Buckley Secured Transactions Spring 2010

8/3/2019 Buckley Secured Transactions Spring 2010

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Secured Transactions

Introduction- This class covers the use of personal property as collateral security for indebtedness. (Article 9).

The Rights of Unsecured Creditors

- Encouraging Debtor to Pay Voluntarily:o Dunning Letters: When the claim is small, the creditor may wish to avoid the expense and

delay inherent in legal proceedings and it thus may write one or more dunning letters thatdemand payment and threaten suit if payment is not forthcoming immediately.

o Collection Agencies: Rather than collect the claim itself, a creditor may refer the claim to a

collection agency which, for a fee, will attempt collection.- Forcing Debtor to Pay Through Judicial Process:

o Judgment Debtor: When the Creditor obtains a judgment against the debtor, either by default

or trial, the debtor becomes a judgment debtor. A judgment entitles the creditor to dispossessthe debtor from property (other than property that is exempt from the reach of creditors) andcause the property to be applied toward the satisfaction of the claim.

o To Collect a Judgment:

1. One must obtain a judicial lien on particular property of the judgment debtor.

A lien is a property interest, but the lienor may only use the property that issubject to the lien for the purpose of satisfying the debt it secures.

A lien may be acquired in one of two ways:o Execution Lien: A creditor may obtain, from the clerk of the court, a writ

of execution, instructing the sheriff to levy upon (seize) assets of thejudgment debtor located within the sheriffs jurisdiction. (In the majorityof states the creditor acquires an execution lien on whatever property thesheriff levies upon before the writ expires, while in the minority of statesan inchoate execution lien arises on all property of the judgment debtor

within the jurisdiction when the writ is delivered to the sheriff; however,the inchoate lien cannot be enforced against specific property until thesheriff levies upon the property and the lien becomes consummate. If thesheriff fails to levy before the write expires, the inchoate lien isdischarged.)

Advantages:

Extends to personal property.

Provides a means for applying the judgment debtorsproperty to satisfaction of the judgment.

Enables the creditor not only to apply particular propertytoward the satisfaction of its claim against the debtor but

also to reach the property to the exclusion of other,competing creditors who have not obtained liens. (Note:When more than one execution lien is attached to particularproperty, liens will generally rank in temporal order;meaning, the holder of the debt secured by the earliest lienis entitled to be paid first from the proceeds of the sale ofthe property.)

o Judgment Lien: A creditor may obtain such a lien by recording a

memorandum or abstract of the judgment in the real estate records or


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(depending on local law) having the court clerk enter the judgment in thedocket book. Upon the recordation or docketing, a judgment lien arises onall of the debtors interests in real property in the county. However, inonly a few states does the judgment lien extend to personal property.

2. One must turn the lien into cash: This is usually accomplished by the sheriff sellingthe judgment debtors property at a sheriffs sale.

- Forcing Debtor to Pay Based on Agreemento Consensual Lien: When the creditor extends credit, or thereafter the creditor could have

attempted an agreement with the debtor that would give the creditor a limited interest inparticular property. So that if the debtor failed to pay, the creditor could take the property back(as long as it does not breach the peace) and cause the property to be sold and apply the proceedsto the satisfaction of its claim without the need to incur the costs and delay involved in obtaininga judgment. When the property is personal property, this lien is called a security interest. Asecured creditor has won the race of diligence in advance (if a lien creditor gets the sheriff toseize the property, the secured creditor can request the property back from that lien creditor).


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Background- Secured Creditors v. Unsecured Creditors:

o Rights: A secured partys rights include the right to take possession of the collateral upon the

debtors default in payment or performance of the obligation secured. See UCC-9-609.Unsecured creditors, on the other hand, have no property rights in the debtors property untilthey obtain a judgment against the debtor and a lien through the judicial process.

o Priority: Secured creditors are senior to later-in-time secured creditors (including judicial lien

creditors). An unsecured creditor is junior to earlier-in-time secured creditors and must obtain ajudicial lien in order to take priority over later-in-time secured creditors.

- Federal Bankruptcy Code (Title 11, U.S. Code)o A bankruptcy case is commenced when a petition is filed by or against a debtor. One important

and immediate effect of such a filing is the automatic stay of virtually all activities of creditorsthat are directed at collection of their debts.

o Chapter 7 Filings:

Chapter 7 involves liquidating the debtors nonexempt assets and distributing theproceeds to creditors.

An interim trustee will be appointed to collect and reduce to money the property of theestate and distribute the money to creditors.

o Chapter 11 Filings:

Chapter 11 involves a reorganization of the debtors enterprise; meaning that claimsagainst the debtor will be scaled down or extended or both.

The debtors management ordinarily stays in control of the enterprise as the debtor inpossession. A trustee normally is appointed only when the management has been guiltyof fraud, dishonesty, incompetence, or gross mismanagement.

o

Differences between Secured and Unsecured Creditors in Bankruptcy: Unsecured creditors share pro rata in the debtors assets that remain after secured

creditors are paid, while secured creditors are paid the value of their security interest(collateral).

A Roadmap to Secured Transactions under UCC Article 9

- Scope of Article 9:o UCC 9-109(a)(1): Article 9 applies toa transaction, regardless of its form, that creates a

security interest in personal property or fixtures by contract.o UCC 1-201(37): Definition of a Security Interest; A security interest is an interest in personal

property or fixtures which secures payment or performance of an obligation.

o The scope of Article 9 is limited by various exclusions in UCC 9-109(c) and (d).- Terms:

o Security Interests in collateral:

UCC 9-102(a)(12): Definition of Collateral; The property subject to a security interest isthe collateral.

A security interest that secures an obligation can be measures in two dimensions: thevalue of the collateral and the amount of the obligation secured.

o Secured Party: The secured party is a person in whose favor a security interest has been created.

UCC 9-102(a)(72). Definition of a Secured Party


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o Debtor: The debtor is the person having an interest, other than a security interest or other lien,

in the collateral. UCC 9-102(2)(28).

Creation of a Security Interest: Attachment; How a Security interest is Attached to Collateral

o UCC 9-203. Attachment and Enforceability of a Security Interest

(a) [Attachment.] A security interest attaches to collateral 1. when it, the security

interest, becomes enforceable against the debtor with respect to the collateral, unless anagreement expressly postpones time of attachment.

