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Lecture 10 Secured Transactions 
and priority rules Welcome to 

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week four of our bar prep master
class. 

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In today's session, lecture 10, 
we will tackle one of the more 

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technical but heavily tested 
areas on the uniform Commercial 

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Code secured transactions This 
subject appears frequently on 

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the multi state essay 
examination and in some state 

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specific essay sections. 
Our lecture today focuses on the

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nature and creation of security 
interests, the perfection of 

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those interests, and the rules 
governing priority among 

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competing claimants. 
Let us begin by defining what a 

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secured transaction is. 
A secured transaction is a 

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mutually agreed upon commercial 
arrangement in which a. 

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Debtor conveys. 
A security interest in specific 

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personal property or fixtures to
a creditor also referred to. 

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As the. 
Secured party this legal 

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mechanism. 
Serves to secure the payment or 

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performance of an. 
Underlying obligation, typically

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a. 
Loan or. 

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Line of credit the transaction 
allows the creditor to take. 

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Possession of or otherwise 
assert. 

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Rights in the identified 
collateral If the debtor 

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defaults on their obligation, 
the essence of a secured 

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transaction lies. 
In risk. 

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Mitigation for the lender while 
enabling the debtor to leverage 

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their assets to gain access to 
capital or credit lines. 

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The creditors interest. 
In the collateral is not. 

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Merely theoretical. 
It provides them with. 

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Actual enforceable property 
rights. 

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In the collateral that become 
paramount upon the. 

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Debtors. 
Default these. 

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Rights may include repossession,
liquidation, or strict 

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foreclosure, depending on the 
terms of the agreement. 

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And the nature of the collateral
these transactions. 

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Are comprehensively governed by 
Article 9 of the Uniform 

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Commercial. 
Code A. 

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Uniform law adopted by most US 
jurisdictions to regulate 

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commercial transactions 
involving personal property. 

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Article 9 establishes the 
framework for how these 

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interests are created, 
perfected, prioritized, and 

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enforced. 
These rules serve to balance the

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interest of debtors, secured 
creditors, and third parties, 

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such as lien creditors and 
bankruptcy trustees. 

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Understanding Article 9 begins 
with the process by which a 

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security interest is brought 
into legal existence, a process 

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referred to as attachment. 
Attachment is essential because 

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without it, the security 
interest is not enforceable 

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against the debtor, even if the 
parties agreed to it in 

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principle. 
It is the legal foundation upon 

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which all other secured party 
rights rest. 

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Attachment is not merely a 
formal requirement, but a 

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functional threshold that marks 
the birth of the secured party's

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legal right to act on the 
collateral in the event of 

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default. 
Without attachment, the creditor

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is no more than an unsecured 
lender, despite any intentions 

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to the contrary. 
Let us break these down. 

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Further Value given this 
requirement is typically the 

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most straightforward of the 
three attachment elements and is

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interpreted broadly under the 
UCC. 

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Value is defined to include any 
consideration sufficient to 

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support a simple contract. 
Common examples include a loan 

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of money, extension of existing 
credit, binding commitments to 

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lend in the future, or 
satisfaction of a pre-existing 

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debt. 
A secure party may also be 

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deemed to have given value if it
acquires A promissory note or 

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other obligation of the debtor 
for less than face value. 

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Courts do not inquire into the 
adequacy of consideration, 

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focusing instead on the legal 
sufficiency of value debtors 

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Rights in the collateral. 
A debtor must have some legal 

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interest in the collateral at 
the time of granting the 

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security interest. 
While the debtor need not have 

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absolute ownership, they must 
possess A sufficient interest to

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convey rights to a secured 
party. 

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Examples include leasehold 
interests, license rights, or 

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partial ownership. 
Significantly, a person cannot 

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grant a security interest in 
property to which they have no 

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present or future claim. 
However, Article 9 allows for 

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security interests in after 
acquired. 

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Property permitting. 
The creditor to reach collateral

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the debtor will acquire in the 
future. 

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Such clauses are enforceable, 
particularly in inventory and 

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the counts receivable financing.
Security agreement to satisfy 

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the Statute of Frauds under 
Article 9. 

