Louisiana Security Devices

Fall 2004
J. Kilborn
PART ONE: The Creditor-Debtor Relationship
Chapter One Creditors Remedies Under State Law
I. Assignment 1: Remedies of Unsecured Creditors under State Law
a. What is an Unsecured Creditor?
i. An unsecured creditor does not receive secured status because either there is no
contract with the debtor or secured status is not statutorily granted.
ii. When an unsecured creditor has obtained judgment of liability, it does not change
the status of the unsecured creditor, but gives them title of judgment creditor.
b. How Do Unsecured Creditors Compel Payment? / Limitations on Compelling Payment.
i. Concerned with the avoidance of violence when collecting.
ii. You cannot make threats, etc. to collect on this
iii. The sheriff cannot seize all of the property, because there are exemptions in LA.
For instance, you have a motor vehicle exemption of one per house.
iv. Think of the difficulties for a creditor to get paid. (Exemptions are not on the test,
but know that are in the exception)
v. No assets means there are no attachable assets.
vi. All you can seize is their interest in the house and none of the bank in the
mortgage (equity is all that you can take; however many states have a homestead
exemption in LA you have a $25K exception on equity).
vii. You can garnish the wages, which will probably also have problems, because they
may not make enough thus, enforceability is a problem.
II.

Assignment 2: Security
a. The Nature of Security
i. Purpose of security devices
1. Give creditor security that obligation will be paid when time comes to pay.
a. Allows the creditor to avoid an exemption.
b. Allows cor to avoid the long process of litigation and puts a reservation
on the property. encourages lender to lend.
ii. 4 kinds of secured transactions:
1. The property subject to the S/Dev is moveable and the S/Dev is consensual.
Art. 9 of the UCC. LA has modified this in a few ways. (In CH. 9 of Title
X in LA.)
2. Consensual S/Dev in immovable property (Mortgage). LA this is in the civil
code and in the ancillaries of the code (Vol 1 & 2 of CC).
3. Non-consensual device the law will impose a security device. In LA this is
a Lien; outside of LA this is a privilege. This is accessory to the principle
obligation.
4. Accessory Personal Right Right against a person and not property. This
person is called a guarantor/surety.
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III.

Chapter 3 Creation of Security Interests

Assignment 8: Formalities For Attachment
a. In General
i. How do I get one, a sec. Dev. That is securable by the creditor and enforceable on
the debtor? This is called attachment under UUC 9.
1. We say that the right attaches to immovable property.
ii. Talk about perfection later
b. Formalities for Article 9 Security Interests 9-203 (a), (b)
i. 3 Requirements for sec. int. to be enforceable against the debtor and 3P/
1. Value must have been given - this is intentionally flexible and it does not have
to go the debtor or the creditor The debtor may not be the obligor and may
only be owed the collateral (the collateral is the property) Past loan counts as
value
2. The debtor must actually have rights in the collateral. More often than not,
that right is ownership. But they may also have a leasehold right, etc.
3. Unless the collateral is in the possession or control of the creditor, the debtor
must have authenticated a sec. agreement that describes the property.
a. Authenticated 9-102(a)(7) when
i. Signed, or
ii. Adopt a Symbol or similarly process a record in whole or in part,
with the present intent of the authenticating person to ID the person
and accept the record
b. Only requirement for this to be an agreement is that there is a record of
the agreement (record must be in retrievable form).
i. Only oral if the property is in the control/possession of the creditor.
ii. Otherwise, No oral security agreement
ii. It makes sense to describe the obligation, but it is not required. Further, they are
often very general and not specific when they are made.
c. Pledge there is a series of code articles dealing with this. You pledge the security by
giving the property over to the creditor. UCC 9 supercedes this code articles when the
transaction is after 1990.
d. Problem Set 8 (P. 151) 8.1, 8.3, 8.4
e. Online Attachment Problem

I.

Assignment 9: How precisely must the collateral be described in the S/a?

a. Interpreting Security Agreements
i. Conventional obligation rules apply, so basic K interpretation rules apply.
1. When the agreement is ambiguous, parole evidence may be used.
2. Distinguish Description of collateral from Secured Document Agreement
For K rules to apply they only apply to Document
ii. 9-201(a) binds the creditor to 3Ps.
iii. Interpreting Descriptions of Collateral
1. The article 9 definitions of terms are important because they are used by
parties when forming the agreements. Used to consider the partys intent. If
the parties dont explicitly incorporate article 9, you might be able to argue
that this was not the intent. However, you are not likely to get past the
terminology because it is widely used. This is for non-consumers
a. Consumers have more protections you cannot use categories in the
case of consumers. More particularity in description is required when
you are dealing with consumers.
2. 9-102 Definitions (Things descriptions will cover)
a. (a)(2) Accounts Includes an account receivable. This is not a deposit
account like you checking account.
b. (a)(33) Equipment Goods other than inventory, farm products or
consumer goods (Ex: pens, drapery, etc)
c. (a)(48) Inventory This can include inventory acquired in the future.
b. Sufficiency of Description: Article 9 S/a.
i. 9-108 Sufficiency of the Description of collateral
1. The collateral description can be quite vague

c.

d.

e.
II.

2. Can Include Lists, category of item, specific listing, etc.

3. However, it cannot say all the debtors property in S/a.
a. Can use this in Financing Statement
ii. In the S/a it must reasonably describe what is reasonably meant to be identified
under the agreement. (Std: Objectively Determinable)
iii. Be careful with cars; probably adequate if it reasonably ids the car/object.
Describing After-Acquired Property 9-204(a) After Acquired Collateral
i. You cannot say everything/all with anyone, you have to be more specific
1. such as all future accounts, OR
2. All current and future indebtedness.
ii. Policy: Avoid granting sec. int. in all of ones property w/o realization of such a
grant.
iii. After Acquired Collateral Clause ineffective when:
1. collateral is consumer goods, a sec. int. does not attach, unless the debtor
acquires rights in them w/in 10 days after the secured party gives value, OR
2. Commercial tort Claim
What Obligations Are Secured? 9-204
i. Could be something possibly acquired in the future
1. Even if there is uncertainty whether they will ever obtain that thing.
ii. Future loans can be used as secured.
iii. 9-204(c) includes accounts, chattel paper, payment intangibles or promissory
notes may be subject to S/a even when not part of obligation.
Problem Set 9 9.1, 9.2, 9.3, 9.4, 9.6

Assignment 10: Proceeds, Products, and Other Value-Tracing Concepts

a. One way to assure that a security interest will follow the value is to include express
language in the description of the collateral in the security agreement that cover all forms
the value is likely to take. Another way to do this is to employ what is called valuetracing concepts terms of art that indicate that in certain kinds of transformations of the
collateral the SI should follow the value in prescribed ways. The value-tracing concepts
most commonly employed are proceeds, products, rents, profits, and offspring
b. Proceeds 9-102(a)(64)
i. If the debtor sells the collateral, the SI will attach to the price paid, whether it is in
the form of an account, a promissory note, or cash.
ii. Proceeds are collateral within the definition of the latter term in 9-102(a)(12).
As a result, when proceeds are disposed of or rights arise out of them, whatever is
received is proceeds. Thus the proceeds of proceeds are proceeds.
iii. The concepts of proceeds and after acquired property frequently overlap, but
the former is a value-tracing concept, while the latter is not.
iv. Even if the security agreement makes no mention of proceeds, a SI automatically
covers them. The rule derives from 9-203(f), 315(a).
v. 9-102(a)(64) defines proceeds in an expansive way including under (C)
rights which arise out of collateral this could be really broad if you interpret the
words that way. If collateral produced profits, royalties may fit within this. Rents
off a lease could be included in this.
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vi.

c.

Termination of Security Interest in Collateral After Auth. Disposition

1. 9-315(a) The Buyer takes free of the security interest and the secured
creditor can look only to the debtor for the proceeds
vii. Continuation of Security Interest in Collateral After Unauthorized Disposition
1. Even if the security agreement expressly prohibits sale of the collateral, the
debtor has the power under 9-401 to transfer ownership to a buyer. (The
transfer will be a breach of the security agreement and perhaps even a crime.)
2. Read 9-401 with 9-315(a)(1), which provides that a SI continues in
collateral notwithstanding sale.
a. Result is that after a sale that the secured party has not authorized to be
free of the SI, the buyer will own the collateral subject to the sec. int.
b. Proceeds also subject to sec. int.
3. Creditors can impliedly waive the restrictions on sale by ignoring them and
allowing the debtor to sell his collateral.
viii. Limitations on Secured Creditors Ability to Trace Collateral
1. 9-315(a)(2) - A SI continues to encumber proceeds only so long as they
remain identifiable. To figure out what this means, begin by distinguishing
the concepts of commingling and identifiably. To commingle collateral is to
put it together in one mass with identical non-collateral so that no one can tell
which is actually which.
2. Nevertheless, commingled collateral may be legally identifiable: that is, the
law may provide a rule that arbitrarily designates a particular part of the mass
as the collateral. Such a tracing rule enables the court to tell which grain is
legally which.
3. 9-315(b) provides that a secured party can prevail when trying to identify
commingled collateral in a bank account by a method of tracing, including
application of equitable principles that is permitted under non-UCC law
with respect to the type of collateral. Comment 3 to 315 refers to the
equitable principle most commonly employed: the lowest intermediate
balance rule. That rule provides that the amount of the secured creditors
collateral remaining in a bank account is equal to the lowest balance of all
funds in the account between the time the collateral was deposited to the
account and the time the rule is applied.
4. What about money emerging from the bank account? 9-332(b) provides
that a transferee of funds from a deposit account takes the funds free of a
security interest in the deposit account unless the transferee acts in collusion
with the debtor in violating the rights of the secured party.
5. The secured party has the burden of establishing that something constitutes
identifiable proceeds from the sale or disposition of the secured partys
collateral. To do this, the secured party must trace the claimed proceeds back
to the original collateral; in other words, the secured party must establish that
the alleged proceeds arose directly from the sale or other disposition of the
collateral and that these alleged proceeds cannot have arisen from any other
source.
6. The Sec. Creditor must be able to trace value with specificity.
Other Value Tracing Concepts

i.

d.

e.

Products
1. The product of collateral is something the collateral produces. The term is
most commonly used in the context of agriculture. Is has been held that wool
is the product of sheep, milk the product of cows, and maple syrup the
product of trees.
2. Products may include proceeds, but that is unclear
ii. Profit, rents, and offspring are other value-tracing words.
iii. 9-203(f) proceeds are included impliedly when description of collateral does
not mention them.
Non-Value-Tracing Concepts
i. This includes After Acquired Property, Replacements, Additions, and
Substitutions in that they can pick up property acquired by the debtor with value
not derived from the previously existing collateral.
Problem Set 10 10.1, 10.2, 10.4, 10.5, 10.6

PART TWO: THE CREDITOR-THIRD PARTY RELATIONSHIP

Chapter 6 Perfection
III.

Assignment 16: The Personal Property Filing System

a. What is Priority?
i. A creditor gets priority over other creditors by perfecting. To do this he must file
a financing statement (FS) in the UCC records (mortgage records) in order to put
others on notice that he has an interest. This is perfecting.
ii. If one creditor has priority, then he gets paid first. He is a senior creditor and
the other creditors without priority are junior creditors.
b. How do Creditors Get Priority?
i. Consensual creditors get priority by perfecting their SIs.
1. Perfection requires the following:
a. Attachment &
b. Steps for perfection (Usually filing System of fin. Stmt. UCC1)
ii. The SI must attach to the security (three requirements).A creditor gets priority
over other creditors by perfecting. To do this he must file a financing statement
(FS) in the UCC records (mortgage records) in order to put others on notice that
he has an interest. This is perfecting.
c. Theory of the Filing System
i. Louisiana is way ahead of other states because LA has a statewide filing and
searching system; whereas, UCC states are filed in capitol ONLY!
ii. Some types of collateral have specific rules for filing. For example, a SI in Intel
property rights filed in the respective offices in DC.
iii. Note: Financing statement gives no rights Only gives notice to 3Ps. Security
agreements are what give rights (Make Distinction)
iv. Diff. Between unperfected and unsecured An unperfected Fin. Stmt. Does not
provide for an unsecured creditor.

IV.

Assignment 17: Article 9 Financing Statements: The Debtors Name

a. The Components of a Filing System
i. Several States allow electronic Filings.
1. The UCC requires the record be stored in some tangible medium and that it
be in retrievable and perceivable form.
ii. 9-519(c) requires that the filing office index FS's according to the name of the
debtor.
iii. Financing statements are effective as of the moment of filing, even if not fully
indexed and filed by the clerk.
b. The Correct Names for Use on Financing Statements
i. 9-503 Sufficiency of names
1. Registered organization 9-102 one for which state must maintain a filing
for it to exist Must be official name on legal documents
2. Trade Names are neither sufficient nor relevant.
3. Partnership Put all names, but known names is sufficient (Ex: Taylor
Porter)
c. Errors in the Debtors Names on Financing Statements
i. 9-506 Errors, if not seriously misleading (only real one that doesnt work is
debtors name), then they dont render financing statement ineffective
1. As long as the document performs purpose of being able to pull it up, it
should be effective, even with errors. Cts. Expect researchers to work.
d. Problem Set 17 17.1, 17.2, 17.3, 17.6

V.

