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Secured Transactions Assignment 9

Secured Transactions Assignment 9. Collateral and Obligations Covered. The Big Picture. Chapter 1. Creditors’ Remedies Under State Law Chapter 2. Creditors’ Remedies in Bankruptcy Chapter 3. Creation of Security Interests Assignment 8: Formalities for Attachment

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Secured Transactions Assignment 9

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  1. Secured TransactionsAssignment 9 Collateral and Obligations Covered

  2. The Big Picture Chapter 1. Creditors’ Remedies Under State Law Chapter 2. Creditors’ Remedies in Bankruptcy Chapter 3. Creation of Security Interests Assignment 8: Formalities for Attachment Assignment 9: What Collateral and Obligations are Covered? Assignment 10: Proceeds (State Law) Assignment 11: Proceeds (Bankruptcy) Assignment 12: Skip

  3. The Big Picture Chapter 1. Creditors’ Remedies Under State Law Chapter 2. Creditors’ Remedies in Bankruptcy Chapter 3. Creation of Security Interests Assignment 8: Formalities for Attachment Assignment 9: What Collateral and Obligations are Covered? Assignment 10: Proceeds (State Law) Assignment 11: Proceeds (Bankruptcy) Assignment 12: Skip

  4. The Big Picture Chapter 1. Creditors’ Remedies Under State Law Chapter 2. Creditors’ Remedies in Bankruptcy Chapter 3. Creation of Security Interests Assignment 8: Formalities for Attachment Assignment 9: What Collateral and Obligations are Covered? Assignment 10: Proceeds (State Law) Assignment 11: Proceeds (Bankruptcy) Assignment 12: Skip

  5. Two issues in Assignment 9 Lien Security interest Asset “Collateral” Debt “Obligation” What collateral secures the obligations? What obligations are secured?

  6. Two issues in Assignment 9 Lien Security interest Asset “Collateral” Debt “Obligation” What collateral secures the obligations? What obligations are secured? Whatever the security agreement says

  7. Interpretation Generally: The rules of contract govern The security agreement speaks as of its execution “All equipment” means “all equipment presently owned” Exception for inventory, accounts, other rapid turnover assets But see §9-108 comment 3 Contract interpretation and validity

  8. Interpretation Generally: The rules of contract govern The security agreement speaks as of its execution “All equipment” means “all equipment presently owned” Exception for inventory, accounts, other rapid turnover assets But see §9-108 comment 3 Contract interpretation and validity

  9. Interpretation Generally: The rules of contract govern The security agreement speaks as of its execution “All equipment” means “all equipment presently owned” Exception for inventory, accounts, other rapid turnover assets But see §9-108 comment 3 Contract interpretation and validity

  10. Interpretation Generally: The rules of contract govern The security agreement speaks as of its execution “All equipment” means “all equipment presently owned” Exception for inventory, accounts, other rapid turnover assets But see §9-108 comment 3 Contract interpretation and validity

  11. Interpretation Generally: The rules of contract govern The security agreement speaks as of its execution “All equipment” means “all equipment presently owned” Exception for inventory, accounts, other rapid-turnover assets But see §9-108 comment 3 Contract interpretation and validity

  12. Interpretation Generally: The rules of contract govern The security agreement speaks as of its execution “All equipment” means “all equipment presently owned” Exception for inventory, accounts, other rapid- turnover assets But see §9-108 comment 3 Contract interpretation and validity

  13. Interpretation Generally: The rules of contract govern The security agreement speaks as of its execution “All equipment” means “all equipment presently owned” Exception for inventory, accounts, other rapid turnover assets But see §9-108 comment 3 Validity (of descriptions) 9-203(b)(3)(A) requires a description 9-108 permits Specific Category UCC category Quantity Computational formula Any other if “objectively determinable” Not “all assets” Not “commercial tort claims Not “consumer goods” Contract interpretation and validity “Much litigation has arisen over whether a description in a security agreement is sufficient to include after-acquired collateral if the agreement does not explicitly so provide.This question is one of contract interpretation and is not suceptible to a statutory rule. Accordingly, this seciton contains no reference to descriptions of after-acquired property.

  14. Interpretation Generally: The rules of contract govern The security agreement speaks as of its execution “All equipment” means “all equipment presently owned” Exception for inventory, accounts, other rapid turnover assets But see §9-108 comment 3 Validity (of descriptions) 9-203(b)(3)(A) requires a description 9-108 permits Specific Category UCC category Quantity Computational formula Any other if “objectively determinable” Not “all assets” Not “commercial tort claims Not “consumer goods” Contract interpretation and validity “Much litigation has arisen over whether a description in a security agreement is sufficient to include after-acquired collateral if the agreement does not explicitly so provide.This question is one of contract interpretation and is not susceptible to a statutory rule. Accordingly, this section contains no reference to descriptions of after-acquired property.”