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The agreement must be in a 
record authenticated. 

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By the debtor. 
This does not require a 

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traditional contract. 
It may be electronic or digital 

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as long as it is stored and 
retrievable. 

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The description of the 
collateral. 

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Must be sufficient to reasonably
identify. 

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The asset. 
Class for example all inventory.

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Or all. 
Equipment is acceptable. 

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However. 
Generic references such as. 

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All assets. 
Or all. 

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Personal property are 
insufficient unless used in a 

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financing statement. 
The agreement should specify the

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obligations secured and may also
contain covenants regarding use,

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insurance, or maintenance of 
the. 

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Collateral, collateral. 
Includes an expansive range of 

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tangible and intangible 
property. 

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Tangible goods divided by the 
debtor's primary intended use. 

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Examples include consumer goods 
used primarily for personal, 

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family or household purposes, 
for example, personal vehicles, 

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electronics, inventory held for 
sale, lease, or furnished under 

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service contracts. 
For example, retail stock 

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supplies, equipment used 
primarily in business 

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operations. 
For example, machinery, office 

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computers, farm products. 
Crops. 

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Livestock. 
And products used or produced in

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farming operations. 
Intangible and quasi intangible 

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property accounts. 
Rights to payment for goods and 

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services, for example, invoices.
Chattel paper records showing 

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both a monetary obligation and a
security interest in goods, for 

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example, installment sales 
deposit accounts. 

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Bank accounts, usually perfected
by control instruments. 

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Negotiable notes and drafts. 
Investment property, stocks, 

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bonds and brokerage accounts. 
General intangibles, 

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intellectual property, goodwill,
licenses and payment rights not 

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otherwise classified. 
The debtors intended use at the 

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time of attachment determines 
the classification and the 

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classification effects 
perfection and enforcement. 

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A piece of equipment used for 
both business and household 

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purposes may require factual 
inquiry and to its predominant 

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use. 
Perfection of the security 

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interest. 
Perfection ensures that the 

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secured party's rights are 
legally protected not only 

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against the debtor but also 
against third parties who might 

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claim an interest in the same 
collateral. 

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Failure to perfect may leave the
secured party vulnerable to 

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subsequent lien holders, 
bankruptcy trustees, or buyers. 

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Perfection may be achieved by 
several mechanisms. 

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Filing a financing statement UCC
1. 

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The most versatile method 
offering broad notice to the 

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public. 
Possession or control offers 

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strong legal grounding, 
particularly for negotiable 

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instruments or investment 
property. 

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Automatic perfection provided 
for certain low risk or high 

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volume consumer transactions. 
Temporary perfection allows a 

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brief window where rights are 
preserved without immediate 

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action. 
Filing a financing statement. 

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The UCC one must include the 
debtor's legal name for 

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registered entities. 
This must match the state's 

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public record. 
Exactly. 

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The secured party's name and the
collateral description. 

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While the description need not 
be specific, it must put third 

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parties on notice of the claim. 
The filing is typically made in 

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the Central State filing office,
usually the Secretary of State, 

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but local filings may be 
required for fixtures or timber.

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A filing statement is effective 
for five years, renewable by a 

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continuation statement filed 
within six months before 

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expiration. 
Lapses can result in loss of 

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perfection and priority. 
Priority rules determine who 

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takes precedence when multiple 
parties claim interests in the 

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same collateral. 
The rules promote fairness and 

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commercial predictability. 
General rule between competing 

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perfected security interests. 
The first to file or perfect 

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prevails. 
This rule applies even if the 

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first filer later perfects by 
possession or control filing 

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before. 
Attachment can. 

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Establish priority, which is a 
critical exam point. 

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Perfected versus unperfected. 
A perfected interest defeats an 

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unperfected one. 
Between two unperfected 

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interests, priority goes to the 
party who first attached their 

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interest. 
PMSI Priority Rules A principal 

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money security interest in 
consumer Woods enjoys automatic 

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perfection and priority over 
earlier filed interests. 

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For inventory or livestock, the 
PMSI must be perfected before 

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the debtor receives the goods 
and requires advance written 

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notice to prior secured parties.
For equipment, perfection must 

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occur within 20 days of the 
debtor receiving possession. 

