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210
“Debtors are liars.”
George Herbert
I. Teacher to Teacher Dialogue
The study of secured transactions allows teachers to focus on two sides of the same coin. One
involves the rights, duties, and obligations of the debtor and creditor. The statutory materials
covered in Article 9 of the UCC are extensive, and there is a lot of latitude on how to present
them.
the law of liens. The UCC has sought to interpolate the best elements of all these areas into a
cogent and organized structured system of facilitating secured credit transactions for the sale of
personal property.
This system is premised on the legal realism that merchants doing business with each other
Several practical factors make the law of secured transactions in personal property particular
troublesome. First, compared to real estate, personal property is portable. Being more moveable,
the role of making sure that the security interest attaches and stays with the goods is of critical
importance. Second, in a society based on credit, there is a strong likelihood that most large
distributors, and retailers. On the horizontal level, the users start with the consumer, his or her
family, and go on to third-party users or acquirers. With each shift, there lies the probability of
having to recognize new duties and obligations with respect to all parties having a legal
SECURED TRANSACTIONS
27
Secured Transactions
marketplace. Many of the protections and remedies accorded to creditors have long historical
tracings in the common law. In today’s highly codified scheme of things, most of the rights and
duties of both debtor and creditor are found in statutes, but the principles harken back to an earlier
age of debtor’s prisons and the like. The possibilities for fraud and conspiracy in this area of law
creditors fighting over priority rights to the debtor’s property. A proper examination of any credit
case answers both aspects. Although there are many sorts of credit relationships, the main focus
II. Chapter Objectives
1. Describe the scope of Revised Article 9 of the UCC.
2. Describe how a security interest in personal property is created.
III. Key Question Checklist
What are the various types of properties that are covered by Article 9 of the UCC?
What are the basic elements of a security agreement required by Article 9 of the UCC?
IV. Text Materials
Introduction to Secured Transactions and Electronic Filing
Lenders often take a security interest or collateral in purchased items or other property in order to
Secured Transactions
Chapter 27
Tangible personal property includes equipment, vehicles, furniture, computers, clothing, jewelry,
Uniform State Law: Revised Article 9 – Secured Transaction
Revised Article 9 includes modern and efficient rules that govern secured transactions in personal
property. Revised Article 9 includes changes to provisions that have been controversial in the
Secured Transaction – To protect its interests when loaning money to cover the purchase of a
Two-Party Secured Transaction – These transactions occur when a seller sells goods to a buyer
Three-Party Secured Transaction – It occurs when a seller sells goods to a buyer who has
Personal Property Subject to a Security Agreement – A security interest may be given in
Creating a Security Interest
Security Agreement – Written security agreements must clearly describe the collateral, contain
Attachment – The rights of a secured party attach to the collateral, provided that the debtor has a
The Floating-Lien Concept – A floating lien is one that may attach to a property that was not
executed is called after-acquired property.
Sale Proceeds – A secured party has the right to receive the proceeds from the sale of any
Secured Transactions
Perfecting a Security Interest
Perfecting a security interest will establish the right of a secured creditor against all other
creditors who may claim an interest in a piece of collateral.
Critical Legal Thinking – A financing statement is a document filed by a secured creditor with
Company v. Citizens National Bank
130 P.3d 57 2006 Kan. Lexis 141 (2006), Supreme Court of Kansas
Facts: Rodger House purchased a tractor on credit from Pankratz Implement Company with the
tractor being the collateral. The creditor filed a financing statement with the Kansas Secretary
of State using the misspelled name of the debtor, “Roger House.” Later, House obtained a
of House’s first name was seriously misleading and held in favor of CNB. Pankratz appealed.
Issue: Is Pankratz’s filing of the financing statement under the wrong first name of the debtor
seriously misleading?
Decision: The supreme court of Kansas affirmed the court of appeals judgment in CNB’s favor.
creditors because minor details such as spelling of the name can easily go wrong but this can lead
to lawsuits among competing secured creditors.
Perfection by Possession of Collateral – There is no filing requirement when the creditor has
physical possession of the collateral.
rule.
