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Ever needed a loan for your 
business? 

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You know, maybe expanding buying
equipment, that kind of thing. 

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Yeah, we're stocking up 
inventory for a busy season. 

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Right. 
And you get to that point where 

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the lender asks, OK, what can 
you offer as collateral, 

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something valuable to back it 
up? 

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Something they can look to if 
you know things don't quite go 

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as. 
Planned. 

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Exactly. 
And there's this whole legal 

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world behind that simple idea 
designed to make it work, make 

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it safe for lenders. 
And actually possible for you, 

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the borrower to get that 
financing in the 1st. 

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Place in that system, That's 
what we're diving into today. 

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It's all about secured 
transactions. 

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Primarily governed by Article 9 
of the Uniform Commercial Code, 

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the UCC, so. 
We've gathered up quite a bit of

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material, articles from places 
like Avison, Legal Nolo, bits 

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from the UCC itself, study 
guides. 

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Even a peek at how law students 
talk about it online, trying to 

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get their heads around it. 
Our mission today is really to 

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unpack all that, how these 
security interests get created, 

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how they're protected, enforced.
And yeah, how recent updates are

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tackling things like digital 
assets. 

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We want to give you a clear 
handle on these rules. 

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OK, let's start at the 
beginning. 

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What is a secured transaction 
fundamentally? 

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At its heart, it's pretty 
simple. 

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It's a credit deal. 
A borrower, the law calls them. 

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The debtor gives a lender the 
secured party and interest in 

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some specific property. 
That property being the 

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collateral. 
Right. 

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That interest, the security 
interest, it's the lenders 

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backup, it secures the promise 
to repay the loan. 

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So the lender gets this special 
claim. 

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Why is that such a big deal? 
Because it gives them a huge 

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advantage. 
Legally speaking, if the debtor 

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defaults, can't pay. 
Yeah, that secured party usually

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gets first shot at the 
collateral. 

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They jump ahead of most other 
creditors, the ones who don't 

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have a security interest. 
It really lowers the lenders 

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risk. 
Got it. 

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And we're talking about business
assets here mainly like 

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equipment, inventory, accounts 
receivable. 

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Exactly. 
Article 9 covers security 

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interests and personal property.
That includes goods, 

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intangibles, fixtures, things 
attached to buildings. 

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But not the land or the building
itself. 

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Right. 
Real estate mortgages are a 

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whole different area of law. 
So if you're borrowing against 

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your machinery, your stock money
customers owe you, you're in 

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Article 9 territory. 
OK, Key players, debtor, that's 

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you, the borrower, secured 
party, the lender and the 

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collateral the specific 
property. 

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And crucially, it's something 
you agree to. 

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It's a voluntary. 
Light unlike, say, a tax lend, 

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the government slaps on you. 
Precisely, it's based on an 

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agreement. 
All right, So what kind of 

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property can actually be 
collateral under Article 9? 

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Is it just physical stuff? 
Oh, it's much broader than that.

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Article Nine groups property 
into categories and this is 

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important because the rules for 
how the lender protects their 

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interest, how they perfect it 
can change depending on the type

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of collateral. 
OK, so classification matters. 

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What are the main buckets we 
should know? 

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First you've got goods, tangible
movable items, and within goods 

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there are important subtypes 
like consumer goods, stuff 

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bought mainly for personal, 
family or household use. 

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Think financing a car for your 
family. 

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Then inventory. 
This is huge for businesses. 

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Goods held for sale or lease, 
raw materials, components, 

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basically your stock makes 
sense. 

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Then equipment also key for 
businesses goods used in the 

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business that aren't inventory 
or consumer goods machinery, 

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computers, delivery trucks, 
office furniture, the. 

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Tools of the trade. 
Exactly. 

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And finally, farm products, 
crops, livestock, things used in

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farming operations. 
OK so goods cover most physical 

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assets. 
What about the non physical 

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stuff? 
Money owed? 

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Ideas. 
That's the next big group. 

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Intangibles and semi intangibles
rights, basically Like what? 

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Well accounts, that's money owed
to your business for goods sold 

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or services rendered on credit, 
your receivables, chattel paper.

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This one's a bit tricky. 
It's a record, could be paper or

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electronic. 
Now that shows both a debt and a

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security interest in specific 
goods, like a car loan contract 

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held by the dealer. 
OK. 

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A hybrid, yeah. 
Then deposit accounts your 

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actual business, bank accounts, 
instruments like promissory 

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notes or checks, investment 
property, stocks, bonds, 

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securities accounts. 
Wow, lots of cat. 

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And the big catch? 
All general intangibles. 

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This covers things that don't 
fit elsewhere. 

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Intellectual property like 
patents, trademarks, copyrights,

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business goodwill, even certain 
software rights or payment 

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rights that aren't accounts. 
So potentially my business's 

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brand reputation or a patent 
could be collateral. 

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As a general intangible, yes, 
absolutely. 

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So knowing the right category 
for your assets, inventory, 

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equipment accounts, general 
intangibles, that's step one for

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figuring out the rules. 
Which leads us to Step 2, making

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the lenders claim actually 
stick, making it legally binding

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against you, the borrower. 
You call that attachment. 

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That's right. 
Attachment is the moment the 

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security interest becomes 
enforceable against the debtor. 

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It's the foundation. 
And you said there were three 

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things that need to happen for 
attachment. 

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Three essential requirements. 
Yes, they all have to be met. 

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OK, what's the 1st? 
First, the secured party, the 

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lender must give value. 
This is usually the loan money 

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or extending credit or even a 
firm commitment to lend. 