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These rules incentivize timely 
action by lenders and prevent 

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secret liens from upsetting 
legitimate commercial 

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expectations. 
Proceeds. 

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A perfected security interest 
extends to identifiable 

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proceeds. 
The key is traceability. 

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If collateral is sold and funds 
are deposited into a bank 

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account, the proceeds must be 
segregated or otherwise 

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identifiable. 
Commingled funds are subject to 

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the lowest intermediate balance 
rule buyers in the ordinary 

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course of business or BIOCB. 
This class of buyer takes free 

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of a security interest even. 
If perfected. 

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A BIOCB must buy in good faith 
and without knowledge that the 

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sale violates the security 
agreement. 

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Buy from a seller in the 
business of selling goods of 

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that kind. 
Take the goods in the ordinary 

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course of business, not bulk 
sales. 

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This rule ensures fluid commerce
and protects unsuspecting 

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consumers or retailers. 
Lien creditors and bankruptcy 

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trustees. 
A lien creditor, including a 

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bankruptcy trustee, prevails 
over unperfected security 

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interests. 
A perfected security interest 

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has priority. 
If a secured party's perfection 

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lapses, they risk subordination.
The bankruptcy trustee as a. 

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Hypothetical lien. 
Creditor may avoid unperfected 

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interests. 
Fixture. 

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Filings and accessions fixtures 
require a fixture filing to 

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protect against real property 
interests. 

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These must be recorded in the 
local land records. 

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A PMSI and fixtures may still 
prevail if properly filed, 

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within 20 days of the goods 
becoming fixtures. 

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Accessions. 
Items attached to other goods 

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retain their security identity. 
The regular priority rules apply

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unless a certificate of title 
system governs commingled goods.

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When collateral is mixed with 
other goods, for example oil 

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grain, the security interest 
continues in the product or 

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mass, not the original item 
allocation. 

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Of value. 
May be needed in enforcement 

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default and enforcement 
overview. 

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On default, a secured party has 
robust enforcement rights. 

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Self help repossession 
permissible if it does not 

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breach the peace force or 
threats make repossession 

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unlawful disposition, sale, 
lease or licensing must be. 

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Commercially reasonable. 
In method, manner, time and 

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terms. 
Strict foreclosure allowed if 

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the debtor consents or fails to 
object within 20 days of notice.

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Deficiency judgment available if
sale proceeds. 

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Fall. 
Short of the obligation may be 

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barred if the sale was 
commercially unreasonable. 

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Notice. 
The debtor and any secondary 

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obligors or known secured 
parties must receive reasonable 

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notice of disposition for 
consumer goods. 

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The notice must include 
description of debtor and 

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collateral, method and timing of
sale. 

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Explanation of. 
Liability for deficiency and. 

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Right to. 
Accounting Failure to provide 

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adequate notice or to conduct a 
commercially reasonable sale may

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preclude deficiency. 
Recovery. 

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Or expose. 
The secured party to. 

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Damages. 
Debtor rights Right to redeem at

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any time before sale or 
acceptance. 

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The debtor may redeem the 
collateral by tendering the full

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obligation and expenses. 
Right to object. 

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The debtor may oppose strict 
foreclosure. 

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And demand. 
Public sale. 

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Right to. 
Damages. 

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If the secured party violates 
Article 9, the debtor may 

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recover actual and statutory 
damages. 

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Article 9's enforcement 
provisions aim to balance 

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creditor recovery with fairness 
and transparency for debtors. 

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Conclusion. 
Secured transactions. 

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Require. 
Attention to detail. 

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A strong grasp. 
Of the Article 9 framework. 

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00:15:21,880 --> 00:15:24,520
And an. 
Ability to analyze priority 

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conflicts. 
Today's lecture reviewed the key

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steps in creating, perfecting, 
and enforcing security interests

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with a focus on competing 
claims, default remedies, and 

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real world applications. 
In our next session, we will 

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explore trusts and estates in 
greater depth, focusing on inte 

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state succession, will 
formalities and trust 

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administration.