  15. Interpretation Generally: The rules of contract govern The security agreement speaks as of its execution “All equipment” means “all equipment presently owned” Exception for inventory, accounts, other rapid turnover assets But see §9-108 comment 3 Validity (of descriptions) 9-203(b)(3)(A) requires a description 9-108 permits Specific Category UCC category Quantity Computational formula Any other if “objectively determinable” Not “all assets” Not “commercial tort claims Not “consumer goods” Contract interpretation and validity

  16. Interpretation Generally: The rules of contract govern The security agreement speaks as of its execution “All equipment” means “all equipment presently owned” Exception for inventory, accounts, other rapid turnover assets But see §9-108 comment 3 Validity (of descriptions) 9-203(b)(3)(A) requires a description 9-108 permits Specific Category UCC category Quantity Computational formula Any other if “objectively determinable” Not “all assets” Not “commercial tort claims Not “consumer goods” Contract interpretation and validity

  17. Interpretation Generally: The rules of contract govern The security agreement speaks as of its execution “All equipment” means “all equipment presently owned” Exception for inventory, accounts, other rapid turnover assets But see §9-108 comment 3 Validity (of descriptions) 9-203(b)(3)(A) requires a description 9-108 permits Specific Category UCC category Quantity Computational formula Any other if “objectively determinable” Not “all assets” Not “commercial tort claims Not “consumer goods” Contract interpretation and validity

  18. Interpretation Generally: The rules of contract govern The security agreement speaks as of its execution “All equipment” means “all equipment presently owned” Exception for inventory, accounts, other rapid turnover assets But see §9-108 comment 3 Validity (of descriptions) 9-203(b)(3)(A) requires a description 9-108 permits Specific Category UCC category Quantity Computational formula Any other if “objectively determinable” Not “all assets” Not “commercial tort claims Not “consumer goods” Contract interpretation and validity

  19. Validity (of descriptions) 9-203(b)(3)(A) requires a description 9-108 permits Specific Category UCC category Quantity Computational formula Any other if “objectively determinable” Not “all assets” Not “commercial tort claims Not “consumer goods” Contract interpretation and validity • Interpretation • Generally: The rules of contract govern • The security agreement speaks as of its execution • “All equipment” means “all equipment presently owned” • Exception for inventory, accounts, other rapid turnover assets • But see §9-108 comment 3

  20. Validity (of descriptions) 9-203(b)(3)(A) requires a description 9-108 permits Specific Category UCC category Quantity Computational formula Any other if “objectively determinable” Not “all assets” Not “commercial tort claims Not “consumer goods” Interpretation 1. Generally: The rules of contract govern 2. The security agreement speaks as of its execution 3. “All equipment” means “all equipment presently owned” 4. Exception for inventory, accounts, other rapid turnover assets 5. But see §9-108 comment 3 Contract interpretation and validity

  21. Validity (of descriptions) 9-203(b)(3)(A) requires a description 9-108 permits Specific Category UCC category Quantity Computational formula Any other if “objectively determinable” Not “all assets” Not “commercial tort claims Not “consumer goods” Interpretation 1. Generally: The rules of contract govern 2. The security agreement speaks as of its execution 3. “All equipment” means “all equipment presently owned” 4. Exception for inventory, accounts, other rapid turnover assets 5. But see §9-108 comment 3 Contract interpretation and validity

  22. Validity (of descriptions) 9-203(b)(3)(A) requires a description 9-108 permits Specific Category UCC category Quantity Computational formula Any other if “objectively determinable” Not “all assets” Not “commercial tort claims Not “consumer goods” Interpretation 1. Generally: The rules of contract govern 2. The security agreement speaks as of its execution 3. “All equipment” means “all equipment presently owned” 4. Exception for inventory, accounts, other rapid turnover assets 5. But see §9-108 comment 3 Contract interpretation and validity

  23. Validity (of descriptions) 9-203(b)(3)(A) requires a description 9-108 permits Specific Category UCC category Quantity Computational formula Any other if “objectively determinable” Not “all assets” Not “commercial tort claims” Not “consumer goods” Interpretation 1. Generally: The rules of contract govern 2. The security agreement speaks as of its execution 3. “All equipment” means “all equipment presently owned” 4. Exception for inventory, accounts, other rapid turnover assets 5. But see §9-108 comment 3 Contract interpretation and validity

