Article 9

Question 1

§ 9-102. Definitions and Index of Definitions.

Answer 1

(2) “Account” = a right to payment of a monetary obligation (i) for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (ii) services, (iii) a policy of insurance, (iv) a secondary obligation, (v) energy, (vi) the use or hire of a vessel, (vii) arising out of the use of a credit or charge card or information contained on or for use with the card, or (viii) as winnings in a lottery.
Includes health-care-insurance receivables but not (i) rights evidenced by chattel paper or an instrument, (ii) commercial tort claims, (iii) deposit accounts, (iv) investment property, (v) letter-of-credit rights or letters of credit, or (vi) rights to payment for money or funds advanced or sold, other than rights arising out of the use of a credit or charge card or information contained on or for use with the card.
(3) “Account debtor” = a person obligated on an account, chattel paper, or general intangible. Does not include persons obligated to pay a negotiable instrument, even if the instrument constitutes part of chattel paper.
(4) “Accounting” = a record:
(A) authenticated by a secured party;
(B) indicating the aggregate unpaid secured obligations as of a date not more than 35 days earlier or 35 days later than the date of the record; and
(C) identifying the components of the obligations in reasonable detail.
(5) “Agricultural lien” = interest in farm products:
(A) securing payment/performance for:
(i) goods or services furnished in connection with a debtor’s farming operation; or
(ii) rent on real property leased by a debtor in connection with its farming operation;
(B) created by statute in favor of a person that:
(i) in the ordinary course of its business furnished goods or services to a debtor in connection with a debtor’s farming operation; or
(ii) leased real property to a debtor in connection with the debtor’s farming operation; and
(C) whose effectiveness does not depend on the person’s possession of the personal property.
(6) “As-extracted collateral” means:
(A) oil, gas, or other minerals that:
(i) is created by a debtor having an interest in the minerals before extraction; and
(ii) attaches to the minerals as extracted; or
(B) accounts arising out of the sale at the wellhead or minehead of oil, gas, or other minerals in which the debtor had an interest before extraction.
(7) “Authenticate” =:
(A) to sign; or
(B) with present intent to adopt or accept a record, to attach to or logically associate with the record an electronic sound, symbol, or process.
(8) “Bank” = organization that is engaged in the business of banking. The term includes savings banks, savings and loan associations, credit unions, and trust companies.
(9) “Cash proceeds” = money, checks, deposit accounts, or the like.
(11) “Chattel paper” means a record that evidence both a monetary obligation and a security interest in specific goods, a security interest in specific goods and software used in the goods, a security interest in specific goods and license of software used in the goods, a lease of specific goods, or a lease of specific goods and license of software used in the goods. In this paragraph, “monetary obligation” means a monetary obligation secured by the goods or owed under a lease of the goods and includes a monetary obligation with respect to software used in the goods. The term does not include (i) charters or other contracts involving the use or hire of a vessel or (ii) records that evidence a right to payment arising out of the use of a credit or charge card or information contained on or for use with the card. If a transaction is evidenced by records that include an instrument or series of instruments, the group of records taken together constitutes chattel paper.
(12) “Collateral” means the property subject to a security interest or agricultural lien. The term includes:
(A) proceeds to which a security interest attaches;
(B) accounts, chattel paper, payment intangibles, and promissory notes that have been sold; and
(C) goods that are the subject of a consignment.
(13) “Commercial tort claim” =:
(A) the claimant is an organization; or
(B) the claimant is an individual and the claim:
(i) arose in the course of the claimant’s business or profession; and
(ii) does not include damages arising out of personal injury to or the death of an individual.
(14) “Commodity account” is maintained by a commodity intermediary in which a commodity contract is carried for a commodity customer.
(15) “Commodity contract” = commodity futures contract, an option on a commodity futures contract, a commodity option, or another contract if the contract or option is:
(A) traded on or subject to the rules of a board of trade that has been designated as a contract market for such a contract pursuant to federal commodities laws; or
(B) traded on a foreign commodity board of trade, exchange, or market, and is carried on the books of a commodity intermediary for a commodity customer.
(18) “Communicate” means:
(A) to send a written or other tangible record;
(B) to transmit a record by any means agreed upon by the persons sending and receiving the record; or
(C) in the case of transmission of a record to or by a filing office, to transmit a record by any means prescribed by filing-office rule.
(20) “Consignment” means a transaction, regardless of its form, in which a person delivers goods to a merchant for the purpose of sale and:
(A) the merchant:
(i) deals in goods of that kind under a name other than the name of the person making delivery;
(ii) is not an auctioneer; and
(iii) is not generally known by its creditors to be substantially engaged in selling the goods of others;
(B) with respect to each delivery, the aggregate value of the goods is $1,000 or more at the time of delivery;
(C) the goods are not consumer goods immediately before delivery; and
(D) the transaction does not create a security interest that secures an obligation.
(23) “Consumer goods” means goods that are used or bought for use primarily for personal, family, or household purposes.
(24) “Consumer-goods transaction” means a consumer transaction in which:
(A) an individual incurs an obligation primarily for personal, family, or household purposes; and
(B) a security interest in consumer goods secures the obligation.
(26) “Consumer transaction” means a transaction in which (i) an individual incurs an obligation primarily for personal, family, or household purposes, (ii) a security interest secures the obligation, and (iii) the collateral is held or acquired primarily for personal, family, or household purposes. The term includes consumer-goods transactions.
(28) “Debtor” means:
(A) a person having an interest, other than a security interest or other lien, in the collateral, whether or not the person is an obligor;
(B) a seller of accounts, chattel paper, payment intangibles, or promissory notes; or
(C) a consignee.
(29) “Deposit account” means a demand, time, savings, passbook, or similar account maintained with a bank. The term does not include investment property or accounts evidenced by an instrument.
(30) “Document” means a document of title or a receipt of the type described in Section 7- 201(b).
(31) “Electronic chattel paper” means chattel paper evidenced by a record or records consisting of information stored in an electronic medium.
(33) “Equipment” means goods other than inventory, farm products, or consumer goods.
(34) “Farm products” = goods, other than standing timber, with respect to which the debtor is engaged in a farming operation and which are:
(A) crops grown, growing, or to be grown, including:
(i) crops produced on trees, vines, and bushes; and
(ii) aquatic goods produced in aquacultural operations;
(B) livestock, born or unborn, including aquatic goods produced in aquacultural operations;
(C) supplies used or produced in a farming operation; or
(D) products of crops or livestock in their unmanufactured states.
(35) “Farming operation” means raising, cultivating, propagating, fattening, grazing, or any other farming, livestock, or aquacultural operation.
(36) “File number” means the number assigned to an initial financing statement pursuant to Section 9- 519(a).
(37) “Filing office” means an office designated in Section 9- 501 as the place to file a financing statement.
(38) “Filing-office rule” means a rule adopted pursuant to Section 9- 526.
(39) “Financing statement” = a record or records composed of an initial financing statement and any filed record relating to the initial financing statement.
(40) “Fixture filing” means the filing of a financing statement covering goods that are or are to become fixtures and satisfying Section 9- 502(a) and (b). The term includes the filing of a financing statement covering goods of a transmitting utility which are or are to become fixtures.
(41) “Fixtures” means goods that have become so related to particular real property that an interest in them arises under real property law.
(42) “General intangible” means any personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money, and oil, gas, or other minerals before extraction. The term includes payment intangibles and software.
(43) “Good faith” means honesty in fact and the observance of reasonable commercial standards of fair dealing.
(44) “Goods” means all things that are movable when a security interest attaches. The term includes (i) fixtures, (ii) standing timber that is to be cut and removed under a conveyance or contract for sale, (iii) the unborn young of animals, (iv) crops grown, growing, or to be grown, even if the crops are produced on trees, vines, or bushes, and (v) manufactured homes. The term also includes a computer program embedded in goods and any supporting information provided in connection with a transaction relating to the program if (i) the program is associated with the goods in such a manner that it customarily is considered part of the goods, or (ii) by becoming the owner of the goods, a person acquires a right to use the program in connection with the goods. The term does not include a computer program embedded in goods that consist solely of the medium in which the program is embedded. The term also does not include accounts, chattel paper, commercial tort claims, deposit accounts, documents, general intangibles, instruments, investment property, letter-of-credit rights, letters of credit, money, or oil, gas, or other minerals before extraction.
(47) “Instrument” means a negotiable instrument or any other writing that evidences a right to the payment of a monetary obligation, is not itself a security agreement or lease, and is of a type that in ordinary course of business is transferred by delivery with any necessary indorsement or assignment. The term does not include (i) investment property, (ii) letters of credit, or (iii) writings that evidence a right to payment arising out of the use of a credit or charge card or information contained on or for use with the card.
(48) “Inventory” means goods, other than farm products, which:
(A) are leased by a person as lessor;
(B) are held by a person for sale or lease or to be furnished under a contract of service;
(C) are furnished by a person under a contract of service; or
(D) consist of raw materials, work in process, or materials used or consumed in a business.
(49) “Investment property” means a security, whether certificated or uncertificated, security entitlement, securities account, commodity contract, or commodity account.
(51) “Letter-of-credit right” means a right to payment or performance under a letter of credit, whether or not the beneficiary has demanded or is at the time entitled to demand payment or performance. The term does not include the right of a beneficiary to demand payment or performance under a letter of credit.
(52) “Lien creditor” means:
(A) a creditor that has acquired a lien on the property involved by attachment, levy, or the like;
(B) an assignee for benefit of creditors from the time of assignment;
(C) a trustee in bankruptcy from the date of the filing of the petition; or
(D) a receiver in equity from the time of appointment.(55) “Mortgage” means a consensual interest in real property, including fixtures, which secures payment or performance of an obligation.
(56) “New debtor” means a person that becomes bound as debtor under Section 9- 203(d) by a security agreement previously entered into by another person.
(57) “New value” means (i) money, (ii) money’s worth in property, services, or new credit, or (iii) release by a transferee of an interest in property previously transferred to the transferee. The term does not include an obligation substituted for another obligation.
(59) “Obligor” means a person that, with respect to an obligation secured by a security interest in or an agricultural lien on the collateral, (i) owes payment or other performance of the obligation, (ii) has provided property other than the collateral to secure payment or other performance of the obligation, or (iii) is otherwise accountable in whole or in part for payment or other performance of the obligation. The term does not include issuers or nominated persons under a letter of credit.
(61) “Payment intangible” means a general intangible under which the account debtor’s principal obligation is a monetary obligation.
(62) “Person related to”, with respect to an individual, means:
(A) the spouse of the individual;
(B) a brother, brother-in-law, sister, or sister-in-law of the individual;
(C) an ancestor or lineal descendant of the individual or the individual’s spouse; or
(D) any other relative, by blood or marriage, of the individual or the individual’s spouse who shares the same home with the individual.
(63) “Person related to”, with respect to an organization, means:
(A) a person directly or indirectly controlling, controlled by, or under common control with the organization;
(B) an officer or director of, or a person performing similar functions with respect to, the organization;
(C) an officer or director of, or a person performing similar functions with respect to, a person described in subparagraph (A);
(D) the spouse of an individual described in subparagraph (A), (B), or (C); or
(E) an individual who is related by blood or marriage to an individual described in subparagraph (A), (B), (C), or (D) and shares the same home with the individual.
(64) “Proceeds”, except as used in Section 9- 609(b), means the following property:
(A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral;
(B) whatever is collected on, or distributed on account of, collateral;
(C) rights arising out of collateral;
(D) to the extent of the value of collateral, claims arising out of the loss, nonconformity, or interference with the use of, defects or infringement of rights in, or damage to, the collateral; or
(E) to the extent of the value of collateral and to the extent payable to the debtor or the secured party, insurance payable by reason of the loss or nonconformity of, defects or infringement of rights in, or damage to, the collateral.
(65) “Promissory note” means an instrument that evidences a promise to pay a monetary obligation, does not evidence an order to pay, and does not contain an acknowledgment by a bank that the bank has received for deposit a sum of money or funds.
(68) “Public organic record” means a record that is available to the public for inspection and is:
(A) a record consisting of the record initially filed with or issued by a State or the United States to form or organize an organization and any record filed with or issued by the State or the United States which amends or restates the initial record;
(B) an organic record of a business trust consisting of the record initially filed with a State and any record filed with the State which amends or restates the initial record, if a statute of the State governing business trusts requires that the record be filed with the State; or
(C) a record consisting of legislation enacted by the legislature of a State or the Congress of the United States which forms or organizes an organization, any record amending the legislation, and any record filed with or issued by the State or the United States which amends or restates the name of the organization.
(69) “Pursuant to commitment”, with respect to an advance made or other value given by a secured party, means pursuant to the secured party’s obligation, whether or not a subsequent event of default or other event not within the secured party’s control has relieved or may relieve the secured party from its obligation.
(70) “Record”, except as used in “for record”, “of record”, “record or legal title”, and “record owner”, means information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form.
(71) “Registered organization” means an organization formed or organized solely under the law of a single State or the United States by the filing of a public organic record with, the issuance of a public organic record by, or the enactment of legislation by the State or the United States. The term includes a business trust that is formed or organized under the law of a single State if a statute of the State governing business trusts requires that the business trust’s organic record be filed with the State.
(72) “Secondary obligor” means an obligor to the extent that:
(A) the obligor’s obligation is secondary; or
(B) the obligor has a right of recourse with respect to an obligation secured by collateral against the debtor, another obligor, or property of either.
(73) “Secured party” means:
(A) a person in whose favor a security interest is created or provided for under a security agreement, whether or not any obligation to be secured is outstanding;
(B) a person that holds an agricultural lien;
(C) a consignor;
(D) a person to which accounts, chattel paper, payment intangibles, or promissory notes have been sold;
(E) a trustee, indenture trustee, agent, collateral agent, or other representative in whose favor a security interest or agricultural lien is created or provided for; or
(F) a person that holds a security interest arising under Section 2- 401, 2- 505, 2- 711(3), 2A- 508(5), 4- 210, or 5- 118.
(74) “Security agreement” means an agreement that creates or provides for a security interest.
(76) “Software” means a computer program and any supporting information provided in connection with a transaction relating to the program. The term does not include a computer program that is included in the definition of goods.
(78) “Supporting obligation” means a letter-of-credit right or secondary obligation that supports the payment or performance of an account, chattel paper, a document, a general intangible, an instrument, or investment property.
(79) “Tangible chattel paper” means chattel paper evidenced by a record or records consisting of information that is inscribed on a tangible medium.

Question 2

§ 9-103. Purchase-Money Security Interest; Application of Payments; Burden of Establishing.