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So the lender put something on 
the line. 

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Right. 
Even agreeing to take a security

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interest for an old debt counts 
as giving value. 

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OK, value given second. 
Second, the debtor must have 

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rights in the collateral. 
You need to own the property, or

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at least have the power to 
transfer rights in it. 

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You can't pledge something you 
don't have any claim to. 

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Makes sense, Can't use my 
neighbor's lawnmower as 

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collateral. 
What's #3. #3 is usually an 

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authenticated security 
agreement. 

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Think of it as the contract. 
It needs to be a record, 

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typically written or electronic,
where the debtor explicitly 

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grants the security interest. 
And it has to describe the 

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collateral. 
Yes, and it needs to be signed 

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or otherwise authenticated by 
the debtor. 

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How specific does that 
description need to be in the 

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agreement? 
Do I list serial numbers for 

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everything? 
Not necessarily. 

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The standard is that it must 
reasonably identify the 

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collateral, saying all inventory
or all equipment located at the 

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main plant is usually good 
enough for the agreement. 

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But not too vague. 
Definitely not too vague in the 

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agreement, just saying all 
assets or all personal property.

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Courts often find that's not 
specific enough in the security 

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agreement to attach the 
interest. 

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You need a bit more detail 
there. 

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OK, so the agreement needs 
reasonable detail. 

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Right, though there is an 
alternative for some types of 

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collateral if the lender takes 
physical possession of the goods

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or gains legal control over 
things like deposit accounts or 

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certain digital assets. 
Like a pawn shop holding the. 

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Item exactly. 
In those cases, a written 

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security agreement might not be 
strictly necessary for 

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attachment itself, though it's 
still best practice to have one.

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So recap, lender gives value, 
borrower has rights and there's 

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an authenticated agreement 
describing the collateral or the

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lender has possession control, 
that's attachment. 

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The claim is valid against the 
borrower. 

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You got it. 
And that agreement can be 

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forward-looking too. 
How so? 

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It can include an after acquired
property clause. 

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This means the security interest
automatically attaches to 

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property the debtor gets later 
after signing the agreement. 

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Super common for things like 
inventory that turns over 

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constantly. 
So my loan secured by inventory 

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covers the new stuff I buy next 
month. 

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Generally, yes. 
If that clause is in there, 

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there's a limit for consumer 
goods, though it usually only 

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covers consumer goods acquired 
within 10 days of the lender 

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giving value. 
Protects consumers a bit. 

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OK, what else can the agreement 
cover? 

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Future advances The agreement 
can state that the collateral 

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secures not just the initial 
loan, but also any future loans 

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or advances made under the same 
agreement, like drawing on a 

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line of credit. 
Right. 

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And what if I sell the 
collateral? 

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Does the lender's interest just 
disappear? 

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Usually no. 
The security interest typically 

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continues in the proceeds. 
Whatever you receive when you 

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sell or dispose of the 
collateral cash, a check, an 

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account receivable from the 
buyer, the lender's interest 

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automatically attaches to that. 
OK. 

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So attachment makes the claim 
real between the borrower and 

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lender, but you said there's 
another big step. 

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Yes, perfection. 
This is absolutely crucial. 

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If attachment is about the 
lender's rights against the 

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debtor, perfection is about 
their rights against almost 

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everyone else. 
Other creditors. 

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A bankruptcy trustee. 
Exactly. 

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Perfection is what gives the 
secured party priority over most

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other claimants to the same 
collateral. 

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It's about putting the world on 
notice. 

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So attachment first, then 
perfection to lock it down 

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against others. 
How do lenders perfect? 

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There are several ways, and the 
right method often depends on 

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the type of collateral. 
I feel like I've heard about 

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filing something like a UCC 
form. 

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00:08:54,440 --> 00:08:56,920
But that's the most common 
method by far, filing a 

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financing statement, commonly 
called a UCC one. 

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00:08:59,600 --> 00:09:02,840
OK, the lender files the simple 
form in a public office, usually

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00:09:02,840 --> 00:09:05,240
the Secretary of State's office 
in the state where the debtor is

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00:09:05,240 --> 00:09:07,240
located. 
It's like planting a flag for 

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everyone to see. 
What's on this UCC one form? 

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It needs the debtor's name, and 
getting this exactly right is 

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critical, especially the 
official registered name for a 

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business. 
Why so critical? 

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00:09:16,840 --> 00:09:18,560
Because that's how others search
the records. 

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00:09:19,160 --> 00:09:22,640
If the name is wrong, the filing
might be ineffective, basically 

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00:09:22,640 --> 00:09:24,400
invisible. 
It also needs the secured 

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00:09:24,400 --> 00:09:27,160
party's name and an indication 
of the collateral. 

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00:09:27,280 --> 00:09:30,520
How specific does the collateral
description need to be on the 

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00:09:30,520 --> 00:09:32,040
filing? 
Same as the agreement. 

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00:09:32,600 --> 00:09:37,120
No, this is a key difference on 
the UCC 1 financing statement. 

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00:09:37,480 --> 00:09:39,160
The description can be much 
broader. 

