing
statement is filed.
d. (d) [Separate application to multiple debtors.] If a record communicated to a filing office provides information that
relates to more than one debtor, this part applies as to each debtor separately.
e.
III. 9-338 Priority of Security Interest or Agricultural lien Perfected by Filed Financing Statement Providing Certain Incorrect
Info.
a. If a security interest or agricultural lien is perfected by a filed financing statement providing information described in
Section 9-516(b)(5) which is incorrect at the time the financing statement is filed:
i. (1) security interest or AgLien is subordinate to conflicting perfected security interest to extent that holder of
conflicting security interest gives value in reasonable reliance upon the incorrect information; and
ii. (2) a purchaser, other than a SP, of collateral takes free of security interest or agricultural lien to the extent
that, in reasonable reliance upon the incorrect information, the purchaser gives value and, in the case of
chattel paper, documents, goods, instruments, or a security certificate, receives delivery of the collateral.
IV. 9-518 Claim Concerning Inaccurate or Wrongfully Filed Record.
a. (a) [Statement with respect to record indexed under person’s name.] A person may file in the filing office an
information statement with respect to a record indexed there under the person's name if the person believes that the
record is inaccurate or was wrongfully filed.
b. (b) [Contents of statement under subsection (a).]….

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c. (c) [Statement by secured party of record.] A person may file in the filing office an information statement with respect
to a record filed there if the person is a secured party of record with respect to the financing statement to which the
record relates and believes that the person that filed the record was not entitled to do so under Section 9-509(d).
d. (d) [Contents of statement under subsection (c).]….

V. 9-301. Law Governing Perfection and Priority Except as otherwise provided in Sections 9-303-306, the following rules
determine the law governing perfection, the effect of perfection or non-perfection, and the priority of a security interest in
collateral:
a. (1) Except as otherwise provided in this section, while a debtor is located in a jurisdiction, the local law of that jx
governs perfection, the effect of perfection or non-perfection, and the priority of a security interest in collateral.
b. (2) While collateral is located in a jurisdiction, the local law of that jurisdiction governs perfection, the effect of
perfection or non-perfection, and the priority of a possessory security interest in that collateral.
c. (3) Except as otherwise provided in paragraph (4), while negotiable documents, goods, instruments, money, or
tangible chattel paper is located in a jurisdiction, the local law of that jurisdiction governs:
i. (A) perfection of a security interest in the goods by filing a fixture filing;
ii. (B) perfection of a security interest in timber to be cut; and
iii. (C) the effect of perfection or non-perfection & priority of a nonpossessory security interest in collateral.
**debtor is a (registered) organization – file in state of incorporate/organization** – file in wrong state = unperfected

**debtor is an individual – file in state of citizenship**

*****EXAM – baseball team – must file in state of incorporation – NOT where they play, practice, keep
equipment, etc.
VI. N

9-307: Location of Debtor:

I. (a) ["Place of business."] means a place where a debtor conducts its affairs.
II. (b) [Debtor's location: general rules.] Except as otherwise provided in this section, following rules determine a debtor's
location: (debtor is an individual)
a. (1) Debtor who is an individual is located at the individual's principal residence.
b. (2) Debtor that is an org. & has only one place of business is located at its place of business.
c. (3) Debtor that is an organization and has more than one place of business is located at its chief executive office.
III. (c) [Limitation of applicability of subsection (b).] Subsection (b) applies only if a debtor's residence, place of business, or
chief executive office, as applicable, is located in a jurisdiction whose law generally requires information concerning the
existence of a nonpossessory security interest to be made generally available in a filing, recording, or registration system as
a condition or result of the security interest's obtaining priority over the rights of a lien creditor with respect to the
collateral. If subsection (b) does not apply, the debtor is located in District of Columbia.
IV. (d) [Continuation of location: cessation of existence] A person that ceases to exist, have a residence, or have a place of
business continues to be located in the jx specified by subsections (b) and (c).
V. (e) [Location of registered organization organized under State law.] A registered organization that is organized under the
law of a State is located in that State.
VI. (f) [Location of registered organization under Fed law; bank branches & agencies.] Except as otherwise provided in
subsection (i), a registered organization that is organized under the law of the United States and a branch or agency of a
bank that is not organized under the law of the United States or a State are located:
a. (1) in the State that the law of the US designates, if the law designates a State of location;
b. (2) in State that registered organization/branch/agency designates, if US authorizes registered organization/branch, or
agency to designate State of location, including designating main office, home office, or comparable office; or
c. (3) in the District of Columbia, if neither paragraph (1) nor paragraph (2) applies.
VII. (g) [Continuation of location: change in status of registered organization.] A registered organization continues to be
located in the jx specified by subsection (e) or (f) notwithstanding:
a. (1) suspension, revocation, forfeiture, or lapse of registered organization's status as such in its jx of organization; or
b. (2) the dissolution, winding up, or cancellation of the existence of the registered organization.

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TERMINATION:
 9-513: TERMINATION STATEMENT:
a. (a) [Consumer goods.] SP shall cause the secured party of record for a FS to file a termination statement for the
financing statement if the financing statement covers consumer goods and:
i. (1) there is no obligation secured by the collateral covered by the financing statement and no commitment to
make an advance, incur an obligation, or otherwise give value; or
ii. (2) the debtor did not authorize the filing of the initial financing statement.
**in a consumer transaction with consumer goods for PMSI (purchaser gives security interest to seller to secure credited purchase
price) – the security interest become automatically perfected upon attachment (don’t want seller to have to file every time they sell a
consumer good) -- **secured party must file TS within a month** (30 days)
 If FS is filed & underlying obligation paid off – SP has an obligation to file a TS within 30 days (comment 2)

**if NOT consumer goods (equip/inventory) – SP does NOT have obligation to file TS when underlying obligation satisfied – if D “asks”
for TS in authenticated record to SP – **SP has 20 days to file TS or send TS to debtor for them to file**
 Secured party has no duty to act until called upon/demanded

a) (B) (b) [Time for compliance with subsection (a).] To comply with subsection (a), a secured party shall cause the secured party
of record to file the termination statement:
a. (1) within one month after there is no obligation secured by the collateral covered by the FS and no commitment to
make an advance, incur an obligation, or otherwise give value; or
b. (2) if earlier, within 20 days after secured party receives an authenticated demand from debtor.
b) (c) [Other collateral.] In cases not governed by subsection (a), within 20 days after a secured party receives an authenticated
demand from a debtor, the secured party shall cause the secured party of record for a financing statement to send to the
debtor a termination statement for the financing statement or file the termination statement in the filing office if:
a. (1) except in the case of a financing statement covering accounts or chattel paper that has been sold or goods that are
the subject of a consignment, there is no obligation secured by the collateral covered by the financing statement and
no commitment to make an advance, incur an obligation, or otherwise give value;
b. (2) the financing statement covers accounts or chattel paper that has been sold but as to which the account debtor or
other person obligated has discharged its obligation;
c. (3) the FS covers goods that were the subject of a consignment to the debtor but are not in the debtor's possession; or
d. (4) the debtor did not authorize the filing of the initial financing statement.

(d) [Effect of filing TS.] Except as otherwise provided in 9-510, upon the filing of a TS with the filing office, the FS to which termination
statement relates ceases to be effective. Except as otherwise provided in 9-510, for purposes of Sections 9-519(g), 9-522(a), and 9-
523(c), the filing with the filing office of a termination statement relating to a financing statement that indicates that the debtor is a
transmitting utility also causes the effectiveness of the financing statement to lapse.

TERMINATION STEPS!!
**Steps to Follow when you have a reason to Terminate (no valid security interest or no authorization to file (ex: improperly
filed FS)) – or D sends an authenticated demand because the obligation is done)
1. Send authenticated demand to secured party to file TS (9-513)
2. If secured party does not file the TS within the statutory time – 9-509(d)(2) – UCC gives a special right to the debtor to file a
TS (UCC-5 form – information statement)
3. Sue for statutory damages under 9-625
*****EXAM – question with no debt presently outstanding – note has been paid off – no more
transactions between parties – debtor PHONES/calls secured party’s president – does that start the

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20/30 day clock??? NO!! Must be an authenticated demand (*could be a recorded phone call – if you
deliver the recording to the secured party – essentially phone call does not count!*) (see bullet one)
-**you follow the 3 steps in order – first send authenticated demand in a record to the secured party asking them to file TS --
*debtor cannot file until the 20/30 days has passed*
HYPO – UCC-1 against you personally for all your consumer goods. No security agreement authenticated. No authorization from debtor
to file. What do you do? (9-513)
-Assume “all your consumer goods” is too vague – does it matter? VOID – security agreement that says all consumer goods
would be void – thus no authority to file the financing statement
-L files FS when they shouldn’t have – not authorized – send letter to L – asking him to file a TS within 30 days
-***30 days after demand to file TS for consumer goods – 20 days for non-consumer goods

PRIORITY:
I. 9-322 Priorities Among Conflicting Security Interests in and Agricultural Liens on Same Collateral
a. (a) General Priority Rules.Except as otherwise provided in this section, priority among conflicting security interests &
ag. liens in the same collateral is determined according to the following rules:
i. (1) Conflicting perfected security interests and agricultural liens rank according to priority in time of
filing or perfection. Priority dates from the earlier of the time a filing covering the collateral is first
made or the security interest or agricultural lien is first perfected, if there is no period thereafter when there
is neither filing nor perfection.
ii. (2) A perfected security interest or AgLien has priority over a conflicting unperfected security
interest or AgLien.
iii. (3) The first security interest or agricultural lien to attach or become effective has priority if
conflicting security interests and agricultural liens are unperfected.
b. (b) [Time of perfection: proceeds and supporting obligations.] For the purposes of subsection (a)(1):
i. (1) the time of filing or perfection as to a security interest in collateral is also the time of filing or perfection
as to a security interest in proceeds; and
ii. (2) the time of filing or perfection as to a security interest in collateral supported by a supporting obligation is
also the time of filing or perfection as to a security interest in the supporting obligation.
c. (c) [Special priority rules: proceeds & supporting obligations.] Except as otherwise provided in (f), a security interest
in collateral which qualifies for priority over a conflicting security interest under 9-327, 9-328, 9-329, 9-330, or 9-331
also has priority over a conflicting security interest in:
i. (1) any supporting obligation for the collateral; and
ii. (2) proceeds of the collateral if:
1. (A) the security interest in proceeds is perfected;
2. (B) the proceeds are cash proceeds or of the same type as the collateral; and
3. (C) in the case of proceeds that are proceeds of proceeds, all intervening proceeds are cash
proceeds, proceeds of the same type as the collateral, or an account relating to the collateral.
d. (d) [First-to-file priority rule for certain collateral.] Subject to (e) & except as otherwise provided in (f), if a security
interest in chattel paper, deposit accounts, negotiable documents, instruments, investment property, or letter-of-
credit rights is perfected by a method other than filing, conflicting perfected security interests in proceeds of the
collateral rank according to priority in time of filing.
e. (e) [Applicability of subsection (d).] Subsection (d) applies ONLY if the proceeds of the collateral are NOT cash
proceeds, chattel paper, negotiable documents, instruments, investment property, or letter-of-credit rights.
f.

***PRIORITY EXCEPTIONS!!!!!***
I. BIOCOB: (If you have a legit sale (from Merchant) to BIOCOB (as defined in 1-201(9))
a. 9-320(a) [Buyer in ordinary course of business.] Except as otherwise provided in subsection (e), a BIOCOB, other than
a person buying farm products from a person engaged in farming operations, takes free of a security interest created
by the buyer's seller, even if the security interest is perfected and the buyer knows of its existence.

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b. HYPO – go to Macy’s to buy gloves – pay for it with Macy’s charge card – does buyer have clear title? YES – BIOCOB
(even if you know it is subject to inventory PMSI)
i. What if buyer tells salesman & manager that he wants to also buy the display case that was holding the
gloves – if Macy’s sells it to you are you a BIOCOB – NO! – Macy’s is not in the business of selling goods of
that kind (display cases)
II. UNPERFECTED: security interest at moment of delivery & BUYER DOES NOT KNOW of the security interest at the
moment of delivery
a. If you buy the display case – do you take free? (not a BIOCOB )
i. Is security interest perfected?? – if yes, SP1 will have priority & buyer is subject to SP’s rights
1. If not perfected – did buyer know of the security interest to SP1? – buyer did not know and it wasn’t
perfected – then buyer takes free and clear
a. This gives incentive to perfect (by filing)
b. (b) [Buyers that receive delivery.] Except as otherwise provided in subsection (e), a buyer, other than a secured party,
of tangible chattel paper, documents, goods, instruments, or a certificated security takes free of a security interest or
agricultural lien if the buyer gives value and receives delivery of the collateral without knowledge of the security
interest or agricultural lien and before it is perfected.
III. Buyer of CONSUMER GOODS**Type of PMSI that perfects automatically without filing upon attachment – CONSUMER
GOODS! – is there still an exception? (#2 above does not apply)
a. 9-320(b) [Buyer of consumer goods.] Except as otherwise provided in subsection (e), a buyer of goods
from a person who used or bought the goods for use primarily for personal, family, or household purposes takes free
of a security interest, even if perfected, if the buyer buys:
i. (1) without knowledge of the security interest;
ii. (2) for value;
iii. primarily for the buyer's personal, family, or household purposes; and
iv. before the filing of a financing statement covering the goods.
b. Garage Sale rule – look to person who originally sold the goods – if used for personal, family, or household purposes –
even though prior security interest was automatically perfected, if requirements 1-4 are met – buyer takes free!
(Balancing act for SPs/Merchants giving PMSI on consumer goods whether or not to file)
i. -Big ticket item – 6K home theater – yes they’ll file! – low price – might not want to file
c. HYPO – wiley coyote bought some high power binoculars from ACME products for use in his roadrunner disposal
business – gave PMSI in this equipment to seller – roadrunner retires and the business dies – wiley starts to use
binoculars for birdwatching hobby – has garage sale a few months later (note on binoculars is in default) – wiley
sells the binoculars to consumer – what is the impact on SP1’s security interest??
i. ***binoculars still subject to security interest because binoculars sold at garage sale were not consumer
goods – equipment still!! The classification of collateral under a security interest lasts until obligation is
satisfied/security interest goes away!
ii. **under what circumstances could the buyer have taken free and clear? – if the original security interest
was not perfected and the buyer did not know about the security interest (9-317)
iii. **categorization at attachment follows goods through any other transfers (until security interest is gone)

IV. 9-317 Interests that Take Priority Over or Take Free of Security Interest or Agricultural Lien :
a. (a) [Conflicting security interests & rights of lien creditors.] A security interest or AgLien is subordinate to the rights
of:
i. (1) a person entitled to priority under Section 9-322; and
ii. (2) except as otherwise provided in subsection (e), a person that becomes a lien creditor before earlier of the
time:
1. (A) the security interest or agricultural lien is perfected; or
2. (B) one of the conditions specified in 9-203(b)(3) is met & a FS covering the collateral is filed.
V. 9-324. PRIORITY OF PURCHASE-MONEY SECURITY INTERESTS.

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a. (a) [General rule: purchase-money priority.] Except as otherwise provided in subsection (g) [seller priority], a
perfected PMSI in goods other than inventory or livestock has priority over a conflicting security
interest in same goods, and, except as otherwise provided in 9-327, a perfected security interest in its
identifiable proceeds also has priority, if the purchase-money security interest is perfected when the debtor receives
possession of the collateral or within 20 days thereafter.

INVENTORY:
I. 9-324(b) [Inventory purchase-money priority.] Subject to subsection (c) & except as provided in (g), p erfected
PMSI in inventory has priority over conflicting security interest in same inventory , priority over a conflicting
security interest in chattel paper or instrument constituting proceeds of inventory & in proceeds of the chattel paper, if so
provided in 9-330, and, except as otherwise provided in 9-327 [Priority in Deposit Accounts], also has priority in identifiable
cash proceeds of the inventory to extent identifiable cash proceeds are received on or before delivery of the inventory to a
buyer, if:
a. (1) the PMSI is perfected when the debtor receives possession of the inventory;
b. (2) the purchase-money SP sends an authenticated notification to the holder of the conflicting security interest;
c. (3) holder of conflicting security interest receives notice within 5-years before D receives possession of inventory; and
d. (4) notification states person has or expects to acquire PMSI in D’s inventory & describes the inventory.

