Administrative

1
Administrative

• Assignments we are likely to cover
• Assignment 18. Other financing statement
  information.
• Assignment 19. Perfection without filing.
• Assignments 22, 23, 24. Maintaining perfection.
• Assignment 26. Priority in State law.
• Assignment 28. Lien creditors vs. secured
  creditors.
• Assignment 32. Secured creditor vs. secured
  creditor.
• Assignment 36. Buyers vs. secured creditors.

2
Maintaining Perfection - statutes

• Chapter 7 Maintaining Perfection
• Over time
• A change in the debtors name 9-507(c).
• A change in the appearance or use of collateral
  9-507(b).
• Exchange of collateral for property or cash
  9-315(d).
• A change in the debtors location 9-316.

3
Maintaining Perfection

• Different changes in the type of collateral to
  be perfected, either because of a new use or
  conversion to proceeds.
• Type 0 Financing statement covers new use or
  proceeds collateral.
• Type 1 New use or proceeds collateral not
  covered by financing statement, but would be
  filed in the same office.
• Type 2 New use or proceeds collateral requires
  filing in new office.

4
Maintaining Perfection

• A change in the debtors name 9-507(c)
• A change in the appearance or use of the
  collateral 9-507(b).
• Type 1 Still would file in the same office.
• Type 2 Would need to file collateral in new
  office.
• Exchange of collateral for property or cash
  9-315(d).
• For property (barter)
• Type 1 Would file proceeds in the same office.
• Type 2 Would file proceeds in new office. In re
  Seaway.
• For cash
• Type 0 Financing statement covers proceeds
  collateral.
• Type 1 Proceeds collateral not covered by
  financing statement, but would be filed in the
  same office.
• Type 2 Proceeds collateral requires filing in
  new office.

5
2. A change in the debtors name

• 9-507(c) If the debtor changes its name so
  that the filing statement becomes seriously
  misleading under 9-506
• Financing statement perfects collateral acquired
  by debtor before or four months after the change
  or
• Amendment to financing statement renders it not
  seriously misleading filed within four months of
  name change.
• 9-507(a) A filed financing statement remains
  effective if collateral transferred to new debtor
  (compare).

6
3. A change in the appearance or use of
collateral

• Type 1 change no effect on place of filing, but
  does make collateral difficult for searcher to
  identify
• 9-507(b) Financing statement is not rendered
  ineffective if, after the financing statement is
  filed, the information provided becomes seriously
  misleading.
• Type 2 change change in collateral does affect
  appropriate method of perfection.
• Failure to carry out newly required perfection
  not excused.
• Blue Ridge Bank Loan against personal
  automobile perfected with notation on certificate
  of title, does not perfect when automobile
  becomes inventory.

7
4.1. Exchange of collateral (barter)

• Barter transaction Exchange one good for
  another.
• Type 1 barter no effect on place of filing.
• 9-315(d)(1) Perfected security interest in
  proceeds is unperfected 21 days after attaching,
  unless
• Financing statement covers original collateral,
• Proceeds are collateral that can be perfected in
  the same office, and
• Proceeds are not acquired with cash proceeds.
• Type 2 barter does affect place of filing.
• 9-315(d)(3) Perfect security interest in
  proceeds within 20 days.

8
4.1. Exchange of collateral (cash)

• Type 0 Financing statement covers proceeds
  collateral.
• 9-102(a)(12) Collateral includes proceeds.
• 9-102(a)(64) Proceeds includes whatever is
  acquired.
• Therefore, if can trace, proceeds are perfected.
• Type 1 Proceeds collateral not covered by
  original description in financing statement.
• 9-315(d)(3) Perfect security interest in
  proceeds within 20 days by filing financing
  statement that describes new collateral.
• Effective as of the date of the first filing, and
  perfection continuous.
• Type 2 Proceeds collateral requires filing in
  new office.
• 9-315(d)(3) Perfect security interest in
  proceeds within 20 days by filing financing
  statement in correct office.
• Effective as of the date of the first filing, and
  perfection continuous.

9
Maintaining perfection through different changes
in collateral
10
4.1. Exchange of collateral with no effect on
place of filing barter vs. cash

• Type 1 barter no effect on place of filing.
• 9-315(d)(1) Perfected security interest in
  proceeds is perfected if proceeds are collateral
  that can be perfected in the same office,
• Type 1 cash no effect on place of filing.
• 9-315(d)(3) Perfect security interest in
  proceeds within 20 days by filing financing
  statement that describes new collateral.

11
Problem 23.1.
Helen Monette is a compliance officer at
Gargantuan Bank and Trust (GBT). Her job is to
monitor collateral securing loans. Helen is
working with Bonnie Brezhnev, owner of Bonnies
Boat World (BBW). GBT finances BBWs inventory
with financing statement describing collateral as
inventory, accounts, and chattel paper. No
restrictions on BBWs ability to finance
equipment or real estate.
12
Problem 23.1.a.