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00:09:39,440 --> 00:09:44,000
Something like all assets or all
personal property is generally 

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00:09:44,000 --> 00:09:48,000
OK for the public filing. 
Wow OK so super generic is fine 

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00:09:48,000 --> 00:09:51,240
for the filing, but needs to be 
reasonably specific in the 

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00:09:51,240 --> 00:09:54,120
actual agreement. 
Exactly the filing just needs to

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put people on notice that there 
might be a security interest, 

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00:09:57,040 --> 00:09:59,680
prompting them to inquire 
further about the specifics in 

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00:09:59,680 --> 00:10:02,480
the agreement. 
And lenders can actually file 

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00:10:02,480 --> 00:10:05,560
this UCC 1 before everything is 
finalized, even before 

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00:10:05,560 --> 00:10:07,640
attachment. 
Really why to lock in their 

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00:10:07,640 --> 00:10:09,920
priority date. 
If they file early, their 

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00:10:09,920 --> 00:10:12,960
interest becomes perfected. 
The instant attachment occurs 

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00:10:12,960 --> 00:10:15,280
later. 
First to file often wins. 

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00:10:15,280 --> 00:10:19,120
OK, filing is #1 what else? 
Possession if the lender 

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physically takes the collateral.
This works well for tangible 

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things, goods, instruments, 
cash, tangible chattel. 

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00:10:26,480 --> 00:10:28,920
Paper the pawn shop again. 
Right, you can't possess an 

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00:10:28,920 --> 00:10:31,120
account receivable, so it 
doesn't work for intangibles. 

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00:10:31,200 --> 00:10:32,480
Got it. 
Any other methods? 

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00:10:32,640 --> 00:10:35,080
Control. 
This is the key method for 

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00:10:35,080 --> 00:10:37,880
certain assets where possession 
isn't practical or relevant. 

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00:10:38,200 --> 00:10:41,600
Think deposit accounts, 
investment property, electronic 

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00:10:41,600 --> 00:10:45,680
chattel paper, and now 
importantly, those controllable 

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00:10:45,680 --> 00:10:47,480
electronic records we'll talk 
about later. 

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00:10:47,640 --> 00:10:50,720
How does control work? 
It means the lender takes legal 

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00:10:50,720 --> 00:10:54,000
steps to be able to dispose of 
or manage the asset without 

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00:10:54,000 --> 00:10:55,680
needing the debtors further 
consent. 

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00:10:56,280 --> 00:10:58,720
For a bank account, it might 
involve an agreement with the 

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00:10:58,720 --> 00:11:01,640
bank giving the lender authority
over the account. 

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00:11:01,720 --> 00:11:04,200
OK. 
Filing possession control that. 

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00:11:04,200 --> 00:11:08,000
It one more main way automatic 
perfection for a few specific 

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00:11:08,000 --> 00:11:10,000
situations. 
The security interest is 

237
00:11:10,000 --> 00:11:12,680
perfected the moment it attaches
automatically. 

238
00:11:12,960 --> 00:11:16,040
No filing or possession needed. 
By the way, the most common 

239
00:11:16,040 --> 00:11:19,440
example is a purchase money, 
security interests, PMSI and 

240
00:11:19,440 --> 00:11:22,160
consumer goods. 
When you finance a new TV for 

241
00:11:22,160 --> 00:11:25,040
your home directly from the 
store, their security interest 

242
00:11:25,040 --> 00:11:27,800
in that TV is usually 
automatically perfected. 

243
00:11:28,040 --> 00:11:31,000
OK. 
So filing possession control or 

244
00:11:31,000 --> 00:11:33,760
sometimes automatic, That's how 
lenders make their claim public 

245
00:11:33,760 --> 00:11:36,640
and strong against others. 
That's right, and it means for 

246
00:11:36,640 --> 00:11:39,440
you, the borrower, there's 
likely a public record showing 

247
00:11:39,440 --> 00:11:42,920
that claim on your assets. 
Now this leads to the big 

248
00:11:42,920 --> 00:11:45,840
question. 
What happens if two different 

249
00:11:45,840 --> 00:11:49,080
lenders have a perfected 
security interest in the same 

250
00:11:49,080 --> 00:11:52,240
collateral? 
Who gets paid first if the 

251
00:11:52,240 --> 00:11:56,360
borrower defaults? 
Priority battles the general 

252
00:11:56,360 --> 00:11:58,560
rule. 
The bedrock principle is the 

253
00:11:58,560 --> 00:12:02,480
first secured party to either 
file a financing statement or 

254
00:12:02,560 --> 00:12:03,880
perfect their security 
interests. 

255
00:12:03,880 --> 00:12:06,720
Whichever happens first has 
priority. 1st in time, first in 

256
00:12:06,720 --> 00:12:09,600
right. 
Generally yes, if neither party 

257
00:12:09,600 --> 00:12:12,080
perfected then the first one 
whose interest attached gets 

258
00:12:12,080 --> 00:12:14,080
priority. 
But usually it comes down to 

259
00:12:14,080 --> 00:12:15,560
that first to file or perfect 
rule. 

260
00:12:15,640 --> 00:12:18,680
OK, but you hinted there are 
exceptions ways to jump the 

261
00:12:18,680 --> 00:12:19,720
line. 
Absolutely. 

262
00:12:19,920 --> 00:12:22,720
And the most powerful one we've 
already mentioned briefly, the 

263
00:12:22,760 --> 00:12:25,640
purchase money security interest
or PMSI. 

264
00:12:25,680 --> 00:12:28,960
Right, the loan used to buy the 
specific collateral, it had 

265
00:12:28,960 --> 00:12:30,800
automatic perfection for 
consumer goods. 

266
00:12:31,000 --> 00:12:34,040
Correct, but it's real 
superpower is in creating super 

267
00:12:34,040 --> 00:12:37,040
priority. 
APMSI can sometimes leapfrog an 

268
00:12:37,040 --> 00:12:39,720
earlier perfected security 
interest in the same collateral.

