SECURED TRANSACTIONS PRACTICE: SECURITY AGREEMENTS TO

FORECLOSURES, PART 1 & PART 2

First Run Broadcast: November 26 & 27, 2018

1:00 p.m. E.T./12:00 p.m. C.T./11:00 a.m. M.T./10:00 a.m. P.T. (60 minutes each day)

Secured transactions are the most common form of commercial transaction and help finance

businesses of every size. They are governed by the precise provisions of UCC Article 9. Getting

every detail – financing statements, security agreements, perfection, foreclosure and sale – is

essential. These transactions can be complex, sometimes difficult to draft and costly, and full of

risk. Failure to comply with UCC Article 9 in drafting security agreements, perfecting a

creditor’s interest, or on the foreclosure of a lien can easily cause the value of the underlying

transaction to be lost. This program will provide you with a real-world guide to drafting the

most important components of a security agreement, perfecting the interest, and cost-effective

enforcement of liens.

Day 1 – November 26, 2018:

• Lifecycle of UCC Article 9 secured transactions

• Drafting cost-effective and enforceable security agreements

• What to do when something about the debtor changes – e.g., name, location, ownership

• Accounts receivable, inventory, equipment, intellectual property

• Anti-assignment provisions regarding collateral

• Enhancing enforceability of security agreements and reduce risks in foreclosure

Day 2 – November 27, 2018:

• Framework for the foreclosure of personal property under UCC Article 9

• Foreclosing on equipment, inventory, intellectual property, and accounts receivable

• Duties of junior creditors to senior creditors on foreclosure

• Rights to proceeds of foreclosure sales and reducing foreclosure costs

• Rights of guarantors

• Debtor remedies in the event of a secured party default

• Cost-efficient alternatives to foreclosures and circumstances when these alternatives are

available

Speaker:

Steven O. Weise is a partner in the Los Angeles office Proskauer Rose, LLP, where his practice

encompasses all areas of commercial law. He has extensive experience in financings, particularly

those secured by personal property. He also handles matters involving real property anti-

deficiency laws, workouts, guarantees, sales of goods, letters of credit, commercial paper and

checks, and investment securities. Mr. Weise formerly served as chair of the ABA Business Law

Section. He has also served as a member of the Permanent Editorial Board of the UCC and as an

Advisor to the UCC Code Article 9 Drafting Committee. Mr. Weise received his B.A. from Yale

University and his J.D. from the University of California, Berkeley, Boalt Hall School of Law.

VT Bar Association Continuing Legal Education Registration Form

Please complete all of the requested information, print this application, and fax with credit info or mail it with payment to: Vermont Bar Association, PO Box 100, Montpelier, VT 05601-0100. Fax: (802) 223-1573 PLEASE USE ONE REGISTRATION FORM PER PERSON. First Name ________________________ Middle Initial____ Last Name__________________________

Firm/Organization _____________________________________________________________________

Address ______________________________________________________________________________

City _________________________________ State ____________ ZIP Code ______________________

Phone # ____________________________Fax # ______________________

E-Mail Address ________________________________________________________________________

Secured Transactions Practice: Security Agreements to Foreclosures, Part 1

Teleseminar November 26, 2018

1:00PM – 2:00PM 1.0 MCLE GENERAL CREDITS

PAYMENT METHOD:

Check enclosed (made payable to Vermont Bar Association) Amount: _________ Credit Card (American Express, Discover, Visa or Mastercard) Credit Card # _______________________________________ Exp. Date _______________ Cardholder: __________________________________________________________________

VBA Members $75 Non-VBA Members $115

NO REFUNDS AFTER NOVEMBER 19, 2018

VT Bar Association Continuing Legal Education Registration Form

Please complete all of the requested information, print this application, and fax with credit info or mail it with payment to: Vermont Bar Association, PO Box 100, Montpelier, VT 05601-0100. Fax: (802) 223-1573 PLEASE USE ONE REGISTRATION FORM PER PERSON. First Name ________________________ Middle Initial____ Last Name__________________________

Firm/Organization _____________________________________________________________________

Address ______________________________________________________________________________

City _________________________________ State ____________ ZIP Code ______________________

Phone # ____________________________Fax # ______________________

E-Mail Address ________________________________________________________________________

Secured Transactions Practice: Security Agreements to Foreclosures, Part 2

Teleseminar November 27, 2018

1:00PM – 2:00PM 1.0 MCLE GENERAL CREDITS

PAYMENT METHOD:

Check enclosed (made payable to Vermont Bar Association) Amount: _________ Credit Card (American Express, Discover, Visa or Mastercard) Credit Card # _______________________________________ Exp. Date _______________ Cardholder: __________________________________________________________________