• 9-506(a) A financing statement is effective,
  even if it has minor errors, unless the errors or
  omissions make the financing statement seriously
  misleading.
• 9-507(b) Financing statement is not rendered
  ineffective if, after the financing statement is
  filed, the information provided becomes seriously
  misleading.

13
Problem 23.1.a.

• Helen observes that Bonnie uses one of the boats
  personally. Could this affect perfection?
• No, because a financing statement for the boat
  would need to be filed in the same office whether
  it were used for personal purposes or as
  inventory.
• No, because under 9-507(b) it is does not matter
  if the financing statement becomes seriously
  misleading after filing.
• Yes, because the change in use takes the boat out
  of the definition for collateral in the security
  agreement.
• None of the above answers is satisfying.

14
Problem 23.1.a.

• Helen observes that Bonnie uses one of the boats
  personally. Could this affect perfection?
• No, because a financing statement for the boat
  would need to be filed in the same office whether
  it were used for personal purposes or as
  inventory.
• No, because under 9-507(b) it is does not matter
  if the financing statement becomes seriously
  misleading after filing.
• Yes, because the change in use takes the boat out
  of the definition for collateral in the security
  agreement.
• None of the above answers is satisfying.

15
Problem 23.1.b.

• 9-507(a) A filed financing statement remains
  effective with respect to collateral that is old,
  exchanged, leased, , even if the secured party
  knows of or consents to the disposition.

16
Problem 23.1.b.

• Assume no certificates of title for boats.
• If Bonnie transferred boat from BBW to herself,
  does this affect GBTs perfection?
• No, because a financing statement for the boat
  would be filed in the same office whether it were
  a consumer good or inventory.
• No, because under 9-507(b) it is does not matter
  if the financing statement becomes seriously
  misleading after filing.
• No, because under 9-507(a) the financing
  statement would remain effective.
• None of the above answers is satisfying.

17
Problem 23.1.b.

• Assume no certificates of title for boats.
• If Bonnie transferred boat from BBW to herself,
  does this affect GBTs perfection?
• No, because a financing statement for the boat
  would be filed in the same office whether it were
  a consumer good or inventory.
• No, because under 9-507(b) it is does not matter
  if the financing statement becomes seriously
  misleading after filing.
• No, because under 9-507(a) the financing
  statement would remain effective.
• None of the above answers is satisfying.

18
Problem 23.1.c. Statutes

• 9-315(a) Except as otherwise provided, (2) a
  security interest attaches to any identifiable
  proceeds of collateral.
• 9-315(d) Perfected security interest in
  proceeds is unperfected 21 days after attaching,
  unless
• (A) financing statement covers original
  collateral (B) proceeds are collateral that can
  be perfected in the same office, and (C) proceeds
  are not acquired with cash proceeds
• proceeds are identifiable cash proceeds or
• security interest in proceeds perfected within 20
  days.

19
Problem 23.1.c.

• BBW traded one of the boats for a forklift.
• Does GBT need to do anything to perfect its
  interest in the forklift?
• No, because a financing statement for the
  forklift would be filed in the same office as the
  boat under 9-315(d)(1) .
• No, because under 9-507(b) it is does not matter
  if the financing statement becomes seriously
  misleading after filing.
• No, because under 9-507(a) the financing
  statement would remain effective.
• None of the above answers is satisfying.

20
Problem 23.1.c.

• BBW traded one of the boats for a forklift.
• Does GBT need to do anything to perfect its
  interest in the forklift?
• No, because a financing statement for the
  forklift would be filed in the same office as the
  boat under 9-315(d)(1).
• No, because under 9-507(b) it is does not matter
  if the financing statement becomes seriously
  misleading after filing.
• No, because under 9-507(a) the financing
  statement would remain effective.
• None of the above answers is satisfying.

21
Problem 23.1.d. Statutes

• 9-315(a) Except as otherwise provided, (2) a
  security interest attaches to any identifiable
  proceeds of collateral.
• 9-315(d) Perfected security interest in
  proceeds is unperfected 21 days after attaching,
  unless
• (A) financing statement covers original
  collateral (B) proceeds are collateral that can
  be perfected in the same office, and (C) proceeds
  are not acquired with cash proceeds
• proceeds are identifiable cash proceeds or
• security interest in proceeds perfected within 20
  days.