II. REQUIREMENTS
a. SP2 must first file a financing statement before delivery of any inventory
b. *Must send an authenticated notice to SP1 stating that he “has or expects to acquire a PMSI in inventory of the
debtor & describes the inventory.”
i. Send notice but forget to say you expect to acquire PMSI – sorry out of luck – does not fit into the super
priority exception
c. Notice must be delivered before the receipt of goods – **this notice is good for 5 years**
HYPO – you own a super market – do not carry any cookies except original oreos – give a security interest in inventory and after-
acquired inventory to SP1 – salesman comes in and tries to get you to buy a new flavor of Peep oreo
 Want to buy oreos but don’t have enough money – you already gave a security interest to SP1 – salesman says he’ll give you
the oreos and take security interest in the inventory – but this security interest would be subordinate to SP1
 342(b) allows SP2 to get a SUPER PRIORITY to beat out SP1 for the Peep Oreos

****SP has 20 days to file for both equipment and inventory

*****20 day grace period does not apply when an SP2 is trying to get super priority because the filing must occur before the debtor
receives possession of the inventory

HYPO – Day 1 – SP1 inventory loan attached and perfected by filing

Day 20 – SP2 asks debtor/obligor to buy NEW PRODUCT for inventory – D gives PMSI in NEW PRODUCT.
In priority contest between SP1 & SP2 – who has priority in remaining inventory of NEW PRODUCT? SP2 under 9-324(b) Super Priority IF
SP2 fulfills all 3 requirements – file before delivery, authenticated notice saying “has or expects to acquire PMSI...” & notice is sent to
all other creditors. – Who has priority in proceeds of NEW PRODUCT? – SP2!

**does email count as authenticated record?? – YES if you include your name typed at the bottom of the email “with present intent to
adopt or accept a record, to attach to or logically associate with the record an electronic sound, symbol, or process”

**just needs words to effect of “I am giving you a security interest in [describe collateral]” & include name in email
EXAM – notice sent by SP2 does not say “I have or expect to receive/acquire...” – NO GOOD!
**must properly describe the inventory in the notice**

EQUIPMENT:
I. 9-317(e) [Purchase-money security interest.] Except as otherwise provided in Sections 9-320 and 9-321, if a person files a
financing statement with respect to a purchase-money security interest before or within 20 days after the debtor receives

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delivery of the collateral, the security interest takes priority over the rights of a buyer, lessee, or lien creditor which arise
between the time the security interest attaches and the time of filing.
a. SP2 can get a super priority in equipment if you file within 20 days of delivery
b. **grace period for equipment sales and perfection** – SP1/Seller has 20 days to file after the
Debtor takes possession of the equipment – if files within 20 days – priority over everyone (PMSI in inventory
requires SP2 to do more – file before delivery, notice, and delivery of notice)
HYPO – Spak industries has to buy a computer – computer will cost 20K – go to bank and ask for a loan – they will give you 10K – ask the
seller for a PMSI in remaining 10K with computer (equipment) as collateral – there are now 2 PMSI lenders- seller gets
priority?

I. 9-324(g) [Conflicting purchase-money security interests.] If more than one security interest
qualifies for priority in the same collateral under subsection (a), (b), (d), or (f):
(1) a security interest securing obligation incurred as all or part of price of collateral has priority over a security interest
securing an obligation incurred for value given to enable D to acquire rights in or the use of collateral; and
(2) in all other cases, Section 9-322(a) applies to the qualifying security interests.

***Regardless of who files first – THE SELLER WINS

HYPO – go to buy a car – dealer will finance 75% of the car and gets PMSI – buyer gets the rest of the money via loan from bank and
puts car as collateral – CAR DEALER HAS PRIORITY
HYPO – Day 1 – sale of equipment – PMSI to seller SP1 – equip is delivered to seller (price = 10K)
Day 5 – Debtor gives security interest in same equipment to SP2 – SP2 files/perfects
Day 10 – SP1 files to perfect
Who has priority?? – SP1 – 9-324(a) – SP has 20 days to perfect
**Rule for equipment PMSI – 20-day grace period for SP to file (dates back to delivery)
HYPO – Debtor PMSI in equipment – 10K cost
Seller gives 8K loan secured – perfected
Bank gives loan 2K secured – perfected first
Who has priority?? SELLER – 9-324(g) **you can have 2 PMSI’s in a single sale

JUDGEMENT LIEN & PERFECTED SECURITY INTEREST:

9-311 – how to get effective judgment lien – it will have the same priority as a perfected security interest
9-311(b) – if you fully comply with state statutory requirements for obtaining effective judgment lien – it will have the same
standing as a perfected security interest
Judgment Lien – a judgment becomes a lien on shares of stock when a certified copy of the judgment is served on the treasurer of
the corp – bank account – service of non-wage garnishment (service/summons on bank) – creates statutory lien
-merely entering of judgment does NOT create judgment lien – IL – need citation to discover assets (ILCS 2-1402)
1. injunction on person’s property that he is owed (stops people/bank from paying him – ex: bank account)
2. Citation commands the person upon whom it is served to appear before the court for an oral examination to find
out what property third-party citation respondent is holding for the benefit of the judgment debtor
3. Sets a date on the citation for any motions/requests by the judgment creditor (creditor responds to the respondent
and asks the court for a judgment on the debtor’s property)
**proper service on citation to discover assets on a third-party respondent operates as a judgment lien**
HYPO – Day 1 – SP1 files – not attached (or perfected) and no value given
Day 10 – Judgment Lien Creditor gets an effective judgment lien
Day 20 – SP1 attaches and value is given
 Who has priority? – SP1 because they filed first! (priority date reverts back to when SP1 filed- FIRST TO FILE
EXCEPTION!!!!!)
o For first to file exception to apply – must be security agreement, must be filing, & must be a subsequent attachment
(at which point perfection also occurs)
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JLC has first in time priority over unperfected/unattached security interest – BUT if the unperfected/unattached security interest was
previously filed before JLC – then secured party has priority when they attach/perfect!
 There’s another JLC exception (that harms the JLC) – when security agreement lapses – a JLC may not take priority because
they haven’t given value
 RULE – if there is a lapsed FS – it is deemed never to have been perfected as against a purchaser for value ****Involuntary
Judgment Lien – SP1 is still good even after lapse because judgment lien was not for value
 Fully comply with statute – JL has same “parity” as perfected security interest – BUT certain exceptions subordinate rights of
JLCs (SP files first or SP lapses & JLC hasn’t given value)

When a debtor files a bankruptcy petition in US bankruptcy court – at that moment a trustee is appointed, and the trustee gets
certain right – T gets rights of someone who has an effective judgment lien as of the moment of the filing of the petition
 Effective Judgment Lien – like a citation lien – created by service of citation to discover assets

Someone who claims to be a SP – do they have priority over the prior judgment lien holder
HYPO – Improper filing in wrong office – SP not perfected – at moment bankruptcy filed, bankruptcy trustee had rights of Effective
Judgment Lien – equal to perfected security interest & had priority
 Advance Process Supply Case – trustee won because not a proper filing to perfect security interest in the collateral

HYPO – Day 1 – Perfected Security Interest – SP1 properly files/perfects

Day 100 – Filing for bankruptcy – Who has priority – SP1 or trustee? – SP1
CITATION ACT (PPT) – Citation proceeding lasts 6 months from first appearance of the judgment debtor before the court
Guy comes in with judgment lien 10 days before bankruptcy filing – he would get a preference – Citation act might set aside
conveyances 90 days before filing *****90 day preference rule
HYPO – Effective Judgment Lien on Day 1 – 95 days later bankruptcy is filed – ***more than 90 days later so the Judgment Lien holder
has priority over bankruptcy trustee!! (trustee is equivalent to another judgment lien holder)

9-109. – gives you a list of the scope of Article 9 and what it applies to
(a) [General scope of article.] Except as otherwise provided in subsections (c) and (d), this article applies to:
(1) a transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract;
(2) an agricultural lien;
(3) a sale of accounts, chattel paper, payment intangibles, or promissory notes;
(4) a consignment;
(5) a security interest arising under Section 2-401, 2-505, 2-711(3), or 2A-508(5), as provided in Section 9-110; and
(6) a security interest arising under Section 4-210 or 5-118
 Security interest provides interest in property to secure payment or performance of an underlying obligation.
 What is “performance of an obligation” (1-201(35)) – X contracts to paint Y’s house – Y is going to pass up having someone else
paint house – Y wants protection for damages he would incur if X did not paint house – X will give Y collateral to secure
performance of painting the house to protect against the damages Y would incur.
 (a)(1) – do not have to explicitly state “security interest/agreement”

(c) [Extent to which article does not apply.] This article does NOT apply to the extent that:
(1) a statute, regulation, or treaty of the United States preempts this article;
(2) another statute of this State expressly governs the creation, perfection, priority, or enforcement of a security interest
created by this State or a governmental unit of this State;
(3) a statute of another State, a foreign country, or a governmental unit of another State or a foreign country, other than a
statute generally applicable to security interests, expressly governs creation, perfection, priority, or enforcement of a security
interest created by the State, country, or governmental unit; or
(4) rights of transferee beneficiary/nominated person under letter of credit are independent & superior under 5-114.
**when a statute, regulation, treaty conflicts with UCC – the UCC does not apply
HYPO – I own property – it’s held by a 3rd party – you assign your rights to the property to someone else to secure a debt – this is an
ASSIGNMENT OF RIGHTS to secure a debt

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Healthcare Receivable – assign to provider rights to collect under insurance policy –secure payment of debt owed to doctor

HYPO – farmer grows wheat on his land – stores wheat in silo on someone else’s land – somebody else owns silo & farmer pays storage
fees – the wheat is not segregated – just thrown into a big bin – how does the farmer protect/secure his wheat?
-------------------------------------------------------------------------------------------------------------------------------------------------------
HYPO – Day 1 – SP1 gets authenticated record allowing filing of UCC-1 as to inventory so SP1 can check out debtor.
Day 2 – SP1 files UCC-1 on inventory – Day 10 – SP2 loans & pays D 10K – authenticates security agreement for inventory – SP2 files
UCC1(attaches/files/perfects)
Day 20 – SP1 loans and pays $10K to debtor – authenticates security agreement in inventory (SP1 attaches now because he gave value &
also perfects because he already filed) – Day 50 – who has priority between 1 & 2? – SP1
**SP1 that has already filed before attachment – becomes perfected automatically upon perfection – SP1 goes back to the top of the
priority list based on when he filed the original unattached FS – priority relates back to the date of filing
***Rule is first to file OR perfect – SP2 perfected first but SP1 had already filed first – which gives him
priority after attachment. SP1 MUST attach in order to get his priority!
***General Rule as to priority is first one to file or perfect – the code allows the filing of security interest before it attaches because the
secured party will want to check and make sure he will have priority before giving the money/loan.

9-322(a)(1) “Priority dates from the earlier of the time a filing covering the collateral is first made or the security interest or
agricultural lien is first perfected”
HYPO – ask for loan with property as collateral – bank asks D if he has other creditors – D says no – bank won’t believe him – will take
the loan under advisement – need to run credit check, look for other creditors, see if he’s a good prospect for a loan – loan company will
file a FS with D’s permission – then run all their checks – and then decide whether to fund the loan.
***Filing with permission is taking a hypothetical place in line for purposes of determining priority.
File Day 2 – Check Day 7 – no other FS have been filed (or filed previously) – SP knows he will have priority so now he decides
whether or not to fund the loan.

CATEGORIES OF COLLATERAL OTHER THAN GOODS

(44) Goods -- does not include computer program embedded in goods consist solely of medium that program embedded. Does not
include accounts, chattel paper, commercial tort claims, deposit accounts, documents, general intangibles, instruments, investment
property, letter-of-credit rights, letters of credit, money, oil/gas, minerals before extraction
 Computer Program – not a goods if it is essential for the product/goods to work
 GOODS ARE ITEMS THAT ARE MOVEABLE AT TIME OF ATTACHMENT

(11) "Chattel Paper" – a record/records that evidence both monetary obligation AND security interest in specific goods…Does NOT
include (i) charters/other contracts involving use or hire of vessel or (ii) records that evidence right to payment arising out of use of
credit/charge card or information contained on or for use with card. If a transaction is evidenced by records that include an instrument
or series of instruments, the group of records taken together constitutes chattel paper.
 HYPO – business lending money – people come with collateral & I issue loan & take SI (mortgage) in collateral (mortgage
broker) – immediately upon execution –broker will take promissory note & mortgage & tie them up with a red ribbon – the
promissory note combined with the mortgage = tangible chattel paper
 HYPO – department store gives a charge account for individual customers = account – you can give a security interest in
this account to a third party
 Commercial Tort Claim – different than personal injury claim – claim is related in some way to organization/business – can
borrow money against claim by giving security interest in commercial tort claim.
o Must file to perfect.
o Personal injury claims CANNOT be part of a security interest
o Advertisements to take out loan against PI claims? – taking SI in victim’s attorney’s share of reward

(29) "Deposit Account" means a demand, time, savings, passbook, or similar account maintained with a bank. Does NOT include
investment property or accounts evidenced by an instrument - *a bank account*

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 Filing does NOT work – **must be perfected by control (9-104) – must execute a control agreement to perfect a
security interest in a deposit account
 3-party or 2-party
o 3-party – you, bank, and the secured party
o 2-party – borrow money from bank & give SI in equipment & deposit accounts with the bank
 HYPO – SI in contents of security deposit box – NOT a deposit account – perfect by filing or possession
 HYPO – bank account case on twen – intervener came in with filed FS – but its no good

(49) "Investment Property" means a security, whether certificated or uncertificated, security entitlement [brokerage owns the stock],
securities account [brokerage], commodity contract, or commodity account
(46) "Health-care-insurance receivable" means an interest in or claim under a policy of insurance which is a right to payment of a
monetary obligation for health-care goods or services provided.
(42) "General intangible" means any personal property, including things in action, other than accounts, chattel paper, commercial tort
claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money, and oil,
gas, or other minerals before extraction. The term includes payment intangibles and software.
 Something that is not goods – not include accounts, chattel paper, commercial tort claims….

(61) "Payment Intangible" – general intangible under which account debtor's principal obligation is monetary obligation.
 Ex: Charge account at store
o Owe store $100 for goods – store can & take out loan – giving security interest in stores accounts
o If store defaults – go to each debtor/customer & inform them of banks security interest & that they should pay
the bank not the store
 Account under which the account debtor’s principal obligation is to pay money
(3) Account Debtor means a person obligated on an account, chattel paper, or general intangible. The term does not include persons
obligated to pay a negotiable instrument, even if the instrument constitutes part of chattel paper.
 “Account” does not include a negotiable instrument – account = charge account etc.
o Primary obligation is to pay money

(79) "Tangible chattel paper" – chattel paper evidenced by record/records of information inscribed on a tangible medium.
 Intangible Chattel Paper – electronic chattel paper (they scan chattel paper & send a PDF file with the docs)

PERFECTION NOT FILING

9-104. CONTROL OF DEPOSIT ACCOUNT.
(a) [Requirements for control.] A secured party has control of a deposit account if:
(1) the secured party is the bank with which the deposit account is maintained;
(2) the D, SP, & bank have agreed in authenticated record that the bank will comply with instructions originated by the
secured party directing disposition of the funds in the deposit account without further consent by the debtor; or
(3) the secured party becomes the bank's customer with respect to the deposit account.
(b) [Debtor's right to direct disposition.] A secured party that has satisfied subsection (a) has control, even if the debtor retains the
right to direct the disposition of funds from the deposit account.
 Piece of paper signed by person holding the collateral – the secured party and the debtor have an agreement with this
person (DACA)
 DACA – agreement with 3 parties – debtor, secured party, bank where deposit account is held – parties agree that the
bank has control, and the secured party has the power to tell the bank (if D defaults) that the deposit accounts now belong
to the secured party
o The bank agrees to hold the debtors deposit account for the benefit of the secured party (debtor can still use the
account until default)
o D defaults, and Bank still lets D withdraw money – bank can be liable to secured party

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 Debtor puts money in his bank account – takes out a loan – gives the money in his account as collateral for the loan –
giving the bank control of the deposit account

***Cannot perfect security interest in deposit account by filing – must have control
9-309. SECURITY INTEREST PERFECTED UPON ATTACHMENT.
(1) a purchase-money security interest in consumer goods, except as otherwise provided in Section 9-311(b) with respect to consumer
goods that are subject to a statute or treaty described in Section 9-311(a);
(5) a security interest created by assignment of health-care-insurance receivable to provider of health-care goods or services;
HYPO – authorize the payments from the insurance company to go straight to the hospital – this creates a security interest (for the
hospital) in the insurance payments.
 The document you signed is an assignment AND a security agreement – assigned the insurance proceeds to the hospital
to secure your debt to them
 Does hospital have to file UCC-1? – no! automatic perfection!

