2018 Perfection Control Randal C Picker James Parker Hall Distinguished Service Professor of Law The Law School The University of Chicago Copyright 200118 Randal C Picker All Rights Reserved ID: 760343
Download Presentation The PPT/PDF document "Class 9 Secured Transactions, Fall," is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Slide1
Class 9Secured Transactions, Fall, 2018Perfection: Control
Randal C. Picker
James Parker Hall Distinguished Service Professor of Law
The Law School
The University of Chicago
Copyright
©
2001-18
Randal C. Picker. All Rights Reserved.
Slide2October 15, 2018
2
WSJ, Oct 15, 2018
Sears Sales by Channel
Slide3World’s Largest Retailers, 1920
October 15, 2018
3
Levinson, The Great A&P
Slide4October 15, 2018
4
NYT, 8 July 1928
NYT, July 8. 1928
Slide5October 15, 2018
5
Emmet &
Jeuck, p653
Sears Sales by Channel
Slide6October 15, 2018
6
Emmet &
Jeuck, p650
Sears Financials, 1925-1947
Slide7October 15, 2018
7
N
YT, Feb 12, 1984
Sears Expands
Slide8October 15, 2018
8
WSJ, Oct 13-14, 2018
Sears v. Walmart v. Amazon
Slide9October 15, 2018
9
WSJ, Oct 13-14, 2018
Sears v. Walmart v. Amazon
Slide10October 15, 2018
10
WSJ, Oct 12, 2018
Secured Lending in Sears
Slide11The DIP Order
October 15, 2018
11
Slide12October 15, 2018
12
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 :
…
Slide13October 15, 2018
13
9-203: Control Elements
(3) one of the following conditions is met:
…
(D)
the collateral is deposit accounts, electronic chattel paper, investment property, letter-of-credit rights, or electronic documents, and the secured party has control under
section 7-106,
9-104, 9-105,
9-106,
or 9-107 pursuant
to the
debtor’s
security agreement
.
October 15, 2018
14
9-314: Perfection Through Control
(a)
[Perfection by control.]
A security interest in
investment property
,
deposit accounts
,
letter-of-credit rights
,
electronic chattel paper, or electronic documents
may be perfected by control of the collateral under Section 7-106, 9‑104, 9‑105, 9‑106, or 9‑107.
Slide15October 15, 2018
15
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.
Slide16Lots of Types of Collateral (and UCC Articles!)
Focus on the Table of Contents of the UCCArticle 3: Negotiable InstrumentsArticle 5: Letters of CreditArticle 7: Documents of TitleArticle 8: Investment Securities
October 15, 2018
16
Slide17Orienting (a Little)
Comment 1 to 7-104“This article deals with a class of commercial paper representing commodities in storage or transportation. This ‘commodity paper’ is to be distinguished from what might be called ‘money paper’ dealt with in the article of this code on commercial paper (article 3)
October 15, 2018
17
Slide18Orienting (a Little)
Comment 1 to 7-104“and ‘investment paper’ dealt with in the article of this code on investment securities (article 8). The class of ‘commodity paper’ is designated ‘document of title’ following the terminology of the Uniform Sales Act section 76. Section 1-201.”
October 15, 2018
18
Slide19October 15, 2018
19
Warehouse Receipt Transaction
SP
Debtor
Is SP perfected? With what rights?
SA
: Documents (as defined in 9-102(a)(30)FS: Ditto$
Warehouse
Debtor turns over goods to warehouse and gets back paper
Slide20Situating This Deal
UCC Article 7: Documents of Title9-331(a):This article does not limit the rights of a holder in due course of a negotiable instrument, a holder to which a negotiable document of title has been duly negotiated, or a protected purchaser of a security.
October 15, 2018
20
Slide21Situating This Deal
These holders or purchasers take priority over an earlier security interest, even if perfected, to the extent provided in articles 3, 7, and 8.Article 9 creates rules for secured parties but steps back here regarding other rights outside of Article 9
October 15, 2018
21
Slide22October 15, 2018
22
Letter-of-Credit Transaction
SP
Seller(Debtor)
How does SP attach and perfect interest in Seller’s rights?
2/1: Sale of good on unsecured basis
Bank
2/1: Issues Letter of Credit
Buyer
Slide23Meshing Article 9 and Article 5
Key PointArticle 9 rules (such as 9-107, 9-308(d) and 9-329) have to be understood in the context of the rules set forth for letters-of-credit in UCC Article 5
October 15, 2018
23
Slide24One Path to Perfection in the LC Rights: Perfect in the Account
9-308(d)Perfection of a security interest in collateral also perfects a security interest in a supporting obligation for the collateral9-102(a)(78) defines supporting obligationMeansFiling a FS for account will also perfect the interest in the support obligation
October 15, 2018
24
Slide25One Path to Perfection in the LC Rights: Perfect in the Account
That all meansFiling a FS for account will also perfect the interest in the support obligationStop there?
October 15, 2018
25
Slide26Multiple Methods of Perfection and the Hierarchy of Perfection
We didn’t: see 9-329(1)A security interest held by a secured party having control of the letter-of-credit right under section 9-107 has priority to the extent of its control over a conflicting security interest held by a secured party that does not have control.Means: control beats non-control
October 15, 2018
26
Slide27Why?