22
Problem 23.1.d.

• BBW bought forklift with cash from the sale of a
  boat.
• Does GBT need to do anything to perfect its
  interest in the forklift?
• No, because a financing statement for the
  forklift would be filed in the same office as the
  boat under 9-315(d)(1).
• No, because a financing statement for the
  forklift would be filed in the same office as the
  boat under 9-315(d)(3).
• Yes, because the forklift is probably equipment,
  which is not covered by the original financing
  statement, and so under 9-315(d)(3) a new
  financing statement would need to be filed within
  20 days to maintain perfection.

23
Problem 23.1.e. Statutes

• 9-109(d)(8) Article 9 does not apply to a
  transfer of an interest of a claim under a policy
  of insurance, but Sections 9-315 and 9-322 apply
  with respect to proceeds.
• 9-102(a)(64)(E) Proceeds includes insurance
  payable by reason of a loss.
• 9-315(c) A security interest in proceeds is a
  perfected security interest if the security
  interest in the original collateral was
  perfected.
• 9-315(d) Perfected security interest in
  proceeds is unperfected 21 days after attaching,
  unless meets conditions (1), (2), or (3).
• 9-203(f) Attachment of security interest in
  collateral gives secured party rights to proceeds
  provided in Section 9-315.
• 9-109(a) This Article applies to a
  transaction, regardless of its form, that creates
  a security interest in personal property by
  contract.

24
Problem 23.1.e.

• BBW has insurance claim for boats damaged by a
  storm. Does GBT need to do anything to perfect
  its interest in insurance claim?
• Yes, because this is not a barter, so it does not
  matter that a financing statement for the
  insurance claim would be filed in the same office
  as the boat under 9-315(d)(3).
• No, because a financing statement for the
  insurance claim would be filed in the same office
  as the boat under 9-315(d)(3).
• Yes, because under 9-109(d)(8) perfecting an
  interest in an insurance claim is not covered by
  Article 9, and so the exceptions to 9-315(d) do
  not apply.
• None of these answers is satisfying.

25
Problem 23.2.
Helen Monette is a compliance officer at
Gargantuan Bank and Trust (GBT). Helen
monitoring GBT inventory loan to South West
Appliance Corporation. She discovers that six
months ago debtor changed name to South West
General.
26
Problem 23.2. Statutes

• 9-502(a)(1) A financing statement is
  sufficient only if it provides the name of the
  debtor.
• 9-503(a)(1) A financing statement sufficiently
  provides the name of the debtor (for registered
  organization) if name is that indicated on the
  public record.
• 9-512 A financing statement can be amended.
• 9-507(c) If the debtor changes name so
  financing statement becomes seriously misleading
  under 9-506
• Financing statement perfects collateral acquired
  by debtor before or four months after the change
  or
• Amendment that renders it not seriously
  misleading filed within four months of name
  change.

27
Problem 23.2. Statutes (cont.)

• 9-506(b) Except as provided in (c), a
  financing statement that fails to sufficiently
  provide the name of the debtor is seriously
  misleading.
• 9-506(c) If search under the correct name
  using filling office standard search logic would
  disclose the financing statement, then financing
  statement not seriously misleading.
• 9-509(b) By authenticating a security
  agreement, debtor authorizes the filing of an
  initial financing statement or an amendment.

28
Problem 23.2.

• Does Helen need to do anything to make sure GBT
  remains perfected?
• No, because the change in name from South West
  Appliance to South West General is not seriously
  misleading.
• No, because the security interest in the
  inventory was established before South West
  Appliance changed its name.
• Yes, because appliances acquired as inventory
  more than four months after the name change will
  no longer be perfected, unless a search in the
  filing office under South West Appliance turns up
  filings for South West General.
• I prefer not to answer this question.

29
Problem 23.4.
GBT is about to lend 500,000 to Russell Lair
Enterprises (RLE). Loan to be secured by
substantially all debtors assets. There is a
financing statement filed by Suti covering lawn
dogs manufactured by Suti. Helen found only
25,000 worth of Suti lawn dogs. GBT does not
need the lawn dogs as part of the collateral.
30
Problem 23.4. Statutes

• 9-315(a)(1) A security interest continues in
  collateral not withstanding sale (unless secured
  creditor agrees).
• 9-315(a)(2) A security interest attaches to
  any identifiable proceeds.
• 9-315(b) When commingled proceeds are
  identifiable.
• 9-315(c) A security interest in proceeds is a
  perfected security interest if the security
  interest in the original collateral was
  perfected.
• 9-315(d) Perfected security interest in
  proceeds is unperfected 21 days after attaching,
  unless meets conditions (1), (2), or (3).

31
Problem 23.4.

• Can Suti encumber more than lawn dogs? More
  than 25,000 in collateral?
• Cannot encumber more than lawn dogs, because the
  financing statement only includes Suti lawn dogs.
• Perfected claim cannot exceed 25,000, because
  the value of the collateral is only 25,000.
• Yes, more than lawn dogs may be perfected and the
  amount of collateral perfected may exceed
  25,000, but this is unlikely to be a significant
  problem.
• Nothing should be done until Suti is contacted
• I prefer not to answer this question.