(b) [Enforceability.] Except as otherwise provided in subsections (c) through (j), asecurity interest is enforceable against a debtor and third parties with respect to thecollateral only if:

(1) value has been given;

(2) the debtor has rights in the collateralor the power to transfer rights in thecollateral to a secured party; and

(3) one of the following conditions is met:o (A) the debtor has authenticated asecurity agreementthat provides

a description of the collateral OR (B) if the collateral is not a certificated securityit is in the

possession of the secured party under Section 9-313 pursuant to thedebtors security agreement; OR

(C) if the collateral is a certificated security in registered form andthe security certificate has been delivered to the secured partyunder Section 8-301 pursuant to the debtors security agreement;OR

(D) the collateral is deposit accounts, electronic chattel paper,investment property, or letter-of-credit rights, and the secured partyhas control under Section 9-104, 9-105, 9-106, or 9-107 pursuant

to the debtors security agreement.o The debtors agreement must address the obligation that is secured by collateral- otherwise one

of the two dimensions would be missing.

UCC 9-204(c): A security agreement may provide that collateral secures futureadvances or other value.

UCC 9-204(a): A security agreement may create or provide for a security interest inafter-acquired collateral.

However, no security interest can attach to collateral under UCC 9-203(b) untilthe debtor has rights in it.

- Types of Collateral:o Goods:

Consumer Goods Equipment

Farm Products

Inventoryo Intangibles:

Accounts

Deposit accounts

General Intangibles


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- Perfection and Priorityo UCC 9-201: Security Agreements have priority; Except as otherwise provided in the UCC, asecurity agreement is effective according to its terms between the parties, against

the purchasers of the collateral, and

against creditors. (Meaning, an attached security interest in collateral will besenior to conflicting claims unless a provision in the UCC provides otherwise.)

o Perfection: A security interests priority over other conflicting claims to collateral will depend

on whether the security interest isperfected.

UCC 9-308(a): Perfection occurs when a security interest has

attached and

when the applicable steps specified in Article 9, Part 3 (9-310 through 9-316)have been taken.

If those steps are taken before attachment, perfection occurs upon attachment.

How do you perfect? Two principal means of perfection: you can perfect byo (1) the filing of a financing statement; and

o (2) the secured partys taking possession of the collateral.

Goods can be perfected by either filing or possession, while

accounts can be perfected only by filing, and

money can be perfected only by possession.o Unperfected Security Interests:

UCC 9-317:

Certain non-ordinary course, good-faith buyers of collateral, when they buy thecollateral take it free of a security interest if there was an attached but unperfectedsecurity interest in the collateral.

Also, an attached but unperfected security interest is subordinate to the rights of alien creditor. (A lien creditor is a creditor with a judicial lien.)

o Perfected Security Interests:

UCC 9-322(a)(1): First in time rule:

UCC 9-320(a):

- Enforcement (Part 6 of the UCC Article 9)o Enforcement rights arise upon a debtors default. (UCC 9-602 prohibits debtors from waiving

certain of their rights before default.)o What is Default? A default is defined by the agreement between debtor and secured party but

usually includes

failure to make payment,

insolvency of the debtor,

bankruptcy,

breach of a loan covenant, and


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the existence of a conflicting lien on the collateral.o Secured partys enforcement tools:

The right to collect on intangible collateral, such as accounts, from the obligors (calledaccount debtors). UCC 9-607.

The right to take possession of collateral on default. UCC 9-609.

The right to dispose of collateral (typically by sale or lease). UCC 9-610.

If they do this, The secured party must give advance notice of the disposition tothe debtor and certain junior secured parties. UCC 9-611(b). And every aspect ofthe disposition must be commercially reasonable. UCC 9-610(b).

o A debtor is entitled to redeem collateral at any time before the secured party disposes (or

contracts to dispose) of the collateral, collects upon the collateral, or accepts the collateral insatisfaction of the secured obligation. UCC 9-623.

- Attachment of Security Interestso 9-203. Attachment and Enforceability of a Security Interest

(a) [Attachment.] A security interest attaches to collateral when;

it becomes enforceable against the debtor with respect to the collateral, unless anagreement expressly postpones time of attachment.

(b) [Enforceability.] Except as otherwise provided in subsections (c) through (j), asecurity interest is enforceable against a debtor and third parties with respect to thecollateral only if:

(1) value has been given;

(2) the debtor has rights in the collateral or the power to transfer rights in thecollateral to a secured party; and

(3) one of the following conditions is met:o (A) the debtor has authenticated a security agreement that provides a

description of the collateral

and, if the security interest covers timber to be cut, adescription of the land concerned;

o (B) the collateral is not a certificated security and is in the possession of

the secured party under Section 9-313 pursuant to the debtors securityagreement;

o (C) the collateral is a certificated security in registered form and the

security certificate has been delivered to the secured party under Section8-301 pursuant to the debtors security agreement; or

o

(D) the collateral is deposit accounts, electronic chattel paper, investmentproperty, or letter-of-credit rights, and the secured party has control underSection 9-104, 9-105, 9-106, or 9-107 pursuant to the debtors securityagreement.

o 9-203(b) (above): There is a security interest when the interest attaches.

The security interest attaches when it becomes enforceable, A Securityinterest becomes enforceable when:

Value has been given- Firstbank has given money to GM.


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The debtor has rights in the collateral- When the cars are on thepremises, Main Motors has rights.

Authenticated security agreement that provides a description of thecollateral (in order to meet statute of frauds). But if there is anagreement and the secured party is in possession then you dontneed an authentication. (9-101 defines authenticate (which

includes signed) and record). Note: Default is what the security agreement says that it is, there is not a definition of

default.

9-601(a): [Rights of a secured party after default.] After default, a secured party has

the rights provided in this part and,

except as otherwise provided in 9-602, those provided by agreement of theparties.

A secured party:o (1) may reduce a claim to judgment, foreclose, or otherwise enforce the

claim, security interest, or agricultural lien by any available judicialprocedure; and

o (2) if the collateral is documents, may proceed either as to the documents

or as to the goods they cover.

9-609. Secured Partys Right to Take Possession After Default.

(a) [Possession; rendering equipment unusable; disposition on debtor'spremises.] After default, a secured party:

o (1) may take possession of the collateral; and

o (2) without removal, may renderequipment unusable and dispose of

collateral on a debtor's premises under Section 9-610.

(b) [Judicial and nonjudicial process.] A secured party may proceed undersubsection (a):

o (1) pursuant to judicial process; oro (2) without judicial process, if itproceeds without breach of the peace.

9-610. A Right to Dispose of the Collateral After the Default in a commercially

reasonable manner.