269
00:12:39,880 --> 00:12:41,960
How does that work? 
Let's use that unique toys 

270
00:12:41,960 --> 00:12:45,880
example again. 
Big Bank has a loan secured by 

271
00:12:45,880 --> 00:12:49,960
all inventory filed years ago. 
Now Unique Toys needs money just

272
00:12:49,960 --> 00:12:51,920
for a new shipment of action 
figures. 

273
00:12:52,280 --> 00:12:55,040
And a new lender provides that 
specific funding for those 

274
00:12:55,040 --> 00:12:58,440
specific figures, taking a 
security interest only in those 

275
00:12:58,440 --> 00:12:59,880
figures. 
That's a PMSI. 

276
00:13:00,280 --> 00:13:03,680
So new lenders interest in just 
those figures can beat big banks

277
00:13:03,720 --> 00:13:07,960
older claim on all inventory. 
It can yes, but new lender has 

278
00:13:07,960 --> 00:13:10,960
to follow specific rules to get 
that super priority. 

279
00:13:11,200 --> 00:13:13,760
And the rules depend on whether 
the collateral is inventory or 

280
00:13:13,760 --> 00:13:17,120
something else like equipment. 
OK, what are the rules for say 

281
00:13:17,400 --> 00:13:20,920
equipment if I get a PMSI loan 
to buy a new machine for my 

282
00:13:20,920 --> 00:13:23,880
factory? 
For non inventory collateral 

283
00:13:23,880 --> 00:13:27,400
like equipment, two things are 
needed for super priority one, 

284
00:13:27,600 --> 00:13:31,120
the loan has to actually enable 
the purchase 2 The PMSI lender 

285
00:13:31,120 --> 00:13:34,040
must file a UCC 1 financing 
statement covering that 

286
00:13:34,040 --> 00:13:36,720
equipment within 20 days after 
the debtor receives possession 

287
00:13:36,720 --> 00:13:38,720
of it. 20 days? 
That seems specific. 

288
00:13:38,880 --> 00:13:42,760
It is if they file within that 
20 day window, their PMSI 

289
00:13:42,760 --> 00:13:45,840
prime's earlier security 
interest in the same equipment, 

290
00:13:46,200 --> 00:13:49,680
miss the deadline and they just 
fall back into the regular first

291
00:13:49,680 --> 00:13:52,880
to file or perfect order. 
Courts are strict on that 20 day

292
00:13:52,880 --> 00:13:55,080
rule. 
OK. 20 days for equipment, PMS 

293
00:13:55,080 --> 00:13:57,160
eyes. 
What about for inventory? 

294
00:13:57,480 --> 00:13:59,800
Back to unique toys and the 
action figures. 

295
00:13:59,920 --> 00:14:03,560
Inventory PMS is are tougher to 
get super priority for. 

296
00:14:03,800 --> 00:14:07,800
First, the PMSI itself must be 
perfected, usually by filing at 

297
00:14:07,800 --> 00:14:10,480
or before the time the debtor 
receives the inventory. 

298
00:14:10,680 --> 00:14:13,320
No 20 day grace period. 
OK, file before the goods 

299
00:14:13,320 --> 00:14:14,240
arrive. 
What else? 

300
00:14:14,360 --> 00:14:17,320
And this is crucial. 
The PMSI lender must send an 

301
00:14:17,320 --> 00:14:20,320
authenticated notice to any 
other secured party who has 

302
00:14:20,320 --> 00:14:23,160
already filed A financing 
statement covering inventory for

303
00:14:23,160 --> 00:14:25,000
that debtor. 
They have to tell big bank. 

304
00:14:25,040 --> 00:14:27,360
Yes. 
Big Bank and any other prior 

305
00:14:27,360 --> 00:14:30,360
inventory filers must receive 
that notice before Unique Toys 

306
00:14:30,360 --> 00:14:33,400
gets the new action figures. 
The notice has to say the new 

307
00:14:33,400 --> 00:14:36,880
lender expects to acquire a PMSI
in inventory and describe that 

308
00:14:36,880 --> 00:14:37,720
inventory. 
Wow. 

309
00:14:37,760 --> 00:14:40,080
So for inventory, it's perfect 
immediately and give advance 

310
00:14:40,080 --> 00:14:42,320
notice to the existing lenders. 
Exactly. 

311
00:14:42,320 --> 00:14:44,480
It's a heads up system. 
It lets big bank know that 

312
00:14:44,480 --> 00:14:47,720
someone else is getting priority
on this specific incoming batch 

313
00:14:47,720 --> 00:14:50,280
of inventory. 
It prevents hidden landings. 

314
00:14:50,280 --> 00:14:52,760
OK, that makes sense. 
So you've got attachment, then 

315
00:14:52,760 --> 00:14:57,120
perfection, then these priority 
rules with PMSI as a major 

316
00:14:57,120 --> 00:14:58,560
exception. 
It's how someone map this out. 

317
00:14:58,560 --> 00:15:03,040
Like is there an SI attachment, 
perfection, default remedies, 

318
00:15:03,040 --> 00:15:05,160
priority, Kind of a mental 
checklist? 

319
00:15:05,320 --> 00:15:08,160
That's a great way to visualize 
the whole life cycle and 

320
00:15:08,160 --> 00:15:11,680
understanding PMS eyes is key. 
If you're financing specific 

321
00:15:11,680 --> 00:15:14,360
assets, whether you're the 
borrower or the lender, it can 

322
00:15:14,360 --> 00:15:15,800
really impact the deal 
structure. 