Chapter 27
Priority of Claims
The UCC has established rules for determining priority among conflicting claims. Secured
creditors have priority over unsecured claims. When there are two unperfected claims, the first to
the total product or mass.
Buyers in the Ordinary Course of Business – A buyer in the ordinary course of business who
purchases goods from a merchant takes the goods free of any perfected or unperfected security
Critical Legal Thinking – This way, a person is encouraged to pay over funds and to rely upon
good faith that he owns a good outright. Without this rule, it would be more difficult to
encourage purchasers to give up funds to purchase items.
Digital Law: Electronic Financing Statements and Records
Default and Remedies
Article 9 of the UCC defines the rights, duties, and remedies of both the secured party and the
debtor in the event of a default.
Retention of the Collateral – A secured creditor who intends to retain the collateral must send
notice to the debtor of his intentions, unless the debtor has renounced his rights in writing.
Disposal of the Collateral – A secured creditor must dispose of the collateral if he or she
Secured Transactions
surplus that remains.
Deficiency Judgment – Unless otherwise agreed, after a debtor’s default, if the proceeds from
the disposition of collateral are not sufficient to satisfy the debt to the secured party, the debtor is
personally liable to the secured party for the payment of the deficiency.
the collateral.
Relinquishing the Security Interest and Proceeding to Judgment on the Underlying Debt –
A secured creditor may relinquish his right to the collateral and proceed to obtain a judgment
against the debtor.
V. Key Terms and Concepts
After-acquired property—Property that the debtor acquires after the security agreement is
executed.
transactions in personal property.
Artisan’s lien—Artisan’s lien prevails over all other security interests in the goods unless a
statutory lien provides otherwise.
Attachment—Seizure by the creditor of property in the debtor’s possession in order to collect
on a debt while their lawsuit is pending.
security interest in the goods.
Collateral—Security against repayment of the note that lenders sometimes require; can be a
car, a house, or other property.
Consumer goods—Goods used primarily for personal, family, or household purposes.
Continuation statement—A continuation statement may be filed up to six months prior to the
constitute default.
Deficiency judgment—Judgment of a court that permits a secured lender to recover other
property or income from a defaulting debtor if the collateral is insufficient to repay the unpaid
loan.
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enforcement of electronic secured transactions.
Financing statement—A document filed by a secured creditor with the appropriate
government office that constructively notifies the world of his or her security interest in
personal property.
Floating lien—A security interest in property that was not in the possession of the debtor
advances, and sale proceeds.
Future advances—Personal property of the debtor that is designated as collateral for future
loans from a line of credit.
Judgment—A right granted to a secured creditor to relinquish his or her security interest in
Perfection by filing a financing statement—Creditor files a financing statement with the
appropriate government office.
Perfection by possession of collateral—If a secured creditor has physical possession of the
collateral no financing statement has to be filed: The creditor’s possession is sufficient to put
chattel paper, documents of title, and accounts.
Priority of claims—The order in which conflicting claims of creditors in the same collateral
are solved.
Purchase money security interest—An interest a creditor automatically obtains when it
extends credit to a consumer to purchase consumer goods.
default by the debtor.
Retention of collateral—If a secured creditor repossesses collateral upon a debtor’s default,
he or she may propose to retain the collateral in satisfaction of the debtor’s obligation.
Revised Article 9—Revised Article 9 includes modern and efficient rules that govern secured
transactions in personal property.
Secured Transactions
to a security agreement.
Secretary of state—A financing statement can be filled with the secretary of state.
Secured party—A seller, lender, or other party in whose favor there is a security interest.
Security interest—A security agreement creates or provides for a security interest.
Super-priority lien—An artisan’s lien that prevails over all other security interests in the
goods.
Tangible chattel paper—A record that evidences both a monetary obligation and a security
medium.
Tangible personal property—Tangible personal property includes equipment, vehicles,
furniture, computers, clothing, jewelry, and such.
Termination statement—A document filed by the secured party that ends a secured interest
because the debt has been paid.
personal property.
Written objection—A secured creditor must dispose of the collateral if he or she receives a