Answer 2

(1) “purchase-money collateral” means goods or software that secures a purchase-money obligation incurred with respect to that collateral; and
(2) “purchase-money obligation” means an obligation of an obligor incurred as all or part of the price of the collateral or for value given to enable the debtor to acquire rights in or the use of the collateral if the value is in fact so used.
(b) [Purchase-money security interest in goods.] A security interest in goods is a purchase-money security interest:
(1) to the extent that the goods are purchase-money collateral with respect to that security interest;
(2) if the security interest is in inventory that is or was purchase-money collateral, also to the extent that the security interest secures a purchase-money obligation incurred with respect to other inventory in which the secured party holds or held a purchase-money security interest; and
(3) also to the extent that the security interest secures a purchase-money obligation incurred with respect to software in which the secured party holds or held a purchase-money security interest.
(c) [Purchase-money security interest in software.] A security interest in software is a purchase-money security interest to the extent that the security interest also secures a purchase-money obligation incurred with respect to goods in which the secured party holds or held a purchase-money security interest if:
(1) the debtor acquired its interest in the software in an integrated transaction in which it acquired an interest in the goods; and
(2) the debtor acquired its interest in the software for the principal purpose of using the software in the goods.
(d) [Consignor’s inventory purchase-money security interest.] The security interest of a consignor in goods that are the subject of a consignment is a purchase-money security interest in inventory.
(e) [Application of payment in non-consumer-goods transaction.] In a transaction other than a consumer-goods transaction, if the extent to which a security interest is a purchase-money security interest depends on the application of a payment to a particular obligation, the payment must be applied:
(1) in accordance with any reasonable method of application to which the parties agree;
(2) in the absence of the parties’ agreement to a reasonable method, in accordance with any intention of the obligor manifested at or before the time of payment; or
(3) in the absence of an agreement to a reasonable method and a timely manifestation of the obligor’s intention, in the following order:
(A) to obligations that are not secured; and
(B) if more than one obligation is secured, to obligations secured by purchase-money security interests in the order in which those obligations were incurred.
(f) [No loss of status of purchase-money security interest in non-consumer-goods transaction.] In a transaction other than a consumer-goods transaction, a purchase-money security interest does not lose its status as such, even if:
(1) the purchase-money collateral also secures an obligation that is not a purchase-money obligation;
(2) collateral that is not purchase-money collateral also secures the purchase-money obligation; or
(3) the purchase-money obligation has been renewed, refinanced, consolidated, or restructured.
(g) [Burden of proof in non-consumer-goods transaction.] In a transaction other than a consumer-goods transaction, a secured party claiming a purchase-money security interest has the burden of establishing the extent to which the security interest is a purchase-money security interest.
(h) [Non-consumer-goods transactions; no inference.] The limitation of the rules in subsections (e), (f), and (g) to transactions other than consumer-goods transactions is intended to leave to the court the determination of the proper rules in consumer-goods transactions. The court may not infer from that limitation the nature of the proper rule in consumer-goods transactions and may continue to apply established approaches.

Question 3

§ 9-104. Control of Deposit Account.

Answer 3

(a) [Requirements for control.] A secured party has control of a deposit account if:
(1) the secured party is the bank with which the deposit account is maintained;
(2) the debtor, secured party, and bank have agreed in an authenticated record that the bank will comply with instructions originated by the secured party directing disposition of the funds in the deposit account without further consent by the debtor; or
(3) the secured party becomes the bank’s customer with respect to the deposit account.
(b) [Debtor’s right to direct disposition.] A secured party that has satisfied subsection (a) has control, even if the debtor retains the right to direct the disposition of funds from the deposit account.

Question 4

§ 9-106. Control of Investment Property.

Answer 4

(a) [Control under Section 8- 106.] A person has control of a certificated security, uncertificated security, or security entitlement as provided in Section 8- 106.
(b) [Control of commodity contract.] A secured party has control of a commodity contract if:
(1) the secured party is the commodity intermediary with which the commodity contract is carried; or
(2) the commodity customer, secured party, and commodity intermediary have agreed that the commodity intermediary will apply any value distributed on account of the commodity contract as directed by the secured party without further consent by the commodity customer.
(c) [Effect of control of securities account or commodity account.] A secured party having control of all security entitlements or commodity contracts carried in a securities account or commodity account has control over the securities account or commodity account.

Question 5

§ 9-108. Sufficiency of Description.

Answer 5

(a) [Sufficiency of description.] Except as otherwise provided in subsections (c), (d), and (e), a description of personal or real property is sufficient, whether or not it is specific, if it reasonably identifies what is described.
(b) [Examples of reasonable identification.] Except as otherwise provided in subsection (d), a description of collateral reasonably identifies the collateral if it identifies the collateral by:
(1) specific listing;
(2) category;
(3) except as otherwise provided in subsection (e), a type of collateral defined in [the Uniform Commercial Code];
(4) quantity;
(5) computational or allocational formula or procedure; or
(6) except as otherwise provided in subsection (c), any other method, if the identity of the collateral is objectively determinable.
(c) [Supergeneric description not sufficient.] A description of collateral as “all the debtor’s assets” or “all the debtor’s personal property” or using words of similar import does not reasonably identify the collateral.
(d) [Investment property.] Except as otherwise provided in subsection (e), a description of a security entitlement, securities account, or commodity account is sufficient if it describes:
(1) the collateral by those terms or as investment property; or
(2) the underlying financial asset or commodity contract.
(e) [When description by type insufficient.] A description only by type of collateral defined in [the Uniform Commercial Code] is an insufficient description of:
(1) a commercial tort claim; or
(2) in a consumer transaction, consumer goods, a security entitlement, a securities account, or a commodity account.

Question 6

§ 9-109. Scope.

Answer 6

(a) [General scope of article.] Except as otherwise provided in subsections (c) and (d), this article applies to:
(1) a transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract;
(2) an agricultural lien;
(3) a sale of accounts, chattel paper, payment intangibles, or promissory notes;
(4) a consignment;
(5) a security interest arising under Section 2- 401, 2- 505, 2- 711(3), or 2A- 508(5), as provided in Section 9- 110; and
(6) a security interest arising under Section 4- 210 or 5- 118.
(b) [Security interest in secured obligation.] The application of this article to a security interest in a secured obligation is not affected by the fact that the obligation is itself secured by a transaction or interest to which this article does not apply.
(c) [Extent to which article does not apply.] This article does not apply to the extent that:
(1) a statute, regulation, or treaty of the United States preempts this article;
(2) another statute of this State expressly governs the creation, perfection, priority, or enforcement of a security interest created by this State or a governmental unit of this State;
(3) a statute of another State, a foreign country, or a governmental unit of another State or a foreign country, other than a statute generally applicable to security interests, expressly governs creation, perfection, priority, or enforcement of a security interest created by the State, country, or governmental unit; or
(4) the rights of a transferee beneficiary or nominated person under a letter of credit are independent and superior under Section 5- 114.
(d) [Inapplicability of article.] This article does not apply to:
(1) a landlord’s lien, other than an agricultural lien;
(2) a lien, other than an agricultural lien, given by statute or other rule of law for services or materials, but Section 9- 333 applies with respect to priority of the lien;
(3) an assignment of a claim for wages, salary, or other compensation of an employee;
(4) a sale of accounts, chattel paper, payment intangibles, or promissory notes as part of a sale of the business out of which they arose;
(5) an assignment of accounts, chattel paper, payment intangibles, or promissory notes which is for the purpose of collection only;
(6) an assignment of a right to payment under a contract to an assignee that is also obligated to perform under the contract;
(7) an assignment of a single account, payment intangible, or promissory note to an assignee in full or partial satisfaction of a preexisting indebtedness;
(8) a transfer of an interest in or an assignment of a claim under a policy of insurance, other than an assignment by or to a health-care provider of a health-care-insurance receivable and any subsequent assignment of the right to payment, but Sections 9- 315 and 9- 322 apply with respect to proceeds and priorities in proceeds;
(9) an assignment of a right represented by a judgment, other than a judgment taken on a right to payment that was collateral;
(10) a right of recoupment or set-off, but:
(A) Section 9- 340 applies with respect to the effectiveness of rights of recoupment or set-off against deposit accounts; and
(B) Section 9- 404 applies with respect to defenses or claims of an account debtor;
(11) the creation or transfer of an interest in or lien on real property, including a lease or rents thereunder, except to the extent that provision is made for:
(A) liens on real property in Sections 9- 203 and 9- 308;
(B) fixtures in Section 9- 334;
(C) fixture filings in Sections 9- 501, 9- 502, 9- 512, 9- 516, and 9- 519; and
(D) security agreements covering personal and real property in Section 9- 604;
(12) an assignment of a claim arising in tort, other than a commercial tort claim, but Sections 9- 315 and 9- 322 apply with respect to proceeds and priorities in proceeds; or
(13) an assignment of a deposit account in a consumer transaction, but Sections 9- 315 and 9- 322 apply with respect to proceeds and priorities in proceeds.

Question 7

§ 9-201. General Effectiveness of Security Agreement.

Answer 7

(a) [General effectiveness.] Except as otherwise provided in [the Uniform Commercial Code], a security agreement is effective according to its terms between the parties, against purchasers of the collateral, and against creditors.
(b) [Applicable consumer laws and other law.] A transaction subject to this article is subject to any applicable rule of law which establishes a different rule for consumers and [insert reference to (i) any other statute or regulation that regulates the rates, charges, agreements, and practices for loans, credit sales, or other extensions of credit and (ii) any consumer-protection statute or regulation].
(c) [Other applicable law controls.] In case of conflict between this article and a rule of law, statute, or regulation described in subsection (b), the rule of law, statute, or regulation controls. Failure to comply with a statute or regulation described in subsection (b) has only the effect the statute or regulation specifies.
(d) [Further deference to other applicable law.] This article does not:
(1) validate any rate, charge, agreement, or practice that violates a rule of law, statute, or regulation described in subsection (b); or
(2) extend the application of the rule of law, statute, or regulation to a transaction not otherwise subject to it.

Question 8

§ 9-202. Title to Collateral Immaterial.

Answer 8

Except as otherwise provided with respect to consignments or sales of accounts, chattel paper, payment intangibles, or promissory notes, the provisions of this article with regard to rights and obligations apply whether title to collateral is in the secured party or the debtor

Question 9

§ 9-203. Attachment and Enforceability of Security Interest; Proceeds; Supporting Obligations; Formal Requisites.

Answer 9

(a) [Attachment.] A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral, unless an agreement expressly postpones the time of attachment.
(b) [Enforceability.] Except as otherwise provided in subsections (c) through (i), a security interest is enforceable against the debtor and third parties with respect to the collateral only if:
(1) value has been given;
(2) the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and
(3) one of the following conditions is met:
(A) the debtor has authenticated a security agreement that provides a description of the collateral and, if the security interest covers timber to be cut, a description of the land concerned;
(B) the collateral is not a certificated security and is in the possession of the secured party under Section 9- 313 pursuant to the debtor’s security agreement;
(C) the collateral is a certificated security in registered form and the security certificate has been delivered to the secured party under Section 8- 301 pursuant to the debtor’s security agreement; or
(D) the collateral is deposit accounts, electronic chattel paper, investment property, letter-of-credit rights, or electronic documents, and the secured party has control under Section 7- 106, 9- 104, 9- 105, 9- 106, or 9- 107 pursuant to the debtor’s security agreement.
(c) [Other UCC provisions.] Subsection (b) is subject to Section 4- 210 on the security interest of a collecting bank, Section 5- 118 on the security interest of a letter-of-credit issuer or nominated person, Section 9- 110 on a security interest arising under Article 2 or 2A, and Section 9- 206 on security interests in investment property.
(d) [When person becomes bound by another person’s security agreement.] A person becomes bound as debtor by a security agreement entered into by another person if, by operation of law other than this article or by contract:
(1) the security agreement becomes effective to create a security interest in the person’s property; or
(2) the person becomes generally obligated for the obligations of the other person, including the obligation secured under the security agreement, and acquires or succeeds to all or substantially all of the assets of the other person.
(e) [Effect of new debtor becoming bound.] If a new debtor becomes bound as debtor by a security agreement entered into by another person:
(1) the agreement satisfies subsection (b)(3) with respect to existing or after-acquired property of the new debtor to the extent the property is described in the agreement; and
(2) another agreement is not necessary to make a security interest in the property enforceable.
(f) [Proceeds and supporting obligations.] The attachment of a security interest in collateral gives the secured party the rights to proceeds provided by Section 9- 315 and is also attachment of a security interest in a supporting obligation for the collateral.
(g) [Lien securing right to payment.] The attachment of a security interest in a right to payment or performance secured by a security interest or other lien on personal or real property is also attachment of a security interest in the security interest, mortgage, or other lien.
(h) [Security entitlement carried in securities account.] The attachment of a security interest in a securities account is also attachment of a security interest in the security entitlements carried in the securities account.
(i) [Commodity contracts carried in commodity account.] The attachment of a security interest in a commodity account is also attachment of a security interest in the commodity contracts carried in the commodity account.
As amended in 2003.

Question 10

9-301. Law Governing Perfection and Priority of Security Interests.

Answer 10

Except as otherwise provided in Sections 9- 303 through 9- 306, the following rules determine the law governing perfection, the effect of perfection or nonperfection, and the priority of a security interest in collateral:
(1) Except as otherwise provided in this section, while a debtor is located in a jurisdiction, the local law of that jurisdiction governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in collateral.
(2) While collateral is located in a jurisdiction, the local law of that jurisdiction governs perfection, the effect of perfection or nonperfection, and the priority of a possessory security interest in that collateral.
(3) Except as otherwise provided in paragraph (4), while tangible negotiable documents, goods, instruments, money, or tangible chattel paper is located in a jurisdiction, the local law of that jurisdiction governs:
(A) perfection of a security interest in the goods by filing a fixture filing;
(B) perfection of a security interest in timber to be cut; and
(C) the effect of perfection or nonperfection and the priority of a nonpossessory security interest in the collateral.
(4) The local law of the jurisdiction in which the wellhead or minehead is located governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in as-extracted collateral.

Question 11

9-307. Location of Debtor.

Answer 11

(a) [“Place of business.”]In this section, “place of business” means a place where a debtor conducts its affairs.
(b) [Debtor’s location: general rules.]Except as otherwise provided in this section, the following rules determine a debtor’s location:
(1) A debtor who is an individual is located at the individual’s principal residence.
(2) A debtor that is an organization and has only one place of business is located at its place of business.
(3) A debtor that is an organization and has more than one place of business is located at its chief executive office.
(c) [Limitation of applicability of subsection (b).]Subsection (b) applies only if a debtor’s residence, place of business, or chief executive office, as applicable, is located in a jurisdiction whose law generally requires information concerning the existence of a nonpossessory security interest to be made generally available in a filing, recording, or registration system as a condition or result of the security interest’s obtaining priority over the rights of a lien creditor with respect to the collateral. If subsection (b) does not apply, the debtor is located in the District of Columbia.
(d) [Continuation of location: cessation of existence, etc.]A person that ceases to exist, have a residence, or have a place of business continues to be located in the jurisdiction specified by subsections (b) and (c).
(e) [Location of registered organization organized under State law.]A registered organization that is organized under the law of a State is located in that State.
(f) [Location of registered organization organized under federal law; bank branches and agencies.]Except as otherwise provided in subsection (i), a registered organization that is organized under the law of the United States and a branch or agency of a bank that is not organized under the law of the United States or a State are located:
(1) in the State that the law of the United States designates, if the law designates a State of location;
(2) in the State that the registered organization, branch, or agency designates, if the law of the United States authorizes the registered organization, branch, or agency to designate its State of location, including by designating its main office, home office, or other comparable office; or
(3) in the District of Columbia, if neither paragraph (1) nor paragraph (2) applies.
(g) [Continuation of location: change in status of registered organization.]A registered organization continues to be located in the jurisdiction specified by subsection (e) or (f) notwithstanding:
(1) the suspension, revocation, forfeiture, or lapse of the registered organization’s status as such in its jurisdiction of organization; or
(2) the dissolution, winding up, or cancellation of the existence of the registered organization.
(h) [Location of United States.]The United States is located in the District of Columbia.
(i) [Location of foreign bank branch or agency if licensed in only one state.]A branch or agency of a bank that is not organized under the law of the United States or a State is located in the State in which the branch or agency is licensed, if all branches and agencies of the bank are licensed in only one State.
(j) [Location of foreign air carrier.]A foreign air carrier under the Federal Aviation Act of 1958, as amended, is located at the designated office of the agent upon which service of process may be made on behalf of the carrier.
(k) [Section applies only to this part.]This section applies only for purposes of this part.

