Secured Transactions Assignment 21

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Secured Transactions Assignment 21 Powered By Docstoc
					Secured Transactions
   Assignment 21
Characterizing Collateral and
       Transactions




                                1
                The Big Picture
Part Two: The Creditor Third Party Relationship
  Chapter 6-7: Perfection
      Assignment 16: Personal Property Filing Systems
      Assignment 17: Financing Statements: The Debtor‟s
            Name
      Assignment 18: Financing Statements: Other
            Information
      Assignment 19: Exceptions to Filing
      Assignment 20: Real Estate Recording Systems
      Assignment 21: Characterizing Collateral and
            Transactions
                                                        2
Characterizing Promises to Pay Money
§9-102(a)(11). “Chattel paper” means . . . records that
evidence both a monetary obligation and a security
interest in specific goods . . . .”




                                                          3
 Characterizing Promises to Pay Money
 §9-102(a)(11). “Chattel paper” means . . . records that
 evidence both a monetary obligation and a security
 interest in specific goods . . . .”




                                             Chattel
                                             Paper

Chattel paper is chattel paper

                                                           4
 Characterizing Promises to Pay Money
 §9-102(a)(47). “Instrument” means a negotiable instrument




                                           Chattel
                                           Paper

Chattel paper is chattel paper

                                                         5
 Characterizing Promises to Pay Money
 §9-102(a)(47). “Instrument” means a negotiable instrument
 or any other writing that [1] evidences a right to the payment
 of a monetary obligation, is not itself a security agreement or
 lease and [3] is of a type that in ordinary course of business
 is transferred by delivery with any necessary indorsement . .
 .”



                                               Chattel
                                               Paper

Chattel paper is chattel paper

                                                              6
 Characterizing Promises to Pay Money
 §9-102(a)(47). “Instrument” means a negotiable instrument
 or any other writing that [1] evidences a right to the payment
 of a monetary obligation, is not itself a security agreement or
 lease and [3] is of a type that in ordinary course of business
 is transferred by delivery with any necessary indorsement . .
 .”
                                            Instruments
An instrument is an instrument if              Chattel
it is not chattel paper
                                               Paper

Chattel paper is chattel paper

                                                              7
 Characterizing Promises to Pay Money
 §9-102(a)(2). “Account” means a right to payment of a
 monetary obligation . . . (i) for property that has been . .
 .sold, (ii) for services rendered . . .




                                              Instruments
An instrument is an instrument if                Chattel
it is not chattel paper
                                                 Paper

Chattel paper is chattel paper

                                                                8
 Characterizing Promises to Pay Money
 §9-102(a)(2). “Account” means a right to payment of a
 monetary obligation . . . (i) for property that has been . .
 .sold, (ii) for services rendered . . . The term does not
 include (i) rights . . . evidenced by chattel paper or an
 instrument.


                                              Instruments
An instrument is an instrument if                Chattel
it is not chattel paper
                                                 Paper

Chattel paper is chattel paper

                                                                9
 Characterizing Promises to Pay Money
  §9-102(a)(2). “Account” means a right to payment of a
  monetary obligation . . . (i) for property that has been . .
  .sold, (ii) for services rendered . . . The term does not
  include (i) rights . . . evidenced by chattel paper or an
  instrument.
An account is an account if it                   Accounts
is not an instrument or chattel
paper                                           Instruments
An instrument is an instrument if                 Chattel
it is not chattel paper
                                                  Paper

Chattel paper is chattel paper

                                                                 10
 Characterizing Promises to Pay Money
                                  §9-102(a)(61). “Payment intan-
                                  gible” means a general intangible
                                  [that is] a monetary obligation.


An account is an account if it                 Accounts
is not an instrument or chattel
paper                                         Instruments
An instrument is an instrument if               Chattel
it is not chattel paper
                                                Paper

Chattel paper is chattel paper

                                                              11
 Characterizing Promises to Pay Money
                                  §9-102(a)(61). “Payment intan-
                                  gible” means a general intangible
                                  [that is] a monetary obligation.


An account is an account if it                 Accounts
is not an instrument or chattel
paper                                         Instruments
An instrument is an instrument if               Chattel
it is not chattel paper
                                                Paper

Chattel paper is chattel paper

§9-102(a)(42). “General intangible” means personal property12
other than accounts, chattel paper . . . instruments . . .
 Characterizing Promises to Pay Money
                                  §9-102(a)(61). “Payment intan-
A payment intangible is a
                                  gible” means a general intangible
payment intangible if it is
                                  [that is] a monetary obligation.
not an account, instrument,
or chattel paper                         Payment intangibles

An account is an account if it                 Accounts
is not an instrument or chattel
paper                                         Instruments
An instrument is an instrument if               Chattel
it is not chattel paper
                                                Paper

Chattel paper is chattel paper

§9-102(a)(42). “General intangible” means personal property13
other than accounts, chattel paper . . . instruments . . .
            Characterizing Goods
Inventory §9-102(a)(48)
“goods other than farm products”

Equipment §9-102(a)(48)
“not inventory or farm products”

Farm Products §9-102(a)(48)
“debtor engaged in farming operations”

Consumer Goods §9-102(a)(48)
“personal family or household purposes”

This box represents the category of “all goods.”
                                                   14
           Characterizing Goods
Inventory §9-102(a)(48)
“goods other than farm products which . . are held for sale”

Equipment §9-102(a)(48)
“not inventory or farm products”

Farm Products §9-102(a)(48)
“debtor engaged in farming operations”

Consumer Goods §9-102(a)(48)
“personal family or household purposes”

