Chapter 1:

Topic 1: History of the Law of Secured Transactions

 Legit uses of collateral

o Credit financing
o Home mortgages
 Foreclosure – lender can seize house to satisfy mortgage
 Real property mortgages use land and buildings as collateral
o Secured transactions use personal property (all other kinds of property) as collateral.
o Auto loans – lender can repossess the car
o Notice filing systems – mortgages are filed in local gov offices so that anyone
considering lending to a homeowner can check to see if there is already a mortgage
against the property.
 The use of credit was the catayslt for significant economic growth in the US
 Pledge – possessory security interest
 Conditional sale – sale on credit where title remains with seller until the final payment is
made
 Factors lien – a legal device used in inventory financing
 Trust receipt – another method of inventory financing
 Field warehousing – a method of segregating and marking goods as collateral in a space
owner by the debtor
 Article 9 UCC Security Interest
o Does not apply to the use of real property as collateral, ONLY PERSONAL
 Security interests in almost all types of collateral* may now be recorded in a single central
filing system in each state. Pas is in the office of the PA Sec of State

Topic 2: Outline of the Law of Secured Transactions

 A Description of the Five Categories of Issues

o SCOPE. Does Article 9 of the U.C.C. apply to this transaction?
 Article 9 applies to consensual security interests in personal property.
 Article 9 only applies to the consensual use of personal property as
collateral. There are many categories of personal property that can serve as
collateral, including goods, documents, instruments, accounts, chattel paper,
deposit accounts, investment property, and others.
 Article 9 does not apply to the use of real property (land or buildings) to
secure the purchase of real estate or to secure a real estate loan. Real estate
mortgages are studied in other courses. However, Article 9 does contain
rules that govern priority between Article 9 security interests in personal
property and interests in real estate.
 Article 9 does not apply to non-consensual interests in property such as
mechanics’ liens, judgment liens, or insolvency proceedings like bankruptcy.
However, Article 9 does contain rules that govern priority between Article 9
security interests and non-consensual interests.
o ATTACHMENT. Did the debtor and the secured party enter into a security
agreement; that is, did a security interest attach to personal property serving as
collateral?
 A security interest “attaches” to personal property when a debtor enters into
an agreement with a creditor that gives the creditor a right to repossess and
resell property that secures the debt. In other words, when a debtor and a
creditor agree that certain personal property that belongs to the debtor will
serve as collateral for the debt, the security interest attaches to the property.
 EXAMPLE: Dallas purchased a new car on credit from Wilson Chevrolet, a
dealership. The sales agreement between the parties contains a paragraph
labeled “Security,” in which Dallas agrees that if a payment is missed Wilson
Chevrolet will have the right to repossess the automobile. This is a security
agreement; Wilson Chevrolet is the secured party; Dallas is the debtor;
Wilson Chevrolet has a security interest in the car; and the security interest
attached as soon as the sales agreement was signed.
o PERFECTION. Was the security interest perfected?
 Attachment of a security interest gives a creditor rights against the debtor. A
security agreement gives a secured party the right to repossess the collateral
and resell it to satisfy the debt.
 But what about other parties who may claim an interest in the collateral? A
private security agreement does not by itself give notice of the security
interest to potential purchasers of the collateral or to other creditors.
 The process of giving constructive notice to the public is called “perfection”
of a security interest. There are different ways of perfecting a security
interest in different types of collateral, including filing a “financing
statement” in the proper public office, taking control of the collateral, or
taking possession of the collateral.
o PRIORITY. As between the secured party and other creditors, which of them takes
priority in the collateral?
 What if more than one creditor obtains a security interest in a piece of
collateral?
 What if the debtor sells the collateral to a buyer?
 What if the debtor is sued and the judgment creditor obtains a judicial lien
against the collateral?
 What if the debtor declares bankruptcy and a bankruptcy trustee is appointed
to take control of the debtor’s estate?
 As between the secured party and one of these other creditors, who takes
priority in the collateral?
 Article 9 and the federal Bankruptcy Code have rules that resolve all of these
priority conflicts.
o ENFORCEMENT. Under the security agreement, what are the mutual rights and
responsibilities of the secured party and the debtor?
 Enforcement issues involve the relative rights and responsibilities of the
debtor and the secured party with respect to each other. For example, who
has responsibility for maintaining and insuring the collateral? Under what
circumstances may the secured party declare the debtor to be in default? In
what manner may the secured party repossess the collateral? May the
 secured party keep the collateral in satisfaction of the debt? When and in
what manner may the secured party resell the collateral? How must the
proceeds of any resale be applied or distributed?
 All of these questions and others are addressed in the provisions of Article 9
dealing with enforcement of the security agreement.
 Examples of Provisions of Article 9
o Section 9-109 deals with the SCOPE of Article 9 – does Article 9 apply to the
facts?
o Section 9-203 deals with ATTACHMENT of a security interest – did the parties
enter into a contract creating a security interest in collateral?
o Section 9-310 deals generally with PERFECTION of a security interest – it
contains the general rule identifying the steps necessary to give public notice that
collateral is subject to a security interest.
o Section 9-317 states general rules dealing with PRIORITY of a security interest –
as between a secured party and another creditor, which one has priority in the
collateral?
o Section 9-601 states general rules regarding the rights of a secured party or a debtor
to ENFORCE a security agreement.
 Summary
o There are five principal issues in the law of secured transactions:
 SCOPE. Does Article 9 apply to this transaction?
 ATTACHMENT. Did a security interest attach to the collateral?
 PERFECTION. Was the security interest in the collateral “perfected” – that
is, was public notice of the security interest given?
 PRIORITY. As between the secured creditor and other claimants to the
collateral, who takes priority?
 ENFORCEMENT. Under the security agreement and the law, what are the
rights and responsibilities of the secured creditor and the debtor to each
other?
o Every single rule of law that we shall study in this course – every single provision of
Article 9 of the U.C.C. – falls into one of those five categories.

