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Law Outlines > Secured Transactions (Article 9) Outlines

Secured Transactions Outline

Updates Available

This is an extract of our Secured Transactions Outline document, which we sell as part of our Secured Transactions (Article 9) Outlines collection written by the top tier of Charleston School Of Law students.

The following is a more accessble plain text extract of the PDF sample above, taken from our Secured Transactions (Article 9) Outlines. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Secured Transactions Outline


“SI” security Interest

“SP” Secured Party

“GFPV” Good faith purchaser for value

Obligor- debtor the one who took out the debt (person who owes the obligation)

Obligee- creditor, who is owed the money (person to whom the obligation is owed)

“dunning” persistent attempt to collect a debt

“set off” both parties have debt to each other

“mature” it is due and owed

“mutual” owed in the same capacity


Chapter 7 Liquidation- individual and business

Trustee appointed to sell property, manage debt pay off

Chapter 11- Individual and Corporate Reorganization

Trustee appointed, plan of reorganization, court confirms plan, trustee sees plan out

Chapter 13- Individual Reorganization

Trustee appointed (sometimes), plan of reorganization presented, CREDITORS vote on plan, court approves plan, payments occur

What is credit?

Credit is a contractual agreement where a borrower or a buyer receives something of value (money or resources) and agrees to pay the Lender or Seller later.

A secured transactions is: (agreement)

An agreement where a buyers or borrower grants a security interest in property (collateral) to a seller or lender, to guarantee payment of an underlying obligation to be paid LATER

These promote borrowing and buying

It is backed by personal property to cover the obligation in event of default

Two types of secured credit:

  1. A seller extends credit to a buyer to purchase property from the seller and pay the seller later, with the seller taking a security interest in the property sold

  2. A lender extends credit to a borrower, loaning money to the borrower for a variety of reasons, with the borrower agreeing to pay the lender later and securing the promise of future payment with the borrower’s property.

What is unsecured credit?

Credit extended where no property is pledged by the obligor to cover the obligation until paid in full (credit card, medical services, student loans)

In personam relief- obligor can sue personally for payment

Three advantages to a secured transaction-

  1. In Rem Relief- Obligee has personal property to satisfy the obligation

Relief against the THING, purchase car from Baker Motors, purchase car (car is the rem) personal obligation/ debt (personam) (Rem is against the thing, Personam against the personal obligation)

  1. Collection of the obligation by obligee is easier- compared to an unsecured obligation and its complications

Think about dentist example and how long it took to get paid, (sheriff, resell, writ) (has to foreclose on the property, if property is in another jurisdiction have it transferred, LONG PROCESS TO GET PAID)

May immediately repossess collateral granted and sell it

  1. Priority advantage for the obligee- who is the first in time to properly record the security interest INCLUDING notice, check to see if a security interest is in the property before claiming a new one

  2. If security interest that consented and pledged collateral, exemptions DO NOT MATTER (so if the van was pledged as collateral, then it does NOT matter if it was 5,000 vehicle exemption, etc)

Attachment- how a lender can create enforceable security interest (3 steps to attach)

Perfection- put the rest of the world on notice of the security interest (2 steps to perfect)

Priority- who gets the personal property when there are multiple parties involved

Nine Step Classification- end goal, who has priority to piece of property

Who are the parties?

Debtor §9-102(a)(28)

Person who has an interest in the personal property or fixture that acts as collateral

Secured Party (the beneficiary) §9-102(a)(73)

Person in whose favor the security interest is created, a person who holds an agricultural lien, certain cosigners, certain lessors and a person who buys accounts, chattel paper, and promissory notes

Collateral §9-102(a)(12)

The property or fixture subject to the security interest and more


Person who is responsible for the underlying OBLIGATION whether monetary or non-monetary (NOT ALWAYs the debtor)

Security interest §1-201(b)(35)

Generally, an interest in personal property or fixtures which secures payment of an obligation or performance of a service until the obligation is paid in full or the performance is completed