Inventory and farm products are goods held by businesses
for sale.                                               15
           Characterizing Goods
Inventory §9-102(a)(48)
“goods other than farm products which . . are held for sale”

Equipment §9-102(a)(48)
“not inventory or farm products”

Farm Products §9-102(a)(48)
“debtor engaged in farming operations”

Consumer Goods §9-102(a)(48)
“personal family or household purposes”

“Equipment” is goods held by a businesses not for sale.
                                                          16
           Characterizing Goods
Inventory §9-102(a)(48)
“goods other than farm products which . . are held for sale”

Equipment §9-102(a)(48)
“not inventory or farm products”

Farm Products §9-102(a)(48)
“debtor engaged in farming operations”

Consumer Goods §9-102(a)(48)
“personal family or household purposes”

“Consumer goods” are goods used or bought for personal,
family, or household purposes” – not business use.      17
           Characterizing Goods
Inventory §9-102(a)(48)
“goods other than farm products which . . are held for sale”

Equipment §9-102(a)(48)
“not inventory or farm products”

Farm Products §9-102(a)(48)                Fixtures
“debtor engaged in farming operations”

Consumer Goods §9-102(a)(48)
“personal family or household purposes”

Equipment, farm products, or consumer goods may be
fixtures.                                                 18
           Characterizing Goods
Inventory §9-102(a)(48)
“goods other than farm products which . . are held for sale”

Equipment §9-102(a)(48)                    Business built-
                                           ins
“not inventory or farm products”

Farm Products §9-102(a)(48)                Fixtures
“debtor engaged in farming operations”

Consumer Goods §9-102(a)(48)
“personal family or household purposes”

Equipment, farm products, or consumer goods may be
fixtures.                                                    19
           Characterizing Goods
Inventory §9-102(a)(48)
“goods other than farm products which . . are held for sale”

Equipment §9-102(a)(48)                    Business built-
                                           ins
“not inventory or farm products”

Farm Products §9-102(a)(48)                Fixtures
“debtor engaged in farming operations”     Crops, trees

Consumer Goods §9-102(a)(48)
“personal family or household purposes”

Equipment, farm products, or consumer goods may be
fixtures.                                                    20
           Characterizing Goods
Inventory §9-102(a)(48)
“goods other than farm products which . . are held for sale”

Equipment §9-102(a)(48)                    Business built-
                                           ins
“not inventory or farm products”

Farm Products §9-102(a)(48)                Fixtures
“debtor engaged in farming operations”     Crops, trees

Consumer Goods §9-102(a)(48)
                                           Home built-ins
“personal family or household purposes”

Equipment, farm products, or consumer goods may be
fixtures.                                                    21
                   Basic Concepts
§9-109(a)(3). [Article 9] applies to . . . a sale of accounts,
  chattel paper, payment intangibles, or promissory notes
§1-201(b)(35). “„Security interest‟ includes any interest of a
  buyer of accounts . . . .”
§9-102(a)(72). “Secured party‟ means . . . a person to
  which accounts . . . have been sold”
§9-102(a)(28). “Debtor‟ means . . . a seller of accounts . . .”
Comment 5. “The principal effect . . . is to apply this
  article‟s perfection and priority rules to these sales
  transaction”


                                                                 22
               Basic Concepts
        Sale of
 Seller accounts   Buyer
  Accounts          Debt and
  owing             equity
Account          Investors
debtors




                                23
               Basic Concepts
        Sale of                Article 9 tells us to re-
 Seller accounts   Buyer       label.
  Accounts          Debt and
  owing             equity
Account          Investors
debtors




                                                       24
               Basic Concepts
         Security Secured       Article 9 tells us to re-
Debtor                          label.
         interest   party
  Accounts           Debt and
  owing              equity
Account           Investors
debtors




                                                        25
               Basic Concepts
         Security Secured       Article 9 tells us to re-
Debtor                          label.
         interest   party
  Accounts           Debt and   Who owns the
  owing              equity     accounts? §9-623(c)
Account           Investors
debtors




                                                        26
               Basic Concepts
         Security Secured       Article 9 tells us to re-
Debtor                          label.
         interest   party
  Accounts           Debt and   Who owns the
  owing              equity     accounts? §9-623(c)
Account           Investors     Octagon Gas: the debtor
debtors




                                                        27
                    Basic Concepts
          Security Secured              Article 9 tells us to re-
 Debtor                                 label.
          interest   party
   Accounts           Debt and          Who owns the
   owing              equity            accounts? §9-623(c)
 Account           Investors            Octagon Gas: the debtor
 debtors

Bankruptcy Code §541(a). The estate owns “all legal or
equitable interests of the debtor in property of the estate.”




                                                                28
                    Basic Concepts
          Security Secured              Article 9 tells us to re-
 Debtor                                 label.
          interest   party
   Accounts           Debt and          Who owns the
   owing              equity            accounts? §9-623(c)
 Account           Investors            Octagon Gas: the debtor
 debtors

Bankruptcy Code §541(a). The estate owns “all legal or
equitable interests of the debtor in property of the estate.”
§362(a). Bankruptcy stays “any act . . . to exercise control over
property of the estate.”



