1 Secured Transactions Assignment 22 Maintaining Perfection Through Lapse and Bankruptcy

1

Secured TransactionsAssignment 22

Maintaining Perfection Through Lapse and Bankruptcy

2

The Big PicturePart Two: The Creditor Third Party Relationship

Chapter 6: Perfection

Chapter 7: Maintaining Perfection

Assignment 22: Through lapse and bankruptcy

Assignment 23: Through changes in name, identity and use of collateral

Assignment 24: Through interstate movements of debtors and collateral

Chapter 8-9: Priority

3

The Big PicturePart Two: The Creditor Third Party Relationship

Chapter 6: Perfection

Chapter 7: Maintaining Perfection

Assignment 22: Through lapse and bankruptcy

Assignment 23: Through changes in name, identity and use of collateral

Assignment 24: Through interstate movements of debtors and collateral

Chapter 8-9: Priority

4

The Big PicturePart Two: The Creditor Third Party Relationship

Chapter 6: Perfection

Chapter 7: Maintaining Perfection

Assignment 22: Through lapse and bankruptcy

Assignment 23: Through changes in name, identity and use of collateral

Assignment 24: Through interstate movements of debtors and collateral

Chapter 8-9: Priority

5

The Big PicturePart Two: The Creditor Third Party Relationship

Chapter 6: Perfection

Chapter 7: Maintaining Perfection

Assignment 22: Through lapse and bankruptcy

Assignment 23: Through changes in name, identity and use of collateral

Assignment 24: Through interstate movements of debtors and collateral

Chapter 8-9: Priority

6

The Lapse Problem

RE recording system UCC filing system

7

The Lapse Problem

RE recording system

Adds documents, never removes documents

UCC filing system

8

The Lapse Problem

RE recording system

Adds documents, never removes documents

1. Mortgage

UCC filing system

9

The Lapse Problem

RE recording system

Adds documents, never removes documents

1. Mortgage

2. Satisfaction of mortgage

UCC filing system

10

The Lapse Problem

RE recording system

Adds documents, never removes documents

1. Mortgage

2. Satisfaction of mortgage

UCC filing system

May physically destroy documents after six years

11

The Lapse Problem

RE recording system

Adds documents, never removes documents

1. Mortgage

2. Satisfaction of mortgage

UCC filing system

May physically destroy documents after six years

1. Financing statement

12

The Lapse Problem

RE recording system

Adds documents, never removes documents

1. Mortgage

2. Satisfaction of mortgage

UCC filing system

May physically destroy documents after six years

1. Financing statement

2. Termination statement

13

The Lapse Problem

RE recording system

Adds documents, never removes documents

1. Mortgage

2. Satisfaction of mortgage

UCC filing system

May physically destroy documents after six years

1. Financing statement

2. Termination statement

Automatic termination at five years

14

The Lapse Problem

RE recording system

Adds documents, never removes documents

1. Mortgage

2. Satisfaction of mortgage

UCC filing system

May physically destroy documents after six years

1. Financing statement

2. Termination statement

Automatic termination at five years, so:

3. Continuation statement (at approximately five year intervals)

15

Basic ConceptsTemporary (automatic) perfection:

16

Basic ConceptsTemporary (automatic) perfection:

General rule: Perfection by possession “continues only while the secured party retains possession.” §9-313(d)

17

Basic ConceptsTemporary (automatic) perfection:

General rule: Perfection by possession “continues only while the secured party retains possession.” §9-313(d)

Exception: Secured party who “makes goods available” for “ultimate sale” remains perfected for 20 days. §9-312(f).

18

Basic ConceptsTemporary (automatic) perfection:

General rule: Perfection by possession “continues only while the secured party retains possession.” §9-313(d)

Exception: Secured party who “makes goods available” for “ultimate sale” remains perfected for 20 days. §9-312(f).

Searcher on goods has three tasks:

19

Basic ConceptsTemporary (automatic) perfection:

General rule: Perfection by possession “continues only while the secured party retains possession.” §9-313(d)

Exception: Secured party who “makes goods available” for “ultimate sale” remains perfected for 20 days. §9-312(f).