Step 1- Identify the personal property AT ISSUE

To know what personal property they have, you need to see it

Know who the debtor is, their interest in the property

How the debtor uses the property

Can be goods, intangibles or quasi-intangibles

  1. Can the party pledge the interest?

  2. To what extent do they own the property?

  3. What is the value of the debtors interest in this property?

  4. Will the value of the property cover the obligation of the loan over its life?

  5. Should the secured party take several TYPES of property?

Step 2- Classify the personal property- from debtors perspective

Can classify as UCC Types or individual items

Need sufficient description of the collateral- types can be sufficient

“existing and after acquired”- includes all current and future

  • Goods (moveable at the of identification to the contract) (good can transform types- dairy)

    • Inventory- stuff being sold, leased or used up in the business

    • Equipment- default category, rule all other goods out first, vehicles, tools, etc

    • farm products- goods in “farming operation” used to harvest or animals

    • consumer goods- household or family purposes

  • Intangibles

    • Deposit Account- means a demand, time, savings, passbook, or similar, account maintained with a bank. The term does not include investment property or accounts evidenced by an instrument.

    • Accounts (riskiest)-

    • Investment Property

      • Certified Security (electronic)

      • Uncertified Security

      • Commodity Account- means an account maintained by a commodity intermediary in which a commodity contract is carried for a commodity customer

      • Securities Account

    • General Intangibles- means any personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money, and oil, gas, or other minerals before extraction. The term includes payment intangibles and software.

      • Breach of Contract Claims

    • Letter of Credit Right- means a right to payment or performance under a letter of credit, whether or not the beneficiary has demanded or is at the time entitled to demand payment or performance. The term does not include the right of a beneficiary to demand payment or performance under a letter of credit.

    • Commercial Tort Claims- means a claim arising In tort with respect to which:

  1. The claimant is an organization; or

  2. The claimant is an individual and the claim:

    1. Arose in the course of the claimant’s business or profession; and

    2. Does not include damages arising out of personal injury to or the death of an individual

  • Quasi- Intangibles

    • Instruments- means a negotiable instrument or any other writing that evidences a right to the payment of a monetary obligation, is not itself a security agreement or lease, and is of a type that in ordinary course of business is transferred by delivery with any necessary indorsement or assignment. This term does not include (i) investment property, (ii) letters of credit, or (iii) writings that evidence a right to payment arising out of the use of a credit or charge card or information contained on or for use with the card

    • Chattel Paper (least risky)

    • Document

    • Investment Property (certified security)

Security agreement: calls for a “reasonable description” of collateral

Step 3- Identify all possibly claimants with an interest in this personal property

Step 4- Scope (explain IF and HOW each transaction is within article 9)

-Creation and enforcement and priority of consensual liens on PERSONAL property

-You can create an enforceable security interest through contract, but the interest can also be created via the nature of the transaction when the deal is MORE like a secured transaction than other things

Other types of article 9 transactions:

  1. Conditional sales contract

Can have a conditional clause in the Sales Agreement that allows seller to retain “title” in the good until obligation is paid in full- (not actually a title, they are basically taking a security interest)

The conditional clause allows the seller (SP) to reclaim the collateral in the event the Buyer (debtor) does not pay for the goods in full

STILL HAS TO PREFECT AND NOTICE the SI and follow all the other conditions of Article 9, just without the separate security agreement

  1. Leases that are more like sales

A TRUE LEASE is governed by article 2A

A sale disguised as a LEASE where typically the lessor retains the title to the goods leased and can easily reclaim the goods if Lessee defaults on the lease

*If the consideration to be paid is for a term and the Lessee must still pay the obligation EVEN IF they return the property then if one of the following

  1. The term of the lease is greater than the economic life of the goods OR

  2. Lessee is bound to renew the lease for the rest of economic life of the goods OR is BOUND to purchase the goods OR

  3. Lessee has the option to renew the lease for the economic life of the goods for little to no additional moolah

  4. Lessee has option to buy the goods for little to no additional moolah

*If true and if one of a-d exist then the lease is more like a credit sale disguised as a lease with the lessor retaining title to good and a right to reclaim it

*Economic reality test- does not want goods back if virtually worthless to anyone else

3. Certain consignments

  • True consignment (not governed by article 9) (bailment)

  • Consignment which is in fact a SALE disguised as a consignment and is governed by article 9

Chairs at a store for sale, % goes to owner, but store must buy if they fail to sell them- THIS IS A CSALE

  • Article 9 Consignment 9-102(a)(20)

