Secured Transactions 2016 by Robert M Fishman Richard J Mason Jeffrey E Altshul

SECURED TRANSACTIONS (IICLE®, 2016)
This 2016 handbook replaces al previous editions and updates of this title.
IICLE® thanks Robert M. Fishman, Richard J. Mason, and Jeffrey E. Altshul for their
continued service as General Editors of this new edition. IICLE® also acknowledges with
appreciation al those authors who contributed their time, knowledge, and insights
gained from experience to this handbook. IICLE® is able to serve the bar and public only
because of the contributions of its volunteer authors and speakers.
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ILLINOIS INSTITUTE FOR CONTINUING LEGAL EDUCATION i HOW TO CITE THIS BOOK
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ILLINOIS INSTITUTE FOR CONTINUING LEGAL EDUCATION i i iv WWW.IICLE.COM SECURED TRANSACTIONS 2016 Robert M. Fishman Richard J. Mason Jeffrey E. Altshul General Editors Chapter authors:
Jeffrey E. Altshul Gregory E. Moredock
Paul J. Catanese Cynde H. Munzer
David R. Doyle John F. Pol ick
Frederick C. Fisher Mark L. Radtke
Robert M. Fishman Sean T. Scott
Robert W. Glantz Brian L. Shaw
Stephanie C. Gratton Robert N. Sodikoff
Thomas E. Howard Howard J. Swibel
Timothy J. Howard Stephen A. Tagge
Richard J. Mason Jason M. Torf Michael L. Weissman ®
This 2016 edition replaces the 2013 edition and all prior editions
and updates of the same title. ILLINOIS INSTITUTE FOR
CONTINUING LEGAL EDUCATION
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ILLINOIS INSTITUTE FOR CONTINUING LEGAL EDUCATION v SECURED TRANSACTIONS
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Printed in the United States of America. 16SECTRANS-R:3-16(486)CC PRD: 3-31-16 (1:CBP) vi WWW.IICLE.COM TABLE OF CONTENTS Table of Contents
About the Authors ................................................................................................................ix
1. Creation of an Article 9 Security Interest ...................................................................1 — 1 Robert W. Glantz Robert M. Fishman David R. Doyle
2. Perfecting Article 9 Security Interests Under Illinois Law........................................2 — 1 Jason M. Torf
3. Priorities Among Article 9 Security Interests and Competing Rights......................3 — 1 Richard J. Mason Paul J. Catanese Stephanie C. Gratton
4. Rights and Remedies upon Default..............................................................................4 — 1 Jeffrey E. Altshul
5. Special Types of Collateral............................................................................................5 — 1 Stephen A. Tagge Gregory E. Moredock
6. Equipment Leasing........................................................................................................6 — 1 Cynde H. Munzer Howard J. Swibel
7. Agricultural Financing in Illinois Under Article 9 .....................................................7 — 1 Timothy J. Howard Thomas E. Howard
8. Treatment of Secured Interests in Bankruptcy...........................................................8 — 1 Robert M. Fishman Brian L. Shaw Mark L. Radtke
9. Subordination and Intercreditor Agreements.............................................................9 — 1 Frederick C. Fisher Sean T. Scott
10. Letters of Credit...........................................................................................................10 — 1 Robert N. Sodikoff
ILLINOIS INSTITUTE FOR CONTINUING LEGAL EDUCATION vi SECURED TRANSACTIONS
11. Avoidance of Security Interests as Fraudulent Transfers........................................11 — 1 Richard J. Mason John F. Pol ick
12. Guaranties....................................................................................................................12 — 1 Michael L. Weissman
13. Lender Liability and Equitable Subordination.........................................................13 — 1 Robert W. Glantz David R. Doyle
Index ...............................................................................................................................a — 1 vi i WWW.IICLE.COM ABOUT THE AUTHORS About the Authors General Editors
Robert M. Fishman is a Member of Shaw Fishman Glantz & Towbin LLC in Chicago, where he
concentrates his practice in the areas of business bankruptcy and insolvency. Mr. Fishman has
been an author and lecturer on a variety of business bankruptcy topics for numerous
organizations, including the American Bankruptcy Institute, the American Institute of
Certified Public Accountants, and the National Conference of Bankruptcy Judges. He is listed
in the Guide to the World’s Leading Insolvency Lawyers, the Guide to Leading U.S.
Insolvency Lawyers, and the Best Lawyers in America. He has also been selected as one of
Illinois’ leading business bankruptcy attorneys by Leading Lawyers and Super Lawyers. Mr.
Fishman is a member of the American Bankruptcy Institute (and former President and Chair
of the Board and member of the Executive and Management Committees) and of the
American Bar Association. A Fellow of the American College of Bankruptcy, Mr. Fishman
received his B.A. from the University of Illinois and his J.D. from George Washington University Law School.