Question 12

9-308. When Security Interest or Agricultural Lien Is Perfected; Continuity of Perfection.

Answer 12

(a) [Perfection of security interest.] Except as otherwise provided in this section and Section 9- 309, a security interest is perfected if it has attached and all of the applicable requirements for perfection in Sections 9- 310 through 9- 316 have been satisfied. A security interest is perfected when it attaches if the applicable requirements are satisfied before the security interest attaches.
(b) [Perfection of agricultural lien.] An agricultural lien is perfected if it has become effective and all of the applicable requirements for perfection in Section 9- 310 have been satisfied. An agricultural lien is perfected when it becomes effective if the applicable requirements are satisfied before the agricultural lien becomes effective.
(c) [Continuous perfection; perfection by different methods.] A security interest or agricultural lien is perfected continuously if it is originally perfected by one method under this article and is later perfected by another method under this article, without an intermediate period when it was unperfected.
(d) [Supporting obligation.] Perfection of a security interest in collateral also perfects a security interest in a supporting obligation for the collateral.
(e) [Lien securing right to payment.] Perfection of a security interest in a right to payment or performance also perfects a security interest in a security interest, mortgage, or other lien on personal or real property securing the right.
(f) [Security entitlement carried in securities account.] Perfection of a security interest in a securities account also perfects a security interest in the security entitlements carried in the securities account.
(g) [Commodity contract carried in commodity account.] Perfection of a security interest in a commodity account also perfects a security interest in the commodity contracts carried in the commodity account.
Legislative Note: Any statute conflicting with subsection (e) must be made expressly subject to that subsection.

Question 13

9-309. Security Interest Perfected Upon Attachment.

Answer 13

The following security interests are perfected when they attach:

(1) a purchase-money security interest in consumer goods, except as otherwise provided in Section 9- 311(b) with respect to consumer goods that are subject to a statute or treaty described in Section 9- 311(a);
(2) an assignment of accounts or payment intangibles which does not by itself or in conjunction with other assignments to the same assignee transfer a significant part of the assignor’s outstanding accounts or payment intangibles;
(3) a sale of a payment intangible;
(4) a sale of a promissory note;
(5) a security interest created by the assignment of a health-care-insurance receivable to the provider of the health-care goods or services;
(6) a security interest arising under Section 2- 401, 2- 505, 2- 711(3), or 2A- 508(5), until the debtor obtains possession of the collateral;
(7) a security interest of a collecting bank arising under Section 4- 210;
(8) a security interest of an issuer or nominated person arising under Section 5- 118;
(9) a security interest arising in the delivery of a financial asset under Section 9- 206(c);
(10) a security interest in investment property created by a broker or securities intermediary;
(11) a security interest in a commodity contract or a commodity account created by a commodity intermediary;
(12) an assignment for the benefit of all creditors of the transferor and subsequent transfers by the assignee thereunder;
(13) a security interest created by an assignment of a beneficial interest in a decedent’s estate; and
(14) a sale by an individual of an account that is a right to payment of winnings in a lottery or other game of chance.

Question 14

9-310. When Filing Required to Perfect Security Interest or Agricultural Lien; Security Interests and Agricultural Liens to Which Filing Provisions Do Not Apply.

Answer 14

(a) [General rule: perfection by filing.] Except as otherwise provided in subsection (b) and Section 9- 312(b), a financing statement must be filed to perfect all security interests and agricultural liens.
(b) [Exceptions: filing not necessary.] The filing of a financing statement is not necessary to perfect a security interest:
(1) that is perfected under Section 9- 308(d), (e), (f), or (g);
(2) that is perfected under Section 9- 309 when it attaches;
(3) in property subject to a statute, regulation, or treaty described in Section 9- 311(a);
(4) in goods in possession of a bailee which is perfected under Section 9- 312(d)(1) or (2);
(5) in certificated securities, documents, goods, or instruments which is perfected without filing, control, or possession under Section 9- 312(e), (f), or (g);
(6) in collateral in the secured party’s possession under Section 9- 313;
(7) in a certificated security which is perfected by delivery of the security certificate to the secured party under Section 9- 313;
(8) in deposit accounts, electronic chattel paper, electronic documents, investment property, or letter-of-credit rights which is perfected by control under Section 9- 314;
(9) in proceeds which is perfected under Section 9- 315; or
(10) that is perfected under Section 9- 316.
(c) [Assignment of perfected security interest.] If a secured party assigns a perfected security interest or agricultural lien, a filing under this article is not required to continue the perfected status of the security interest against creditors of and transferees from the original debtor.

Question 15

9-311. Perfection of Security Interests in Property Subject to Certain Statutes, Regulations, and Treaties.

Answer 15

(a) [Security interest subject to other law.]Except as otherwise provided in subsection (d), the filing of a financing statement is not necessary or effective to perfect a security interest in property subject to:
(1) a statute, regulation, or treaty of the United States whose requirements for a security interest’s obtaining priority over the rights of a lien creditor with respect to the property preempt Section 9- 310(a);
(2) [list any statute covering automobiles, trailers, mobile homes, boats, farm tractors, or the like, which provides for a security interest to be indicated on a certificate of title as a condition or result of perfection, and any non-Uniform Commercial Code central filing statute]; or
(3) a statute of another jurisdiction which provides for a security interest to be indicated on a certificate of title as a condition or result of the security interest’s obtaining priority over the rights of a lien creditor with respect to the property.
(b) [Compliance with other law.]Compliance with the requirements of a statute, regulation, or treaty described in subsection (a) for obtaining priority over the rights of a lien creditor is equivalent to the filing of a financing statement under this article. Except as otherwise provided in subsection (d) and Sections 9- 313 and 9- 316(d) and (e) for goods covered by a certificate of title, a security interest in property subject to a statute, regulation, or treaty described in subsection (a) may be perfected only by compliance with those requirements, and a security interest so perfected remains perfected notwithstanding a change in the use or transfer of possession of the collateral.
(c) [Duration and renewal of perfection.]Except as otherwise provided in subsection (d) and Section 9- 316(d) and (e), duration and renewal of perfection of a security interest perfected by compliance with the requirements prescribed by a statute, regulation, or treaty described in subsection (a) are governed by the statute, regulation, or treaty. In other respects, the security interest is subject to this article.
(d) [Inapplicability to certain inventory.]During any period in which collateral subject to a statute specified in subsection (a)(2) is inventory held for sale or lease by a person or leased by that person as lessor and that person is in the business of selling goods of that kind, this section does not apply to a security interest in that collateral created by that person.
Legislative Note: This Article contemplates that perfection of a security interest in goods covered by a certificate of title occurs upon receipt by appropriate State officials of a properly tendered application for a certificate of title on which the security interest is to be indicated, without a relation back to an earlier time. States whose certificate-of-title statutes provide for perfection at a different time or contain a relation-back provision should amend the statutes accordingly.

Question 16

9-312. Perfection of Security Interests in Chattel Paper, Deposit Accounts, Documents, Goods Covered by Documents, Instruments, Investment Property, Letter-of-Credit Rights, and Money; Perfection by Permissive Filing; Temporary Perfection Without Filing or Transfer of Possession.

Answer 16

(a) [Perfection by filing permitted.] A security interest in chattel paper, negotiable documents, instruments, or investment property may be perfected by filing.
(b) [Control or possession of certain collateral.] Except as otherwise provided in Section 9- 315(c) and (d) for proceeds:
(1) a security interest in a deposit account may be perfected only by control under Section 9- 314;
(2) and except as otherwise provided in Section 9- 308(d), a security interest in a letter-of-credit right may be perfected only by control under Section 9- 314; and
(3) a security interest in money may be perfected only by the secured party’s taking possession under Section 9- 313.
(c) [Goods covered by negotiable document.] While goods are in the possession of a bailee that has issued a negotiable document covering the goods:
(1) a security interest in the goods may be perfected by perfecting a security interest in the document; and
(2) a security interest perfected in the document has priority over any security interest that becomes perfected in the goods by another method during that time.
(d) [Goods covered by nonnegotiable document.] While goods are in the possession of a bailee that has issued a nonnegotiable document covering the goods, a security interest in the goods may be perfected by:
(1) issuance of a document in the name of the secured party;
(2) the bailee’s receipt of notification of the secured party’s interest; or
(3) filing as to the goods.
(e) [Temporary perfection: new value.] A security interest in certificated securities, negotiable documents, or instruments is perfected without filing or the taking of possession or control for a period of 20 days from the time it attaches to the extent that it arises for new value given under an authenticated security agreement.
(f) [Temporary perfection: goods or documents made available to debtor.] A perfected security interest in a negotiable document or goods in possession of a bailee, other than one that has issued a negotiable document for the goods, remains perfected for 20 days without filing if the secured party makes available to the debtor the goods or documents representing the goods for the purpose of:
(1) ultimate sale or exchange; or
(2) loading, unloading, storing, shipping, transshipping, manufacturing, processing, or otherwise dealing with them in a manner preliminary to their sale or exchange.
(g) [Temporary perfection: delivery of security certificate or instrument to debtor.] A perfected security interest in a certificated security or instrument remains perfected for 20 days without filing if the secured party delivers the security certificate or instrument to the debtor for the purpose of:
(1) ultimate sale or exchange; or
(2) presentation, collection, enforcement, renewal, or registration of transfer.
(h) [Expiration of temporary perfection.] After the 20-day period specified in subsection (e), (f), or (g) expires, perfection depends upon compliance with this article.

Question 17

9-313. When Possession by or Delivery to Secured Party Perfects Security Interest Without Filing.

Answer 17

(a) [Perfection by possession or delivery.] Except as otherwise provided in subsection (b), a secured party may perfect a security interest in tangible negotiable documents, goods, instruments, money, or tangible chattel paper by taking possession of the collateral. A secured party may perfect a security interest in certificated securities by taking delivery of the certificated securities under Section 8- 301.
(b) [Goods covered by certificate of title.] With respect to goods covered by a certificate of title issued by this State, a secured party may perfect a security interest in the goods by taking possession of the goods only in the circumstances described in Section 9- 316(d).
(c) [Collateral in possession of person other than debtor.] With respect to collateral other than certificated securities and goods covered by a document, a secured party takes possession of collateral in the possession of a person other than the debtor, the secured party, or a lessee of the collateral from the debtor in the ordinary course of the debtor’s business, when:
(1) the person in possession authenticates a record acknowledging that it holds possession of the collateral for the secured party’s benefit; or
(2) the person takes possession of the collateral after having authenticated a record acknowledging that it will hold possession of collateral for the secured party’s benefit.
(d) [Time of perfection by possession; continuation of perfection.] If perfection of a security interest depends upon possession of the collateral by a secured party, perfection occurs no earlier than the time the secured party takes possession and continues only while the secured party retains possession.
(e) [Time of perfection by delivery; continuation of perfection.] A security interest in a certificated security in registered form is perfected by delivery when delivery of the certificated security occurs under Section 8- 301 and remains perfected by delivery until the debtor obtains possession of the security certificate.
(f) [Acknowledgment not required.] A person in possession of collateral is not required to acknowledge that it holds possession for a secured party’s benefit.
(g) [Effectiveness of acknowledgment; no duties or confirmation.] If a person acknowledges that it holds possession for the secured party’s benefit:
(1) the acknowledgment is effective under subsection (c) or Section 8- 301(a), even if the acknowledgment violates the rights of a debtor; and
(2) unless the person otherwise agrees or law other than this article otherwise provides, the person does not owe any duty to the secured party and is not required to confirm the acknowledgment to another person.
(h) [Secured party’s delivery to person other than debtor.] A secured party having possession of collateral does not relinquish possession by delivering the collateral to a person other than the debtor or a lessee of the collateral from the debtor in the ordinary course of the debtor’s business if the person was instructed before the delivery or is instructed contemporaneously with the delivery:
(1) to hold possession of the collateral for the secured party’s benefit; or
(2) to redeliver the collateral to the secured party.
(i) [Effect of delivery under subsection (h); no duties or confirmation.] A secured party does not relinquish possession, even if a delivery under subsection (h) violates the rights of a debtor. A person to which collateral is delivered under subsection (h) does not owe any duty to the secured party and is not required to confirm the delivery to another person unless the person otherwise agrees or law other than this article otherwise provides.

Question 18

9-314. Perfection by Control.

Answer 18

(a) [Perfection by control.] A security interest in investment property, deposit accounts, letter-of-credit rights, electronic chattel paper, or electronic documents may be perfected by control of the collateral under Section 7- 106, 9- 104, 9- 105, 9- 106, or 9- 107.
(b) [Specified collateral: time of perfection by control; continuation of perfection.] A security interest in deposit accounts, electronic chattel paper, letter-of-credit rights, or electronic documents is perfected by control under Section 7- 106, 9- 104, 9- 105, or 9- 107 when the secured party obtains control and remains perfected by control only while the secured party retains control.
(c) [Investment property: time of perfection by control; continuation of perfection.] A security interest in investment property is perfected by control under Section 9- 106 from the time the secured party obtains control and remains perfected by control until:
(1) the secured party does not have control; and
(2) one of the following occurs:
(A) if the collateral is a certificated security, the debtor has or acquires possession of the security certificate;
(B) if the collateral is an uncertificated security, the issuer has registered or registers the debtor as the registered owner; or
(C) if the collateral is a security entitlement, the debtor is or becomes the entitlement holder.

Question 19

9-315. Secured Party’s Rights on Disposition of Collateral and in Proceeds.

Answer 19

(a) [Disposition of collateral: continuation of security interest or agricultural lien; proceeds.] Except as otherwise provided in this article and in Section 2- 403(2):
(1) a security interest or agricultural lien continues in collateral notwithstanding sale, lease, license, exchange, or other disposition thereof unless the secured party authorized the disposition free of the security interest or agricultural lien; and
(2) a security interest attaches to any identifiable proceeds of collateral.
(b) [When commingled proceeds identifiable.] Proceeds that are commingled with other property are identifiable proceeds:
(1) if the proceeds are goods, to the extent provided by Section 9- 336; and
(2) if the proceeds are not goods, to the extent that the secured party identifies the proceeds by a method of tracing, including application of equitable principles, that is permitted under law other than this article with respect to commingled property of the type involved.
(c) [Perfection of security interest in proceeds.] A security interest in proceeds is a perfected security interest if the security interest in the original collateral was perfected.
(d) [Continuation of perfection.] A perfected security interest in proceeds becomes unperfected on the 21st day after the security interest attaches to the proceeds unless:
(1) the following conditions are satisfied:
(A) a filed financing statement covers the original collateral;
(B) the proceeds are collateral in which a security interest may be perfected by filing in the office in which the financing statement has been filed; and
(C) the proceeds are not acquired with cash proceeds;
(2) the proceeds are identifiable cash proceeds; or
(3) the security interest in the proceeds is perfected other than under subsection (c) when the security interest attaches to the proceeds or within 20 days thereafter.
(e) [When perfected security interest in proceeds becomes unperfected.] If a filed financing statement covers the original collateral, a security interest in proceeds which remains perfected under subsection (d)(1) becomes unperfected at the later of:
(1) when the effectiveness of the filed financing statement lapses under Section 9- 515 or is terminated under Section 9- 513; or
(2) the 21st day after the security interest attaches to the proceeds.

Question 20

9-317. Interests That Take Priority Over or Take Free of Security Interest or Agricultural Lien.