A transaction in any form where the person delivers the goods to a “merchant” for sale where ‘merchant” deals in goods of that kind under a name different than the cosigner, merchant is not an auctioneer and not generally known by creditors to sell cosigned goods, the goods have a value of less than $1000, not consumer goods immediately before delivery- AND transaction itself doesn’t create a security interest

*If all are true then governed by article 9 and a creditors security interest can attach to this

4. True Sales-Sales of accounts, chattel paper, payment intangibles and promissory notes

-These all have underlying payment obligations

- Problems with these- Ostensible Ownership- how to know that they aren’t secured by multiple parties- still have to notice the world

- Securitization- conversion of assets into marketable securities- PROTECT PARTIES AND PROMOTE Securitization

-if whole business closing doesn’t matter because no issue in another taking interest

5. Agricultural Lien-??

An interest in FARM PRODUCTS which secures payment for goods or performance of services associated with FARMING OPERATIONS created by statue for a person in ordinary course of its business furnished goods AND effectiveness of the lien doesn’t depend on possession of goods.


  • Landlord’s lien, other than if it is an Agricultural Lien

  • Materialman’s, artisan’s lien except as to a priority contest of liens

  • Assignment of a CLAIM for wages, salary or other compensation

  • A sale of accounts, chattel paper, payment intangibles, promissory notes as part of sale of business where arose

  • An assignment of accounts, chattel paper, payment intangibles, promissory notes for collection purposes

  • An assignment of a RIGHT TO PAYMENT under a contract to an Assignee that is obligated to perform under the contract

  • An assignment of a SINGLE account, payment intangible or promissory note to an assignee in satisfaction of a preexisting debt.

Step 5- Attachment- explain if each claimant has an ATTACHED security interest and explain why or why not based on the law OR determine if their interest is not a security interest

How to obtain an enforceable security interest again the Debtor

  1. Have a security Agreement 9-203(b)(3)- some kind of agreement between the debtor and secured party and if written the agreement MUST be authenticated by the Debtor and have a reasonable description of the collateral

    1. The Security Agreement may be ORAL, ONLY IF

  1. Secured party takes possession or delivery of certain types of collateral OR

  2. Secured party takes “control: of certain types of collateral

The Security Agreement Written:


Caveat: if timber (to be cut) is the collateral then the land on which the timber is on must be sufficiently described

How does one “authenticate” the security agreement?

A security agreement is contained in a record is authenticated when the Debtor signs or adopts a symbol, sound or process with present intent to identify itself and adopt or accept the record.

b. How to sufficiently describe the collateral?

Must Reasonably Identify under 9-108

In a consumer transaction cannot use “TYPES” as a classification, not sufficient- need to specifically describe the collateral

For Commercial tort claims the Secured Party must describe the commercial tort claim SPECIFICALLY- name the tort or generally the context

AVOID AMBIGUITIES, they can invalidate the security interest, they are skewed agains thte drafter

Use EXISTING AND THEN AFTER ACQUIRED PROPERTY (AAP) – certain types of property are presumptively included (like inventory and accounts, constantly changing, turn over, Filtercorp case)

  1. Allows for a floating lien or continuing lien on A/A collateral of the same TYPE listed in the security agreement with no additional SA if the

  2. LIMITED on consumer goods- only those acquired w/I 10 days authentication

  1. VALUE must be given by the Secured Party; AND

    1. Value is 1-204 consideration for obtaining the Security interest such as

      1. Giving a binding commitment to extend credit

      2. Extending immediate available credit whether drawn upon or not

      3. Getting a security interest for an old, pre-existing obligation

      4. Any consideration sufficient to support a contraction

    2. The secured party must give the value

    3. The DEBTOR does not Always have to give the value- can be an obligor

    4. The bank can give additional value and have it secured by the original collateral given with original loan

      1. Yes, only if there is a FUTURE ADVANCES clause

      2. Language “grants a security interest to (secured party) in all existing and after-acquired equipment to secure the CURRENT obligation owed by (debtor) AND any FUTURE ADVANCES made by (secured party) to (debtor).