(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 conditionor following any commercially reasonable preparation or processing.

(b) [Commercially reasonable disposition.] Every aspect of a disposition ofcollateral, including the method, manner, time, place, and other terms, must becommercially reasonable. If commercially reasonable, a secured party maydispose of collateral by public or private proceedings, by one or more contracts,

as a unit or in parcels, and at any time and place and on any terms. 9-607. The Secured Party Can Collect or Enforce from the Debtor.

(a) [Collection and enforcement generally.] If so agreed, and in any event afterdefault, a secured party:

o (1) may notify an account debtoror other person obligated on collateral to

make payment or otherwise render performance to or for the benefit of thesecured party;

o (2) may take anyproceeds to which the secured party is entitled under

Section 9-315;
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o (3) may enforce the obligations of an account debtoror other person

obligated on collateral and exercise the rights of the debtorwith respect tothe obligation of the account debtor or other person obligated on collateralto make payment or otherwise render performance to the debtor, and withrespect to any property that secures the obligations of the account debtoror other person obligated on the collateral;

o (4) if it holds a security interest in a deposit accountperfected by controlunder Section 9-104(a)(1), may apply the balance of the deposit account tothe obligation secured by the deposit account; and

o (5) if it holds a security interest in a deposit accountperfected by control

under Section 9-104(a)(2) or (3), may instruct thebankto pay the balanceof the deposit account to or for the benefit of the secured party.

9-203 requires an authenticated record of a security agreement for a securityinterest to attach.

9-102(a)(7): Authenticate meanso (A) to sign; or

o (B) to execute or otherwise adopt a symbol, or encrypt or similarly processa record in whole or in with the present intent of the authenticating personto identify the person and adopt or accept a record.

9-102(a)(69): Record,information that is inscribed on a tangible medium orwhich is stored in an electronic or other medium and is retrievable in perceivableform.

Thus, Firstbank does not have an enforceable security interest since there is notan authenticated record.

9-502(d) [Filing before secure agreement or attachment.] A financing

statement may be filed before a security agreement is made or a security interestotherwise attaches.

9-322(a) [General priority rules.] Except as otherwise provided in this section,priority among conflicting security interests and agricultural liens in the samecollateral is determined according to the following rules:

o (1) Conflicting perfected security interests are ranked according to priority

in

Who filed the financing statement first OR

Who Perfected the Security Interest First.o Priority dates from the earlier of the time a filing of a financing statement

covering the collateral is first made or when the security interest is first

perfected, if there is no period thereafter when there is neither filing norperfection.

9-108. Sufficiency of Description

(a) [Sufficiency of description.] Except as otherwise provided insubsections (c), (d), and (e), a description of personal or realproperty is sufficient, whether or not it is specific, if it reasonablyidentifies what is described.
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(b) [Examples of reasonable identification.] Except as otherwiseprovided in subsection (d), a description ofcollateral reasonablyidentifies the collateral if it identifies the collateral by:

(1) specific listing;

(2) category;

(3) except as otherwise provided in subsection (e), a type of

collateral defined in [the Uniform Commercial Code]; (4) quantity;

(5) computational or allocational formula or procedure; or

(6) except as otherwise provided in subsection (c), anyother method, if the identity of the collateral is objectivelydeterminable.

(c) [Supergeneric description not sufficient.] A description ofcollateral as all the debtors assets or all the debtors personalproperty or using words of similar import does not reasonablyidentify the collateral.

(b) Would the Dealer Inventory Security Agreement cover the slip-up? Yes, theagreement covers inventory and inventory is defined by the UCC and is thusreasonably identified and the car would be considered inventory.

o Definition of inventory

(c) Would your answer to part (b) be the same if paragraph 5 contained nosubparagraphs and covered only all Dealers personal property, of ever kind andnature whatsoever?

o This is not vague, but 9-108(c) states that supergeneric descriptions are not

sufficient. Note: a financing statement must also describe the collateral,but it may say supergeneric terms such as all of the debtors assets. (See9-504).

9-504(2); a financing statement sufficiently indicates collateralthat it covers where it says it covers all assets or personalproperty

(d) Would your answer be the same if paragraph 5 contained no subparagraphsand covered only certain motor vehicles? Note that Article 9 classifies goodsinto four types: consumer goods, equipment, farm products, and inventory. Thisdoes not reasonably identify the collateral, because one would not know whichmotor vehicles.

o 9-204(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.

In this case the security agreement creates a security interest in now owned or

hereafter acquired property. Thus, even though the cars arrive later its alrightsince there was already an authenticated record describing the collateral. Note:the agreement can also cover future advances (money paid out into the future byFirstbank) according to 9-204(c). Also note that 9-204(b) limits after-acquiredcollateral coverage in cases of consumer goods and a commercial tort claim.

Would it make any difference if the only references to collateral in the DealerInventory Security Agreement and the Financing Statement were to allinventory?
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o See 9-108 (above): It would be sufficient because all inventory

reasonably identifies the collateral as inventory is define

9-102(48) inventorymeans goods which aresee next pageo 9-102(48): "Inventory" means goods, other than farm products, which:

(A) are leased by a person as lessor;

(B) are held by a person for sale or lease or to be furnished under a

contract of service;

(C) are furnished by a person under a contract of service; or

(D) consist of raw materials, work in process, or materials used orconsumed in a business.

o 9-102(44): "Goods" means all things that are movable when a security interest attaches. The

term includes

(i) fixtures,

(ii) standing timber that is to be cut and removed under aconveyance or contract for sale,

(iii) the unborn young of animals,

(iv) crops grown, growing, or to be grown, even if the crops areproduced on trees, vines, or bushes, and

(v) manufactured homes.

The term also includes a computer program embedded in

goods and any supporting information provided in connection witha transaction relating to the program if (i) the program is associatedwith the goods in such a manner that it customarily is consideredpart of the goods, or (ii) by becoming the owner of the goods, aperson acquires a right to use the program in connection with thegoods.

The term does not include a computer program embedded in

goods that consist solely of the medium in which the programis embedded.

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.
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Types of Goods

Consumer goods

Farm Products

Inventory

Equipmento 9-102(75): "Software" means a computer program and any supporting

information provided in connection with a transaction relating to theprogram. The term does not include a computer program that is includedin the definition ofgoods.

Software is a kind of general intangible.

(b) Here the computer program is embedded in a good that consists solely of themedium in which it was embedded. Thus, it is not a good according to thedefinition of goods. Instead, its software.