Answer 20

(a) [Conflicting security interests and rights of lien creditors.]A security interest or agricultural lien is subordinate to the rights of:
(1) a person entitled to priority under Section 9- 322; and
(2) except as otherwise provided in subsection (e), a person that becomes a lien creditor before the earlier of the time:
(A) the security interest or agricultural lien is perfected; or
(B) one of the conditions specified in Section 9- 203(b)(3) is met and a financing statement covering the collateral is filed.
(b) [Buyers that receive delivery.]Except as otherwise provided in subsection (e), a buyer, other than a secured party, of tangible chattel paper, tangible documents, goods, instruments, or a certificated security takes free of a security interest or agricultural lien if the buyer gives value and receives delivery of the collateral without knowledge of the security interest or agricultural lien and before it is perfected.
(c) [Lessees that receive delivery.]Except as otherwise provided in subsection (e), a lessee of goods takes free of a security interest or agricultural lien if the lessee gives value and receives delivery of the collateral without knowledge of the security interest or agricultural lien and before it is perfected.
(d) [Licensees and buyers of certain collateral.]A licensee of a general intangible or a buyer, other than a secured party, of collateral other than tangible chattel paper, tangible documents, goods, instruments, or a certificated security takes free of a security interest if the licensee or buyer gives value without knowledge of the security interest and before it is perfected.
(e) [Purchase-money security interest.] Except as otherwise provided in Sections 9- 320 and 9- 321, if a person files a financing statement with respect to a purchase-money security interest before or within 20 days after the debtor receives delivery of the collateral, the security interest takes priority over the rights of a buyer, lessee, or lien creditor which arise between the time the security interest attaches and the time of filing.

Question 21

9-318. No Interest Retained in Right to Payment That Is Sold; Rights and Title of Seller of Account or Chattel Paper With Respect to Creditors and Purchasers.

Answer 21

(a) [Seller retains no interest.] A debtor that has sold an account, chattel paper, payment intangible, or promissory note does not retain a legal or equitable interest in the collateral sold.
(b) [Deemed rights of debtor if buyer’s security interest unperfected.] For purposes of determining the rights of creditors of, and purchasers for value of an account or chattel paper from, a debtor that has sold an account or chattel paper, while the buyer’s security interest is unperfected, the debtor is deemed to have rights and title to the account or chattel paper identical to those the debtor sold.

Question 22

9-320. Buyer of Goods.

Answer 22

(a) [Buyer in ordinary course of business.] Except as otherwise provided in subsection (e), a buyer in ordinary course of business, other than a person buying farm products from a person engaged in farming operations, takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence.
(b) [Buyer of consumer goods.] Except as otherwise provided in subsection (e), a buyer of goods from a person who used or bought the goods for use primarily for personal, family, or household purposes takes free of a security interest, even if perfected, if the buyer buys:
(1) without knowledge of the security interest;
(2) for value;
(3) primarily for the buyer’s personal, family, or household purposes; and
(4) before the filing of a financing statement covering the goods.
(c) [Effectiveness of filing for subsection (b).] To the extent that it affects the priority of a security interest over a buyer of goods under subsection (b), the period of effectiveness of a filing made in the jurisdiction in which the seller is located is governed by Section 9- 316(a) and (b).
(d) [Buyer in ordinary course of business at wellhead or minehead.] A buyer in ordinary course of business buying oil, gas, or other minerals at the wellhead or minehead or after extraction takes free of an interest arising out of an encumbrance.
(e) [Possessory security interest not affected.] Subsections (a) and (b) do not affect a security interest in goods in the possession of the secured party under Section 9- 313.

Question 23

9-321. Licensee of General Intangible and Lessee of Goods in Ordinary Course of Business.

Answer 23

(a) [“Licensee in ordinary course of business.”] In this section, “licensee in ordinary course of business” means a person that becomes a licensee of a general intangible in good faith, without knowledge that the license violates the rights of another person in the general intangible, and in the ordinary course from a person in the business of licensing general intangibles of that kind. A person becomes a licensee in the ordinary course if the license to the person comports with the usual or customary practices in the kind of business in which the licensor is engaged or with the licensor’s own usual or customary practices.
(b) [Rights of licensee in ordinary course of business.] A licensee in ordinary course of business takes its rights under a nonexclusive license free of a security interest in the general intangible created by the licensor, even if the security interest is perfected and the licensee knows of its existence.
(c) [Rights of lessee in ordinary course of business.] A lessee in ordinary course of business takes its leasehold interest free of a security interest in the goods created by the lessor, even if the security interest is perfected and the lessee knows of its existence.

Question 24

9-322. Priorities Among Conflicting Security Interests in and Agricultural Liens on Same Collateral.

Answer 24

(a) [General priority rules.] Except as otherwise provided in this section, priority among conflicting security interests and agricultural liens in the same collateral is determined according to the following rules:
(1) Conflicting perfected security interests and agricultural liens rank according to priority in time of filing or perfection. Priority dates from the earlier of the time a filing covering the collateral is first made or the security interest or agricultural lien is first perfected, if there is no period thereafter when there is neither filing nor perfection.
(2) A perfected security interest or agricultural lien has priority over a conflicting unperfected security interest or agricultural lien.
(3) The first security interest or agricultural lien to attach or become effective has priority if conflicting security interests and agricultural liens are unperfected.
(b) [Time of perfection: proceeds and supporting obligations.] For the purposes of subsection (a)(1):
(1) the time of filing or perfection as to a security interest in collateral is also the time of filing or perfection as to a security interest in proceeds; and
(2) the time of filing or perfection as to a security interest in collateral supported by a supporting obligation is also the time of filing or perfection as to a security interest in the supporting obligation.
(c) [Special priority rules: proceeds and supporting obligations.] Except as otherwise provided in subsection (f), a security interest in collateral which qualifies for priority over a conflicting security interest under Section 9- 327, 9- 328, 9- 329, 9- 330, or 9- 331 also has priority over a conflicting security interest in:
(1) any supporting obligation for the collateral; and
(2) proceeds of the collateral if:
(A) the security interest in proceeds is perfected;
(B) the proceeds are cash proceeds or of the same type as the collateral; and
(C) in the case of proceeds that are proceeds of proceeds, all intervening proceeds are cash proceeds, proceeds of the same type as the collateral, or an account relating to the collateral.
(d) [First-to-file priority rule for certain collateral.] Subject to subsection (e) and except as otherwise provided in subsection (f), if a security interest in chattel paper, deposit accounts, negotiable documents, instruments, investment property, or letter-of-credit rights is perfected by a method other than filing, conflicting perfected security interests in proceeds of the collateral rank according to priority in time of filing.
(e) [Applicability of subsection (d).] Subsection (d) applies only if the proceeds of the collateral are not cash proceeds, chattel paper, negotiable documents, instruments, investment property, or letter-of-credit rights.
(f) [Limitations on subsections (a) through (e).] Subsections (a) through (e) are subject to:
(1) subsection (g) and the other provisions of this part;
(2) Section 4- 210 with respect to a security interest of a collecting bank;
(3) Section 5- 118 with respect to a security interest of an issuer or nominated person; and
(4) Section 9- 110 with respect to a security interest arising under Article 2 or 2A.
(g) [Priority under agricultural lien statute.] A perfected agricultural lien on collateral has priority over a conflicting security interest in or agricultural lien on the same collateral if the statute creating the agricultural lien so provides.

Question 25

9-324. Priority of Purchase-Money Security Interests.

Answer 25

(a) [General rule: purchase-money priority.] Except as otherwise provided in subsection (g), a perfected purchase-money security interest in goods other than inventory or livestock has priority over a conflicting security interest in the same goods, and, except as otherwise provided in Section 9- 327, a perfected security interest in its identifiable proceeds also has priority, if the purchase-money security interest is perfected when the debtor receives possession of the collateral or within 20 days thereafter.
(b) [Inventory purchase-money priority.] Subject to subsection (c) and except as otherwise provided in subsection (g), a perfected purchase-money security interest in inventory has priority over a conflicting security interest in the same inventory, has priority over a conflicting security interest in chattel paper or an instrument constituting proceeds of the inventory and in proceeds of the chattel paper, if so provided in Section 9- 330, and, except as otherwise provided in Section 9- 327, also has priority in identifiable cash proceeds of the inventory to the extent the identifiable cash proceeds are received on or before the delivery of the inventory to a buyer, if:
(1) the purchase-money security interest is perfected when the debtor receives possession of the inventory;
(2) the purchase-money secured party sends an authenticated notification to the holder of the conflicting security interest;
(3) the holder of the conflicting security interest receives the notification within five years before the debtor receives possession of the inventory; and
(4) the notification states that the person sending the notification has or expects to acquire a purchase-money security interest in inventory of the debtor and describes the inventory.
(c) [Holders of conflicting inventory security interests to be notified.] Subsections (b)(2) through (4) apply only if the holder of the conflicting security interest had filed a financing statement covering the same types of inventory:
(1) if the purchase-money security interest is perfected by filing, before the date of the filing; or
(2) if the purchase-money security interest is temporarily perfected without filing or possession under Section 9- 312(f), before the beginning of the 20-day period thereunder.
(d) [Livestock purchase-money priority.] Subject to subsection (e) and except as otherwise provided in subsection (g), a perfected purchase-money security interest in livestock that are farm products has priority over a conflicting security interest in the same livestock, and, except as otherwise provided in Section 9- 327, a perfected security interest in their identifiable proceeds and identifiable products in their unmanufactured states also has priority, if:
(1) the purchase-money security interest is perfected when the debtor receives possession of the livestock;
(2) the purchase-money secured party sends an authenticated notification to the holder of the conflicting security interest;
(3) the holder of the conflicting security interest receives the notification within six months before the debtor receives possession of the livestock; and
(4) the notification states that the person sending the notification has or expects to acquire a purchase-money security interest in livestock of the debtor and describes the livestock.
(e) [Holders of conflicting livestock security interests to be notified.] Subsections (d)(2) through (4) apply only if the holder of the conflicting security interest had filed a financing statement covering the same types of livestock:
(1) if the purchase-money security interest is perfected by filing, before the date of the filing; or
(2) if the purchase-money security interest is temporarily perfected without filing or possession under Section 9- 312(f), before the beginning of the 20-day period thereunder.
(f) [Software purchase-money priority.] Except as otherwise provided in subsection (g), a perfected purchase-money security interest in software has priority over a conflicting security interest in the same collateral, and, except as otherwise provided in Section 9- 327, a perfected security interest in its identifiable proceeds also has priority, to the extent that the purchase-money security interest in the goods in which the software was acquired for use has priority in the goods and proceeds of the goods under this section.
(g) [Conflicting purchase-money security interests.] If more than one security interest qualifies for priority in the same collateral under subsection (a), (b), (d), or (f):
(1) a security interest securing an obligation incurred as all or part of the price of the collateral has priority over a security interest securing an obligation incurred for value given to enable the debtor to acquire rights in or the use of collateral; and
(2) in all other cases, Section 9- 322(a) applies to the qualifying security interests.

Question 26

9-325. Priority of Security Interests in Transferred Collateral.

Answer 26

(a) [Subordination of security interest in transferred collateral.] Except as otherwise provided in subsection (b), a security interest created by a debtor is subordinate to a security interest in the same collateral created by another person if:
(1) the debtor acquired the collateral subject to the security interest created by the other person;
(2) the security interest created by the other person was perfected when the debtor acquired the collateral; and
(3) there is no period thereafter when the security interest is unperfected.
(b) [Limitation of subsection (a) subordination.] Subsection (a) subordinates a security interest only if the security interest:
(1) otherwise would have priority solely under Section 9- 322(a) or 9- 324; or
(2) arose solely under Section 2- 711(3) or 2A- 508(5).

Question 27

9-327. Priority of Security Interests in Deposit Account.

Answer 27

The following rules govern priority among conflicting security interests in the same deposit account:

(1) A security interest held by a secured party having control of the deposit account under Section 9- 104 has priority over a conflicting security interest held by a secured party that does not have control.
(2) Except as otherwise provided in paragraphs (3) and (4), security interests perfected by control under Section 9- 314 rank according to priority in time of obtaining control.
(3) Except as otherwise provided in paragraph (4), a security interest held by the bank with which the deposit account is maintained has priority over a conflicting security interest held by another secured party.
(4) A security interest perfected by control under Section 9- 104(a)(3) has priority over a security interest held by the bank with which the deposit account is maintained.

Question 28

9-328. Priority of Security Interests in Investment Property.

Answer 28

The following rules govern priority among conflicting security interests in the same investment property:
(1) A security interest held by a secured party having control of investment property under Section 9- 106 has priority over a security interest held by a secured party that does not have control of the investment property.
(2) Except as otherwise provided in paragraphs (3) and (4), conflicting security interests held by secured parties each of which has control under Section 9- 106 rank according to priority in time of:
(A) if the collateral is a security, obtaining control;
(B) if the collateral is a security entitlement carried in a securities account and:
(i) if the secured party obtained control under Section 8- 106(d)(1), the secured party’s becoming the person for which the securities account is maintained;
(ii) if the secured party obtained control under Section 8- 106(d)(2), the securities intermediary’s agreement to comply with the secured party’s entitlement orders with respect to security entitlements carried or to be carried in the securities account; or
(iii) if the secured party obtained control through another person under Section 8- 106(d)(3), the time on which priority would be based under this paragraph if the other person were the secured party; or
(C) if the collateral is a commodity contract carried with a commodity intermediary, the satisfaction of the requirement for control specified in Section 9- 106(b)(2) with respect to commodity contracts carried or to be carried with the commodity intermediary.
(3) A security interest held by a securities intermediary in a security entitlement or a securities account maintained with the securities intermediary has priority over a conflicting security interest held by another secured party.
(4) A security interest held by a commodity intermediary in a commodity contract or a commodity account maintained with the commodity intermediary has priority over a conflicting security interest held by another secured party.
(5) A security interest in a certificated security in registered form which is perfected by taking delivery under Section 9- 313(a) and not by control under Section 9- 314 has priority over a conflicting security interest perfected by a method other than control.
(6) Conflicting security interests created by a broker, securities intermediary, or commodity intermediary which are perfected without control under Section 9- 106 rank equally.
(7) In all other cases, priority among conflicting security interests in investment property is governed by Sections 9- 322 and 9- 323.

Question 29

9-330. Priority of Purchaser of Chattel Paper or Instrument.

Answer 29

(a) [Purchaser’s priority: security interest claimed merely as proceeds.] A purchaser of chattel paper has priority over a security interest in the chattel paper which is claimed merely as proceeds of inventory subject to a security interest if:
(1) in good faith and in the ordinary course of the purchaser’s business, the purchaser gives new value and takes possession of the chattel paper or obtains control of the chattel paper under Section 9- 105; and
(2) the chattel paper does not indicate that it has been assigned to an identified assignee other than the purchaser.
(b) [Purchaser’s priority: other security interests.] A purchaser of chattel paper has priority over a security interest in the chattel paper which is claimed other than merely as proceeds of inventory subject to a security interest if the purchaser gives new value and takes possession of the chattel paper or obtains control of the chattel paper under Section 9- 105 in good faith, in the ordinary course of the purchaser’s business, and without knowledge that the purchase violates the rights of the secured party.
(c) [Chattel paper purchaser’s priority in proceeds.] Except as otherwise provided in Section 9- 327, a purchaser having priority in chattel paper under subsection (a) or (b) also has priority in proceeds of the chattel paper to the extent that:
(1) Section 9- 322 provides for priority in the proceeds; or
(2) the proceeds consist of the specific goods covered by the chattel paper or cash proceeds of the specific goods, even if the purchaser’s security interest in the proceeds is unperfected.
(d) [Instrument purchaser’s priority.] Except as otherwise provided in Section 9- 331(a), a purchaser of an instrument has priority over a security interest in the instrument perfected by a method other than possession if the purchaser gives value and takes possession of the instrument in good faith and without knowledge that the purchase violates the rights of the secured party.
(e) [Holder of purchase-money security interest gives new value.] For purposes of subsections (a) and (b), the holder of a purchase-money security interest in inventory gives new value for chattel paper constituting proceeds of the inventory.
(f) [Indication of assignment gives knowledge.] For purposes of subsections (b) and (d), if chattel paper or an instrument indicates that it has been assigned to an identified secured party other than the purchaser, a purchaser of the chattel paper or instrument has knowledge that the purchase violates the rights of the secured party.

