Transcript Standard Setting in High

Class 10
Secured Transactions, Fall, 2014
Perfection: Control
Randal C. Picker
James Parker Hall Distinguished Service Professor of Law
The Law School
The University of Chicago
773.702.0864/[email protected]
Copyright © 2001-14 Randal C. Picker. All Rights Reserved.
9-203: Control Elements

(b) [Enforceability.]
Except
as otherwise provided in subsections (c)
through (i), a security interest is enforceable
against the debtor and third parties with respect to
the collateral only if :
…
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9-203: Control Elements
 (3)
one of the following conditions is met:
•…
• (D) the collateral is deposit accounts,
electronic chattel paper, investment property,
or letter-of-credit rights, and the secured party
has control under Section 9-104, 9-105,
9-106, or 9-107 pursuant to the debtor’s
security agreement.
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9-308: When SI is Perfected

(a) [Perfection of security interest.]
Except
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as otherwise provided in this section and
Section 9-309, a security interest is perfected if it
has attached and all of the applicable
requirements for perfection in Sections 9-310
through 9-316 have been satisfied. A security
interest is perfected when it attaches if the
applicable requirements are satisfied before the
security interest attaches.
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9-310 to 9-316




9-310: The General Perfection Rule
9-312: Exceptions
9-313: Perfection Through Possession
9-314: Perfection Through Control
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9-314: Perfection Through
Control

(a) [Perfection by control.]
A
security interest in investment property, deposit
accounts, letter-of-credit rights, or electronic
chattel paper may be perfected by control of the
collateral under Section 9-104, 9-105, 9-106, or
9-107.
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9-312: Exceptions

(a) [Perfection by filing permitted.]
A
security interest in chattel paper, negotiable
documents, instruments, or investment property
may be perfected by filing.
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9-312: Exceptions

(b) [Control or possession of certain
collateral.]
Except
as otherwise provided in Section 9-315(c)
and (d) for proceeds:
 (1) a security interest in a deposit account may
be perfected only by control under Section
9-314;
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9-102(a)(29): Deposit Account

“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.
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9-104: Control of Deposit
Account

(a) [Requirements for control.]
A
secured party has control of a deposit account
if:
 (1)
the secured party is the bank with which the
deposit account is maintained;
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9-104: Control of Deposit
Account
 (2)
the debtor, secured party, and bank have
agreed in an authenticated record that the bank
will comply with instructions originated by the
secured party directing disposition of the funds
in the account without further consent by the
debtor; or
 (3) the secured party becomes the bank’s
customer with respect to the deposit account.
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9-104: Control of Deposit
Account

(b) [Debtor’s right to direct disposition.]
A
secured party that has satisfied subsection (a)
has control, even if the debtor retains the right to
direct the disposition of funds from the deposit
account.
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Chattel Paper and Electronic CP

9-102(a)(11): Definition of Chattel Paper
(11)
“Chattel paper” means a record or records
that evidence both a monetary obligation and a
security interest in specific goods, a security
interest in specific goods and software used in the
goods, or a lease of specific goods. …
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Chattel Paper and Electronic CP

9-102(a)(31): Electronic Chattel Paper
“Electronic
chattel paper” means chattel paper
evidenced by a record or records consisting of
information stored in an electronic medium.
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CP Transaction
1/1: $
Finco
Debtor
How should we
classify this?
SA: EQ
FS: EQ
Chattel Paper: 9-102(a)(11):
Monetary Obligation, plus SI; 9102(a)(31): ECP if electronic form
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2/1: $
SI: ?
Perfect: ?
Bank
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CP Transaction
1/1: $
Finco
Debtor
SA: EQ
FS: EQ
Tangible
Attachment: If TCP, 9203(b)(3)(A) or (C)
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Perfection: TCP: 9312(a), 9-313(a)
SI: SA or Possess
under Agreement
Perfect: File or
Possess
2/1: $
Bank
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CP Transaction
1/1: $
Finco
Debtor
SA: EQ
FS: EQ
Electronic
Attachment: If ECP, 9203(b)(3)(A) or (D)
Perfection: ECP: 9312(a), 9-314(a)
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SI: SA or Control
Agreement
Perfect: File or
Control
2/1: $
Bank
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Accounts Transaction
1/1: $
Bank
Debtor
SA: Accounts
FS: Accounts
How should we assess this
transaction? Is it different than
the deal in Benedict v Ratner?
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Control and Secured Credit:
Benedict v. Ratner