Assignment 18: Art. 9 Financing Statements: Other Information

a. Introduction
i. 9-502 Must have the following on the financing statement for it to be effective:
1. Debtors Name
2. Creditors Name
3. Description of collateral
ii. Even if those items are on the financing statement, 9-520(a) requires the filing
officer to refuse to accept it unless it contains these additional items:
1. The mailing address of the secured creditor, 9-516(b)(4)
2. The mailing address of the debtor, 9-516(b)(5)(A)
3. An indication of whether the debtor is an individual or a corporation, 9516(5)(B).
iii. If the debtor is an organization, 9-516(b)(5)(C) also requires rejection of the
financing statement unless it contains three additional items of information:
1. The type of organization (corporation, Limited Liability Company, etc.)
2. The debtors jurisdiction of organization
3. The debtors organizational identification number (EIN or SSN).
iv. If a FS lacks any of these nine pieces of information, the filing officer should
refuse to accept it and communicate to the filer the reason for refusal and the date
and time the record would have been filed, 9-520(b).

b.

c.

d.

VI.

Filing Office Errors in Acceptance or Rejection

i. Incorrect Acceptance 9-520(c) If the filing officer incorrectly accepts the fin.
statement missing elements from 9-516 & 520, but comporting with the
requirements of 9-502, the filing remains effective.
ii. Incorrect Rejection 9-516 an attempt to file in this instance will defeat lien
creditors Note: the date is stamped on the fin. stmt. when it is rejected.
iii. Distinction:
1. In other states, filing means tendering documents w/ filing fee (9-516);
2. In LA just file in another parish until it is ACCEPTED BY CLERK
Actually filed is the standard.
Filer Errors in Accepted Filings
i. Under the Introduction section of this assignment Only the first three things
under 9-502 are required to have an effective financing statement.
ii. The Name of the Creditor/Secured party should unambiguously identify the
holder of the security interest.
iii. Description of the Collateral 9-108, 504
1. Description All debtors assets will work, but debtor must authorize this. (2
Requirements)
a. Something must be in blank &
b. Authorized by debtor of collateral description (signing not required, but
sufficient for authorization) 9-509
2. The collateral must be Objectively Determinable; the fin. stmt. must
reasonably identify the collateral
Authorization to File a Financing Statement
i. The secured creditor must obtain authorization from the debtor in an authenticated
record to file a financing statement.
ii. 2 situations where filing is N/A: 9-509, 510
1. Debtor has not signed sec. agreement (Debtor must have authority to record);
OR
2. If financing statement covers more collateral than security agreement (to get
in, need authorization record by debtor)

Assignment 19: Exceptions to Article 9 Filing Requirement

a. 3 Other ways to perfect security interest Sometimes filing is ineffective, but sometimes
multiple ways. When filing is ineffective one of following may be on way to perfect sec.
int.:
i. Possession (Actual Notice) i.e. pledge of property.
1. Pledge is not that effective anymore, unless extremely wealthy (So dont
worry about it);
2. May be corporeal or incorporeal; moveable or immovable;
3. Dangerous because can lose priority if you had off to show art.
4. If $ is pledge, possession is only way to do this.
ii. Collateral in the Control of secured party. (Control step down from poss.)
1. 3 types of collateral: (All can only happen by CONTROL)
a. Deposit accounts;
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b.

b. Investment Property;
c. Life insurance policy (LA Only 10:9-107.1)
2. Control 3 Ways: (9-104)
a. Bank who holds account has control;
b. Creditor enters into agreement with bank to agree to orders of creditor
(Most common)
c. Bank becomes Joint account holder.
i. 9-106 Control by delivery is preferred method to have property
held (Possess. and having registered on books)
ii. However, it is rare that this will happen in real world.
iii. Purchase Money Security Interest (PMSI) in consumer goods
1. 9-309(1) only need to know (1)
2. 9-102 Consumer goods are bought or used for primarily personal, family
or household use.
3. PMSI Sec. int. that secures the repayment of money actually used to pay
for collateral.
4. Some collateral is not covered by article 9, but LA is more expansive (like
life insurance major advantage of LA)
Problem Set 19 19.1

Chapter 7 Maintaining Perfection

VII.

Assignment 23: Maintaining Perfection Through Changes of Name, Identity and Use
a. Changes In The Debtors Name
i. 9-507(c) Effects of Changes to names on filing of statements
1. When the change becomes seriously misleading, the sec. int. is still effective
as to all property acquired within or before four months after the seriously
misleading change.
2. Unless the fin. statement is amended within four months of such change, all
property acquired after the four month period is not secured.
ii. Distinguish chg. of name from the transfer of collateral to a new debtor 9-507(a)
b. Changes Affecting the Description Of The Collateral
i. Type 1 Changes
1. Change in circumstances that did not control the place of filing but that does
make the collateral difficult for searcher to ID.
a. (i.e. Chg. In use of item inventory Equipment)
2. 9-507(b) Provides that the fin. stmt. remains effective even when the
change in circumstances has made the stmt. misleading.
ii. Type 2 Changes
1. One that is sufficient to affect the method of perfection that would have been
appropriate for the initial filing.
2. 9-507(b) excuses a misdescription, but not other filing requirement.
a. (e.g. car as inventory, then used as equipment, but failed to issue
certificate of title noting sec. int.)
c. Exchange of the collateral
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i.

ii.

iii.

Barter Transactions
1. The exchange of one commodity for another in a transaction in which no cash
is involved. The rules in 315(d)(1) governing perfection in a barter exchange
are different from the rules governing perfection in an exchange for cash that
is then used to purchase the commodity. There are three types of barters:
a. Type 0 i. The proceeds received by the debtor fall w/in the description of
collateral in the already-filed fin. stmt. 9-203(f)
ii. After this type of barter, the secured creditor has a perfected SI in the
new collateral on the basis of the description; and need not rely on
9-315 at all
b. Type 1
i. Exchange of collateral for proceeds in the form of property not
covered by the description in the fin. stmt.
ii. Property in which sec. int. could be perfected by filing in the office
where secured creditors fin. stmt. is already on file.
iii. In this type of barter, the secured party remains perfected without a
new filing. The rule is contained in 9-315(d)(1).
c. Type 2
i. Exchange of collateral for non-cash proceeds of a type in which
filing is required in a filing office other than the one in which the
original collateral was perfected by filing.
ii. To be perfected in these proceeds at all, the secured party must refile.
iii. To be continuously perfected so that it has one perfection dating from
the time of the filing on the original collateral, the secured party must
make these filings within 20 days from the time the debtor receives
the proceeds. 9-315(d)(3).
Collateral to Cash Proceeds to Non-cash Proceeds
1. The debtor may exchange the original collateral for money, then use the
money to buy collateral. Provided it can trace its value through both
transactions, the creditors SI will reach the new property as proceeds of
proceeds. 102(a)(12) and (64).
a. Type 0 The rule is the same as in a barter transaction: the original
filing remains effective to cover goods of the same description.
b. Type 1 The exchange results in collateral that is no longer covered
by the original description in the FS.
i. 9-315(d)(3) requires that the secured party file a FS to cover the
new collateral.
ii. 2nd filing w/in 20 days of the debtors receipt of the new property, the
2nd filing is effective as of the date of the first filing and perfection is
continuous thereafter.
iii. 2nd filing after the 20 day period - dates from the time it was made.
c. Type 2 Changes are treated like type 1 Changes
Collateral to Cash Proceeds
1. the debtor may simply sell the original collateral and keep the cash.

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d.
e.
f.

2. 9-315(d)(2) Grants secured parties continuous, perpetual perfection in

identifiable cash proceeds.
3. Note: secured parties can also perfect in a deposit account as original
collateral by taking control of the account, 9-314(a).
Problem Set 23 23.1(a), (c), (d); 23.5
Proceeds Review Problems

Example:
ABC Co.
i. Fin. Stmt.:
1. Accounts
2. Inventory
3. Fixtures.
Bank
Dec. 17 largest account debtor paid money to ABC (Big Store) they then used to buy a Hiro
Painting for $350,000.
After Acquired Collateral clause make note for Bar Exam, but in reality will have this
Security Interest? Yes they do 9-315(a)(2) shows that they have an interest in the proceeds.
Perfected? Does the Financing Stmt. Mention the painting? This is equipment under the
UCC, and the Fin. Stmt. Fails to mention it. 9-315(d)(1) is an option You could file to perfect
an interest in the painting, but the UCC says that if you see cash at any point (d)(1) will not help
you. (d)(2) this is not identifiable cash or proceeds. (d)(3) Financing statement does not
include equipment, and it is not any of the other things listed so, not perfected. (D) shows
how they had 20 days to file a new fin. Stmt. To include the painting. However they did not, so
no perfection of security interest.
Continuously? Have to ask these three questions in reverse
What if the debtor exchanges the collateral for something else? The exchanged goods are
proceeds, so the SI continues, but what about perfection? Kilborn says there are three
tests, 9-315(d). If the debtor exchanges the collateral for proceeds and the SI in the
collateral was perfected, the SI in the proceeds is perfected for twenty days. After 20
days, it becomes unperfected if it isnt perfected under one of three tests:
a. The original SI was perfected by filing, and if a SI in the proceeds can be
perfected by filing in the same office as the original collateral and filing
for the collateral is good, and the exchange was a straight exchange,
goods for goods.
b. Cash proceeds are automatically continuously perfected until they
become something else.
c. You perfect independently within 20 days to keep continuous perfection.
A FS already filed can still be okay as long as it adequately describes the
new collateral.
Make sure that you have got all of this this is the apex of the course. Kilborn says that
this is the most difficult part of the course.
VIII.

Assignment 24: Maintaining Perfection Through Relocation of Debtor or Collateral

11

a.

b.

c.

State Based Filing In A National Economy

i. The rules that specify where to file and search are found under 9-301-307
ii. These are conflicts rules which govern perfection, effects of non-perfection and
perfection, and priority. They govern perfection by filing, possession & control.
iii. The one thing that will be different in every state is where do you file to protect
your security interest? It will always be in that states office, wherever it may be.
Most states say that you file in the SOSs office. You have to file in the right
place to protect.
Initial Perfection
i. Under 9-301 changes in the location of the collateral are generally irrelevant.
1. 9-301(1) says that the law governing perfection is the law of the jd. where
the debtor is. (WHERE THE DEBTOR IS controlling law of who wins)
2. 9-301(2) talks of a posessory interest in collateral. Sec. Int. perfected by
possession Cross 2 off of your law.
3. 9-301(3)
a. (a) Fixture Filing The jd. where the land is governs.
b. (b) Timber to be Cut Jd. where timber is growing is governing law.
c. (c) Cross this off
4. (4) As Extracted Collateral essentially oil and gas rights.
5. Note: Both (3) and (4) deal with land related collateral, and the law of the
state overcomes the law where the debtor is located. The Law of the jd. of
location is the law that governs, but for everything else, the law of the jd.
where the debtor is located is the controlling law.
ii. 9-307 (a) Place of business means a place where a debtor conducts its affairs.
1. (b) Generally, the following rules determine a debtors location:
a. (1) Individuals located at the individuals principal residence,
b. (2) Organization w/ one place of business is located at place of bus.,
c. (3) debtor that is an organization and has more than one place of
business is located at its Chief Executive Office.
2. (e) Registered Organization that is organized under the law of a state is
located in that state. (P/s not included in this.)
3. Everything else is where the debtor is incorporated. (i.e.: Deleware
Corporation says file in Del. SOSs office to perfect).
4. Non-Registered Organization Must file where office is located. If you have
multiple offices, then its where Chief Executive Office is located.
Relocation Of The Debtor
i. The principle residence of the debtor is often determined by intent of the debtor.
ii. 9-316(a)(2) Upon debtors relocation to another jd., you have 4 months to file
in the debtors new jurisdiction to continue perfection of interest in security.
1. Can become unperfected retroactively. (Generally, you lose to everyone)
iii. 9-316 (a)(3) Upon transfer of collateral to a person that thereby becomes
debtor and is located in another state, you have ONE YEAR to file in the new
debtors jurisdiction.
iv. Note the difference in a new debtor in the sense of different person versus the
reformation of a corporation to a new debtor (used in cross-border mergers)

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d.
IX.

Jurisdiction Review Problems

Assignment 25: Maintaining Perfection in Certificate of Title Systems

a. Perfection In A Certificate Of Title System
i. Every state, but LA, requires certain types of property which move around a lot
will be covered by a certificate of title.
ii. Article 9 says that the certificate of title is the key to protecting your rights under
security interest and under ownership. That is the purpose of the title law.
iii. If collateral covered by a cert. Of title is inventory, then this does not apply, you
dont have to get the lien noted on every cert. of title. You just have to get it in
their records. But if it is equipment, you must have the cert. Of title note the lien.
b. Motor Vehicle Registration
i. You must get the lien noted under the cert. of title. You give this to the DMV and
they will perfect the interest by issuing a new cert. Of title (Outside of LA)
ii. In LA this is an accident LA R.S. 32:710 provides that you have to file a
financing statement with the DMV in LA.
1. Whether or not this is noted on the face of the title is irrelevant in LA.
iii. You can also file an application to have the lien noted on the certificate but all
that matters is that you have this filed.
c. Maintaining Perfection on Interstate Movement of Collateral
i. The rule is whichever jd. issued the title last is the governing rule.
ii. The rule is the same; the secured creditor has four months to realize that this has
changed and re-perfect the interest.
iii. You lose security interest retroactively if the debtor gets another state to issue
another title which shows that you dont have an interest.
d. Problem Set 25 25.1, 25.2(a), (c), (d);

e.

NOTE: We are concerned with maintaining perfection in the collateral and not with the
sec. interest. Even without perfection, the security interest continues, but it will lose
priority without proper perfection.

Chapter 9 Competitions For Collateral

X.