                                                                29
                    Basic Concepts
          Security Secured              Article 9 tells us to re-
 Debtor                                 label.
          interest   party
   Accounts           Debt and          Who owns the
   owing              equity            accounts? §9-623(c)
 Account           Investors            Octagon Gas: the debtor
 debtors

Bankruptcy Code §541(a). The estate owns “all legal or
equitable interests of the debtor in property of the estate.”
§362(a). Bankruptcy stays “any act . . . to exercise control over
property of the estate.”
§363(b)(1). “The trustee . . . may use . . . property of the estate”

                                                                30
                    Basic Concepts
          Security Secured              Article 9 tells us to re-
 Debtor                                 label.
          interest   party
   Accounts           Debt and          Who owns the
   owing              equity            accounts? §9-623(c)
 Account           Investors            Octagon Gas: the debtor
 debtors

Bankruptcy Code §541(a). The estate owns “all legal or
equitable interests of the debtor in property of the estate.”
§362(a). Bankruptcy stays “any act . . . to exercise control over
property of the estate.”
§363(b)(1). “The trustee . . . may use . . . property of the estate”
§9-318(1). “A debtor that has sold an account . . . does not
retain a legal or equitable interest in the collateral sold.” 31
                    Basic Concepts
          Security Secured             §9-310(a). A financing
 Debtor
          interest   party             statement must be filed
   Accounts           Debt and         to perfect all security
   owing              equity           interests except: [9-
 Account           Investors           309(2), (3), and (4)].
 debtors

Bankruptcy Code §541(a). The estate owns “all legal or
equitable interests of the debtor in property of the estate.”
§362(a). Bankruptcy stays “any act . . . to exercise control over
property of the estate.”
§363(b)(1). “The trustee . . . may use . . . property of the estate”
§9-318(1). “A debtor that has sold an account . . . does not
retain a legal or equitable interest in the collateral sold.” 32
            Problem 21.1, page 373
How should a secured party perfect in:
a. Money owing from sale of liquor license (oral agreement)?




                                                          33
            Problem 21.1, page 373
How should a secured party perfect in:
a. Money owing from sale of liquor license (oral agreement)?
  Chattel paper? §9-102(a)(11).




                                                          34
            Problem 21.1, page 373
How should a secured party perfect in:
a. Money owing from sale of liquor license (oral agreement)?
  Chattel paper? §9-102(a)(11). No record.




                                                          35
            Problem 21.1, page 373
How should a secured party perfect in:
a. Money owing from sale of liquor license (oral agreement)?
  Chattel paper? §9-102(a)(11). No record.
  Instrument? §9-102(a)(47).




                                                          36
            Problem 21.1, page 373
How should a secured party perfect in:
a. Money owing from sale of liquor license (oral agreement)?
  Chattel paper? §9-102(a)(11). No record.
  Instrument? §9-102(a)(47). No writing.




                                                          37
             Problem 21.1, page 373
How should a secured party perfect in:
a. Money owing from sale of liquor license (oral agreement)?
  Chattel paper? §9-102(a)(11). No record.
  Instrument? §9-102(a)(47). No writing.
  Account?




                                                          38
            Problem 21.1, page 373
How should a secured party perfect in:
a. Money owing from sale of liquor license (oral agreement)?
  Chattel paper? §9-102(a)(11). No record.
  Instrument? §9-102(a)(47). No writing.
  Account? §9-102(a)(2) “right to payment of a monetary
  obligation (i) for property that has been sold.”




                                                          39
            Problem 21.1, page 373
How should a secured party perfect in:
a. Money owing from sale of liquor license (oral agreement)?
  Chattel paper? §9-102(a)(11). No record.
  Instrument? §9-102(a)(47). No writing.
  Account? §9-102(a)(2) “right to payment of a monetary
  obligation (i) for property that has been sold.”
  Payment intangible?




                                                          40
            Problem 21.1, page 373
How should a secured party perfect in:
a. Money owing from sale of liquor license (oral agreement)?
  Chattel paper? §9-102(a)(11). No record.
  Instrument? §9-102(a)(47). No writing.
  Account? §9-102(a)(2) “right to payment of a monetary
  obligation (i) for property that has been sold.”
  Payment intangible? Not if it is an account. §9-
  102(a)(42)




                                                          41
            Problem 21.1, page 373
How should a secured party perfect in:
a. Money owing from sale of liquor license (oral agreement)?
  Chattel paper? §9-102(a)(11). No record.
  Instrument? §9-102(a)(47). No writing.
  Account? §9-102(a)(2) “right to payment of a monetary
  obligation (i) for property that has been sold.”
  Payment intangible? Not if it is an account. §9-
  102(a)(42)
  How does one perfect in an account? §9-310(a) and (b).



                                                          42
              Problem 21.1, page 373
How should a secured party perfect in:
a. Money owing from sale of liquor license (oral agreement)?
  Chattel paper? §9-102(a)(11). No record.
  Instrument? §9-102(a)(47). No writing.
  Account? §9-102(a)(2) “right to payment of a monetary
  obligation (i) for property that has been sold.”
  Payment intangible? Not if it is an account. §9-
  102(a)(42)
  How does one perfect in an account? §9-310(a) and (b).
      File.

                                                          43
              Problem 21.1, page 373
b. How does Secured perfect a
   security interest in this mortgage?   Secured
                                          Security interest
                                          Buyer
                                           Sale
                                         Mortgagee      Mortgagor




                                                              44
              Problem 21.1, page 373
b. How does Secured perfect a
   security interest in this mortgage?   Secured
Article 9 applies. §9-109(b).             Security interest
                                          Buyer
                                           Sale
                                         Mortgagee      Mortgagor




                                                              45
              Problem 21.1, page 373
b. How does Secured perfect a
   security interest in this mortgage?   Secured
Article 9 applies. §9-109(b).             Security interest
Secured perfects in the payment           Buyer
  right. That perfects in the              Sale
  mortgage. §9-308(e)                    Mortgagee       Mortgagor
                                                 Payment
                                                   right