Searcher on goods has three tasks:

1. Search filings

2. Examine goods for possession

20

Basic ConceptsTemporary (automatic) perfection:

General rule: Perfection by possession “continues only while the secured party retains possession.” §9-313(d)

Exception: Secured party who “makes goods available” for “ultimate sale” remains perfected for 20 days. §9-312(f).

Searcher on goods has three tasks:

1. Search filings

2. Examine goods for possession

3. Determine if goods were possessed in previous 20 days

21

Basic ConceptsTemporary perfection/bankruptcy: Schwinn Cycling case

22

Basic Concepts

Bailee perfected by possession

Temporary perfection/bankruptcy: Schwinn Cycling case

23

Basic Concepts

Baileesurrenderspossession

Bailee perfected by possession

Temporary perfection/bankruptcy: Schwinn Cycling case

24

Basic Concepts

20 days

Baileesurrenderspossession

Deadlineto perfect

Bailee perfected by possession

Temporary perfection/bankruptcy: Schwinn Cycling case

§9-312(f) A perfected security interest in a negotiable document or goods in the possession of a bailee . . . remains perfected for 20 days without filing if the secured party makes available to the debtor the goods or documents representing the goods for the purpose of

(1) ultimate sale or exchange; or

(2) . . . otherwise dealing with them . . . preliminary to their sale or exchange.

25

Basic Concepts

§9-312(f) A perfected security interest in a negotiable document or goods in the possession of a bailee . . . remains perfected for 20 days without filing if the secured party makes available to the debtor the goods or documents representing the goods for the purpose of

(1) ultimate sale or exchange; or

(2) . . . otherwise dealing with them . . . preliminary to their sale or exchange.

20 days

Baileesurrenderspossession

Deadlineto perfect

Temporary perfection/bankruptcy: Schwinn Cycling case

Bailee perfected by possession

Bankruptcy

26

Basic Concepts

§9-312(f) A perfected security interest in a negotiable document or goods in the possession of a bailee . . . remains perfected for 20 days without filing if the secured party makes available to the debtor the goods or documents representing the goods for the purpose of

(1) ultimate sale or exchange; or

(2) . . . otherwise dealing with them . . . preliminary to their sale or exchange.

20 days

Baileesurrenderspossession

Deadlineto perfect

Temporary perfection/bankruptcy: Schwinn Cycling case

Bailee perfected by possession

Bankruptcy

Now

27

Basic Concepts

§9-312(f) A perfected security interest in a negotiable document or goods in the possession of a bailee . . . remains perfected for 20 days without filing if the secured party makes available to the debtor the goods or documents representing the goods for the purpose of

(1) ultimate sale or exchange; or

(2) . . . otherwise dealing with them . . . preliminary to their sale or exchange.

20 days

Baileesurrenderspossession

Deadlineto perfect

Temporary perfection/bankruptcy: Schwinn Cycling case

Bailee perfected by possession

Bankruptcy

Now

Bailee should have filed!

28

Basic Concepts

9-210(b). [A] secured party . . . shall comply with a request within 14 days after receipt:

29

Basic Concepts

9-210(b). [A] secured party . . . shall comply with a request within 14 days after receipt:

(2) in the case of a request regarding a list of collateral or a request regarding a statement of account, by authenticating and sending to the debtor an approval or correction.

30

Basic Concepts

9-210(b). [A] secured party . . . shall comply with a request within 14 days after receipt:

(2) in the case of a request regarding a list of collateral or a request regarding a statement of account, by authenticating and sending to the debtor an approval or correction.

14 days

Authenticatedrequest withcollateral list

Authenticatedapproval or correction

31

Basic Concepts

9-210(b). [A] secured party . . . shall comply with a request within 14 days after receipt:

(2) in the case of a request regarding a list of collateral or a request regarding a statement of account, by authenticating and sending to the debtor an approval or correction.

This is the only (non-contract) obligation for secured to furnish information

14 days

Authenticatedapproval or correction

Authenticatedrequest withcollateral list

32

Basic Concepts

9-210(b). [A] secured party . . . shall comply with a request within 14 days after receipt:

(2) in the case of a request regarding a list of collateral or a request regarding a statement of account, by authenticating and sending to the debtor an approval or correction.

This is the only (non-contract) obligation for secured to furnish information

Only the debtor may make a request.

