Secured Transactions

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Attachment v. Perfection

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Attachment: Process by which the security interest in favor of the creditor becomes affective against the debtor. Steps in 9-203.

Perfection: Process by which the creditors security interest becomes affective against most of the rest of the world.

NOTE: Always remember to do your analysis with regard to each piece of collateral.

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What must happen before perfection is possible?

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The S/I must attach.

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Perfection by Possesion [pledge].

Pb 296—Perfection by posession
Your client, Archibald Gracie, owns The White Star of England, a famous large diamond currently on display at the Astor Museum in New York. Molly Brown, a wealthy Colorado investor, has agreed to buy the diamond from Gracie, and she has made a substantial down payment, with an agreement to make three more payments before she gets possession. Gracie and Brown have signed the purchase agreement, which contains a clause granting him a security interest in his own diamond until she has made all the required payments. His question to you is this: can he perfect a security interest in the diamond by simply notifying the Astor Museum of the sale and telling the museum to hold it for his benefit until she makes payment in full, thus creating an escrow arrangement in which possession is held by the escrow agent? See §9-313(c), (f), and (g).

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§9-313(c)
• (c) [Collateral in possession of person other than debtor.] With respect to collateral other than certificated securities and goods covered by a document, a secured party takes possession of collateral in the possession of a person other than the debtor, the secured party, or a lessee of the collateral from the debtor in the ordinary course of the debtor's business, when:

(1) the person in possession authenticates a record acknowledging that it holds possession of the collateral for the secured party's benefit; or

(2) the person takes possession of the collateral after having authenticated a record acknowledging that it will hold possession of collateral for the secured party's benefit.

Answer: : No. The museum must authenticate a record acknowledgeing that they are going to hold posession for the secured parties benefit. The museum without acknowledgment, which it has no duty to do, does not constitute retention of possesion by the debtor

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Assume that a state statute gives someone doing repairs a possessory artisan’s lien on the property repaired. Mr. Baker took his car into Mack’s Garage for repair but, being strapped for funds, couldn’t pay the the full bill, and Mack wouldn’t let him have the car back. Lis Mack’s artisan’s lien an Article 9 security interest? See §9-109(d)(2). if, prior to the repair work, Mr. Baker signed a statement giving Mack’s Garage a right to repossess the car if the bill wasn’t paid, does this agreement create a security interest under the Code? • See §9-109(a)(1).

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A. Issue:
a. Whether Macks artisan lein is an article 9 security interest?
b. Whether if prior to the repair work, Mr. Baker signed a statement giving Mack’s Garage a right to repossess the car if the bill wasn’t paid is an article 9 S/I?
B. Rule:
a. §9-109(d)(2). (d) [Inapplicability of article.] This article does not apply to:
(2) a lien, other than an agricultural lien, given by statute or other rule of law for services or materials, but Section 9-333 applies with respect to priority of the lien;
b. §9-109(a)(1). (a) [General scope of article.] Except as otherwise provided in subsections (c) and (d), this article applies to:
(1) a transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract;
C. A:
a. NO.
b. YES.

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To raise money, Farmer Brown’s Fresh Vegetables Roadside Stand sold all of its accounts receivable to Nightflyer Finance Company, which notified the customers that henceforth all payments should be made directly to Nightflyer. (Note that this is not a loan from the finance company to the farmer with the accounts put up as col lateral; it is an outright sale. If it were a loan, and if the collectible accounts exceeded the amount of the loan, the excess would be returned to Farmer Brown; in an actual sale Nightflyer can keep the surplus. See §9-608(b).) Is this sale nonetheless an Article 9 “security interest”? See §9-1 09(a)(3). If so, even though Farmer Brown has no further obligations to Nightflyer, he would of necessity be termed an Article 9 “debtor.” See §9-1 02 (a)(28)(B). Then Nightl\yer would have to file an Article 9 financing statement to perfect its interest against later parties. Why would the Code drafters have brought an outright sale of accounts (and chattel paper, payment intangibles, and promissory notes, all defined below) under the coverage of Article 9? Remember Benedict v. Ratner? See Official Comment 4 to §9-109; Major’s Furniture Mart, \nc. V. Castle credit Corp., 602 F.2d 538, 26 U .CC Rep. Servo 1319 (3d Cir. 1979).

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A. Issue:
a. Whether farmer browns sale of all his account recievable is an article 9 S/I?
b. Why would the Code drafters have brought an outright sale of accounts (and chattel paper, payment intangibles, and promissory notes, all defined below) under the coverage of Article 9
B. Rule:
a. §9-109(a)(3). (a) [General scope of article.] Except as otherwise provided in subsections (c) and (d), this article applies to: (3) a sale of accounts, chattel paper, payment intangibles, or promissory notes;
C. Analysis:
a. YES.

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PROBLEM 265
Antiques R Us was the largest antiques store in the city, well known as a place where antique dealers could hire out space and exhibit their wares, . • with the store handling the sales and taking a commission on each one and returning to the dealers items that remained unsold. When the store takes out a loan from Octopus National Bank and uses as collateral “all its property,” will the bank’s security interest reach the items in the store that belong to the dealers if the dealers have never taken the steps required of consignors under Article 9? See §9-102(a)(20)(A)(iii).

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A. Issue:
a. Whether the bank’s security interest reach the items in the store that belong to the dealers if the dealers have never taken the steps required of consignors under Article 9?
B. Rule:
a. §9-102(a)(20)(A)(iii). 9-102.(a) (20) "Consignment" means a transaction, regardless of its form, in which a person delivers goods to a merchant for the purpose of sale and: (A) the merchant:(i) deals in goods of that kind under a name other than the name of the person making delivery;(ii) is not an auctioneer; and (iii) is not generally known by its creditors to be substantially engaged in selling the goods of others;
C. Analysis:
a. NO.

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PROBLEM 266
When Luke Skywalker, an artisan who handcrafted his wares, finished creating a large jeweled sword, he took it down to Weapons of the World (WoW), a large gun and weapon dealer, which mostly sold items that it either manufactured itself or bought from other dealers around the globe. The sword was appraised as being worth over $25,000. Luke asked WOW to sell the sword for him. Is this an Article 9 consignment so that Luke needs to take Article 9 steps to protect himself from WOW’s other creditors who have an interest in the store’s inventory?

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A. Issue: Whether this is an article 9 consignment?
B. Rule: §9-102(a)(20)(A) 9-102.(a) (20) "Consignment" means a transaction, regardless of its form, in which a person delivers goods to a merchant for the purpose of sale and: (A) the merchant:(i) deals in goods of that kind under a name other than the name of the person making delivery;(ii) is not an auctioneer; and (iii) is not generally known by its creditors to be substantially engaged in selling the goods of others;
C. Analysis: No.

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How do you get control over a security entitlement?

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(d) A purchaser has "control" of a security entitlement if:
(1) the purchaser becomes the entitlement holder; or

(2) the securities intermediary has agreed that it will comply with entitlement orders originated by the purchaser without further consent by the entitlement holder.

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When 2 creditors have gained control with in the meaning of 8-106 then who has priority?

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The first to get control has priority subject to some exceptions.