Richard J. Mason is an Equity Partner at McGuireWoods LLP in Chicago, concentrating his
practice in business insolvency and other business matters. He has written numerous articles
for continuing legal education programs and law journals and has spoken at programs
sponsored by, among others, the International Bar Association, the American Bankruptcy
Institute, and the American Bar Association. Mr. Mason is former Chair of the American Bar
Association Business Bankruptcy Committee on Use and Disposition of Property and is a
longtime Fellow of the College of American Bankruptcy and the International Insolvency
Institute, both invitation-only organizations. He is a member of the Illinois State and Chicago
Bar Associations, the Commercial Law League of America, and the American Bankruptcy
Institute. Mr. Mason received his B.A. with honors from the University of Illinois, his
M.B.A. from the University of Chicago, and his J.D. from the University of Notre Dame Law School.
Jeffrey E. Altshul practices at Carlson Dash, LLC, in Chicago, where he focuses on commercial
finance, transactions, workouts, and bankruptcy. He is a member of the American Bankruptcy
Institute, American Bar Association, and Wisconsin State Bar Association. Mr. Altshul
received his undergraduate degree with honors from the University of Wisconsin-Milwaukee
and his J.D. from Drake University Law School. Chapter Authors
Paul J. Catanese is an associate at McGuireWoods LLP in Chicago, where he focuses his
practice on restructuring and insolvency, commercial litigation, and financial services
litigation. Following law school, he served as a law clerk for the Honorable Stephen C. St.
John, U.S. Bankruptcy Judge for the Eastern District of Virginia. He is a member of the
Chicago and Illinois State Bar Associations. Mr. Catanese received his B.A. from Boston
College and his J.D. cum laude from the University of Richmond School of Law, where he
was Lead Articles Editor of the University of Richmond Law Review.
ILLINOIS INSTITUTE FOR CONTINUING LEGAL EDUCATION ix SECURED TRANSACTIONS
David R. Doyle is an associate at Shaw Fishman Glantz & Towbin LLC in Chicago, where he
works with companies that are financially distressed or involved in financial or bankruptcy
litigation. He represents both debtors and creditors. After law school, he completed a term
clerkship for the Honorable Carol A. Doyle (no relation) during her tenure as Chief Judge for
the U.S. Bankruptcy Court for the Northern District of Illinois. He is a member of the
Chicago Bar Association, the Turnaround Management Association, and the American
Bankruptcy Institute. Mr. Doyle received his B.A. from the University of Illinois and his J.D.
cum laude at IIT Chicago-Kent College of Law.
Frederick C. Fisher is a Partner at Mayer Brown LLP in Chicago, where he is a member of the
Banking and Finance Practice, focusing on banking and finance, corporate and securities, and
mergers and acquisitions. He was listed as an Emerging Lawyer by Leading Lawyers in 2015
and an Illinois Super Lawyer Rising Star in 2012 – 2015 and is a member of the Chicago Bar
Association. Mr. Fisher received his B.S. from Miami University and his J.D. from
Northwestern University School of Law.
Robert W. Glantz is a Founding Member of Shaw Fishman Glantz & Towbin LLC in Chicago,
where he concentrates his practice in all aspects of creditors’ rights, bankruptcy, and
financing matters. A Certified Public Accountant, Mr. Glantz has been an adjunct professor
of law at IIT Chicago-Kent College of Law and is a frequent lecturer for the National
Business Institute and IICLE®. He has been listed as an Illinois Super Lawyer since 2007 and
an Illinois Leading Lawyer since 2009. He is a member of the American Bankruptcy
Institute, the American Bar Association, and the Turnaround Management Association. Mr.
Glantz received his B.S. from the University of Illinois and his J.D. from the University of Illinois College of Law.
Stephanie C. Gratton is an associate at McGuireWoods LLP in Chicago, where she handles
restructuring and insolvency matters on behalf of creditors and lenders. Ms. Gratton received
her B.A. with high honors from the University of Iowa and her J.D. from the University of
Chicago Law School, during which time she interned for Prairie State Legal Services and for
the Department of Homeland Security’s Transportation Security Administration.
Thomas E. Howard is an associate at Howard & Howard Attorneys PLLC in Peoria, where he
concentrates his practice in creditors’ rights, bankruptcy, and commercial litigation. He has
been named both an Illinois Super Lawyer Rising Star and an Illinois Leading Lawyers
Emerging Lawyer in 2015 and 2016. He is a member of the American, Illinois State (Standing
Committee on Mental Health Law), and Peoria County Bar Associations. Mr. Howard
received his B.A. from Illinois Wesleyan University and his J.D. from Marquette University Law School.
