Whats next

1
Whats next -

• Chapter 1. Creditors Remedies Under State Law
• Chapter 2. Creditors Remedies in Bankruptcy
• Chapter 3. Creation of Security Interests
• Assignment 8 Formalities for Attachment
• Assignment 9 What Collateral and Obligations
  are Covered?
• .

2
Whats next -

• Why bother? Secured creditors remedies much
  better off than unsecured creditor remedies.
• How to do it?
• Assignment 8 Formalities for Attachment
• Assignment 9 What collateral is covered
  after-acquired
• Assignment 10 What collateral is covered
  proceeds

3
Formalities for attachment
What obligations are secured?
Obligor/ Debtor
Lisa promises to repay loan

• Creditor

Burns lends 10 to Lisa
Lisa grants Burns a security interest
ANSWERWhatever the security agreement says
What collateral secures the obligations?
Collateral
4
Contract interpretation with respect to collateral
9-203(a) A security interest attaches to
collateral when it becomes enforceable.
1-201(44). value if pre-existing claim (a), or
consideration sufficient to support a simple
contract (d).
9-102(a)(7). Authenticate means (A) to sign
or (B) to execute a record.
9-203(b) Enforceable only if (1) value has
been given, (2) rights in the collateral
and (3)(A) authenticated security agreement
that provides a description of the
collateral, or (B) the collateral is in
possession of the secured party.
9-102(a)(69) Record means information stored in
a medium that is retrievable.
9-108(b) Description of collateral reasonably
identifies if identity of the collateral is
objectively determinable.
9-108(a) A description of personal property is
sufficient, if it reasonably identifies what is
described.
5
Contract interpretation and statutes with respect
to collateral

• Generally The rules of contract govern.
• 9 201(a) A security agreement is effective
  according to its terms.
• 1 201(3) Agreement means the bargain found in
  their language or by implication from other
  circumstance.
• Many types of collateral
• 9 102(a)(2) accounts.
• 9 102(a)(23) consumer goods.
• 9 102(a)(33) equipment.
• 9 102(a)(42) general intangibles.
• 9 102(a)(47) instruments.
• 9 102(a)(48) inventory.

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Contract interpretation and statutes with respect
to collateral

• In consumer context
• In re Shirel All merchandise not acceptable
  description of collateral in contract of
  adhesion.
• Acceptable descriptions outside consumer context.
• 9 108(c) All debtors assets or all the
  debtors personal property does not reasonably
  identify collateral.
• All inventory, equipment and accounts of the
  debtor is routinely held effective.

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Contract interpretation and statutes with respect
to collateral

• 9 108(b) Examples of reasonable
  identification
• Specific listing
• A specific category
• Collateral defined by a UCC category
• A specific quantity
• Defined by computational formula
• Any other if objectively determinable

8
Contract interpretation with respect to collateral

• 9-108(b)(6) Objectively determinable
• Example Crops growing on real estate described
  by ASCS Farm Serial Number J-528
• Example Creditor shall have a security interest
  in all items purchased on this account
• Example The equipment now used in the
  restaurant at 123 Main Street.
• Most courts allow extrinsic evidence.
  Otherwise, most descriptions would fail.

9
Interest in after-acquired property

• 9-108, Comment 3 Question of contract
  interpretation.
• All equipment typically means all equipment
  presently owned, unless
• 9 204(a) Security agreement provides for
  after-acquired property, and not
• - Consumer goods - 9 204(b)(1), or
• - Commercial tort claims - 9 204(b)(2).
• All inventory, the majority view is that
  after-acquired inventory included (may apply to
  other rapid turnover assets, as well).

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Problem 9.1.
Robert and Mary Gillam come for advice about
their financial problems. Seven years ago
borrowed 35,000 from First National
Bank. Granted security interest in crops
growing on the debtors farm in Osprey County,
about 14 miles from Tilanook and in most of
their farm equipment. Want to borrow from
Production Credit Association (PCA). Offer
current crops as collateral. PCA rejects,
because of priority of First National in current
crops.
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Problem 9.1.
Statute sections listed 9-108(a) A
description of personal property is sufficient,
if it reasonably identifies what is described.
9-108(b) Description of collateral reasonably
identifies if identity of the collateral is
objectively determinable. 9-203(b)
Enforceable only if (3)(A) authenticated
security agreement that provides a description
of the collateral. 9 204(a) Security
agreement may provide for after-acquired
property.
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Problem 9.1.

• Does First National have a security interest in
  the current crops?
• A. YES.
• B. NO.
• Charles v. Fidelity State Bank (D. Kan. 1987)
  (Crops growing is present tense for future
  crops the security interest should say crops to
  be grown.)

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Problem 9.1.

• What the Gillams do?
• A. Explain to PCA that First National does not
  have security interest in crops.
• B. Ask First National to sign a release letter.
• C. Ask you to write an opinion letter.

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Problem 9.2.
The Gillams are raising sheep for wool and lamb
chops. They ask you to write an opinion letter
that the sheep are not covered by First Banks
security interest. 9-102(a)(34) - Farm
products includes crops grown (A) and livestock
(B).
15
Problem 9.2.
The definition of crops Websters
Dictionary A plant or animal or plant or
animal product that can be grown and harvested
extensively for profit and subsistence ltan apple
cropgt lta crop of woolgt. Blacks Law Dictionary
Products of the soil, as are annually grown,
raised and harvested. The term includes fruit
grown on trees, and grass used for pasturage.
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Problem 9.2.

• What do you do?
• Refuse to write an opinion letter, since under
  one definition and interpretation the sheep are
  First National collateral.
• Write the opinion letter, if the Gillams did not
  have sheep when the First National agreement was
  signed.
• Write the opinion letter, so long as the Gillams
  pay cash.
• Write the opinion letter with the appropriate
  caveats.

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Problem 9.3.
Richard Cohen, a client, asked Sandra Bernhard,
the partner for whom you work, for advice.
Cohen lent 30,000 to Aircraft Video Marketing
(AVMI). Loan secured by All of Debtors
equipment, including replacement parts,
additions, repairs, and accessories incorporated
therein or affixed thereto. Without limitation
the term equipment includes all items used in
recording , processing, playing back, or
broadcasting moving or still pictures, by
whatever process.
18
Problem 9.3.
The disputed collateral Video equipment
acquired after execution of the security
agreement. This additional equipment is
similar to the equipment already owned. The
issue Is the disputed collateral covered by
this description? A. YES , B. NO
19
Problem 9.4.

• You do the legal work for
• Walters Department Store.
• Walters takes a security interest in everything
  the credit card holder purchases.
• Often repossess appliances, but not clothes.
• They are concerned about the implications of the
  holding in Shirel.

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Problem 9.4.
In re Shirel All merchandise not acceptable
description of collateral in consumer contract of
adhesion.
Statute sections listed 9-203(b) Enforceable
only if (3)(A) authenticated security
agreement that provides a description of the
collateral. 9-102(a)(23) Definition of
consumer goods. 9-108(c) All debtors assets
or all the debtors personal property does not
reasonably identify collateral, even outside
consumer context.
21
Problem 9.4.
What advice do you give to Walters?
22
Problem 9.6.
Why should a description that says all the
debtors property be invalid? 9-108(c) All
debtors assets or all the debtors personal
property does not reasonably identify
collateral, even outside consumer context.
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Interest in future obligations

• Concept If Burns lends money to Lisa Simpson in
  the future, can he use the saxophone as
  collateral for these loans?
• 9-204(c) - A security agreement may provide
  that collateral secures future advances.
• .