(c) Does Firstbank hold a security interest in Mains loaners?o The Security Agreement created a security interest in inventory and this

may or may not be considered inventory. These loaners could be

considered equipment. (d) Does Firstbank hold a security interest in the Monte Carlo that Main owns but

allows Mains president to use as part of his compensation? If they lease it to thePresident then it would be inventory and they would indeed have a securityinterest in it

o 9-407. Restrictions on Creation or Enforcement of Security Interest in Leasehold Interest

or in Lessors Residual Interest.

(a) [Term restricting assignment generally ineffective.] Exceptas otherwise provided in subsection (b), a term in a leaseagreement is ineffective to the extent that it:

(1) prohibits, restricts, or requires the consent of a party tothe lease to the assignment or transfer of, or the creation,attachment, perfection, or enforcement of a security interestin an interest of a party under the lease contract or in thelessor's residual interest in the goods; or

(2) provides that the assignment or transfer or the creation,attachment, perfection, or enforcement of the securityinterest may give rise to a default, breach, right ofrecoupment, claim, defense, termination, right oftermination, or remedy under the lease.

(b) [Effectiveness of certain terms.] Except as otherwise provided

in Section 2A-303(7), a term described in subsection (a)(2) iseffective to the extent that there is:

(1) a transfer by the lessee of the lessee's right ofpossession or use of the goods in violation of the term; or

(2) a delegation of a material performance of either party tothe lease contract in violation of the term.

(c) [Security interest not material impairment.] The creation,attachment, perfection, or enforcement of a security interest in thelessor's interest under the lease contract or the lessor's residual
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interest in the goods is not a transfer that materially impairs thelessee's prospect of obtaining return performance or materiallychanges the duty of or materially increases the burden or riskimposed on the lessee within the purview of Section 2A-303(4)unless, and then only to the extent that, enforcement actuallyresults in a delegation of material performance of the lessor.

o In re Cheqnet Systems, Inc. (1998)

Facts: On June 18, 1993 and again on July 24, 1994, the debtor signed promissory notesin favor of Citizens Bank that granted the Bank a security interest in the propertydescribed in the documents executed in connection with the note as well as other propertydesignated as security for the loan now or in the future. It was not until 3 years after thefirst note was signed that the debtor and bank executed a UCC financing statement listing

other collateral. On January 31, 1997 the debtor filed for chapter 7 bankruptcy. Thetrustee filed this proceeding alleging that the bank does not enjoy a perfected securityinterests because the documents do not properly reference the collateral.

See, 9-203: In order to have a perfected security interest, the secured party mustdemonstrate that:

(1) the debtor has rights in the collateral;

(2) the debtor signs a security agreement in favor of the secured party whichcontains a description of the collateral; (at issue here)

(3) value is given by the secured party to the debtor; and

(4) a valid financing statement is properly recorded.

A security agreement is an agreement that creates or provides for a security interest.Whether a security interest exists is generally considered to be a question of fact, becauseit is the intent of the parties that determines the existence and nature of a security interest.The bank argues on alternative grounds that the note constitutes a security agreement,that the financing statement constitutes a security agreement, and that, under thecomposite doctrine rule, the note and financing statement taken together constitute asecurity agreement:

The Note as Security Agreement: The note may constitute a security agreementbecause it grants a security interest, contains a description of the collateral, and issigned by the debtor. However, if the note is the security agreement, the bankssecurity is that collateral described in the agreement- the note itself.

The Financing Statement as Security Agreement: The majority of jurisdictionshold to the rule that a financing statement, standing alone, does not create asecurity interest in the debtors property.

The Composite Doctrine Rule: This rule provides that there need not be aseparate document labeled security agreement, but that all relevant loandocuments may be examined to determine whether a security agreement existsand what collateral is covered. The language in the instrument must lead to theconclusion that the parties intended that a security interest be created, thus, thecourt looks as the transaction as a whole to determine if there are writings signed
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by the debtor which describe the collateral and which demonstrate an intent tocreate a security interest in particular collateral.

o Notes on Attachment

Unless and until a security interest attaches to particular property, the secured party hasno enforceable security interest, and thus no enforceable property right, in the collateral.

9-203(b) provides that a security interest is enforceable against the debtor or third parties

with respect to the collateral only if the following conditions are met: Value has been given 9:203(b)(1): By definition, a security interest secured

payment or performance of an obligation. See 1-201(37). Before a securityinterest can attach, there must be an obligation (usually a money debt) to secure.

Rights in collateral 9-203(b)(2): A second condition for attachment is that thedebtor has rights in the collateral or the power to transfer rights in the collateral toa secured party, since a debtor can give security interest in collateral only if it hasrights in that collateral.

Debtors agreement 9-203(b)(3): A third condition to attachment is the debtorsagreement that a security interest be created.

o 9-102(a)(73): A security agreement is an agreement that creates or

provides for a security interest.o 9-203(b)(3)(A) is satisfied when:

1. The debtor has authenticated a security agreement

The definition of authenticate in 9-102(a)(7) means notonly to sign (which requires a writing, see 1-201(39) butalso to execute or otherwise adopt a symbolwith thepresent intent of the authenticating person to identify theperson and adopt or accept a record. Thus, a securityagreement may be in any authenticated record, meaningit may be inscribed on a tangible medium orstored in an

electronic or other medium, provided that the informationis retrievable in perceivable form. See 9-102(a)(69). Thisdefinition excludes information in unrecorded oralcommunications.

Many cases have held that a debtors signature on afinancing statement is not sufficient when the financingstatement meets only the minimum requirements for afinancing statement (9-402) and does not contain additionallanguage constituting an appropriate agreement (1-201(3)).

Sometimes the court will find that a group of writings,taken together, are sufficient to comprise a security

agreement (Composite document rule of In re Cheqnet). 2. The agreement provides a description of the collateral.

9-108(a) provides that a description of personal or realproperty is sufficient, whether or not it is specific, if itreasonably identifies what is described.

o 9-108(b)(3) expressly validates descriptions by

Article 9 type, such as equipment orinventory.

o 9-108(c): super-generic descriptions such as all

personal property or all assets are insufficient.