See Comment 2 to 9-329Paragraph (1) awards priority to a secured party who perfects a security interest directly in letter-of-credit rights (i.e., one that takes an assignment of proceeds and obtains consent of the issuer or any nominated person under section 5-114(c)) over another conflicting security interest
October 15, 2018
27
Slide28Why?
See Comment 2 to 9-329(i.e., one that is perfected automatically in the letter-of-credit rights as supporting obligations under section 9-308(d)). This is consistent with international letter-of-credit practice and provides finality to payments made to recognized assignees of letter-of-credit proceeds.
October 15, 2018
28
Slide29October 15, 2018
29
Stock Transaction
SP
Corp Debtor
How does SP attach and perfect interest in Owner’s rights in Corp?
Guarantee of Corp Debt
Standard SA, FS, $
Owner
Slide30Answer
Investment Property Transaction9-102(a)(49)“‘Investment property’ means a security, whether certificated or uncertificated, security entitlement, securities account, commodity contract, or commodity account.”
October 15, 2018
30
Slide31Answer: Attachment
1. Take Possession If …9-203(b)(3)(C): “the collateral is a certificated security in registered form and the security certificate has been delivered to the secured party under section 8-301 pursuant to the debtor’s security agreement;”
October 15, 2018
31
Slide32Answer: Attachment
2. Create as per usual with appropriate description in security agreement (and consider 9-108(d))3. Take control as per 9-203(b)(3)(D)
October 15, 2018
32
Slide33Answer: Perfection
Three SituationsPossession of registered certificated securitiesFiling is generally permitted for investment property (see 9-312(a))Control (see 9-314(a) (and note 9-314(c)))
October 15, 2018
33
Slide34Answer: Attachment
On Control: How? Why?9-106(a): “A person has control of a certificated security, uncertificated security, or security entitlement as provided in section 8-106.”
October 15, 2018
34
Slide35Answer
On Control: How? Why?9-328(1): “A security interest held by a secured party having control of investment property under section 9-106 has priority over a security interest held by a secured party that does not have control of the investment property.”
October 15, 2018
35
Slide36October 15, 2018
36
Accounts Transaction
Bank
Debtor
1/1: $
SA:
AccountsFS: Accounts
How should we
assess this transaction? Is it different than the deal in Benedict v Ratner?
Slide37October 15, 2018
37
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?
Slide389-205. 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:
October 15, 2018
38
Slide399-205. 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;
October 15, 2018
39
Slide409-205. 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.
October 15, 2018
40
Slide419-205 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.”
October 15, 2018
41
Slide429-205 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.”
October 15, 2018
42
Slide43October 15, 2018
43
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
;
Slide449-102(a)(29): Deposit Account
“Deposit account” meansa demand, time, savings, passbook, or similar account maintained with a bank. The term does not include investment property or accounts evidenced by an instrument.
October 15, 2018
44
Slide45Instruments
9-102(a)(47)“‘Instrument’ 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.”
October 15, 2018
45
Slide46Status of Certificates of Deposit?
9-102 Comment 12“Deposit accounts evidenced by article 9 ‘instruments’ are excluded from the term ‘deposit account’. … The revised definition clarifies the proper treatment of nonnegotiable or uncertificated certificates of deposit.”
October 15, 2018
46
Slide47Status of Certificates of Deposit?
9-102 Comment 12“Under the definition, an uncertificated certificate of deposit would be a deposit account (assuming there is no writing evidencing the bank's obligation to pay) whereas a nonnegotiable certificate of deposit would be a deposit account only if it is not an ‘instrument’ as defined in this section”
October 15, 2018
47
Slide48Status of Certificates of Deposit?
9-102 Comment 12“(a question that turns on whether the nonnegotiable certificate of deposit is ‘of a type that in ordinary course of business is transferred by delivery with any necessary indorsement or assignment’).”
October 15, 2018
48
Slide49October 15, 2018
49
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;
Slide50October 15, 2018
50
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.
Slide51October 15, 2018
51
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.
October 15, 2018
52
Taking the Security Interest in the Deposit Account
Bank
SA: Deposit Account
FS: Deposit Account$
Has a perfected security interest been created?
Debtor
Slide53October 15, 2018
53
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
Slide54October 15, 2018
54
Selling Positions I
Bank
Debtor
To what extent is Creditco perfected?
1/1
SA: EQFS: EQ$
Creditco
Sells Position
Slide55October 15, 2018
55
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
Slide56October 15, 2018
56
Selling Positions II
Bank
Debtor
To what extent is Creditco perfected?
SA: EQ
Bank takes possession of asset$
Creditco
Sells Position (and transfers possession)
Slide57October 15, 2018
57
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
.
Slide58October 15, 2018
58
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.
Slide59Answer: 9-310(c) Again?
October 15, 2018
59
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
.
Slide60October 15, 2018
60
Selling Positions III
Bank
Debtor
To what extent is Creditco perfected?
SA: CD
Bank ???
Creditco
Sells Position
Slide61October 15, 2018
61
Beal Bank v. Fewell
US Bank
Fewell
To what extent is Creditco perfected?
SA: CD
Control under 9-105(a)(1)
Beal
Sells position but CD is still at US Bank