Assignment 28: Lien Creditors Against Secured Creditors: The Basics

a. How Creditors Become Lien Creditors
i. Lien Creditor is any creditor who has acquired a lien on the property involved by
attachment, levy or the like. 9-102(a)(52)
ii. A Lien Creditor is generally one of two people (1) a trustee in bankruptcy OR
(2) creditor who establishes rights in property by attachment, levy or the like. In
LA, second category is more broad. (Judgment creditor is most common #2)
b. Priority Among Lien Creditors
i. Governed by state law and usually set-up on first-come, first-serve basis.
Generally, the law awards priority according to the following dates:
13

c.

d.

e.
f.
XI.

1. Date of levy day sheriff takes possession of property.

2. Date of Delivery of the writ
3. Date of service of a writ of garnishment
4. Date of recordation of a judgment date judgment filed.
Priority Between Lien Creditors and Secured Creditors 9-317 & 322
i. 9-317 Generally, the lien creditor wins when his rights arise prior to the
secured creditor is perfected. However, if the secured creditor perfects prior to
lien creditor, then the sec. creditor wins.
ii. Problem arises when the lien creditor steps in and attaches the collateral while the
secured creditor was in the process of perfection (i.e. still waiting for attachment
after having pre-filed for the interest with the security agreement and financing
statement). Here, the secured creditor would win if he has both the financing
statement and has gotten a sec. agreement with the debtor.
Purchase Money Priority
i. 9-317(e): If the sec. int. that is unperfected is a PMSI (even if the lien creditors
int. was perfected prior to the Sec. Creditors interest), if sec. creditor perfects his
int. in purchase money w/in 20 days of the debtor receiving the value, then the
sec. creditor wins. (must be between attachment and filing usually at different
times)
Problem Set 28 28.1; 28.2 (a), (b); 28.6; 28.7
Know: what is a lien creditor, when do the rights of the lien creditor arise, and when
does a security interest arise

Assignment 32: Secured Creditors Against Secured Creditors (Most Common Scenario)
9-322; 9-317
a. The Basic Rule: The First to File or Perfect 9-322
i. Rule 1 If both secured creditors are unperfected, the first to attach wins.
ii. Rule 2 A perfected sec. creditor beats an unperfected
iii. Rule 3 As between two secured creditors who have done everything the first
of those creditors to either file a financing statement OR perfect wins.
b. Priority of Future Advances
i. Assuming that the financing statement properly covers these as part of the
collateral, all advances made by the secured creditor to the debtor have priority as
of the filing of the financing statement. 9-322(a)(1) implicit in this.
c. Priority in After-Acquired Property
i. Filing covers the security interests when the sec. agreement describes the
collateral broadly. When described specifically, upon acquisition the security
interest attaches to the collateral.
ii. A security interest has the same priority WRT after-acquired property that it has
WRT the original collateral. 9-322(a)(1) Time of filing
d. Priority of PMSI (This is an exception to above rules)
i. Generally

14

e.

f.
g.
XII.

1. PMSI perfected in goods other than inventory within 20 days of delivery of

the collateral to the debtor beats everyone, every secured creditor at least. 9324(a)
ii. Inventory 9-324(b)
1. Difficult Exception: When the collateral is inventory, the rule is: a PMSI in
inventory beats a battling sec. interest in that inventory if
a. Perfection at or before delivery of collateral AND
b. Before that inventory is delivered to the debtor, they must send the
competing creditor an authenticated notification (notice) that you intend
to get a PMSI in the inventory which they also have an interest in.
i. The PMSI in inventory beats the prior interest in inventory, But
MUST meet the requirements on the test and the bar.
Purchase-Money Priority in Proceeds
i. Generally speaking, purchase-money priority under 9-324(a) extends to the
collateral or its proceeds.
ii. Remember priority in the original collateral is the same that you would have in
the proceeds of that original collateral. 9-315(d) says that there are a number of
ways that you can follow this.
iii. Exception: Purchase-money status flows only into chattel paper, instruments and
cash proceeds. 9-324(b).
1. The limitation prevents purchase-money status from flowing into other kinds
of proceeds, most notably accounts
2. Even the exception is limited by 9-327, 9-330
Priority in Commingled Collateral Not covered by Class!!!!
Problem Set 32 32.1, 32.3, 32.4, 32.7, 32.9

Assignment 36: Buyers In The Ordinary Course Against Secured Creditors

a. Introduction
i. A Security Agreement is effective against subsequent purchasers. 9-201;
ii. Even in an absence of such a provision, a security interest continues in the
collateral notwithstanding the sale. 9-315(a).
1. Exception:
a. If the buyer takes delivery prior to the perfection of the security interest,
then the buyer takes it free of the security interest. (Rare)
b. Buyers of Personal Property
i. Authorized Disposition Exception 9-315(a)(1)
1. Sec. int. does not continue when secured party authorized the disposition free
of the sec. int.
a. This does not need to be express, it can be done through waiver when
creditor knows of sale and does nothing about it.
ii. The Buyer in the Ordinary course Exception 9-320(a) Focus of Class Matl.
(Count Requirements in UCC)
1. As a Buyer in Ordinary Course, you buy free of any prior perfected sec. int.
2. A buyer in ordinary course, must meet the definition 1-201 (b)(9)
15

c.

a. You have to be buying from someone in the business of selling that thing.
Can only be a buyer in the ordinary course of inventory, you cannot be a
buyer of equipment. AND must be in ordinary course of inventory
sellers business.
3. Buyer in ordinary course must meet the following criterion to take free of any
previously perfected sec. int.:
a. Purchase made for new value.
b. Buy in good faith cannot be trying to undermine someones rights.
c. Without knowledge that the sale violates the secured creditors rights.
You can know that a sec. int. exists in the thing bought. (Diff. avg.
buyer would have no idea that the thing violates the rights of the creditor
usually not a violation b/c the creditor would allow this)
4. The sec. int. of which you are taking free must have been created by the
buyers seller. (Ex where not true: when dealer 2 sells X to another dealer,
when X had an sec. int. attached b/c not in the ordinary course of business
to sell between dealers)
5. Cannot take free of a int. in farm products cannot buy a farm product free
and clear will not look to why this is b/c of separate law just know it.
6. The inventory that the buyer is buying cannot be in the possession of the sec.
creditor.
iii. Consumer to Consumer Sale Exception 9-320(b) AKA Garage Sale Exception
1. The goods must be consumer goods (for personal use) in the hands of the
seller and the buyer to fit within this exception.
2. If the buyer does not have knowledge of the sec. int. and the sec. int. is
unperfected, the buyer takes free and clear.
a. In LA knowledge does not matter, only the failure to file matters.
Problem Set 36 36.1, 36.2, 36.3(a);

Moving from Movable Property to Immovable Property here.

XIII.

Assignments 20 & 33: Fixtures & Priority

a. Real Property Recording System (P. 345)
i. Since the rules are different for recording real property and filing of personal
property, this is where the overlap occurs because it deals with property which is
neither clearly real nor clearly personal.
ii. Three types of property you will encounter in LA at this intersection of movables
and immovable rights
1. Timber Only subject to title 9, as a component part, when 3 req. met:
a. Destined for harvest
b. Promised/Conveyed in advance to the ultimate owner.
c. Only if the landowner has conveyed that timber to a non-landowner in a
recorded timber agreement.

16

b.

c.

2. Mineral Rights Category called as extracted collateral this is oil, gas and
mineral rights which are included in a sec. agreement and the interest does
not attach until the minerals are extracted.
3. Crops Distinction in crops that are owned by the landowner and not owned
by him. If a sec. int. is given in these, then they are moveable by
anticipation. The only law that applies is article 9. So, you cannot get a
mortgage on crops, because it is not an immovable property right. 9-344(i)
makes this clear.
iii. Issue arises between the mortgage holders and the person with a sec. int. in a
component part to the building (fixtures).
Fixtures
i. Generally (348)
1. First, you have to determine what will be included within this? Will
component parts be included in this? On Final, (o)note that this is an issue
2. Goods are fixtures when the have become so related to particular real prop.
that an interest in them arises under real property law. 9-102(a)(41)
3. Distinction between this and lien is that he lien encumbers the entire
property; whereas, a sec. int. in a fixture only encumbers that fixture.
ii. How Does a Secured Creditor Perfect in Fixtures (350-355)
1. Outside LA:9-334(e)
a. By Mortgage on the property,
b. By Article 9 Fixture Filing, OR
c. Filing an ordinary financing statement in the UCC personal property
filing system, a sec. creditor can perfect a security int. in goods that are
fixtures. 9-501 does not require filing in real estate records to perfect
in fixtures.
d. Distinguish the following:
i. Difference from a Normal financing statement is that it describes the
immovable property of which the fixture is attached.
ii. Other big difference is that fixture filings are made in the mortgage
filings. Thus, it must be filed in the mortgage records in the county
where the immovable property is located as opposed to the state
level.
2. In LA (ONLY) 3 specific rules/exceptions:
a. Must get your fixture filing on file prior to the moveable becoming fixed
to the immovable. You lose your security interest all together if you
allow it to become fixed prior to filing.
b. Consumer goods that currently are or will become component parts are
not at all subject to Article 9. You can acquire a mortgage interest in
them, but you have no other way to get a security interest in them.
c. A fixture filing is not made in the parish where the immovable is
located a fixture filing is made in the normal UCC records in any
parish, and not the mortgage records.
Priority of Article 9 Fixture Filings (549-551) 9-334 who wins?
i. Sections of 9-334 do not apply in LA So read comment on this!!!
ii. Outside LA Highpoints of 9-334
17

d.

e.
f.
XIV.

XV.

1. Default rule is that the mortgagee wins.

2. Fixture filer will win in two instances:
a. First to file 9-334(e)(1), OR
b. Even if the Mortgage was Rec., if the sec. int. is a PMSI, the fixture will
beat a pre-recorded mortgage if it is filed within 20 days of the thing
being attached to the immovable property. (Outside LA only; LA has
other requirements)
3. If the mortgagee consents to the fixture being removed or consents to the
fixture filer to have priority, then the fixture filer wins. (not likely to occur)
4. Outside LA a fixture filing is not required & attempting to perfect your
interest is enough. 9-334(e)
iii. Be sure that you distinguish consumer good from fixture when you move in and
out of LA. In LA the only way to have an interest in consumer goods are through
mtg.
iv. Inside LA If you dont have a fixture filing before the thing is attached you
have NOTHING! (3 requmts. to obtain interest in movable destined as immov.)
1. Must be perfected,
2. By fixture filing, AND
3. Prior to it becoming an immovable.
Exs Where fixture Filing Wins:
i. Fixture filing prior to the sec. interest was recorded.
ii. If the fixture sec. int. is a PMSI, then a PMSI will beat even a pre-recorded
mortgage, but not a construction mortgage.
Problems Set 20 20.1 (a), (b), and (e)
Fixture Priority Problems

Assignment 29: Lien Creditors Against Secured Creditors: Future Advances

a. Priority of Future Advances: Personal Property (P. 472-474) 9-323
i. Generally, future Advances by a sec. creditor prevail over a lien creditors int.
1. When every secured advance made is within 45 days after the levy is entitled
to priority over the lien, even if the sec. creditor has knowledge of the lien,
the sec. creditor wins.
2. Every advance made pursuant to a commitment entered into without
knowledge of the lien is also protected.
ii. Exception (9-323(b)) states that if both 45 days after lien creditors interest
arose AND secured creditor had knowledge of the lien creditors interest, then the
lien creditor wins.
b. Problem Set 29 29.2
Assignment 38: Competitions Involving Federal Tax Liens: The Basics
a. The Creation and Perfection of Federal Tax Liens
i. Similar to a Bankruptcy trustee This is the other big bad lien creditor.

18

ii.

b.

c.

The Tax lien statute Trumps UCC 9, because of supremacy clause (IRS Tax is Fed
Law).
iii. Able to beat sec. creditors in narrow circumstances:
1. When does a tax lien arise? It arises against the debtor as soon as the tax is
assessed and extends to all of debtors movable and immovable property.
a. What does it mean, when it has been assessed? One of two ways:
i. If taxpayer has filed a return admitting his or her tax, when it is
signed off on by an agent, then it has been assessed.
ii. (More common) tax is assessed if the taxpayer does not admit
liability 90 days after the IRS mails notice of deficiency.
b. As of the day that it arises, they can come and take anything they want to
settle the debt. Remember, that the b/r statutes have exemptions, but the
IRS is federal and trumps those exemptions. Further, there are fewer tax
exemptions.
2. When is it perfected? The IRS has to give notice of tax lien and file notice
w/clerk of court (La.) to perfect their interest and it is in effect against third
parties from that point forward.
Competitions Involving Federal Tax Liens
i. Priority what if you have an already perfect sec. int.? The same priority rule
that you would expect for a lien creditor is here. A perfected sec. int. prior to the
tax lien beats the IRS WRT current property/collateral on the day of the tax lien
notice filing. Perfection upon FILING notice of tax lien.
1. IRS gets a couple of exceptions to this:
a. After acquired collateral IRS takes adv of a Doctrine known as
Cohateness. If a prior perfected sec. creditor has an interest in after
acquired collateral, the Cohateness Doctrine steps in to say that the IRS
wins over everyone WRT property acquired after the tax lien.
Essentially retroactive ranking occurs with IRS in the lead.
b. Future Advances The IRS does not beat all of these people, the rule is
similar to that of lien creditors. The difference here is that the rule is that
the sec. creditor will win against the IRS even WRT IRS. As long as the
future advance is in conformance with the agreement, the sec. creditor
will win. Unless, the sec. creditor made the loan either after 45 days of
the Tax Lien OR has knowledge of the Tax Lien. (Rare Concept)
Distinction is the word OR (Basically there to counter efforts to avoid
tax lien).
Problem Set 38 38.2

This is all relatively rare and he will not really cover any of the following on the final:
XVI.