Topic 3: Description of a Secured Transaction

 What Is a Secured Transaction?

o The law of secured transactions is the law governing rights in collateral.
o A “secured transaction” is a contract in which a person (the “debtor”) puts up
personal property as collateral to secure credit. The person who extended credit is
called the “secured party.” The contingent interest of the secured party in the
collateral is called a “security interest.”
o “Security interest” is defined in Section 1-201(b)(35)
 Section 1-201(b)(35): “Security interest” means an interest in personal
property or fixtures which secures payment or performance of an obligation.
…
 Two Examples of Secured Transactions
o Secured transactions arise most often in two situations: when collateral is used for a
sale of goods on credit or to secure a loan. For example:
  Dana purchases a 2015 Nissan Pathfinder, VIN GL876309S37LB349H, on
credit from Sean’s Used Cars. The dealership retains the right to repossess
the car if Dana misses a payment.
 Dixon owns a restaurant and needs to purchase a new stove and refrigerator
for the kitchen. Dixon borrows $50,000 from State Street Bank, where it has
a checking account No. 008112036, and gives the bank control over its
checking account until the debt is paid.
 The Parties to a Secured Transaction: The “Debtor” and the “Secured Party”
o In every case or problem that we study in this course it is necessary to identify the
parties to the secured transaction. The “debtor” is the person who puts up the
collateral, and the secured party is the person who extends credit in reliance on the
collateral. In the previous examples:
 Dale is the debtor, and Sean’s Used Cars is the secured party.
 Dixon is the debtor, and State Street Bank is the secured party.
 The Underlying Transaction
o In every case or problem that we study in this course it is also useful to be aware of
the underlying transaction that gave rise to the security interest. In the previous
examples:
 The underlying transaction was the sale of a car on credit.
 The underlying transaction was a bank loan.
 The “Obligor” in the Underlying Transaction
o The “obligor” is the person who owes the debt in the underlying transaction.
o In the previous examples, the debtor and the obligor are the same person:
 Dale is both the obligor (Dale owes a debt to Sean’s Used Cars) and the
debtor (Dale puts up the car as collateral to secure the debt).
 Dixon is both the obligor (Dixon owes a debt to State Street Bank) and the
debtor (Dixon puts up its checking account as collateral to secure the debt).
 Sometimes the “Debtor” Is Not the Same as the “Obligor”
o Sometimes a third party puts up collateral on behalf of another person as security for
a loan. In that situation the debtor and the obligor are different people. For example:
 3. Ori borrowed $1,500,000 from Sawyer Venture Capital to start up a
computer repair business. Ori’s grandparent, Dakota, turned over control in a
Fidelity investment account, No. FDX38072, to Sawyer Venture Capital as
collateral to secure the loan.
 In this example Ori is the obligor; Dakota is the debtor; and Sawyer Venture
Capital is the secured party.
 The Collateral
o Finally, it is important to identify the collateral that serves as security to secure
underlying obligation. In our examples:
 The collateral is Dale’s 2015 Nissan Pathfinder, VIN
GL876309S37LB349H.
 The collateral is Dixon’s checking account No. 008112036.
 The collateral is Dakota’s Fidelity investment account No. FDX38072.
 Another type of ST
o There is another relatively common type of transaction that is covered by Article 9
of the Uniform Commercial Code: a sale of accounts or chattel paper.
  For example, Draye owns an electronics store, and wishes to purchase a
shipment of expensive HD televisions, but does not have the cash. Draye
could purchase the televisions on credit or obtain a bank loan and put up
collateral; those are the two types of transactions we have already described
that are governed by Article 9.
 However, Draye owns some valuable property that could be sold – the
store’s “accounts receivable,” that is, the amounts of money that the store’s
customers owe to the store for merchandise that they have purchased on
credit. This type of property may fall into one of several categories, two of
which are “accounts” or “chattel paper.”
 With some exceptions, if Draye sells some or all of the store’s accounts or
chattel paper, then that transaction is also covered by Article 9.
o We shall return to the subject of sale of accounts or chattel paper later in the
semester.
 Summary
o A “secured transaction” is a contract in which a person puts up collateral in the form
of personal property to secure credit.
o The “debtor” is the person who puts up the collateral, and the secured party is the
person who extends credit in reliance on the collateral.
o Secured transactions commonly arise in two situations: where a person purchases
personal property on credit, and where a person uses personal property as collateral
for a loan. The person who owes money on the underlying obligation (the credit sale
or the loan) is called the “obligor.” Usually the obligor (the person who owes the
money) is the same as the debtor (the person whose property is used for collateral),
but that is not always the case; sometimes one person allows their property to be
used as collateral so that another person can obtain credit.
o Article 9 also applies to the sale of accounts and the sale of chattel paper.

