When possession by secured party perfects security interest without filing.
A security interest in letters of credit and advices of credit (s. 405.116 (2) (a)
), goods, instruments (other than certificated securities), money, negotiable documents or chattel paper may be perfected by the secured party's taking possession of the collateral. If such collateral other than goods covered by a negotiable document is held by a bailee, the secured party is deemed to have possession from the time the bailee receives notification of the secured party's interest. A security interest is perfected by possession from the time possession is taken without relation back and continues only so long as possession is retained, unless otherwise specified in this chapter. The security interest may be otherwise perfected as provided in this chapter before or after the period of possession by the secured party.
History: 1973 c. 215
; 1985 a. 237
Police seizure of collateral does not interrupt possession by a secured party. Return of Property in State v. Pippin, 176 W (2d) 418, 500 NW (2d) 407 (Ct. App. 1993).
"Proceeds"; secured party's rights on disposition of collateral. 409.306(1)
Proceeds" includes whatever is received upon the sale, exchange, collection or other disposition of collateral or proceeds. Insurance payable by reason of loss or damage to the collateral is proceeds, except to the extent that it is payable to a person other than a party to the security agreement. Money, checks, deposit accounts, and the like are "cash proceeds". All other proceeds are "noncash proceeds".
Except where this chapter otherwise provides, a security interest continues in collateral notwithstanding sale, exchange or other disposition thereof unless the disposition was authorized by the secured party in the security agreement or otherwise, and also continues in any identifiable proceeds including collections received by the debtor.
Subject to sub. (3m)
, the security interest in proceeds under s. 409.203 (4)
is a continuously perfected security interest if the interest in the original collateral was perfected.
If proceeds are acquired with cash proceeds from the sale of the original collateral or the sale of noncash proceeds of the original collateral and are of a type of property not described in the original financing statement, a buyer for value of such noncash proceeds who buys without knowledge of the fact that the property was purchased with cash proceeds of the original collateral and before filing of the financing statement describing such noncash proceeds, takes free of the original security interest in such proceeds.
In the event of insolvency proceedings instituted by or against a debtor, a secured party with a perfected security interest in proceeds has a perfected security interest only in the following proceeds:
In identifiable noncash proceeds and in separate deposit accounts containing only proceeds;
In identifiable cash proceeds in the form of money which is neither commingled with other money nor deposited in a deposit account prior to the insolvency proceedings;
In identifiable cash proceeds in the form of checks and the like which are not deposited in a deposit account prior to the insolvency proceedings; and
In all cash and deposit accounts of the debtor in which proceeds have been commingled with other funds, but the perfected security interest under this paragraph is:
Limited to an amount not greater than the amount of any cash proceeds received by the debtor within 10 days before the institution of the insolvency proceedings less the sum of a) the payments to the secured party on account of cash proceeds received by the debtor during such period and b) the cash proceeds received by the debtor during such period to which the secured party is entitled under pars. (a)
If a sale of goods results in an account or chattel paper which is transferred by the seller to a secured party, and if the goods are returned to or are repossessed by the seller or the secured party, the following rules determine priorities:
If the goods were collateral at the time of sale for an indebtedness of the seller which is still unpaid, the original security interest attaches again to the goods and continues as a perfected security interest if it was perfected at the time when the goods were sold. If the security interest was originally perfected by a filing which is still effective, nothing further is required to continue the perfected status; in any other case, the secured party must take possession of the returned or repossessed goods or must file.
An unpaid transferee of the chattel paper has a security interest in the goods against the transferor. Such security interest is prior to a security interest asserted under par. (a)
to the extent that the transferee of the chattel paper was entitled to priority under s. 409.308
An unpaid transferee of the account has a security interest in the goods against the transferor. Such security interest is subordinate to a security interest asserted under par. (a)
A security interest of an unpaid transferee asserted under par. (b)
must be perfected for protection against creditors of the transferor and purchasers of the returned or repossessed goods.
History: 1973 c. 215
; 1985 a. 37
Legislative Council Note, 1973: The official text amended sub. (3) so as to provide that the security interest in proceeds continues to be perfected if a filed financing statement covered the original collateral and the proceeds are collateral in which a security interest could be perfected by a filing in the office where the financing statement was filed. In addition, if the property constituting the proceeds was acquired with cash proceeds obtained through the sale of the original collateral, the security interest would cover these acquired proceeds only if they were a type of property described in the financing statement. The Special Committee rejected the proposed change and decided to retain present sub. (3) but amended sub. (3) to reflect the intent of new s. 409.203 (3) which provides that a security agreement gives the secured party the rights to proceeds under s. 409.306 unless otherwise agreed. Sub. (3), as amended, makes it clear that perfection of a security interest in the original collateral constitutes perfection of the security interest in proceeds unless coverage of proceeds is disclaimed in the security agreement under s. 409.203 (3). An exception to the rule of sub. (3) is provided in sub. (3m).