      3. In Re Wollin- initial obligation and any future advances must be of the same class or “so related” that later advances may be inferred

      4. BUT the drafters of the code said it DID NOT have to be of the similar class or type

      5. The combination of both a future-advances clause and an after-acquired property clause is called CROSS-COLLATERALIZATION- loan can been secured by debt currently and future debt and future property (pg 98)

  2. Debtor must have rights in the collateral to grant a security interest in the property to the secured party

    1. Is the collateral really “property”

      1. Problem types of property- golf club membership, liquor license, season tickets

    2. What is the extent of the Debtor’s rights in the property- can he transfer more than he has

      1. Owns it (solely or co-owned)

      2. Leases it (leasehold interest)

      3. Stole it (VOID interest)

      4. Bought it with a bad check (VOIDABLE interest) (can transfer to GFPV)

*TITLE not particularly relevant

  1. WHEN did the DEBTOR actually receive an interest in the property

    1. If inventory- when manufactured it or when Debtor bough it to sell or use up in its business

    2. If equipment, when the Debtor bought it

    3. If accounts, chattel paper, or note, when the Debtor created each with the customers or obligors

    4. If checking account, when Debtor opened it with the Bank or when a particular proceed is deposited

    5. If a check, when debtor received the check

*Attachment the outermost date of the dates associated with each of the 3 attachment requirements (SA completed, VALUE give, RIGHTs in Prop). The date the Debtor gets rights in the collateral may often be the OUTERMOST DATE.

*CAUTION: If goods are purchased- date of CONTRACT if the goods exist OR if for future goods- the date when they are ASSIGNED to the contract


Typical Loan Documents in a Secured Transaction Loan

  1. Loan Application submitted - signed by Debtor & Obligor

  2. Commitment Letter signed by Signed by the obligee/ secured party

  3. Loan Agreement signed by Debtor/Obligor

  4. Promissory note signed by obligor

  5. Security agreement signed by debtor

  6. Financing statement- no signature needed

*Can put the world on NOTICE of the pending security interest at step 3

Can have a composite document doctrine- SHOWS INTENT TO have agreement

Are the docs contemporaneous? What’s been authenticated? Do docs cross reference each other?

THERE ARE EXCEPTIONS to the RULE that the collateral must be reasonably described BUT TWO EXCEPTIONS FOR AUTO ATTACHEMENT

1. When original collateral is transformed into something else called a Proceed

  1. Do not need to use the word “proceed” to describe potential proceeds

  2. What is a proceed

  • Whatever comes from the sale, lease, license, exchange or other disposition of the original collateral

  • What is collected on the original collateral (think interest)

  • Rights arising out of the original collateral

  • Insurance payable for above loss, defect, up to ORIGINAL COLLATERAL’s VALUE

Claims for loss, nonconformity (think car wreck)

Proceed Automatic Attachment 3 Part Test:

  1. Did the secured party’s interest ATTACH to the original collateral at issue that was transformed (sold, leased, etc) (have to make sure they properly attached)

  2. Do the possible proceeds (check, deposit) arising from that original collateral FIT WITHIN THE DEFINITION of PROCEEDS as defined in 9-102(a)(64) AND

  3. If so, are these proceeds IDENTIFIABLE (can we trace back to original collateral) (fact based analysis, what documentation is there)

Proceeds can be two types

  1. Cash proceeds “money, checks, deposit accounts

  2. Non Cash proceeds- anything that is not a cash proceed- like paper

Original Collateral- Transformation- Proceed

Account-collected on- check, money

Inventory- sold- money, check


MUST describe accessions in the Security Agreement- no attachment rules here

How to trace proceeds: 2 ways (REVIEW GAME BOARD FOR THIS)

Lowest intermediate Balance Rule

The lesser of Either

The proceed amount


The lowest intermediate balance in the deposit account between the time the proceed was deposited and the time the secured party made claim to the deposited proceed

FIFO- First in First out

The FIRST money deposited in the deposit account is the first money debited or withdrawn from the deposit account

The possessor of the security interest can RELEASE the collateral from the interest then it is sold free and clear

2. When Original Collateral is Commingled with other goods such that it and the other good’s identity is lost in the process

- Do not need to use the word “comingled good” in the Security agreement, the attachment is automatic

- A security interest attaches to any IDENTIFIABLE PROCEED of ATTACHED original collateral and to each successive generation of proceeds thereafter EXCEPT Ag liens AND

It does so automatically as the proceed arises

What is a commingled good?