Topic 4: The Scope of Article 9

 Transactions That Are Governed by Article 9

o Article 9 governs the creation, enforcement, and perfection of security interests in
collateral that arise from the following types of transactions:
 Consensual security interests in personal property and fixtures;
 Agricultural liens;
 Credit sales disguised as leases;
 Certain types of consignments; and
 The sale of accounts and chattel paper.
o Furthermore, Article 9 largely governs priority disputes between Article 9 secured
parties – that is, persons whose interests were created in the foregoing types of
transactions – and other claimants to the collateral.
 1. Consensual Security Interests in Personal Property and Fixtures
o The principal type of transaction to which Article 9 applies is the consensual
security interest in personal property:
 When two parties enter into a contract whereby one party gives value, either
by lending money or selling an item on credit, and the other party puts up
 personal property as collateral to secure repayment of the loan or credit sale,
then Article 9 governs.
o Article 9 determines whether the security agreement between the parties is valid
(attachment); what the rights and responsibilities of the secured party and the
debtor are under the agreement (enforcement); how public notice of the security
interest is given (perfection); and the rights of the secured party relative to other
claimants to the collateral, such as other creditors of the debtor, persons who may
have purchased the collateral from the debtor, or a trustee in bankruptcy (priority).
 2. Agricultural Liens
o Article 9 now covers agricultural liens:
 These are nonconsensual liens on farm products that arise by operation of
a state statute.
o In some states statutes provide that if a farmer fails to pay a person who provides
goods or services for farming operations, or if a farmer fails to pay rent for farmland
that is leased, the creditor acquires a nonconsensual statutory lien on the farm
products.
 Farm products are crops, livestock, supplies used or produced in farming
operations, and products of crops or livestock in their unmanufactured state.
o These liens are now subject to Article 9.
o As a practical matter, this means that a person with an agricultural lien must file a
financing statement with the Secretary of State of the state where the crops or other
farm products are located.
 3. Credit Sales Disguised as Leases
o A lease is a transaction in which the owner of the property (the “lessor”) allows
another person (the “lessee”) to use the property in exchange for rent. For tax and
accounting reasons, it has become common for American businesses to lease
equipment rather than purchase it. The problem with leases is that a creditor of the
lessee might be misled into believing that the lessee is the owner of the property,
and might loan money to the lessee using the equipment as collateral for the loan,
not knowing that the lessor, as the owner, might take the property back if the lessee
fails to pay the rent. In effect, a lease is a type of “secret lien.”
o Article 9 does not apply to “true leases.” If the transaction is in reality a lease, then
the lessor does not have to file a financing statement to protect its reversion interest
in the property.
o However, if the transaction is called a lease but is in fact a disguised sale on credit
with retention of a security interest, then Article 9 does apply, and the “lessor”
(actually, the credit seller) must file a financing statement to protect its reversion
interest in the property.
o The distinction between a lease and a sale with retention of a security interest is
governed by Section 1-203 of the U.C.C.
 Basic concept for distinguishing between a true lease and a sale of property
and retention of a security interest – examine actual terms of the lease.
 If the entire value of the property is in substance being transferred to
lessee at time the lease is executed, then transaction is a sale of the
property and retention of a security interest to secure the price.
  If lessor is retaining a reversionary interest in the property at the end
of the initial lease term that has meaningful value, then the
transaction is a true lease.