Question 30

9-334. Priority of Security Interests in Fixtures and Crops.

Answer 30

(a) [Security interest in fixtures under this article.] A security interest under this article may be created in goods that are fixtures or may continue in goods that become fixtures. A security interest does not exist under this article in ordinary building materials incorporated into an improvement on land.
(b) [Security interest in fixtures under real-property law.] This article does not prevent creation of an encumbrance upon fixtures under real property law.
(c) [General rule: subordination of security interest in fixtures.] In cases not governed by subsections (d) through (h), a security interest in fixtures is subordinate to a conflicting interest of an encumbrancer or owner of the related real property other than the debtor.
(d) [Fixtures purchase-money priority.] Except as otherwise provided in subsection (h), a perfected security interest in fixtures has priority over a conflicting interest of an encumbrancer or owner of the real property if the debtor has an interest of record in or is in possession of the real property and:
(1) the security interest is a purchase-money security interest;
(2) the interest of the encumbrancer or owner arises before the goods become fixtures; and
(3) the security interest is perfected by a fixture filing before the goods become fixtures or within 20 days thereafter.
(e) [Priority of security interest in fixtures over interests in real property.] A perfected security interest in fixtures has priority over a conflicting interest of an encumbrancer or owner of the real property if:
(1) the debtor has an interest of record in the real property or is in possession of the real property and the security interest:
(A) is perfected by a fixture filing before the interest of the encumbrancer or owner is of record; and
(B) has priority over any conflicting interest of a predecessor in title of the encumbrancer or owner;
(2) before the goods become fixtures, the security interest is perfected by any method permitted by this article and the fixtures are readily removable:
(A) factory or office machines;
(B) equipment that is not primarily used or leased for use in the operation of the real property; or
(C) replacements of domestic appliances that are consumer goods;
(3) the conflicting interest is a lien on the real property obtained by legal or equitable proceedings after the security interest was perfected by any method permitted by this article; or
(4) the security interest is:
(A) created in a manufactured home in a manufactured-home transaction; and
(B) perfected pursuant to a statute described in Section 9- 311(a)(2).
(f) [Priority based on consent, disclaimer, or right to remove.] A security interest in fixtures, whether or not perfected, has priority over a conflicting interest of an encumbrancer or owner of the real property if:
(1) the encumbrancer or owner has, in an authenticated record, consented to the security interest or disclaimed an interest in the goods as fixtures; or
(2) the debtor has a right to remove the goods as against the encumbrancer or owner.
(g) [Continuation of paragraph (f)(2) priority.] The priority of the security interest under paragraph (f)(2) continues for a reasonable time if the debtor’s right to remove the goods as against the encumbrancer or owner terminates.
(h) [Priority of construction mortgage.] A mortgage is a construction mortgage to the extent that it secures an obligation incurred for the construction of an improvement on land, including the acquisition cost of the land, if a recorded record of the mortgage so indicates. Except as otherwise provided in subsections (e) and (f), a security interest in fixtures is subordinate to a construction mortgage if a record of the mortgage is recorded before the goods become fixtures and the goods become fixtures before the completion of the construction. A mortgage has this priority to the same extent as a construction mortgage to the extent that it is given to refinance a construction mortgage.
(i) [Priority of security interest in crops.] A perfected security interest in crops growing on real property has priority over a conflicting interest of an encumbrancer or owner of the real property if the debtor has an interest of record in or is in possession of the real property.

Question 31

9-339. Priority Subject to Subordination.

Answer 31

This article does not preclude subordination by agreement by a person entitled to priority.

Question 32

9-340. Effectiveness of Right of Recoupment or Set-Off Against Deposit Account.

Answer 32

(a) [Exercise of recoupment or set-off.] Except as otherwise provided in subsection (c), a bank with which a deposit account is maintained may exercise any right of recoupment or set-off against a secured party that holds a security interest in the deposit account.
(b) [Recoupment or set-off not affected by security interest.] Except as otherwise provided in subsection (c), the application of this article to a security interest in a deposit account does not affect a right of recoupment or set-off of the secured party as to a deposit account maintained with the secured party.
(c) [When set-off ineffective.] The exercise by a bank of a set-off against a deposit account is ineffective against a secured party that holds a security interest in the deposit account which is perfected by control under Section 9- 104(a)(3), if the set-off is based on a claim against the debtor.

Question 33

9-341. Bank’s Rights and Duties With Respect to Deposit Account.

Answer 33

Except as otherwise provided in Section 9- 340(c), and unless the bank otherwise agrees in an authenticated record, a bank’s rights and duties with respect to a deposit account maintained with the bank are not terminated, suspended, or modified by:

(1) the creation, attachment, or perfection of a security interest in the deposit account;
(2) the bank’s knowledge of the security interest; or
(3) the bank’s receipt of instructions from the secured party.

Question 34

9-342. Bank’s Right to Refuse to Enter Into or Disclose Existence of Control Agreement.

Answer 34

This article does not require a bank to enter into an agreement of the kind described in Section 9- 104(a)(2), even if its customer so requests or directs. A bank that has entered into such an agreement is not required to confirm the existence of the agreement to another person unless requested to do so by its customer.

Question 35

9-404. Rights Acquired by Assignee; Claims and Defenses Against Assignee.

Answer 35

(a) [Assignee’s rights subject to terms, claims, and defenses; exceptions.] Unless an account debtor has made an enforceable agreement not to assert defenses or claims, and subject to subsections (b) through (e), the rights of an assignee are subject to:
(1) all terms of the agreement between the account debtor and assignor and any defense or claim in recoupment arising from the transaction that gave rise to the contract; and
(2) any other defense or claim of the account debtor against the assignor which accrues before the account debtor receives a notification of the assignment authenticated by the assignor or the assignee.
(b) [Account debtor’s claim reduces amount owed to assignee.] Subject to subsection (c) and except as otherwise provided in subsection (d), the claim of an account debtor against an assignor may be asserted against an assignee under subsection (a) only to reduce the amount the account debtor owes.
(c) [Rule for individual under other law.] This section is subject to law other than this article which establishes a different rule for an account debtor who is an individual and who incurred the obligation primarily for personal, family, or household purposes.
(d) [Omission of required statement in consumer transaction.] In a consumer transaction, if a record evidences the account debtor’s obligation, law other than this article requires that the record include a statement to the effect that the account debtor’s recovery against an assignee with respect to claims and defenses against the assignor may not exceed amounts paid by the account debtor under the record, and the record does not include such a statement, the extent to which a claim of an account debtor against the assignor may be asserted against an assignee is determined as if the record included such a statement.
(e) [Inapplicability to health-care-insurance receivable.] This section does not apply to an assignment of a health-care-insurance receivable.

Question 36

9-406. Discharge of Account Debtor; Notification of Assignment; Identification and Proof of Assignment; Restrictions on Assignment of Accounts, Chattel Paper, Payment Intangibles, and Promissory Notes Ineffective.

Answer 36

(a) [Discharge of account debtor; effect of notification.]Subject to subsections (b) through (i), an account debtor on an account, chattel paper, or a payment intangible may discharge its obligation by paying the assignor until, but not after, the account debtor receives a notification, authenticated by the assignor or the assignee, that the amount due or to become due has been assigned and that payment is to be made to the assignee. After receipt of the notification, the account debtor may discharge its obligation by paying the assignee and may not discharge the obligation by paying the assignor.
(b) [When notification ineffective.]Subject to subsection (h), notification is ineffective under subsection (a):
(1) if it does not reasonably identify the rights assigned;
(2) to the extent that an agreement between an account debtor and a seller of a payment intangible limits the account debtor’s duty to pay a person other than the seller and the limitation is effective under law other than this article; or
(3) at the option of an account debtor, if the notification notifies the account debtor to make less than the full amount of any installment or other periodic payment to the assignee, even if:
(A) only a portion of the account, chattel paper, or payment intangible has been assigned to that assignee;
(B) a portion has been assigned to another assignee; or
(C) the account debtor knows that the assignment to that assignee is limited.
(c) [Proof of assignment.]Subject to subsection (h), if requested by the account debtor, an assignee shall seasonably furnish reasonable proof that the assignment has been made. Unless the assignee complies, the account debtor may discharge its obligation by paying the assignor, even if the account debtor has received a notification under subsection (a).
(d) [Term restricting assignment generally ineffective.]Except as otherwise provided in subsection (e) and Sections 2A- 303 and 9- 407, and subject to subsection (h), a term in an agreement between an account debtor and an assignor or in a promissory note is ineffective to the extent that it:
(1) prohibits, restricts, or requires the consent of the account debtor or person obligated on the promissory note to the assignment or transfer of, or the creation, attachment, perfection, or enforcement of a security interest in, the account, chattel paper, payment intangible, or promissory note; or
(2) provides that the assignment or transfer or the creation, attachment, perfection, or enforcement of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the account, chattel paper, payment intangible, or promissory note.
(e) [Inapplicability of subsection (d) to certain sales.]Subsection (d) does not apply to the sale of a payment intangible or promissory note, other than a sale pursuant to a disposition under Section 9- 610 or an acceptance of collateral under Section 9- 620.
(f) [Legal restrictions on assignment generally ineffective.]Except as otherwise provided in Sections 2A- 303 and 9- 407 and subject to subsections (h) and (i), a rule of law, statute, or regulation that prohibits, restricts, or requires the consent of a government, governmental body or official, or account debtor to the assignment or transfer of, or creation of a security interest in, an account or chattel paper is ineffective to the extent that the rule of law, statute, or regulation:
(1) prohibits, restricts, or requires the consent of the government, governmental body or official, or account debtor to the assignment or transfer of, or the creation, attachment, perfection, or enforcement of a security interest in the account or chattel paper; or
(2) provides that the assignment or transfer or the creation, attachment, perfection, or enforcement of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the account or chattel paper.
(g) [Subsection (b)(3) not waivable.]Subject to subsection (h), an account debtor may not waive or vary its option under subsection (b)(3).
(h) [Rule for individual under other law.]This section is subject to law other than this article which establishes a different rule for an account debtor who is an individual and who incurred the obligation primarily for personal, family, or household purposes.
(i) [Inapplicability to health-care-insurance receivable.]This section does not apply to an assignment of a health-care-insurance receivable.
(j) [Section prevails over specified inconsistent law.]This section prevails over any inconsistent provisions of the following statutes, rules, and regulations:
[List here any statutes, rules, and regulations containing provisions inconsistent with this section.]
Legislative Note: States that amend statutes, rules, and regulations to remove provisions inconsistent with this section need not enact subsection (j)

Question 37

§ 9-408. Restrictions on Assignment of Promissory Notes, Health-Care-Insurance Receivables, and Certain General Intangibles Ineffective.

Answer 37

(a) [Term restricting assignment generally ineffective.]Except as otherwise provided in subsection (b), a term in a promissory note or in an agreement between an account debtor and a debtor which relates to a health-care-insurance receivable or a general intangible, including a contract, permit, license, or franchise, and which term prohibits, restricts, or requires the consent of the person obligated on the promissory note or the account debtor to, the assignment or transfer of, or creation, attachment, or perfection of a security interest in, the promissory note, health-care-insurance receivable, or general intangible, is ineffective to the extent that the term:
(1) would impair the creation, attachment, or perfection of a security interest; or
(2) provides that the assignment or transfer or the creation, attachment, or perfection of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the promissory note, health-care-insurance receivable, or general intangible.
(b) [Applicability of subsection (a) to sales of certain rights to payment.]Subsection (a) applies to a security interest in a payment intangible or promissory note only if the security interest arises out of a sale of the payment intangible or promissory note, other than a sale pursuant to a disposition under Section 9- 610 or an acceptance of collateral under Section 9- 620.
(c) [Legal restrictions on assignment generally ineffective.]A rule of law, statute, or regulation that prohibits, restricts, or requires the consent of a government, governmental body or official, person obligated on a promissory note, or account debtor to the assignment or transfer of, or creation of a security interest in, a promissory note, health-care-insurance receivable, or general intangible, including a contract, permit, license, or franchise between an account debtor and a debtor, is ineffective to the extent that the rule of law, statute, or regulation:
(1) would impair the creation, attachment, or perfection of a security interest; or
(2) provides that the assignment or transfer or the creation, attachment, or perfection of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the promissory note, health-care-insurance receivable, or general intangible.
(d) [Limitation on ineffectiveness under subsections (a) and (c).]To the extent that a term in a promissory note or in an agreement between an account debtor and a debtor which relates to a health-care-insurance receivable or general intangible or a rule of law, statute, or regulation described in subsection (c) would be effective under law other than this article but is ineffective under subsection (a) or (c), the creation, attachment, or perfection of a security interest in the promissory note, health-care-insurance receivable, or general intangible:
(1) is not enforceable against the person obligated on the promissory note or the account debtor;
(2) does not impose a duty or obligation on the person obligated on the promissory note or the account debtor;
(3) does not require the person obligated on the promissory note or the account debtor to recognize the security interest, pay or render performance to the secured party, or accept payment or performance from the secured party;
(4) does not entitle the secured party to use or assign the debtor’s rights under the promissory note, health-care-insurance receivable, or general intangible, including any related information or materials furnished to the debtor in the transaction giving rise to the promissory note, health-care-insurance receivable, or general intangible;
(5) does not entitle the secured party to use, assign, possess, or have access to any trade secrets or confidential information of the person obligated on the promissory note or the account debtor; and
(6) does not entitle the secured party to enforce the security interest in the promissory note, health-care-insurance receivable, or general intangible.
(e) [Section prevails over specified inconsistent law.]This section prevails over any inconsistent provisions of the following statutes, rules, and regulations:

Question 38

9-501. Filing Office.

Answer 38

(a) [Filing offices.] Except as otherwise provided in subsection (b), if the local law of this State governs perfection of a security interest or agricultural lien, the office in which to file a financing statement to perfect the security interest or agricultural lien is:
(1) the office designated for the filing or recording of a record of a mortgage on the related real property, if:
(A) the collateral is as-extracted collateral or timber to be cut; or
(B) the financing statement is filed as a fixture filing and the collateral is goods that are or are to become fixtures; or
(2) the office of [ ] [or any office duly authorized by [ ]], in all other cases, including a case in which the collateral is goods that are or are to become fixtures and the financing statement is not filed as a fixture filing.
(b) [Filing office for transmitting utilities.] The office in which to file a financing statement to perfect a security interest in collateral, including fixtures, of a transmitting utility is the office of [ ]. The financing statement also constitutes a fixture filing as to the collateral indicated in the financing statement which is or is to become fixtures.

Question 39

9-502. Contents of Financing Statement; Record of Mortgage as Financing Statement; Time of Filing Financing Statement.