Timothy J. Howard is a Member of Howard & Howard Attorneys PLLC in Peoria, where he
concentrates his practice in business and commercial litigation, bankruptcy, real estate, and trust
litigation. He has been named an Illinois Super Lawyer in 2007 – 2016 and an Illinois Leading
Lawyer in 2003 – 2016. He is admitted to both the Illinois and Michigan Bars. He is a member of
the Illinois State (Senior Lawyer Section Council Secretary 2015 – 2016) and Peoria County Bar
Associations (President 2015 – 2016); a Fellow of the x WWW.IICLE.COM ABOUT THE AUTHORS
American Bar Foundation; and a member of the American Bar Association, the American
Agricultural Law Association, and the American Bankruptcy Institute. Mr. Howard received
his A.B. from Princeton University and his J.D. from the University of Notre Dame Law School.
Gregory E. Moredock is an associate at Sorling Northrup in Springfield, where he concentrates
his practice in family law and commercial litigation. He also practices in the fields of
business advising and commercial transactions. Mr. Moredock received his B.S. cum laude
from the University of Dayton as a John W. Berry Sr. Scholar and his J.D. magna cum laude
from the University of Cincinnati College of Law, where he worked as a Fellow with the
Ohio Innocence Project, was Senior Articles Editor of the Human Rights Quarterly, and
served as an extern for the Honorable Judge Sandra Beckwith of the United States District
Court for the Southern District of Ohio.
Cynde H. Munzer is a Member of Aronberg Goldgehn Davis & Garmisa in Chicago, where she
practices in the Banking and Finance and Business Law and Transactions areas, representing
clients in business and transactional matters. She has been recognized as an Illinois Leading
Lawyer in Closely & Privately Held Business Law by Leading Lawyers magazine since 2014
and was the recipient of the Anti-Defamation League’s Women of Achievement Award in
2003. She is a member of Vision 2020 (Illinois delegate), the Chicago Chapter of the
American Technion Society, and the Chicago Chapter of the National Association of Women
Business Owners. Ms. Munzer received her B.S. from the University of Illinois and her J.D.
with high honors from IIT Chicago-Kent College of Law.
John F. Pollick is a Member of Pollick & Schmahl, LLC, in Glenview, concentrating in
corporate bankruptcy. He has spoken at programs on commercial lending and bankruptcy and
has been an adjunct professor of bankruptcy law at IIT Chicago-Kent College of Law. Mr.
Pollick received his B.A. from Yale University and his J.D. from the University of Michigan Law School.
Mark L. Radtke is a Member of Shaw Fishman Glantz & Towbin LLC in Chicago, where he
concentrates his practice in corporate reorganization, creditors’ rights, bankruptcy, and
commercial litigation. He has spoken and written for numerous organizations, including
IICLE® and the American Bankruptcy. He is a member of the American Bankruptcy Institute,
currently serving on two advisory boards and recently completing a two-year term as the
Cochair of the Young and New Members Committee. Mr. Radtke received his B.B.A. from
the University of Iowa and his J.D. with high honors from IIT Chicago-Kent College of Law,
where he was a member of the Order of the Coif and was the Executive Articles Editor of the Chicago-Kent Law Review.
Sean T. Scott is a Partner at Mayer Brown LLP in Chicago, where he focuses his practice on
energy restructuring; Latin America debt restructuring; banking and finance litigation;
distressed real estate; and restructuring, bankruptcy, and insolvency. In 2008, he was named
by Institutional Investor News as one of its ten “Rising Stars of Bankruptcy/Restructuring
Law and Workouts.” More recently, he was recognized by Law 360, a leading newswire for
ILLINOIS INSTITUTE FOR CONTINUING LEGAL EDUCATION xi SECURED TRANSACTIONS
business lawyers, as one of its “10 bankruptcy lawyers under 40 to watch” among all
practitioners nationwide. Mr. Scott received his B.A. with honors, Phi Beta Kappa, from
Washington University and his J.D. magna cum laude from the University of Notre Dame
Law School, where he was Articles Editor of the Notre Dame Law Review.
Brian L. Shaw is a Member of Shaw Fishman Glantz & Towbin LLC in Chicago, where he
practices in all aspects of bankruptcy practice, regularly representing both debtors and
creditors in a variety of reorganization and liquidation proceedings as well as in attendant
litigation. He has authored and coauthored numerous articles in publications such as the
American Bankruptcy Institute Journal, the Norton Bankruptcy Law Letter, and The
Bankruptcy Strategist and previously served as a Contributing Editor of the American
Bankruptcy Institute Journal. He has spoken on a variety of bankruptcy-related topics at
regional and national conferences. Previously, he served as the President and the Vice
President of Membership of the American Bankruptcy Institute as well as the Cochair of both
the American Bankruptcy Institute’s Chicago Conference and its Inaugural Professional
Development Program. He is also a Past Chair of the Chicago Bar Association’s Bankruptcy
and Reorganization Section and served a three-year term on the University of Illinois College
of Law Recent Alumni Advisory Board. Mr. Shaw received his B.A. cum laude from Tufts
Unviersity and his J.D. magna cum laude from the University of Illinois College of Law.