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o 9-204(a) provides that a security agreement may

create or provide for a security interest in after-acquired collateral. Nonetheless, some courts haverefused to uphold claims to after-acquired propertyin the absence of an explicit reference in thesecurity agreement.

o Under 9-203(b)(3)(B) (b)(3)(C), and (b)(3)(D), even an oral securityagreement is sufficient if the secured party has possession or control of thecollateral pursuant to that agreement.

o Ordinary rules of contract interpretation

1-103 provides that unless displaced, principles of law supplementthe UCC.

o

o Note on Obligations (Including Future Advances) Covered by Security Agreements

The UCC legitimizes future advance provisions and puts no restrictions on whatobligations can be secured. However, some courts have stated that only future advancesthat are similar and related to an initial, principal obligation should be given the benefit ofa broad future advance and all obligations provisions. However, 9-204(c) was intendedto countermand these close relatedness tests, and make dragnet clauses enforceable.

- Perfection of Security Interests:o 9-201 provides that security agreements are effective according to terms between parties, against

purchasers of the collateral, and against creditors. The rationale is that this is fair since othershave notice of such agreements due to the public records that are created when the securityinterest is perfected.

o (A) Perfection by Filing

9-522(a): The filing office shall maintain a record of the information provided in a filedfinancing statement for at least one year after the effectiveness of the financingstatement has lapsed under Section 9-515 with respect to all secured parties of record.The record must be retrievable by using the name of the debtorand by using the filenumberassigned to the initial financing statement to which the record relates.

9-515. Duration and Effectiveness of Financing Statement; Effect of Lapsed

Financing Statement.

o (a) [Five-year effectiveness.] Except as otherwise provided in subsections

(b), (e), (f), and (g), a filed financing statement is effective for a period offive years after the date of filing.

o (b) [Public-finance or manufactured-home transaction.] Except as

otherwise provided in subsections (e), (f), and (g), an initial financingstatement filed in connection with apublic-finance transaction ormanufactured-home transaction is effective for a period of 30 years afterthe date of filing if it indicates that it is filed in connection with a public-finance transaction or manufactured-home transaction.

o (c) [Lapse and continuation of financing statement.] The effectiveness

of a filed financing statement lapses on the expiration of the period of itseffectiveness unless before the lapse a continuation statement is filedpursuant to subsection (d). Upon lapse, a financing statement ceases to beeffective and any security interest oragricultural lien that was perfected by
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the financing statement becomes unperfected, unless the security interestis perfected otherwise. If the security interest or agricultural lien becomesunperfected upon lapse, it is deemed never to have been perfected asagainst a purchaser of the collateral for value.

9-203(b)(3)o The debtor authenticated the security agreement and filed the financing

statement ORo The collateral is in possession of secured party and a financing statement

was filed

9-317. Interests that Take Priority Over or Take Free of Security Interest

o (a) [Conflicting security interests and rights of lien creditors.] A

security interest or is subordinate to the rights of:

(1) a person entitled to priority under Section 9-322; and 9-322; priority rules

o 1. a person with a security interest that filed a

financing statement or perfected it earliero 2. This person has a perfected security interest and

the other one doesnto 3. This persons security interest attached first

(2) except as otherwise provided in subsection (e), a person thatbecomes a lien creditorbefore the earlier of the time:

(A) the security interest is perfected; or

(B) one of the conditions specified in Section 9-203(b)(3) is

met and a financing statement covering the collateral isfiled.

o See above for the things listed in 203(b)(3)

9-102(52) Lien creditor meanso (A) a creditor that has acquired a lien on the property involved by

attachment, levy, or the like;o (B) an assignee for benefit of creditors from the time of assignment;

o (C) a trustee in bankruptcy from the date of the filing of the petition; or

o (D) a receiver in equity from the time of appointment.

9-308. When Security Interest is Perfected; Continuity of Perfection

o (a) [Perfection of security interest.] Except as otherwise provided in this

section and Section 9-309 (those things that are automatically perfectedwhen they attach), a security interest is perfected if it

has attached AND

all of the applicable requirements for perfection in Sections 9-

310 through 9-316 have been satisfied. OR

A security interest is perfected when it attaches if the

applicable requirements in 9-310-316are satisfied before the

security interest attaches.

o (b) [Perfection of agricultural lien.] Not Necessary
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o (c) [Continuous perfection; perfection by different methods.] A security

interest is perfected continuously

if it is originally perfected by one method under this article and islater perfected by another method under this article, without anintermediate period when it was unperfected.

o (d) [Supporting obligation.] Perfection of a security interest in collateral

also perfects a security interest in a supporting obligation for the collateralo (e) [Lien securing right to payment.] Perfection of a security interest in a

right to payment or performance also perfects a security interest in asecurity interest, mortgage, or other lien on personal or real propertysecuring the right.

o (f) [Security entitlement carried in securities account.] Perfection of a

security interest in a securities account also perfects a security interest inthe security entitlements carried in the securities account.

o (g) [Commodity contract carried in commodity account.] Perfection of a

security interest in a commodity account also perfects a security interest inthe commodity contracts carried in the commodity account.

9-310. When Filing Required to Perfect Security Interest or Agricultural

Lien; Security Interests and Agricultural Liens to Which Filing Provisions

Do Not Apply.

o (a) [General rule: perfection by filing.] Except as otherwise provided in

subsection (b) and Section 9-312(b), a financing statement must be filedto perfect all security interests and agricultural liens.

o (b) [Exceptions: filing not necessary.] The filing of a financing statement

is not necessary to perfect a security interest:

(1) that is perfected under Section 9-308(d), (e),(f), or(g);

(2) that is perfected under Section 9-309 when it attaches;

(3) in property subject to a statute, regulation, or treaty describedin Section 9-311(a);

(4) in goods in possession of a bailee which is perfected underSection 9-312(d)(1) or (2);

(5) in certificated securities, documents, goods, orinstrumentswhich is perfected without filing or possession under Section 9-312(e), (f), or(g);

(6) in collateral in the secured party's possession under Section 9-313;

(7) in a certificated security which is perfected by delivery of thesecurity certificate to the secured party under Section 9-313;

(8) in deposit accounts, electronic chattel paper, investmentproperty, orletter-of-credit rights which is perfected by controlunder Section 9-314;

(9) inproceeds which is perfected under Section 9-315; or

(10) that is perfected under Section 9-316.o (c) [Assignment of perfected security interest.] If a secured party assigns a

perfected security interest oragricultural lien, a filing under this article isnot required to continue the perfected status of the security interest againstcreditors of and transferees from the original debtor.
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/article9.htm#s9-316%23s9-316http://www.law.cornell.edu/ucc/9/article9.htm#dsecuredparty%23dsecuredpartyhttp://www.law.cornell.edu/ucc/9/article9.htm#dagriculturallien%23dagriculturallienhttp://www.law.cornell.edu/ucc/9/article9.htm#doriginaldebtor%23doriginaldebtor


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9-502(a) [Sufficiency of financing statement.] Subject to subsection (b), afinancing statement is sufficient only if it:

o (1) provides the name of the debtor;

o (2) provides the name of the secured party or a representative of the

secured party; ando (3) indicates the collateral covered by the financing statement.

o

o

o

o

o

o

o

o

o

o 9-322. Priorities Among Conflicting Security Interest in and

Agricultural Liens on Same Collateral. (a) [General Priority rules.] Except as otherwise provided in this

section, priority among conflicting security interests andagricultural liens in the same collateral is determined according tothe following rules:

(1) Conflicting perfected security interests and agriculturalliens rank according to priority in time of filing orperfection. Priority dates from the earlier of the time afiling covering the collateral is first made or the securityinterest or agricultural lien is first perfected, if there is noperiod thereafter when there is neither filing nor perfection.