HYPO – bubba has $200K heart surgery – signs assignment of insurance payments – before insurance company pays the hospital –
bubba files bankruptcy -- **if there is an assignment of healthcare receivables it is automatically perfected, and hospital will take
priority over bankruptcy trustee.
9-310(b)(6) – NOT need to file when in possession but may (should) because no longer perfected if not in your possession

9-312. PERFECTION BY PERMISSIVE FILING; TEMPORARY PERFECTION WIT

(a) [Perfection by filing permitted.] A security interest in chattel paper, negotiable documents, instruments, or investment property
may be perfected by filing.
(b) [Control or possession of certain collateral.] Except as otherwise provided in Section 9-315(c) and (d) for proceeds:
(1) a security interest in a deposit account may be perfected only by control under 9-314;
(2) except as provided in 9-308(d), SI in letter-of-credit right may be perfected ONLY by control under 9-314; and
(3) a security interest in money may be perfected only by the secured party's taking possession under Section 9-313.
(c) Negotiable Warehouse Receipt – anybody who shows up with this piece of paper (receipt) can take the allotted amount from the
warehouse. Farmer can sell the receipt (the wheat) to someone else and the buyer can go to the silo to get the wheat.
 How do you perfect a security interest in a negotiable document?
o Possession or Filing to perfect
o **Priority – title of the goods is locked up in the document – someone needs to perfect a security interest in the
document itself – through possession or filing.
 Farmer wants to sell half his wheat?? – make a notation on the receipt or ask for multiple receipts.

HYPO – before farmer goes to silo – he gave a security interest in the product itself and a financing statement was filed for the product –
farmer goes to silo and gets negotiable warehouse receipt and then gives a security interest in the receipt to another secured party (and
SP2 perfects) – SP1 has priority if the FS was filed before grain went to silo and the negotiable warehouse receipt was issued – otherwise
the “goods are tied up in the document” and SP2 has priority (9-312 comment 7)
 does a negotiable document need to be filed to be perfected???? --- NO.

(d) [Goods covered by nonnegotiable document.] While goods are in possession of a bailee that has issued non-negotiable document
covering the goods, security interest in the goods may be perfected by:
(1) issuance of a document in the name of the secured party;
(2) the bailee's receipt of notification of the secured party's interest; or
(3) filing as to the goods.

9-313. WHEN POSSESSION BY OR DELIVERY TO SECURED PARTY PERFECTS SECURITY INTEREST

WITHOUT FILING.
(a) [Perfection by possession or delivery.] Except as provided in subsection (b), a SP may perfect a security interest in negotiable
documents, goods, instruments, money, or tangible chattel paper by taking possession of the collateral.

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9-314. PERFECTION BY CONTROL.
(a) [Perfection by control.] A security interest in investment property, deposit accounts, letter-of-credit rights, or electronic chattel
paper may be perfected by control of the collateral under Section 9-104, 9-105, 9-106, or 9-107.
(b) [Specified collateral: time of perfection by control; continuation of perfection.]
A security interest in deposit accounts, electronic chattel paper, or letter-of-credit rights is perfected by control under Section 9-104, 9-
105, or 9-107 when the secured party obtains control and remains perfected by control only while the secured party retains control.
(c) [Investment Property: time of perfection by control; continuation of perfection.]
A security interest in investment property is perfected by control under Section 9-106 from the time the secured party obtains control
and remains perfected by control until:
WHEN SOMEONE NO LONGER HAS CONTROL:
(1) the secured party does not have control; and
(2) one of the following occurs:
(A) if collateral is a certificated security, the debtor has or acquires possession of the security certificate;
(B) if collateral is uncertificated security, issuer has registered or registers debtor as registered owner; or
(C) if the collateral is a security entitlement, the D is or becomes the entitlement holder.

9-201 – exceptions when Article 9 does NOT apply **Special Perfection Rules
(b) [Applicable consumer & other law.] Transaction subject to this article is subject to any applicable rule of law which establishes a
different rule for consumers & [insert reference to (i) any other statute or regulation that regulates rates, charges, agreements, &
practices for loans, credit sales, or other extensions of credit & (ii) any consumer-protection statute/regulation]
**airplane, automobile, boats, copyrights….**financing Statement is ineffective for anything that needs a license plate
-implement of husbandry?? – farm equipment (tractors don’t technically need a license plate) – owner “may”
*How do you perfect a security interest in an automobile? – when car is sold – dealer sends a certificate of origin to Sec of State – SS will
then create a certificate of title and send it to the lender – when the note is paid off – the lender will “release the lien” and give the
certificate of title to the buyer
 9-102(10) "Certificate of Title" means a certificate of title with respect to which a statute provides for the security interest
in question to be indicated on the certificate as a condition or result of the security interest's obtaining priority over the
rights of a lien creditor with respect to the collateral. The term includes another record maintained as an alternative to a
certificate of title by the governmental unit that issues certificates of title if a statute permits the security interest in
question to be indicated on the record as a condition or result of the security interest’s obtaining priority over the rights of
a lien creditor with respect to the collateral. (ILCS 5/3-101) *want to sell car – sign cert. of title – & new buyer will go to
Sec State & ask for new cert. of title

Sec. 3-202. Perfection of security interest. (for automobiles in IL)

(a) Unless excepted by Section 3-201, a security interest in a vehicle of a type for which a certificate of title is required is not
valid against subsequent transferees or lienholders of the vehicle unless perfected as provided in this Act. A purchase money security
interest in a manufactured home is perfected against the rights of judicial lien creditors and execution creditors on and after the date
such purchase money security interest attaches.
(b) A security interest is perfected by the delivery to the Secretary of State of the existing certificate of title, if any, an application
for a certificate of title containing the name and address of the lienholder and the required fee. The security interest is perfected as
of the time of its creation if the delivery to the Secretary of State is completed within 30 days after the creation of the security
interest or receipt by the new lienholder of the existing certificate of title from a prior lienholder or licensed dealer, otherwise as of
the time of the delivery.
Sec. 3-207. Exclusiveness of procedure. Method provided in Act of perfecting/giving notice of SI subject to Act is exclusive
***Article 9 does not apply at all to motor vehicles
HYPO – giving security interest in copyright to a book (copyright assignment) – file an assignment with the copyright office

Investment Property -- Hierarchy

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(17) "Security Entitlement" means the rights & property interest of an entitlement holder with respect to a financial asset specified in
Pt 5. (fancy word for what happens in a brokerage account) Broker Account can hold almost anything – bonds (fixed income securities),
stock, etc. = securities account.
 The securities account itself is investment property – just like a security (Look at 8-501(b))

**what are the different forms that can transfer ownership/possession of stock?**
 HYPO – Stock brokerage opens account for investor – investor order 1000 shares Apple stock – brokerage holds stock in
brokerage account, but the stock (as far as Apple is concerned) is owned by the brokerage house.
o It is your investment property in the broker account – securities account
 Brokerage house buys the stock in its name – tells the issuer (Apple) to change the ownership to my name – now there is a
direct relationship between issuer & investor
o Investor purchased the security – two types/forms:
 Certificated – the investor is actually given a paper stock certificate of ownership

Uncertificated – issuer merely has in their books/records that investor is owner of the stock

3 types of Investment Property

1. Certificated
a. Bearer Form – a form in which the security is payable to the bearer of the security certificate according to its terms
but not by reason of an indorsement.
b. Registered Form – a form in which: (i) the security certificate specifies a person entitled to the security; AND (ii) a
transfer of the security may be registered upon books maintained for that purpose by or on behalf of the issuer, or the
security certificate so states.
2. Uncertificated
3. Securities Account – an account to which a financial asset is or may be credited in accordance with an agreement under
which the person maintaining the account undertakes to treat the person for whom the account is maintained as entitled to
exercise the rights that comprise the financial asset. (8-501)

****3 ways to perfect certain collateral – possession, control, and filing (almost everything that is tangible can be perfected by
possession – goods, money, stock cert….)

INVESTMENT PROPERTY WHEN FILING NOT NECESSARY TO PERFECT

9-310(b) [Exceptions: FILING NOT NECESSARY.] The filing of a FS is NOT necessary to perfect a security interest:
(1) that is perfected under Section 9-308(d), (e), (f), or (g); [normal perfection rules]
9-308(e) – [Lien securing right to payment.] Perfection of security interest in right to payment or performance also perfects SI
in security interest, mortgage, or other lien on personal or real property securing the right.
(f) – [Security entitlement carried in securities account.] Perfection of a security interest in a securities account also perfects a
security interest in the security entitlements carried in the securities account.
(2) that is perfected under Section 9-309 when it attaches;
9-309(2) assignment of accounts or payment intangibles which does not by itself or in conjunction with other assignments to
same assignee transfer a significant part of assignor's outstanding accounts or payment intangibles;
(3) a sale of a payment intangible;
(4) a sale of a promissory note;
(5) a security interest created by the assignment of a health-care-insurance receivable to the provider of the health-care goods
or services;
(6) a security interest arising under 2-401 [passing of title],…,until the debtor obtains possession of the collateral;
(8) a security interest of an issuer or nominated person arising under Section 5-118;
(9) SI arising in delivery of financial asset under 9-206(c) [SI Arising In Purchase or Delivery of Financial Asset];
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(10) a security interest in investment property created by a broker or securities intermediary;
(5) in certificated securities, documents, goods, or instruments which is perfected without filing or possession under Section 9-312(e),
(f), or (g);
9-312(e) – [Temporary perfection: new value.] A security interest in certificated securities, negotiable documents, or
instruments is perfected without filing or the taking of possession or control for a period of 20 days from the time it attaches to
the extent that it arises for new value given under an authenticated security agreement.
(g) [Temporary perfection: delivery of security certificate or instrument to debtor.] A perfected security interest in a
certificated security or instrument remains perfected for 20 days without filing if the SP delivers the security certificate or
instrument to the D for the purpose of:
(1) ultimate sale or exchange; or
(2) presentation, collection, enforcement, renewal, or registration of transfer.
(6) in collateral in the secured party's possession under Section 9-313;
(7) in certificated security which is perfected by delivery of the security certificate to the secured party under Section 9-313;
9-313(e) – [Time of perfection by delivery; continuation of perfection.] A security interest in a certificated security in
registered form is perfected by delivery when delivery of the certificated security occurs under Section 8-301 and remains
perfected by delivery until the debtor obtains possession of the security certificate.
(8) deposit accounts, electronic chattel paper, invest. property or letter-of-credit rights perfected by control under 9-314;
(10) that is perfected under Section 9-316.
9-316(f) – [Change in jx of bank, issuer, nominated person, securities intermediary, or commodity intermediary.] A security
interest in deposit accounts, letter-of-credit rights, or investment property which is perfected under the law of the bank's jx,
the issuer's jx, a nominated person's jx, the securities intermediary's jx, or the commodity intermediary's jx, as applicable,
remains perfected until the earlier of:
(1) the time the security interest would have become unperfected under law of that jx; OR
(2) the expiration of four months after a change of the applicable jx to another jx
***only 2 ways to perfect a security interest in “intangible” investment property (does not include “printed
stuff” like a stock certificate) – FILING (permitted) or CONTROL (better)

8-106. CONTROL (missing subsection g & f)

(a) A purchaser has "control" of certificated security in bearer form if certificated security is delivered to purchaser. (8-301)
(b) A purchaser has "control" of certificated security in registered form if certificated security delivered to purchaser, AND:
(1) the certificate is indorsed to the purchaser or in blank by an effective indorsement; or
(2) the certificate is registered in name of the purchaser, upon original issue or registration of transfer by the issuer.
(c) A purchaser has "control" of an uncertificated security if:
(1) the uncertificated security is delivered to the purchaser; or
(2) issuer agreed to comply with instructions originated by purchaser without further consent by registered owner.
(d) A purchaser has "control" of a security entitlement if:
(1) the purchaser becomes the entitlement holder; or
(2) the securities intermediary has agreed that it will comply with entitlement orders originated by the purchaser without
further consent by the entitlement holder, or
(3) another person has control of the security entitlement on behalf of the purchaser or, having previously acquired control of
the security entitlement, acknowledges that it has control on behalf of the purchaser.
(e) If an interest in a security entitlement is granted by the entitlement holder to the entitlement holder's own securities intermediary,
the securities intermediary has control.

INVESTMENT PROPERTY -- PRIORITY

9-328. PRIORITY OF SECURITY INTERESTS IN INVESTMENT PROPERTY
The following rules govern priority among conflicting security interests in same investment property:
(1) A security interest held by a secured party having control of investment property under Section 9-106 has priority over a security
interest held by a secured party that does not have control of the investment property.
 Control has priority over no control – *ordinarily, general rule for investment property is perfection by control beats
filing*
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 Control has priority over someone who filed
(3) A security interest held by a securities intermediary in a security entitlement or a securities account maintained with the securities
intermediary has priority over a conflicting security interest held by another secured party.
 investment property in broker account and you give security interest to the brokerage company – then you give a security
interest to someone else – does NOT matter who files first – the broker takes priority over the conflicting interest EVEN if
the other guy perfects first

(5) security interest in a certificated security in registered form which is perfected by taking delivery under Section 9-313(a) and not by
control under Section 9-314 has priority over a conflicting security interest perfected by a method other than control.
 Perfection by possession beats everything else
 Does it have to be registered form? Or can be it be bearer??
 Registered – the holder itself is registered and the certificate itself is also registered??

*Investment Property includes security entitlements/accounts and securities.

*For intangible – control beats filing.
*For certificated security – possession takes priority over (prior) control or filing
PRIORITY for Certificated Securities
1. Possession – has priority over someone with control
2. Control – has priority over filing
3. Filing
---------------------------------------------------------------------------------------------------------------------
HYPO – Brokerage account (intangible)
Day 1 – SP1 perfects by filing..............Day 10 – SP2 perfects by control.............**SP2 has priority
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***Best way to hold collateral that is registered form Walt Disney Stock Certificate (certificated security) – possession
-SP1 files on Day 1.................SP2 takes possession on Day 30...............**SP2 has priority!!!
---------------------------------------------------------------------------------------------------------------------
Does a registered form include a bearer form??? Does 9-238(5) apply only to registered?
Bearer – impossible to have delivery without control. Control = Delivery.
Registered – possible to have delivery without control – possession with the wrong indorsment.
HYPO – if there’s filing as to registered form – & somebody else gets possession & it’s in registered form –one with possession has
priority!
---------------------------------------------------------------------------------------------------------------------

INVESTMENT PROPERTY PROCEEDS

9-315(c) [Perfection of security interest in proceeds.] A security interest in proceeds is a perfected security interest if
the security interest in the original collateral was perfected.
Identifiable Cash Proceeds – security interest in inventory & proceeds – sell inventory – money goes into deposit account
(identifiable cash proceeds = perfected) – use money to buy more inventory -- the security interest continues in the inventory.
*What happens if you use the money in the deposit account to buy equipment???
HYPO – perfected security interest in inventory – sold – cash proceeds go into deposit account (identifiable proceeds now = security
interest still good) – D buys Equipment – 20 days to perfect in the new form of the proceeds – unless original FS covered the collateral
Exception – if the security interest was originally for Inventory AND Equipment – perfected – the security interest continues! (9-315
comment 5)
 May have “all of debtors” property on FS and it will still be valid (Example 2)

(d) [Continuation of perfection.] A perfected security interest in proceeds becomes unperfected on the 21st day after the security
interest attaches to the proceeds unless:
(1) the following conditions are satisfied:
(A) a filed financing statement covers the original collateral;

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(B) the proceeds are collateral in which a security interest may be perfected by filing in the office in which the
financing statement has been filed; and
(C) the proceeds are not acquired with cash proceeds;
(2) the proceeds are identifiable cash proceeds; or
(3) the security interest in the proceeds is perfected other than under subsection (c) when the security interest attaches to the
proceeds or within 20 days thereafter.
HYPO – United Airlines files for reorganization – had a ton of personal property – almost everything was encumbered with a security
interest – What happens to ownership of property to a bankruptcy debtor upon filing of bankruptcy petition – estate is created AND
automatic stay – ownership goes into the hands of the bankruptcy trustee
What if company wants to keep going (Chapter 11) (Debtor in possession?)? – will secured party get cash proceeds? YES.
Cash Collateral Order – Except as otherwise provided by the Bankruptcy Code, the debtor's entering into bankruptcy does not affect a
secured party's right to proceeds. (9-315 comment 8)
 Debtor in possession is now running the company under bankruptcy court supervision – cash proceeds are allowed to be
put back into the business if the secured party agrees – and secured party interest remains intact.
 Perfected Security interest in proceeds follow directly into the property held by a debtor in a bankruptcy case
 Secured Party may want his cash collateral? --

HYPO – toys r us closing stores – want to maintain control of their assets and continue to do business under bankruptcy court
supervision – Chapter 11 -- bankruptcy court determines whether to allow debtor in possession to continue his business (reorganization)
– the hard part is getting the parties to agree on how to move forward…

UCC 9-336 – Commingled Goods *(look for examples in comment 4)*

Mass – bunch of ball bearings can’t tell which one is which
HYPO – baker purchases eggs and flours and gives PMSI to each of the sellers – baker takes the products and makes a cake – cake is the
commingled product – baker sells cake – how do you deal with cash proceeds if there are 2 secured parties???
Eggs – at time of purchase worth $300
Flour – worth $500
Total -- $800 to make product – sell cake for $1000
Egg perfects first – then Flour perfects a week later – determined by 336(f)(2)
HYPO – chicken disease and baker bought the eggs for $300 – now the eggs are worth $600 (FMV) – the proportion/value in the cash
proceeds is determined at the time it became commingled goods – at the time of commingling the eggs were worth $600 – and the
amount of cash proceeds is proportional to the $600 (not the 300)

DIVIDING CASH PROCEEDS IN COMMINGLED GOODS (multiple secured parties)

(d) [Perfection of security interest.] If a security interest in collateral is perfected before the collateral becomes commingled goods, the
security interest that attaches to the product or mass under subsection (c) is perfected.
(e) [Priority of security interest.] Except as otherwise provided in subsection (f), the other provisions of this part determine the priority
of a security interest that attaches to the product or mass under subsection (c).
(f) [Conflicting security interests in product or mass] If more than one security interest attaches to the product or mass under
subsection (c), the following rules determine priority:
(1) A security interest that is perfected under subsection (d) has priority over a security interest that is unperfected at the
time the collateral becomes commingled goods.
(2) If more than one security interest is perfected under subsection (d), the security interests rank equally in proportion to the
value of the collateral at the time it became commingled goods.