Answer 39

(a) [Sufficiency of financing statement.]Subject to subsection (b), a financing statement is sufficient only if it:
(1) provides the name of the debtor;
(2) provides the name of the secured party or a representative of the secured party; and
(3) indicates the collateral covered by the financing statement.
(b) [Real-property-related financing statements.]Except as otherwise provided in Section 9- 501(b), to be sufficient, a financing statement that covers as-extracted collateral or timber to be cut, or which is filed as a fixture filing and covers goods that are or are to become fixtures, must satisfy subsection (a) and also:
(1) indicate that it covers this type of collateral;
(2) indicate that it is to be filed [for record] in the real property records;
(3) provide a description of the real property to which the collateral is related [sufficient to give constructive notice of a mortgage under the law of this State if the description were contained in a record of the mortgage of the real property]; and
(4) if the debtor does not have an interest of record in the real property, provide the name of a record owner.
(c) [Record of mortgage as financing statement.]A record of a mortgage is effective, from the date of recording, as a financing statement filed as a fixture filing or as a financing statement covering as-extracted collateral or timber to be cut only if:
(1) the record indicates the goods or accounts that it covers;
(2) the goods are or are to become fixtures related to the real property described in the record or the collateral is related to the real property described in the record and is as-extracted collateral or timber to be cut;
(3) the record satisfies the requirements for a financing statement in this section, but:
(A) the record need not indicat that it is to be filed in the real property records; and
(B) the record sufficiently provides the name of a debtor who is an individual if it provides the individual name of the debtor or the surname and first personal name of the debtor, even if the debtor is an individual to whom Section 9- 503(a)(4) applies; and
(4) the record is [duly] recorded.
(d) [Filing before security agreement or attachment.]A financing statement may be filed before a security agreement is made or a security interest otherwise attaches.

Question 40

9-503. Name of Debtor and Secured Party.

Answer 40

(a) [Sufficiency of debtor’s name.]A financing statement sufficiently provides the name of the debtor:
(1) except as otherwise provided in paragraph (3), if the debtor is a registered organization or the collateral is held in a trust that is a registered organization, only if the financing statement provides the name that is stated to be the registered organization’s name on the public organic record most recently filed with or issued or enacted by the registered organization’s jurisdiction of organization which purports to state, amend, or restate the registered organization’s name;
(2) subject to subsection (f), if the collateral is being administered by the personal representative of a decedent, only if the financing statement provides, as the name of the debtor, the name of the decedent and, in a separate part of the financing statement, indicates that the collateral is being administered by a personal representative;
(3) if the collateral is held in a trust that is not a registered organization, only if the financing statement:
(A) provides, as the name of the debtor:
(i) if the organic record of the trust specifies a name for the trust, the name specified; or
(ii) if the organic record of the trust does not specify a name for the trust, the name of the settlor or testator; and
(B) in a separate part of the financing statement:
(i) if the name is provided in accordance with subparagraph (A)(i), indicates that the collateral is held in a trust; or
(ii) if the name is provided in accordance with subparagraph (A)(ii), provides additional information sufficient to distinguish the trust from other trusts having one or more of the same settlors or the same testator and indicates that the collateral is held in a trust, unless the additional information so indicates;
[Alternative A]
(4) subject to subsection (g), if the debtor is an individual to whom this State has issued a [driver’s license] that has not expired, only if the financing statement provides the name of the individual which is indicated on the [driver’s license];
(5) if the debtor is an individual to whom paragraph (4) does not apply, only if the financing statement provides the individual name of the debtor or the surname and first personal name of the debtor; and
(6) in other cases:
(A) if the debtor has a name, only if the financing statement provides the organizational name of the debtor; and
(B) if the debtor does not have a name, only if it provides the names of the partners, members, associates, or other persons comprising the debtor, in a manner that each name provided would be sufficient if the person named were the debtor.
(b) [Additional debtor-related information.]A financing statement that provides the name of the debtor in accordance with subsection (a) is not rendered ineffective by the absence of:
(1) a trade name or other name of the debtor; or
(2) unless required under subsection (a)(6)(B), names of partners, members, associates, or other persons comprising the debtor.
[Alternative B]
(4) if the debtor is an individual, only if the financing statement:
(A) provides the individual name of the debtor;
(B) provides the surname and first personal name of the debtor; or
(C) subject to subsection (g), provides the name of the individual which is indicated on a [driver’s license] that this State has issued to the individual and which has not expired; and
(5) in other cases:
(A) if the debtor has a name, only if the financing statement provides the organizational name of the debtor; and
(B) if the debtor does not have a name, only if the financing statement provides the names of the partners, members, associates, or other persons comprising the debtor, in a manner that each name provided would be sufficient if the person named were the debtor.
(b) [Additional debtor-related information.]A financing statement that provides the name of the debtor in accordance with subsection (a) is not rendered ineffective by the absence of:
(1) a trade name or other name of the debtor; or
(2) unless required under subsection (a)(5)(B), names of partners, members, associates, or other persons comprising the debtor.
[End of Alternatives]
(c) [Debtor’s trade name insufficient.]A financing statement that provides only the debtor’s trade name does not sufficiently provide the name of the debtor.
(d) [Representative capacity.]Failure to indicate the representative capacity of a secured party or representative of a secured party does not affect the sufficiency of a financing statement.
(e) [Multiple debtors and secured parties.]A financing statement may provide the name of more than one debtor and the name of more than one secured party.
(f) [Name of decedent.]The name of the decedent indicated on the order appointing the personal representative of the decedent issued by the court having jurisdiction over the collateral is sufficient as the “name of the decedent” under subsection (a)(2).
[Alternative A]
(g) [Multiple driver’s licenses.]If this State has issued to an individual more than one [driver’s license] of a kind described in subsection (a)(4), the one that was issued most recently is the one to which subsection (a)(4) refers.
[Alternative B]
(g) [Multiple driver’s licenses.]If this State has issued to an individual more than one [driver’s license] of a kind described in subsection (a)(4)(C), the one that was issued most recently is the one to which subsection (a)(4)(C) refers.
[End of Alternatives]
(h) [Definition.]In this section, the “name of the settlor or testator” means:
(1) if the settlor is a registered organization, the name that is stated to be the settlor’s name on the public organic record most recently filed with or issued or enacted by the settlor’s jurisdiction of organization which purports to state, amend, or restate the settlor’s name; or
(2) in other cases, the name of the settlor or testator indicated in the trust’s organic record.

Question 41

9-505. Filing and Compliance With Other Statutes and Treaties for Consignments, Leases, Other Bailments, and Other Transactions.

Answer 41

(a) [Use of terms other than “debtor” and “secured party.”] A consignor, lessor, or other bailor of goods, a licensor, or a buyer of a payment intangible or promissory note may file a financing statement, or may comply with a statute or treaty described in Section 9- 311(a), using the terms “consignor”, “consignee”, “lessor”, “lessee”, “bailor”, “bailee”, “licensor”, “licensee”, “owner”, “registered owner”, “buyer”, “seller”, or words of similar import, instead of the terms “secured party” and “debtor”.
(b) [Effect of financing statement under subsection (a).] This part applies to the filing of a financing statement under subsection (a) and, as appropriate, to compliance that is equivalent to filing a financing statement under Section 9- 311(b), but the filing or compliance is not of itself a factor in determining whether the collateral secures an obligation. If it is determined for another reason that the collateral secures an obligation, a security interest held by the consignor, lessor, bailor, licensor, owner, or buyer which attaches to the collateral is perfected by the filing or compliance.

Question 42

9-506. Effect of Errors or Omissions.

Answer 42

(a) [Minor errors and omissions.] A financing statement substantially satisfying the requirements of this part is effective, even if it has minor errors or omissions, unless the errors or omissions make the financing statement seriously misleading.
(b) [Financing statement seriously misleading.] Except as otherwise provided in subsection (c), a financing statement that fails sufficiently to provide the name of the debtor in accordance with Section 9- 503(a) is seriously misleading.
(c) [Financing statement not seriously misleading.] If a search of the records of the filing office under the debtor’s correct name, using the filing office’s standard search logic, if any, would disclose a financing statement that fails sufficiently to provide the name of the debtor in accordance with Section 9- 503(a), the name provided does not make the financing statement seriously misleading.
(d) [“Debtor’s correct name.”] For purposes of Section 9- 508(b), the “debtor’s correct name” in subsection (c) means the correct name of the new debtor.

Question 43

9-507. Effect of Certain Events on Effectiveness of Financing Statement.

Answer 43

(a) [Disposition.]A filed financing statement remains effective with respect to collateral that is sold, exchanged, leased, licensed, or otherwise disposed of and in which a security interest or agricultural lien continues, even if the secured party knows of or consents to the disposition.
(b) [Information becoming seriously misleading.]Except as otherwise provided in subsection (c) and Section 9- 508, a financing statement is not rendered ineffective if, after the financing statement is filed, the information provided in the financing statement becomes seriously misleading under Section 9- 506.
(c) [Change in debtor’s name.]If the name that a filed financing statement provides for a debtor becomes insufficient as the name of the debtor under Section 9- 503(a) so that the financing statement becomes seriously misleading under Section 9- 506:
(1) the financing statement is effective to perfect a security interest in collateral acquired by the debtor before, or within four months after, the filed financing statement becomes seriously misleading; and
(2) the financing statement is not effective to perfect a security interest in collateral acquired by the debtor more than four months after the filed financing statement becomes seriously misleading, unless an amendment to the financing statement which renders the financing statement not seriously misleading is filed within four months after the financing statement became seriously misleading.

Question 44

9-508. Effectiveness of Financing Statement if New Debtor Becomes Bound by Security Agreement.

Answer 44

(a) [Financing statement naming original debtor.] Except as otherwise provided in this section, a filed financing statement naming an original debtor is effective to perfect a security interest in collateral in which a new debtor has or acquires rights to the extent that the financing statement would have been effective had the original debtor acquired rights in the collateral.
(b) [Financing statement becoming seriously misleading.] If the difference between the name of the original debtor and that of the new debtor causes a filed financing statement that is effective under subsection (a) to be seriously misleading under Section 9- 506:
(1) the financing statement is effective to perfect a security interest in collateral acquired by the new debtor before, and within four months after, the new debtor becomes bound under Section 9- 203(d); and
(2) the financing statement is not effective to perfect a security interest in collateral acquired by the new debtor more than four months after the new debtor becomes bound under Section 9- 203(d) unless an initial financing statement providing the name of the new debtor is filed before the expiration of that time.
(c) [When section not applicable.] This section does not apply to collateral as to which a filed financing statement remains effective against the new debtor under Section 9- 507(a).

Question 45

9-509. Persons Entitled to File a Record.

Answer 45

(a) [Person entitled to file record.] A person may file an initial financing statement, amendment that adds collateral covered by a financing statement, or amendment that adds a debtor to a financing statement only if:
(1) the debtor authorizes the filing in an authenticated record or pursuant to subsection (b) or (c); or
(2) the person holds an agricultural lien that has become effective at the time of filing and the financing statement covers only collateral in which the person holds an agricultural lien.
(b) [Security agreement as authorization.] By authenticating or becoming bound as debtor by a security agreement, a debtor or new debtor authorizes the filing of an initial financing statement, and an amendment, covering:
(1) the collateral described in the security agreement; and
(2) property that becomes collateral under Section 9- 315(a)(2), whether or not the security agreement expressly covers proceeds.
(c) [Acquisition of collateral as authorization.] By acquiring collateral in which a security interest or agricultural lien continues under Section 9- 315(a)(1), a debtor authorizes the filing of an initial financing statement, and an amendment, covering the collateral and property that becomes collateral under Section 9- 315(a)(2).
(d) [Person entitled to file certain amendments.] A person may file an amendment other than an amendment that adds collateral covered by a financing statement or an amendment that adds a debtor to a financing statement only if:
(1) the secured party of record authorizes the filing; or
(2) the amendment is a termination statement for a financing statement as to which the secured party of record has failed to file or send a termination statement as required by Section 9- 513(a) or (c), the debtor authorizes the filing, and the termination statement indicates that the debtor authorized it to be filed.
(e) [Multiple secured parties of record.] If there is more than one secured party of record for a financing statement, each secured party of record may authorize the filing of an amendment under subsection (d).

Question 46

9-513. Termination Statement.

Answer 46

(a) [Consumer goods.] A secured party shall cause the secured party of record for a financing statement to file a termination statement for the financing statement if the financing statement covers consumer goods and:
(1) there is no obligation secured by the collateral covered by the financing statement and no commitment to make an advance, incur an obligation, or otherwise give value; or
(2) the debtor did not authorize the filing of the initial financing statement.
(b) [Time for compliance with subsection (a).] To comply with subsection (a), a secured party shall cause the secured party of record to file the termination statement:
(1) within one month after there is no obligation secured by the collateral covered by the financing statement and no commitment to make an advance, incur an obligation, or otherwise give value; or
(2) if earlier, within 20 days after the secured party receives an authenticated demand from a debtor.
(c) [Other collateral.] In cases not governed by subsection (a), within 20 days after a secured party receives an authenticated demand from a debtor, the secured party shall cause the secured party of record for a financing statement to send to the debtor a termination statement for the financing statement or file the termination statement in the filing office if:
(1) except in the case of a financing statement covering accounts or chattel paper that has been sold or goods that are the subject of a consignment, there is no obligation secured by the collateral covered by the financing statement and no commitment to make an advance, incur an obligation, or otherwise give value;
(2) the financing statement covers accounts or chattel paper that has been sold but as to which the account debtor or other person obligated has discharged its obligation;
(3) the financing statement covers goods that were the subject of a consignment to the debtor but are not in the debtor’s possession; or
(4) the debtor did not authorize the filing of the initial financing statement.
(d) [Effect of filing termination statement.] Except as otherwise provided in Section 9- 510, upon the filing of a termination statement with the filing office, the financing statement to which the termination statement relates ceases to be effective. Except as otherwise provided in Section 9- 510, for purposes of Sections 9- 519(g), 9- 522(a), and 9- 523(c), the filing with the filing office of a termination statement relating to a financing statement that indicates that the debtor is a transmitting utility also causes the effectiveness of the financing statement to lapse.

Question 47

9-516. What Constitutes Filing; Effectiveness of Filing.

Answer 47

(a) [What constitutes filing.]Except as otherwise provided in subsection (b), communication of a record to a filing office and tender of the filing fee or acceptance of the record by the filing office constitutes filing.
(b) [Refusal to accept record; filing does not occur.]Filing does not occur with respect to a record that a filing office refuses to accept because:
(1) the record is not communicated by a method or medium of communication authorized by the filing office;
(2) an amount equal to or greater than the applicable filing fee is not tendered;
(3) the filing office is unable to index the record because:
(A) in the case of an initial financing statement, the record does not provide a name for the debtor;
(B) in the case of an amendment or information statement, the record:
(i) does not identify the initial financing statement as required by Section 9- 512 or 9- 518, as applicable; or
(ii) identifies an initial financing statement whose effectiveness has lapsed under Section 9- 515;
(C) in the case of an initial financing statement that provides the name of a debtor identified as an individual or an amendment that provides a name of a debtor identified as an individual which was not previously provided in the financing statement to which the record relates, the record does not identify the debtor’s surname; or
(D) in the case of a record filed [or recorded] in the filing office described in Section 9- 501(a)(1), the record does not provide a sufficient description of the real property to which it relates;
(4) in the case of an initial financing statement or an amendment that adds a secured party of record, the record does not provide a name and mailing address for the secured party of record;
(5) in the case of an initial financing statement or an amendment that provides a name of a debtor which was not previously provided in the financing statement to which the amendment relates, the record does not:
(A) provide a mailing address for the debtor; or
(B) indicate whether the name provided as the name of the debtor is the name of an individual or an organization;
(6) in the case of an assignment reflected in an initial financing statement under Section 9- 514(a) or an amendment filed under Section 9- 514(b), the record does not provide a name and mailing address for the assignee; or
(7) in the case of a continuation statement, the record is not filed within the six-month period prescribed by Section 9- 515(d).
(c) [Rules applicable to subsection (b).]For purposes of subsection (b):
(1) a record does not provide information if the filing office is unable to read or decipher the information; and
(2) a record that does not indicate that it is an amendment or identify an initial financing statement to which it relates, as required by Section 9- 512, 9- 514, or 9- 518, is an initial financing statement.
(d) [Refusal to accept record; record effective as filed record.]A record that is communicated to the filing office with tender of the filing fee, but which the filing office refuses to accept for a reason other than one set forth in subsection (b), is effective as a filed record except as against a purchaser of the collateral which gives value in reasonable reliance upon the absence of the record from the files.