32
Problem 23.5.
You represent October National Bank (ONB). ONB
lent 1 million to Beaver Manufacturing, a
company that produces pumping equipment.
Security agreement and financing statement both
describe collateral as equipment, inventory,
accounts, chattel paper, general intangibles,
fixtures, money, and bank accounts. Total value
of collateral around 750,000. One of Beavers
assets is 85,097 bank account at GBT.
33
Problem 23.5.a. Statutes

• 9-102(a)(29) Deposit Account means account
  maintained with a bank.
• 9-102(a)(64) Definition of proceeds (next
  slides).
• 9-109(d)(13) Article 9 does not apply to the
  assignment of a deposit account, but sections on
  proceeds and priorities do.
• 9-203(a) and (b) A security interest attaches
  when enforceable (a), and criteria for
  enforceability (b) (next slides).
• 9-109, Comment 16 Except in consumer
  transactions, deposit accounts may be taken as
  collateral.

34
Problem 23.5 Review of proceeds definition

• 9-102(a)(64) Proceeds means the following
  property
• whatever is acquired upon the sale, lease,
  license, exchange, or other disposition of
  collateral,
• whatever is collected on, or distributed on
  account of, collateral,
• rights arising out of collateral,
• to the extent of the value of collateral, claims
  arising out of the loss . . . of, . . . or damage
  to, the collateral.
• to the extent of the value of collateral . . .
  insurance payable by reason of the loss . . . of,
  . . . or damage to, the collateral.

35
Problem 23.5 Review of attachment definition
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)(6) 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.
36
Problem 23.5.a.

• Does ONB have a security interest in the account
  at GBT?
• Yes.
• No.
• I prefer not to answer this question.

37
Problem 23.5.b. Statutes

• 9-104. A secured party has control of a deposit
  account if
• The secured party is the bank with which the
  deposit is maintained
• The debtor, secured party, and the bank have
  agreed in an authenticated record that the bank
  will comply with instructions originated by the
  secured party
• The secured party becomes the banks customer
  (4-104(a)(5)).

38
Problem 23.5.b.
Does ONB have a perfected security interest in
the account at GBT?
39
Problem 23.5.b. Statutes

• 9-312(b)(1) A security interest in a deposit
  account can only be perfected by control.
• 9-314(a) A security interest in investment
  property, deposit accounts, letter-of-credit
  rights, or electronic chattel paper may be
  perfected by control under 9-104 (deposit
  account), 9-105 (electronic chattel paper),
  9-106 (investment property), 9-107 (letter of
  credit).
• 9-315(d) Perfected security interest in
  proceeds is unperfected 21 days after attaching,
  unless (2) proceeds are identifiable cash
  proceeds, or

40
Problem 23.5.b.

• Does ONB have a perfected security interest in
  the account at GBT?
• Yes.
• No.
• Maybe
• I prefer not to answer this question.

41
Problem 23.5.c.
Does it matter that some of the proceeds have
been in the account for as long as 45 days?
42
Problem 23.5.c. Statutes

• 9-315(c) A security interest in proceeds is a
  perfected security interest if the security
  interest in the original collateral was
  perfected.
• 9-315(d) Perfected security interest in
  proceeds is unperfected 21 days after attaching,
  unless
• The following conditions are met
• A financing statement covers original collateral
  
• The proceeds are collateral that can be perfected
  in the same office, and
• Proceeds are not acquired with cash proceeds.
• The proceeds are identifiable cash proceeds, or
• The proceeds are perfected in some other way
  within 20 days.

43
Problem 23.5.c.

• Does it matter that some of the proceeds have
  been in the account for as long as 45 days?
• Yes.
• No.
• Maybe
• I prefer not to answer this question.

44
Problem 23.5.d.
Does it matter that Beaver commingled 100 into
the GBT bank account with respect to a perfected
security interest for ONB?
45
Problem 23.5.d. Statutes

• 9-315(c) A security interest in proceeds is a
  perfected security interest if the security
  interest in the original collateral was
  perfected.
• 9-315(d) Perfected security interest in
  proceeds is unperfected 21 days after attaching,
  unless
• The following conditions are met
• A financing statement covers original collateral
  
• The proceeds are collateral that can be perfected
  in the same office, and
• Proceeds are not acquired with cash proceeds.
• The proceeds are identifiable cash proceeds, or
• The proceeds are perfected in some other way
  within 20 days.

46
Problem 23.5.d.

• Does it matter that Beaver commingled 100 into
  the GBT bank account with respect to a perfected
  security interest for ONB?
• Yes.
• No.
• Maybe
• I prefer not to answer this question.