(d) May file a suit against the Secretary of State since there is a duty under 9-519(c) to index a filing statement according to the name of the debtor as well as aduty under 9-523(c) to communicate this information to one requesting it.

o 9-317(e): [Purchase-money security interest.] Except as otherwise provided in Section 9-320

and 9-321, if a person files a financing statement with respect to a purchase-money securityinterest before or within 20 days after the debtor receives delivery of the collateral, the securityinterest takes priority over the rights of a buyer, lessee, or lien creditor which arise between thetime the security interest attaches and the time of filing.

Purchase-money security interest: A security interest that arises because the securedparty is putting up the money to allow the debtor to get the goods.The classic example iswhen one goes to the store to purchase equipment on credit but needs it right then and the

person gives a down payment in such a case there is a 20 day grace period for filing thefinancing statement. That way they do not have to wait to get the equipment until afterthe financing statement is filed. This protects the security interest against the liencreditor.

o What is not a purchase-money security interest?

When the collateral is not goods.

Notes on Perfection by Filing

The Concept of Perfection


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o A security interest is perfected when the security interest has attached

and all of the applicable requirements for perfection in Sections 9-310through 9-316 have been satisfied. 9-308(a).

o The various elements of perfection and attachment can occur in any order.

For example, a secured party might first comply with 9-310 by filing afinancing statement. Next the debtor might sign a security agreement

describing collateral in which the debtor has rights. Finally, the securedparty might give value to the debtor. (Upon the last step, the securityinterest would simultaneously attach and become perfected).

Priority Rules and Conveyancing Principles

o Although an attached but unperfected security interest is enforceable

against the debtor, such a security interest may be defeated by otherclaimants:

An unperfected security interest is subordinate the rights of a liencreditor. 9-317(a)(2).

However, 9-317(e) provides an exception to 9-317(c). Inthe case of purchase-money security interests, a securedparty who files a financing statement after a lien hasattached to the collateral may achieve priority over the liencreditor. A purchase-money security interest is where asecurity interest is perfected by filing before or within 20days after the debtor receives delivery of the collateral. Insuch a case, the interest is senior to the interest of liencreditor between the time the security interest attaches andthe time of filing.

Even worse, from the secured partys perspective, an unperfectedsecurity interest will not be effective in the debtors bankruptcy. 9-317(a)(2).

Security interests are prioritized under the first-to-file-or-perfectrule. Meaning, a security interest may become senior to aconflicting security interest that was created and attached first, justbecause the financing statement was filed first. See, 9-322(a)(1).

o 9-502(a)(3)provides that financing statement is sufficient only if it

indicates the collateral covered.o 9-504: A financing statement sufficiently indicates the collateral that it

covers if the financing statement provides:

(1) a description of the collateral pursuant to Section 9-108; or

(2) an indication that the financing statement covers all assets or allpersonal property.

o 9-108 provides that a description is sufficient if it reasonably identifies

what is described. Types of collateral that are defined in the UCCreasonably identify the collateral.

o A debtor (like Main Motors) can find out about what collateral is secured

according to section 9-210. Then the secured party (Firstbank) has to


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reply within 14 days. A potential lender can find out about any securedinterests in the debtors property by asking the debtor to make this request

9-210. Request for Accounting; Request Regarding List of

Collateral or Statement of Account.

Organizations

o 9-503(a) [Sufficiency of debtor's name.] A financing statement

sufficiently provides the name of the debtor:

(1) if the debtoris a registered organization, only if the financingstatement provides the name of the debtor indicated on the public

record of the debtor'sjurisdiction of organization which shows thedebtor to have been organized;

o 9-506. Effect of Errors or Omissions.

(a) [Minor errors and omissions.] A financing statementsubstantially satisfying the requirements of this part is effective,even if it has minor errors or omissions, unless the errors oromissions make the financing statement seriously misleading.

(b) [Financing statement seriously misleading.] Except asotherwise provided in subsection (c), a financing statement thatfails sufficiently to provide the name of the debtorin accordancewith Section 9-503(a) is seriously misleading.

(c) [Financing statement not seriously misleading.] If a search ofthe records of the filing office under the debtor's correct name,using the filing office's standard search logic, if any, woulddisclose a financing statement that fails sufficiently to provide thename of the debtor in accordance with Section 9-503(a), the nameprovided does not make the financing statement seriouslymisleading.
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(d) ["Debtor's correct name."] For purposes of Section 9-508(b),the "debtor's correct name" in subsection (c) means the correctname of the new debtor.

o Thus, even if the name is incorrect per 9-503(a)(1), it is still ok if the

financing statement would be discovered while searching under that name,since the name would not be seriously misleading. See 9-506(c). (Not

misleading if it is found under search logic, thus one must only searchunder the real name)

In re Spearing Tool and Mfg. Co. (6th Cir.)

o Here the federal government had a tax lien on the debtors assets. Tax

liens can supersede all state law liens. A federal tax lien adequatelyidentified a tax payer, notwithstanding substitution of an abbreviation for apart of the name and had priority over a competing security interest eventhough the secured creditor could not locate the financing statement aftermaking an electronic search. Thus, one must make sure there has notbeen a tax lien filing by searching under more than just the real name.

9-503(c): A financing statement that provides only the debtors trade name does not

sufficiently provide the name of the debtor.

a fake name.