Question 48

9-518. Claim Concerning Inaccurate or Wrongfully Filed Record.

Answer 48

(a) [Statement with respect to record indexed under person’s name.]A person may file in the filing office an information statement with respect to a record indexed there under the person’s name if the person believes that the record is inaccurate or was wrongfully filed.
[Alternative A]
(b) [Contents of statement under subsection (a).]An information statement under subsection (a) must:
(1) identify the record to which it relates by the file number assigned to the initial financing statement to which the record relates;
(2) indicate that it is an information statement; and
(3) provide the basis for the person’s belief that the record is inaccurate and indicate the manner in which the person believes the record should be amended to cure any inaccuracy or provide the basis for the person’s belief that the record was wrongfully filed.
[Alternative B]
(b) [Contents of statement under subsection (a).]An information statement under subsection (a) must:
(1) identify the record to which it relates by:
(A) the file number assigned to the initial financing statement to which the record relates; and
(B) if the information statement relates to a record filed [or recorded] in a filing office described in Section 9- 501(a)(1), the date [and time] that the initial financing statement was filed [or recorded] and the information specified in Section 9- 502(b);
(2) indicate that it is an information statement; and
(3) provide the basis for the person’s belief that the record is inaccurate and indicate the manner in which the person believes the record should be amended to cure any inaccuracy or provide the basis for the person’s belief that the record was wrongfully filed.
[End of Alternatives]
(c) [Statement by secured party of record.]A person may file in the filing office an information statement with respect to a record filed there if the person is a secured party of record with respect to the financing statement to which the record relates and believes that the person that filed the record was not entitled to do so under Section 9- 509(d).
[Alternative A]
(d) [Contents of statement under subsection (c).]An information statement under subsection (c) must:
(1) identify the record to which it relates by the file number assigned to the initial financing statement to which the record relates;
(2) indicate that it is an information statement; and
(3) provide the basis for the person’s belief that the person that filed the record was not entitled to do so under Section 9- 509(d).
[Alternative B]
(d) [Contents of statement under subsection (c).]An information statement under subsection (c) must:
(1) identify the record to which it relates by:
(A) the file number assigned to the initial financing statement to which the record relates; and
(B) if the information statement relates to a record filed [or recorded] in a filing office described in Section 9- 501(a)(1), the date [and time] that the initial financing statement was filed [or recorded] and the information specified in Section 9- 502(b);
(2) indicate that it is an information statement; and
(3) provide the basis for the person’s belief that the person that filed the record was not entitled to do so under Section 9- 509(d).
[End of Alternatives]
(e) [Record not affected by information statement.]The filing of an information statement does not affect the effectiveness of an initial financing statement or other filed record.

Question 49

9-520. Acceptance and Refusal to Accept Record.

Answer 49

(a) [Mandatory refusal to accept record.] A filing office shall refuse to accept a record for filing for a reason set forth in Section 9- 516(b) and may refuse to accept a record for filing only for a reason set forth in Section 9- 516(b).
(b) [Communication concerning refusal.] If a filing office refuses to accept a record for filing, it shall communicate to the person that presented the record the fact of and reason for the refusal and the date and time the record would have been filed had the filing office accepted it. The communication must be made at the time and in the manner prescribed by filing-office rule but [, in the case of a filing office described in Section 9- 501(a)(2),] in no event more than two business days after the filing office receives the record.
(c) [When filed financing statement effective.] A filed financing statement satisfying Section 9- 502(a) and (b) is effective, even if the filing office is required to refuse to accept it for filing under subsection (a). However, Section 9- 338 applies to a filed financing statement providing information described in Section 9- 516(b)(5) which is incorrect at the time the financing statement is filed.
(d) [Separate application to multiple debtors.] If a record communicated to a filing office provides information that relates to more than one debtor, this part applies as to each debtor separately.

Question 50

9-521. Uniform Form of Written Financing Statement and Amendment.

Answer 50

a) [Initial financing statement form.]A filing office that accepts written records may not refuse to accept a written initial financing statement in the following form and format except for a reason set forth in Section 9- 516(b): [examples]

Question 51

9-601. Rights After Default; Judicial Enforcement; Consignor or Buyer of Accounts, Chattel Paper, Payment Intangibles, or Promissory Notes.

Answer 51

(a) [Rights of secured party after default.] After default, a secured party has the rights provided in this part and, except as otherwise provided in Section 9- 602, those provided by agreement of the parties. A secured party:
(1) may reduce a claim to judgment, foreclose, or otherwise enforce the claim, security interest, or agricultural lien by any available judicial procedure; and
(2) if the collateral is documents, may proceed either as to the documents or as to the goods they cover.
(b) [Rights and duties of secured party in possession or control.] A secured party in possession of collateral or control of collateral under Section 7- 106, 9- 104, 9- 105, 9- 106, or 9- 107 has the rights and duties provided in Section 9- 207.
(c) [Rights cumulative; simultaneous exercise.] The rights under subsections (a) and (b) are cumulative and may be exercised simultaneously.
(d) [Rights of debtor and obligor.] Except as otherwise provided in subsection (g) and Section 9- 605, after default, a debtor and an obligor have the rights provided in this part and by agreement of the parties.
(e) [Lien of levy after judgment.] If a secured party has reduced its claim to judgment, the lien of any levy that may be made upon the collateral by virtue of an execution based upon the judgment relates back to the earliest of:
(1) the date of perfection of the security interest or agricultural lien in the collateral;
(2) the date of filing a financing statement covering the collateral; or
(3) any date specified in a statute under which the agricultural lien was created.
(f) [Execution sale.] A sale pursuant to an execution is a foreclosure of the security interest or agricultural lien by judicial procedure within the meaning of this section. A secured party may purchase at the sale and thereafter hold the collateral free of any other requirements of this article.
(g) [Consignor or buyer of certain rights to payment.] Except as otherwise provided in Section 9- 607(c), this part imposes no duties upon a secured party that is a consignor or is a buyer of accounts, chattel paper, payment intangibles, or promissory notes.

Question 52

9-602. Waiver and Variance of Rights and Duties.

Answer 52

Except as otherwise provided in Section 9- 624, to the extent that they give rights to a debtor or obligor and impose duties on a secured party, the debtor or obligor may not waive or vary the rules stated in the following listed sections:

(1) Section 9- 207(b)(4)(C), which deals with use and operation of the collateral by the secured party;
(2) Section 9- 210, which deals with requests for an accounting and requests concerning a list of collateral and statement of account;
(3) Section 9- 607(c), which deals with collection and enforcement of collateral;
(4) Sections 9- 608(a) and 9- 615(c) to the extent that they deal with application or payment of noncash proceeds of collection, enforcement, or disposition;
(5) Sections 9- 608(a) and 9- 615(d) to the extent that they require accounting for or payment of surplus proceeds of collateral;
(6) Section 9- 609 to the extent that it imposes upon a secured party that takes possession of collateral without judicial process the duty to do so without breach of the peace;
(7) Sections 9- 610(b), 9- 611, 9- 613, and 9- 614, which deal with disposition of collateral;
(8) Section 9- 615(f), which deals with calculation of a deficiency or surplus when a disposition is made to the secured party, a person related to the secured party, or a secondary obligor;
(9) Section 9- 616, which deals with explanation of the calculation of a surplus or deficiency;
(10) Sections 9- 620, 9- 621, and 9- 622, which deal with acceptance of collateral in satisfaction of obligation;
(11) Section 9- 623, which deals with redemption of collateral;
(12) Section 9- 624, which deals with permissible waivers; and
(13) Sections 9- 625 and 9- 626, which deal with the secured party’s liability for failure to comply with this article.

Question 53

9-604. Procedure if Security Agreement Covers Real Property or Fixtures.

Answer 53

(a) [Enforcement: personal and real property.] If a security agreement covers both personal and real property, a secured party may proceed:
(1) under this part as to the personal property without prejudicing any rights with respect to the real property; or
(2) as to both the personal property and the real property in accordance with the rights with respect to the real property, in which case the other provisions of this part do not apply.
(b) [Enforcement: fixtures.] Subject to subsection (c), if a security agreement covers goods that are or become fixtures, a secured party may proceed:
(1) under this part; or
(2) in accordance with the rights with respect to real property, in which case the other provisions of this part do not apply.
(c) [Removal of fixtures.] Subject to the other provisions of this part, if a secured party holding a security interest in fixtures has priority over all owners and encumbrancers of the real property, the secured party, after default, may remove the collateral from the real property.
(d) [Injury caused by removal.] A secured party that removes collateral shall promptly reimburse any encumbrancer or owner of the real property, other than the debtor, for the cost of repair of any physical injury caused by the removal. The secured party need not reimburse the encumbrancer or owner for any diminution in value of the real property caused by the absence of the goods removed or by any necessity of replacing them. A person entitled to reimbursement may refuse permission to remove until the secured party gives adequate assurance for the performance of the obligation to reimburse.

Question 54

9-607. Collection and Enforcement by Secured Party.

Answer 54

(a) [Collection and enforcement generally.]If so agreed, and in any event after default, a secured party:
(1) may notify an account debtor or other person obligated on collateral to make payment or otherwise render performance to or for the benefit of the secured party;
(2) may take any proceeds to which the secured party is entitled under Section 9- 315;
(3) may enforce the obligations of an account debtor or other person obligated on collateral and exercise the rights of the debtor with respect to the obligation of the account debtor or other person obligated on collateral to make payment or otherwise render performance to the debtor, and with respect to any property that secures the obligations of the account debtor or other person obligated on the collateral;
(4) if it holds a security interest in a deposit account perfected by control under Section 9- 104(a)(1), may apply the balance of the deposit account to the obligation secured by the deposit account; and
(5) if it holds a security interest in a deposit account perfected by control under Section 9- 104(a)(2) or (3), may instruct the bank to pay the balance of the deposit account to or for the benefit of the secured party.
(b) [Nonjudicial enforcement of mortgage.]If necessary to enable a secured party to exercise under subsection (a)(3) the right of a debtor to enforce a mortgage nonjudicially, the secured party may record in the office in which a record of the mortgage is recorded:
(1) a copy of the security agreement that creates or provides for a security interest in the obligation secured by the mortgage; and
(2) the secured party’s sworn affidavit in recordable form stating that:
(A) a default has occurred with respect to the obligation secured by the mortgage; and
(B) the secured party is entitled to enforce the mortgage nonjudicially.
(c) [Commercially reasonable collection and enforcement.]A secured party shall proceed in a commercially reasonable manner if the secured party:
(1) undertakes to collect from or enforce an obligation of an account debtor or other person obligated on collateral; and
(2) is entitled to charge back uncollected collateral or otherwise to full or limited recourse against the debtor or a secondary obligor.
(d) [Expenses of collection and enforcement.]A secured party may deduct from the collections made pursuant to subsection (c) reasonable expenses of collection and enforcement, including reasonable attorney’s fees and legal expenses incurred by the secured party.
(e) [Duties to secured party not affected.]This section does not determine whether an account debtor, bank, or other person obligated on collateral owes a duty to a secured party.

Question 55

9-609. Secured Party’s Right to Take Possession After Default.

Answer 55

(a) [Possession; rendering equipment unusable; disposition on debtor’s premises.] After default, a secured party:
(1) may take possession of the collateral; and
(2) without removal, may render equipment unusable and dispose of collateral on a debtor’s premises under Section 9- 610.
(b) [Judicial and nonjudicial process.] A secured party may proceed under subsection (a):
(1) pursuant to judicial process; or
(2) without judicial process, if it proceeds without breach of the peace.
(c) [Assembly of collateral.] If so agreed, and in any event after default, a secured party may require the debtor to assemble the collateral and make it available to the secured party at a place to be designated by the secured party which is reasonably convenient to both parties.

Question 56

9-610. Disposition of Collateral After Default.

Answer 56

(a) [Disposition after default.] After default, a secured party may sell, lease, license, or otherwise dispose of any or all of the collateral in its present condition or following any commercially reasonable preparation or processing.
(b) [Commercially reasonable disposition.] Every aspect of a disposition of collateral, including the method, manner, time, place, and other terms, must be commercially reasonable. If commercially reasonable, a secured party may dispose of collateral by public or private proceedings, by one or more contracts, as a unit or in parcels, and at any time and place and on any terms.
(c) [Purchase by secured party.] A secured party may purchase collateral:
(1) at a public disposition; or
(2) at a private disposition only if the collateral is of a kind that is customarily sold on a recognized market or the subject of widely distributed standard price quotations.
(d) [Warranties on disposition.] A contract for sale, lease, license, or other disposition includes the warranties relating to title, possession, quiet enjoyment, and the like which by operation of law accompany a voluntary disposition of property of the kind subject to the contract.
(e) [Disclaimer of warranties.] A secured party may disclaim or modify warranties under subsection (d):
(1) in a manner that would be effective to disclaim or modify the warranties in a voluntary disposition of property of the kind subject to the contract of disposition; or
(2) by communicating to the purchaser a record evidencing the contract for disposition and including an express disclaimer or modification of the warranties.
(f) [Record sufficient to disclaim warranties.] A record is sufficient to disclaim warranties under subsection (e) if it indicates “There is no warranty relating to title, possession, quiet enjoyment, or the like in this disposition” or uses words of similar import.

Question 57

9-611. Notification Before Disposition of Collateral.

Answer 57

(a) [“Notification date.”] In this section, “notification date” means the earlier of the date on which:
(1) a secured party sends to the debtor and any secondary obligor an authenticated notification of disposition; or
(2) the debtor and any secondary obligor waive the right to notification.
(b) [Notification of disposition required.] Except as otherwise provided in subsection (d), a secured party that disposes of collateral under Section 9- 610 shall send to the persons specified in subsection (c) a reasonable authenticated notification of disposition.
(c) [Persons to be notified.] To comply with subsection (b), the secured party shall send an authenticated notification of disposition to:
(1) the debtor;
(2) any secondary obligor; and
(3) if the collateral is other than consumer goods:
(A) any other person from which the secured party has received, before the notification date, an authenticated notification of a claim of an interest in the collateral;
(B) any other secured party or lienholder that, 10 days before the notification date, held a security interest in or other lien on the collateral perfected by the filing of a financing statement that:
(i) identified the collateral;
(ii) was indexed under the debtor’s name as of that date; and
(iii) was filed in the office in which to file a financing statement against the debtor covering the collateral as of that date; and
(C) any other secured party that, 10 days before the notification date, held a security interest in the collateral perfected by compliance with a statute, regulation, or treaty described in Section 9- 311(a).
(d) [Subsection (b) inapplicable: perishable collateral; recognized market.] Subsection (b) does not apply if the collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market.
(e) [Compliance with subsection (c)(3)(B).] A secured party complies with the requirement for notification prescribed by subsection (c)(3)(B) if:
(1) not later than 20 days or earlier than 30 days before the notification date, the secured party requests, in a commercially reasonable manner, information concerning financing statements indexed under the debtor’s name in the office indicated in subsection (c)(3)(B); and
(2) before the notification date, the secured party:
(A) did not receive a response to the request for information; or
(B) received a response to the request for information and sent an authenticated notification of disposition to each secured party or other lienholder named in that response whose financing statement covered the collateral.