Assignment 13: Default, Acceleration, and Cure Under State Law

a. Default
i. The debtors failure to pay the debt when due or otherwise perform the agreement
between debtor and creditor. (Must establish this)

19

b.

c.

d.

e.

1. Terms of default typically, they are construed expansively in favor of the

secured creditor. (debtor wants narrow construction of terms)
2. The Secured party may waive default or cure default at debtors expense.
3. Default could be falling below certain revenue levels, etc.
4. By in large, you will have to establish more than one default. You will
multiple payments, each of which you may default on missing one payment
is default on only that one payment. Cannot default on an obligation that is
not yet due, unless the S/a provides so.
When Is Payment Due?
i. Installment Loans
ii. Single Payment Loans
iii. Lines of Credit
Acceleration and Cure
i. 1-309 says you can accelerate as long as you are in good faith. (LA has yet to
adopt this section)
ii. Often a clause inserted into the sec. agreement which provides that the creditor at
its option may declare all of the payments immediately due and payable.
1. Effectively this eliminates the debtors ability to cure his default.
iii. Limitations on Enforceability of Acceleration Clause:
1. Generally, the creditor can accelerate for any default.
2. However, if the grounds for acceleration are merely that the creditor is not
secure, the creditor can only demand acceleration if in good faith the creditor
believes the prospect of payment or performance is impaired.
iv. Debtors Right to Cure
1. A debtor has a right to cure his default by paying the amounts then due.
2. Generally once acceleration has occurred, a debtor can cure only by paying
the entire amount of the accelerated debt.
Procedures after Default (2 Basic Remedies)
i. Judicial Remedies (Foreclosure and Replevin);
ii. Self-Help Remedies (repossession, notification of account debtors, or refusal to
make future advances to the debtor under line of credit)
Problem Set 13 13.1, 13.3

Assignment 2 & 3 (Overview) Foreclosure & Repossession of Collateral

Steps to Regaining interest if Creditor:
(1) Repossession at some point the collateral must go from the debtor to the creditor.
i. With movables it is easier
ii. You really want to get this with an immovable
(2) Foreclosure Generally this is the name, but this is the stage in the process which cuts off
the debtors right to cure his default.
XVII.

Assignment 3: Repossession of Collateral

a. Self-Help Against Accounts as Collateral (Repossession)
i. Outside LA
20

ii.

XVIII.

1. After Default the S/c can repossess the collateral at any time or can make it
unusable. (Self-Help Repo.)
2. In so doing, the creditor cannot breach the peace [a std] (Only req.)
In LA.
1. Prohibits Self-Help Repo.
a. Exception: if the collateral is in accounts what you do is send a notice
and you say, I just notified you that I placed the debtor in default & you
now pay me, the creditor.
b. Cars are also an exception to this prohibition of self-help
2. Can take the possession only in 3 instances:
a. (1) Debtor Gives it to you
b. (2) Debtor can consent to Repossession (Only after default)
c. (3) Send out the sheriff Creditor gets a writ of seizure and sale. (Most
common)
3. Moveable and Immovable Property Legislature allows a summary judicial
process called an executory process where repossession by judicial action is
much more simple than regular COA. (Only WRT the collateral and not the
status of Debtor)

Assignment 2: Security and Foreclosure

a. Foreclosure Proceeding - 9-623 (The creditor does not want to wait for this, so he can
sell the property and recoup his money).
i. 3 methods to foreclose:
1. Collection of accounts speaks for itself;
2. Selling of property or otherwise disposing of property; OR
a. By judicial Sale (In LA most common)
i. Writ is one of seizure and sale
ii. The Sheriff is entitled to public seizure and public auction.
iii. Secured Creditor can bid in this process and it will effectively give a
credit to the debtor.
iv. When a deficiency remains after the sale, then the creditor is
unsecured at this point so they would have to get a deficiency
judgment which is not practical to obtain, so they dont do this often.
1. Deficiency Judgment Act (DJA) LA requires an appraisal
and the auction must produce at least of the value or else it
will be credited to the creditor.
2. Generally Know that there is a mechanism to reduce the
deficiency for immovables, but not movables. And that these
auctions usually get really low prices.
b. By Creditor (Outside LA; sometimes in LA)
i. The Creditor can do anything they want with the property as long as
the process is commercially reasonable, it is ok to do it. You can do
a private or public sale. You can lease it, etc.
ii. 9-276 gives us ideas of what is commercially reasonable.

21

XIX.

XX.

iii. Creditor can bid at his own sale if it is public. If it is a private sale,
then the creditor can only bid if the collateral is perishable or subject
to widely disbursed price quotations.
iv. Creditor has to send notice to debtor and anyone else who might have
an interest in the property.
v. Any sale w/ a surplus surplus goes to the debtor.
vi. Article 9 states that if a debtor complains, then the creditor will have
to show that the sale was commercially reasonable.
3. Trade of collateral in exchange for the debt (Under Article 9, this is Strict
Foreclosure; in LA this is dation en paiment)
a. Art. 9 Creditor sends the debtor a proposal to do this and the debtor has
20 days to respond. Also, send notices to everyone else with an interest
in the property.
i. If nothing happens in the 20 day period, then you have strict
foreclosure.
b. If property is consumer goods, the creditor would have to repossess first.
c. If Debtor has paid 60% of the loan, then no strict foreclosure.
d. Immovables the debtor has to agree in writing to this S/f (in LA).
Outside LA called a deed in Lieu of foreclosure. Not v. common
b. Dont worry about this too much, just understand three step process of (1) Default, (2)
Repossession (3) foreclosure
Assignment 4: Judicial Sale and Deficiency Covered Above
a. Strict Foreclosure

b.
c.
d.
e.
f.

Foreclosure Sale Procedure

b.
c.

Sale Procedure Under Article 9

Problems with Foreclosure Sale Procedure

Credit Bidding At Judicial Sales
Judicial Sale Procedure: A Functional Analysis

Problem Set 4 4.1

Assignment 5: Article 9 Sale and Deficiency Covered Above
a. Strict Foreclosure Under Article 9

d.
e.

Problems with Article 9 Sale Procedure

i. Failure to Sell the Collateral
ii. The Requirement of Notice of Sale
iii. The Requirement of a Reasonably Commercial Sale
Article 9 Sale Procedure: A functional Analysis
Problem Set 5 5.2, 5.3, 5.6 END

OF ARTICLE 9

LA CIVIL CODE (Mtg.; Priv.; PWA; Surety)

I.

Conventional Mortgages
a. Creation
i. Introduction

22

ii.

1. Article 3278 3283

a. Mortgage is a non-possessory security right against an immovable.
b. It confers upon the creditor the right to have the property seized and sold
c. It is an indivisible real right which burdens the entire property and which
follows the property
d. Its established only as authorized by legislation
e. Its accessory to the obligation that it secures.
i. Thus, mortgage is only enforced to the extent the mortgagee may
enforce any obligation it secures.
2. Types: Article 3284 85
a. Conventional (K),
b. Legal (Operations of law), OR
c. Judicial (est. by law to secure judgment);
d. Extent of Mortgage
i. General Mortgage Burdens all present and future property of the
mortgagor
ii. Specific Mortgage Burdens only certain specified property of the
mortgagor
1. Distinction: lies in the necessity for particularly identifying the
property subject to a special mortgage.
2. General Mortgage is valid upon proof that the mortgagor owned
the property during the time a general mortgage is effective.
Subject to the principles of recordation.
3. Absent legislation, Conventional Mortgage is special, while
legal and judicial mortgages are general.
3. Property Susceptible of Mortgage Article 3286
a. Corporeal Immov. And their Corporeal Parts
b. Usufruct of Corporeal Immovable
c. Leasehold rights
d. Servitude of right of Use
e. Any Property made susceptible of Mortgage by Special Law
f. Note: this can include partial ownership in an undivided interest of
property
4. Article 469, 2440 cmt. (b), R.S. 9:5391
a. Mortgage automatically extends to any of the component parts that are
part of the immovable, whether future or present.
Conventional Mortgages (Compare this w/ UCC 9)
1. No special words required to form a mortgage.
2. 4 Requirements of K of Mortgage (Art. 3287, 3288)
a. Established only by Written K. (Art. 3287)
b. State precisely the nature and situation of each of the immovables or
other property over which it is granted; Description
i. Avoid use of municipal address
ii. Use Metes and Bounds property description; with reference to
subdivision or plat map.

23

b.

iii. How do you describe the property if it is a related right like a

usufruct or lease, etc?
1. Usufruct state usufruct and the description of the property.
2. Lease you have the law of lease which provides for this you
would only have to make a reference to the recorded lease. To
be safe, you could also make a cross-reference to the recorded
mtg. filing.
c. State the amount or the maximum amount of the obligation; AND
d. Be signed by the Mortgagor.
3. The requirements for a mortgage are similar to the UCC 9 in that they require
value be given, but the form requirements are biggest difference.
4. Mortgagee need not sign K of mortgage, whose consent is presumed. (Art.
3289)
5. Must have power to alienate property to est. mortgage (Art. 3290)
6. Presumption that things are subject to Conventional Mortgage, unless parties
provide otherwise. (Art. 3291)
7. When Mortgage of future property is permissible: (Art. 3292)
a. ONLY do this when you can specifically describe the property.
b. A special mtg. is est. when the mortgagor acquires the property
described.
i. General Mtg. of indefinite future property is prohibited. (cmt.),
unless expressly provided by law.
8. A conventional mtg. May be est. to secure performance of any lawful
obligation; The obligation may have a term or subj. to condition. (Art. 3293)
9. Mtg. Which secures an obligation other than the one for the payment of
money secures the claim of mtgee for damages arising from breach of
obligation up to amt. stated in mtg. (Art. 3294)
10. Cannot assert lack of capacity or discharge in Bankruptcy as a defense to a
mortgage securing anothers obligation. (Art. 3295)
11.Lease represents two rights (1) right of landlord to rent, and (2) lessors
reversionary right to sell the property (3) lessees right to remain on the
property; However, a mtg. cannot encumber a lease or a rent for a security
device must follow La. R.S. 9:4401.
iii. In Rem Mortgages
1. The mtgees recourse for the satisfaction of an obligation secured by a mtg.
may be limited in whole or in part to the property over which the mtg. is
established. (Art. 3297)
iv. Pignorative Contracts and Bond for Deed
1. This a transaction which is a mortgage, but is disguised to avoid the effects of
a mortgage.
2. Courts will treat this as a mortgage, but if you dont follow the
law/requirements of mortgage, you will lose out since it never created the
sec. int.
v. Class 14 Problems
Recording (Public Records Doctrine) Perfection under UCC 9.
i. Filing/Recordation

24

ii.

iii.

1. Biggest Difference in real estate filing and personal property filings is that the
debtors name is not as significant in the mortgage system.
2. Priority depends on the type of statute governing the filing:
a. Race (LA) first to file wins (Same as article 9);
b. Notice When unidentified party has notice that is enough; OR
c. Notice- Race Either day of notice or first to file to have priority.
3. Mtg. is effective as to 3Ps Upon Filing in parish where immovable is
located. (Art. 3308)
a. Filing must be in proper office and location
i. i.e.: Orleans Parish have 2 records offices: conveyance and mtg.
Must file in mtg. for mtg. to be effective as to 3Ps.
b. Must have Recorder endorse the time filed on the act
c. Old Law Must have actual filing by Atty and priority established when
recorded.
d. The mtg. may be totally misleading and the filer may even fail to file it,
and it does not matter. ONLY the fact of filing matters!!!
4. 3Ps neither party to mort. K, nor univ. succ., nor those bound by K to
recognize the mortgage (Art. 3309)
5. Witness to an act is not a party to the act. (Art. 3310)
6. Notarial Acts are effective against 3Ps upon deposit in the office of the
parish recorder or register of conveyances where the immovable is located.
7. Dont require a connection between the mtg. and obligation now.
8. Paraph no longer required paragraph on the note which sometimes
provided Ne Varietur meaning dont change this note. Purpose was to make
it clear that this note is what is secured by the mtg.
Duration of Inscription (Limited in time, like Article 9)
1. Generally, the effect of R of documents creating a mortgage or evidencing a
privilege ceases 10 years from the date on the act of mtg. (Art. 3328)
a. Time period commences from date on act of mtg. and not the date
promissory note is signed neither the date of filing.
b. Exception: Art. 3329 when the act of mtg.
i. Describes the obligation that is secured AND
ii. Describes the oblig. as mature 9 years or longer from act of mtg.
iii. Then, mtg. is effective 6 years after the maturation of the obligation.
(i.e.: maturation in 30 yrs 36 yrs. of effectiveness)
c. Old Law Used to measure from date of obligation
2. Reinscription (Similar to Article 9)
a. Reinscription extends effectiveness of original filing by 10 years, when
filed before the effects of original filing cease (10 years). Art. 3334
b. When filed after cessation of original filing, effects of recordation are
only from the date of this filing (including rank). Art. 3335
c. Accomplished by filing a signed, written notice of reinscription. It must
state the name of the mor, recordation date of document or of a prior
notice, and declares the document reinscribed. Art. 3333
Cancellation (Art. 3337)
1. Recorder shall cancel or erase a mortgage or privilege when:

25

c.

a. Evidence that the mortgage or privilege is extinguished;

b. Directed to do so by mortgage;
c. Effect of registry ceases under Arts. 3328-31 & recorder directed to
cancel the mortgage or privilege; Or
d. Ordered by a judgment.
2. Art. 3337 summarizes the instances when recorder will cancel a mortgage.
iv. Class 15 Problems
Transfer and Termination
i. Transfer
1. When you transfer the obligation, you transfer the accessory rights with the
obligation, which includes the mtg. Art. 2645
a. The obligation is what has value, but the mtg. enhances the value.
2. TWIST: Creditor does not have to transfer all the obligations which are all
secured by the same mortgage.
a. A Transferor of part of an obligation secured by mortgage does not
subordinate his rights to those of the transferee WRT his retained portion
of the mtg. Art. 3313
b. Old law said that this did imply subordination of transor rights for
Transees rights.
3. Absence of agreement to contrary proceeds realized from enforcement of
the mtg. are allocated among the obligations according to the relative amts
owed at time of enforcement. Art. 3311
4. Unrecorded release, amendment or modification of the mtg. does not bind the
transferee to an obligation sec. by a mtg. if he is a 3P WRT unrecorded act.
Art. 3314
5. Just like Article 9, the mtg. follows the property.
6. Third Possessor one who acquires mtged. property and who is not
personally bound for the obligation the mtg. secures. Art. 3315
a. Ex: one who acquires the property w/o knowledge of mtg.
b. OR expressly takes property subj. to mtg., but does not assume principle
obligation secured by mtg.
7. Third possessor is liable for deteriorations due to his deed or neglect to
prejudice of mtgee. gives rise to action for indemnification to former
possessor. Art. 3316
8. Once the mtgee has received un-enhanced value of the prop, third possessor
may recover the cost of any improvements he made to the prop. to the extent
provable (meaning diff. in prop. value to enhanced property value) Art. 3318
ii. Termination
1. Mtgee may only enforce the mtg. to the extent that he may enforce any
obligation which it secures. Art. 3282
a. Note: The obligation may not be enforceable by one person, but once the
obligation is transferred, then other party may be able to enforce it, if
they are a holder in due course.
2. May establish a mtg. to sec. obligations of another person. The mtgor may
assert any defense that the obligor may assert against the mtgee. Except lack
of capacity and bankruptcy. (Art. 3295)

26

iii.
II.