Notes on the Adequacy of Financing Statements:

UCC 9-502(a) sets fort the three formal requisites for a sufficient financingstatement. Except with respect to filings covering collateral related to specificreal property, a financing statement is sufficient only if it (1) provides the nameof the debtor; (2) provides the name of the secured party or a representative of thesecured party; and (3) indicates the collateral covered by the financing statement.

o 9-503 elaborates upon the first two requirements (the names of the

parties), and 9-504 elaborates upon the third requirement (the indication ofthe collateral). Then, 9-506 provides additional guidance with respect toerrors.

o Debtors Name:

Filing officers index financing statements according to the nameof the debtor. 9-519(c)(1).

Corporations: If the debtor is a corporation or other registeredorganization (as defined in 9-102(a)(70)) a financing statementsufficiently provides the name of the debtor only if the financingstatement provides the name of the debtor indicated on the publicrecord of the debtors jurisdiction of organization which shows thedebtor to have been organized. 9-503(a)(1).

Error: Minor errors ordinarily do not render a financing statementineffective, unless the error makes the financing statementseriously misleading. 9-506(a). However, when it comes to errorsin debtors names, any name that does not comply with therequirements of 9-503(a) is seriously misleading as a matter lawper 9-503(b), unless a search of the records of the filing officeunder the debtors correct name, using the filing offices standardsearch, would disclose a financing statement. In regard tocorporations and other organizations, many courts have held thatfiling against a trade name instead of a real name is insufficient.
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The UCC deals with the sufficiency of a trade name like any othername, its misleading unless it comes up in the search. 9-503(c).

However: One may find it prudent to search under morethan just the debtors correct name. Filing statements filedbefore the effective date of Revised Article 9 may remaineffective even if the name is incorrect. Also, in some states

notices of judicial liens and federal tax liens are filed andindexed in the UCC filing offices and the law governingthose liens (which is not Article 9) controls the adequacy ofthe debtors name in a filing. See, Spearing Tool.

Individuals: While 9-503(a)(4)(A) states that the filing statementprovide the individualname of the debtor, the BankruptcyAppellate Panel of the Tenth Circuit stated that this requires thestatement to be filed against the individuals legal name. A legalname would be what is provided on ones birth certificate orpassport.

o Secured Partys Name; Secured Party of Record:

The second formal requirement for a sufficient financing statementis that it must provide the name of the secured party or arepresentative of the secured party. 9-502(a)(2). The personswhose name is provided is the secured party of record. 9-511(a)The secured party of record has the power to authorize certainamendments to a filed financing statement, including the power toterminate the financing statements effectiveness. 9-509(d)(1).

When there is one secured party, the financing statement usuallyprovides the secured partys name. The secured party and thesecured party of record are the same person. An error in thisname will not render the financing statement ineffective. 9-506,

Comment 2. Where many lenders are involved all of the secured parties names

may be provided, in which case there will be multiple securedparties of record, each of which has the power to affect its ownrights. Or, the statement may provide the name of arepresentative of the secured parties.

o Reference to Collateral:

The third formal requirement is that a filing statement mustindicate the collateral covered by the financing statement. 9-502(a)(3). An indication is sufficient if it satisfies the purpose ofconditioning perfection on the filing of a financing statement, i.e.,

if it provides notice that a person may have a security interest inthe collateral indicated. 9-504, Comment 2. UCC 9-504 providestwo safe harbors:

A description of collateral under 9-108 reasonablyidentifies the collateral. Thus, a financing statement thatlists the items of collateral, identifies the collateral bycategory, or refers to collateral by a defined UCC typeprovides a sufficient indication.


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An indication that a financing statement covers all assets orall personal property is a sufficient indication. (Super-generic terms are not, however, sufficient as a descriptionin a security agreement. 9-108(c)).

o Authorization: A financing statement does not have to be signed to be

sufficient. 9-502(a). However, a financing statement is not effective

unless the filing is authorized by the debtor in an authenticated record. 9-509(a).

o Additional Information:

Addresses of the debtor and the secured party are not required forperfection. 9-502. However, a filing office is required to reject afinancing statement that does not provide an address for each ofthe parties. 9-520(a); 9-516(b).

If the financing statement indicates that the debtor is anorganization, the filing office must reject the filing unless itprovides the type of organization (corporation, partnership, etc.), ajurisdiction of the organization, and an organizational

identification number (or indicates that the debtor has none).

o Perfection by Means Other Than Filing 9-309. The following security interests are perfected when they attach:

(1) a purchase-money security interest in consumer goods,except as otherwise provided in Section 9-311(b) with respect toconsumer goods that are subject to a statute or treaty described inSection 9-311(a).

Note: Financing statements are meant to give notice to othercreditors and purchasers of the collateral. Article 9 is intended toencourage people to give certain kinds of secured credit, and themore knowledge the lenders have the more willing they will be tolend the money. It is less risky that way. But we dont people toput a security interest on used consumer goods unless they werethe ones who helped finance the purchase. So if one checks the

files there will not be a financing statement since one is notrequired in the case of purchase-money security interests.However, in the case of extremely expensive consumer goods, itwould be better for the store to file a financing statement, since thepurchaser could sell it to another and the financing statementwould allow the store to then get it back from the new consumer.

o 9-311. Perfection of Security Interests in Property Subject to Certain

Statutes, Regulations, and Treaties


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(b) You have to look and see what the certificate of title law covers. Here this isnot consumer goods, thus 9-309 would not apply. Meaning, it is not perfectedautomatically and a financing statement must be filed.

(c)Now the tractor would be consumer goods and 9-309 would apply and theinterests are perfected when they attach. No financing statement needs to be filed.

(d)

Perfection by Possession (Thus far weve seen perfection by filing, perfection by a purchase-money

security interest, and perfection due to a certificate of title).

The Pledge: Under 9-313(a), a security interest in most tangible collateral,including goods, may be perfected by the secured partys taking possession of thecollateral.

Possession by Agents and Bailees:

Other Benefits of Taking Possession of Collateral:

o Taking possession before default reduces the risk that the secured party

will have to resort to use of the judicial process in order to recover any

value from the collateral upon default.o Taking possession prevents the debtor from disposing of the collateral,

either outright or to the holder of a senior security interest.o However, taking possession is not the best option when the risk of the

debtor wrongfully disposing of the collateral is small and the benefit of thedebtor of retaining possession is quite high (since it needed in order fordebtor to repay the obligation), as in the case of security interests onequipment or inventory. Under such circumstances, the secured party maycontract with a specialist in watching over the ebb and flow of theinventory by creating a field warehouse.