                                                              46
              Problem 21.1, page 373
b. How does Secured perfect a
   security interest in this mortgage?   Secured
Article 9 applies. §9-109(b).             Security interest
Secured perfects in the payment           Buyer    Payment
  right. That perfects in the              Sale       right
  mortgage. §9-308(e)                    Mortgagee    Mortgagor




                                                              47
              Problem 21.1, page 373
b. How does Secured perfect a
   security interest in this mortgage?   Secured
Article 9 applies. §9-109(b).             Security interest
Secured perfects in the payment           Buyer
  right. That perfects in the              Sale
  mortgage. §9-308(e)                    Mortgagee      Mortgagor
The payment right could be:




                                                              48
              Problem 21.1, page 373
b. How does Secured perfect a
   security interest in this mortgage?   Secured
Article 9 applies. §9-109(b).             Security interest
Secured perfects in the payment           Buyer
  right. That perfects in the              Sale
  mortgage. §9-308(e)                    Mortgagee       Mortgagor
The payment right could be:
1. An instrument, if it is negotiable note or rough equivalent




                                                                 49
              Problem 21.1, page 373
b. How does Secured perfect a
   security interest in this mortgage?   Secured
Article 9 applies. §9-109(b).             Security interest
Secured perfects in the payment           Buyer
  right. That perfects in the              Sale
  mortgage. §9-308(e)                    Mortgagee       Mortgagor
The payment right could be:
1. An instrument, if it is negotiable note or rough equivalent
2. An account, if it is not an instrument and the mortgage was
   given as the purchase price of the property



                                                                 50
              Problem 21.1, page 373
b. How does Secured perfect a
   security interest in this mortgage?   Secured
Article 9 applies. §9-109(b).             Security interest
Secured perfects in the payment           Buyer
  right. That perfects in the              Sale
  mortgage. §9-308(e)                    Mortgagee       Mortgagor
The payment right could be:
1. An instrument, if it is negotiable note or rough equivalent
2. An account, if it is not an instrument and the mortgage was
   given as the purchase price of the property
3. A payment intangible, if it is not an instrument and not an
   account. E.g., the mortgage secured repayment of a loan.
                                                                 51
              Problem 21.1, page 373
b. How does Secured perfect a
   security interest in this mortgage?   Secured
Article 9 applies. §9-109(b).             Security interest
Secured perfects in the payment           Buyer
  right. That perfects in the              Unperfected sale
  mortgage. §9-308(e)                    Mortgagee     Mortgagor
The payment right could be:
1. An instrument, if it is negotiable note or rough equivalent
2. An account, if it is not an instrument and the mortgage was
   given as the purchase price of the property
3. A payment intangible, if it is not an instrument and not an
   account. E.g., the mortgage secured repayment of a loan.
If Buyer failed to perfect, Secured‟s collateral is an unperfected
                                                               52
   interest in a perfected mortgage.
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
d. The lessee‟s interest in a lease?  Security interest
                                     Lessee          Lessor




                                                          53
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
d. The lessee‟s interest in a lease?  Security interest
  Article 9 probably doesn‟t apply      Lessee           Lessor
  §9-109(d)(11). “This article does not apply to . . . the
  transfer of an interest in . . . real property.”




                                                             54
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
d. The lessee‟s interest in a lease?  Security interest
  Article 9 probably doesn‟t apply      Lessee           Lessor
  §9-109(d)(11). “This article does not apply to . . . the
  transfer of an interest in . . . real property.”
e. Wheat growing in the farmer-debtor‟s field?




                                                             55
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
d. The lessee‟s interest in a lease?  Security interest
  Article 9 probably doesn‟t apply      Lessee           Lessor
  §9-109(d)(11). “This article does not apply to . . . the
  transfer of an interest in . . . real property.”
e. Wheat growing in the farmer-debtor‟s field?
  Step 1. Does article 9 apply?




                                                             56
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
d. The lessee‟s interest in a lease?  Security interest
  Article 9 probably doesn‟t apply      Lessee           Lessor
  §9-109(d)(11). “This article does not apply to . . . the
  transfer of an interest in . . . real property.”
e. Wheat growing in the farmer-debtor‟s field?
  Step 1. Does article 9 apply?
      §9-109(d)(11). Are crops “real property?” No,
         because they are not permanently affixed
      Comment 12 to §9-334. Article 9 overrides real
        estate law
                                                             57
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
d. The lessee‟s interest in a lease?  Security interest
  Article 9 probably doesn‟t apply      Lessee           Lessor
  §9-109(d)(11). “This article does not apply to . . . the
  transfer of an interest in . . . real property.”
e. Wheat growing in the farmer-debtor‟s field?
  Step 1. Does article 9 apply?
      §9-109(d)(11). Are crops “real property?” No,
         because they are not permanently affixed
      Comment 12 to §9-334. Article 9 overrides real
        estate law
  Step 2. What does Article 9 require?                       58
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
d. The lessee‟s interest in a lease?  Security interest
  Article 9 probably doesn‟t apply      Lessee           Lessor
  §9-109(d)(11). “This article does not apply to . . . the
  transfer of an interest in . . . real property.”
e. Wheat growing in the farmer-debtor‟s field?
  Step 1. Does article 9 apply?
      §9-109(d)(11). Are crops “real property?” No,
         because they are not permanently affixed
      Comment 12 to §9-334. Article 9 overrides real
        estate law
  Step 2. What does Article 9 require? Filing. §9-310(a)     59
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
f. A franchisee‟s interest?           Security interest
                                    Franchisee     Franchisor




                                                          60
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
f. A franchisee‟s interest?           Security interest
Step 1: Does Article 9 apply?       Franchisee     Franchisor




                                                          61
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
f. A franchisee‟s interest?           Security interest
Step 1: Does Article 9 apply?           Franchisee      Franchisor
  §9-109(a)(1). “This article applies to a . . . a transaction . .
  . that creates a security interest in personal property. . .”