3. When obligor may assert that obligation that the mtg. secures is
unenforceable or extinguished, then the mtgor may raise same def. Art. 3286
4. Methods of Extinction (Art. 3319) We focus on Three:
a. Extinction or destruction of the thing mortgaged. (Similar to UCC 9)
b. Prescription of all the obligations that mtg. secures. (Most Common)
i. Monetary obligation not secured by a mtg. are subject to 3 year
Liberative Px. Art. 3494
ii. Px begins to run once payment is demandable!
iii. Actions on instruments and promissory notes, whether negotiable or
non-negotiable instruments Px after 5 years from day of payment
becomes exigible. Art. 3499
iv. Must look to type of debt Either installment notes or lump note.
v. Liberative Px is interrupted when debtor acknowledges the right of
the creditor. Art. 3464.
1. Resets clock for another 5 years.
2. Acknowledgment may be anything, but you would want a
writing for evidentiary purposes.
vi. SCOTT v. CORKERN If a creditor is holding
anything in pledge for something else, it constitutes a
constant acknowledgement by the debtor of the
obligation. Even if the thing is worthless, it is enough
that the debtor allows the creditor to hold something
which indicates that debtor owes an obligation.
c. When all obligations, present and future, have been incurred and
extinguished (once primary obligation is gone, you cannot have a mtg.
on something that does not exist since its accessory to sec. int. same
w/ UCC 9)
i. Indication of above: The transferor warrants existence, validity and
enforceability of the mtg. only to the extent he warrants obligation
for the same. Art. 3312
Class 16 Problems

Collateral & Multiple Indebtedness Mortgages

a. Collateral Mortgage Packages
i. The basic mortgage involves one obligation/loan. Once the obligation is fulfilled/
paid off, the obligation is gone Until this relatively modern financing
technique, the priority of the first loan would not apply to a second loan.
ii. Mtg. can secure future loans like a construction loan where the obligation
includes all the draws/tanche that will be taken out over time to build the building.
But still this is the basic transaction of one loan out and one obligation to be paid.
iii. Problem arises under modern financing. What you want as a businessperson is a
line of credit. This is essentially an agreement with the bank that says that you
have access to a certain level of borrowing and you dont want to take out large
loan right now, b/c of interest, etc.
1. Over time, the amount loaned fluctuates, and the bank wants whatever
amount is outstanding to be secured by a mtg.

27

2. Prior to 1992 THE PROBLEM the bank could not have a mtg. for a
fluctuating line of credit, because once the total of all the loans equaled the
maximum amount/credit line stated, the bank could not longer loan money
under this note. Also, once the payments totaled the amount of the loan/line
of credit, the obligation was extinguished; you would have to get a
different/new mtg. and would have a much different date of priority on the
new mtg. As a result, you would lose priority of original extension of line of
credit. Simply A MATTER OF RANK this is the issue!!! Bank does not
want to have to go back for new loan, b/c (1) inconvenient, (2) interruption in
rank and the property is much less secure, the int. rate will be higher, and
hinder the flow of money. (DEBATE on this )
3. We found a way around this problem w/o use of mtg. law. LA lawyers used
pledge (a movable sec. law) in the 1800s to get around this. The problem
was that immov. property was not subject to pledge, it was subject to
Antichresis. This is where the notion of collateral mtg. was derived.
a. Collateral is the property that sec. an obligation. Collateral Also means
side, ancillary to something else. Its an ancillary right. Essentially a
mtg. that stood at the side of the transaction.
b. This is not a separate kind of mtg. This should be called a collateral mtg.
package.
i. Collateral Mtg. Includes a document which looks like a
conventional mtg. and subject to same rules, but it is used in
collateral mtg. in a particular way.
ii. Pledge rules are pretty much the same as article 9 rules, so Article 9
governs the collateral mtg. situation.
4. Collateral Mtg. Trans. Has following Docs:
a. Collateral Mtg. (Conventional Mtg. on property securing obligation to
repay hand notes)
b. Promissory Note
c. Hand Notes
d. A Collateral Mtg. Note
i. AKA Ne Varietur Note not required anymore.
ii. Debtor signs the note
iii. Note is generally payable on demand to the bearer of the note.
iv. Note usually includes a surplus payable on demand, but it is not what
it looks like. (i.e.: credit line of 5 mil. and note says you pay $7.5
mil. Upon demand to bearer of the note).
v. Pledge the note to the bank. (Sometimes this was memorialized in a
sec. agreement where the debtor declares a pledge of the
promissory note to the bearer to secure any and all indebtedness at
any time in the future. By Taking possession, the bank attaches it
sec. int. and value has been given in the loan)
1. The bank under this note would make loans known as hand
notes. These told you how much money the debtor has
borrowed. Perfection was accomplished here by taking and

28

iv.

v.

keeping possession of the note. Losing possession and

regaining possession will result in loss of original rank.
vi. Everyone knows that the borrower did not intend to borrow 7.5 mil,
because this was not a real obligation. Also, the number is totally
arbitrary. The courts and attorneys will say that this is theoretically
valuable even though not really enforceable.
1. DIAMOND SERVICES v. BENOIT Stands for The CMN
is not really enforceable, because not a real obligation. The
hand notes are the only real obligation.
vii. Only if the debtor does not pay back the hand notes, will he be in
default. The CMN was itself secured by a mtg. Under the pledge of
the CMN the hand notes can go up and down, because the pledge
law does not care about the amount of the note. The mtg. complies
with the mtg. law, because now you have the precise obligation to be
described, which is the CMN. It described the CMN as $7.5 mil.
This is a fictitious obligation one time which will never be repaid.
The only repayment will only be on the hand notes, because its the
only real obligation.
viii. You can foreclose on the $7.5 mil. Mtg. to retain amount of money
owed. Problem is that the debtor did not borrow 7.5 mil.
ix. The courts do not allow this, the total amount that you could ever
take from the value of the immovable property is the lesser of the
collateral mtg. note or whatever the debtor has actually borrowed.
(So, if the debtor has borrowed less than CMN, all you can recover is
what the debtor borrowed.)
x. The reason that you make the CMN so big is to make sure that the
CMN will allow the bank to recover whatever the borrower may
have actually borrowed.
5. Prescription understand that the CMN is a note which rep. A payment
which is payable upon demand, so after 5 years, the transaction would
prescribe, b/c the mtg. is now gone.
a. Ways to avoid this: La. R.S. 9:5807 says that any payment on the hand
notes interrupts Px. on the pledge.
b. Another way to maintain the priority when nothing is owed, but you want
to continue the transaction the debtor would sign an act of
acknowledgement.
c. Obligations on the hand notes can never Px, even after five years have
passed, because the obligation which is secured by the possession of the
pledge is a constant acknowledgement. (Dist. this from possession of the
CMN).
Since 1992, none of this is necessary. Now you have the multiple indebtedness
mtgs. Reasons why multiple indebtedness mtgs. are not totally useful yet:
1. People already have and are used to the forms for collateral mtg.
2. Not entirely clear what LA courts will do with this law. It may be challenged
and thrown out by a LA judge as being inconsistent with civilian notions.
No registry requirements for collateral mtgs. La R.S. 9:5554

29

b.

c.
III.

Multiple Indebtedness Mortgages (AKA 3298 Mtg; or Mtg. to secure future adv.)
i. Banks priority WRT a mtg. ranks when its filed, and it can describe any future
indebtedness in whatever amount, provided it states a maximum amount. Art.
3298
1. Required language: Any and all indebtedness up to a maximum amount
ii. When recording, must entitle the document as multiple indebtedness mtg. or
multiple obligations mtg. on the first page.
iii. This should not be paraphed in any way, because it messes things up. Also, dont
have to do for collateral mtg.
iv. Disadvantage is only that people are not used to it. Judges in particular.
Class 17 Problems

Legal and Judicial Mortgages; Ranking Mortgages

a. Legal Mortgages
i. Legal mtg. secures an obligation specified by the law that provides for the mtg.
ii. Legal mtg. arises when the law provides for it. Art. 3301
iii. Legal Mtg. on property of tutor or curator ceases 4 years after termination or
judicial removal from the tutorship or curatorship. Art. 3331 A
1. The same 4 year period applies to special mtgs. give by tutors, curators of
interdicts and absentees, and succession reps.
2. Regardless, the effect of recordation ceases ten years after the date of the act
of mtg. Art. 3331 B
iv. VERY COMPLICATED AND WILL PROBABLY NOT COME UP ON FINAL
b. Judicial Mortgages
i. Judicial mtg. secures a judgment for payment of $. Art. 3299
ii. Can Bring foreclosure proceedings on this.
iii. Judicial Mtg. is created by filing judgment with recorder of mtgs. Art. 3300
iv. Not affected by or suspended by a suspensive appeal or stay of execution. Art.
3304
v. Judgments of anther jd. Must file an authenticated copy of judgment of a court
of a jd. foreign to this state, only creates a mtg. by:
1. Special legislation, or
2. When accompanied by a certified copy of a judgment, or
3. Order of a LA court recognizing it and ordering it executed according to law.
vi. In all other cases, the La courts must decide the case the same, and then judgment
must be filed in the same manner as other judgments. Art. 3305
vii. Judgment against a deceased person burdens his property ONLY. Art. 3306
viii. The effect of recordation of a judgment creating a judicial mortgage ceases 10
years after the date of judgment, unless the judgment is revived. Art. 3330
ix. Prescription of money judgment ceases 10 years from the date of signing, unless
an appeal has been taken. In which case it is 10 years from date of final
judgment.
1. Judgment of another state is subject to same time from date of rendition;
unless, barred by the statute of limitations, or is otherwise unenforceable
under the laws of the jd. in which it was rendered.

30

c.

d.

2. Code of Civ. Pro Article 2031 provides the method for revival of money
judgment Subject to ten year period after revival and any interested party
may revive as many times as the like. Art. 3501
3. Failure to prevent Px, will result in loss of everything
x. Filing notice of reinscription is sufficient to continue the effects of the mtg. La.
R.S.
1. Failure to re-inscript results in loss of priority, but not sec. int. 9:5502
Both Legal and Judicial Mortgages
i. Burden all the property of the obligor that is made susceptible of mortgage by
Article 3286 or that is expressly made subject to jud. or legal mtg. by other law.
Art. 3302
ii. These are general mtg.s and estd. over property owned by the debtor when mtg.
is created and property acquired after the mtg. is established. Art. 3303
Ranking Mortgages
i. Generally, the First to File wins. The mtgee is superior in rank to both unsecured
creditors and as to others whose rights are effective after mtg. creation. Art.
3307(3)
ii. Mtg. has effect between parties from est. of mtg. and from the time of filing as to
3Ps. Art. 3298(B). Also, Multiple indebtedness mtg. ranks ahead of any future
mtgs. This is like Art. 9, but different, because this rule is not present in mtg. law.
(Knowledge & 45 days; Unless IRS beats sec. int. or mtg. either w/ Knowledge
OR 45 days)
iii. Collateral Mtg. Package Ranks from the moment at which both the Collateral
Mtg. is filed of recordation AND when the creditor has perfected its either pledge
(prior to 1990) OR sec int. (after 1990) in the mtg. note.
1. To avoid a problem, these should be done on the same day, but does not have
to be done on the same day.
2. Before 1990 the pledge articles governed the transaction and said a pledge
is complete by same test as possession under article 9 essentially, the debtor
has to have rights in the collateral, the debtor must give over the note to the
creditor with agreement (which had to be written sometimes or not) could
be oral;
a. THE DIFFERENCE is that nothing else was required other than GF
prior to 1990.
b. Toups & Campbell says that pledge from the moment of turning over
the note and agreement to the obligation is enough, even if no advances
had been made! This was enough to show that CMN had been perfected
and once recorded, you were fine
3. After 1990 when we adopted article 9 they said pledge does n/a anymore.
a. They have a clear 3 step test:
i. Debtor has rights in collateral
ii. Creditor has possession of the note.
iii. Value has been given - this was not required; possession WAS
enough for attachment and perfection requirements.