323
00:15:15,800 --> 00:15:18,960
Speaking of changing realities, 
the world of assets isn't just 

324
00:15:18,960 --> 00:15:20,760
physical stuff or bank accounts 
anymore. 

325
00:15:20,960 --> 00:15:25,160
We've got crypto NFTS. 
How does Article 9 handle those?

326
00:15:25,280 --> 00:15:27,040
Did the law need an update? 
Oh, absolutely. 

327
00:15:27,040 --> 00:15:29,960
That was a huge driver behind 
the most recent major amendments

328
00:15:29,960 --> 00:15:33,800
to the UCC, the 2022 amendments.
Technology, especially digital 

329
00:15:33,800 --> 00:15:36,040
assets, had outpaced the 
existing rules. 

330
00:15:36,040 --> 00:15:38,440
So using crypto as collateral 
was tricky before. 

331
00:15:38,680 --> 00:15:42,120
Very There wasn't clear guidance
on how to classify many digital 

332
00:15:42,120 --> 00:15:45,720
assets, or, more importantly, 
how a lender could reliably 

333
00:15:45,720 --> 00:15:47,560
perfect a security interest in 
them. 

334
00:15:47,960 --> 00:15:52,520
It created uncertainty and risk.
So what did the 2022 updates do?

335
00:15:52,720 --> 00:15:55,800
A major focus was bringing 
clarity to using digital assets 

336
00:15:55,800 --> 00:15:58,680
as collateral. 
They introduced new definitions 

337
00:15:58,680 --> 00:16:01,280
and rules specifically for this 
emerging area. 

338
00:16:01,280 --> 00:16:04,080
Like what new concepts? 
A key one is controllable 

339
00:16:04,080 --> 00:16:08,360
Electronic records, or CE Rs. 
Think of these as certain types 

340
00:16:08,360 --> 00:16:10,920
of digital assets, maybe 
specific cryptocurrencies or 

341
00:16:10,920 --> 00:16:15,000
NFTS that meet the legal tests 
for unique identifiability and 

342
00:16:15,000 --> 00:16:17,560
control. 
OK, so a defined category for 

343
00:16:17,560 --> 00:16:20,080
these things. 
Yes, and the law also recognizes

344
00:16:20,080 --> 00:16:22,640
related concepts like 
controllable accounts and 

345
00:16:22,640 --> 00:16:25,160
controllable payment 
intangibles, which are basically

346
00:16:25,160 --> 00:16:28,360
payment rights tied to a CER. 
These are now explicitly 

347
00:16:28,360 --> 00:16:31,680
recognized as collateral types. 
So if my business hold 

348
00:16:31,680 --> 00:16:35,000
qualifying crypto, I can now 
more clearly use it to secure a 

349
00:16:35,000 --> 00:16:36,720
loan. 
That's the goal, yes. 

350
00:16:37,280 --> 00:16:39,640
And crucially, the amendments 
established perfection by 

351
00:16:39,640 --> 00:16:42,880
control as the primary and best 
way to perfect a security 

352
00:16:42,880 --> 00:16:44,320
interest in these new 
categories. 

353
00:16:44,680 --> 00:16:47,480
CE Rs controllable Accounts and 
controllable. 

354
00:16:47,480 --> 00:16:51,320
Payment intangibles control, 
again like with deposit 

355
00:16:51,320 --> 00:16:53,600
accounts. 
Similar principle, gaining 

356
00:16:53,600 --> 00:16:57,160
control over a CER means the 
lender has the practical and 

357
00:16:57,160 --> 00:17:00,760
legal ability to benefit from 
it, sell it, prevent others from

358
00:17:00,760 --> 00:17:04,400
dealing with it, and achieving 
perfection by control gives the 

359
00:17:04,400 --> 00:17:07,359
lender priority over anyone who 
might have just affected by 

360
00:17:07,359 --> 00:17:09,520
filing a UCC one against those 
assets. 

361
00:17:09,640 --> 00:17:11,760
That makes sense. 
Actually controlling the digital

362
00:17:11,760 --> 00:17:14,480
keys is stronger than just 
filing a form saying you have an

363
00:17:14,480 --> 00:17:16,720
interest. 
Precisely, it aligns the law 

364
00:17:16,720 --> 00:17:18,599
better with the technological 
reality. 

365
00:17:18,920 --> 00:17:22,079
The updates also tweaked other 
definitions like clarifying that

366
00:17:22,079 --> 00:17:25,200
money under the UCC is only 
government issued currency. 

367
00:17:25,200 --> 00:17:28,800
So crypto isn't money but can be
collateral as a CER or general 

368
00:17:28,800 --> 00:17:31,320
intangible. 
And they updated rules for 

369
00:17:31,320 --> 00:17:34,640
chattel paper to better reflect 
hybrid electronic paper deals. 

370
00:17:34,800 --> 00:17:36,440
And these changes are actually 
happening now. 

371
00:17:36,440 --> 00:17:39,280
States are adopting them. 
Yes, they are rolling out. 

372
00:17:39,400 --> 00:17:42,600
For instance, Minnesota adopted 
these amendments effective 

373
00:17:42,800 --> 00:17:45,720
August 2024. 
It's a process, but the 

374
00:17:45,720 --> 00:17:48,520
framework is there now. 
This feels like a really big 

375
00:17:48,520 --> 00:17:50,760
deal for businesses in the 
digital economy. 

376
00:17:51,480 --> 00:17:54,920
Suddenly, these valuable digital
assets can be more effectively 

377
00:17:54,920 --> 00:17:58,560
leveraged for financing. 
It reduces ambiguity for lenders

378
00:17:58,600 --> 00:18:01,600
and potentially opens up 
significant new funding avenues 

379
00:18:01,600 --> 00:18:03,480
for borrowers holding these 
assets. 