VBA Members $75 Non-VBA Members $115

NO REFUNDS AFTER NOVEMBER 20, 2018

Vermont Bar Association

CERTIFICATE OF ATTENDANCE

Please note: This form is for your records in the event you are audited Sponsor: Vermont Bar Association Date: November 26, 2018 Seminar Title: Secured Transactions Practice: Security Agreements to Foreclosures, Part 1 Location: Teleseminar - LIVE Credits: 1.0 MCLE General Credit Program Minutes: 60 General Luncheon addresses, business meetings, receptions are not to be included in the computation of credit. This form denotes full attendance. If you arrive late or leave prior to the program ending time, it is your responsibility to adjust CLE hours accordingly.

Vermont Bar Association

CERTIFICATE OF ATTENDANCE

Please note: This form is for your records in the event you are audited Sponsor: Vermont Bar Association Date: November 27, 2018 Seminar Title: Secured Transactions Practice: Security Agreements to Foreclosures, Part 2 Location: Teleseminar - LIVE Credits: 1.0 MCLE General Credit Program Minutes: 60 General Luncheon addresses, business meetings, receptions are not to be included in the computation of credit. This form denotes full attendance. If you arrive late or leave prior to the program ending time, it is your responsibility to adjust CLE hours accordingly.

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UCC Article 9: Basic Building Blocks

Steve Weise

Proskauer Rose LLP – Los Angeles

(310) 284-4515

sweise@proskauer.com

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I. Scope

A. Why does it matter?

1. Secured party wants to beat:

a. lien creditors

b. bankruptcy trustee

c. debtor in possession

d. other secured creditors

2. Secured party’s rights only as good as the weakest link

B. Does Article 9 apply to the transaction?

1. Applies to security interests in all types of personal property

a. Some exceptions

2. Meaning of ‘security interest’ (§ 1-201(b)(35))

3. Hidden secured transactions

a. ‘Dirty’ leases (§ 1-203)

b. ‘Sales’ transactions

4. If not sure about application of Article 9, consider taking protective measures, e.g., filing of financing statement (§ 9-505)

C. Article 9 applies to sales of most kinds of payment rights (§ 9-109(a)(3)):

1. Accounts

2. Chattel paper

3. Payment intangibles

4. Promissory notes

D. Article 9 applies to consignments (§ 9-109(a)(4))

1. Consignment creates a ‘security interest’ (§ 1-201(b)(35))

2. Consignor is ‘secured party’ (§ 9-102(a)(74))

3. Consignee is ‘debtor’ (§ 9-102(a)(28))

E. Article 9 applies to ‘agricultural liens’ (§ 9-102(a)(5))

1. Not a ‘security interest’ covered by Article 9 (§ 9-109(a)(2))

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2. Lien created under non-Article 9 law

a. Other law governs enforceability between the parties

3. Perfection necessary under Article 9 to defeat rights of third parties

F. Exclusions

1. Government debtors in some states (§ 9-109(c)(2))

2. Consumer deposit accounts in most states (§ 9-109(d)(13))

G. Basic building blocks

1. Attachment of security interest

2. Perfection of security interest

3. Priority of security interest

H. Security interest only as good as weakest link

II. Attachment

A. General, need each of the following (§ 9-203):

1. Security agreement (§ 9-203(b)(3))

2. Rights in the collateral (§ 9-203(B)(2))

3. Give value (§ 9-203(b)(1))

B. Security agreement (§ 9-203(b)(3))

1. Agreement that creates or provides for a security interest (§ 9-102(a)(73))

2. In transactions covered by Article 9, ‘security agreement’ includes:

a. Consignment agreement

b. Lease

c. Sales agreement

C. Oral security agreement

1. ‘Security agreement’ may exist ‘pursuant to debtor’s [oral] security agreement’ where:

a. Possession by secured party of tangible collateral (§ 9-203(b)(3)(B))

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b. Delivery (possession) to secured party of certificated security (§ 9-203(b)(3)(C))

c. Control of collateral (§ 9-203(b)(3)(D))

i. Deposit accounts

ii. Electronic chattel paper

iii. Investment property

iv. Letter-of-credit rights

D. Must ‘create or provide’ for a ‘security interest’

1. Language usually ‘grants’ of security interest (§ 9-203(b)(3)(A))

2. Consignment, lease, or sales language ‘creates or provides’ for ‘security interest’ in consignment and sales transactions

E. Security agreement must describe the collateral (§ 9-108)

1. Must ‘reasonably identify’ the collateral

2. May not use ‘all assets’ description in security agreement

3. OK to describe collateral by ‘type’ or ‘category’

4. Description by ‘type’ not sufficient in some circumstances:

a. Commercial tort claims

b. Consumer transaction involving consumer goods, securities entitlement, or securities account