Goods that are physically united in such a way that their identity is lost in a product or mass (THINK FLOUR BAKED INTO A CAKE)

As long as the good can be identified as part of the commingled product AND the security interest was properly attached- then automatic attachment will occur

  1. If you know it might be used up, go ahead and list the product it would be commingled to or just a general class like inventory

*IF the goods are PHYSICALLY UNITED but their IDENTITY is NOT lost? NO!! need description of these goods NO AUTOMATIC ATTACHMENT

Accessions- 9-102(a)(1)- is a good physically united with other good in such a way that the identity of the original goods is NOT LOST- like think an engine in a car, its attached, but not LOST

  1. Describe BOTH the good and accession to which it is united if they want to attach to both

  2. Just saying “all accessions” not great, say “goods to which the taxis become accessions” (ie meters, mirrors, etc)

3. Automatic Attachment of “supporting obligation to the original collateral”

-If it properly attaches SI in original collateral it AUTOMATICALLY attaches to supporting obligations

- True Value has accounts that it pledges to First citizens bank as collateral- an account that they transfer has an existing security agreement- that transfers with it

4. Automatic attachment of a “lien securing a right to payment”

-if they have attachment to a right to payment that can extend to the payment of mortgages or other rights like promissory notes- no need to list out the individual types

5. Automatic Attachment of a “securities entitlement in a securities Account”

-if attaches to a security account then AUTO attaches to any security entitlements (stocks purchased) on that account

- in consumer transactions MUST have DETAILED description of the account

6. Automatic attachment of a “commodity contract in a Commodity Account”

- SI attaches to any commodity contracts carried in the commodity account

- in consumer transactions the description must be detailed

Step 6- What type of Security interest does the claimant have? PMSI or NPMSI?

PMSI- Purchase money security interest in CERTAIN consumer goods, NPMSI is everything else


-A Security interest in specific “goods” being purchased granted to a seller of those Goods by the buyer to secured payment of all or part of the unpaid purchase price of the goods being purchased


-A security interest in specific “goods” being purchased granted to the Lender who facilitates or enables the acquisition of said Goods by the buyer. The security interest is to cover all or part of the unpaid purchase price of the goods purchased. – must be able to trace to claim this

PMSI – can be in (goods are- purchase money collateral) (obligation is- purchase-money obligation)

GOODS including fixtures and

Software purchased with goods, where software is being used with the “goods purchased”

  1. Conditional sales contract or installment sales contract

  • Seller sells goods on credit to a buyer

  • Seller retains Article 9 Security interest in the goods until the purchase price is paid, title to goods passes to buyer on sale

  • THE OBLIGATION owed by Buyer was incurred as all or part of the purchase price of the goods

2. Enabling loan

- lender loans money to the Borrower for purpose to enable Borrower to acquire rights in goods AND

- borrower ACUTALLY uses the borrowed $’s to acquire rights in the collateral

- Lender must be able to trace its loan proceeds into the Goods (collateral)

- Lender should write a Certified Check directly to the Seller of Collateral

- Lender retains an Article 9 SI in the Goods until the loan is paid in full

PMSI might have priority over NPMSI but they need to perfect, perfect within 20 days

PMSI- NO PERFECTION METHOD NEEDED, AUTOMATIC PERFECTION for certain consumer goods- Tvs, kitchen appliances, computers ONLY CONSUMER

PMSI- in car, car governed by certificate of title system, MUST perfect by that system

PMSI in anything other than consumer goods, MUST PERFECT

A Condition sales/ credit / installment PMSI BEATS a PMSI enabler

PMSI in inventory- has priority over a conflicting security interest in the same inventory IF

  1. PMSI is perfected before debtor receives possession of the inventory

  2. PMSP sends an authenticated notice to holder of conflicting SI

  3. Holder of conflicting interest receives the notice before the debtor get THIS inventory AND

  4. The notice tells the holder of the PMSI and describes the inventory

Step 7- Did the alleged claimant make sure that it PERFECTED its security interest in the property

Have to attach under step 5, then perfect

Perfection is making the attached security interest enforceable or valid against OTHERS

Why should you perfect or notice?

  1. To WARN others of the noticing secured creditor’s security interest

  2. To set the noticing creditors priority among others

How do they gain a lien or SI on the same property of the debtor?

