1. The University of Chicago
11/11/2018
Class 2 Secured Transactions, Fall, Security Agreement and Obligation Description
Randal C. Picker
James Parker Hall Distinguished Service Professor of Law
The Law School
The University of Chicago
Copyright © Randal C. Picker. All Rights Reserved.

2. Defining a “Security Agreement”
Definitions
9-102(c): Article 1 definitions and principles. Article 1 contains general definitions and principles of construction and interpretation applicable throughout this Article.
9-102(a)(74) “Security agreement” means an agreement that creates or provides for a security interest.

3. Defining a “Security Agreement”
Definitions
1-201(b)(3)
“Agreement”, as distinguished from “contract”, means the bargain of the parties in fact, as found in their language or inferred from other circumstances, including course of performance, course of dealing, or usage of trade as provided in Section

4. 9-203 (b) [Enforceability.]
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9-203
(b) [Enforceability.]
Except as otherwise provided …, a security interest is enforceable against the debtor and third parties with respect to the collateral only if:
(1) value has been given;
(2) the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and
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5. 9-203 (3) one of the following conditions is met:
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9-203
(3) one of the following conditions is met:
(A) the debtor has authenticated a security agreement that provides a description of the collateral …
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6. 9-102(a)(7): Defining “Authenticate”
Authenticate” means:
(A) to sign; or
(B) with present intent to adopt or accept a record, to attach to or logically associate with the record an electronic sound, symbol, or process.
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7. Bollinger: Set Up ICC Bollinger Z&J 1/13/72: $150K SA: Mach & EQ
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Bollinger: Set Up
1/13/72: $150K
ICC
Bollinger
SA: Mach & EQ
FS: Mach & EQ
PN: 150K
12/5/74
PN: $150K
FS: Mach & EQ
Z&J
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8. 3/75: Bollinger files Ch XI
Bollinger: 1st Ver
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1/13/72: $150K
ICC
Bollinger
12/74: $65K
SA: Mach & EQ
FS: Mach & EQ
PN: 150K
12/5/74
PN: $150K
FS: Mach & EQ
12/74
$150K
What does Z&J have?
3/75: Bollinger files Ch XI
Z&J
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9. 11/11/2018
Answer
Answer
ICC secured transaction is gone once it has been paid in full by Bollinger
Z&J get whatever they get under their own documents and can claim nothing under the ICC documents
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10. Bollinger: Set Up ICC Bollinger Z&J 1/13/72: $150K SA: Mach & EQ
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Bollinger: Set Up
1/13/72: $150K
ICC
Bollinger
SA: Mach & EQ
FS: Mach & EQ
PN: 150K
12/5/74
PN: $150K
FS: Mach & EQ
Z&J
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11. 3/75: Bollinger files Ch XI
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Bollinger: 2nd Ver
1/13/72: $150K
ICC
Bollinger
SA: Mach & EQ
FS: Mach & EQ
PN: 150K
12/5/74
PN: $150K
FS: Mach & EQ
12/74
$85K
12/74
Assignment
12/74: $65K
Z&J
3/75: Bollinger files Ch XI
What does Z&J have?
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12. Answer Answer Why might Z&J prefer the second approach over the first?
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Answer
Answer
Under the assignment, Z&J can step into the ICC transaction to some extent
And Z&J get whatever they get under their own documents
Why might Z&J prefer the second approach over the first?
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13. Three Possible Documents as Security Agreements
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Three Possible Documents as Security Agreements
Does the financing statement suffice?
Does the promissory note suffice?
Do the letters suffice?
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14. 11/11/2018
FS as SA?
Debtor
Bank
1/1
FS: EQ
Does Bank have a security interest under Article 9?
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15. Answer Caselaw Split American Card: No, need security interest grant
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Answer
Caselaw Split
American Card: No, need security interest grant
Amex-Protein: Yes, no magic phrases required
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16. Answer Better Answer: No
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Answer
Better Answer: No
Good reason to file FS before creating SI as way of reserving priority position before advancing funds
Deals can fall through, leaving naked FS
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17. 11/11/2018
The Promissory Note
Security. This Promissory Note is secured by security interests in a certain Security Agreement between Bollinger and Industrial Credit Company … and in a Financing Statement filed by (ICC) …, and is further secured by security interests in a certain security agreement to be delivered by Bollinger to Z and J with this Promissory Note covering the identical machinery and equipment as identified in the ICC Agreement and with identical schedule attached in the principal amount of Eighty-Five Thousand Dollars. ($85,000).