31

e.
IV.

4. So, you could not rank until value has been given after 1990 Only after the
advance has been made does attachment begin, in typical circumstances. You
must have filing and sec. int. must be perfected to determine the ranking.
a. Exception is when you have a binding commitment to make a future loan
to have value given now.
5. NOTE: This is a collateral mtg., because that is what it looks like and when it
looks like one, this is what it is.
iv. PEOPLES BANK AND TRUST CO. v. CAMPBELL Collateral Mtg. v.
Material mans lien Delivery to the bank of the mortgage and note by the
debtors constituted a pledge of the mtg. and note to the bank to secure future
indebtedness, and as such, should be given ranking so as to affect 3Ps from the
subsequent recordation.
v. La. R.S. 9:5550-5551(A), (B)
Problems 29.1 and 38.1; Class 18 Problems;

Privileges
a. Introduction Pay more attention to specific priv. and less to this section of gen. Priv.
i. This is a non-consensual security instrument.
ii. Privileges may exist on movables or immovables. Art. 3189
1. Privileges are either special or general when on movable. Art. 3190
iii. Privilege allows debtors to enforce their rights quickly thru executory process.
iv. These are only a reservation of rights in property of some kind. They must sue
and get a judgment to have enforceability. This will prime other people and
sometimes even mtg. holders or creditors.
1. Privilege can be maintained during lawsuit. Prior to judgment, the creditor
may ask for a writ of sequestration during adjudication of rights. After
judgment, you can have property sold and recover from sale.
2. The issue then becomes how powerful is your privilege WRT amount
recoverable and the priority over other possible creditors?
v. Limitations: Privilege disappears if property is destroyed. Also, limited in
duration: why you want to sequester property. Also, often limited on the space
from which you can claim the privilege. Make sure structured correctly to keep
rank.
vi. Step 1: The purpose of privi. Is to encourage socially constructive behavior. This
encourages placing $ in the stream of commerce, perform services and offer
goods into SOC and we want them to offer the goods to a variety of people.
1. When they dont get paid, you give these people a privilege, because you
want to encourage them to continue in their societal valuable role.
2. Liens (Non LA) Non-consensual sec. dev. On immov. Or mov.
vii. Remember that these privileges are OLD and they will make little sense and few
are applicable today! So, concentrate on currently relevant ones. May want to
consider new possible privileges which could be included.
viii. These must be construed strictly/narrowly, because it says who gets what exactly.
ix. 2 kinds of privileges:
1. So critical to society that you give int. in all of debtors property these are
GENERAL and they very rarely apply

32

b.

2. SPECIAL Privilege extend only to specific property.

x. List of special privileges on particular movables Art. 3217
xi. List of special privileges on immovables Art. 3249
General Privileges
i. General privileges on both immov. And movables extend to the following: Art.
3252
1. Funeral Charges
2. Judicial Charges
3. Expense of Last Illness
4. The Wages of Servants
5. The Salaries and Secretaries, Clerks and other agents of that kind
6. 2nd - Surviving spouse and minor child in necessitous circumstances who
dont possess property in their own rights totaling $1,000, shall be entitled to
demand property in an amount sufficient to give them a sum total possession
of property valued at $1,000 between both the minor child and parent. This
will be paid prior to all other debts, except those secured by vendors priv. on
mov. and immov., conv. mtgs., and selling exp. of property. Spouse has
usufruct until remarriage or death, when interest vests in children or o/desc.
(Note: Oddity of 2: probably not common and F. Heirship concerns)
ii. Art. 3191 et. seq. provides the order of priority and qualifying for expenses
covered by privilege under these two articles.
1. Funeral Charges (used to be vital to society when yellow fever existed)
a. Arts. 3192-3194
b. Can recover a maximum of $500 in burial expenses.
c. This extends to anyone who offers to bury the deceased AND
d. It extends to both movable and immovable property.
e. Note: When the property of the debtor is so incumbered to prevent
payment of creditors, the creditors may request a reduction of funeral
charges to a reasonable amount by the judge. They must account for
family situation when reducing.
2. Law Charges
a. Arts. 3195-3198
b. Costs occasioned by the prosecution of a suit assessed against your side.
c. Costs do NOT include attys fees, just things like copying, filing, etc. So
this is very very little in the way of what you can recover.
d. Costs for the general benefit of creditors are included in this and include
things such as fees to lawyers appointed by the court to represent absent
creditors, commissions to syndics and finally costs incurred for the
admin. of the estate.
3. Expense During Last Sickness
a. Arts. 3199-3204
b. Sickness which led to the debtors death
i. In todays world, this still applies think Cancer or AIDS.
c. When debtor was killed by slow/chronic sickness, the Privilege
commences when the debtor becomes bed ridden and unable to work.
i. ONE YEAR is the maximum time period for chronic sickness.

33

c.

d. Expenses of last sickness include fees of physicians, surgeons, nurses,

and price of meds.
i. Unless a K sets out the amount of these expenses, the judge will fix
an amount.
e. These rules extend to children of the debtor too.
f. NO dollar limit, but today insurance would step in. However, LA has a
shortage of insureds, so this may still be a problem in LA.
4. Wages of Servants for past year and current year
a. Arts. 3205-3207
b. Servants must demand their wages w/in 1 year of leaving and wages are
limited to the previous year and that which is due for current year.
c. Between elimination of serv. and Labor Law, will n/a anymore.
5. Supplies Provision made to debtor or family w/in last 6 mos. (i.e. baker)
a. Arts. 3208-3213
b. Retailers ought to demand their money w/in 1 year from time of first
supply; but the privilege only extends to the last six months and the rest
of supplies, they are in same situation as creditors.
c. Wholesalers have no privilege, and their only rights would come by mtg.
or judgment duly recorded.
d. Innkeepers, Masters of boarding houses, teachers and preceptors
privilege only extends to last year due and for what has expired of the
current year.
6. Privilege of Clerks salaries of secretaries and similar people.
a. Extends to wages of last year elapsed and that much as has elapsed of the
current year. Art. 3214 (Note: Not common and construed narrowly)
iii. NOTE: THESE DONT COME UP OFTEN AT ALL!!! Just used to show that
you must interpret the statute narrowly and that must read them carefully!
Miscellaneous Special Privileges
i. This is intended to give us a general idea of the type of activity that the law wants
to encourage
ii. Warehouses still somewhat common for farmers to give their crops to a w/h for,
in particular, cotton.
1. He does not mean the self-storage people, but same idea:
a. If the creditor comes to seize the w/h, the person who has given the stuff
to the w/h says they ought to get the stuff they are protected from
claims against the w/h keeper. (P: protect person who is storing & to
encourage use of w/hs).
b. More Important Encourage the operation of w/h the law gives a
privilege for the costs of storing the stuff when they dont pay you.
i. This extends to the stuff stored and to the costs to store.
ii. This does not extend to what you would have billed the customer
only the expense of warehousing to the warehouser.
2. 9:3514 extends to aircraft in favor of persons storing the aircraft this
statute does cover all the costs including what you would charge w/hee.
3. ALL OF THIS IS USED TO SHOW HOW LIMITED THESE ARE AND HOW
CAREFULLY YOU MUST READ THE RULES HERE!

34

iii.

iv.

v.

vi.
vii.
viii.
ix.

x.

Innkeepers This used to be very impt. because of time to travel in US.

1. This extends to everything that the person brings into the inn. Art. 3217(8)
2. Little importance today, because the hotel is paid by CC and they get paid!
3. They can sell your luggage if you leave it for 6 mos.
4. Extends only to stuff that is on the premises of the inn.
Carriers you have a privi. to secure transport costs of the good.
1. It only extends to the stuff while it is in the poss. of the carrier.
2. So La. R.S. says it continues for 180 days after they carry the item. (RT of
pursuit this encourages delivery of the goods).
Attorneys We get a privilege
1. 2 kinds:
a. Retaining liens (NON-LA RULE)
i. For any charges incurred by the atty, they have a privilege over any
documents turned over and they can keep those docs until you get pd.
b. Charging liens (LA)
i. We give atty a privilege for any property recovered by atty pursuant
to a judgment
ii. This will cover all fees charged by atty including attys fees.
iii. Does not extend to defense counsel or estate planners, pretty much a
s attys fee.
2. Know this b/c of relevance to us, but the others, just get the gen. Idea.
3. Also, may extend this to settlements and not just judgments: R.S. 9:5001 no
recovery for settlement, and recovery for judgments; whereas, R.S. 37:218
says an atty w/ c. fee arrangement has an interest in any potential recovery
including a settlement. Thus, CF arrangements may have a privilege under
S/ct. Appears as though attys priv. does extend to settlements under this
so answer is maybe for everything else WRT settlements.
La. R.S. 9:4751-4755 Proceeds Recovered By Injured Person (modern privi.)
1. You have to give notice in a very specific manner must be written, etc.
NOTE Practical Issue: Recovery by this is not that fast and not really that
valuable. Also, difficulty in litigating is that you have small amounts of money in
this sort of dispute and it might cost you more to litigate than is practical.
Kilborn did not cover FROM HERE To CLASS 19 PROBLEMS (N/C)
Privilege of A Depositor (N/C)
1. Depositary may retain the thing deposited until his claims arising from only
that K of deposit are paid. Art. 2939
2. Special privileges on a movable include: That of a depositor, on the sales
price of the thing deposited; Art. 3217(5)
3. A depositary still owns the thing deposited. The depositors claim to the
thing is given priority over other creditors of the depositary. The depositor
may demand restitution of the item, if he can prove the deposit AND if the
thing reclaimed is identical the same as what was deposited. Art. 3222
4. Depositor retains his privilege on the price which is due when the depositary
or his heirs (unknowingly) sell the thing deposited. Art. 3223
Expenses Incurred for Preservation of The Thing (thing may be in deposit) (N/C)

35

d.
e.

1. Special privileges on a movable include: Debt due for preservation of the

thing. Art. 3217(6)
2. You have two species of rights when you incur expenses to preserve the thing
you possess for another.
a. First, you have the right of retention of the thing until you are restored
for your costs.
i. This right extends to creditors of the property being held, and the
person holding the item may refuse to give it up unless the creditors
refund his advance or give him security of = value. Arts.
3324&3325
b. Second, preservationist wins out over the same creditors out of the thing
sold for amt. of necessary costs to preserve the thing. Art. 3226
xi. Consignment (N/C)
1. If the consignee has made advances on goods consigned to him, has a
privilege in the amount of advances with interest and charges on the value of
the goods. Must have possession or show a bill of lading to recover.
2. The consignees privilege has priority to any attaching creditor whether or not
the advances were on those particular goods. This preference cannot extend
to a privilege pre-existing on the goods aforesaid. Art. 3247
3. Consignor has a right to reclaim the goods up for consignment and has a right
to demand payment for any goods sold on consignment by consignee. A3248
Class 19 Problems
Privileges & Security Interests in Crops
i. The appointments or salaries of the overseer for the current year, on the crops of
the year and the proceeds thereof;
ii. Debts due and money advanced and used for necessary supplies and expenses
furnished to any farm or plantation; on the crops of the year and the proceeds
thereof. Art. 3217(1)
iii. LA R.S. 9:4521 Rank of privilege and sec. int. in crops: sec. int. and privileges
affecting unharvested crops shall be ranked in the following order of preference,
provided such s.is. and privileges are filed and maintained in accordance w/ R.S.
3:3651 3660:
1. Privilege of the laborer, the thresherman, combineman, grain drier and
overseer;
a. Privilege only extends to the crop they have dealt with. LA R.S. 9: 4523
AND to all movable property involved with the operation of the farm.
b. Designed to only apply to those who get their hands dirty and no cos.
c. Laborers privilege trumps even a prior recorded mtg. and everyone else,
BUT must be recorded! Essentially perfection consistent w/ Art. 9. Art.
9 does govern, b/c movables known as Ag. Liens La. R.S. 3: 3651-3660.
d. 9-302 tells us the law of the local jd. is the law that governs. Can often
file in the ag. Records, but often kept in mtg. records.
e. Art. 3217(1) Foremen have a privilege on the crop and its proceeds.
f. Art. 3217(3) Laborers have a privilege on the crop, all movables used
to service the farm, but no the proceeds of the crop harvested.
g. For filing Requirements See Below.

36

f.

g.