  1. Debtor grants a SI to another creditor: consensual

  2. Statutory (operation of the Law) (ag lien, mechanic lien, Bankruptcy trustee, other)

  3. Judicial- judgement/ levying-execution of lien

HOW TO perfect? Two step process

  1. Attachment of the SI (step 5)

  2. COMPLETION of a perfection method step

Utilizing properly one of the accepted perfection methods, makes the SI enforceable against parties OTHER than the debtor

What are the perfection methods? THESE ARE COLLATERAL TYPE SPECIFIC

  1. Recording systems- UCC filing system, Federal and certificate of title systems OR

  2. Possession of the collateral OR

  3. Taking control of the collateral OR

  4. Mere “attachment” = automatic perfection

  5. Complying with any other laws may constitute perfection of a SP’s si in certain collateral

Filing System Filing Possession Control Automatic
Goods (consumer goods, equip, inv, farm products) C C Some circumstances
Chattel paper C C C
Documents of title C C C Some Circumstances
Certificated Securities C C C Some Circumstances
Instruments C C Some Circumstances
Money C
Deposit Accounts C Some Circumstances
Investment property C C Some Circumstances
accounts C Some Circumstances
General intangible C Some Circumstances

These will work unless a statutory thing supersedes such as title records or state filing system


    1. Identify the property to be collateral

    2. Classify it by “type” AND

  1. Determine the BEST Method to PERFECT your SI in that type of collateral- may have to use SEVERAL methods if SP takes different types of collateral AND

  2. Complete the method correctly by law AND

  3. Maintain the method by law (5 years sometimes)


Need to file in correct OFFICE and correct STATE

Purpose: to avoid a secret lien problem/ filing alerts others of its interest in the property and sets priority

Requires: the filing of a Financing Statement- for the UCC-1 form

Who uses this?

  1. Searchers- potential secured parties who want to collateralize their loans but need to know if the Debtor has already committed its assets as collateral to others. They search for filed Financing Statements against the Debtor they want to do business with AND

  2. Filers: secured parties and agricultural lienors who need to set their priority and notice the world by filing financing statements

*THIS MUST be used as the perfection method for perfecting an agricultural lien in farm products

*** CANNOT be used to perfect a SI in:

Deposit accounts as “original collateral “

Money as OC

Letter of credit

Property covered by other law (federal, cert of title, state)

How to file the UCC

  1. Content: complete the content of the financing statement properly

    1. Financing statement is sufficient if it provides **if there are errors do they make it seriously misleading

      1. Name of the debtor and

IF WRONG IT IS INEFFECTIVE TO perfect- UCC is organized by debtor name *trade name is insufficient

*If incorrect name- the filing statement will be insufficient to perfect UNLESS a search under the correct Debtor’s name using the office’s standard search logic discloses the FLAWED financing statement- if so not seriously misleading- THIS IS SEARCH LOGIC EXCEPTION

Registered organization- see registration record

Unregistered organization-name if one/ if none use the name of the members, partners, or others compromising the organization


Use name of Debtor on most recently issued drivers license if NOT expired and is issued by the state who governs the filing

Secured Party may use one of 3 alternatives for the Debtor’s name- the debtor’s “individual name”, the debtor’s “surname and first personal name or the name on the drivers license

Trust- not registered- see trust record

Decedent- use name of decedent on order appointing personal representative as debtor

  1. Name of secured party or representative of the secured party

Can be trade name or representative name

Easier to search if trade name

  1. Indicates the collateral covered by the Financing statement

Description of collateral pursuant to 9-108 OR an indication that the Financing Statement covers ALL ASSETS or ALL personal property

** Supergeneric is okay in a financing statement

*** the UCC filing office may refuse to accept a financing statement that has MISSING information (fees, name, address, forgetting UCC #) if rejected it is NOT PERFECTED

** If mistakes occur

1. UCC is effective except to a Purchaser for Value of collateral who gave value on a reasonable reliance of no UCC-1 filed

2. if the UCC-1 has OMITTED data (names of parties, collateral) it is NOT effective even if accepted, BUT if they omitted extra data and it was accepted then it is...

Buy the full version of these notes or essay plans and more in our Secured Transactions (Article 9) Outlines.