18. Caterpillar Financial
Questions
What is going on in this case?
Is it Bollinger again or something else?
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19. Caterpillar Financial: Three Things to See (And Ignore For Now)
1. Transfer of Assets Subjects to Security Interest
2. Grant of SI by Third Party
3. Subordination of SI
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20. Caterpillar Security Agreement

21. Caterpillar Security Agreement
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Caterpillar Security Agreement

22. Caterpillar Security Agreement
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Caterpillar Security Agreement

23. Caterpillar Security Agreement
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Caterpillar Security Agreement

24. Caterpillar Security Agreement
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Caterpillar Security Agreement

25. Caterpillar Financing Statement
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Caterpillar Financing Statement

26. Caterpillar Financing Statement
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Caterpillar Financing Statement

27. Peabody Financing Statement
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Peabody Financing Statement

28. Does Peabody Have a Security Interest?
Questions
What evidence is there that Peabody has a security interest?
Is that evidence different in kind from the type of evidence that sufficed in Bollinger?
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29. 1-201(b)(35) Definition of a Security Interest
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1-201(b)(35)
Definition of a Security Interest
“Security interest” means an interest in personal property or fixtures which secures payment or performance of an obligation.
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30. 2/2 The Finco/Debtor PN is dated 1/1: Who has priority?
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The Debt(s)? Secured
1/1: SA: EQ
FS: EQ, PN: $10K
Debtor
Finco
2/1
SA: EQ
FS: EQ
$10K
1/1 SA: “Debtor hereby grants Finco a security interest in all of its equipment to secure the debt of Debtor to Finco evidenced by a promissory note dated 1/3.”
Bank
2/2 The Finco/Debtor PN is dated 1/1: Who has priority?
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31. 11/11/2018
Answer
Under the ruling in Duckworth, Bank wins as Finco’s debt of 1/1 is unperfected
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32. The First to File Rule III
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The First to File Rule III
1/1
FS: EQ
Debtor
Finco
2/1
SA: EQ
FS: EQ
$10K
3/1
SA: EQ
$10K
3/1 Who has priority?
Bank
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33. 11/11/2018
Answer
Finco filed first, so Finco wins
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34. 3/2 The Finco/Debtor PN is dated 1/1: Who has priority?
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The Debt(s)? Secured
1/1: SA: EQ
FS: EQ, PN: $10K
Debtor
Finco
3/1: SA: EQ
2/1
SA: EQ
FS: EQ
$10K
3/1 SA: “Debtor hereby grants Finco a security interest in all of its equipment to secure the debt of Debtor to Finco evidenced by a promissory note dated 1/1.”
Bank
3/2 The Finco/Debtor PN is dated 1/1: Who has priority?
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35. Answer Treat this as First-to-File III
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Answer
Treat this as First-to-File III
The financing statement filed on 1/1 is fine; the security agreement is glitched
The FS reserves the place in line
The new 3/1 SA fixes the problem and creates a perfect SI in favor of Finco with priority dated as of the original FS date of 1/1
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36. 11/11/2018
Answer
Takeaways
We have to be very careful about the discussion of reliance in Duckworth
The great risk for an intervening SP is the next transaction, not just the existing transactions
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37. Dragnet Clauses Debtor Finco Bank 2/2 Who has priority? 1/1: SA: EQ
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Dragnet Clauses
1/1: SA: EQ
FS: EQ, PN: $10K
Debtor
Finco
2/1
SA: EQ
FS: EQ
$10K
1/1 SA: “Debtor hereby grants Finco a security interest in all of its equipment to secure all debts now owed or hereafter owed by Debtor to Finco.”
Bank
2/2 Who has priority?
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38. 11/11/2018
Answer
Finco wins
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39. 3/2 Who has priority? To what extent?
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Dragnet Clauses
1/1: SA: EQ
FS: EQ, PN: $10K
Debtor
Finco
3/1: New PN: $10K
2/1
SA: EQ
FS: EQ
$10K
1/1 SA: “Debtor hereby grants Finco a security interest in all of its equipment to secure all debts now owed or hereafter owed by Debtor to Finco.”
Bank
3/2 Who has priority? To what extent?
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40. 11/11/2018
Answer
Finco filed first, so Finco is a prior perfected SP to the tune of $20K
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