                                                               62
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
f. A franchisee‟s interest?           Security interest
Step 1: Does Article 9 apply?           Franchisee      Franchisor
  §9-109(a)(1). “This article applies to a . . . a transaction . .
  . that creates a security interest in personal property. . .”
Step 2: What does Article 9 require?




                                                               63
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
f. A franchisee‟s interest?           Security interest
Step 1: Does Article 9 apply?           Franchisee      Franchisor
  §9-109(a)(1). “This article applies to a . . . a transaction . .
  . that creates a security interest in personal property. . .”
Step 2: What does Article 9 require? Filing for a general
  intangible (contract rights).




                                                               64
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
f. A franchisee‟s interest?           Security interest
Step 1: Does Article 9 apply?           Franchisee      Franchisor
  §9-109(a)(1). “This article applies to a . . . a transaction . .
  . that creates a security interest in personal property. . .”
Step 2: What does Article 9 require? Filing for a general
  intangible (contract rights).
  The franchisor is an account debtor. §9-102(a)(3).
  The “nontransferable” restriction is not effective. §9-
  408(a).


                                                               65
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
g. An electronic CD?                   Security interest
   Instrument?                       Depositor CD       Bank




                                                         66
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
g. An electronic CD?                   Security interest
   Instrument? No, §1-201(b)(43)     Depositor CD       Bank




                                                         67
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
g. An electronic CD?                   Security interest
   Instrument? No, §1-201(b)(43)     Depositor CD       Bank
  General intangible?




                                                         68
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
g. An electronic CD?                   Security interest
   Instrument? No, §1-201(b)(43)     Depositor CD       Bank
  General intangible? Not if it is a deposit account.




                                                         69
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
g. An electronic CD?                   Security interest
   Instrument? No, §1-201(b)(43)     Depositor CD       Bank
  General intangible? Not if it is a deposit account.
  Deposit account?




                                                         70
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
g. An electronic CD?                   Security interest
   Instrument? No, §1-201(b)(43)     Depositor CD       Bank
  General intangible? Not if it is a deposit account.
  Deposit account? Yes. §9-102(a)(29) “time account”




                                                         71
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
g. An electronic CD?                   Security interest
   Instrument? No, §1-201(b)(43)     Depositor CD       Bank
  General intangible? Not if it is a deposit account.
  Deposit account? Yes. §9-102(a)(29) “time account”
How does secured party perfect in a deposit account?




                                                         72
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
g. An electronic CD?                   Security interest
   Instrument? No, §1-201(b)(43)     Depositor CD       Bank
  General intangible? Not if it is a deposit account.
  Deposit account? Yes. §9-102(a)(29) “time account”
How does secured party perfect in a deposit account?
  Control. §9-314, 9-104.




                                                         73
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
h. Electronic chattel paper?          Security interest
                                      Debtor       Acct debtor
                                          Chattel paper




                                                          74
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
h. Electronic chattel paper?          Security interest
  1. Can secured perfect by filing?   Debtor       Acct debtor
                                          Chattel paper




                                                          75
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
h. Electronic chattel paper?          Security interest
  1. Can secured perfect by filing?   Debtor       Acct debtor
      Yes, §9-312(a)                      Chattel paper




                                                          76
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
h. Electronic chattel paper?          Security interest
  1. Can secured perfect by filing?    Debtor       Acct debtor
      Yes, §9-312(a)                       Chattel paper

  2. Can secured perfect by control?




                                                          77
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
h. Electronic chattel paper?          Security interest
  1. Can secured perfect by filing?    Debtor       Acct debtor
      Yes, §9-312(a)                       Chattel paper

  2. Can secured perfect by control?
      Yes, §9-314(a)




                                                          78
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
h. Electronic chattel paper?          Security interest
  1. Can secured perfect by filing?    Debtor       Acct debtor
      Yes, §9-312(a)                       Chattel paper

  2. Can secured perfect by control?
      Yes, §9-314(a)
How can secured take control of chattel paper? §9-105




                                                          79
            Problem 21.1, page 373
                                     Secured
How should secured party perfect in:
                                      Party
h. Electronic chattel paper?          Security interest
  1. Can secured perfect by filing?    Debtor       Acct debtor
      Yes, §9-312(a)                       Chattel paper

  2. Can secured perfect by control?
      Yes, §9-314(a)
How can secured take control of chattel paper? §9-105
  Create the authoritative copy and keep possession




                                                          80
            Problem 21.1, page 373
How should a secured party perfect in:
i. Software on a consumer debtor‟s computer?
  Is this goods? Software? General intangible?




                                                 81
            Problem 21.1, page 373
How should a secured party perfect in:
i. Software on a consumer debtor‟s computer?
  Is this goods? Software? General intangible?
      Not goods. Comment 4.a to §9-102
      General intangibles includes software: §9-102(a)(75),
                 §9-102(a)(42).




                                                         82
            Problem 21.1, page 373
How should a secured party perfect in:
i. Software on a consumer debtor‟s computer?
  Is this goods? Software? General intangible?
      Not goods. Comment 4.a to §9-102
      General intangibles includes software: §9-102(a)(75),
                 §9-102(a)(42).
  File a financing statement. §9-310(a)




                                                         83
            Problem 21.1, page 373
How should a secured party perfect in:
i. Software on a consumer debtor‟s computer?
  Is this goods? Software? General intangible?
      Not goods. Comment 4.a to §9-102
      General intangibles includes software: §9-102(a)(75),
                 §9-102(a)(42).
  File a financing statement. §9-310(a)
j. Documentation and manuals for software?