F. Security agreement must be “authenticated” (§§ 9-102(a)(7) and 9-203(b)(3)(A))

1. Allows electronic ‘authentication’

2. Not subject to:

a. UETA, or

b. E-SIGN

G. Debtor must have rights in the collateral or power to transfer collateral (§ 9-203(b)(2))

1. ‘Power’ to transfer

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a. Buyer with voidable title

b. Consignee

c. Holder of instrument or security

d. Seller of accounts, chattel paper or instruments where buyer is not perfected (§ 9-318(b))

2. Non-transferable property

a. Limitations on transferability of collateral

i. Generally overriden in full for rights to payment (§ 9-406(d) and (f))

ii. For other kinds of rights, can create security interest, but cannot force counterparty to acknowledge rights of secured party (§ 9-408)

iii. Some states don’t allow Article 9 to override transfer restrictions for LLCs and LPs (e.g., Delaware entities)

H. Secured party must give value (§ 9-203(b)(1)

1. Meaning of ‘value’ (§ 1-204)

a. ‘Any consideration sufficient to support a simple contract’

b. Commitment to make a loan

2. To whom?

a. OK if value goes to third party, e.g., when security interest granted by guarantor and loan made to borrower

I. Security interest also attaches to supporting obligations + underlying collateral

1. Security interest automatically created in related rights when security interest is created in:

a. Supported obligation (§ 9-203(f)) or

b. Secured obligation (§ 9-203(g))

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J. Security interest also attaches to proceeds (§ 9-102(a)(64))

1. Security interest in identifiable proceeds automatically attaches if security interest has attached to original collateral (§ 9-203(f))

2. Security interest may ‘detach’ after 20 days if certain requirements are not met (§ 9-315)

K. Security interest will attach to after-acquired collateral if security agreement so provides

1. Generally allowed (§ 9-204(a))

2. Not permitted (§ 9-204(b)):

a. Commercial tort claims

b. Consumer goods, unless acquired within ten days of secured party giving value

3. Security agreement should refer to ‘after-acquired’ collateral or the like (§ 9-108, Comment 3)

L. Future advances

1. Security interest may secure future advances if security agreement provides for that (§ 9-204(c))

III. Perfection

A. General (§§ 9-308 et seq.)

1. Establishes secured party’s rights against third parties:

a. Lien creditors

b. Trustee in bankruptcy + debtor in possession

c. Relevant to priority

2. Does not exist unless attachment has also occurred (§ 9-308(a))

B. ‘Automatic’ perfection (§ 9-309)

1. Certain sales (§ 9-309(3) + (4)):

a. Promissory notes

i. Do not need possession to be perfected (possession might improve priority)

b. Payment intangibles (§ 9-102(a)(61))

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c. Not automatic for sales of accounts or chattel paper

2. May still be subject to non-temporal priority rules (discussed below)

3. Note that for non-filing perfection, priority usually dates from date of perfection (not date of filing)

C. Perfection by filing of a financing statement – when to use

1. Available for all types of collateral (§ 9-310(a)), except:

a. Money

b. Deposit accounts

c. Letter-of-credit rights

d. Required federal or other state filings

2. Sometimes subject to non-temporal priority rules

D. Financing statement – where to file

1. File at ‘location’ of debtor (§ 9-301(1))

2. Fixture filing recorded in real property records where fixtures are physically located (§ 9-301(3)(A))

E. What is the ‘location’ of the debtor?

1. ‘Location’ of debtor:

a. Registered organization (corporation, LLC, LP): state of organization (§ 9-307(e))

b. Partnership (including LLP): state of chief executive office (§ 9-307(b)(3))

c. Individual: state of principal residence (§ 9-307(b)(1))

d. Non-US entity: country of chief executive office, if that country has filing system for the collateral (§ 9-307(c))

i. If not, Washington, D.C.

F. Financing statement – three key items of content (§ 9-502(a))

1. Debtor name

2. Secured party name

3. ‘Indication’ of collateral

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a. Somewhat more forgiving test than ‘description’ required for security agreement

G. Financing statement – debtor name (§ 9-503)

1. Must be exactly correct

2. For registered organization: copy exactly from organizational documents

3. Individuals

a. What is the ‘name’?

b. New driver’s license rule

H. Financing statement – examples of mistakes

Debtor name Mistaken financing statement

C. W. Mining Company CW Mining Company

EDM Corporation EDM Corporation d/b/a EDM Equipment

Michael Erwin Mike Erwin

Terrance Joseph Kinderknecht

Terry J. Kinderknecht

Rodger House Roger House

Michael Barry Mike Barry

Andrew Fuell Andrew Fuel

Silver Dollar, LLC Silver Dollar Stores, LLC

Jim Ross Tires, Inc. Jim Ross Tire Inc.