2. Privilege of lessor (Make note of this below);

3. Perfected sec. int. under Ch. 9 of LA commercial laws;
4. Privilege of furnisher of supplies and of money, of the furnisher of water and
of the physician.
a. Note: All three of these share equal rank. LA R.S. 9:4522, 4524
b. Furnisher of Water Whenever there is an agreement for the supplying
of irrigation of water for a share of the crop, the portion of the crop due
supplier under agreement is at all times considered property of supplier
and is not affected by any privilege for any other debt of the farmer.
iv. DEPOSIT GUARANTY NATL. BANK While contrary to custom and
conventional wisdom, ALL privileges enjoying priority over a perfected sec. int.
must be filed per; failure to file means you lose to perfected s/i. LA. R.S. 9:4521.
v. Filing Requirements for Agricultural Liens
1. In General
a. In LA File in any parish clerk of court
b. Everywhere else Have to file consistent with UCC 9 sec. int.
2. Form Requirements/ Technical Aspects
a. In LA - the records are the same as art. 9 sec int., but form is slightly
different.
i. In spite of difference, Art. 9 Fin. Stmt. may still be used if the content
of the form is still there.
ii. Difference in LA Requires the following:
1. Must Identify the farm describe the immovable property and
the parish of the farm; &
2. Debtor Must Sign The Form.
3. Note: Amendment to this law will change all of this to conform
with UCC 9 and not require the signature and description)
b. Actual Form Requirements: La. R.S. 3:3654(E) & 3656(A)
vi. Once you have filed, you have perfection and UCC 9 Governs the priority rules;
failure to perfect, still give laborers a privilege, but affects the rank. Additionally,
Art. 9 governs who wins as between unperfected privilege holders and creditors.
1. 9-315(a)(2) provides that as long as they are in cash proceeds, the sec. int.
would follow in this case.
Artisans Privilege
i. Privilege extends to movables still in the possession of a workman or artisan for
the price of his labor, and usually only extends to the movable which he repaired
or made. Art. 3217(2)
ii. Usually the privilege is posessory; however, they have a 120 day right of pursuit
after the last service after loss of possession of the thing repaired or made.
1. Must have the thing made sequestered during this time to preserve your right.
iii. Farm Equipment is another exception to possessory nature then you have 12
months after service until the privilege expires.
iv. No filing required for these privileges (diff. from crops)
v. LA R.S. 9: 4501-2, 4511-12
Note: In the above, you have to start with Art. 9 then you see if they are filed, if they
are, then they are governed by LA R.S. However, if not, then art. 9 governs who wins?

37

h. Class 20 Problems
i. Lessors Privilege
i. Landlords obtain a privilege for the rents of immovables, which extends to all
movables brought on the premises by lessee and all crops or movables by
anticipation. Art. 3217(3)
ii. These secure the payment of rent only, and do not apply to damages. Art. 3218
iii. The Lessors privilege is enforced under Title of Lease. Art. 3219
1. Exemptions include: clothing, bed, utensils, and tools of the trade (basically
what is needed to sustain livelihood) are not subject to this priv. Art.2705
2. The privilege attaches to all tangible property on the premises. Some cts.
have allowed the seizure of incorporeals, such as promissory notes. Art. 2705
iv. The sub-lessee may have his property seized to the extent of the debt due to the
sub-lessor (primary lessee). Art. 2706
v. Art. 2707 & 2708 Code used to state, Property of a 3P can be subject to this
privilege. However, the code NOW provides that this privilege does not extend
to the property of 3Ps.
1. NOW, The Code ALSO says that if the 3P is not diligent in removal &
2. fails to assert his rights in the property at some point prior to sale of the
property, the sale is permissible.
3. ALSO, lessor must not have knowledge that this property belongs to 3P.
vi. The Lessor may seize the objects subject to this privilege before lessee removes
them from this premises, OR if removed w/o lessors consent, the lessor has a
right of pursuit for 15 days after property removal. Art. 2709(A)
1. However, the property must still be identifiable as belonging to the lessee.
vii. The privilege is enforced by a writ of sequestration, b/c self-help is not permitted.
Art. 2709(B)
viii. Lessor's privilege can be destroyed in bankruptcy yet another reason to take
UCC 9 Sec. Int.
ix. Rank these are superior to vendors privilege, unless it is a vendor of farm
instruments. Additionally, if all is filed, this trumps perfected sec. int. under Title
9 and it trumps privilege of furnisher of supplies, money, water, or physician. La.
R.S. 9:4521
x. The lessors privilege against crops must be recorded! (Guaranty Trust)
xi. Privilege of Self-Service Storage Facilities is under La. R.S. 9:4756-4760.
1. This is similar to lessors privilege in that it extends to all movable property
on the storage premises.
a. However, this is different, b/c the storage facility owner may recover all
rent due and all reasonable expenses for both the preservation of the
thing and expenses arising from enforcement of this privilege.
2. The privilege attachs on the date the movable property is brought to the selfservice storage facility.
3. This is superior over any other privilege or sec. int., except
a. Inferior to vendors privilege, OR
b. A chattel mtg. previously issued and recorded, OR
c. Sec. int. under UCC 9. La. R.S. 9:4758

38

j.

k.
l.

4. Upon default, if the agreement provides for acceleration, the owner may
exercise that right OR he may cancel the lease and enforce his privilege for
the debt due to him by (1) changing locks, (2) giving notice to lessee, (3)
delivery of notice in person or by certified mail and (4) conforming w/ notice
requirements. (5) ten days after either mailing or receipt of letter,
advertisement about sale; (6) must wait 10 more days to commence sale; (7)
sale must meet std. of notification; (8) sale held at storage facility or other
appropriate venue, and sell to highest bidder or if no bidders, to owner to
satisfy privilege; (9) Prior to sale, lessee may pay amt. due and redeem
movable property; (10) Purch. In GF takes free and clear; (11) any excess
must be held by owner in non-interest bearing acct. for two years. La. R.S.
9:4759.
Vendors Privilege (LA Favors Sellers)
i. These protect unpaid creditors/vendors who sell property on credit.
ii. If the buyer fails to pay the price, the seller may sue for dissolution of the sale.
Art. 2561
iii. For movable property, the vendee/purchaser must have physical possession of the
property for the privilege to attach. Art. 3227
iv. The privilege is lost by sale and transferring possession of the thing to a 3P.
However, sale of the thing alone is not enough to lose privilege. Art. 3228
v. Vendor can claim restitution when the sale was not made on credit, if
1. They are in the possession of purchaser
2. At the latest, the claim is made 8 days after the delivery, and Art. 3229
3. Objects can be identified. (Not mixed in with other things of same kind, but
not sold by vendor) Art. 3230
a. Exception when things are easily recognizable, this identifiable
element is relaxed. Art. 3231
vi. Vendors privilege exists on immovable sold by vendor for the payment of the
price or so much of it as unpaid, whether it was sold on or w/o credit. Art. 3249
vii. A vendors privilege is preserved by recording act of sale in the office of mtgs.
The privilege is effective as to 3Ps upon recordation of such act OR evidence of
indebtedness as provided by law. Arts 3271, 3273
viii. La. R.S. 9:4541-44 Seller of Agricultural products in chartered towns and cities;
Seller of Cotton Seed on manufactured products; Seller of sugar case on Mfr
products; Vegetables, Seafood and other perishable items (no privilege).
ix. La R.S. 9:4561-64 Sewing machines and pianos subject to seizure; Entry and
removal of property (unlawful); Penalty for violation
x. La R.S. 9:4581-82 Holder of vendors priv. on property destroyed by fire,
privilege on insurance; Notice to insurer and to assured, deposit in court.
Class 21 Problems
Ranking of Privileges
i. The important rules are the ones in the chart. Other rules are too complex, and
not that practical, so he will only test us on the charts rules.
ii. Note timing for privileges is not that important; instead, they are normally
ranked by the CC and R.S. Timing will come back in when dealing w/ crops and
perfection in Crops. Also, note for Art. 9 sec. int. timing usually deciding factor.

39

iii.

iv.

Notes on Chart:
1. Non-farming movables has 3 main rules
a. Gen., Art. 9 sec. int. perfected or not beats almost every other priv. and
sec. dev. Couple of exceptions:
i. Possessory privilege will beat this, unless R.S. provides o/wise.
ii. Repairpersons Lien CC exists & extends to labor only, and not
materials. Also, repairperson MUST have possession. (Mech. In
particular) Note: Materials & labor covered in R.S., but low rank.
iii. The lawyers privilege. (BEATS ALL!!!)
b. Lessors priv. beats the vendors privilege.
c. Usually, gen. privileges rank last.
2. Sec. Int. in Farm Products Mainly crops, not really cattle, sheep, etc.
a. Ag. Liens and sec. int. in crops are all perfected
i. R.S. govern in this case. 9:4521 order of priority in chart
ii. Lien creditor ranks according to art. 9 Always, rule is whichever is
perfected first in seizing of crop or perfection of sec. int.
iii. Mtg. extends to crops as well, b/c it extends to immovables
attached until the crop is harvested anyways.
1. Note: that Art. 9 this is not that important, b/c this Art. 9 int.
would beat effective mtg. in crops.
b. Ag. Liens not perfected, but sec. int. in crops.
i. Only art. 9 governs in this instance.
3. Ranking scheme for immov. property 3 main rules:
a. (1) Prior rec. mtg. beats everyone if R w/in 7 or 15 days of act of credit
sale beats everyone. Essentially PM mtg. rule.
b. (2) Gen. priv. affect immovables only if movables are insufficient to
cover the obligation. But these might outrank prior R mtgs. if even the
immov. property is not suff. to cover the obligation.
c. (3) Mtgs. are generally going to rank last as against other privileges.
RANKING OF PRIVILEGES, SECURITY INTERESTS & MORTGAGES
OTHER THAN IN FARM PRODUCTS (CROPS)

MOVABLES
Possessory privileges for services/materials provided with
respect to movables beat UCC9 security interest, unless statute
specifically provides otherwise [9-333], e.g.,
privilege for preservation expenses [3224, 3226, 3262],
carriers privilege for transport expenses [3217(9), 3265],
artisans privilege for labor costs [3217(2)],
statutes provide otherwise with respect to prior
perfected security interests, which beat repairpeople
[9:4501(B), 9:4502(B)], haulers (carriers) [9:4601(B)],
and self-storage lessors [9:4758] [R.S. trumps Civil
Code ranking]

IMMOVABLES
Vendors privilege [act of credit sale must be recorded in
mortgage records per 3271, 3273] beats prior mortgage IFF
recorded within 7/15 days of date of act of credit sale [3274]
Prior vendor beats later vendor [3251]
retroactive priority likely does NOT extend to prior
perfected security interests in component parts
[9-322(h), 9-334]potential for another vicious circle
vicious circle if prior mortgage beats vendor who
records after 7/15 beyond credit sale [3274], vendor
beats general privilege [3269], but general privilege
beats mortgage [3186]
not entirely clear that vendor of immovable property
beats all general privileges [cf. 3267 and 3269 ???]

40

UCC9 security interest, perfected or not, beats lessors and

vendors privileges [9:4770(B)] and all non-possessory
privileges, unless statute specifically says otherwise [9-322(h)]
lawyers privilege in recovered property beats all,
including UCC9 [9:5001]
other random statues also provide otherwise for
specific types of collateral [e.g., 9:4661, horses]
repairperson and hauler (carrier) lose only to
vendors privilege and prior perfected security interests
[9:4501(B), 9:4502(B), 9:4601(B)] NOTE: unperfected
UCC9 beats vendor [9:4770(B)], and
repairperson/hauler beats unperfected UCC9 [9:450102, 4601], but vendor beats repairperson/hauler [id.]
vicious circle
Necessitous spouse or children privilege in property up to
$1000 beats all but vendors privilege and prior mortgages and
security interests [3252, 3254]
NOTE: lessor beats vendor [3258], vendor beats
necessitous spouse/kids [3252], but spouse/kids beat
lessor [3252] vicious circle (as to up to $1000
spouse/kids privilege)

Necessitous spouse or children privilege in property up to

$1000 beats all but vendors privilege and prior mortgages and
security interests [3252, 3254]
yet another vicious circle possible . . .
General privileges rank in order as follows [3254, 3270]:
1) Funeral charges
2) Law charges
3) Last illness expenses
4) Wages of domestic servants
5) Salaries of clerks and secretaries
NOTE: Immovables taken by general privileges
only if movables insufficient [3253, 3266]
Mortgages (even prior recorded) lose to privileges [3186]

Depositors privilege beats all other privileges [3261]

depositor rarely battles with others, as depositary doesnt own
the property subject to the depositors privilege!
lessors privilege beats depositors if
lessor does not know about depositors
rights (???) [cf. 3260 with 2707-08!
depositors property is transient, so not
subject to lessor!]
Lessors privilege beats vendor and all general privileges
EXCEPT funeral charges [3257-58, 3263]
NOTE: lessor beats vendor [3263], vendor beats funeral
charges [3263], but funeral charges beat lessor [3257]
vicious circle (at least as to up to $500 funeral privilege)
Vendors privilege beats all general privileges [3263]
General privileges rank in order as follows [3191, 3254]:
1) Funeral charges
2) Law charges
3) Last illness expenses
4) Wages of domestic servants
5) Salaries of clerks and secretaries
RANKING OF PRIVILEGES, SECURITY INTERESTS & MORTGAGES IN FARM PRODUCTS (CROPS)
If the agricultural liens (e.g., crop privileges) and UCC9
If ag liens NOT FILED, 9-322(a)(2)-(3) govern, so perfected
security interests properly FILED in central ag lien registry
UCC9 beats unfiled crop privilege, and first to attach wins as
(3:3654(E), 3:3656(A)), rank is per 9:4521 (regardless of the
between unperfected UCC9 and unfiled crop privilege
timing of the filing of the lien and perfection of the UCC9
security interest!) [9-322(f)(5)]:
ALSO, 9-317(a) grants priority to lien creditor (seizing
creditor) who seizes before crop privilege is filed
1) laborers [3217(3) and final of 3217, 9:4521(1)]

41

2) overseers [3217(1), penultimate of 3217, 9:4521(1)]

3) lessor [2705, 3217(3), 9:4521(2)]
4) perfected UCC9 security interests [9:4521(3)]
5) lenders, furnishers of supplies [3217(1), 9:4521(4)]
BUT purchase money privilege of lenders and
suppliers for seed, labor expenses beat lessor [3259]
AND purchase money privilege of lenders,
suppliers of farm implements beat lessor [3259]

if lease not filed in ag registry, it loses even to unperfected

UCC9 security interest [9:4770(B)]
Mortgage interest in crop component parts loses to privileges
(filed or not) [3186], but beats unperfected UCC9 [9-334(i)]
vicious circle

Mortgage interest in crop component parts loses to privileges

(filed or not) [3186] and to perfected UCC9 interests [9-334(i)]

m. Extinction of Privileges - Easy

i. Occurs when one of the following takes place: Art 3277
1. Destruction of thing subject to the privilege.
2. Creditor acquiring the thing subject to privilege
3. Extinction/payment or forgiveness of the debt which gave birth to privilege
4. Rx.
n. Class 22 Problems
V.