                                                         84
            Problem 21.1, page 373
How should a secured party perfect in:
i. Software on a consumer debtor‟s computer?
  Is this goods? Software? General intangible?
      Not goods. Comment 4.a to §9-102
      General intangibles includes software: §9-102(a)(75),
                 §9-102(a)(42).
  File a financing statement. §9-310(a)
j. Documentation and manuals for software?
  Probably included in the software, §9-102(a)(75)


                                                         85
                Sale-Lease Distinction
§ 9-109(a)(1) [T]his article applies to a transaction, regardless
   of its form, that creates a security interest in personal property




                                                                86
                Sale-Lease Distinction
§ 9-109(a)(1) [T]his article applies to a transaction, regardless
   of its form, that creates a security interest in personal property
§1-203. “[A] transaction in the form of a lease creates a security
  interest if the consideration . . . is an obligation for the term of
  the lease not subject to termination by the lessee




                                                                 87
                Sale-Lease Distinction
§ 9-109(a)(1) [T]his article applies to a transaction, regardless
   of its form, that creates a security interest in personal property
§1-203. “[A] transaction in the form of a lease creates a security
  interest if the consideration . . . is an obligation for the term of
  the lease not subject to termination by the lessee, and . . . [the
  lease is for the remaining economic life of the goods




                    Economic life
Security interest
                    Lease term
                                                                 88
                Sale-Lease Distinction
§ 9-109(a)(1) [T]his article applies to a transaction, regardless
   of its form, that creates a security interest in personal property
§1-203. “[A] transaction in the form of a lease creates a security
  interest if the consideration . . . is an obligation for the term of
  the lease not subject to termination by the lessee, and . . . [the
  lease is for the remaining economic life of the goods by
  1. Original term




                     Economic life
Security interest
                     Lease term
                                                                 89
                Sale-Lease Distinction
§ 9-109(a)(1) [T]his article applies to a transaction, regardless
   of its form, that creates a security interest in personal property
§1-203. “[A] transaction in the form of a lease creates a security
  interest if the consideration . . . is an obligation for the term of
  the lease not subject to termination by the lessee, and . . . [the
  lease is for the remaining economic life of the goods by
  1. Original term
  2. Required renewal or purchase




                     Economic life
Security interest
                     Lease term Mandatory renewal
                                                                 90
                Sale-Lease Distinction
§ 9-109(a)(1) [T]his article applies to a transaction, regardless
   of its form, that creates a security interest in personal property
§1-203. “[A] transaction in the form of a lease creates a security
  interest if the consideration . . . is an obligation for the term of
  the lease not subject to termination by the lessee, and . . . [the
  lease is for the remaining economic life of the goods by
  1. Original term
  2. Required renewal or purchase
  3. Renewal term for no (or nominal) additional consideration


                     Economic life
Security interest
                     Lease term Free renewal
                                                                 91
                Sale-Lease Distinction
§ 9-109(a)(1) [T]his article applies to a transaction, regardless
   of its form, that creates a security interest in personal property
§1-203. “[A] transaction in the form of a lease creates a security
  interest if the consideration . . . is an obligation for the term of
  the lease not subject to termination by the lessee, and . . . [the
  lease is for the remaining economic life of the goods by
  1. Original term
  2. Required renewal or purchase
  3. Renewal term for no (or nominal) additional consideration
  4. Option to buy for no (or nominal) additional consideration]”

                     Economic life
Security interest
                     Lease term Option to buy for free
                                                                 92
                 Sale-Lease Distinction
§ 9-109(a)(1) [T]his article applies to a transaction, regardless
   of its form, that creates a security interest in personal property
§1-203. “[A] transaction in the form of a lease creates a security
  interest if the consideration . . . is an obligation for the term of
  the lease not subject to termination by the lessee, and . . . [the
  lease is for the remaining economic life of the goods by
  1. Original term
  2. Required renewal or purchase
  3. Renewal term for no (or nominal) additional consideration
  4. Option to buy for no (or nominal) additional consideration]”

                     Economic life
         Lease
                     Lease term        “Meaningful reversion”
                                                                 93
                      Problem 21.3
a. Goods: Satellite




                                     94
                        Problem 21.3
a. Goods: Satellite
  Economic life: Exactly five years




                      Economic life
                                       95
                        Problem 21.3
a. Goods: Satellite
  Economic life: Exactly five years
  Lease: $99,000 a month for five years




                      Economic life
                      Lease term
                                          96
                        Problem 21.3
a. Goods: Satellite
  Economic life: Exactly five years
  Lease: $99,000 a month for five years
  Sale or lease?




                      Economic life
                      Lease term
                                          97
                        Problem 21.3
a. Goods: Satellite
  Economic life: Exactly five years
  Lease: $99,000 a month for five years
  Sale or lease? Sale (security interest)




                      Economic life
                      Lease term
                                            98
                        Problem 21.3
a. Goods: Satellite
  Economic life: Exactly five years
  Lease: $99,000 a month for five years
  Sale or lease? Sale (security interest)
b. Communications can terminate at 59 months. Sale or lease?




                      Economic life
                      Lease term
                                                                99
                                            Termination right
                        Problem 21.3
a. Goods: Satellite
  Economic life: Exactly five years
  Lease: $99,000 a month for five years
  Sale or lease? Sale (security interest)
b. Communications can terminate at 59 months. Sale or lease?
  Bright line test: First requirement missing. Not SI by this test.