  24. Validity (of descriptions) 9-203(b)(3)(A) requires a description 9-108 permits Specific Category UCC category Quantity Computational formula Any other if “objectively determinable” Not “all assets” Not “commercial tort claims” Not “consumer goods” Interpretation Generally: The rules of contract govern The security agreement speaks as of its execution “All equipment” means “all equipment presently owned” Exception for inventory, accounts, other rapid turnover assets But see §9-108 comment 3 Contract interpretation and validity

  25. After-Acquired Property Definition: Collateral acquired after security agreement is signed Issue: Must the description say “after-acquired” to include it? §9-204(a) A security agreement may provide for after acquired §9-108. Cmt 3. “Much litigation has arisen over whether a description in a security agreement is sufficient to include after-acquired collateral if the agreement does not explicitly so provide. This question is one of contract interpretation and is not susceptible to a statutory rule. . . . Accordingly, this section contains no reference to descriptions of after-acquired collateral. Case law: Cases turn on the facts. Most likely outcomes: “All inventory” is held to include after-acquired inventory “All equipment” is held not to include after-acquired

  26. Rules for interpretation and validity §9-108(a)(6) “Objectively determinable” by whom? Using what additional information?

  27. Rules for interpretation and validity §9-108(a)(6) “Objectively determinable” by whom? Using what additional information? • Example: “inventory” is goods held for sale – depends on debtor’s intention – OK

  28. Rules for interpretation and validity §9-108(a)(6) “Objectively determinable” by whom? Using what additional information? • Example: “inventory” is goods held for sale – depends on debtor’s intention – OK • Example: “Crops growing on real estate described by ASCS Farm Serial Number J-528” – OK

  29. Rules for interpretation and validity §9-108(a)(6) “Objectively determinable” by whom? Using what additional information? • Example: “inventory” is goods held for sale – depends on debtor’s intention – OK • Example: “Crops growing on real estate described by ASCS Farm Serial Number J-528” – OK • Example: “The equipment in the restaurant at 123 Main Street.” (Consider the possibility it will be moved.) – OK

  30. Rules for interpretation and validity §9-108(a)(6) “Objectively determinable” by whom? Using what additional information? • Example: “inventory” is goods held for sale – depends on debtor’s intention – OK • Example: “Crops growing on real estate described by ASCS Farm Serial Number J-528” – OK • Example: “The equipment in the restaurant at 123 Main Street.” (Consider the possibility it will be moved.) – OK • Example: “Creditor shall have a security interest in all items purchased on this account” – Not OK, Shirel

  31. Rules for interpretation and validity §9-108(a)(6) “Objectively determinable” by whom? Using what additional information? • Example: “inventory” is goods held for sale – depends on debtor’s intention – OK • Example: “Crops growing on real estate described by ASCS Farm Serial Number J-528” – OK • Example: “The equipment in the restaurant at 123 Main Street.” (Consider the possibility it will be moved.) – OK • Example: “Creditor shall have a security interest in all items purchased on this account” – Not OK, Shirel Shirel is an exception. Most courts allow extrinsic evidence. Otherwise, most descriptions would fail

  32. In re Shirel “It is understandable for a creditor to desire one catchall phrase which creates a security agreement in every possible situation. However, in doing so, it may not ignore one of the primary reasons for creating a security agreement, which is to give notice to a third party. [If that is the case why is it a private agreement nobody can read?] This can only be achieved by describing what property is subject to the security interest.” Judge Bohanon does not seem to understand the difference between a security agreement and a financing statement.

  33. Problem 9.1, page 160 • “All equipment and inventory” • §9-108(b)(3), “a type of collateral defined in the Uniform Commercial Code” • “All items purchased with the card” • “Restaurant equipment located at 123 Main Street.” Debtor has a restaurant there. • “All of the debtor’s consumer goods” • §9-108(e) • “All goods other than consumer goods.” §9-108(b)(3) UCC category. §9-108(c), supergeneric?

  34. Problem 9.2, page 161

  35. Problem 9.2, page 161 Description of collateral in Shirel (page 152): “Respondent will have a security interest in all ‘merchandise’ purchased with the credit card.”

  36. Problem 9.2, page 161 Description of collateral in Shirel (page 152): “Respondent will have a security interest in all ‘merchandise’ purchased with the credit card.” Holding: Description insufficient because it does not reasonably describe the collateral. Respondent is unsecured.