380
00:18:03,480 --> 00:18:05,640
It's a crucial modernization. 
OK. 

381
00:18:05,680 --> 00:18:09,480
We've covered creating the 
claim, protecting it priority, 

382
00:18:10,000 --> 00:18:13,080
even digital assets. 
What happens when things go 

383
00:18:13,080 --> 00:18:15,600
wrong when the borrower is in 
default? 

384
00:18:15,680 --> 00:18:18,880
Right, the enforcement stage. 
Interestingly, Article 9 itself 

385
00:18:18,880 --> 00:18:21,280
doesn't define default. 
It doesn't, no. 

386
00:18:21,440 --> 00:18:24,280
What constitutes default is 
determined by the security 

387
00:18:24,280 --> 00:18:26,960
agreement, the contract between 
the debtor and the secured 

388
00:18:26,960 --> 00:18:29,200
party. 
So it's usually missed payments.

389
00:18:29,200 --> 00:18:31,480
That's the most common, yes, but
it could also be other 

390
00:18:31,480 --> 00:18:34,760
violations like failing to 
ensure the collateral, selling 

391
00:18:34,760 --> 00:18:37,520
it without permission, becoming 
insolvent, whatever the 

392
00:18:37,520 --> 00:18:39,520
agreement says is a default 
trigger. 

393
00:18:39,720 --> 00:18:41,600
OK. 
So a default happens according 

394
00:18:41,600 --> 00:18:44,360
to the agreement. 
What rights does the secured 

395
00:18:44,360 --> 00:18:47,120
lender have then? 
They have significant remedies 

396
00:18:47,120 --> 00:18:49,720
under Article 9. 
Primarily, they can take 

397
00:18:49,720 --> 00:18:52,400
possession of the collateral, 
they can dispose of it, usually 

398
00:18:52,400 --> 00:18:54,640
by selling it. 
Sometimes they can propose to 

399
00:18:54,640 --> 00:18:58,000
keep it, and they can sue the 
debtor for any shortfall. 

400
00:18:58,200 --> 00:19:01,360
Taking possession? 
Can they just like show up with 

401
00:19:01,360 --> 00:19:04,480
a tow truck for the company car?
They can use self help 

402
00:19:04,480 --> 00:19:07,240
repossession. 
Article 9 gives them the right 

403
00:19:07,320 --> 00:19:10,280
to take the collateral after 
default without going to court. 

404
00:19:10,280 --> 00:19:13,280
But there's a huge condition. 
They must do it without 

405
00:19:13,280 --> 00:19:15,280
breaching the peace. 
Without breaching the peace, 

406
00:19:15,280 --> 00:19:17,280
what does that mean in practice?
No breaking down. 

407
00:19:17,560 --> 00:19:19,800
Exactly. 
No violence, no threats, no 

408
00:19:19,800 --> 00:19:22,800
breaking and entering, no 
trickery that amounts to 

409
00:19:22,800 --> 00:19:25,480
trespass. 
They generally can't bring law 

410
00:19:25,480 --> 00:19:27,680
enforcement along unless they 
have a court order. 

411
00:19:27,920 --> 00:19:30,800
And importantly, if the debtor 
is present and clearly object 

412
00:19:30,800 --> 00:19:34,120
says stop, you can't take it. 
The repossessor generally has to

413
00:19:34,120 --> 00:19:36,960
back off right then. 
Pushing past an objection would 

414
00:19:36,960 --> 00:19:39,680
be a breach of the peace. 
It very likely would be, yes. 

415
00:19:39,840 --> 00:19:42,760
Persistence over clear objection
is often seen that way by 

416
00:19:42,760 --> 00:19:45,400
courts. 
So if self help is too risky or 

417
00:19:45,400 --> 00:19:47,760
the debtor objects, what's the 
lenders option? 

418
00:19:48,000 --> 00:19:51,200
They have to use the courts. 
They can file a lawsuit, often 

419
00:19:51,200 --> 00:19:54,880
called a RIP Levin action, to 
get a court order authorizing 

420
00:19:54,880 --> 00:19:57,160
the sheriff or Marshall to seize
the property. 

421
00:19:57,680 --> 00:20:01,440
It's slower and costs more, but 
it avoids breaching the peace. 

422
00:20:01,680 --> 00:20:05,320
OK, so they get the collateral 
back one way or another, then 

423
00:20:05,320 --> 00:20:08,360
what usually sell it? 
Yes, the most common path is 

424
00:20:08,360 --> 00:20:10,560
disposition, usually meaning a 
sale. 

425
00:20:10,880 --> 00:20:13,440
It could be a public auction or 
a private sale. 

426
00:20:13,640 --> 00:20:16,000
Are there rules about how they 
conduct the sale? 

427
00:20:16,120 --> 00:20:19,240
Absolutely critical ones. 
Every aspect of the sale, the 

428
00:20:19,240 --> 00:20:23,440
method, manner, time, place, and
all terms must be commercially 

429
00:20:23,440 --> 00:20:25,120
reasonable. 
Commercially reasonable? 

430
00:20:25,680 --> 00:20:27,240
That sounds important, but a bit
vague. 

431
00:20:27,320 --> 00:20:30,480
It means the lender has to act 
in good faith and use procedures

432
00:20:30,480 --> 00:20:33,320
that are standard and fair for 
selling that type of property, 

433
00:20:33,520 --> 00:20:36,080
aiming to get a decent price 
under the circumstances. 