Robert N. Sodikoff is a Member of the Chicago firm Aronberg Goldgehn Davis & Garmisa,
where he is Cochair of the Real Estate Group, focusing his practice on corporate and real
estate law matters. He has taught courses on the Uniform Commercial Code and the
introduction to law. He has been recognized as an Illinois Leading Lawyer in Banking and
Financial Institutions Law since 2004 and has been named an Illinois Super Lawyer in Real
Estate and Closely Held Business Law since 2006. He is a member of the American Bar
Association and of the Real Estate Law Section of both the Illinois State and Chicago Bar
Associations. Mr. Sodikoff received his B.A. with honors from the University of Illinois and
his J.D. cum laude from Northwestern University School of Law.
Howard J. Swibel is a Partner at Arnstein & Lehr LLP in Chicago, where he has developed
substantial expertise in both the corporate transactional and litigation areas over a legal career
spanning more than 30 years. He has spoken on a broad range of topics related to the
corporate and litigation areas, including for the American and Chicago Bar Associations. He
is active in a wide range of professional and civic activities. He has served for many years as
an Illinois Commissioner to the National Conference of Commissioners on Uniform State
Laws and as a trustee of the Uniform Law Foundation. In 2007, he completed his service as
president of the National Conference of Commissioners on Uniform State Laws. He has
served as an arbitrator for the National Association of Securities Dealers, hearing complex
claims. He also serves as Chair of the Executive Committee of the Illinois Holocaust
Museum and Education Center. Mr. Swibel received both his A.B. and his J.D. cum laude from Harvard University. xi WWW.IICLE.COM ABOUT THE AUTHORS
Stephen A. Tagge is an attorney at Sorling Northrup in Springfield, where he concentrates his
practice in transactions, banking, and bankruptcy (creditor). He has participated as a lecturer
and author in continuing legal education courses in banking, secured transactions, mortgage
foreclosure, creditors’ rights, and environmental duties of buyers and sellers of real estate for
numerous organizations. He received his B.A. from Knox College and his J.D. from the
University of Chicago Law School.
Jason M. Torf is a Partner in Horwood Marcus & Berk Chartered, where he concentrates his
practice in bankruptcy and creditors’ rights in the firm’s Litigation Group. He has authored
materials and has been a speaker for numerous organizations, including IICLE® and the
American Bar Association. He is a member of the American Bar Association Section of
Business Law, Committee on Business Bankruptcy; the Chicago Bar Association; and the
American Bankruptcy Institute. Mr. Torf received both his B.S. and his J.D. from the University of Illinois.
Michael L. Weissman is Of Counsel to Levin Ginsburg in Chicago. He formerly served as
executive vice president and general counsel of Bridgeview Bank Group. His practice is
devoted to financial and business transactions, including the structuring of a wide variety of
financing transactions. Mr. Weissman has also actively prosecuted civil and bankruptcy
matters on behalf of financial institutions and defended them in lender liability lawsuits. He
has a wealth of experience in the legal and business aspects of secured and unsecured lending
for all types of credit facilities. He has represented most of the major banks and commercial
lenders in the Chicago area. He has also frequently published articles in journals devoted to
banking and commercial finance and has lectured for such diverse groups as the American
Bar Association, the Association of Commercial Finance Attorneys, the Risk Management
Association, the Commercial Finance Association, the Illinois Bankers Association, the
Federal Reserve Bank of Chicago, the Illinois CPA Society, the Chicago-Midwest Credit
Service Corporation, the Mississippi Law Institute, the Wyoming Bankers Association, the
Chicago Association of Commerce and Industry, the Midwest Finance Conference, the
Illinois Credit Union League, and IICLE®. Mr. Weissman has been a panelist for many
seminars sponsored by the Lender’s Forum, the Banking Law Institute, the Bank Lending
Institute, State of the Art Seminars, Infocast, Inc., the Lenders Educational Institute, the Bank
Administration Institute, and Clarion Legal. He has been a member of the Committee on
Commercial Financial Services of the ABA Section on Business Law and is a former
Director of the Association of Commercial Finance Attorneys; a former Vice Chair of the
Bank Counsel Committee of the Illinois Bankers Association; a Director, member of the
Executive Committee, and Chair (2001 – 2002) of IICLE®; and former Chair of the Banking
Group at the Union League Club of Chicago. He serves on ISBA’s Section Council on
Commercial Banking, Collections, and he is the author of COMMERCIAL AND
INDUSTRIAL LOAN DOCUMENTATION (IICLE® 2012). He is also the author of
LENDER LIABILITY: HOW TO PROTECT YOURSELF AGAINST UNWARRANTED
LAWSUITS and a contributor to THE BANKER’S GUIDE TO MULTI-BANK CREDITS
AND LOAN PARTICIPATIONS, both published by Executive Enterprise Publications Co.