Key Question
Should
a secured creditor be able to have a
perfected security interest even if the debtor
retains the ability to dispose of the collateral and
the proceeds?
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9-205. Use or disposition of
collateral permissible

(a)
When
security interest not invalid or fraudulent. A
security interest is not invalid or fraudulent against
creditors solely because:
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9-205. Use or disposition of
collateral permissible
 (1)
the debtor has the right or ability to:
• (A) use, commingle, or dispose of all or part of
the collateral, including returned or
repossessed goods;
• (B) collect, compromise, enforce, or otherwise
deal with collateral;
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9-205. Use or disposition of
collateral permissible
• (C) accept the return of collateral or make
repossessions; or
• (D) use, commingle, or dispose of proceeds;
or
 (2) the secured party fails to require the debtor
to account for proceeds or replace collateral.
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9-205 Comment 2

Validity of Unrestricted “Floating Lien.”
“…
As did former Section 9-205, this section
repeals the rule of Benedict v. Ratner, 268 U.S.
353 (1925), and other cases which held such
arrangements void as a matter of law because the
debtor was given unfettered dominion or control
over collateral.”
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9-205 Comment 2

Validity of Unrestricted “Floating Lien.”
“The
Benedict rule did not effectively discourage
or eliminate security transactions in inventory and
receivables. Instead, it forced financing
arrangements to be self-liquidating.”
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Taking the Security Interest in the
Deposit Account
Debtor
Bank
SA: Deposit Account
FS: Deposit Account
$
Has a perfected security
interest been created?
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Answer

No
This
is Counceller
9-312(b)(1) requires control under 9-314 (and
then 9-104) for non-proceeds interest in deposit
account
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Answer

No
What
does that accomplish?
 Focus on after-acquired deposit accounts: what
are the secured creditor’s rights?
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Selling Positions I
Debtor
To what extent is
Creditco perfected?
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1/1
SA: EQ
FS: EQ
$
Bank
Sells
Position
Creditco
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Answer: No Refiling Requirement

9-310(c)
[Assignment
of perfected security interest.] If
a secured party assigns a perfected security
interest or agricultural lien, a filing under this
article is not required to continue the perfected
status of the security interest against creditors of
and transferees from the original debtor.

Creditco steps into Bank’s position
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Selling Positions II
Debtor
Bank
SA: EQ
Bank takes
possession of asset
$
To what extent is
Creditco perfected?
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Sells Position
(and transfers
possession)
Creditco
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Answer: 9-310(c) Again?

Comment 4
Subsection
(c) applies not only to an assignment
of a security interest perfected by filing but also to
an assignment of a security interest perfected by a
method other than by filing, such as by control or
by possession.
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Answer: 9-310(c) Again?

Comment 4
Although
subsection (c) addresses explicitly only
the absence of an additional filing requirement, the
same result normally will follow in the case of an
assignment of a security interest perfected by a
method other than by filing.
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Answer: 9-310(c) Again?
For
example, as long as possession of collateral
is maintained by an assignee or by the assignor or
another person on behalf of the assignee, no
further perfection steps need be taken on account
of the assignment to continue perfection as
against creditors and transferees of the original
debtor.
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Selling Positions III
Debtor
Bank
SA: CD
Bank ???
To what extent is
Creditco perfected?
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Sells
Position
Creditco
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Beal Bank v. Fewell
Fewell
US Bank
SA: CD
Control under
9-105(a)(1)
To what extent is
Creditco perfected?
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Sells position
but CD is still
at US Bank
Beal
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