Private Works Act:

a. Owners
i. Introduction, Privileges & Claims
1. Material and Mechanics liens outside LA. In LA Public Works Act.
2. Builders and Sub-Kors include creditors who have a priv. on immov. Art.
3249 (2) Suppliers of the K-or or subs have a special privilege on the
immovable built. 3249(3)
a. Limited to the project built AND subs are left out of deal, b/c you must K
directly w/ owner to recover under this.
3. As a result, the cods is not really the law here, the PWA is the law!
4. The law protects Kors and subs for work, any residential or const. of immov.
property w/ 2 rights.
5. La. R.S. 9:4802 solves problem of subs and Kors, it gives everyone a cl.
against the owner even if they dont have K privity. Also allows claims
against the GC (Prime diff. in 4801&02) 2 types of laws:
a. PA laws (LA uses) the claims that the subs have against the owner are
not limited by the total value promised to pay by the owner. Gen. this
will not go above the amt that they have promised.
b. NY Laws limited by what the owner has promised to pay the subs.
6. La. R.S. 9:4801 and 02B give everyone a claim against the owner, they
have a privilege in the immovable property including the improvements on
the entire property. Extends to all laborers and materialmen.
ii. Avoiding Privileges and Claims
1. A GC must file notice of the project in the mtg. records in parish where work
is to be done. La. R.S. 9:4811
a. The notice must be signed by GC and owner, give legal description, ID
parties w/ mailing addresses, price of work, date of payment, and
describe in general terms the work to be done.

42

b.

b. No penalty for failure to file from owners perspective, but incentive:

i. Cuts off liability of owner when notice is filed w/ the bond. All
claims would then be asserted against the bond. 9:4802 C.
1. Requirements for the bond under 9:4812. This is like every
other bond it is a promise to pay by a bonding Co.
ii. Practical problem Owners have to pay for bond, so they wont.
2. Notice Rx 5 yrs. after filed, and reinscription only occurs by filing a written
request for extension prior to expiration of this time.
iii. Erasing Privileges (La. R.S. 9:4832-33(E), 9:4835, 4841 (A)-(E))
1. If privileges are filed against the owner, and they are assertable against the
owner, he has few options to have these removed.\
2. If notice of claim/priv. is improperly filed, owner can order them removed.
3. When properly filed: 3 options of owner:
a. Pay them off!
b. Deposit w/ mtg. records a bond in a certain amt. of value.
c. If notice of K and bond are filed, the owner can institute a Concursus
proceeding (suit). So, they have a competition to a certain claim, and
they fight who has priority to this bond! Owner can order removal of
privilege and let them fight over the bond. [Interpleader (Out LA)]
iv. Class 23 Problems
Claimants
i. Filing and Enforcement
1. What does this do for claimant and what does it do to preserve it?
2. CC Art. 3272 Privileges of people who improve or aide in the construction
on immovables must record their privilege to be effective. Kilborn said this
makes it effective as to everyone, even the owner; however, the code is not
clear on this point. Again, why PWA is the real set of rules.
3. Deal w/ 4 issues in PWA
a. What do you have to file?
i. Must file a statement of claim to preserve your privilege.
1. Detail: If notice of K was timely filed, you are supposed to send
a copy to the owner. If not, you dont have to send notice to the
owner. By in large, we will assume that it has not been filed,
unless commercial K.
ii. R.S. 9:4822 lays out most of the requirements.
1. Writing, signed by claimant or agent of claimant (atty), amt.
claimed and nature of work, and itemizing the elements of the
claim, including the person who K was performed, matls.
supplied or services rendered.
2. Disturbing Requirement: Requires this statement of claim to
describe the immovable property that was improved w/ a legal
description.
a. Note: For the GC if the total price of the job is > $25K the
GC must file a notice of K, but bond is not required.
Before works begin to est. GCs privilege.
b. When do you have to file it? (Failure to do it timely results in loss of rt.)

43

i. General Rule is that a statement of claim has to be filed w/in 60 days

of substantial completion of the work.
1. Substantial Completion La. R.S. 9:4822(H) Option here:
a. Either when the last work is performed on the project
which completes the punch-list; OR
b. When the owner accepts the job or moves in. (Can be
prior to Punch-list being finished.)
2. Designed to be last hurdle the GC has to overcome.
ii. Exceptions:
1. If notice of K properly filed, & no privity of K w/ owner, then
that person has 30 days to file if notice of termination is filed.
This is one way that owners cut down time frame for claims.
2. When notice is not filed, you still have 60 days from time of
subst. completion
c. How do you enforce my privilege?
i. A matter of timing, they really only exist for about a year first not
only does a statement of claim have to be filed, but the claim holder
must commence an action against the owner or GC and must be
commenced one year from end of the 60 or 30 day period (depending
on which time range applies)
ii. ALSO, a notice of Lis Pendens must be filed in Mtg. Records to alert
3Ps to a potential lawsuit that might affect their int. in the property.
1. This must be done w/in one year of filing a statement of claim.
2. So, the deadline really is one year from filing of statement of
claim, unless there is no one else concerned w/ property.
d. Fourth issue is below!
ii.

Rank
a. How do they rank against each other and potential mtg. claimant for
const. mtg.?
i. Rank in two different ways against each other or against mtgs. OR
against Art. 9 Sec. Int. (BAR ? in July) La. R.S. 9:4821
1. Political Subdivision have tax claims, etc. (dont worry about,
b/c rare and for small amounts.) Otherwise:
2. Properly R and enforced claim of laborers beat everyone! Even
Prior R mtgs. and prior R Fixture interests. Also, these rank
equally w/ each other.
3. Mtgs. and Art. 9 sec. int. in fixtures and vendors priv. that have
been properly R before other PWA arise in time win. So, first in
time wins.
4. Other PWA privilege holders Sellers, lessor, sub-Kors,
suppliers of materials, and lessor. They rank amongst
themselves by nature; who is claiming priv.? WRT mtg., first in
time who either R the mtg. or when the privilege arose wins.
a. Other PWA privs. arise either (a) when notice of K is
timely filed OR (b) if notice not filed, when work began
on the project. The same for every privilege holder.

44

i.

Work begins either when material over $100 are

delivered OR
ii. Other work might have begun that is visible from an
inspection
iii. Exception: Dirt work is not considered work here.
It begins when anything other than dirt work has
occurred. La. R.S. 9:4820
b. Commencement of work is important to bank. The bank
wants to have a privilege over these PWA priv., so a bank
can buy a no work affidavit from someone qualified to
make the determination that no work has begun. 9:4820
i. IFF this affidavit is filed in the mtg. records of the
projs. parish w/in 4 days after execution of
affidavit; & if mtg filed w/in 4 days of this filing
the BANK BEATS ALL PWA claimants. (8 days!)
ii. If work actually has begun, the affiant is liable to
anyone whose rights are damaged by faulty
affidavit this under an action at law.
5. K-ors and surveyors
a. 4 & 5 really asking: 1.who did they K w/? & 2.who is the
claimant?
6. Other Mtgs. or privileges.
2. These are very detailed know generalities; dont have to know specifics of
9:4821 (4), (5).
iii. Class 24 Problems
Note: Keep all of these details limited make sure you get the big picture in CC and R.S. parts
VI.

Suretyship
a. Basics
i. Introduction
1. Totally different kind of sec. dev., b/c these dont extend to property.
2. You have a real personal right in suretyship. You can go after a person for the
unfulfilled obligation. Art. 3035
3. Diff. btwn Surety and Co-obligor? Not a lot WRT the obligation; major diff.
is the rights and def. given to the surety, which is not given to the co-obligor.
4. Even this type of obligation can be secured by an accessory real right. We
focus on the personal right. Art. 3036.
5. Common scenario is when the debtor is a business org. like an LLC or LLP.
a. This gives them the right to bring in others to make them liable on the
debt as well too.
b. Ex. of Daughter finances car and mom on the hook to pay for the car.
c. This acts as extra security to make sure that the obligation is fulfilled.
6. Suretyship is normally a promise to pay money, but it does not have to be.
Assume for this course that this is what happens obligation to pay $.
7. Illustration:
$
Bank (C)
Debtor

45

ii.

iii.

iv.

v.

Surety
C v. S
1. This must be established formally 2 requirements:
a. Express (unambiguous) &
b. In Writing (basically act under private signature at a min.)
2. The agreement must say: if the debtor does not pay, I will pay. This must
be unambiguous, Art. 1847 you cannot show this by parole evidence.
3. Sometimes, this arises when it looks like a surety is a co-obligor not as a
surety, and thus not having the extra rights available to the surety. Art. 3037
shows when it looks like you have a co-obligor, you will treat them as a
surety IFF:
a. Principle cause of agreement is a guarantee (like no use of car), &
b. If the creditor clearly knows that. (Troublesome, but should be able to
determine this but sticky facts!)
Multiple Suretys
1. By expressly agreeing, most surety agreements say that the only suspensive
cond. is that I dont have to pay until the debtor defaults/ didnt pay.
a. Suretys dont have the defense of division (surety cannot cl. division this,
they are all bound for the entire obligation, 100%, unless the agreement
says otherwise.) & no discussion (exhaustion of remedies against the
debtor).
2. Default rule means that these are Guarantees of Payment. Exception:
Guarantee of Collection requires the creditor to exhaust his remedies ag. the
debtor.
S v. D
1. What rights does the Surety have against the Debtor? Art. 3047 As a matter
of law they have 2 rights against the debtor:
a. Demand reimbursement against the debtor (as long as obligation was
exigible); &
b. Subrogation (Art. 3048 says since the surety has paid the obligation,
the surety has essentially bought the creditors position against the debtor
what good does this do? This extends to all of the creditors rights,
including any real rights creditor had against debtor!) Also, Art. 1826(a)
2. Gen. Surety is entitled to attys fees for having to come after them, only when
the agreement so provides!
S. v. S
1. Rights between sureties when one of these pays more than they are to bear,
they can just like co-obligors seek contribution from each other. Art. 3055.
2. They all agree to bear equal amts. as a matter of law but this can be
changed by agreement.
3. They can go after each other for their virile shares. (But only that share!)
a. If one other Surety becomes insolvent, virile share is now the value owed
divided by the number of solvent sureties remaining.
4. Dont worry about 3057 not on bar or test!

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5. When seeking contribution from each other, they will not get attys fees. But
they may get costs from gen. rule that loser pays costs.
vi. Class 25 Problems
Defenses and Termination
i. Kinds of Suretyship 3 Types of Suretyship:
1. Commercial One in which:
a. Surety in Surety Business;
b. Principal obligor or surety is a business entity;
c. Principal oblig. arises out of a commcl transaction of Princ. obligor; OR
d. Suretyship arises out of commercial transaction of surety.
2. Legal Bail Bonds Not covered by class.
3. Ordinary Neither Commcl. nor Ord.; must be strictly construed in favor of
the surety! (Ex: dad guarantying sons car pmt) Art. 3044
a. Generally these are unremunerated! (No payment)
ii. S Defenses v. C.
1. S may assert any def. to the princ. oblig. the princ. obligor could assert
against the creditor, except:
a. Lack of capacity or
b. Discharge in B/r of princ. obligor. Art. 3046
2. Surety obligations are extinguished (E) the same way conventional
obligations are extinguished, subj. to some differences: Art. 3058
a. Suretyship is E by Extinguishment of principal obligation.
b. Rx of princ. obligation E suretys obligation.
i. Suretys action for contribution against princ. obligor and other
sureties Rxs in 10 years. Art. 3060
ii. Interruption of Rx to interrupt as to all sureties and princ. obligors,
the agreement must provide all parties are bound together w/ surety.
c. Material Modification of princ. oblig. by C w/o consent of Surety has the
following effects:
i. Ordinary S is E.
ii. Commercial S is E only to the extent S is prejudiced by actions of C,
unless (1) obligation is for other than the payment of $; & (2) S
should have contemplated C might take such action in ordinary
course of obligation.
1. C has BOP to show S not prejudiced OR prej. < amt. of Ss full
obligation. Art. 3062
d. Impairment of Collateral: if the C does something to impair his rights
WRT real security, (e.g.: like for failing to re-inscribe a mtg.) / impair the
value of the collateral, then you have a suretyship Def.
i. This extinguishes Ordinary S. Art. 3062
ii. Commercial surety has the same rule as material modification.
3. Remission (Release) of debt: (Dont do this if you are the creditor!!)
a. To princ. obligor releases S, but remission of debt to S does not release
principal obligor/s. (Note this might be waived in the K).
b. Remission of debt granted to one surety releases the other sureties to the
extent of contribution they could have sought from remitted S (his virile

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share). (Before 1988 old law is release of surety releases all other
sureties, this is not the law anymore. B. above is the law!!!)
c. Obligee grants a remission for advantage, adv. is imputed to debt, unless
o/w agreed. Art. 1892.
4. All of these defenses can be waived and very often are waived Art. 3040.
Total waiver of defenses and agreement to be bound may not be valid
agreement (unresolved point of law).
Termination (Art. 3061)
1. Suretyship may be terminated by notice to the creditor by surety.
a. After notice, the surety may still be liable for obligations incurred by the
principal D, OR obligations C is bound to permit the D incur.
b. Nor may notice prejudice C or D who has changed his position in
reliance of S.
2. Knowledge of death of surety has same effect as notice above.
a. Univ. successors can continue the bond informally by confirmation.

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