Review Questions
HYPO – debtor gives PMSI in $10K video system – SP1 files FS to perfect security interest – obligor makes last payment – what does
secured party need to do? If it’s a business purchase – equipment/inventory – SP does not have to file – but would have to file/present
TS if debtor asked in authenticated record. Consumer goods – must file termination statement within 30 days (or a month).

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HYPO – 5-year anniversary of FS is coming up – 6-month window before end of 5 years to file a continuation statement – what if a
judgment lien creditor comes along? RULE – if there is a lapsed FS – it is deemed never to have been perfected as against a purchaser
for value
-****Involuntary Judgment Lien – SP1 is still good even after the lapse because the judgment lien was not for value
HYPO – SP1 security interest in D’s equip – D sells equip to someone else (9-315) – what happens to SP1’s security interest – two things
can cut off security interest BIOCOB or voluntary transfer of the collateral with the consent of the secured party
HYPO – SP1 has security interest in D’s inventory – D sells it to someone under cover of darkness for no money – security interest still
follows into the collateral unless SP1 consents.
HYPO – debtor buys a general electric industrial strength business type washing machine (massive) – FS sufficiently identifies/describes
the collateral – if the debtor trades the machine for a new machine – does security interest follow the new machine made by maytag?
IT DEPENDS – if the security interest is in equipment – and it’s a trade-in for new equipment – YES the security interest remains
attached and perfected in the replacement proceeds…
-if the security interest and FS refer to the particular serial number of the GE machine – there might be an issue ?????? same
filing office ??? (pg 195)???????? (9-315(d)(1))
-***depends on whether the original security agreement followed into proceeds (continues if new equipment was purchased
with cash proceeds) or specified the particular machine
HYPO – Day 1 – SP1 files UCC-1
5 years + 3 days – SP1 files continuation statement UCC-3
What does filing officer do with the continuation statement? – throw it out
 **9-516(b)(7) – must refuse to accept the record

HYPO – lawyer has a valuable oil painting at his home – lawyer gives security interest to SP1 to secure debt – SP1 files to perfect
(consumer goods) – two years later debt is still outstanding – lawyer takes the painting to his new downtown office
 Is SP1s security interest still perfected now that the painting could be categorized as equipment? – 9-108 requires that a
consumer good is described more specifically than “consumer goods” – SP1 would have to describe the item as an oil
painting
o 9-504 – indication of collateral sufficiency
 Assume the filing was sufficient…is security interest still perfected even though it is now equipment? – YES – the
description at the TIME OF ATTACHMENT is what matters – file & attach = the label remains attached/perfected for the
duration of the FS even if it is used for something else.
 Is UCC-3 required to continue perfection 4 months after painting is moved and it becomes equipment? – NO.

HYPO – agreement says it covers “consumer goods” – rejected & insufficient to for reasonable description in 9-203 & 9-108
HYPO – agreement says consumer goods & attaches a picture & has name of painting – can financing statement just have “consumer
goods” -- unknown
HYPO – security interest in equipment (binoculars) for roadrunner disposal business – roadrunner retires – now the disposal business is
going downhill – Wiley gave up business & takes home his binoculars and uses it for his hobbies – when security interest attached
binoculars were equipment – and while the debt is still outstanding the binoculars will remain as equipment
***Categorization of the goods remains intact while security interest is still outstanding

NEW DEBTOR – company that takes over another company

9-203(d) [When person becomes bound by another security agreement] A person becomes bound as debtor by a
security agreement entered into by another person if, by operation of law other than this article or by contract:
(1) the security agreement becomes effective to create a security interest in the person's property; or
(2) the person becomes generally obligated for the obligations of the other person, including the obligation secured under the
security agreement, and acquires or succeeds to all or substantially all of the assets of the other person.
(e) [Effect of new debtor becoming bound.] If a new debtor becomes bound as debtor by a security agreement entered into by another
person:
(1) the agreement satisfies subsection (b)(3) with respect to existing or after-acquired property of the new debtor to the extent
the property is described in the agreement; and
(2) another agreement is not necessary to make a security interest in the property enforceable.
***file an amendment when you have a new debtor***

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DEFAULT ***all of these things depend on whether there is a LEGAL DEFAULT***: LOOK FOR “LATE”
WORDING OR “DIDN’T PAY”
 Code does not define default
 9-601 comment 3??
o Obligor does not make a payment that is due under is financial obligation – default? – YES
o Failure to maintain fire extinguishers
 TWO TYPES
o Financial – not paying
o Non-Financial
 borrower lies in his representation and warranties in security agreement
 disposed of the collateral without consent
 borrower files bankruptcy
 borrow goes to get a lien??
 Asset forfeiture – destruction of part/all of the collateral
 Failure to keep collateral insured
 Certain types of provisions allow the oblige to declare a non-financial default if the secured party feels “insecure” that he might not
be able to get payment (even if the loan is all paid up until that point) – Insecurity Clause
o This is what the bank did in the Army-Car HYPO
 Clause that in the event of mental incapacitation of the borrower/obligor – the secured party may call the note – YES – Sanity
Clause

1-309. Option to Accelerate at Will. – A term providing that one party or that party's successor in interest may accelerate
payment or performance or require collateral or additional collateral "at will" or when the party "deems itself insecure," or words
of similar import, means that the party has power to do so only if that party in *GOOD FAITH* believes that the prospect of
payment or performance is impaired. The burden of establishing lack of good faith is on the party against which the power has
been exercised.
 If the lender feels insecure – he can accelerate all of the payments due
 Borrower is 7 payments deep in 36 total payments – lender could call the note and accelerate all the payments that are
not yet due – and then begin proceedings…
 HYPO – company has 4mil loan with bank – debtor/obligor has dispute with snowplowing contractor over 3K charge for
how much was due/lost payment/damaged/whatever – go to court and default judgment entered by court – bank recalls
loan and D has 10 days to pay -- ****this is not commercially reasonable**** 3K v. 4mil….

Non-Waiver Clause (DEFAULTS!) – lenders delay or omission will not be construed as a waiver of the next time
there is a default: look for “late payments”
 HYPO – guy buys used car & his monthly payment was $289 – for first 2 years was late on every payment – lender sends
default letter & calls the loan (lender sent this letter every month G was late but still accepted late payments) – DEPENDS if
non-waiver clause – then YES lender can go & call loan upon next default
o Allows a lender to waive individual defaults – but still gives them the option to enforce the default and call the
loan in the future
o Mere fact of accepting payments does not mean lender waived right to call the loan
o Lender does not have to tell D that “this time we mean it – this time we’re enforcing the default”

1-103 – liberally construe UCC & unless displaced by provisions of UCC...normal contract principles supplement provisions
*Obscure non-financial default* (Determination of default must be made in good faith)
HYPO – 1mil loan – secured by all intangibles/accounts/mortgage of D – way more collateral than actual debt – provision in agreement
that D has to submit audited financial statement by Jan 10 each year – Jan 15 comes along and SP declares default but offers to forget
about default if D increases interest rate from 7 to 10% (requires the writing of a new contract) – debt is fully secured, fully paid, all

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that’s missing is financial docs -- **this is not commercially reasonable** -- no good faith – would be reasonable to call up D and ask
what the deal is.

9-601. RIGHTS AFTER DEFAULT; JUDICIAL ENFORCEMENT; CONSIGNOR/BUYER OF ACCOUNTS,

CHATTEL, PAYMENT INTANGIBLES, PROMISSORY NOTES.
(a) [Rights of secured party after default.] After default, a SP has the rights provided in this part and, except as otherwise provided in 9-
602, those provided by agreement of the parties. A secured party:
(1) may reduce a claim to judgment, foreclose, or otherwise enforce the claim, security interest, or agricultural lien by any
available judicial procedure; and
(2) if the collateral is documents, may proceed either as to the documents or as to the goods they cover (negotiable/non-
negotiable warehouse receipts).
Rights are cumulative – may be exercised simultaneously -- **lender might be allowed proceed with default against just a small portion
of the collateral (if its reasonable)** ?????
9-602. WAIVER AND VARIANCE OF RIGHTS AND DUTIES.
Except as otherwise provided in Section 9-624, to the extent that they give rights to a debtor or obligor and impose duties on a secured
party, the debtor or obligor may not waive or vary the rules stated in the following listed sections:

COLLECTION OF FINANCIALS – NON-GOODS

9-607. COLLECTION AND ENFORCEMENT BY SECURED PARTY.
(a) [Collection & enforcement generally.] If so agreed, and in any event after default, a secured party:
(1) may notify an account debtor or other person obligated on collateral to make payment or otherwise render performance to
or for the benefit of the secured party;
(2) may take any proceeds to which the secured party is entitled under Section 9-315;
(3) may enforce the obligations of an account debtor or other person obligated on collateral and exercise the rights of the
debtor with respect to the obligation of the account debtor or other person obligated on collateral to make payment or
otherwise render performance to the debtor, and with respect to any property that secures the obligations of the account
debtor or other person obligated on the collateral;
(4) if it holds a security interest in a deposit account perfected by control under Section 9-104(a)(1), may apply the balance of
the deposit account to the obligation secured by the deposit account; and
(5) if it holds a security interest in a deposit account perfected by control under Section 9-104(a)(2) or (3), may instruct the
bank to pay the balance of the deposit account to or for the benefit of the secured party.

(c) [Commercially reasonable collection & enforcement.] SP shall proceed in commercially reasonable manner if SP:
(1) undertakes to collect from/enforce an obligation of an account debtor or other person obligated on collateral; and
(2) entitled to charge back uncollected collateral or otherwise full/limited recourse against D or secondary obligor.
o List of things SP may do after default – deals with things that are not goods
 *must proceed in a commercially reasonable manner in whatever they do
o Intangibles/Accounts – notify account debtor or obligor to make payment or performance

COLLECTION OF GOODS
9-609. SECURED PARTY’S RIGHT TO TAKE POSSESSION AFTER DEFAULT.
(a) [Possession; rendering equipment unusable; disposition on debtor's premises.] After default, a secured party:
(1) may take possession of the collateral; and
(2) without removal, may render equipment unusable and dispose of collateral on a debtor's premises under 9-610.
 HYPO – collateral is a massive industrial oven – secured party can render this oven unusable and sell the oven
while it’s still on the Debtor’s premises

(b) [Judicial and nonjudicial process.] A secured party may proceed under subsection (a):
(1) pursuant to judicial process [order of replevin (735 ILCS 5/19-101), Detinue (gives a direction to Defendant after order is
issued, to turn property over to the plaintiff or else it is treated as civil contempt)]; or

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(2) without judicial process, if it proceeds without breach of the peace. [Breach of the Peace – is there a reasonable
likelihood that violence may ensue? – want to avoid dangerous situations – actual violence is not necessary – threats are
BoP] ^-if calling/mailing/judicial process does not work….^
(c) [Assembly of collateral.] If so agreed, and in any event after default, a secured party may require the debtor to assemble the
collateral and make it available to the secured party at a place to be designated by the secured party which is reasonably convenient to
both parties. **rarely see this because of likelihood of confrontation
HYPO – go to repo car -- collateral is dodge pickup on D’s curb – D has shotgun and says get away – BREACH OF PEACE
HYPO – same car – D says go to courthouse & get an order – otherwise I won’t give you car – likely would lead to BoP
If there is no face-to-face confrontation – usually okay to repossess without breaching the peace
HYPO – car on street/driveway at 2am and no one is around – safe to repo
Overview of what happens after default
 intangible collateral – secured party may proceed directly against the collateral
 goods – secured party is entitled to take possession of the goods after default – after it has
possession – it is up to the secured party to determine how to turn the collateral into money

BREACH OF PEACE
**if a breach of the peace is about to occur – possessor has duty to stop what they are doing if cannot continue without BoP
Giles – Consent or Object? Deception? Where was property located – Debtor’s premise?
Koontz – the distance where the aggressor can lunge and strike the reposessor – constitutes breach of peace and reposessor must stop
– in Koontz = no breach of peace because D was far enough away where he couldn’t strike the reposessor. What if D had a cane or bat?
– probably BoP -- ***At what point would a reasonable person be afraid of receiving a battery***
 as long as you don’t go through any doors, baracades, fences – okay to reposess
 garage door unlocked – can you lift it up? – NO
 open window – NO – open gate – NO!
 independent contractor to repossess car – is the secured party liable? – YES – some duties are non-delegable and the
principal will still be liable – repo is one of those cases

Dixon – driving tow-truck away with person in the towed car is breach of peace
Trickery & Deception
HYPO – guy buys a baby grand piano (world’s best piano) – making payments – misses some payments – one day sitting at house and
playing piano – person says they are from piano company and here for free piano tune-up – person says he needs to bring it back to his
shop – CANNOT DO THIS!
HYPO – secured party brings along a uniformed police officer (badge, gun, etc.) – SP says he’s here to repossess the car (removing the
D’s free will by implication D will get arrested) -- ***the show of force is deemed to be a breach of peace***
General Test – does the trickery or deception prevent the debtor from asserting his right to judicial action – and
does the trickery or deceit increase the chance that there will be a breach of peace
 Once there is a threat of BoP and you leave – can you come back at another time? – YES

DISPOSITION ***every aspect of a disposition must be commercially reasonable***

9-610. DISPOSITION OF COLLATERAL AFTER DEFAULT.
(a) [Disposition after default.] After default, a secured party may sell, lease, license, or otherwise dispose of any or all of the collateral in
its present condition or following any commercially reasonable preparation or processing.
 repo car – does SP have a duty to clean up the car before disposing? – DEPENDS (question of what’s commercially
reasonable)
 if there is a deficiency – SP will go after the obligor for the amount of the deficiency – obligor will argue SP did not dispose
of the car in a commercially reasonable fashion which is why there is a deficiency
 HYPO – new car is caked in mud and people won’t even look at it – quick wash would clean it right up – commercially
reasonable to clean it before you sell it – only have to spend a reasonable amount of money/effort to clean up the car –
what would you do if it was your car and were trying to sell and get the most for it?
o $100 cleanup costs could’ve yielded add’l$2K – YES commercially reasonable to spend this $100
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o comment 4 – sometimes commercially unreasonable to dispose of collateral as is
 HYPO – junk mobile that’s rusted through – never going to get anything more than junk value – no point in having it
waxed/detailed – commercially reasonable to just sell as is
o once collateral is ready for sale – every aspect of the disposition must be commercially reasonable

(b) [COMMERCIALLY REASONABLE DISPOSITION.] Every aspect of disposition of collateral, including method, manner, time, place, &
other terms, must be commercially reasonable. If commercially reasonable, SP may dispose of collateral by public or private
proceedings, by one or more contracts, as unit or parcels, & at any time & place & any terms.
(c) [Purchase by secured party.] A secured party may purchase collateral:
(1) at a public disposition; or
 price is determined after buyer has opportunity for meaningful/competitive bidding (comment 7)
 **must have sufficient notice**
 just because its open to the public doesn’t make it valid – must have enough people to maximize the return and
make the bidding/sale competitive

(2) at a private disposition only if the collateral is of a kind that is customarily sold on a recognized market or the subject of
widely distributed standard price quotations.
 HYPO – D embezzled 710K from Citi Bank – D bought son various things – Harley Davidson motorcycle – how do
we sell the motorcycle after repo? – someone at the bank wanted to buy – it would be way more expensive to
advertise car or sell at public auction – commercially reasonable to sell to bank guy at FMV -- *depends on what is
commercially reasonable under circumstances*
 How much time can you let lapse between taking possession of collateral and disposition ? –
depends on what is commercially reasonable
o more reasonable to take longer selling a piece of art than a regular car
o HYPO – collateral = Halloween pumpkins – D in business of selling Halloween pumpkins – Oct 27 D
defaults & SP going to repossess – commercially reasonable to dispose immediately
o comment 3 – may be prudent not to sell in collapsed market – or selling parcels over period of time
instead of bulk -- **depends on product– what market is like – time of year – etc..