Sub. (3m) was created by the Special Committee to protect an innocent buyer for value who acquires proceeds purchased with cash proceeds from the sale of the original collateral or the sale of noncash proceeds of the original collateral. This subsection provides that a buyer under these circumstances is not subject to a security interest in the original collateral if the goods he is acquiring are not a type of property described in the financing statement covering the original collateral. This buyer is not considered innocent if he has knowledge of the fact that the property was purchased with cash proceeds from the sale of the original collateral or if he makes his purchase after a financing statement describing this property has been filed.
For example, a bank finances the purchase of a tractor by first buyer. The bank takes a security interest in the tractor and files a financing statement which covers both the tractor and proceeds. First buyer sells the tractor without authorization from the bank. The bank has a continuing security interest in the tractor and in the cash proceeds first buyer received from the sale [409.306 (2) and 409.306 (3)]. Next, the cash proceeds are used by first buyer to purchase an oil painting. Even though the oil painting is not property of a type described in the financing statement covering the tractor, it is considered "proceeds" of the tractor and the bank has a security interest in the oil painting while it is in the hands of first buyer. However, if first buyer sells the oil painting for value to second buyer who has no knowledge of the bank's security interest in the oil painting because the painting was not the type of property described in the financing statement covering the tractor and a financing statement describing the oil painting has not been filed, then under sub. (3m) second buyer takes free of the bank's security interest in the oil painting and the bank has a security interest only in the proceeds which first buyer received from the sale of the painting and in the tractor. This buyer is not considered innocent if he has knowledge of the fact that the property was purchased with cash proceeds from the sale of the original collateral or if he makes his purchase after a financing statement describing this property has been filed. (Bill 177-S)
See note to 409.311, citing Production Credit Asso. v. Equity Coop Livestock, 82 W (2d) 5, 261 NW (2d) 127.
Rights of security holder in collateral survive transfer of collateral under 409.311 made without secured party's consent. Production Credit Asso. of Madison v. Nowatzski, 90 W (2d) 344, 280 NW (2d) 118 (1979).
Condition imposed by secured party on authorization to sell collateral is ineffective unless performance of condition is within buyer's control. Production Credit Ass'n. v. Pillsbury Co. 132 W (2d) 243, 392 NW (2d) (Ct. App. 1986).
Protection of buyers of goods. 409.307(1)
A buyer in ordinary course of business as defined in s. 401.201 (9)
other than a person buying farm products from a person engaged in farming operations takes free of a security interest created by his or her seller even though the security interest is perfected and even though the buyer knows of its existence.
In the case of consumer goods having an original purchase price not in excess of $500, a buyer takes free of a security interest even though perfected if the buyer buys without knowledge of the security interest, for value and for the buyer's personal, family or household purposes unless prior to the purchase the secured party has filed a financing statement covering such goods.
Status of party as buyer in ordinary course of business is not dependent upon secured party's knowledge thereof. Antigo Coop. Credit Union v. Miller, 86 W (2d) 90, 271 NW (2d) 642 (1978).
Purchasers became buyers in ordinary course of business when goods became identified to purchase contract. Daniel v. Bank of Hayward, 144 W (2d) 931, 425 NW (2d) 416 (1988).
When sale involves farm products, 7 USC s. 1631 determines whether buyer takes free of security interest. Farm Credit Bank of St. Paul v. F&A Dairy, 165 W (2d) 360, 477 NW (2d) 357 (Ct. App. 1991).
Buyer in ordinary course of business under article 9 of the uniform commercial code (and related matters). Skilton, 1974 WLR 1.
Purchase of chattel paper and instruments.
A purchaser of chattel paper or an instrument who gives new value and takes possession of it in the ordinary course of the purchaser's business has priority over a security interest in the chattel paper or instrument:
Which is perfected under s. 409.304
(permissive filing and temporary perfection) or under s. 409.306
(perfection as to proceeds) if the purchaser acts without knowledge that the specific paper or instrument is subject to a security interest; or
Which is claimed merely as proceeds of inventory subject to a security interest (s. 409.306
) even though the purchaser knows that the specific paper or instrument is subject to the security interest.