Question 58

9-612. Timeliness of Notification Before Disposition of Collateral.

Answer 58

(a) [Reasonable time is question of fact.] Except as otherwise provided in subsection (b), whether a notification is sent within a reasonable time is a question of fact.
(b) [10-day period sufficient in non-consumer transaction.] In a transaction other than a consumer transaction, a notification of disposition sent after default and 10 days or more before the earliest time of disposition set forth in the notification is sent within a reasonable time before the disposition.

Question 59

9-613. Contents and Form of Notification Before Disposition of Collateral: General.

Answer 59

9-613. Contents and Form of Notification Before Disposition of Collateral: General.
Except in a consumer-goods transaction, the following rules apply:
(1) The contents of a notification of disposition are sufficient if the notification:
(A) describes the debtor and the secured party;
(B) describes the collateral that is the subject of the intended disposition;
(C) states the method of intended disposition;
(D) states that the debtor is entitled to an accounting of the unpaid indebtedness and states the charge, if any, for an accounting; and
(E) states the time and place of a public disposition or the time after which any other disposition is to be made.
(2) Whether the contents of a notification that lacks any of the information specified in paragraph (1) are nevertheless sufficient is a question of fact.
(3) The contents of a notification providing substantially the information specified in paragraph (1) are sufficient, even if the notification includes:
(A) information not specified by that paragraph; or
(B) minor errors that are not seriously misleading.
(4) A particular phrasing of the notification is not required.
(5) The following form of notification and the form appearing in Section 9- 614(3), when completed, each provides sufficient information:

Question 60

9-614. Contents and Form of Notification Before Disposition of Collateral: Consumer-Goods Transaction.

Answer 60

In a consumer-goods transaction, the following rules apply:
(1) A notification of disposition must provide the following information:
(A) the information specified in Section 9- 613(1);
(B) a description of any liability for a deficiency of the person to which the notification is sent;
(C) a telephone number from which the amount that must be paid to the secured party to redeem the collateral under Section 9- 623 is available; and
(D) a telephone number or mailing address from which additional information concerning the disposition and the obligation secured is available.
(2) A particular phrasing of the notification is not required.
(3) The following form of notification, when completed, provides sufficient information:

Question 61

9-615. Application of Proceeds of Disposition; Liability for Deficiency and Right to Surplus.

Answer 61

(a) [Application of proceeds.] A secured party shall apply or pay over for application the cash proceeds of disposition under Section 9- 610 in the following order to:
(1) the reasonable expenses of retaking, holding, preparing for disposition, processing, and disposing, and, to the extent provided for by agreement and not prohibited by law, reasonable attorney’s fees and legal expenses incurred by the secured party;
(2) the satisfaction of obligations secured by the security interest or agricultural lien under which the disposition is made;
(3) the satisfaction of obligations secured by any subordinate security interest in or other subordinate lien on the collateral if:
(A) the secured party receives from the holder of the subordinate security interest or other lien an authenticated demand for proceeds before distribution of the proceeds is completed; and
(B) in a case in which a consignor has an interest in the collateral, the subordinate security interest or other lien is senior to the interest of the consignor; and
(4) a secured party that is a consignor of the collateral if the secured party receives from the consignor an authenticated demand for proceeds before distribution of the proceeds is completed.
(b) [Proof of subordinate interest.] If requested by a secured party, a holder of a subordinate security interest or other lien shall furnish reasonable proof of the interest or lien within a reasonable time. Unless the holder does so, the secured party need not comply with the holder’s demand under subsection (a)(3).
(c) [Application of noncash proceeds.] A secured party need not apply or pay over for application noncash proceeds of disposition under Section 9- 610 unless the failure to do so would be commercially unreasonable. A secured party that applies or pays over for application noncash proceeds shall do so in a commercially reasonable manner.
(d) [Surplus or deficiency if obligation secured.] If the security interest under which a disposition is made secures payment or performance of an obligation, after making the payments and applications required by subsection (a) and permitted by subsection (c):
(1) unless subsection (a)(4) requires the secured party to apply or pay over cash proceeds to a consignor, the secured party shall account to and pay a debtor for any surplus; and
(2) the obligor is liable for any deficiency.
(e) [No surplus or deficiency in sales of certain rights to payment.] If the underlying transaction is a sale of accounts, chattel paper, payment intangibles, or promissory notes:
(1) the debtor is not entitled to any surplus; and
(2) the obligor is not liable for any deficiency.
(f) [Calculation of surplus or deficiency in disposition to person related to secured party.] The surplus or deficiency following a disposition is calculated based on the amount of proceeds that would have been realized in a disposition complying with this part to a transferee other than the secured party, a person related to the secured party, or a secondary obligor if:
(1) the transferee in the disposition is the secured party, a person related to the secured party, or a secondary obligor; and
(2) the amount of proceeds of the disposition is significantly below the range of proceeds that a complying disposition to a person other than the secured party, a person related to the secured party, or a secondary obligor would have brought.
(g) [Cash proceeds received by junior secured party.] A secured party that receives cash proceeds of a disposition in good faith and without knowledge that the receipt violates the rights of the holder of a security interest or other lien that is not subordinate to the security interest or agricultural lien under which the disposition is made:
(1) takes the cash proceeds free of the security interest or other lien;
(2) is not obligated to apply the proceeds of the disposition to the satisfaction of obligations secured by the security interest or other lien; and
(3) is not obligated to account to or pay the holder of the security interest or other lien for any surplus.

Question 62

9-620. Acceptance of Collateral in Full or Partial Satisfaction of Obligation; Compulsory Disposition of Collateral.

Answer 62

(a) [Conditions to acceptance in satisfaction.] Except as otherwise provided in subsection (g), a secured party may accept collateral in full or partial satisfaction of the obligation it secures only if:
(1) the debtor consents to the acceptance under subsection (c);
(2) the secured party does not receive, within the time set forth in subsection (d), a notification of objection to the proposal authenticated by:
(A) a person to which the secured party was required to send a proposal under Section 9- 621; or
(B) any other person, other than the debtor, holding an interest in the collateral subordinate to the security interest that is the subject of the proposal;
(3) if the collateral is consumer goods, the collateral is not in the possession of the debtor when the debtor consents to the acceptance; and
(4) subsection (e) does not require the secured party to dispose of the collateral or the debtor waives the requirement pursuant to Section 9- 624.
(b) [Purported acceptance ineffective.] A purported or apparent acceptance of collateral under this section is ineffective unless:
(1) the secured party consents to the acceptance in an authenticated record or sends a proposal to the debtor; and
(2) the conditions of subsection (a) are met.
(c) [Debtor’s consent.] For purposes of this section:
(1) a debtor consents to an acceptance of collateral in partial satisfaction of the obligation it secures only if the debtor agrees to the terms of the acceptance in a record authenticated after default; and
(2) a debtor consents to an acceptance of collateral in full satisfaction of the obligation it secures only if the debtor agrees to the terms of the acceptance in a record authenticated after default or the secured party:
(A) sends to the debtor after default a proposal that is unconditional or subject only to a condition that collateral not in the possession of the secured party be preserved or maintained;
(B) in the proposal, proposes to accept collateral in full satisfaction of the obligation it secures; and
(C) does not receive a notification of objection authenticated by the debtor within 20 days after the proposal is sent.
(d) [Effectiveness of notification.] To be effective under subsection (a)(2), a notification of objection must be received by the secured party:
(1) in the case of a person to which the proposal was sent pursuant to Section 9- 621, within 20 days after notification was sent to that person; and
(2) in other cases:
(A) within 20 days after the last notification was sent pursuant to Section 9- 621; or
(B) if a notification was not sent, before the debtor consents to the acceptance under subsection (c).
(e) [Mandatory disposition of consumer goods.] A secured party that has taken possession of collateral shall dispose of the collateral pursuant to Section 9- 610 within the time specified in subsection (f) if:
(1) 60 percent of the cash price has been paid in the case of a purchase-money security interest in consumer goods; or
(2) 60 percent of the principal amount of the obligation secured has been paid in the case of a non-purchase-money security interest in consumer goods.
(f) [Compliance with mandatory disposition requirement.] To comply with subsection (e), the secured party shall dispose of the collateral:
(1) within 90 days after taking possession; or
(2) within any longer period to which the debtor and all secondary obligors have agreed in an agreement to that effect entered into and authenticated after default.
(g) [No partial satisfaction in consumer transaction.] In a consumer transaction, a secured party may not accept collateral in partial satisfaction of the obligation it secures.

Question 63

9-621. Notification of Proposal to Accept Collateral.

Answer 63

(a) [Persons to which proposal to be sent.] A secured party that desires to accept collateral in full or partial satisfaction of the obligation it secures shall send its proposal to:
(1) any person from which the secured party has received, before the debtor consented to the acceptance, an authenticated notification of a claim of an interest in the collateral;
(2) any other secured party or lienholder that, 10 days before the debtor consented to the acceptance, held a security interest in or other lien on the collateral perfected by the filing of a financing statement that:
(A) identified the collateral;
(B) was indexed under the debtor’s name as of that date; and
(C) was filed in the office or offices in which to file a financing statement against the debtor covering the collateral as of that date; and
(3) any other secured party that, 10 days before the debtor consented to the acceptance, held a security interest in the collateral perfected by compliance with a statute, regulation, or treaty described in Section 9- 311(a).
(b) [Proposal to be sent to secondary obligor in partial satisfaction.] A secured party that desires to accept collateral in partial satisfaction of the obligation it secures shall send its proposal to any secondary obligor in addition to the persons described in subsection (a).

Question 64

9-622. Effect of Acceptance of Collateral.

Answer 64

(a) [Effect of acceptance.] A secured party’s acceptance of collateral in full or partial satisfaction of the obligation it secures:
(1) discharges the obligation to the extent consented to by the debtor;
(2) transfers to the secured party all of a debtor’s rights in the collateral;
(3) discharges the security interest or agricultural lien that is the subject of the debtor’s consent and any subordinate security interest or other subordinate lien; and
(4) terminates any other subordinate interest.
(b) [Discharge of subordinate interest notwithstanding noncompliance.] A subordinate interest is discharged or terminated under subsection (a), even if the secured party fails to comply with this article.

Question 65

9-623. Right to Redeem Collateral.

Answer 65

(a) [Persons that may redeem.] A debtor, any secondary obligor, or any other secured party or lienholder may redeem collateral.
(b) [Requirements for redemption.] To redeem collateral, a person shall tender:
(1) fulfillment of all obligations secured by the collateral; and
(2) the reasonable expenses and attorney’s fees described in Section 9- 615(a)(1).
(c) [When redemption may occur.] A redemption may occur at any time before a secured party:
(1) has collected collateral under Section 9- 607;
(2) has disposed of collateral or entered into a contract for its disposition under Section 9- 610; or
(3) has accepted collateral in full or partial satisfaction of the obligation it secures under Section 9- 622.

Question 66

9-625. Remedies for Secured Party’s Failure to Comply With Article.

Answer 66

(a) [Judicial orders concerning noncompliance.] If it is established that a secured party is not proceeding in accordance with this article, a court may order or restrain collection, enforcement, or disposition of collateral on appropriate terms and conditions.
(b) [Damages for noncompliance.] Subject to subsections (c), (d), and (f), a person is liable for damages in the amount of any loss caused by a failure to comply with this article. Loss caused by a failure to comply may include loss resulting from the debtor’s inability to obtain, or increased costs of, alternative financing.
(c) [Persons entitled to recover damages; statutory damages if collaterla is consumer goods.] Except as otherwise provided in Section 9- 628:
(1) a person that, at the time of the failure, was a debtor, was an obligor, or held a security interest in or other lien on the collateral may recover damages under subsection (b) for its loss; and
(2) if the collateral is consumer goods, a person that was a debtor or a secondary obligor at the time a secured party failed to comply with this part may recover for that failure in any event an amount not less than the credit service charge plus 10 percent of the principal amount of the obligation or the time-price differential plus 10 percent of the cash price.
(d) [Recovery when deficiency eliminated or reduced.] A debtor whose deficiency is eliminated under Section 9- 626 may recover damages for the loss of any surplus. However, a debtor or secondary obligor whose deficiency is eliminated or reduced under Section 9- 626 may not otherwise recover under subsection (b) for noncompliance with the provisions of this part relating to collection, enforcement, disposition, or acceptance.
(e) [Statutory damages: noncompliance with specified provisions.] In addition to any damages recoverable under subsection (b), the debtor, consumer obligor, or person named as a debtor in a filed record, as applicable, may recover $500 in each case from a person that:
(1) fails to comply with Section 9- 208;
(2) fails to comply with Section 9- 209;
(3) files a record that the person is not entitled to file under Section 9- 509(a);
(4) fails to cause the secured party of record to file or send a termination statement as required by Section 9- 513(a) or (c);
(5) fails to comply with Section 9- 616(b)(1) and whose failure is part of a pattern, or consistent with a practice, of noncompliance; or
(6) fails to comply with Section 9- 616(b)(2).
(f) [Statutory damages: noncompliance with Section 9- 210.] A debtor or consumer obligor may recover damages under subsection (b) and, in addition, $500 in each case from a person that, without reasonable cause, fails to comply with a request under Section 9- 210. A recipient of a request under Section 9- 210 which never claimed an interest in the collateral or obligations that are the subject of a request under that section has a reasonable excuse for failure to comply with the request within the meaning of this subsection.
(g) [Limitation of security interest: noncompliance with Section 9- 210.] If a secured party fails to comply with a request regarding a list of collateral or a statement of account under Section 9- 210, the secured party may claim a security interest only as shown in the list or statement included in the request as against a person that is reasonably misled by the failure.

Question 67

9-627. Determination of Whether Conduct Was Commercially Reasonable.

Answer 67

(a) [Greater amount obtainable under other circumstances; no preclusion of commercial reasonableness.] The fact that a greater amount could have been obtained by a collection, enforcement, disposition, or acceptance at a different time or in a different method from that selected by the secured party is not of itself sufficient to preclude the secured party from establishing that the collection, enforcement, disposition, or acceptance was made in a commercially reasonable manner.
(b) [Dispositions that are commercially reasonable.] A disposition of collateral is made in a commercially reasonable manner if the disposition is made:
(1) in the usual manner on any recognized market;
(2) at the price current in any recognized market at the time of the disposition; or
(3) otherwise in conformity with reasonable commercial practices among dealers in the type of property that was the subject of the disposition.
(c) [Approval by court or on behalf of creditors.] A collection, enforcement, disposition, or acceptance is commercially reasonable if it has been approved:
(1) in a judicial proceeding;
(2) by a bona fide creditors’ committee;
(3) by a representative of creditors; or
(4) by an assignee for the benefit of creditors.
(d) [Approval under subsection (c) not necessary; absence of approval has no effect.] Approval under subsection (c) need not be obtained, and lack of approval does not mean that the collection, enforcement, disposition, or acceptance is not commercially reasonable.