(d) [Warranties on disposition.] Contract for sale, lease, license, or other disposition includes warranties relating to title, possession,
quiet enjoyment, & the like which by operation of law accompany voluntary disposition of property of kind subject to contract.
(e) [Disclaimer of warranties.] Secured party may disclaim or modify warranties under subsection (d):
(1) in a manner that would be effective to disclaim or modify the warranties in a voluntary disposition of property of the kind
subject to the contract of disposition; or
(2) by communicating to the purchaser a record evidencing the contract for disposition and including an express disclaimer or
modification of the warranties.
(f) [Record sufficient to disclaim warranties.] Record sufficient to disclaim warranties under (e) if indicates "There is no warranty
relating to title, possession, quiet enjoyment, or the like in this disposition" or uses words of similar import.
**must give notice of disposition after default unless it falls in an obvious exception**

9-611. NOTIFICATION BEFORE DISPOSITION OF COLLATERAL.

(b) [Notification of disposition required.] Except as provided in subsection (d), a secured party that disposes of collateral under Section
9-610 shall send to persons specified in subsection (c) a reasonable authenticated notification of disposition.
(c) [Persons to be notified.] To comply with subsection (b), the SP shall send an authenticated notification of disposition to: *(obligor
does not get notice – not the obligor’s property – it’s the debtors – obligor already knows he’s in default)
(1) the debtor;
(2) any secondary obligor (guarantor); and
(3) if the collateral is NOT consumer goods:
(A) any other person from which the secured party has received, before the notification date, an authenticated
notification of a claim of an interest in the collateral;

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(B) any other secured party or lienholder that, 10 days before the notification date, held a security interest in or other
lien on the collateral perfected by the filing of a financing statement that:
(i) identified the collateral;
(ii) was indexed under the debtor's name as of that date; and
(iii) was filed in the office in which to file a financing statement against the debtor covering the collateral as of
that date; and
(C) any other secured party that, 10 days before the notification date, held a security interest in the collateral
perfected by compliance with a statute, regulation, or treaty described in Section 9-311(a).
EXCEPTION -- (d) [Subsection (b) inapplicable: perishable collateral; recognized market.] Subsection (b)
not apply if the collateral is perishable or threatens to decline speedily in value OR is of type
customarily sold on a recognized market.
 Ex: pumpkins on Halloween eve – ice in July
 Can’t wait to send the notice – need to dispose of the collateral now

***“type customarily sold on a recognized market” – stocks, bonds, commodities…

-can sell without notice to anyone for the going price

Problem #2
SP2 has priority on 2/21/12 – would not have found a filed FS against the Debtors
4/28/16 – SP1 FS lapses & ceases to be effective & treated as unperfected against a purchaser for value
Judgment Lien Creditor is NOT a purchaser for value

AFTER DEFAULT
After default a SP has right to take possession of collateral – take possession of collateral or without removal, render equip unusable –
can take possession either by judicial order (replevin/detinue) or self-repossession without breaching the peace.
*D has right to demand judicial process – depriving D of this right to demand = breach of peace
-(how close you have to be to the other person varies from state to state for BoP)
HYPO – unlawful repo – repo guy takes out bat & swings at D – is owner entitled to get his car back?? – NO – but SP is now not
authorized to take the car because he breached the peace – LIABLE FOR CONVERSION – SP gets to keep the car but D may be entitled
to damages (9-609 & 9-625 comments)
 2 types of damages in this scenario – Personal Injury and Property Damages
o Property Damages are the FMV (bluebook trade in) at the moment it was converted
o Sale without notice? – is bluebook a “recognized market”
o Recognized Market deals with FUNGIBLE GOODS/COMMODITIES (no difference between the
goods/commodities)
o SP not supposed to buy collateral at private disposition unless it is fungible & being sold for the available
market price

HYPO – coin collector – even with mint proofs in a sealed plastic container, there can be a difference in value depending on who/how
many people have touched it, etc. – same thing with a car – several things could be wrong with it – the car is not FUNGIBLE with all
other makes and models from that year

DISPOSITION – 2 ways to dispose – public disposition (with proper notice [time/date/location] & advertising) or private disposition
(between 2 people) [notice must have date after which property will be sold] – must be commercially reasonable
What types of dispositions might NOT be commercially reasonable? – it depends on the facts – what the
reasonable person would do to reasonably maximize his return
*Advertising needs to be commercially reasonable (makes it hard to conduct a phony sale)
 There are certain places where you cannot have a public disposition
o Random Field at 3am on a weekday (or weekend) – BAD
o 3-mile island – BAD

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o Selling baseball souvenir – unreasonable to have this public disposition on the night of the all-star game – because
nobody who would by the souvenir would attend this disposition!
o Selling Rolls Royce/Bentley – place Ad in expensive car trade journal/owners magazine? – GOOD – (Rolex ads
during golf tournament)

HYPO – Debt in default – SP1 takes possession of collateral by self-help with assistance of two uniformed police officers – can Debtor
retake possession? NO (even though it is breach of the peace – D’s free will to stop repossession is removed by the presence of the
police) – D can bring suit against SP for conversion. Why?
*After default the SP has the right to take possession of the collateral by judicial process or self-help. Even if they do it wrong (BoP) –
they are still entitled to right of possession...
**Principle ways of selling collateral under 9-610 – public disposition or private sale
 General requirements of public disposition – adequate notice and advertising
o Can a secured party purchase collateral a public disposition? YES
o Can a SP purchase collateral at private sale? NO – unless 9-610(c)(2) – only if the collateral is of a kind customarily
sold on recognized market or subject of widely distributed standard price quotations.
 The price in a recognized market is immutable and readily available

**Test for whether a disposition is commercially reasonable – discussed in 9-627

9-627. WHETHER CONDUCT WAS COMMERCIALLY REASONABLE.
(a) [Greater amount obtainable under other circumstances; no preclusion of commercial reasonableness.] The fact that a greater
amount could have been obtained by a collection, enforcement, disposition, or acceptance at a different time or in a different method
from that selected by the secured party is not of itself sufficient to preclude the secured party from establishing that the collection,
enforcement, disposition, or acceptance was made in a commercially reasonable manner.
 Didn’t receive the highest price possible? – doesn’t matter – not required you exhaust every possible avenue of selling the
collateral – all that is required is that disposition is commercially reasonable under circumstances
 HYPO – trailer-home repossessed – as a customary practice, all mobile home dealers gathered to look at all the
repossessed vehicles and they determine the price (this is a private disposition) – two prices – price dealers would buy
them as inventory and price dealers would sell them at – the commercially reasonable price is the price as inventory
because it is more likely that the dealers are going to be the ones buying it and it would not make sense to hold a full
public auction – (b)(3)
o Before you can have a private disposition, the SP must send a notice of proposed disposition to debtor ,
secondary obligor, (and/or certain people in case of consumer goods) – obligor is not entitled to notice.
 HYPO – stock held in brokerage account pursuant to control agreement – SP can either direct the brokerage to sell those
stocks on the recognized market and SP gets the net proceeds (price minus brokerage commissions for the sale) OR at the
price current in any recognized market -- *don’t actually have to sell on the market and pay commissions – since on a
recognized market you can just buy the stock on that market – 9-627(b)(2)
o Might be more commercially reasonable for SP to just buy the stock now without notice – because you get to
avoid the broker fees.
 HYPO – D thinks his junk mobile is worth more than the scrap value – test isn’t price but whether the sale was
commercially reasonable – when is scrap value not commercially reasonable??
o Collector’s item – owned by Elvis’ butler to drive him around – there is sufficient proof that there could be high
value offers for such a collector’s item

(b) [Dispositions that are commercially reasonable.] A disposition of collateral is made in a commercially reasonable manner if the
disposition is made:
(1) in the usual manner on any recognized market;
(2) at the price current in any recognized market at the time of the disposition; or
(3) otherwise in conformity with reasonable commercial practices among dealers in the type of property that was the subject
of the disposition.
(c) [Approval by court or on behalf of creditors.] A collection, enforcement, disposition, or acceptance is commercially reasonable if it
has been approved:
(1) in a judicial proceeding;
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(2) by a bona fide creditors' committee;
(3) by a representative of creditors; or
(4) by an assignee for the benefit of creditors.
(d) [Approval under subsection (c) not necessary; absence of approval has no effect.] Approval under subsection (c) need not be
obtained, and lack of approval does not mean that the collection, enforcement, disposition, or acceptance is not commercially
reasonable.

Another way of disposing of collateral that is not public disposition or private sale.....
HYPO – SP (who has possession of the collateral) offers to take the collateral and keep it as full or partial satisfaction of the debt – SP
must send notice to designated people – must have debtor’s consent or authenticated proposal

***STRICT FORECLOSURE***
**all it takes to stop the deal is a timely objection by the debtor**
9-620. ACCEPTANCE OF COLLATERAL IN FULL OR PARTIAL SATISFACTION OF OBLIGATION;
COMPULSORY DISPOSITION OF COLLATERAL.
(a) [Conditions to acceptance in satisfaction.] Except as otherwise provided in subsection (g), a secured party may accept collateral in
full or partial satisfaction of the obligation it secures only if:
(1) the debtor consents to the acceptance under subsection (c);
(2) the secured party does not receive, within the time set forth in subsection (d), a notification of objection to the proposal
authenticated by:
(A) a person to which the secured party was required to send a proposal under Section 9-621; or
(B) any other person, other than the debtor, holding an interest in the collateral subordinate to the security interest
that is the subject of the proposal;
(3) if the collateral is consumer goods, the collateral is not in the possession of the debtor when the debtor consents to the
acceptance; and
(4) subsection (e) does not require the secured party to dispose of the collateral or the debtor waives the requirement
pursuant to Section 9-624.
(b) [Purported acceptance ineffective.] A purported/apparent acceptance of collateral under this section ineffective unless:
(1) the secured party consents to the acceptance in an authenticated record or sends a proposal to the debtor; and
(2) the conditions of subsection (a) are met.
(c) [Debtor's consent.] For purposes of this section:
(1) a debtor consents to an acceptance of collateral in partial satisfaction of the obligation it secures only if the debtor agrees
to the terms of the acceptance in a record authenticated after default; and
(2) a debtor consents to an acceptance of collateral in full satisfaction of the obligation it secures only if the debtor agrees to
the terms of the acceptance in a record authenticated after default or the secured party:
(A) sends to the debtor after default a proposal that is unconditional or subject only to a condition that collateral not
in the possession of the secured party be preserved or maintained;
(B) in the proposal, proposes to accept collateral in full satisfaction of the obligation it secures; and
(C) does not receive a notification of objection authenticated by the debtor within 20 days after the proposal is sent.
(d) [Effectiveness of notification.] To be effective under (a)(2), a notification of objection must be received by the SP:
(1) in the case of a person to which the proposal was sent pursuant to 9-621, within 20 days after notification was sent to that
person; and
(2) in other cases:
(A) within 20 days after the last notification was sent pursuant to Section 9-621; or
(B) if a notification was not sent, before the debtor consents to the acceptance under subsection (c).
**Pre-default authenticated record of acceptance of collateral is ineffective – must happen after default!
HYPO – guy owes 6K – collateral is worth 5K – SP would rather send a 620 acceptance proposal

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HYPO – original consumer debt = 15K – obligor pays 12K leaving 3K of debt – can you have strict foreclosure under these
circumstances?? NO! – more than 60% of debt has been paid off
*(e) [Mandatory disposition of CONSUMER GOODS.] SP that has taken possession of collateral shall dispose of the collateral pursuant
to Section 9-610 within the time specified in subsection (f) if:
(1) 60 percent of the cash price has been paid in the case of a purchase-money security interest in consumer goods; or
(2) 60 percent of the principal amount of the obligation secured has been paid in the case of a non-purchase-money security
interest in consumer goods.
HYPO – original PMSI in OVEN & FRIDGE (consumer goods) ********EXAM******
Original note = 30K over 4 years plus interest over time = 5K
Default on Year 3 – owes 7K (paid 23K + 4K interest) – 23/30 = 60%
Lender evaluates collateral – value at 5K
Offers strict foreclosure (9-620) = (obligor debt of 7K existing on 5K collateral) -- accepted
-cannot pursue strict foreclosure with 60% of debt paid in consumer transaction 9-620(e)
-D must sell and must sell within 90 days of taking possession (9-620(f))
**who owes what??
D still owes 7K – sue for statutory damages which would return 8K – leaves D with 1K (without the collateral)
-------------------------------------------------------------------------------------------------------------------------------------------------------
What can you do if 620(e) applies....
(f) [Compliance with mandatory disposition requirement.] To comply with subsection (e), the secured party shall dispose of the
collateral:
(1) within 90 days after taking possession; or
(2) within any longer period to which the debtor and all secondary obligors have agreed in an agreement to that effect entered
into and authenticated after default.
 ***This must be done in a 9-610 disposition (public or private disposition)
 Exam – question to see if more than 60% is paid and it is a consumer transaction

HYPO – Vince sells watch to Alvin for 50K new (bad check – transaction was voided & V is rightful owner) – Alvin’s loan from Scott = 10K
– resale price of watch = 25K – may Scott use strict foreclosure to get title to watch? NO! – cannot keep a watch worth 25K (easily
attained) to satisfy 10K debt
 Just because going price for used watch is 25K does not mean it is only price for every buyer – what if Vince could get 40K
for it?? – Might be commercially reasonable for Vince to just buy the watch from Scott for 10K because Vince is more likely
to get a higher price for this and for less effort.

Begay Case – Navajo men went to local jewelry store & gave jewelry as collateral – at retail the jewelry sells for 45K – the loan was for
10K – loan goes into default and jewelry store sends notice of 9-620 strict foreclosure to the two men – they did NOT receive the notice
– on the 20th day jewelry store says they are going to keep and sell watch (code states the 20 days begins when notice is sent) – BUT –
jewelry store already lined up buyer to buy jewelry for 45K – so jeweler profits 30K
 BAD FAITH –jeweler could have just disposed of watch for 45K & gave surplus to the men.
 To be GOOD FAITH – SP would have had to tell the Debtor’s that they were going to sell the jewelry immediately upon
default (honesty in fact)

HYPO – obligation is $100 – collateral is basket of marketable securities with going price of 5K -- it would be bad faith to strict foreclose
on the 5K of securities – how should SP dispose?? – sell the collateral in “lots” – the commercially reasonable method of disposition
here would be to look at the collateral and find a security worth around $100 – then you’ll take/accept possession of that security in full
satisfaction of the $100 debt.
**HYPO – $50K collection of collateral as securities – debt is 25K – SP sends out full notice of public disposition at auction (with good
notice and advertising) – but most anyone offered was $30K – should have just sold on the market for its FMV – if SP sells at auction for
30K – commercially unreasonable – debtor/obligor has an action against SP for the remaining 20K that he failed to get (9-620 comment
11)
Discharge of subordinate security interests....
HYPO – SP sends out 9-620 notice of strict foreclosure – forgets to send out notice to a subordinate security interest – 622(b) – still
effective (subordinate SP can sue for damages)

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9-622. EFFECT OF ACCEPTANCE OF COLLATERAL.
(a) [Effect of acceptance.] A secured party's acceptance of collateral in full or partial satisfaction of the obligation it secures:
(1) discharges the obligation to the extent consented to by the debtor;
(2) transfers to the secured party all of a debtor's rights in the collateral;
(3) discharges the security interest or agricultural lien that is the subject of the debtor's consent and any subordinate security
interest or other subordinate lien; and
(4) terminates any other subordinate interest.
(b) [Discharge of subordinate interest notwithstanding noncompliance.] A subordinate interest is discharged or terminated under
subsection (a), even if the secured party fails to comply with this article.
3 WAYS TO DISPOSE AFTER DEFAULT:
1. Notice of Public Disposition
2. Notice of Private Sale
3. Notice of 9-620 Strict Foreclosure

IL LAND TRUST
HYPO – client wants to buy property – how do they want the ownership to appear on the deed? Their name which is easily traced?
Something secret where they don’t know your name? – IL Land Trust**
Settlor buys the property and conveys the property to a bank as the trustee – Trust Agreement – legal title of the property goes to
the bank (executes land transactions) – but the Settlor is the beneficiary that retains the right to control the beneficial intent
If the owner of the beneficial interest wants to borrow money against the property. He can:
1. Instruct/Direct the land trust to execute a mortgage
2. If the beneficiary’s interest is personal property – they can give a security interest in it – Assignment of Beneficial
Interest (ABI) for collateral purposes
a. Not a conveyance of real property – but an assignment of beneficial interest for collateral purposes (collateral
ABI)

810 ILCS 5/9-107.1. Control of Beneficial Interest in Illinois Land Trust.

***PERFECTING a security interest in a collateral ABI – by a CONTROL AGREEMENT
 The holder of the beneficial interest executes an authenticated record (signed by SP) transferring his interest to the
assignee.
 Give this authenticated record to the Land Trustee
 And the Land Trustee must also sign and consent to the assignment of interest

NOTICE OF DISPOSITION
9-610 Disposition – slightly different types of notice required for consumer and non-consumer
 BOTH notices must state dates and times
 State whether it is a public or private
o Public – date, time, and place of public disposition
o Private – Date and Time AFTER WHICH a private disposition may take place
 Consumer – safe harbor – notice is fine if sent after default and at least 10 days>>>>>??????????????????????????? before the
disposition – must be exactly conforming
 Non-Consumer – must be substantially conforming to statutory notice (question of fact)

9-611. NOTIFICATION BEFORE DISPOSITION OF COLLATERAL.