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I. Financing statement: registered organization name – confirming rules

1. Registered organization

a. Confirm that look at actual organizational document (‘public organic document’)

J. Financing statement: individual’s name – new rules

1. Alternative A (waterfall):

a. Almost all states

b. Driver’s license (or other state ID from same office) from state of filing

c. ‘Name’ or first personal name and surname

2. No guidance on what is ‘first personal name’ and ‘surname’

K. Financing statement – secured party’s name

1. OK to name ‘representative’ of secured party (§ 9-502(a)(2))

a. Do not have to indicate representative status (§ 9-503(d))

2. Less stringent rules as to getting secured party’s name right (§ 9-506, Comment 2)

L. Financing statement – ‘indication’ of collateral

1. Sufficient if would satisfy security agreement (§ 9-504(1))

2. Also, may use ‘all assets’ as ‘indication’ (even though not sufficient for security agreement) (§ 9-504(a)(2))

M. Financing statement – post-closing events

1. Complicated rules of effect on perfection and priority

2. Change in debtor’s name (§ 9-507(c))

3. Debtor becomes located in different jurisdiction (§ 9-316(a)(2))

4. Collateral transferred to a different debtor

a. Same jurisdiction (§§ 9-315(a)(1) + 9-507(a))

b. Different jurisdiction (§ 9-316(a)(3))

5. Mergers and reincorporations

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N. Financing statement – amendments

1. Change name

2. Change collateral

3. Change other information

4. Assign

5. Terminate

O. Perfection by possession (§ 9-313)

1. Applies only to tangible collateral

2. Through agent is OK (§ 9-313, Comment 3)

a. Agent may not be too ‘closely connected’ to debtor (§ 9-313, Comment 3)

3. Through bailee is OK (§ 9-313(c))

a. Not effective unless bailee authenticates record that it has possession ‘for benefit of’ secured party (§ 9-102(a)(69))

b. Bailee may not be too ‘closely connected’ to debtor (§ 9-313, Comment 4)

P. Perfection by control (§ 9-312(b))

1. Deposit accounts (§ 9-104)

2. Investment property (§§ 9-106 + 8-106)

a. Security entitlements

b. Securities

c. Securities accounts

3. Letter-of-credit rights (§ 9-107)

4. Electronic chattel paper (§ 9-105)

Q. Methods of control

1. Deposits accounts (§ 9-104) and securities accounts (§§ 8-106 + 9-106):

a. Control agreement

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b. Secured party is customer of deposit account or entitlement holder of securities account

c. Bank or securities intermediary is secured party

R. Compliance with other laws (§ 9-311)

1. Certificate of title (§ 9-311(a)(2))

a. Motor vehicles

i. File financing statement when debtor is a dealer with respect to inventory (seller or lessor of motor vehicles) (§ 9-311(d))

ii. File financing statement if motor vehicle dealer not in the business of selling cars (as well as leasing, if leasing is what it does) (§ 9-311(d))

2. Airplanes (§ 9-311(a)(1))

a. FAA filing for perfection

b. UCC still applies to non-perfection issues

c. Comply with Capetown Convention for better perfection

3. Ships

a. Ship Mortgage Act

S. Federal law filing (§ 9-311(a)(1))?

1. Copyright

a. File in Copyright Office for registered copyright and under UCC for unregistered copyrights

2. Patents

a. File under UCC

b. Precautionary PTO filing?

3. Trademarks

a. File under UCC

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T. Perfection in supporting obligations and underlying collateral

1. Security interest automatically perfected when security interest is perfected in supported obligation or secured obligation (§ 9-308(d) + (e))

U. Perfection in proceeds

1. Perfected if security interest in original collateral was perfected (§ 9-315(c))

2. May lose perfection after 20 days if certain requirements are not met (§ 9-315(d))

IV. Priority

A. Agricultural liens

1. Regular method of perfection rules apply (§ 9-308(d))

B. Priority: other secured creditors

1. General rule: first to file or perfect (§ 9-322(a)(1))

2. OK to file before elements of attachment have occurred

3. Lots of exceptions

C. Priority: perfection by control

1. Generally first to ‘obtain’ control (§§ 9-327(2) (deposit accounts) and 9-328(2) (securities and security entitlements))

a. Has priority over secured party that has perfected only by another method (such as filing of a financing statement)