  37. Problem 9.2, page 161 Description of collateral in Shirel (page 152): “Respondent will have a security interest in all ‘merchandise’ purchased with the credit card.” Holding: Description insufficient because it does not reasonably describe the collateral. Respondent is unsecured. Our client’s (Walter’s Department Store) description of collateral (page 161): “Cardholder grants Walter’s a security interest in all items purchased on the account.”

  38. Problem 9.2, page 161 Description of collateral in Shirel (page 152): “Respondent will have a security interest in all ‘merchandise’ purchased with the credit card.” Holding: Description insufficient because it does not reasonably describe the collateral. Respondent is unsecured. Our client’s (Walter’s Department Store) description of collateral (page 161): “Cardholder grants Walter’s a security interest in all items purchased on the account.” Insufficient, but why . . . .

  39. Problem 9.2, page 161 Some statements from Shirel: The form says “respondent will have a security interest in all ‘merchandise’ purchased with the credit card.” page 152.

  40. Problem 9.2, page 161 Some statements from Shirel: The form says “respondent will have a security interest in all ‘merchandise’ purchased with the credit card.” page 152. [T]he phrase “all merchandise” is . . . too liberal, too imprecise, and is not a description. . . . [I]t does not set forth a graphic or detailed account of the purported collateral.”A “sufficient description might have been a refrigerator” p 153-4

  41. Problem 9.2, page 161 Some statements from Shirel: The form says “respondent will have a security interest in all ‘merchandise’ purchased with the credit card.” page 152. [T]he phrase “all merchandise” is . . . too liberal, too imprecise, and is not a description. . . . [I]t does not set forth a graphic or detailed account of the purported collateral.” A “sufficient description might have been a refrigerator” p 153-4 “One of the primary reasons for creating a security agreement . . . is to give notice to a third party. This can only be achieved by describing what property is subject to the security interest.”

  42. Problem 9.2, page 161 Some statements from Shirel: The form says “respondent will have a security interest in all ‘merchandise’ purchased with the credit card.” page 152. [T]he phrase “all merchandise” is . . . too liberal, too imprecise, and is not a description. . . . [I]t does not set forth a graphic or detailed account of the purported collateral.” A “sufficient description might have been a refrigerator” p 153-4 “One of the primary reasons for creating a security agreement . . . is to give notice to a third party. This can only be achieved by describing what property is subject to the security interest.” What can we do to satisfy Judge Bohanon?

  43. Problem 9.2, page 161 Some statements from Shirel: The form says “respondent will have a security interest in all ‘merchandise’ purchased with the credit card.” page 152. [T]he phrase “all merchandise” is . . . too liberal, too imprecise, and is not a description. . . . [I]t does not set forth a graphic or detailed account of the purported collateral.” A “sufficient description might have been a refrigerator” p 153-4 “One of the primary reasons for creating a security agreement . . . is to give notice to a third party. This can only be achieved by describing what property is subject to the security interest.” What can we do to satisfy Judge Bohanon? 16 CFR 444.1 prohibits taking . . . a nonpossessory security interest in household goods other than a purchase money security interest.

  44. Problem 9.4, page 161 SA signed Planting Now Harvest Crop in ground Description: “crops growing on the debtor’s farm in Osprey County, about 14 miles from Tilanook”

  45. Problem 9.4, page 161 SA signed Planting Now Harvest Crop in ground • Description: “crops growing on the debtor’s farm in Osprey County, about 14 miles from Tilanook” • Does First National have a SI in these crops?

  46. Problem 9.4, page 161 SA signed Planting Now Harvest Crop in ground Crop in ground • Description: “crops growing on the debtor’s farm in Osprey County, about 14 miles from Tilanook” • Does First National have a SI in these crops? Make any difference if there were crops in the ground when the security agreement was signed?

  47. Problem 9.4, page 161 SA signed Planting Now Harvest Crop in ground Crop in ground • Description: “crops growing on the debtor’s farm in Osprey County, about 14 miles from Tilanook” • Does First National have a SI in these crops? Make any difference if there were crops in the ground when the security agreement was signed?

  48. Problem 9.4, page 161 SA signed Planting Now Harvest Crop in ground Crop in ground • Description: “crops growing on the debtor’s farm in Osprey County, about 14 miles from Tilanook” • Does First National have a SI in these crops? Make any difference if there were crops in the ground when the security agreement was signed? Future crops or none!

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