§ 1-203. Lease Distinguished from Security Interest.

(a) Whether a transaction in the form of a lease creates a lease or security interest is
determined by the facts of each case.
(b) A transaction in the form of a lease creates a security interest if the consideration that the
lessee is to pay the lessor for the right to possession and use of the goods is an obligation for
the term of the lease and is not subject to termination by the lessee, and: (1) the original term
of the lease is equal to or greater than the remaining economic life of the goods; (2) the lessee
is bound to renew the lease for the remaining economic life of the goods or is bound to
become the owner of the goods; (3) the lessee has an option to renew the lease for the
remaining economic life of the goods for no additional consideration or for nominal additional
consideration upon compliance with the lease agreement; or (4) the lessee has an option to
become the owner of the goods for no additional consideration or for nominal additional
consideration upon compliance with the lease agreement.
(c) A transaction in the form of a lease does not create a security interest merely because: (1)
the present value of the consideration the lessee is obligated to pay the lessor for the right to
possession and use of the goods is substantially equal to or is greater than the fair market
value of the goods at the time the lease is entered into; (2) the lessee assumes risk of loss of
the goods; (3) the lessee agrees to pay, with respect to the goods, taxes, insurance, filing,
recording, or registration fees, or service or maintenance costs; (4) the lessee has an option to
renew the lease or to become the owner of the goods; (5) the lessee has an option to renew the
lease for a fixed rent that is equal to or greater than the reasonably predictable fair market rent
for the use of the goods for the term of the renewal at the time the option is to be performed;
or (6) the lessee has an option to become the owner of the goods for a fixed price that is equal
to or greater than the reasonably predictable fair market value of the goods at the time the
option is to be performed.
(d) Additional consideration is nominal if it is less than the lessee's reasonably predictable
cost of performing under the lease agreement if the option is not exercised. Additional
consideration is not nominal if: (1) when the option to renew the lease is granted to the lessee,
the rent is stated to be the fair market rent for the use of the goods for the term of the renewal
determined at the time the option is to be performed; or (2) when the option to become the
owner of the goods is granted to the lessee, the price is stated to be the fair market value of the
goods determined at the time the option is to be performed.
(e) The "remaining economic life of the goods" and "reasonably predictable" fair market rent,
fair market value, or cost of performing under the lease agreement must be determined with
reference to the facts and circumstances at the time the transaction is entered into.