and COMMERCIAL AND INDUSTRIAL LOAN DOCUMENTATION, published by
IICLE®. He authors a column titled “The Legal Corner” for The RMA Journal. He is a
member of the Editorial Board of a multi-chapter treatise on commercial damages and writes
ILLINOIS INSTITUTE FOR CONTINUING LEGAL EDUCATION xi i SECURED TRANSACTIONS
a monthly column on recent developments of interest to financial services attorneys with
more than 1,200 subscribers for IICLE®’s FlashPoints at www.iicle.com. Mr. Weissman
received his J.D. from Harvard Law School, was a Fulbright Scholar at the University of
Sydney (Australia) Faculty of Law, received his M.B.A. from the Wharton Graduate Division
of the University of Pennsylvania, and received his B.S. in Economics from Northwestern
University. He is on the Roster of Fulbright Senior Specialists maintained by the Council for
the International Exchange of Scholars. He was a Fulbright Senior Specialist at the School of
Business Administration, Turiba, in Riga, Latvia, in 2006; a Fulbright Senior Specialist at the
National University in Vientiane, Laos, in 2008; and an instructor in the American Bar
Association’s International Senior Lawyers Project in Capetown, South Africa, in 2009, and
taught for the African Centre for Legal Excellence in Zanzibar, Tanzania, and in Kampala, Uganda. xiv WWW.IICLE.COM BOARD OF DIRECTORS
IICLE® Board of Directors Chair
Thomas A. Lilien, Office of the State Appellate Defender, Elgin* Vice Chair
Robert Z. Slaughter, Avison Young, Chicago* Secretary
Ben Neiburger, Generation Law, Ltd., Elmhurst* Treasurer
Paul E. Bateman, Littler Mendelson P.C., Chicago* Immediate Past Chair
William J. Anaya, Greensfelder, Hemker & Gale, P.C., Chicago*
Mark Brittingham, SIU School of Law, Carbondale
Bradley L. Cohn, Pattishall, McAuliffe, Newbury, Hilliard & Geraldson LLP, Chicago
Jane N. Denes, Posegate & Denes, P.C., Springfield*
LaVon M. Johns, Goldstein & McClintock LLLP, Chicago
Michele M. Jochner, Schiller DuCanto & Fleck LLP, Chicago
James M. Lestikow, Hinshaw & Culbertson LLP, Springfield
Hal R. Morris, Arnstein & Lehr, LLP, Chicago
Katherine Opel, Weinheimer Law Firm, PC, Edwardsville
Stacy E. Singer, Northern Trust, Chicago
Janine L. Spears, DePaul University, Chicago
Hon. Ronald D. Spears, Taylorville
Kathy H. Xie, Attorneys’ Title Guaranty Fund, Inc., Chicago
*Executive Committee Members
IICLE® Board of Directors Past Chairs Rooney (1991 – 1992)
H. Ogden Brainard (1962 – 1969)
Willis R. Tribler (1992 – 1993)
John S. Pennell (1969 – 1971)
Thomas Y. Mandler (1993 – 1994) William K. Stevens (1971 –
Ralph T. Turner (1994 – 1995) Robert
1972) J. Gordon Henry (1972 –
E. Bouma (1995 – 1996) Patrick B.
1973) Roger J. Fruin (1973 –
Mathis (1996 – 1997) Michael H. 1974)
Postilion (1997 – 1998) Robert V.
Joseph J. Strasburger (1974 –
Dewey, Jr. (1998 – 1999) Roma Jones
1975) William J. Voelker (1975 –
Stewart (1999 – 2000) Hon. John A.
1976) Harold W. Sullivan (1976 –
Gorman (2000 – 2001) Michael L.
1977) John J. Vassen (1977 –
Weissman (2001 – 2002) George W. 1978)
Howard III (2002 – 2003) Robert E.
James M. (Mack) Trapp (1978 – 1979)
Hamilton (2003 – 2004) Patricia A.
Theodore A. Pasquesi (1979 – 1980)
Hoke (2004 – 2005) Thomas M.