434
00:20:36,360 --> 00:20:39,080
They can't just hold a quick, 
poorly advertised sale and 

435
00:20:39,080 --> 00:20:41,800
accept a lowball offer, 
especially if it harms the 

436
00:20:41,800 --> 00:20:44,280
debtor or junior creditors. 
So they have to try to get a 

437
00:20:44,280 --> 00:20:47,480
fair market value. 
Or at least conduct the sale in 

438
00:20:47,480 --> 00:20:49,840
a way that's likely to produce a
fair result. 

439
00:20:50,120 --> 00:20:52,760
Courts look at the process. 
Was there proper advertising? 

440
00:20:52,760 --> 00:20:55,520
Was it sold in the right market?
Were the terms fair? 

441
00:20:56,040 --> 00:20:59,720
A very low price combined with 
procedural flaws can definitely 

442
00:20:59,720 --> 00:21:03,000
lead to a finding that the sale 
wasn't commercially reasonable. 

443
00:21:03,080 --> 00:21:05,240
OK, the sale happens. 
Where does the money go? 

444
00:21:05,400 --> 00:21:08,840
Article 9 specifies the order. 
First, it covers the lenders 

445
00:21:08,840 --> 00:21:11,160
reasonable expenses for 
repossessing and selling the 

446
00:21:11,160 --> 00:21:15,000
collateral, attorney fees, 
storage costs, auctioneer fees. 

447
00:21:15,120 --> 00:21:18,080
Makes sense. 
Then second, it pays off the 

448
00:21:18,080 --> 00:21:21,000
debt owed to the secured party 
who conducted the sale. 

449
00:21:21,080 --> 00:21:23,160
OK. 
Third, if there are any junior 

450
00:21:23,160 --> 00:21:26,440
secured parties, lenders with 
lower priority who made a proper

451
00:21:26,440 --> 00:21:29,280
demand, they get paid next from 
any remaining funds. 

452
00:21:29,280 --> 00:21:31,240
And if there's still money left 
after all that? 

453
00:21:31,320 --> 00:21:33,320
Any surplus goes back to the 
debtor. 

454
00:21:33,720 --> 00:21:36,680
What if the sale proceeds aren't
enough to cover the expenses and

455
00:21:36,680 --> 00:21:38,760
the main debt? 
That's a deficiency. 

456
00:21:39,120 --> 00:21:41,080
The debtor still earns the 
remaining amount. 

457
00:21:41,640 --> 00:21:45,560
The secured party can then sue 
the debtor personally for a 

458
00:21:45,560 --> 00:21:48,160
deficiency judgment to collect 
that shortfall. 

459
00:21:48,400 --> 00:21:51,640
But wait, didn't you say there 
are consequences if the lender 

460
00:21:51,640 --> 00:21:54,280
messes up the sale? 
Yes, and this is a huge 

461
00:21:54,280 --> 00:21:57,600
protection for debtors. 
If the secured party fails to 

462
00:21:57,600 --> 00:22:01,080
follow the rules, especially if 
they don't give proper notice 

463
00:22:01,080 --> 00:22:05,000
before the sale, or if the sale 
wasn't commercially reasonable, 

464
00:22:05,360 --> 00:22:07,840
they might lose their right to 
collect that deficiency 

465
00:22:07,840 --> 00:22:11,080
judgment, or at least have it 
significantly reduced. 

466
00:22:11,120 --> 00:22:14,960
Wow, so getting the process 
right is absolutely critical for

467
00:22:14,960 --> 00:22:17,080
the lender if they want to 
recover the full amount. 

468
00:22:17,280 --> 00:22:19,920
It provides a very strong 
incentive for them to comply 

469
00:22:19,920 --> 00:22:21,720
with the rules. 
You mentioned they could 

470
00:22:21,720 --> 00:22:24,040
sometimes keep the collateral 
instead of selling it. 

471
00:22:24,120 --> 00:22:26,320
Yes, that's called strict 
foreclosure. 

472
00:22:26,880 --> 00:22:30,040
The secured party can propose to
accept the collateral in full 

473
00:22:30,040 --> 00:22:32,920
satisfaction of the debt, or 
sometimes impartial 

474
00:22:32,920 --> 00:22:33,680
satisfaction. 
The. 

475
00:22:33,680 --> 00:22:36,440
Debtor has to agree. 
Yes, the debtor generally has to

476
00:22:36,440 --> 00:22:40,120
consent after the default or if 
the lender sends a proposal, the

477
00:22:40,120 --> 00:22:43,720
debtor has 20 days to object. 
If they don't object, they're 

478
00:22:43,720 --> 00:22:47,560
deemed to have consented. 
The lender also usually has to 

479
00:22:47,560 --> 00:22:50,480
notify other claimants. 
Can they always do this? 

480
00:22:50,680 --> 00:22:54,360
No, there's a key consumer 
protection for consumer goods. 

481
00:22:54,480 --> 00:22:58,480
If the debtor has already paid 
60% or more of the cash price or

482
00:22:58,480 --> 00:23:02,200
loan principal for a non PMSI 
loan, the lender cannot use 

483
00:23:02,200 --> 00:23:04,920
strict foreclosure. 
They must sell the collateral 

484
00:23:04,920 --> 00:23:06,840
within 90 days. 
Why that rule? 

485
00:23:07,160 --> 00:23:10,600
To protect consumers who have 
built up significant equity, it 

486
00:23:10,600 --> 00:23:14,000
forces a sale so they can 
potentially recover any surplus 

487
00:23:14,000 --> 00:23:16,160
value. 
Prevents the lender from just 

488
00:23:16,160 --> 00:23:17,760
keeping an almost paid off 
asset. 