 4. Certain Consignments
o “Consignments” are transactions where one person (the “consignor”) delivers
goods to a merchant (the “consignee”) for the purpose of having the merchant sell
 the goods. The consignor is the owner of the goods, and has the right to take the
goods back from the consignee at any time before they are sold.
o The problem with consignments is that the merchant’s creditors might be misled
into thinking that the merchant is owner of the merchandise, and might lend money
using the merchant’s inventory as collateral, not knowing of the consignor’s rights
in the collateral.
o Article 9 is intended to protect creditors against “secret liens.” Accordingly, unless
the merchant is “generally known by its creditors to be substantially engaged in
selling the goods of others” – that is, is generally known to be in the consignment
business – then Article 9 applies and a person who consigns more than $1000 worth
of goods to a merchant must file a financing statement giving notice of the
consignment arrangement.
 5. Sales of Accounts and Chattel Paper
o When a business performs services or sells products, it might take payment in cash.
However, it is more common for businesses to extend credit to their clients or
customers. In lay terms, the amount of money that a business is owed by its
customers is called the “accounts receivable.” Under Article 9, this is shortened to
“accounts.”
o Accounts are an intangible asset, but they are a form of personal property and are
often very valuable. The accounts receivable of a large business may run to millions
or billions of dollars. Since they are intangible, however, it is impossible to know
whether the business has sold their accounts to a bank or collection company. In
effect, the purchaser of the accounts has a “secret lien” on this asset of the company.
Other creditors might be misled and might loan money or otherwise extend credit to
the business on the strength of the business’s accounts, not knowing that the
accounts have been sold to another person.
o For this reason, Article 9 of the Uniform Commercial Code extends to the sale of
accounts. A person who purchases the accounts of a business must file a financing
statement giving public notice of the transaction. This rule also extends to the sale of
chattel paper, another type of property that may be proceeds from the sale of
inventory.
 Transactions That Are Not Governed by Article 9
o There are many types of transactions that are expressly or implicitly excluded from
coverage by Article 9, including (but not limited to) the following:
 1. The use of real property as collateral to secure repayment;
 2. True leases;
 3. Consignments where the consignee is generally known by its creditors to
be in the business of selling the goods of others;
 4. Nonconsensual liens other than agricultural liens, such as landlord liens
and artisan’s liens;
 5. Subrogation rights;
 6. Collateral covered by federal filing systems such as those for airplanes
and ships;
 7. A sale of accounts which occurs in connection with the sale of an entire
business;
 8. An isolated sale of an account which does not constitute a substantial
portion of the debtor’s accounts;
  9. A security interest in a consumer’s bank account arising out of a consumer
transaction; and
 10. The assignment of a right represented by a judgment.
 Priority Disputes Between Article 9 Secured Parties and Other Claimants to the Collateral
o Even though Article 9 does not apply to the formation and enforcement of other
types of interests in property, the priority rules of Article 9 often apply to govern
disputes between Article 9 secured parties and other claimants to the collateral.
o Example: Article 9 does not apply to the creation of judicial liens. However, Article
9 does govern priority disputes between secured parties and judicial lien creditors.
 Summary
o Article 9 governs the creation, enforcement, and perfection of security interests in
collateral that arise from the following types of transactions:
o Consensual security interests in personal property and fixtures;
o Agricultural liens;
o Credit sales disguised as leases;
o Certain types of consignments; and
o The sale of accounts and chattel paper.
o Furthermore, Article 9 largely governs priority disputes between Article 9 secured
parties – that is, persons whose interests were created in the foregoing types of
transactions – and other claimants to the collateral, like buyers or judicial lien
creditors.

Benedict v. Ratner

Benedict is the bankruptcy trustee, Hub carpet is in bankruptcy, Ratner loaned Hub money.
Accounts receivable- no actual manifestation of the property, nothing tangible. If it was a
promissory note, the owner could pass that around and have that mean something, but accounts
receivable does not. All Hub received were promises for their service.

a. Ratner gets an assignment of all of the accounts receivable. Assignment of accounts receivable =
security interest in accounts receivable.

b. There is no ostensible ownership problem because there is no manifestation of possession to

where anyone would be confused as to ownership.

c. Court- even though it is not tangible, the problem of fraud is still present.

Unfettered dominion- there is nothing that an outsider or account debtor would see in the
transactions between hub and their clients to where they would be informed that the money would
be given to Ratner. Ratner has not required Hub to do anything to make Hub pay Ratner.

1. Control being separated from title, because Hub retained control then it is fraud.

ii. Silver lining - something less than unfettered dominion could be within the law.
 1. The public took the court as drawing a line, anything short of unfettered dominion would
be allowed.