George W. Overton (1980 – 1981)
Hamilton, Jr. (2005 – 2006) Hon. Dale
Peter H. Lousberg (1981 – 1982)
A. Cini (2006 – 2007) Susan T. Bart
Kenneth C. Prince (1982 – 1983) (2007 – 2008)
Edward J. Kionka (1983 – 1984)
Adrianne C. Mazura (2008 – 2009)
Joseph L. Stone (1984 – 1985)
George F. Mahoney, III (2009 –
Thomas S. Johnson (1985 – 1986)
2010) Robert G. Markoff (2010 –
Richard William Austin (1986 – 1987)
2011) Hon. Leonard Murray (2011 –
J. William Elwin, Jr. (1987 – 1988)
2012) Donald P. Seberger (2012 –
Donald E. Weihl (1988 – 1989)
2013) Lorraine K. Cavataio (2013 –
Tomas M. Russell (1989 – 1990) John
2014) William J. Anaya (2014 –
K. Notz, Jr. (1990 – 1991) Michael J. 2015)
ILLINOIS INSTITUTE FOR CONTINUING LEGAL EDUCATION xv
STAFF OF THE INSTITUTE SECURED TRANSACTIONS IICLE® Staff
Michael J. Rooney, Executive Director
Amy L. McFadden, Director of Publications
Megan K. Moore, Director of Programs Publications Programs
Manny Banks, Publications Administrative Assistant Konner Dudley, Programs Marketing Associate Carole Chew,
Executive Managing Editor Stephanie Laffey, Online Project Coordinator Matthew Lund, Editor Alonnah Madson,
Programs Associate Angela Moody, Managing Editor Christopher Noel, Volunteer Coordinator Darryl Parr,
Editor-in-Chief Tessa White, Programs and Partnership Development Sarah Payne, Subscriptions Coordinator
Laura Reyman, Managing Editor
Kim Rouland, Publications Compositor
Courtney Smith, Managing Editor
Megan Smith, Publications Marketing Associate
Joy Wolfe, Managing Editor
Administrative Services
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Dawn Bruce, Accounts Payable
Jeff Kurmann, Human Resources/Accounting Associate Customer Support
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Chris Hull, Information Technology Manager
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Readers may contact staff members via e-mail at info@iicle.com or
[first initial][last name]@iicle.com (e.g., mrooney@iicle.com) xvi WWW.IICLE.COM SECURED TRANSACTIONS 2016 Edition
Chapter 6: Equipment Leasing 6.65 Equipment Lease
Chapter 7: Agricultural Financing in Illinois Under Article 9
7.20 Agricultural Security Agreement
7.21 Notice to Buyers of Farm Products
Chapter 9: Subordination and Intercreditor Agreements
9.12 Sample Provision: Bankruptcy Subordination
9.13 Sample Provision: Default Subordination
9.14 Sample Provision: Standstil Subordination
9.17A Definitions of “Senior Indebtedness” and “Subordinated Debt” — Senior Lender’s Perspective
9.17B Definition of “Senior Indebtedness” Additional Provision — Junior Creditor’s Perspective
9.34 Sample Provision: Right To Purchase — Junior Creditor 9.36
Sample Provision: Use of Cash Col ateral
9.37 Sample Provision: Disposition of Col ateral
9.38 Sample Provision: Adequate Protection
9.40 Sample Provision: Contesting Liens of Other Creditors Chapter 10: Letters of Credit
10.47 Sample Standby Letter of Credit Chapter 12: Guaranties
12.5 Sample Language: Springing or Carveout Guaranty 12.11 Sample Form: Guaranty
12.20 Sample Language: Advising Guarantor of the Nature of the Risk 12.22
Sample Language: Change of Terms
12.25 Sample Language: Release of Coguarantor
12.27 Sample Form: Reaffirmation of Guaranty Letter
12.28A Sample Language: Waiver of Bank’s Duty To Pursue the Borrower
12.28B Sample Language: Express Waiver of Sureties Act §1 12.29 Sample
Language: Revocation by the Guarantor
12.39 Sample Language: Successive Guaranties
12.45 Sample Language: “Clawback” Clause
12.46 Sample Form: Put (Alternative to a Guaranty)
Chapter 13: Lender Liability and Equitable Subordination 13.33 Jury Trial Waiver 1 ROBERT M. FISHMAN DAVID R. DOYLE
Shaw Fishman Glantz & Towbin LLC Chicago Creation of an Article 9 Security Interest ROBERT W. GLANTZ
©COPYRIGHT 2016 BY IICLE®. 1 — 1 SECURED TRANSACTIONS I. [1.1] Introduction
II. [1.2] History of Article 9
III. [1.3] Overview and Basic Terminology
IV. Application of Article 9
A. [1.4] Transactions Included Under Article 9
B. [1.5] Transactions Excluded Under Article 9
V. Classification of Collateral A. [1.6] In General
B. [1.7] Goods, Equipment, and Inventory C. [1.8] Accounts D. [1.9] Instruments E. [1.10] Promissory Notes F. [1.11] Chattel Paper
G. [1.12] Letter-of-Credit Rights
H. [1.13] Supporting Obligations
I. [1.14] Healthcare Insurance Receivables J. [1.15] General Intangibles K. [1.16] Payment Intangibles L. [1.17] Software M. [1.18] Deposit Accounts N. [1.19] Investment Property
O. [1.20] Commercial Tort Claims VI. Security Interests A. [1.21] In General
B. [1.22] “Security Interest” Defined
C. [1.23] Attachment and Enforceability of Security Interests
1. [1.24] Debtor Must Have Obtained Rights or Power To Transfer Rights in Collateral
2. [1.25] Creditor Must Give Value
3. [1.26] Valid Authenticated Security Agreement or Possession or Control of Collateral