                      Economic life
                      Lease term
                                                                100
                                            Termination right
                        Problem 21.3
a. Goods: Satellite
  Economic life: Exactly five years
  Lease: $99,000 a month for five years
  Sale or lease? Sale (security interest)
b. Communications can terminate at 59 months. Sale or lease?
  Bright line test: First requirement missing. Not SI by this test.
  Contextual analysis: Is one month a “meaningful reversion?”




                      Economic life
                      Lease term
                                                                101
                                            Termination right
                        Problem 21.3
a. Goods: Satellite
  Economic life: Exactly five years
  Lease: $99,000 a month for five years
  Sale or lease? Sale (security interest)
b. Communications can terminate at 59 months. Sale or lease?
  Bright line test: First requirement missing. Not SI by this test.
  Contextual analysis: Is one month a “meaningful reversion?”
c. Lease: 48 months, 12 month option. Econ pressure to renew


                      Economic life
                      Lease term                           Option
                                                              102
                        Problem 21.3
a. Goods: Satellite
  Economic life: Exactly five years
  Lease: $99,000 a month for five years
  Sale or lease? Sale (security interest)
b. Communications can terminate at 59 months. Sale or lease?
  Bright line test: First requirement missing. Not SI by this test.
  Contextual analysis: Is one month a “meaningful reversion?”
c. Lease: 48 months, 12 month option. Econ pressure to renew
  Bright line test: Not legally bound to renew.
                      Economic life
                      Lease term                           Option
                                                              103
                        Problem 21.3
a. Goods: Satellite
  Economic life: Exactly five years
  Lease: $99,000 a month for five years
  Sale or lease? Sale (security interest)
b. Communications can terminate at 59 months. Sale or lease?
  Bright line test: First requirement missing. Not SI by this test.
  Contextual analysis: Is one month a “meaningful reversion?”
c. Lease: 48 months, 12 month option. Econ pressure to renew
  Bright line test: Not legally bound to renew.
  Contextual          Economic life
  analysis?           Lease term                           Option
                                                              104
                      Problem 21.4
Assignment: Draft a contract effective as a lease.




                                                     105
                      Problem 21.4
Assignment: Draft a contract effective as a lease.
  Economic life 5 to 15 years




                   Economic life   5                   15
                                                     106
                      Problem 21.4
Assignment: Draft a contract effective as a lease.
  Economic life 5 to 15 years
  Payment period 7 years. $1.2 million plus 10% = $19,921.42
  http://www.amortization-calc.com




                   Payment period 7
                   Economic life 5                        15
                                                        107
                      Problem 21.4
Assignment: Draft a contract effective as a lease.
  Economic life 5 to 15 years
  Payment period 7 years. $1.2 million plus 10% = $19,921.42
  http://www.amortization-calc.com
  Lease term?




                   Payment period 7
                   Economic life 5                        15
                                                        108
                      Problem 21.4
Assignment: Draft a contract effective as a lease.
  Economic life 5 to 15 years
  Payment period 7 years. $1.2 million plus 10% = $19,921.42
  http://www.amortization-calc.com
  Lease term?
      What Flexible Finance wants




                   Payment period 7
                   Economic life 5                          15
                   Lease term 7     Monte option for $1
                                                          109
                      Problem 21.4
Assignment: Draft a contract effective as a lease.
  Economic life 5 to 15 years
  Payment period 7 years. $1.2 million plus 10% = $19,921.42
  http://www.amortization-calc.com
  Lease term?
      What Flexible Finance wants
      What might be a true lease.



                   Payment period 7
                   Economic life 5                         15
                   Lease term 6    Monte option for $228,000
                                                         110
                      Problem 21.4
Assignment: Draft a contract effective as a lease.
  Economic life 5 to 15 years
  Payment period 7 years. $1.2 million plus 10% = $19,921.42
  http://www.amortization-calc.com
  Lease term?
      What Flexible Finance wants
      What might be a true lease. But Monte might not buy!



                   Payment period 7
                   Economic life 5                         15
                   Lease term 6    Monte option for $228,000
                                                         111
                      Problem 21.4
Assignment: Draft a contract effective as a lease.
  Economic life 5 to 15 years
  Payment period 7 years. $1.2 million plus 10% = $19,921.42
  http://www.amortization-calc.com
  Lease term?
  “This lease is for a term of six years. Lessee shall pay Lessor
  $19,921.42 on the first day of each month of the lease term.
  At the end of the lease term, Lessee shall have the option to
  purchase the press for its fair market value.”

                   Payment period 7
                   Economic life 5                          15
                   Lease term 6    Monte option for fair market
                                                            112
Problem 21.5




  Commercial             Lessees
 Money Center    Lease
           Equipment
  Equipment
    Seller




                             113
Problem 21.5




  Commercial    Chattel
                paper     Lessees
 Money Center
           Equipment
  Equipment
    Seller




                              114
                       Problem 21.5




                         Commercial    Chattel
Surety                                 paper     Lessees
         Guarantee      Money Center
         of lessees‟              Equipment
         payments
                         Equipment
                           Seller




                                                     115
                       Problem 21.5




          Indemnity      Commercial    Chattel
Surety                                 paper     Lessees
         Guarantee      Money Center
         of lessees‟              Equipment
         payments
                         Equipment
                           Seller




                                                     116
                       Problem 21.5
                          Net.Bank
                                  Assignment
                               of payment rights
                                and guarantee
          Indemnity      Commercial    Chattel
Surety                                 paper       Lessees
         Guarantee      Money Center
         of lessees‟              Equipment
         payments
                         Equipment
                           Seller