2. Anything that formalistically interjected control in the accounts receivable, would be

okay.

a. Passing the money to the creditor then back to the debtor. So that the debtor
could maintain their Co

Chapter 2

Discussion post:
 Commodity markets provide a platform for investors to trade physical resources that hold
intrinsic value, such as rare metals (i.e., gold or silver) or energy resources (i.e., oil and
natural gas).
o They offer a good way to hedge against inflation, but these markets tend to be more
volatile because the prices are dependent on factors such as geopolitics and global
supply and demand

 This section provides that commodity future and option contracts fall within the category of
investment properties and thus can be used as collateral, so long as these commodities are
either traded in a US market directly regulated by federal law or are traded on a foreign
market that is regulated by US commodities law (commodity intermediary)
o A commodity futures contract is an agreement to buy a particular commodity at a
future date
o A commodity futures option gives the purchaser the right to buy a particular futures
contract at a future date for a particular price

 This means that someone can use their rights or interests in these contracts (like their right
to buy or sell a commodity in the future) as a form of security.

D. Lecture 8. The Categorization of Collateral

 To create a security interest it is necessary to “reasonably identify” the

collateral in the security agreement. In contrast when a security interest is
perfected it is not necessary to “reasonably identify” the collateral; instead
it is sufficient to “indicate” what the collateral is.
 Cornerstone
o Facts
 Cornerstone sold EBF the right to 15% of the future payments that
Cornerstone would receive from its customers.
 Under the agreement EBF paid Cornerstone $75,000 for those rights,
and EBF was entitled to receive monthly payments up to a maximum
of $105,000.
  Cornerstone declared bankruptcy on May 13. During that period all of which
was within the 90-day period before Cornerstone’s bankruptcy Cornerstone
paid EBF $27,125 that it had collected from its customers.
 EBF did not file a financing statement until May 19, 2016, six days after
Cornerstone filed for bankruptcy.
o Issue
 Whether the collateral is an account or a payment intangible
 Relevant because a security interest in accounts needs to be perfected
by filing, while a security interest in payment intangibles is
automatically perfected upon attachment.
o Ruling/Reasoning
 Court said the collateral was an account.
 Because the sale of an account can be perfected only by filing, and because
EBF did not file until after the debtor declared bankruptcy, it had only an
unperfected security interest in the collateral when bankruptcy was declared.
 EBF should have filed a financing statement to perfect its security
interest in the accounts, and it lost to the bankruptcy trustee because
it failed to do so.
 Payment intangible is if the account debtor owes the debtor for money lent to
them.
 A person who owes money to a debtor on an account, chattel paper, or a payment intangible
is called an account debtor.
 If a person owes money to the debtor and signed a promissory note for the debt then the
collateral is an instrument.
 If the account debtor owes money to the debtor for the purchase of goods and the account
debtor signed chattel paper (such as a lease agreement or a conditional sales contract), then
the collateral is chattel paper.
 If the account debtor did not sign a promissory note or chattel paper and the account debtor
owes money to the debtor in return for goods or services, then the collateral is an account.
 If the account debtor did not sign a promissory note or chattel paper and the account debtor
owes money to the debtor in return for a loan of money, then the collateral is a payment
intangible.
 Grimmett
o Issue:
 may health care providers sue an insurer if the policyholder assigns their
right to payment under the policy to the provider?
o Facts:
 Grimmett was injured in an auto accident and incurred extensive medical
expenses.
 She assigned her right to any insurance proceeds for health care expenses to
her medical providers.
 Encompass Indemnity Co., was her automobile insurer
 Her policy had “Personal Injury Protection” clause, which covered medical
expenses incurred from auto accidents
 However, Encompass also had a policy explicitly prohibiting the
policyholder from assigning the benefits that it was entitled to under the
policy.
 o Holding/Reasoning:
 The court ruled that the personal injury protection clause was health care
insurance, and that Grimmett’s claim against Encompass was a health-care-
insurance receivable.
 While an assignment of a claim under an insurance policy is excluded from
Article 9, the assignment of a “health-care-insurance receivable” is subject to
Article 9.
 Another provision of the Code prohibits “anti-assignment” clauses in
promissory notes and agreements that are subject to Article 9. Section 9-
408(a).
 Accordingly the court held that Grimmett was entitled to assign her claim to
her health care providers, and that the health care providers who served