4. [1.27] Timing of Attachment
D. [1.28] Attachment vs. Perfection 1 — 2 WWW.IICLE.COM
CREATION OF AN ARTICLE 9 SECURITY INTEREST
VII. [1.29] Secured Creditor’s Rights in Proceeds of Collateral
VIII. [1.30] After-Acquired Property and Future Advances IX.
[1.31] Purchase-Money Security Interests
X. Required Elements of Written Agreement
A. [1.32] Requirement of a Written Agreement
B. [1.33] Necessity of a Writing
C. [1.34] Description of Collateral
D. [1.35] Description of Land in Certain Cases
E. [1.36] Description of Underlying Debt
XI. [1.37] Disposition of Collateral
ILLINOIS INSTITUTE FOR CONTINUING LEGAL EDUCATION 1 — 3 §1.1 SECURED TRANSACTIONS I. [1.1] INTRODUCTION
The making of a loan or the extension of credit in exchange for the granting of a security
interest in property is one of the fundamental concepts on which many commercial transactions
and corresponding legal controversies are built. While the concept is fairly straightforward, the
practical considerations underlying the concept can be quite complex and involved. The starting
point for the consideration of security interests in personal property (this work does not cover
mortgages and real estate interests) is the Uniform Commercial Code (UCC), 810 ILCS 5/1-101,
et seq. The UCC has been adopted in every state (with limited variations) and generally governs
the creation, validity, and enforcement of security interests in the United States. This chapter
provides a historical overview of the security interest as it relates to personal property, coupled
with a review of the central issues essential to an understanding of the same. The chapter then
delves into the specific requirements of a security interest, reviewing certain variables that
counsel for both the creditor and the debtor must take into account. Finally, this chapter considers
the written document, the security agreement that evidences the understanding reached between
the debtor and the creditor. This chapter also serves as a starting point for many of the more
intricate secured transaction issues that are dealt with in greater detail in other chapters in this handbook.
II. [1.2] HISTORY OF ARTICLE 9
Prior to the adoption of the Uniform Commercial Code, there existed numerous differing
security devices and diverse and sometimes conflicting bodies of law applicable to them.
Individual states variously recognized pledges, conditional sales, chattel mortgages, trust receipts,
and factors’ liens. A lender operating on a national or even regional basis would have to cope
with forms, terminology, rules of possession, and formalities of execution that differed from state
to state. Several uniform acts covering specific areas of endeavor had been promulgated, but only
a few were widely adopted. In 1938, the Merchants Association of New York City called for a
federal law governing interstate sales. In reaction, the National Conference of Commissioners on
Uniform State Laws joined with the American Law Institute in 1940 to draft what was to become
the UCC. The drafters established a Permanent Editorial Board, whose charter was and is to
recommend from time to time changes to the UCC to reflect judicial interpretations and to take
into account practical experience under the UCC and the development of new business practices.
Some form of the UCC was ultimately adopted in all 50 states, the District of Columbia, and the Virgin Islands.
Article 9 of the UCC, 810 ILCS 5/9-101, et seq., which governs the creation of almost all
types of security interests in personal property, was revised in 1998 by the National Conference
of Commissioners on Uniform State Laws, in conjunction with the American Law Institute. The
revised form of Article 9 became effective July 1, 2001, and has since been adopted, with limited
amendments, in all 50 states, the District of Columbia, and the Virgin Islands. Further
amendments to the UCC were proposed and adopted by the National Conference of
Commissioners on Uniform State Laws in 2010 and adopted in Illinois effective July 1, 2013. See P.A. 97-1034. 1 — 4 WWW.IICLE.COM
CREATION OF AN ARTICLE 9 SECURITY INTEREST §1.3
The revised Article 9 embodies significant changes in scope, substantive rules, and
procedures that were intended to simplify and clarify the rules regarding security interests and
make Article 9 easier to use. Although the sections were substantially reorganized and
renumbered, the revised Article 9 retained the general approach and much of the terminology of the former Article 9.