9-502(b):

Rights and Duties of Secured Party in Possession of Collateral: 9-207 affordscertain rights to and imposes certain duties upon, a secured party who perfects asecurity interest by possession. The most significant of these duties is arequirement to use reasonable care in the custody and preservation of collateralin the secured partys possession. 9-207(a). As will all obligations of care in theUCC, that duty may not be disclaimed by agreement. 1-102(3).

9-317(a)(2): A security interest or agricultural lien is subordinate tothe rights of a person who becomes a lien creditor before the earlier ofthe time:

(A) the security interest or agricultural lien is perfected; or

(B) one of the conditions specified in Section 9-203(b)(3) ismet and a financing statement covering the collateral isfiled.

9-308: A security interest is perfected if it has attached and all ofthe applicable requirements for perfection in 9-310 through 9-316have been satisfied.

9-203:


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(a) A security interest attaches to collateral when itbecomes enforceable against the debtor with respect to thecollateral

(b) A security interest is enforceable with respect tocollateral only if:

o Value has been given

o The debtor has rights in the collateralo One of the following conditions is met

Security agreement

Possession

9-310: Filing statement must be filed, but one of the exceptions iswhen the collateral is in the secured partys possession under 9-313.

9-313. When Possession by or Delivery to Secured Party

Perfects Security Interest without Filing.

(a) [Perfection by possession or delivery.] Except as

otherwise provided in subsection (b), a secured party mayperfect a security interest in negotiable documents, goods,instruments, money, ortangible chattel paperby takingpossession of the collateral. A secured party may perfect asecurity interest in certificated securities by taking deliveryof the certificated securities under Section 8-301.

Here, the coin collection would be considered either money orgoods.

o (b) One may perfect a security interest in goods by filing a financing

statement. But a financing statement will not perfect a security interest inmoney. Thus, it must be decided whether the collection is money or

goods. 9-312. Perfection of Security Interests in Chattel Paper, Deposit

Accounts, Documents, Goods Covered by Documents,Instruments

(a) [Perfection by filing permitted.] A security interest inchattel paper, negotiable documents, instruments, orinvestment property may be perfected by filing.

(b) [Control or possession of certain collateral.] Except asotherwise provided in Section 9-315(c) and (d) forproceeds:

o (1) a security interest in a deposit account may be

perfected only by control under Section 9-314;o (2) and except as otherwise provided in Section 9-

308(d), a security interest in a letter-of-credit rightmay be perfected only by control under Section 9-314; and

o (3) a security interest in money may be perfected

only by the secured party's taking possession

under Section 9-313.
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o (c) This is not an effective way since the collection may still be considered

to be in possession of the debtor. The debtor may not be the agent. Thelawyer may be the agent, however.

9-313 Comment 3:

be created in an instrument by filing. 9-310o (c)

9-102(11): "Chattel paper" means a record or records thatevidence both a monetary obligation and a security interest inspecific goods, a security interest in specific goods and softwareused in the goods, a security interest in specific goods and licenseof software used in the goods, a lease of specific goods, or a leaseof specific goods and license of software used in the goods. In thisparagraph, "monetary obligation" means a monetary obligationsecured by the goods or owed under a lease of the goods andincludes a monetary obligation with respect to software used in thegoods. The term does not include (i) charters or other contractsinvolving the use or hire of a vessel or (ii) records that evidence a

right to payment arising out of the use of a credit or charge card orinformation contained on or for use with the card. If a transactionis evidenced by records that include an instrument or series ofinstruments, the group of records taken together constitutes chattelpaper.

9-312(a): A security interest in chattel papermay be perfected byfiling.

o (d) What if the financing statement had not been filed?

For instruments and chattel paper you can take possession either byfiling or taking possession.

- Multi-State Transactions: Law GoverningPerfection and Priorityo Where to File a Financing Statement: Choice-of-Law Rules.

General Rule: UCC 1-105(1) states that the parties enjoy a the right to agree that thelaw of any state bearing a reasonable relation to the transaction shall govern their rights

and duties; absent such agreement, the law of the forum will be applied as long as theforum has an appropriate relation to the transaction.

Rules forPerfection and the Effect of Perfection or Non-Perfection: Rules 9-301through 9-307 govern notwithstanding an agreement of the parties to the contrary. See 1-105(2).

9-301. Law Governing Perfection and Priority of Security Interests.

o Except as otherwise provided in Sections 9-303 through 9-306, the

following rules determine the law governing perfection, the effect of
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perfection or nonperfection, and the priority of a security interest incollateral:

(1) Except as otherwise provided in this section, while a debtorislocated in a jurisdiction, the local law of that jurisdiction governsperfection, the effect of perfection or nonperfection, and thepriority of a security interest in collateral. (General Rule).

(2) While collateral is located in a jurisdiction, the local law of thatjurisdiction governs perfection, the effect of perfection ornonperfection, and the priority of a possessory security interest inthat collateral.

(3) Except as otherwise provided in paragraph (4), whilenegotiable documents, goods, instruments, money, ortangiblechattel paperis located in a jurisdiction, the local law of thatjurisdiction governs:

(A) perfection of a security interest in the goods by filing afixture filing;

(B) perfection of a security interest in timber to be cut; and

(C) the effect of perfection or nonperfection and thepriority of a nonpossessory security interest in thecollateral.

(4) The local law of the jurisdiction in which the wellhead orminehead is located governs perfection, the effect of perfection ornonperfection, and the priority of a security interest in as-extractedcollateral.

9-302. Law Governing Perfection and Priority of Agricultural Liens.

o Note: An agricultural lien is a statutory lien that gives the supplier of

seeds and fertilizers for farms a lien on the farm crops that the farmer willgrow. Some states have this law, Ohio does not. This is not a voluntarylien (like a security interest). Article 9 then covers that involuntarysecurity interest that the dealer has.

9-304. Law Governing Perfection and Priority of Security Interests in

Deposit Accounts.

o (a) [Law of bank's jurisdiction governs.] The local law of abank's

jurisdiction governs perfection, the effect of perfection or nonperfection,and the priority of a security interest in a deposit account maintained withthat bank.

o

(b) [Bank's jurisdiction.] The following rules determine abank'sjurisdiction for purposes of this part:

(1) If an agreement between thebankand the debtorgoverning thedeposit account expressly provides that a particular jurisdiction isthe bank's jurisdiction for purposes of this part, this article, or [theUniform Commercial Code], that jurisdiction is the bank'sjurisdiction.

(2) If paragraph (1) does not apply and an agreement between thebankand its customer governing the deposit account expressly
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