2. Many non-temporal exceptions

D. Perfection by possession

1. First to ‘perfect’ if both secured parties perfected by possession (§ 9-322(a)(1))

a. No perfection until there has been attachment

2. This means that possession without attachment is not sufficient to set priority because ‘perfection’ has not occurred yet

E. Non-temporal priorities

1. Instruments (§ 9-330(d)):

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a. Possession plus other conditions has priority over secured party perfected only by another method

2. Investment property

a. Perfection by control has priority over secured party perfected only by another method (§ 9-328(1))

b. Possession of certificated security has priority over secured party perfected only by another method (other than control) (§ 9-328(5))

3. Chattel paper (§ 9-330(b) + (c))

a. Possession plus other conditions has priority over secured party perfected only by another method

4. Deposit accounts (§ 9-327(1))

a. Control has priority over secured party perfected only by another method

F. Purchase-money security interests (§ 9-324)

1. Goods only (§ 9-103(a)(1))

2. Inventory

a. Notice to earlier secured party (§ 9-324(b))

b. File before deliver (§ 9-324(b)(1))

3. Equipment

a. No notice to earlier secured party required (§ 9-324(a))

b. File within 20 days of delivery

G. Effect of other articles of UCC

1. Article 3

a. Holder in due course of negotiable instruments takes free of security interest (§ 3-306)

2. Article 8

a. Protected purchaser takes free of security interest (§ 8-303(b))

i. Similar rules for security entitlements (§ 8-502)

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H. Lien creditors against perfected secured party

1. Generally, perfected security interest has priority over later-in-time lien creditor (§ 9-201)

2. Priority between lien creditor and unperfected security interest discussed below

3. Future advances (if secured party is perfected) have priority over subsequent lien creditor if any of the following apply (§ 9-323(b)):

a. Advance made within 45 days after person becomes a lien creditor,

b. Advance made without knowledge of lien of lien creditor, or

c. Advance made ‘pursuant to commitment’

I. Certain transferees against perfected secured party

1. Buyer in ordinary course of business takes free of earlier perfected security interest (§§ 9-320 + 1-201(b)(9))

2. Lessee in ordinary course of business takes free of earlier perfected security interest (§ 9-321(c))

3. Non-exclusive licensee in ordinary course of business takes free of earlier perfected security interest (§ 9-321(b))

J. Proceeds (§ 9-322(b) – (e))

1. Generally follow priority of original collateral

2. Special rules for non-temporal priority (§ 9-322(c))

K. Effect of unperfected security interest

1. Security interest is ‘subordinate’ to lien creditor that becomes a ‘lien creditor’ before earlier of (§ 9-317(a)(2)):

a. Perfection of security interest

b. Financing statement filed and security agreement in place (even though value has not jet been given)

2. Trustee in bankruptcy and debtor in possession have same rights (Bankruptcy Code § 544)

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V. Third party rights

A. Effect of unperfected security interest

1. Buyer of tangible collateral takes free if:

a. Buyer gives value and

b. Receives delivery without knowledge of security interest and before it is perfected (§ 9-317(b))

2. Lessee of goods takes free if:

a. Lessee gives value and

b. Receives delivery without knowledge of security interest and before it is perfected (§ 9-317(c))

3. Licensee of general intangible and buyers (not secured party) of intangibles take free if:

a. Give value without knowledge of security interest and

b. Before it is perfected (§ 9-317(d))

VI. Enforcement

A. Third-party rights

1. Account debtor (§ 9-102(a)(3)) on payment obligation:

a. Can recoup claims arising out of same contract or transaction (§ 9-404(a)(1)

b. Until notified of assignment, can use set off rights that have arisen (§ 9-404(a)(2))

B. Enforcement – general

1. Commercial reasonableness requirements (§§ 9-607(c) + 9-610(b))

2. Collect on payment rights (§ 9-506)

a. Commercial reasonableness usually does not apply

3. Sale or otherwise dispose of collateral

a. Private or public sale (§ 9-610(b))

b. Secured party usually cannot buy at private sale (§ 9-610(c))

4. Retain collateral in satisfaction of debt (§ 9-620)

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C. Enforcement – waiver

1. Many rights cannot be waived (§§ 9-602 and 9-624)

2. Inclusion of agreement on standards for fulfilling obligations if standard is not manifestly unreasonable (§§ 1-302(b) + 9-603)

3. Waivers by junior secured party

D. Enforcement - procedures

1. Notices to debtor (§§ 9-611 – 9-614)

2. Advertising as appropriate (§ 9-610(b))

3. Deficiency claim:

a. Secured party will usually have burden of proof (§ 9-626(a)(2))