III. [1.3] OVERVIEW AND BASIC TERMINOLOGY
Except for those matters expressly excluded, Article 9 of the Uniform Commercial Code, 810
ILCS 5/9-101, et seq., applies to the various forms of secured transactions common to the
business world. A secured transaction involves any situation in which a creditor, in granting
credit, obtains a property right to secure the debt. The creditor’s rights — the security interest —
may be in specifically identified personal property, tangible or intangible, or in fixtures. Article 9
is the set of rules governing how those rights are created, extinguished, and reconciled with the
competing rights of the debtor, the debtor’s other creditors, and other third parties who may also
acquire or claim rights in the same property.
There are two key concepts in the creation and operation of an Article 9 security interest:
“attachment” and “perfection.” These two terms describe the key events in the creation of a
security interest. Attachment occurs when the security interest is effective between the creditor
and the debtor, which usually takes place when the agreement between the parties provides that it
takes place. Perfection occurs when the creditor establishes its priority in relation to other
creditors’ interests in the same collateral. In general, the creditor with priority over all other
creditors is entitled to use the collateral to satisfy the debtor’s obligations when the debtor
defaults, before other creditors subsequent in priority may do so.
It is impossible to deal with Article 9 without mastering the basic and precise terms used in
the statute. For example, there is a significant difference between the “attachment” of a security
interest and the “perfection” of it. A dozen eggs may be “farm products” while being packed on
the farm, “inventory” while sitting on the supermarket shelf, and “consumer goods” after they
have made their way to your refrigerator. Section 9-102 sets out certain definitions and provides a
cross-reference index to others that may be set out in the text of Article 9 or in other articles of
the UCC. 810 ILCS 5/9-102. The fundamental definitions are summarized below for the limited
purpose of facilitating the discussion in the balance of this chapter and not as a substitute for the
specific and more comprehensive language set forth in the UCC itself, to which the practitioner is referred.
Attachment: The situation in which all requirements have been met so that the security interest
becomes enforceable against the debtor. 810 ILCS 5/9-203.
Collateral: The property subject to a security interest, which may include “(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.” 810 ILCS 5/9-102(a)(12).
ILLINOIS INSTITUTE FOR CONTINUING LEGAL EDUCATION 1 — 5 §1.4 SECURED TRANSACTIONS
Debtor: “(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.” 810 ILCS 5/9-102(a)(28).
Financing statement: “[A] record or records composed of an initial financing statement and any
filed record relating to the initial financing statement.” 810 ILCS 5/9-102(a)(39).
Perfection: The situation in which all requirements have been met to give a “perfected” security
interest priority over an “unperfected” security interest. 810 ILCS 5/9-301 through 5/9-316.
Proceeds: 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.” 810 ILCS 5/9-102(a)(64).
Secured party: “(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.” 810 ILCS 5/9-102(a)(73).
Security agreement: The written agreement that “creates and provides for a security interest.” 810 ILCS 5/9-102(a)(74).
Security interest: The “interest” in the personal property or fixtures that secures payment or
performance of an obligation. 810 ILCS 5/1-201(b)(35).
IV. APPLICATION OF ARTICLE 9
A. [1.4] Transactions Included Under Article 9
Section 9-109 of the Uniform Commercial Code, entitled “Scope,” sets forth the broad range of
transactions to which Article 9 applies and certain transactions that are specifically excluded. 810
ILCS 5/9-109. It includes any transaction, regardless of form, that creates a security interest in
personal property or fixtures by contract, except for such transactions as are specifically excluded
by UCC §§9-109(c) and 9-109(d). Without limitation, Article 9 applies to pledges, assignments,
chattel mortgages, chattel trusts, trust deeds (non-real estate), factors’ liens, equipment trusts,
conditional sales, trust receipts, any other lien or title retention contract, and any lease or
consignment intended as security. Article 9 also applies to any sale of accounts, chattel 1 — 6 WWW.IICLE.COM
CREATION OF AN ARTICLE 9 SECURITY INTEREST §1.5
paper, payment intangibles, or promissory notes, including the sale of a right in the receivable,
such as a sale of a participation interest. Article 9 also applies to all types of consignment, defined by the UCC as
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. 810 ILCS 5/9-102(a)(20).
B. [1.5] Transactions Excluded Under Article 9
Sections 9-109(c) and 9-109(d) of the Uniform Commercial Code set forth certain
circumstances and specific transactions to which Article 9 does not apply even though they are in
the nature of secured transactions. Article 9 does not apply to
1. the extent that a statute, regulation, or treaty of the United States preempts Article 9 (810 ILCS 5/9-109(c)(1));
2. the extent 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 (810 ILCS 5/9-109(c)(2));
3. the extent 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 the creation, perfection, priority, or enforcement of a security interest
created by the state, country, or governmental unit (810 ILCS 5/9-109(c)(3));
4. the extent that the rights of a transferee beneficiary or nominated person under a letter of
credit are independent and superior under 810 ILCS 5/5-114 (810 ILCS 5/9-109(c)(4));