9-612. TIMELINESS OF NOTIFICATION BEFORE DISPOSITION OF COLLATERAL.
9-613. CONTENTS AND FORM OF NOTIFICATION BEFORE DISPOSITION OF COLLATERAL: GENERAL. (non-consumer goods)
 Public or Private – must state which one and go with it (if you choose another way then you must give additional notice) –
CANNOT give notice of both public and private
 Can you purposely exclude a party in interest?? – Boender?? - NO

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 (1)(e) – time & place of public disposition or time after which any other disposition will be made
 When deciding when/how to dispose of collateral – look at the code

HYPO – SP gave notice of public disposition – top big was 400K but SP already had an offer for 625K – SP closed down the public auction
to take the private offer – what’s wrong with this?? ** The notice would have just said public disposition but then SP sold it
at a private sale – violation of UCC!!
9-614. CONTENTS & FORM OF NOTIFICATION BEFORE DISPOSITION OF COLLATERAL: CONSUMER-GOODS TRANSACTION.

REDEMPTION
9-623. RIGHT TO REDEEM COLLATERAL.
(a) [Persons that may redeem.] A debtor, any secondary obligor, or any other secured party or lienholder may redeem collateral.
**obligors DO NOT have the right to redeem**
 Secondary Obligor = Guarantor
 HYPO – Debtor and Obligor are same person, and there is a Secondary Obligor – D signs the promissory note and G signs also
guaranteeing debt – loan goes into default – after the D pays as much as he can (if there is still outstanding debt) – then the G
would have to pay the rest
 If the secondary obligor redeems – the collateral would become possession of the D and SO would have all right to
benefits/proceeds/etc.

(b) [Requirements for redemption.] To redeem collateral, a person shall tender:

(1) fulfillment of all obligations secured by the collateral; and
(2) the reasonable expenses and attorney's fees described in Section 9-615(a)(1).
(c) [When redemption may occur.] A redemption may occur at any time before a secured party:
(1) has collected collateral under Section 9-607;
(2) has disposed of collateral or entered into a contract for its disposition under Section 9-610; or
(3) has accepted collateral in full or partial satisfaction of the obligation it secures under Section 9-622. **(620 strict
foreclosure – can redeem once SP accepts the collateral)
Ex: Public Disposition – can redeem at any time before a sale is actually executed (until the auction gavel falls)
***Important to remember WHO can redeem***
9-615. APPLICATION OF PROCEEDS OF DISPOSITION; LIABILITY FOR DEFICIENCY AND RIGHT TO
SURPLUS.
 Priority of how payments will be disbursed under a 610 sale
 Surplus goes back to the Debtor

DEFICIENCY – if disposition of collateral does not bring in enough money to satisfy the debt – the SP will come after the Obligor
(or Secondary Obligor if D=O)

DISPOSITION OF INTANGIBLE COLLATERAL

HYPO – Dept. Store gives all accounts as collateral – SP comes to each acct. holder & asks them to pay the accounts – 25 people – 1K
each – can SP claim deficiency on the sale of accounts?? – NO – 615(e)
615(e) [No surplus or deficiency in sales of certain rights to payment.] If the underlying transaction is a sale of accounts,
chattel paper, payment intangibles, or promissory notes:
(1) the debtor is not entitled to any surplus; and
(2) the obligor is not liable for any deficiency.
HYPO – buyer buys collateral for 100K at (valid) private disposition – buyer goes to SP and gives Firm’s promissory note as payment –
noncash proceeds
 Promissory Note due in 6 months – does SP have to immediately credit the amount of the noncash proceeds to the Debtor? –
YES – ALMOST ALWAYS...has to credit the noncash proceeds if it would be commercially reasonable to do so....and must do
so in a commercially reasonable manner **(615 comment 3 – who bears the risk if the seller takes the promissory note? – it

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would be commercially unreasonable to put D/O at risk because SP made the business decision to accept a promissory note
instead of cash) – unless D/O agrees otherwise.

(c) [Application of noncash proceeds.] A secured party need not apply or pay over for application noncash proceeds of disposition
under Section 9-610 unless the failure to do so would be commercially unreasonable. A secured party that applies or pays over for
application noncash proceeds shall do so in a commercially reasonable manner.
**BEGAY – secured party needed to account for the surplus attained

(f) [Calculation of surplus or deficiency in disposition to person related to secured party.]

HYPO – SP sends their brother to come buy the collateral at private sale – brings insufficient amount – 615(f) – The surplus or deficiency
following a disposition is calculated based on the amount of proceeds that would have been realized in a disposition complying with this
part to a transferee other than the secured party, a person related to the secured party, or a secondary obligor -- **sale is still valid
HYPO – debt was $20 – collateral was worth $10 at a good sale – sale to SP’s brother in law brought in $5 – ***surplus/deficiency is
calculated on what would have been realized in a good disposition if:
(1) the transferee in the disposition is the secured party, a person related to the secured party, or a secondary obligor; AND
(2) the amount of proceeds of the disposition is significantly below the range of proceeds that a complying disposition to a
person other than the secured party, a person related to the secured party, or a secondary obligor would have brought.
HYPO (cont.) – if D can show this is a rotten sale – Court will adjust sales price & give the difference to the D to satisfy the deficiency – so
$5 would be taken off deficiency amount – (comment 6)
^SPECIAL ADJUSTMENT RULE^
**Can there be a deficiency judgment in a 9-620 strict foreclosure – NO! (partial satisfaction is a unusual situation)

PROCEDURAL LAW – PROVE & REBUT CLAIM OF DEFICIENCY

HYPO – notice of public sale – high bidder was 100K – SP called off sale because they could get 150K from a merchant – SP sold
collateral for 150K – violation? – YES – notice was for public sale and this ended up as a private sale
9-626. ACTION IN WHICH DEFICIENCY OR SURPLUS IS IN ISSUE.
(1) A secured party need not prove compliance with the provisions of this part relating to collection, enforcement, disposition, or
acceptance unless the debtor or a secondary obligor places the secured party's compliance in issue.
 Presuming that if SP made a good sale it would have brought back the exact amount of the debt owed by D

(2) If the secured party's compliance is placed in issue, the secured party has the burden of establishing that the collection,
enforcement, disposition, or acceptance was conducted in accordance with this part.
(3) Except as otherwise provided in Section 9-628, if a secured party fails to prove that the collection, enforcement, disposition, or
acceptance was conducted in accordance with the provisions of this part relating to collection, enforcement, disposition, or acceptance,
the liability of a debtor or a secondary obligor for a deficiency is limited to an amount by which the sum of the secured obligation,
expenses, and attorney's fees exceeds the greater of:
(A) the proceeds of the collection, enforcement, disposition, or acceptance; or
(B) the amount of proceeds that would have been realized had noncomplying SP proceeded in accordance w/ provisions of this
part relating to collection/enforcement/disposition or acceptance
(4) For purposes of paragraph (3)(B), amount of proceeds that would have been realized is equal to sum of the secured obligation,
expenses, & attorney's fees unless SP proves the amount is less than that sum.
(5) If a deficiency or surplus is calculated under Section 9-615(f), the debtor or obligor has the burden of establishing that the amount of
proceeds of the disposition is significantly below the range of prices that a complying disposition to a person other than the secured
party, a person related to the secured party, or a secondary obligor would have brought.
PRESUMPTION EXAMPLE
*HYPO – Debt = 250K – [Sold 9-610 disposition for 150K] – [SP claims 100K deficiency vs. Obligor]
1. SP case in chief – debt – default – notice – sale for 150K – claim deficiency for 100K
a. Provide evidence proving each of these (notes/agreements/etc.)
2. Debtor/Obligor prove violation of Art 9 Pt 6 (Bad Sale/Notice, Commercially Unreasonable)
a. Bad Sale – (ex: sold at private sale but gave notice of public sale)
3. If violation of Art. 9 – value of collateral presumed to be amount of debt = 250K (thus Deficiency = ZERO) – or debtor proves
collateral would return more than the debt

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4. Burden of proof shifts to SP to prove value of collateral if it was disposed at a good sale
a. Assume in this case....SP proves that collateral would have brought in 200K
5. Response by Debtor/Obligor
a. Result (assuming for this case) – Deficiency = 250K – 200K = 50K

**what if Debtor proves the collateral could have returned MORE than the amount of the debt – same general procedure in surplus
case as far as presumptions and burden of proof
9-626(b) [Non-consumer transactions; no inference.] The limitation of rules in subsection (a) to transactions other than consumer
transactions is intended to leave to court determination of proper rules in consumer transactions. Court may not infer from that
limitation the nature of proper rule in consumer transactions & may continue to apply established approaches.
***In IL this does not apply!! –same presumption applies for both consumer and non-consumer
**IL does not have 626(b) – you use 626(a) for both consumer and non-consumer transactions
HYPO – Consumer PMSI – Debt = 2,000 – SP1 filed UCC-1 – obligor paid in full and no further credit is extended – what happens? – SP
must file UCC-3 (with the checkmark for termination) within 30 days
Rule in Consumer Transactions to calculate deficiency/surplus – 626(a) (non-consumer also in IL)

REMEDIES
**what happens if there is a violation of Article 9 or Part 6 in particular
HYPO – D/O opens mail & finds notice of 9-610 disposition, private sale – good notice – except D calls lawyer & claims he made all his
payments – hasn’t been a default yet!! – go to court under 9-625(a)
HYPO – MacNaughton sends out notice of public sale in his NJ office – next step after sending the letter informing MN that he does not
have a valid security interest because of supergeneic description would be to go to court via 9-625

9-625. REMEDIES FOR SECURED PARTY’S FAILURE TO COMPLY WITH ARTICLE

(a) [Judicial orders concerning noncompliance.] If it is established that a SP is not proceeding in accordance with this article, a court
may order or restrain collection, enforcement, or disposition of collateral on appropriate terms and conditions.
(b) [Damages for noncompliance.] Subject to (c), (d), & (f), a person is liable for damages in the amount of any loss caused by a failure
to comply with this article. Loss caused by a failure to comply may include loss resulting from debtor's inability to obtain, or increased
costs of, alternative financing.
 Actual Damages – Art 9 violation – D is liable for provable damages from noncompliance
 SP violates Art 9 that causes Obligor to incur costs of increased financing – promissory note with 3% interest & there’s a
violation of Art 9 by SP & your credit gets hurt & you’re paying 9% interest now – damages could include the difference in
interest rates caused by SPs violation.

HYPO – reasons to go to court to enjoin a disposition:

 Disposition scheduled for 2am in dangerous area – go to court – judge will enjoin
 D is not in default
 Improper repo through breach of peace – D cannot enjoin but can sue SP for conversion (because SP is “entitled to possession”
of the collateral after default) – Actual Damages

Remedy in Common Law

HYPO – No security agreement but there is repossession & disposition of vehicle – sue for conversion!
 Elements of Conversion Damages
o FMV of the collateral/vehicle at the moment of conversion
 If no default – D has his choice of 9-625 action or common law conversion?
o HYPO – assume 10K loan secured by 11K automobile – repo’d & on sale for 8K – you would rather have the car back
because it’s worth more than 8K – so sue for conversion??
 Think of which common law damages would be available to you upon SPs violation of Article 9 – which would be better – CL or
9-625??
 Damages sought by D can be:

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o Trespass to Land, Battery, Assault, & Conversion
 HYPO – D defaults and SP goes to repo – there is a latched gate to get to car – CANNOT go through the gate to repo the car –
you CAN open the front gate/screen only if your purpose is to talk to the D (you’re not taking an action against the collateral)

9-623 – what happens if your tender of payment is refused by SP?? – violation of Art 9!

9-207. RIGHTS/DUTIES OF SP HAVING POSSESSION/CONTROL OF COLLATERAL.

(a) [Duty of care when secured party in possession.] Except as provided in subsection (d), a secured party shall use reasonable care in
the custody and preservation of collateral in the secured party's possession. In the case of chattel paper or an instrument, reasonable
care includes taking necessary steps to preserve rights against prior parties unless otherwise agreed.
 HYPO – Rachel wearing the watch – R is required to exercise reasonable care over the watch

(b) [Expenses, risks, duties, and rights when secured party in possession.]
Except as otherwise provided in subsection (d), if a secured party has possession of collateral:
(1) reasonable expenses, including the cost of insurance and payment of taxes or other charges, incurred in the custody,
preservation, use, or operation of the collateral are chargeable to the debtor and are secured by the collateral;
(2) risk of accidental loss or damage is on debtor to the extent of a deficiency in any effective insurance coverage;
(3) the SP shall keep the collateral identifiable, but fungible collateral may be commingled; and
(4) the secured party may use or operate the collateral:
(A) for the purpose of preserving the collateral or its value;
(B) as permitted by an order of a court having competent jurisdiction; or
(C) except in case of CONSUMER GOODS, in manner & to extent agreed by debtor.
 SP not supposed to use collateral – but can use collateral to preserve value (ex: engines/vehicles)
 *Consumer Goods – SP CANNOT use the collateral
o ******Rachel should not have been wearing the watch because it is a consumer good!! – Violation of Art 9 and R/S
could be liable for any damage to the watch
 Shrock case???

HYPO – D/O is current on car payments and SP unlawfully repos the car – lawyer calls them 40 minutes later and shows them evidence
of current payments – SP returns the car – what are your Actual Damages? – NOTHING! – but D gets Statutory Damages (even if he
can’t prove Actual Damages)!
(c)[Persons entitled to recover damages; statutory damages in consumer-goods transaction]
Except as otherwise provided in Section 9-628:
(1) a person that, at the time of the failure, was a debtor, was an obligor, or held a security interest in or other lien on the collateral may
recover damages under subsection (b) for its loss; and
(2) if the collateral is CONSUMER GOODS, a person that was a debtor or a secondary obligor at the time a secured party failed to comply
with THIS PART may recover for that failure in any event an amount not less than the credit service charge plus 10 percent of the
principal amount of the obligation or time-price differential plus 10% of the cash price.
 These statutory damages are ONLY for Art 9 Part 6 violations
 10% of the Principal + ALL interest payable over duration
o Credit Service Charge – all interest that will be due on the obligation for the entire duration of the loan – look at loan
agreement and TILA statement for interest amount payable over course of loan
o 10% of Principal = 10% of amount owed
 TILA Statement – “Amount Financed” is the principal – take 10% of it and add it to the “Finance Charge” (CSC) = statutory
liquidated damages
o TILA Statement must be prepared at inception of loan (specifies entire principal amount & interest owed)

2 types of Injury from Art. 9 violation

1. Wrongful Deficiency – deficiency wasn’t reasonable because SP did not get enough on disposition (price is
irrelevant – have to prove bad sale/notice/commercially unreasonable because of Art 9 violation) – mere
fact could have gotten more doesn’t matter – all that matters is if D can prove violation of Art 9 (and/or
Part 6 specifically)
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2. Surplus – SP fails to give debtor the surplus proceeds after disposition

Other Statutory Damages for Art 9 violations -- $500 statutory damages for minor violations

(e) [Statutory damages: noncompliance with specified provisions.]