14 days

Authenticatedapproval or correction

Authenticatedrequest withcollateral list

33

Basic Concepts

9-210(b). [A] secured party . . . shall comply with a request within 14 days after receipt:

(2) in the case of a request regarding a list of collateral or a request regarding a statement of account, by authenticating and sending to the debtor an approval or correction.

This is the only (non-contract) obligation for secured to furnish information

Only the debtor may make a request. The debtor can request on behalf of the searcher.

14 days

Authenticatedapproval or correction

Authenticatedrequest withcollateral list

34

Problem 22.1, page 39212/30/01

FS

7/7/06

CS

a. Bank filed financing statement 12/30/01, continuation statement 7/7/06.

35

Problem 22.1, page 39212/30/01

FS

7/7/06

CS

a. Bank filed financing statement 12/30/01, continuation statement 7/7/06. Was it timely?

36

Problem 22.1, page 39212/30/01

FS

7/7/06

CS5 years

6 mo.

12/30/06

a. Bank filed financing statement 12/30/01, continuation statement 7/7/06. Was it timely? Yes, in last six months, §9-515(d).

37

Problem 22.1, page 39212/30/01

FS

7/7/06

CS5 years

6 mo.

12/30/063/22/10

a. Bank filed financing statement 12/30/01, continuation statement 7/7/06. Was it timely? Yes, in last six months, §9-515(d).

Today

38

Problem 22.1, page 39212/30/01

FS

7/7/06

CS5 years

6 mo.

12/30/063/22/10

a. Bank filed financing statement 12/30/01, continuation statement 7/7/06. Was it timely? Yes, in last six months, §9-515(d).

b. When is the next continuation statement due?

Today

39

Problem 22.1, page 39212/30/01

FS

7/7/06

CS CS5 years

6 mo. 6 mo.

12/30/06 12/30/116/30/11

5 years

3/22/10

a. Bank filed financing statement 12/30/01, continuation statement 7/7/06. Was it timely? Yes, in last six months, §9-515(d).

b. When is the next continuation statement due? 6/30/11 to 12/30/11, §9-515(d)

40

Problem 22.1, page 39212/30/01

FS

7/7/06

CS CS5 years

6 mo. 6 mo.

12/30/06 12/30/116/30/11

5 years

3/22/10

a. Bank filed financing statement 12/30/01, continuation statement 7/7/06. Was it timely? Yes, in last six months, §9-515(d).

b. When is the next continuation statement due? 6/30/11 to 12/30/11, §9-515(d)

c. Does a 3/29/10 bankruptcy change your advice?

Bky

41

Problem 22.1, page 392c. Does bankruptcy change your advice (to file a continuation

statement between 6/30/11 and 12/30/11)?

42

Problem 22.1, page 392c. Does bankruptcy change your advice (to file a continuation

statement between 6/30/11 and 12/30/11)?

§362(a)(4). [A] petition . . operates as a stay . . of . . any act to create, perfect or enforce any lien against property of the estate.

43

Problem 22.1, page 392c. Does bankruptcy change your advice (to file a continuation

statement between 6/30/11 and 12/30/11)?

§362(a)(4). [A] petition . . operates as a stay . . of . . any act to create, perfect or enforce any lien against property of the estate.

§362(b)(3). The filing of a petition . . . does not operate as a stay . . . of any act to perfect, or to maintain or continue the perfection . . . to the extent that the trustee’s rights . . . are subject to such perfection under section 546(b) . . .

44

Problem 22.1, page 392c. Does bankruptcy change your advice (to file a continuation

statement between 6/30/11 and 12/30/11)?

§362(a)(4). [A] petition . . operates as a stay . . of . . any act to create, perfect or enforce any lien against property of the estate.

§362(b)(3). The filing of a petition . . . does not operate as a stay . . . of any act to perfect, or to maintain or continue the perfection . . . to the extent that the trustee’s rights . . . are subject to such perfection under section 546(b) . . .

§546(b)(1)(B). The rights . . . of a trustee . . . are subject to any generally applicable law that . . . provides for the . . . continuation of perfection of an interest in property to be effective against an entity that acquires rights . . . before the date on which action is taken to effect such . . . continuation.