                                                       117
                    Problem 21.5
                         Net.Bank
                     Security       Assignment
                   interest in of payment rights
                      leases      and guarantee
          Indemnity      Commercial       Chattel
Surety                                    paper     Lessees
         Guarantee      Money Center
         of lessees‟                 Equipment
         payments
                          Equipment
                             Seller




                                                        118
If transaction had
been effective, what   Problem 21.5
would CMC own?
                           Net.Bank
                       Security       Assignment
                     interest in of payment rights
                        leases      and guarantee
            Indemnity      Commercial       Chattel
  Surety                                    paper     Lessees
           Guarantee      Money Center
           of lessees‟                 Equipment
           payments
                            Equipment
                               Seller




                                                          119
If transaction had
been effective, what   Problem 21.5
would CMC own?
Leases, but not the          Net.Bank
rents paid on the       Security       Assignment
leases.               interest in of payment rights
                         leases      and guarantee
             Indemnity      Commercial       Chattel
  Surety                                     paper     Lessees
            Guarantee      Money Center
            of lessees‟                 Equipment
            payments
                             Equipment
                                Seller




                                                           120
                     Problem 21.5
                          Net.Bank
                      Security       Assignment
                    interest in of payment rights
                       leases      and guarantee
           Indemnity      Commercial       Chattel
 Surety                                    paper     Lessees
          Guarantee      Money Center
          of lessees‟                 Equipment
          payments
                           Equipment
Holdings:                     Seller

1. The assignment is of a payment intangible, not chattel paper

                                                          121
                     Problem 21.5
                          Net.Bank
                      Security       Assignment
                    interest in of payment rights
                       leases      and guarantee
           Indemnity      Commercial       Chattel
 Surety                                    paper     Lessees
          Guarantee      Money Center
          of lessees‟                 Equipment
          payments
                           Equipment
Holdings:                     Seller

1. The assignment is of a payment intangible, not chattel paper
2. If the assignment had been a sale it would have been
   automatically perfected                                122
How did CMC strip
the payment           Problem 21.5
streams?
                           Net.Bank
                       Security       Assignment
                     interest in of payment rights
                        leases      and guarantee
            Indemnity      Commercial       Chattel
  Surety                                    paper     Lessees
           Guarantee      Money Center
           of lessees‟                 Equipment
           payments
                            Equipment
 Holdings:                     Seller

 1. The assignment is of a payment intangible, not chattel paper
 2. If the assignment had been a sale it would have been
    automatically perfected                                123
How did CMC strip
the payment           Problem 21.5
streams?
By stating in the          Net.Bank
agreement with
Net.Bank that they     Security       Assignment
were stripped?       interest in of payment rights
                        leases      and guarantee
            Indemnity      Commercial       Chattel
  Surety                                    paper     Lessees
           Guarantee      Money Center
           of lessees‟                 Equipment
           payments
                            Equipment
 Holdings:                     Seller

 1. The assignment is of a payment intangible, not chattel paper
 2. If the assignment had been a sale it would have been
    automatically perfected                                124
How did CMC strip                              Did CMC change
the payment             Problem 21.5 the rights of third
streams?                                       parties (by changing
By stating in the                              the perfection
                             Net.Bank
agreement with                                 requirement?
Net.Bank that they      Security       Assignment
were stripped?        interest in of payment rights
                         leases      and guarantee
             Indemnity      Commercial       Chattel
  Surety                                     paper      Lessees
            Guarantee Money Center
            of lessees‟                 Equipment
            payments
                             Equipment
 Holdings:                      Seller

 1. The assignment is of a payment intangible, not chattel paper
 2. If the assignment had been a sale it would have been
    automatically perfected                                  125
                     Problem 21.5
We represent Fidelity, buying chattel paper from Auto Finance.




                                                          126
                     Problem 21.5
We represent Fidelity, buying chattel paper from Auto Finance.
We are worried about this possible scenario:




                                                          127
                     Problem 21.5
We represent Fidelity, buying chattel paper from Auto Finance.
We are worried about this possible scenario:


Auto Finance
creates paper




 After creation of the paper, payments went to Auto Finance



                                                          128
                     Problem 21.5
We represent Fidelity, buying chattel paper from Auto Finance.
We are worried about this possible scenario:
                Auto Finance strips/
                 sells the payment
Auto Finance
                    stream to X
creates paper

                      March 1

 After creation of the paper, payments went to Auto Finance
 Auto Finance sells the payment stream to X on March 1.


                                                          129
                     Problem 21.5
We represent Fidelity, buying chattel paper from Auto Finance.
We are worried about this possible scenario:
                Auto Finance strips/   Fidelity buys and takes
                 sells the payment      possession of chattel
Auto Finance
                    stream to X                  paper
creates paper

                      March 1                  March 2

 After creation of the paper, payments went to Auto Finance
 Auto Finance sells the payment stream to X on March 1.
 Auto Finance sells the chattel paper to Fidelity on March 2.
                                                            130
                      Problem 21.5
We represent Fidelity, buying chattel paper from Auto Finance.
We are worried about this possible scenario:
                Auto Finance strips/   Fidelity buys and takes
                 sells the payment      possession of chattel
Auto Finance
                    stream to X                  paper
creates paper

                      March 1                  March 2

 After creation of the paper, payments went to Auto Finance
 Auto Finance sells the payment stream to X on March 1.
 Auto Finance sells the chattel paper to Fidelity on March 2.
 How can Fidelity protect itself?                           131