History: 1973 c. 215
; 1991 a. 316
Protection of purchasers of instruments, documents and securities.
Nothing in this chapter limits the rights of a holder in due course of a negotiable instrument (s. 403.302
) or a holder to whom a negotiable document of title has been duly negotiated (s. 407.501
) or a bona fide purchaser of a security (s. 408.302
) and such holders or purchasers take priority over an earlier security interest even though perfected. Filing under this chapter does not constitute notice of the security interest to such holders or purchasers.
History: 1985 a. 237
Priority of certain liens arising by operation of law.
When a person in the ordinary course of that person's business furnishes services or materials with respect to goods subject to a security interest, a lien upon goods in the possession of such person given by statute or rule of law for such materials or services takes priority over a perfected security interest unless the lien is statutory and the statute expressly provides otherwise.
History: 1991 a. 316
"Possession" under this section is not continuous possession; priority of mechanic's lien over previously existing security interest was retained where lienor conditionally released the property to the owner who subsequently returned it to the lienor. M&I Western State Bank v. Wilson, 172 W (2d) 357, 493 NW (2d) 387 (Ct. App. 1992).
Alienability of debtor's rights: judicial process.
The debtor's rights in collateral may be voluntarily or involuntarily transferred (by way of sale, creation of a security interest, attachment, levy, garnishment or other judicial process) notwithstanding a provision in the security agreement prohibiting any transfer or making the transfer constitute a default.
Where security agreement does not explicitly provide that transfer of collateral constitutes default and secured party is not entitled to immediate possession, sale of collateral is not a conversion. Production Credit Asso. v. Equity Coop Livestock, 82 W (2d) 5, 261 NW (2d) 127.
See note to 409.306, citing Production Credit Asso. of Madison v. Nowatzski, 90 W (2d) 344, 280 NW (2d) 118 (1979).
Priorities among conflicting security interests in the same collateral. 409.312(1)
The rules of priority stated in ss. 409.301
and in the following sections shall govern when applicable: s. 404.210
with respect to the security interests of collecting banks in items being collected, accompanying documents and proceeds; s. 409.103
on security interests related to other jurisdictions; s. 409.114
A perfected security interest in crops for new value given to enable the debtor to produce the crops during the production season and given not more than 3 months before the crops become growing crops by planting or otherwise takes priority over an earlier perfected security interest to the extent that such earlier interest secures obligations due more than 6 months before the crops become growing crops by planting or otherwise, even though the person giving new value had knowledge of the earlier security interest.
A perfected purchase money security interest in inventory has priority over a conflicting security interest in the same inventory and also has priority in identifiable cash proceeds received on or before the delivery of the inventory to a buyer if:
The purchase money security interest is perfected at the time the debtor receives possession of the inventory; and
The purchase money secured party gives notification in writing to the holder of the conflicting security interest if the holder had filed a financing statement covering the same types of inventory before the date of the filing made by the purchase money secured party, or before the beginning of the 21-day period where the purchase money security interest is temporarily perfected without filing or possession (s. 409.304 (5)
The holder of the conflicting security interest receives the notification before the debtor receives possession of the inventory; and
The notification states that the person giving the notice has or expects to acquire a purchase money security interest in inventory of the debtor, describing such inventory by item or type.
A purchase money security interest in collateral other than inventory has priority over a conflicting security interest in the same collateral or its proceeds if the purchase money security interest is perfected at the time the debtor receives possession of the collateral or within 20 days thereafter.
In all cases not governed by other rules stated in this section (including cases of purchase money security interests which do not qualify for the special priorities set forth in subs. (3)
), priority between conflicting security interests in the same collateral shall be determined according to the following rules:
Conflicting security interests rank according to priority in time of filing or perfection. Priority dates from the time a filing is first made covering the collateral or the time the security interest is first perfected, whichever is earlier, provided that there is no period thereafter when there is neither filing nor perfection.
So long as conflicting security interests are unperfected, the first to attach has priority.
For the purposes of sub. (5)
a date of filing or perfection as to collateral is also a date of filing or perfection as to proceeds.
If future advances are made while a security interest is perfected by filing, the taking of possession, or under s. 408.321
on securities, the security interest has the same priority for the purposes of sub. (5)
with respect to the future advances as it does with respect to the first advance. If a commitment is made before or while the security interest is so perfected, the security interest has the same priority with respect to advances made pursuant thereto. In other cases a perfected security interest has priority from the date the advance is made.