45

Problem 22.1, page 392c. Does bankruptcy change your advice (to file a continuation

statement between 6/30/11 and 12/30/11)? No

§362(a)(4). [A] petition . . operates as a stay . . of . . any act to create, perfect or enforce any lien against property of the estate.

§362(b)(3). The filing of a petition . . . does not operate as a stay . . . of any act to perfect, or to maintain or continue the perfection . . . to the extent that the trustee’s rights . . . are subject to such perfection under section 546(b) . . .

§546(b)(1)(B). The rights . . . of a trustee . . . are subject to any generally applicable law that . . . provides for the . . . continuation of perfection of an interest in property to be effective against an entity that acquires rights . . . before the date on which action is taken to effect such . . . continuation.

46

Problem 22.2, page 392

FS

5 years

No continuation statement was filed.

Now

Notedue

47

Problem 22.2, page 392

FS

5 years

No continuation statement was filed.

Now

Notedue

Was continuation our job or the client’s job?

48

Problem 22.2, page 392

FS

5 years

No continuation statement was filed.

Barnes v. Turner, 606 S.E. 2d 849 (Ga. 2004).

Now

Notedue

Was continuation our job or the client’s job?

49

Problem 22.2, page 392

FS

5 years

No continuation statement was filed.

Barnes v. Turner, 606 S.E. 2d 849 (Ga. 2004). We do not, as the dissent contends, demand that the lawyer “ascertain the full extent of the client's 'objectives;’ only that the lawyer take reasonable, legal steps to fulfill the client's main, known objective -- to be paid for the business he sold. . . .”

Now

Notedue

Was continuation our job or the client’s job?

50

Problem 22.2, page 392

FS

5 years

No continuation statement was filed.

1. Should we file a continuation statement now?

Now

Notedue

51

Problem 22.2, page 392

FS

5 years

No continuation statement was filed.

1. Should we file a continuation statement now? No. §9-510(c).

Now

Notedue

52

Problem 22.2, page 392

FS

5 years

No continuation statement was filed.

1. Should we file a continuation statement now? No. §9-510(c).

2. File a financing statement now?

Now

Notedue

53

Problem 22.2, page 392

FS

5 years

No continuation statement was filed.

1. Should we file a continuation statement now? No. §9-510(c).

2. File a financing statement now? Ask debtor’s permission?

Now

Notedue

54

Problem 22.2, page 392

FS

5 years

No continuation statement was filed.

1. Should we file a continuation statement now? No. §9-510(c).

2. File a financing statement now? Ask debtor’s permission?

9-509(b). By authenticating . . . a security agreement, a debtor . . . authorizes the filing of an initial financing statement . . . covering the collateral described . . . .”

Now

Notedue

55

§1-106(1). [U]nless the context otherwise requires . . . words in the singular number include the plural. . .

Problem 22.2, page 392

FS

5 years

No continuation statement was filed.

1. Should we file a continuation statement now? No. §9-510(c).

2. File a financing statement now? Ask debtor’s permission?

9-509(b). By authenticating . . . a security agreement, a debtor . . . authorizes the filing of an initial financing statement . . . covering the collateral described . . . .”

Now

Notedue

56

Problem 22.3, page 392

Ryersonfiles

9 years

Ryerson filed first and is supposed to have the first.

Associatesfiles Now

Bky

57

Problem 22.3, page 392

Ryersonfiles

9 years

Ryerson filed first and is supposed to have the first. §9-322(a)

Associatesfiles

Associatespossesses Now

Bky

58

Problem 22.3, page 392

Ryersonfiles

9 years

Ryerson filed first and is supposed to have the first. §9-322(a)

How could Associates possess a traveling circus?

Associatesfiles

Associatespossesses Now

Bky

59

Problem 22.3, page 392

Ryersonfiles

9 years

Ryerson filed first and is supposed to have the first. §9-322(a)

How could Associates possess a traveling circus? Example: Allied Van Lines had the circus in trucks and authenticated record saying they held for Associates?

Associatesfiles

Associatespossesses Now

Bky

60

Problem 22.3, page 392

Ryersonfiles

9 years

Ryerson filed first and is supposed to have the first. §9-322(a)

a. How could Associates possess a traveling circus? Example: Allied Van Lines had the circus in trucks and authenticated record saying they held for Associates?

b. Parker right?