In addition to any damages recoverable under subsection (b), the debtor, consumer obligor, or person named as a debtor in a filed
record, as applicable, may recover $500 in each case from a person that:
(1) fails to comply with Section 9-208; (2) fails to comply with Section 9-209;
(3) files a record that the person is not entitled to file under Section 9-509(a);
 HYPO – Judgment Creditor files financing statement against Judgment Debtor without the benefit of a security agreement
– $500
 HYPO – Person thinks they are SP – files FS that was not properly filed because there’s no security agreement – the
“harmed” party would send authenticated notice to P demanding $500 for filing without authority – NOW you must also
send authenticated notice for P to terminate – if they fail to terminate within time limit – another $500!

(4) fails to cause the SP of record to file or send a TS as required by Section 9-513(a) or (c);
(5) fails to comply with Section 9-616(b)(1) and whose failure is part of a pattern, or consistent with a practice, of
noncompliance; or
(6) fails to comply with Section 9-616(b)(2).
(f) [Statutory damages: noncompliance with Section 9-210 (request for accounting).] A debtor or consumer obligor may recover
damages under (b) and, in addition, $500 in each case from a person that, without reasonable cause, fails to comply with a request
under 9-210. A recipient of a request under 9-210 which never claimed an interest in the collateral or obligations that are the subject of
a request under that section has reasonable excuse for failure to comply with request within meaning of this subsection.
 Potentially can get $500 in addition to any Actual Damages under 9-625(b)

*************
HYPO – Damage to Vehicle during Repo – Actual Damages under 9-625! (shoe stuck in tire during repo – damage to shoe and car)
HYPO – D/O leaves briefcase in back of car with property in it – proper repo – D goes to get briefcase & SP says don’t know where it is –
D can sue for damages! – SP has duty to exercise reasonable care
HYPO – guy buys (with PMSI) Christmas decorations and puts them on house – gives PMSI to lender of consumer goods and he defaults
– SP goes to get back lights and breaks a bunch of shingles, climbs fence and breaks it, breaks some of the lights – ACTUAL DAMAGES!
HYPO – damage to just 3-4 tiny lights on string (worth about 18 cents) – any damages?? – 9-625(c)(2) – LIQUIDATED DAMAGES IN A
CONSUMER-GOODS TRANSACTION (all the juice plus 10% of Principal) – D has choice between Actual & Liquidated Statutory Damages
– choose Statutory!
-D owes $5,000 – and the statutory damages amount to $2,500 – this amount is credited and D still owes the remaining 2.5K
************
HYPO – debt = 5K and FMV = 10K – 9-610 sales price = 4K
*violation of pat 6 – improper notice – good sale would have brought 7.5K
*SP gets the first 5K from the collateral
*what does D get (D put up collateral)? – gets the 2.5K surplus because they put up the collateral
*what does obligor get? – Nothing!
HYPO – SP wants to put in the security agreement – “D/O hereby irrevocably waives the rights provided by 9-609 and says SP can
repossess by self-help with breach of peace – and if SP breaches the peace D waives all damages” – 9-602 – certain things you cannot
waive PRE-default – but POST-default is another story!

9-624. WAIVER.
(a) [Waiver of disposition notification.] Debtor or secondary obligor may waive the right to notification of disposition of collateral
under Section 9-611 only by an agreement to that effect entered into and authenticated AFTER default.
*(b) [Waiver of mandatory disposition.] Debtor may waive right to require disposition of collateral under 9-620(e) ONLY by an
agreement to that effect entered into & authenticated AFTER default.

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 If you represent D/O & SP offers to take property in full satisfaction & property worth less than amount of debt – you have right
to waive 9-620(e) mandatory disposition – you should waive it!
 CANNOT waive these rights in the security agreement because it is PRE-default

(c) [Waiver of redemption right.] Except in consumer-goods transaction, debtor or secondary obligor may waive right to redeem
collateral under 9-623 only by agreement to that effect entered into & authenticated AFTER default.
**you can waive 9-609 POST default!
AAR– Buyer purchased jet engine – Price/PMSI = $1,325,000 – Guarantor waives notice of disposition in the security agreement (not
allowed!) – Default – engine value = 1mil – Repo.
Possible sale for 1mil – lender scheduled public auction (good advertising) – only the lender appeared at the auction and bought the
engine for 250K – lender then sues guarantor for the deficiency!
G also waived notice of dishonor and errors in perfection and other pre-default rights – Is G liable??
-there was a violation of Art. 9 Pt. 6 because there was bad notice & sale was commercially unreasonable – there were a
bunch of ads in trade journals that people could buy an engine “as is” for 1mil by calling a phone number – fact that L was only
one at auction makes us suspicious – either bad notice or commercially unreasonable – good sale would have brought 1mil
-***we are going to presume (9-626) that the engine would have sold for the exact value of the debt (1.325mil) – SP must
prove that a good sale would have brought less than 1.325mil – SP proves engine would have sold for 1mil – **Deficiency is
now lowered to $325,000
**G may not waive right to a commercially reasonable sale
HYPO – in security agreement “upon default ownership of the collateral vests in the SP” – INVALID – cannot waive right to notice,
redemption, etc. (Krantzler case)

Land Trust – legal title to the property is deeded to the trustee in a one of two ways:
-sign trust agreement with land trust department of an institution – settlor then conveys the property to the land trust in
trust – called a “deed in trust”
-I’m going to buy piece of property – sign land trust agreement with bank – buy property & direct seller to give deed
to land trustee – deed goes straight from seller to trust
2 ways to borrow money against the trust:
1. Direct the land trustee to take out a loan and have the land trustee to give a mortgage on the property to the lender to
secure the debt
2. Can give a security interest in the beneficiary’s interest in the land trust – UCC 9-109 – B will assign their beneficial
interest in the land trust for collateral purposes
a. COLLATERAL ABI
b. How do you PERFECT a beneficial interest in a Collateral ABI – CONTROL!
i. 9-107 – SP transmits to trustee a record authenticated by debtor that contains Collateral ABI, & the
trustee ACCEPTS this assignment/security agreement

Boender HYPO – PMSI on building in land trust – D gives Collateral ABI – Debt = 1mil
DEFAULT – Lender schedules sale of ABI – notice of public disposition – requires 50K down-payment (unlawfully barred Debtor from
attending) – posted in Chicago Daily Law Bulletin –NOT commercially reasonable notice to advertise property in this journal! Sale was
held at lawyer’s office – BAD!
-Lender had also already entered a contract to sell the interest for 950K – BAD FAITH
-Lender buys for 100K at sale and then sues for deficiency – BAD FAITH
North American Islamic Trust – Horizon owns 100% beneficial interest of Land Trust – could have given a Collateral ABI – Horizon gives
mortgage to Borrower – BAD! – Horizon did not own the property – the land trustee holds the legal title and they were the ones that
could have given a mortgage
-**owners of beneficial interest did not have any legal interest in title necessary for conveyance of mortgage! (mortgage can
have priority over competing claims filed with recorder of deeds)
**How does a beneficiary of an IL land trust give a security interest in their interest – execute a Collateral ABI agreement or have trustee
take out a loan on the property

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PRIORITY RULES
Mere act of filing FS before attachment does not constitute perfection – once the security interest finally
attaches (and perfects) – the date for priority purposes dates back to when FS was first filed
HYPO – D security agreement to SP1 says:
“D agrees not to grant subsequent security interest in collateral & any such subsequent security interest is void.”
SP1 attaches & perfects – D then gives security interest in same collateral to SP2 – is SP2’s security interest void or valid?
 Priority fight between SP1 and SP2 –
o SP1 – move to dismiss the claim of SP2 because it is void
 Debtor made a NEGATIVE PLEDGE in contract with SP1

9-401 – negative pledge does NOT work – the second security interest is still valid (the creation of security interest with SP2 may be
a non-financial default by D) -- **comment 5**
RAND – During the Repo – independent contractor came to repo the car – and called the cops to allow the repo to continue after D
objected – NOT A PROPER REPO – BREACH OF PEACE
 Remedy of self-help is a nondelegable duty and the SP is liable for violations of Art 9 and other violations (trespass) committed
by the IC.
 “In the context of a private self-help repossession, the presence of a police officer can convert private action to state action,
depending on the degree of involvement of the officer.”
o Does the officer actively participate or just stand there?
o Upon default – SP is entitled to take possession of the collateral by self-help or judicial process – D has right to
demand judicial process and refuse self-help – BUT the Debtor must explicitly object to the self-help (can't just sit in
their house and say they objected)
o ***look at it from position of debtor – does the presence of the police create a reasonable impression in the mind of
the Debtor that the police are there to coerce his participation in the self-help repo and to force the Debtor to waive
their right to judicial process
o 1983 – whether the state actor sufficiently participated in the act
o What remedy might rand have had that was not discussed? CONVERSION

SCHWALB – Ordinary pawn transaction – if obligor defaults, does collateral automatically belong to pawnbroker/SP? – NO not
enforceable because waiver on the pawn ticket is a pre-default waiver which is not permitted under 9-602 (list of rights that cannot be
waived pre-default – cannot waive 9-609 pre-default)

SWERDLOFF – After default, the pawn shop sent no notice of default/foreclosure (P (debtor) was never given a pawn ticket) – pre-
default waiver was void as a matter of law
If conflict between UCC & Pawnbroker Act – which one do you go with? Pawnbroker Regulation Act – if it establishes a different rule
for consumers
 Court held the requirements under the PRA did not conflict with the UCC and thus did not preclude UCC remedies
 There was one variance between PRA and UCC – under 9-203 this was a possessory security interest (because pawnbroker held
on to the collateral) – UCC does not require an authenticated record for possessory security interests! BUT the PBR requires a
written agreement for pawn transactions – oral not allowed
 PBR – must have signature of P on ticket, must give them copy of ticket, oral agreement is unenforceable
o PBR is more restrictive for consumers to protect them
 Client is entitled to statutory liquidated damages for 10% of principal and all of the interest?? Court says NO – the only
damages they can get are for conversion damages
o Conversion occurred when Pawnshop took full possession
o This is an action for conversion damages for FMV of the collateral at the moment that the right to possession was
taken by the pawnbroker (plus the pre-judgment interest from the moment of conversion)
o Statutory damages discussed in Count 3
 Club’s liability is limited to the actual dollar amount that the sold the ring for

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9-602 – the various rights specified may NOT be waived pre-default – these rights include: notice after default of any disposition (pursuant to
the disposition rules in the Code); notice of public/private sale; secondary obligor waiving rights to notice (AAR); right to repo without breach
of the peace (may be waived post default in writing); rights under 9-620;

RECLAMATION
*somebody sells something based on false pretenses – seller can get the goods back under reclamation – potentially
cannot get the goods back because of a prior perfected security interest ***(already an after-acquired goods clause covering sellers
future purchases)***
What happens if a debtor sells collateral subject to a security interest ??
HYPO – nonpossessory security interest in water bottle – D sells the bottle to someone else – what happens to SP’s security
interest?
Does it matter if debtor is in default at the moment he sells the collateral?? – NO!
2 remedies for SP
 Go after D for proceeds from the sale
 Pursue the subsequent buyer (who stands in the shoes of the D)

***is subsequent buyer liable??? – look at exceptions to 9-315!

**asecurity interest that has attached continues in the collateral unless the SP authorizes the
disposition free of the security interest -comment 2 – SP may repossess or sue for conversion

LEASE v. SECURITY INTEREST

In a lease situation – the property title belongs to the lessor – the lessee is just renting the use of the property – NOT a security
interest!!!
**Lease and Lessor wants to take it back – DOES NOT HAVE TO FOLLOW ARTICLE 9!!
**in a lease – ownership of the property remains with the lessor – NOT A SALE
**lessee has no ownership interest like a debtor would
Where there is a secure transaction – protection generally found in perfection/filing –
In lease – title in the lessor – default in payment, lessor just takes his property back
If there is a claim of a lease by someone – there’s no need for a priority dispute to be resolved...
HYPO – judgment lien creditor gets effective judgment lien against judgment debtor – JD has various personal property in his
possession, including furniture, the JLC goes against the furniture – the seller of the furniture brings forth the lease agreement proving
he leased the furniture to JD – priority dispute?? JLC can only get to an interest in property owned/has rights to by the JD – since this
is a lease – JD does not have any title in the property!!
 What if this wasn’t really a true lease – it was really a sale but seller is trying to call it a lease to get the furniture back without
dealing with article 9 and priority disipute

9-109 – Scope – applies to a transaction REGARDLESS OF ITS FORM that creates a security interest in personal property/fixtures by
contract
**two things a security interest does – secures payment OR secures performance of an obligation
Whether transaction in form of a lease creates a security interest is determined in 1-203
1-203 Lease Distinguished from Security Interest.
HYPO – Sale & Security Interest
Car Cost 20K new
Life = about 100,000 miles
Car Loan = 5 years
Interest = 4K (over 5 years)
Total Payment = 24K

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 Day 1 you were the owner of the car – gave security interest in car – lender put their name on the certificate of title – once you
make the total payment (24K) on the whole thing the security interest ceases to exists when the lender releases title on the
certificate – D now gets to keep/use car for as long as he wants
o Full ownership in purchaser after loan/interest paid off

*************

What would have to happen under 9-620 after default for the secured party to keep the collateral?? SP would need to send
authenticated record to D proposing that SP keeps the collateral in full satisfaction of the debt unless they object within 20 days after
the proposal – STILL HAS TO BE COMMERCIALLY REASONABLE!!!
 Debt was 21K – Collateral was 156K
o Foreclosing on 156K of collateral is NOT commercially reasonable to satisfy 21K of debt
 In most transactions, Pawnbroker’s could do strict foreclosure in most cases where there is not a big variance in the amount of
the debt and value of the collateral

Who gets to keep collateral in a conflict priority fight after collateral is disposed?

HYPO – Security Interest Disguised as Lease

Seller doesn’t write up sale contract, writes up lease agreement
“<for 60K> miles <60% of life> over 5 years
Total Payment = 24K
At the end of the lease term, the lessee is given the opportunity to purchase the car for $1 – why does this smell funny? There’s the
same amount of money exchanged between the parties
 If you see the flow of money in a lease is exactly the same as a sale and security interest, maybe it’s a lease disguised as a
security interest! – not good!
 Necessary conclusion – SECURITY INTEREST – Article 9 applies!

HYPO – True/Pure Lease

Car Lease for 5 years/ 60K miles
Total 5 year payments = 16K
Option for Lessee to buy car at end of term for 5K (roughly what car is worth after 5 years)
 ****Elements of Pure Lease
o Lender/Seller has the benefit of the REMAINING ECONOMIC VALUE of the property – they can then lease this car
again to someone else!
 Lender/Sellers are entrepreneurs – they are in the business of lending/leasing
o You are paying for the actual use (for the number of years) – and not more than the actual use – 16K over 5 years is
more accurate than 24K over 5 years

***********
HYPO – Lease disguised as security interest
Lease for 100K miles
Total Payment = 24K
Option to purchase for $100
 Remaining Economic Value is near zero – after 100K miles the lessor likely couldn’t/wouldn’t lease the car again

**LOOK – what is the remaining economic life of the property at the end of the lease term!
Lease – fair price just for the “use’ of the property
2A-103 Lease – transfer of the right of possession and use of goods for a term, in return for consideration (does not say anything about
ownership – title to property remains with lessor
 ***look to the residual value – can the property be used again?

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1-203. Lease Distinguished from Security Interest.
(a) Whether a transaction in the form of a lease creates a lease or security interest is determined by the facts of each case.
 FACTS not intent of parties

(b) A transaction in the form of a lease creates a security interest (AKA phony lease) if:
The consideration that the lessee is to pay the lessor for the right to possession and use of the goods is an obligation for the
term of the lease and is not subject to termination by the lessee, AND:
o If the lessee has the right at any time under the lease to return goods & end the lease/term – then it’s a lease!! If it
does not allow lessee to do this, then look to the following:

(1) original term of the lease is equal to or greater than remaining economic life of the goods;
o If paying 24K at end of lease term with option to pay $100 to buy – what is the remaining economic life?