Grimmett were entitled to assert their claims to payment against Encompass
under the assignment of rights from their patient.
 Collateral must be described in both the security agreement and in the financing statement.
o The security agreement must be more specific in its description of the collateral; a
financing statement may be more general.
 Under Section 9-108 a security agreement must “reasonably identify” the
collateral because a security agreement is a contract that creates the security
interest.
 A mistake in identifying the collateral in a security agreement means
that the security interest was never created.
o A financing statement, in contrast, is a standard government form (the UCC1) that is
filed to serve as a public notice that the secured party has a security interest in the
property of the debtor.
 Under Section 9-502 a financing statement does not have to “identify” but
merely “indicate” the property that is the subject to the security interest.
 A mistake in the description of the collateral in a financing statement
means that the security interest was never perfected.
o A mistake in the security agreement means that the security interest cannot be
enforced at all. A mistake in the financing statement means that the secured party
can enforce the security agreement against the debtor but the secured party is
unlikely to take priority in the collateral over other claimants to the collateral such
as other secured parties, lien creditors, or bankruptcy trustees.
 It is not necessary to specifically identify each item of collateral, for example by listing the
serial number of each piece of collateral. Section 9-108 expressly provides that a
description of the collateral by “category” is sufficient.
 Cheniere Energy, Inc. v. Parallax Enterprises LLC
o Facts
 Cheniere Energy advanced $46 million in funding for a joint project with
Parallax Enterprises.
 The parties executed a security agreement purporting to cover all of
Parallax’s “tangible” and “intangible” property.
 At this time Parallax owned “Live Oak,” a natural gas company; Live Oak
was a wholly-owned subsidiary of Parallax, and was virtually the only
significant asset of Parallax.
o Issue:
 Whether the security agreement between Cheniere and Parallax was specific
enough to reasonably identify Parallax’s interest in Live Oak.
o Finding/Reasoning:
 Court ultimately found that the description of the collateral in the security
agreement was insufficient to create a security interest in the debtor’s
ownership interest in Live Oak.
 Parallax’s equity interest in Live Oak is not among the reasonably identified
collateral.
 Description of the Property
o All deposit, securities and other accounts and investment
property
o All instruments, documents and chattel paper
o All inventory, equipment, fixtures and goods
o All contracts and permits
o All letter-of-credit rights
o All intellectual property
o All real property
o All other tangible and intangible property and assets of such
Loan Part
  The Loan Parties’ equity interests are not encompassed by items 1–
7, and item 8 is a “super generic” catch-all that, as a matter of law,
“does not reasonably identify the collateral.”
 The description “all other tangible and intangible property and
assets” is too broad to allow a security interest to attach.
 Because “[a] proper security agreement is a requisite for
attachment of the security interest” and the security agreement
does not reasonably identify as collateral Parallax’s equity interests
in any subsidiary, no security interest attached to Parallax’s equity
in Live Oak.
 Thus, the Parallax Parties have shown both that (a) the Note does
not give the Cheniere Parties a contractual right to non-judicially
foreclose on Parallax’s equity in Live Oak, and (b) the Parallax
Parties have a probable right to the requested declaration that the
Cheniere Parties do not have a security interest in Parallax’s equity
interest in Live Oak.
 “Intangible property” is not the same as “general intangibles.”
 Parallax’s equity in Live Oak is a “general intangible” as defined
in the UCC, so if the Note had listed “general intangibles” among
the collateral, this would have been sufficient for a security interest
to attach; But the Note instead refers to “intangible property,”
which is not a term defined in the UCC.
 Moreover, “intangible property” is broader than “general
intangibles,” for it includes intangibles that are specifically
excepted from the definition of “general intangibles.”
 Under the ProvideRx case, a description of collateral is sufficient if
it is a subset of items wholly encompassed by a defined term. Here,
however, the situation is reversed because “all intangible property”
is broader than “general intangibles.”
 Parallax’s awareness that the Cheniere Parties intended to create a security
interest in Parallax’s equity in Live Oak is no substitute for a sufficient
description.
 Chattel paper v. account.
o A chattel paper carries the monetary obligation plus a security interest in what
was sold.
o An account does not carry a security interest with it.
 Payment intangible vs accounts receivable
o
 Instruments are checks and promissory notes