Associatesfiles

Associatespossesses Now

Bky

61

Problem 22.3, page 392

Ryersonfiles

9 years

Ryerson filed first and is supposed to have the first. §9-322(a)

a. How could Associates possess a traveling circus? Example: Allied Van Lines had the circus in trucks and authenticated record saying they held for Associates?

b. Parker right? §9-308(c). “A security interest . . . is perfected continuously if it is originally perfected by one method under this article and is later perfected by another method under this article, without an intermediate period when it was unperfected.”

Associatesfiles

Associatespossesses Now

Bky

62

Problem 22.3, page 392

Ryersonfiles

9 years

Ryerson filed first and is supposed to have the first. §9-322(a)

a. How could Associates possess a traveling circus? Example: Allied Van Lines had the circus in trucks and authenticated record saying they held for Associates?

b. Parker right? §9-308(c). “A security interest . . . is perfected continuously if it is originally perfected by one method under this article and is later perfected by another method under this article, without an intermediate period when it was unperfected.”

c. How will you do the closing next time? Evidence?

Associatesfiles

Associatespossesses Now

Bky

63

Problem 22.3, page 392

Ryersonfiles

9 years

Ryerson filed first and is supposed to have the first. §9-322(a)

a. How could Associates possess a traveling circus? Example: Allied Van Lines had the circus in trucks and authenticated record saying they held for Associates?

b. Parker right? §9-308(c). “A security interest . . . is perfected continuously if it is originally perfected by one method under this article and is later perfected by another method under this article, without an intermediate period when it was unperfected.”

c. How will you do the closing next time? Evidence? §9-339?

Associatesfiles

Associatespossesses Now

Bky

64

Problem 22.5, page 393

Firstbank: Security agreement: “12 fork lifts”

Authorized financing statement: “Equipment”

Forklifts

Drill presses

Equipment

65

Problem 22.5, page 393

Firstbank: Security agreement: “12 fork lifts”

Authorized financing statement: “Equipment”

Does Firstbank have a security interest in the drill presses?

Forklifts

Drill presses

Equipment

66

Problem 22.5, page 393

Firstbank: Security agreement: “12 fork lifts”

Authorized financing statement: “Equipment”

Does Firstbank have a security interest in the drill presses? No.

Forklifts

Drill presses

Equipment

67

Problem 22.5, page 393

Firstbank: Security agreement: “12 fork lifts”

Authorized financing statement: “Equipment”

Does Firstbank have a security interest in the drill presses? No.

a. Does Firstbank have to give a release?

Forklifts

Drill presses

Equipment

68

Problem 22.5, page 393

Firstbank: Security agreement: “12 fork lifts”

Authorized financing statement: “Equipment”

Does Firstbank have a security interest in the drill presses? No.

a. Does Firstbank have to give a release? No. Authorized FS.

Forklifts

Drill presses

Equipment

69

Problem 22.5, page 393

Firstbank: Security agreement: “12 fork lifts”

Authorized financing statement: “Equipment”

Does Firstbank have a security interest in the drill presses? No.

a. Does Firstbank have to give a release? No. Authorized FS.

b. Can Beaver borrow on the drill presses?

Forklifts

Drill presses

Equipment

70

Problem 22.5, page 393

Firstbank: Security agreement: “12 fork lifts”

Authorized financing statement: “Equipment”

Does Firstbank have a security interest in the drill presses? No.

a. Does Firstbank have to give a release? No. Authorized FS.

b. Can Beaver borrow on the drill presses?

Firstbank files “equipment”

2nd bank files “drill presses,”

SA, lends”

71

Problem 22.5, page 393

Firstbank: Security agreement: “12 fork lifts”

Authorized financing statement: “Equipment”

Does Firstbank have a security interest in the drill presses? No.

a. Does Firstbank have to give a release? No. Authorized FS.

b. Can Beaver borrow on the drill presses?

Firstbank files “equipment”

2nd bank files “drill presses,”

SA, lends”

Firstbank gets SA in drill presses and lends

72

Problem 22.5, page 393

§9-322(a)(1). Conflicting perfected security interests . . . rank according to priority in time of filing or perfection. Priority dates from the earlier of the time a filing covering the collateral is first made or the security interest . . . is first perfected . . . .