489
00:23:17,760 --> 00:23:20,560
That seems fair and you 
mentioned notice before the sale

490
00:23:20,560 --> 00:23:22,360
is critical. 
Absolutely vital. 

491
00:23:22,760 --> 00:23:25,160
Before disposing of the 
collateral, the secured party 

492
00:23:25,160 --> 00:23:28,560
generally must send a reasonable
authenticated notice to the 

493
00:23:28,560 --> 00:23:32,480
debtor, any secondary obligers 
like guarantors and any other 

494
00:23:32,480 --> 00:23:34,880
secured parties who have 
properly notified the selling 

495
00:23:34,880 --> 00:23:36,800
lender of their claim. 
What's in the notice? 

496
00:23:36,960 --> 00:23:40,320
Key details identifies the 
debtor and secured party. 

497
00:23:40,400 --> 00:23:42,920
Describes the collateral. 
States how it will be sold. 

498
00:23:42,920 --> 00:23:46,440
Public Private gives the time 
and place for a public sale or 

499
00:23:46,440 --> 00:23:48,520
the date after which a private 
sale might occur. 

500
00:23:49,080 --> 00:23:51,960
Failure to give proper notice is
probably the number one reason 

501
00:23:51,960 --> 00:23:55,600
lenders lose deficiency claims. 
So to sum up default, the 

502
00:23:55,600 --> 00:23:58,400
agreement defines it. 
The lender can repossess 

503
00:23:58,400 --> 00:24:00,560
carefully. 
Must sell reasonably with 

504
00:24:00,560 --> 00:24:02,760
notice, applies proceeds in 
order. 

505
00:24:03,080 --> 00:24:06,240
Might sue for deficiency if they
followed the rules, or might 

506
00:24:06,240 --> 00:24:09,920
keep the collateral with consent
but not usually for paid up 

507
00:24:09,920 --> 00:24:11,880
consumer goods. 
That's a great summary. 

508
00:24:12,200 --> 00:24:15,920
Article 9 aims for efficiency 
for lenders, but it builds in 

509
00:24:15,920 --> 00:24:18,640
these crucial procedural 
safeguards and fairness 

510
00:24:18,640 --> 00:24:20,840
requirements for debtors. 
It's a balance. 

511
00:24:20,920 --> 00:24:22,480
We have certainly covered a lot 
of ground. 

512
00:24:22,480 --> 00:24:24,720
Today feels like a comprehensive
tour. 

513
00:24:24,880 --> 00:24:28,720
It really does, from the basic 
idea of a secure transaction and

514
00:24:28,720 --> 00:24:31,680
what can be collateral. 
Through attachment, making the 

515
00:24:31,680 --> 00:24:35,320
claim real against the borrower.
To perfection, making it strong 

516
00:24:35,320 --> 00:24:38,520
against the world using filing, 
possession or control. 

517
00:24:38,600 --> 00:24:41,520
And those important priority 
rules, especially the PMSI is 

518
00:24:41,520 --> 00:24:44,560
super priority for new value. 
Then bringing it up to date with

519
00:24:44,560 --> 00:24:48,120
the 2022 amendments tackling 
digital assets like CE, Rs and 

520
00:24:48,120 --> 00:24:51,040
the importance of control there.
And finally, walking through the

521
00:24:51,040 --> 00:24:54,760
often complex process of 
default, repossession, 

522
00:24:54,760 --> 00:24:58,080
disposition, and the rights and 
responsibilities on both sides. 

523
00:24:58,280 --> 00:25:00,960
It really highlights that 
understanding Article 9 isn't 

524
00:25:00,960 --> 00:25:05,360
just academic, it's intensely 
practical for anyone touching 

525
00:25:05,360 --> 00:25:08,040
business finance, whether you're
borrowing or lending. 

526
00:25:08,320 --> 00:25:11,200
It's the rule book that makes 
secured lending work. 

527
00:25:11,320 --> 00:25:14,040
It provides that predictability 
and structure everyone relies 

528
00:25:14,040 --> 00:25:15,120
on. 
Exactly. 

529
00:25:15,200 --> 00:25:17,680
And looking ahead, you know, 
with technology changing so 

530
00:25:17,680 --> 00:25:20,000
fast, here's something to chew 
on. 

531
00:25:20,000 --> 00:25:22,320
OK. 
We talked about how the law 

532
00:25:22,320 --> 00:25:25,920
adapted to digital assets with 
concepts like controllable 

533
00:25:25,920 --> 00:25:29,080
electronic records. 
But as technology continues to 

534
00:25:29,080 --> 00:25:32,960
evolve, think about AI, 
decentralized systems, maybe 

535
00:25:32,960 --> 00:25:34,560
even things we haven't imagined 
yet. 

536
00:25:35,160 --> 00:25:38,400
How might our fundamental legal 
ideas of what it means to have 

537
00:25:38,400 --> 00:25:42,000
possession or control over 
collateral be further challenged

538
00:25:42,000 --> 00:25:44,600
and redefined in the future? 
That's a deep one. 

539
00:25:44,880 --> 00:25:47,560
How do you possess or control 
something that might be purely 

540
00:25:47,560 --> 00:25:50,840
algorithmic or distributed? 
A fascinating question indeed. 

541
00:25:51,040 --> 00:25:52,080
We'll leave you with that 
thought. 

542
00:25:52,320 --> 00:25:53,720
Catch you next time on the Deep 
Dive.