(2) lessee is bound to renew lease for remaining economic life of goods or bound to become owner of the goods;
(3) lessee has option to renew lease for remaining economic life of goods for no additional consideration or for nominal
additional consideration upon compliance with lease agreement; or
(4) the lessee has an option to become the owner of the goods for no additional consideration or for nominal additional
consideration upon compliance with the lease agreement.
o Remaining Economic Life = 5 years – but if the price paid was what would have been paid normally in a sale or security
interest – phony lease! (actually a security interest)

2A-103 (q) "Lessor's residual interest" means the lessor's interest in the goods after expiration, termination, or cancellation of the lease
contract (Remaining Economic Life)
 As lessor’s residual interest in goods approaches zero – there is more of a chance that it is a sale/security interest!!
 If only paying for lease term, and goods have significant/decent value at end of the term – more likely a true lease

Look at the facts – what is the remaining economic life? Has D already paid for most/all of car?
Look at term, look at residual value, when do you look at what the residual value should be (respective to term and amount paid)?
Determined at moment of execution of agreement!!
Comment 2 – economics of a transaction
1-203(d) Additional consideration is nominal if it is less than the lessee's reasonably predictable cost of performing under the lease
agreement if the option is not exercised. Additional consideration is not nominal if: (1) when the option to renew the lease is granted to
the lessee, the rent is stated to be the fair market rent for the use of the goods for the term of the renewal determined at the time the
option is to be performed; or (2) when the option to become the owner of the goods is granted to the lessee, the price is stated to be
the fair market value of the goods determined at the time the option is to be performed.
(e) The "remaining economic life of the goods" and "reasonably predictable" fair market rent, fair market value, or cost of performing
under the lease agreement must be determined with reference to the facts and circumstances at the time the transaction is entered
into.

****If lessor expects at the beginning, to lease the property again after the term for REAL VALUE (not nominal value) – then it’s a
lease!!****
****if the money paid looks like the same as a sale/security interest – likely not a lease – going to be treated as a security interest
Labeling any transaction as a lease has certain risks.....
 Debtor/Lessee goes into bankruptcy – who gets the car? Trustee or SP or True Lessor?

What happens if you call it a lease – later discovered in bankruptcy court to be a security interest – you never perfected or anything –
what can the lessor do to reduce his risk???
 Can lessor file a FS and still call it a lease, or will it be held against him? (9-505) – PRECAUTIONARY FILING IS ALLOWED
o UCC-1 form allows you to check a box calling it a lease (Alternative Designation)
o If found out to be a security interest – you are protected because you perfected by filing
o Good for automobiles since you don’t file UCC-1 for perfection of automobile
 To perfect automobile you need to get your name on the title

Article 2A is Leases
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2-326. Sale on Approval & Sale or Return; Consignment Sales & Rights of Creditors.
(1) Unless otherwise agreed, if delivered goods may be returned by the buyer even though they conform to the contract, the
transaction is
(a) a "sale on approval" if the goods are delivered primarily for use, and
(b) a "sale or return" if the goods are delivered primarily for resale.

HYPO – bookstore does not know exactly how many students will buy books – so they order more than they think they are going to
need – buying inventory and giving security interest in the inventory – can bookstore return unsold books for refund?? – maybe, if
stated in the contract....

 Sale or Return (returning even if goods not defective) – buyer pays freight of returning & gets full credit (2-327)
o Buyer is getting goods primarily for resale, with “sale on return” provision in contract – they can return unsold
goods
 Secure Transactions Issue? – this is contract for the sale of goods – title passes upon delivery – seller likely want to get super-
priority to protect in event of return (or non-return through default)
o Seller would be the SP – this is a PMSI (but it is subject to return)

***In a sale or return – the SP gets no more, no less rights than if it was a sale/security interest – if they want to protect themselves
they need to comply with the super-priority requirements
Sale on Approval – not subject to the claim of buyer’s creditor until acceptance
 Goods are delivered primarily for use
 HYPO – salesman goes to bookstore and sells them gadget that detects when somebody walks out with the books – bookstore
is unsure – 10K for full kit – but salesman says he’ll give them a couple gadgets at first – once the bookstore opens the gadget –
they must pay for it! – everything bookstore hasn’t opened belongs to Seller
o Type of inventory financing for items held for use – NOT A SALE UNTIL BUYER ACTUALLY STARTS USING THE ITEM!!
 2-327(c) after due notification of election to return, the return is at the seller's risk and expense, but a merchant buyer must
follow any reasonable instructions.

HYPO – writing book --- go to bookstore and try to get them to buy it – writer will send the books to the bookstore and while bookstore
holds them writer retains title – when actually sell one to a customer – bookstore pays writer – CONSIGNMENT!
CONSIGNMENT – form of inventory financing – what happens if you aren’t in the business of selling inventory – you’re a consumer – NO
– not inventory financing this is a consumer transaction
***What if selling less than $1,000 – NOT A UCC CONSIGNMENT***
RULE – inventory financing by Consignment – type of PMSI – if it is inventory financing not subject to an exception – title remains with
seller & is protected if he checks the consignment box on UCC-1 form
HYPO – equipment lease – 15K for 2 years $10 option to purchase (if bought – cost 10K – interest 2.5K – over 3 years)
Lessee files bankruptcy – Bankruptcy trustee claims equipment – result? SECURITY INTEREST! Trustee has priority because secured party
did not file UCC-1
What if the lease said buyer could return the equipment (& thus terminate) at any time? LEASE! 1-203(b) – if the lessee can terminate
at any time it is a lease regardless of how ridiculous the terms/price of the lease is!

INVENTORY FINANCING
Security Interest – super-priority for PMSI need filing
Article 9 True Consignment – is a PMSI, is a security interest – need filing to protect against signees creditors
Sale or Return – 2-326 – subject to claims of buyer’s creditors – need filing
(20)"Consignment"– transaction, regardless of its form, in which person delivers goods to merchant for purpose of sale and:
(A) the merchant:
(i) deals in goods of that kind under a name other than name of person making delivery;
(ii) is not an auctioneer; and

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(iii) not generally known by creditors to be substantially engaged in selling goods of others; (jewelry, child
toys/clothing, consumer goods) (these would be common law consignment not inventory financing)
(B) with respect to each delivery, the aggregate value of the goods is $1,000 or more at the time of delivery;
(C) the goods are not consumer goods immediately before delivery; and
(D) the transaction does not create a security interest that secures an obligation
***More than $1,000 per delivery – UCC Article 9 Consignment – Inventory Financing – (less than 1K – common law consignment NOT
subject to Art. 9)
CREDITORS
Art 9 Consignment / Inventory Financing = subject to consignee’s creditors and you need to file
Common Law Consignment – NOT subject to other creditors
*******Article 9 Consignment is a PMSI!!********
While it is in the merchant/consignees inventory – it is still subject to his creditors?
How can an Article 9 consignor protect himself from the consignee’s creditors?? – file for SUPER-PRIORITY!!
HYPO – Conditional Sales Contract – “Good remains seller’s property until fully paid” – Seller upon default may demand return of goods
without need to follow part 6 of Article 9 – also says “NOT A SECURITY INTEREST” ************EXAM**************
Is this a security interest? – YES (security agreement disguised as conditional sales contract) – doesn’t matter what you call it – this is
sale & security interest if seller delivers goods to buyer & buyer promises to pay – *merely delaying transfer of title does not take
transaction outside Article 9*
*Cannot waive following part 6 of Art 9 pre-default!! – 9-602
The Consignee is always a merchant
AGRICULTURAL LIEN
HYPO – person engaged in farming operations who takes his horse to get shoed – IL has horseshoe lien act – somebody in the business
of shoeing horses shoes a horse for someone in the business of farming ops – has a statutory (involuntary) lien (if you satisfy the
requirements of the statute)
***lien under this act takes priority over all unrecorded liens
(5) "Agricultural lien" means an interest in farm products:
(A) which secures payment or performance of an obligation for:
(i) goods or services furnished in connection with a debtor's farming operation; or
(ii) rent on real property leased by a debtor in connection with its farming operation;
(B) which is created by statute in favor of a person that:
(i) in the ordinary course of its business furnished goods or services to a debtor in connection with a debtor's farming
operation; or
(ii) leased real property to a debtor in connection with the debtor's farming operation; and
(C) whose effectiveness does not depend on the person's possession of the personal property.
***this is a non-possessory lien
*AgLIen – must involve farming ops & someone who is in business of servicing people in farming ops
****HYPO – shoeing of a Chicago police horse would NOT fall under this rule because police are not in business of farming ops
HYPO – other security interest in the horse subject to statutory lien – if you want priority of an AgLien – file an FS along with the other
recording requirements of the statute
AgLien take their priority depending on FILING! (checking AgLien box on UCC-1)
Stallion & Jack Service Lien – take horse/donkey in to get impregnated by a stallion – creates an involuntary lien – if you want to perfect
and take priority against others – FILE!!

PRIORITY – 9-322(1) Conflicting perfected security interests and agricultural liens rank according to priority in time of filing or
perfection. Priority dates from the earlier of the time a filing covering the collateral is first made or the security interest or agricultural
lien is first perfected, if there is no period thereafter when there is neither filing nor perfection.
NON-CONSENSUAL LIENS – 770 statutory liens – “attaches” to the subject of the service
Possessory v. Non-Possessory (dentist lien act)
Car Repair under 2K creates a possessory lien until car is released voluntarily or obligation paid.... (770 ILCS 50/1)
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9-333. PRIORITY OF CERTAIN LIENS ARISING BY OPERATION OF LAW.

(a) ["Possessory lien."] In this section, "possessory lien" means an interest, other than a security interest or an agricultural lien:
(1) which secures payment or performance of an obligation for services or materials furnished with respect to goods by a
person in the ordinary course of the person's business;
(2) which is created by statute or rule of law in favor of the person; AND
(3) whose effectiveness depends on the person's possession of the goods.
(b) [Priority of possessory lien.] A possessory lien on goods has priority over a security interest in the goods unless the lien is created by
a statute that expressly provides otherwise.

HYPO – labor and material small lien act – take watch to have it repaired – going to cost 1K – watchmaker gets to retain possession
under the statutory possessory lien – but it depends on possession by the watchmaker
HYPO – give security interest in watch – seller has the PMSI & security interest – take watch to get repaired and don’t pay for it – who
has priority?? – WATCHMAKER! 9-333(b)
***Possessory Statutory Lien – if the workman gets to hang on to the goods, he will have priority over any perfected security interest in
the goods UNLESS the statute says otherwise!!
Statute states otherwise? – Self-Service Storage Facility Act – “shall be superior to any other lien or security interest except for a
statutory lien or security interest which is perfected through filing and has been perfected...”
Attorney Statutory Lien – statutory lien on proceeds from the settlement
Attorney Common Law Retaining Lien – passive lien – but right to possess the documents
CARTOONS
Two repo men walking in house – repo husband’s soul – if the men cause damage to the H who is liable – the secured party is liable not
the repo men

Pea-Eating – fallen behind so we’re closing on your tricycle – Article 9 transaction? YES – securing a non-monetary obligation to finish his
peas!!

Squirrels in Driveway – wonder what they’re doing – hocking/pawning (giving possessory security interest in) hubcaps for pistachios –
somebody buys the hubcaps – this is a VOID transaction because the hubcaps were STOLEN! – not a sale because it is not the transfer of
title for a price – here there is no intended sale because they were pawning it – creates a possessory security interest

Check out the new CDs I bought – pawned stuff at pawnshop for cash – “what’d you sell?” – WRONG – this was not a sale because this
was not the transfer of title for a price and title vests upon delivery regardless of payment – pawn transaction is NOT a sale it is a
possessory security interest!! – pawnshop put the items up for sale immediately – BAD!! – can't offer the goods up for sale until
default!!!
Mechanics Lien – build building & uses building materials – building and/or materials subject to security interest
Fixture – something attached to the real estate INTENDING it become a permanent part of the real estate
HYPO – big marble pillars supporting house – house is foreclosed and sold – but the previous owners had removed the chandelier and
pillars – physically attached to the real estate with intention it would become permanent part of the real estate – pillars were designed
for the house specifically (special support structures) – permanently fixed to the real estate and thus could not lawfully be removed
– distinguished from something that can be easily removed (ordinary ceiling fan) – did not intend fan to remain there forever
HYPO – big TVs in classroom – removeable – installed with intent that they are not permanent – thus they are NOT fixtures (and are
personal property)
HYPO – lighting fixtures = fixtures

Sometimes you have personal property that is physically attached to other personal property.....
-Something like a fixture that retains its identity
HYPO – screw lens onto TV – security interest in TV and lens separately – ACCESSIONS!
RULE – if theres a default on the lens – the holder of the security interest may physically remove his collateral from the physical
property to which it is attachec – as long as he pays for removal
EXCEPTION – motor vehicle or something subject to certificate of title – DOES NOT APPLY

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HYPO – chevy blazer – bought used snow plow and gave security interest to seller and already had PMSI on truck – if he defaulted on
the snowplow the secured party could NOT remove it because the truck is subject to certificate of title and as such asccessions cannot
be removed from the primary property.

(1) "Accession" means goods that are physically united with other goods in such a manner that the identity of the original goods is not
lost.
****9-335. ACCESSIONS.
(a) [Creation of security interest in accession.] A security interest may be created in an accession and continues in collateral that
becomes an accession.
(b) [Perfection of security interest.] If a security interest is perfected when the collateral becomes an accession, the security interest
remains perfected in the collateral.
(c) [Priority of security interest.] Except as otherwise provided in subsection (d), the other provisions of this part determine the priority
of a security interest in an accession.
(d) [Compliance with certificate-of-title statute.] A security interest in an accession (in the snow plow) is subordinate to a security
interest in the whole (the car) which is perfected by compliance with the requirements of a certificate-of-title statute under Section 9-
311(b).- as long as it is attached, the SP in the car wins
(e) [Removal of accession after default.] After default, subject to Part 6, a secured party may remove an accession from other goods if
the security interest in the accession has priority over the claims of every person having an interest in the whole.
(f) [Reimbursement following removal.] A secured party that removes an accession from other goods under subsection (e) shall
promptly reimburse any holder of a security interest or other lien on, or owner of, the whole or of the other goods, other than the
debtor, for the cost of repair of any physical injury to the whole or the other goods. The secured party need not reimburse the holder or
owner for any diminution in value of the whole or the other goods caused by the absence of the accession removed or by any necessity
for replacing it. A person entitled to reimbursement may refuse permission to remove until the secured party gives adequate assurance
for the performance of the obligation to reimburse.
HYPO – “Illinois Tech” is seriously misleading for “Illinois Institute of Technology” & would be ineffective
First item – Cisco is SP – likely lease – If there is lease of equipment – SP would usually file FS to protect itself
Titlemax – loan you money to purchase your car – you don’t file a FS for a vehicle – you conditionally give your title to TitleMax as
collateral for the loan and indicate on the certificate of title that TM has a lien or conditional title – assume this is a security interest –
what happens on default? – TM sends in the certificate of title to the Sec. of State asking them to issue a new title listing TM as owner. –
not a security interest for title 9 purposes
-What happens when loan is repaid in timely fashion? – return the title to the buyer
-“you’ll get your title back with TitleMax” – implies you get title back even if you default....misleading – you’ll only get it back if
you satisfy the underlying obligation.
HYPO – Day 1 – Filed UCC-1 against Illinois Institute of Technology for Equipment and After-Acquired Equipment.
3 months – gets more equipment (gold) – perfected? YES
4 months – changes name to Illinois Tech –
5 months – gets more equipment (silver) – perfected? YES
9 months (more than 4 months after change) – gets more Equipment (crystal) – perfected? NO!!
DIFFERENCE IN SUPER-PRIORITY – Inventory v. Equipment
Equip – semi automatic – all you need to do is deliver the equip and file within 20 days!
Inventory – must file FS before delivery – must send authenticated notice with proper wording to other SPs within (no later than) 5
years of delivery

HYPO – obligor owes 300K – SP1 security interest in equipment attached but NOT perfected by filing
LC1 gets 200K judgment – sheriff executes and it becomes an effective JL on the equip
SP1 files later
Equipment sold for 400K
Priority? *LC1 – effective judgment lien has the same effect as a perfect security interest
Say SP1 files on day 1 but did not give value until after LC1 – then SP1 has priority!
**If JLC becomes effective after the filing by SP – then SP still has priority because perfection dates back to date of filing and JLC
did not give value on reliance

Difference between security interest in Sale or Return & Consignment for over 100K

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VIOLA
Consignment over 100K = by definition = PMSI!!! (Article 9 consignment) – Sales price is payable when sold by consignee – PMSI and for
seller to be perfected and have super-priority – ****must go through process for inventory super-priority
Sale or Return – only difference = payment terms – agreement that buyer may return goods at no penalty if not sold

HYPO – seller of inventory tells buyer it’s not a sale – it’s a consignment – does that mean consignor does not have to file a FS to protect
his interest in the goods? Does consignor have to file FS? ***YES!! – it’s PMSI & inventory – need to file!

HYPO – security agreement says D&O waive right to notice – NO! cannot waive notice pre-default

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