Firstbank files “equipment”

2nd bank files “drill presses,”

SA, lends”

Firstbank gets SA in drill presses and lends

Who’s first? §9-322(a)(1)

73

Problem 22.5, page 393

Firstbank files “equipment”

2nd bank files “drill presses,”

SA, lends”

Who’s first? §9-322(a)(1)

Will §9-210 help?

Firstbank gets SA in drill presses and lends

§9-322(a)(1). Conflicting perfected security interests . . . rank according to priority in time of filing or perfection. Priority dates from the earlier of the time a filing covering the collateral is first made or the security interest . . . is first perfected . . . .

74

Problem 22.5, page 393

Firstbank files “equipment”

2nd bank files “drill presses,”

SA, lends”

Who’s first? §9-322(a)(1)

Will §9-210 help?

Firstbank “No SI”

Firstbank gets SA in drill presses and lends

§9-322(a)(1). Conflicting perfected security interests . . . rank according to priority in time of filing or perfection. Priority dates from the earlier of the time a filing covering the collateral is first made or the security interest . . . is first perfected . . . .

75

Problem 22.7, page 394

Would the Suarezs be better off under the UCC rule?

Bill of saleTerminationSuarez Buyer

NewLender

$600K

Global

$407KTermination Termination$550K

76

Problem 22.7, page 394

Would the Suarezs be better off under the UCC rule?

UCC §9-513(c). [W]ithin 20 days after a secured party receives an authenticated demand . . . the secured party shall . . . send to the debtor a termination statement . . . if (1) . . . there is no obligation secured by the collateral . . . and no commitment to make an advance . . . .

Bill of saleTerminationSuarez Buyer

NewLender

$600K

Global

$407KTermination Termination$550K

77

Bill of saleTermination

Problem 22.7, page 394

Would the Suarezs be better off under the UCC rule?

UCC §9-513(c). [W]ithin 20 days after a secured party receives an authenticated demand . . . the secured party shall . . . send to the debtor a termination statement . . . if (1) . . . there is no obligation secured by the collateral . . . and no commitment to make an advance . . . .

Suarez Buyer

NewLender

$600K

Global

$407KTermination Termination$550K

TerminationPaymentand demand 20 days

78

Problem 22.7, page 394

Would the Suarezs be better off under the UCC rule?

UCC §9-513(c). [W]ithin 20 days after a secured party receives an authenticated demand . . . the secured party shall . . . send to the debtor a termination statement . . . if (1) . . . there is no obligation secured by the collateral . . . and no commitment to make an advance . . . .

Suarez Buyer

NewLender

$600K

Global

$407KTermination Termination$550K

Payment andterminationDemand

20 days

Bill of saleTermination

79

Problem 22.7, page 394

9-509(d). A person may file an amendment . . . only if . . . (2) the amendment is a termination statement . . . the secured party . . . failed to file or send . . . as required by Section 9-513(c), the debtor authorizes the filing, and the termination statement indicates that the debtor authorized it to be filed.

Suarez Buyer

NewLender

$600K

Global

$407KTermination Termination$550KBill of saleTermination

80

Problem 22.7, page 394

9-509(d). A person may file an amendment . . . only if . . . (2) the amendment is a termination statement . . . the secured party . . . failed to file or send . . . as required by Section 9-513(c), the debtor authorizes the filing, and the termination statement indicates that the debtor authorized it to be filed. [Otherwise, it is ineffective. 9-510(a).]

Suarez Buyer

NewLender

$600K

Global

$407KTermination Termination$550KBill of saleTermination

81

Problem 22.7, page 394

9-509(d). A person may file an amendment . . . only if . . . (2) the amendment is a termination statement . . . the secured party . . . failed to file or send . . . as required by Section 9-513(c), the debtor authorizes the filing, and the termination statement indicates that the debtor authorized it to be filed. [Otherwise, it is ineffective. 9-510(a).]

If you are New Lender, is this termination statement acceptable?

Suarez Buyer

NewLender

$600K

Global

$407KTermination Termination$550KBill of saleTermination