A seller of goods on credit must perfect its claim to priority, under this section, by filing the agreement and financing statements as required by this section. House of Stainless v. Marshall & Ilsley Bank, 75 W (2d) 264, 249 NW (2d) 561.
Equipment financing and the lease paradox of article 9. Tuthill, WBB October 1981.
Priority of security interests in fixtures. 409.313(1)
In this section and in the provisions of ss. 409.401
referring to fixture filing, unless the context otherwise requires:
A mortgage is a "construction mortgage" to the extent that it secures an obligation incurred for the construction of an improvement on land including the acquisition cost of the land, if the recorded writing so indicates.
A "fixture filing" is the filing in the office where a mortgage on the real estate would be filed or recorded of a financing statement covering goods which are or are to become fixtures and conforming to the requirements of s. 409.402 (5)
Goods are "fixtures" when they become so related to particular real estate that an interest in them arises under real estate law.
A security interest under this chapter may be created in goods which are fixtures or may continue in goods which become fixtures, but no security interest exists under this chapter in ordinary building materials incorporated into an improvement on land.
This chapter does not prevent creation of an encumbrance upon fixtures pursuant to real estate law.
A perfected security interest in fixtures has priority over the conflicting interest of an encumbrancer or owner of the real estate where:
The security interest is a purchase money security interest, the interest of the encumbrancer or owner arises before the goods become fixtures, the security interest is perfected by a fixture filing before the goods become fixtures or within 10 days thereafter, and the debtor has an interest of record in the real estate; or
The security interest is perfected by a fixture filing before the interest of the encumbrancer or owner is of record, the security interest has priority over any conflicting interest of a predecessor in title of the encumbrancer or owner, and the debtor has an interest of record in the real estate; or
The fixtures are readily removable factory or office machines or readily removable replacements of domestic appliances which are consumer goods, and before the goods become fixtures the security interest is perfected by any method permitted by this chapter; or
The conflicting interest is a lien on the real estate obtained by legal or equitable proceedings after the security interest was perfected by any method permitted by this chapter.
A security interest in fixtures, whether or not perfected, has priority over the conflicting interest of an encumbrancer or owner of the real estate where:
The encumbrancer or owner has consented in writing to the security interest or has disclaimed an interest in the goods as fixtures; or
The debtor has a right to remove the goods as against the encumbrancer or owner. If the debtor's right terminates, the priority of the security interest continues for a reasonable time.
Notwithstanding sub. (4) (a)
but otherwise subject to subs. (4)
, a security interest in fixtures is subordinate to a construction mortgage recorded before the goods become fixtures if the goods become fixtures before the completion of the construction. To the extent that it is given to refinance a construction mortgage, a mortgage has this priority to the same extent as the construction mortgage.
In cases not within the preceding subsections, a security interest in fixtures is subordinate to the conflicting interest of an encumbrancer or owner of the related real estate who is not the debtor.
When the secured party has priority over all owners and encumbrancers of the real estate, the secured party may, on default, subject to ss. 409.501
remove the secured party's collateral from the real estate but the secured party must reimburse any encumbrancer or owner of the real estate who is not the debtor and who has not otherwise agreed for the cost of repair of any physical injury, but not for any diminution in value of the real estate caused by the absence of the goods removed or by any necessity for replacing them. A person entitled to reimbursement may refuse permission to remove until the secured party gives adequate security for the performance of this obligation.
The priority provisions of this section do not apply to security interests in vehicles for which certificates of title are required under ch. 342
and which are subject to s. 409.302 (3) (b)
Legislative Council Note, 1973: Sub. (9) is not contained in the official text. It was added by the Special Committee to make it clear that vehicles perfected by filing under the motor vehicle title statutes, including mobile homes, are not subject to fixture filing regardless of how they may be attached to the land; therefore, the rules of priority set out in this section do not apply. (Bill 177-S)
A security interest in goods which attaches before they are installed in or affixed to other goods takes priority as to the goods installed or affixed (called in this section "accessions") over the claims of all persons to the whole except as stated in sub. (3)
and subject to s. 409.315 (1)
A security interest which attaches to goods after they become part of a whole is valid against all persons subsequently acquiring interests in the whole except as stated in sub. (3)
but is invalid against any person with an interest in the whole at the time the security interest attaches to the goods who has not in writing consented to the security interest or disclaimed an interest in the goods as part of the whole.
If the subsequent purchase is made, the lien by judicial proceedings obtained or the subsequent advance under the prior perfected security interest is made or contracted for without knowledge of the security interest and before it is perfected, the security interests described in subs. (1)
do not take priority over: