Secured Transactions

Question 1

Secured Transaction Definition
-secured party
-debtor
-obligor

Answer 1

A secured transaction under Uniform Commercial Code (UCC) Article 9
involves a loan or purchase that is secured by collateral. The relationship typically involves two parties, a debtor and a creditor. The debtor gives the creditor a security interest in the debtor’s specific property (collateral) to assure that the debtor will perform (repay the loan, pay the purchase price).

Secured Party—A secured party is the person in whose favor a security interest is created under the security agreement. Usually, the secured party is the person who has loaned money or extended credit to the obligor. For example, a bank that loans money to a business is a typical secured party.

Obligor—An obligor is a person who must pay (or otherwise perform) with respect to the obligation that is secured by a security interest in the collateral. For example, a business that receives a loan from the bank is a typical obligor.

Debtor—A debtor is a person who has an interest, other than a security interest or other lien, in the collateral, such as the sole owner of the collateral. Although the debtor is usually also the obligor, the debtor need not be.

Question 2

Collateral & Classification

Answer 2

Property subject to a security interest is called “collateral.” The characterization of collateral can affect the validity of a security interest, the way in which a security interest can be perfected, and the rights of a third party in the collateral, such as a buyer of collateral.

Tangible collateral (goods) & intangible collateral

A classification can change over the lifetime of the property.

Question 3

Tangible collateral (goods)

Answer 3

“Goods” encompasses anything that is “moveable at the time that a security interest attaches.” There are four classes of goods:

1. Consumer Goods: purchased for personal, family, or household use
2. Farm Products: crops or livestock owned by a farmer
3. Inventory: goods held for sale or lease, or used/consumed in a business in a short time period (also raw materials used in a business)
4. Equipment: goods for use primarily in a business (e.g. machinery, office furniture)

*When the obligor uses the property for multiple purposes, the principal use to which the obligor puts the property determines the class of the goods.

Question 4

Intangible collateral (non-goods)

Answer 4

Intangible collateral includes nine classes of personal property. Most frequently tested are accounts & deposit account.

1. Account: “Accounts” include the right to payment for goods sold, property licensed, or services rendered. Also included is a right to payment for the issuance of an insurance policy, the use of a credit or charge card, or winning a lottery.
2. Deposit account: A “deposit account” includes a savings, passbook, time, or demand account maintained with a bank.

Others:
-Negotiable Instrument: commercial paper such as a promissory note or check
-Chattel Paper: a record evidencing a security interest or lease in specific goods
-Documents: document of title, bill of lading, warehouse receipt
-Investment Property: stocks, bonds, mutual funds
-Tort claims of a business
-Letter of Credit Right: right to payment or performance under letter of credit
-General Intangibles: copyrights, patents, software not embedded within a good (Software embedded in goods is treated as part of goods in which it is embedded)

Question 5

Eligible transactions
-general rule
-leases, consignments, liens, purchases, real property transactions

Answer 5

General Rule: Article 9 governs a transaction that creates, by agreement, a security interest in personal property or a fixture. In addition, a lease, consignment, agricultural lien, and even a purchase of personal property may be subject to Article 9.

Leases:
-covered by Art. 9 when, although in the form of a lease, the transaction is in substance a secured transaction. Determination is made on a case by case basis.
-There are several rules for when a lease can create a security interest. The most frequently tested rule is: “A transaction in the form of a lease creates a security interest if lease payments must be made for the full term of the lease and are not subject to termination and the lessee has an option to become the owner of the goods for nominal (a small amount of money) consideration at the conclusion of the lease agreement.”

Consignments: if subject to Art. 9, consignor’s SI in the consigned goods is treated as a PMSI in inventory

Liens: generally not subject to Art. 9, except agricultural liens generally are

-Article 9 does not apply to real property liens (e.g. mortgages), statutory liens (e.g. mechanic’s lien), or judicial liens (e.g. judgment lien)

Purchases: generally, the sale of personal property is not subject to Art. 9

Real property transactions: not generally subject to Art. 9, but can apply to a SI in a secured obligation (promissory note) even though the obligation is itself secured by a transaction or interest to which Art. 9 does not apply (e.g. a real property mortgage)

Question 6

Attachment

Answer 6

Once attachment occurs, the creditor will be a secured party and have rights against the debtor. Attachment refers to the creditor’s lien attaching to the collateral.

Required Elements:
1. value given by the secured party,
2. the debtor has rights in the collateral, and
3. the debtor has authenticated a security agreement that describes the collateral, or the secured party has possession or control of the collateral

Question 7

Value given by secured party

Answer 7

Value Given—The secured party must give value for the security interest. Value may be given:
o By providing consideration sufficient to support a simple contract;
o By extending credit, either immediately or under a binding commitment to do so;
o By, as a buyer, accepting delivery under a preexisting contract, thereby converting a contingent obligation into a fixed obligation; or
o In satisfaction of, or as security for, part or all of a preexisting claim.

*A typical exam question will present a bank that provides a loan to a business. The loan money would be considered the “value given”.

Question 8

Debtor has rights

Answer 8

An ownership interest in or right to possession of the collateral

*A typical exam question will present a business that gives the bank an interest in the business’ “Inventory and Equipment”. The “Inventory and Equipment” would be the collateral and the business must actually have a right (usually takes the form of ownership) in the collateral.

*if consignor retains title to consigned goods, consignee does not have rights in them.

*if use someone else’s equipment in business without their permission, debtor doesn’t have rights in it

Question 9

Security Agreement or Possession/Control of Collateral

Answer 9

The debtor has authenticated a security agreement that describes the collateral, or the secured party has possession or control of the collateral pursuant to a security agreement.

The security agreement must meet the following requirements:
1. It must be in a record, such as a written or typed document,
2. Contain a description of the collateral (“all equipment” is fine but not if about consumer goods or commercial tort claim (“all debtor’s assets” is not sufficient, nor is “all personal property” - super generic); and
3. Be authenticated (typically signed) by the debtor.

Possession or control of collateral: the secured party’s possession/control must be pursuant to the security agreement
* If the secured party has possession or control of the collateral pursuant to a security agreement, then a security agreement in the form of a record is not required; an oral agreement suffices.

Question 10

Future advance & after-acquired collateral

Answer 10

The security agreement can include a future advance clause, providing that the collateral will secure any future advances (additional loans) given by the secured party

After‐acquired collateral: A security interest may apply not only to the collateral that the debtor owns at the time the security is granted, but also to collateral that the debtor acquires in the future (e.g. a business may give a bank an interest in “all Inventory now owned or hereafter acquired”).

-Exception: An after‐acquired clause is not effective if the collateral is consumer goods, unless the debtor acquires them within 10 days after the secured party gives value.

Question 11

Proceeds from collateral

Answer 11

A security interest in collateral automatically attaches to identifiable proceeds from the sale, exchange, or other disposition of the collateral.

E.g. a secured party acquires a security interest in a debtor’s inventory. The debtor sells items of inventory in exchange for checks. The secured party’s security interest will attach to the checks if they are identifiable as proceeds.

If a security interest in collateral is perfected, and then the collateral is sold for cash proceeds (or checks or deposit account), the secured party will have a perfected security interest in the proceeds.

Question 12

Accessions & commingled goods

Answer 12

Accessions are goods that are physically united with other goods in such a manner that the identity of the original goods is not lost

E.g. memory installed in a computer, or tires installed on a car.

A security interest that is created in collateral that becomes an accession is not lost due to the collateral becoming an accession.

vs. commingled goods: physically united with other goods such that their identity is lost in a product or mass

*no SI in specific goods that have been commingled, but an SI may attached to the product or mass that results from commingling
*for existing SI in collateral that is commingled, the SI is transferred to the resulting product or mass

Question 13

Purchase-money security interest (PMSI)

Answer 13

A PMSI gives lenders a security interest in goods that have been purchased with funds borrowed from them or purchased on credit from them.

A PMSI is subject to special rules with respect to perfection and priority.

A PMSI may exist only with respect to two types of collateral—goods (including fixtures) and software.

A PMSI in goods:
- A secured party gave value (e.g., made a loan) to the debtor and the debtor uses the loan to acquire rights in or use of the collateral; or
- A secured party sells the collateral to the debtor, and the debtor enters an agreement requiring it to pay the secured party all or part of the purchase price (i.e., a sale of goods on credit).

E.g. of first kind: A, an automobile dealer, sells B, the debtor, an automobile. B does not have the full purchase price of the automobile. B goes to C, a bank, and borrows money to purchase the automobile. In exchange for the loan, B gives C a security interest in the automobile (the collateral) that she is purchasing from A. Pursuant to the agreement with C, B is to make payments to C until the loan for the automobile has been paid in full. C has a PMSI in the automobile.

E.g. of second kind: A, an automobile dealer, sells B, the debtor, an automobile and agrees to finance the automobile because B does not have the full purchase price. B, pursuant to the agreement, is to make payments on a monthly basis until the automobile has been paid in full and gives A a security interest in the automobile (the collateral). A has a PMSI in the automobile.

PMSI in software: only when the debtor acquired his interest in software in an integrated transaction in which the debtor also acquired an interest in goods (e.g. a computer), and the debtor acquired that interest in the software for the principal purpose of using the software in the goods

Question 14

Perfection of security interest

Answer 14

“Perfection” of a security interest protects the secured party against third-party claims.

A security interest is “perfected” upon attachment of the interest and compliance with one of the methods of perfection:

1. Filing of a financing statement,
2. Possession of the collateral,
3. Control over the collateral, or
4. Automatic perfection (either temporary or permanent),

*If there is another statute that governs perfection of a security interest, that statute may provide another method of perfection.

*there can be no perfection without attachment

Question 15

Filing: requirements, timing/expiration, mistakes, name change, location change, items with certificates of title

Answer 15

The primary objective of filing is to give interested parties notice of the
existence of the security interest.

A security interest in collateral may be perfected by filing a financing statement with the secretary of state where the debtor or real property is located.

Filing doesn’t perfect the following: deposit account, money, or letter of credit rights

Requirements:
1. Debtor’s name (as it appears on current driver’s license),
2. Secured party’s name (or representative), and
3. Type of collateral (the same description from security agreement suffices or can be more generic “all assets”)

Timing/expiration: The financing statement will be effective on the date of filing. A financing statement is effective for 5 years and may be continued for another 5 years by filing a continuation statement within 6 months prior to the expiration of the statement.

Mistake in debtor’s name:
-mistake in debtor’s name that is seriously misleading will make the perfection ineffective unless a standard index search would nonetheless disclose the financing statement
(mistake in secured party’s name doesn’t affect perfection)

Name change: secured party must file an amendment within 4 months after a name change by the debtor, otherwise any collateral acquired after 4 months will not be covered by the financing statement

Location change: if debtor relocates to another state, secured party must file in the new state within 4 months or the SI will become unperfected after 4 months

Items with certificates of title (e.g. vehicles) that are not classified as inventory cannot be perfected by filing; the lien must be noted on the certificate of title

Question 16

Possession of collateral (for perfection)

Answer 16

Can function as both attachment and perfection

Perfection by possession allowed for a good, negotiable document, instrument, money, or tangible chattel paper

Possession not sufficient for an account, deposit account, general intangible or tort claim

Question 17

Control over collateral (for perfection)
-deposit account

Answer 17

Perfection by control is allowed for investment property, a deposit account, letter of credit rights, electronic chattel paper, or eletronic documents

*The security interest remains
perfected only while the secured party retains control.

*Control cannot require the debtor’s cooperation for access

If the secured party holding the account is a bank, control is automatic –>

Deposit account: A security interest in a deposit account can be perfected only by control. A secured party has control of a deposit account if:
- The secured party is the bank with which the deposit account is maintained;
- The bank, secured party, and debtor agreed in writing to follow the instructions of the secured party; or
- The secured party becomes the bank’s customer with respect to the deposit
account.

Question 18

Automatic perfection

Answer 18

Under some circumstances, a security interest is automatically perfected upon attachment.

1. PMSI in consumer goods (not other types of goods like inventory, equipment, or automobiles)
   -when creditor sells goods to debtor on credit and reserves SI, or
   -when creditor advances funds to purchase goods and reserves SI
2. Sale of a payment intangible or promissory note and casual, small assignments of accounts or payment intangibles will perfect upon attachment
3. Temporary:
   A. Proceeds (identifiable and traceable to collateral): if SI in original collateral is perfected, SI in its proceeds continues for 20 days.
   Perfection continues beyond 20 days if:
   -original filing statement is brought enough to encompass proceeds or secured party amends financing statement to cover proceeds within 20-day period,
   -identifiable cash proceeds (cash or check), or
   -same office rule: if proceeds aren’t cash (e.g. credit) and would be filed in the same place as the original collateral

B. if secured party advances new value to a SI in negotiable documents, instruments, or certificated securities, it continues for 20 days

Question 19

Timing of Perfection

Answer 19

A security interest is perfected upon (i) attachment of that interest and (ii) compliance with one of the methods of perfection (such as filing a financing statement).

Typically, the security interest attaches and is then perfected. It is possible for the secured party to take steps toward perfecting the security interest prior to attachment (e.g. filing a financing statement first). The security interest would then be perfected upon attachment.

A security interest that is perfected by one method and later perfected by another method without a lapse in perfection is continuously perfected despite the change in method. The date of perfection is the date on which the security interest first became perfected.

Question 20

Priorities Approach

Answer 20

1. Characterize status of each claimant (consider whether BOCB, PMSI, or secured vs. unsecured)
   *remember, need attachment to be secured party
2. Determine the applicable rules of priority (include time limits if relevant)
3. Apply the rule and any applicable exemption (remember “first in time, first in right” and first to file/perfect)

Question 21

Priorities: Parties (potential claimants)
-creditors
-transferees/buyers
-other secured parties

Answer 21

1. General Creditor (Unsecured): one who has a claim, including a judgment, but who has no lien or security interest with respect to the property in question (secured party always wins, creditor has no claim to property).
2. Judicial Lien Creditor: a creditor who acquires a lien on the collateral by a judicial process, rather than by operation of law.
3. Transferees: Transferees of the collateral are persons who obtain full title to the goods as a result of a transfer of the collateral from the debtor (secured party wins unless authorized transfer free of SI)

Question 22

Priorities general rule & exceptions

Answer 22

General rule: “first in time, first in right” - first to file or perfect

Exceptions:

1. Buyer in the ordinary course of business (BOCB)
   -a purchase of goods from a seller during the ordinary course of business, from a merchant in business of selling goods of that kind, and
   -in good faith, without actual knowledge that sale would be a violation
2. PMSI (purchase money security interest)

Question 23

Secured Party v. Judicial Lien Creditor

Answer 23

A perfected security interest has priority over a judicial lien creditor, but the judicial lien creditor has priority over an unperfected security interest.

*Even if the security interest is unperfected at the time the judicial lien comes into existence, the secured party will have priority if the only reason why it was unperfected was that the secured party had not yet given value.

Question 24

Secured Party v. Purchaser
-perfected v. authorized buyer
-perfected v. BOCB
-perfected v. non-BOCB
-perfected v. garage sale/consumer buyer
-unperfected v. buyer

Answer 24

Perfected v. Authorized Buyer: authorized buyer wins
-secured party authorizes sale free and clear of its security interest; can be express or implied

Perfected v. BOCB: BOCB wins (even if SI is perfected and the buyer knows of its
existence) when:
o Buys goods (not including farm products);
o In the ordinary course of business;
o From a merchant who is in the business of selling goods of that kind;
o In good faith; and
o Without knowledge that the sale violates the rights of another in the same goods.

*The requirement that a BOCB take without knowledge means actual knowledge that the sale is in violation of another party’s rights. Mere notice or reason to know is insufficient.

Perfected v. non-BOCB: perfected wins
-but a buyer not in OCB takes priority over a future advance given after the purchase

Perfected v. Garage Sale/Consumer Buyer: consumer buyer wins (unless PMSI in consumer goods filed financing statement)
A consumer buyer is a person who:
- Buys consumer goods for value;
- For his own personal, family, or household use;
- From a consumer seller; and
- Without knowledge of the security interest.

*Secured parties with a PMSI in consumer goods should file a financial statement, to protect their interest against consumer buyers (even though automatically perfected).

Unperfected v. Buyer: buyer wins if
- Gives value; and
- Receives delivery of the collateral;
- Without knowledge of the existing security interest.

Question 25

Secured Party v. Secured Party
-perfected v. unperfected
-perfected v. perfected
–> PMSI v. non-PMSI
–>PMSI seller v. PMSI lender
–>PMSI in fixtures v. real estate lender
–> PMSI in fixtures v. construction mortgage
–>perfection by control v. perfection by other method
-unperfected v. unperfected
-proceeds

Answer 25

Secured Party v. Secured Party rule: first to file or perfect

for Perfected v. Unperfected: perfected wins

for Perfected v. Perfected––>

PMSI v. non-PMSI: PMSI wins
-for equipment: if perfected within 20 days of possession
-for inventory: if perfected by the time debtor gets possession + notice

PMSI seller v. PMSI lender: PMSI seller wins

PMSI in fixtures vs. Real estate lender: PMSI in fixtures wins if perfected by a fixture filing within 20 days

A construction mortgage has priority over a subsequent security interest in a fixture, including a PMSI in a fixture. The construction mortgage must be recorded before the goods become fixtures, and it covers only goods that become fixtures before completion of the construction.

Perfection by control v. Perfection by other means: perfection by control wins

for Unperfected v. Unperfected: first to attach

Proceeds: Generally, the basic rules (e.g., first‐to‐file‐or‐perfect) govern priority if there are conflicting security interests and at least one of those interests is claimed as proceeds. The filing or perfection date for the original collateral is treated as the filing or perfection date for the proceeds.

Question 26

filing office’s refusal to accept financing statement or incorrect indexing

Answer 26

justified refusal (e.g. failure to pay fee): financing statement is treated as not filed

unjustified refusal: financing statement is treated as filed and effective except as to a purchaser of collateral who gives value in reasonable reliance upon absence of record from files

filing office’s incorrect indexing of statement doesn’t affect effectiveness of filed statement

Question 27

Default

Answer 27

Generally, default will be the failure of the obligor to make timely payments to the secured party.

Once a default has occurred, the secured party may:
- Seek possession of the collateral and, in order to satisfy the obligor’s outstanding obligation, either (a) Sell the collateral; or (b) Retain it in full or partial satisfaction of the obligation;
- Initiate a judicial action to obtain a judgment based on that obligation; or
- Subject to statutory limitations, pursue any course of action to which the debtor and obligor have agreed.

*Ignoring debtor’s default may act as a waiver of secured party’s rights

Question 28

Security Agreement Covering Fixtures

Answer 28

When a security agreement covers fixtures, a secured party may proceed as to the fixtures in accord with the rights and remedies with respect to the real property.

When a secured party’s security interest has priority over owners and individuals who encumber real property, that secured party may remove the fixture from the real property. With respect to an owner or encumbrancer who is not the debtor, the secured party is liable for the cost of repairing any physical object damaged by the removal but not for any reduction in the value of the real property due to the removal.

Question 29

Posession of Collateral/Recovering Collateral

Answer 29

After default, a secured party is entitled to take possession of the collateral. Unless the security agreement provides otherwise, a secured party is not required to give notice of default, nor is he required to give notice of his intent to take possession of the collateral.

(1) Self-help repossession is allowed if it can be done without a breach of the peace.

-Breach of the peace is established if the debtor objects, debtor’s consent is obtained by threat or force, or there is trespass of debtor’s residence or garage (beyond a simple trespass to access debtor’s property)
-Debtor’s remedies for breach of the peace include damages for conversion, commission of any torts (e.g. assault), and possibly punitive damages

(2) Judicial process (replevin after payment of bond, notice and hearing)

Question 30

Disposition of Collateral overview

Answer 30

After default, a secured party may sell, lease, license, or otherwise dispose of all or any of the collateral.

-commercially reasonable standard
-price
-time
-type
-notice

Question 31

Commercially reasonable

Answer 31

All aspects of the disposition of collateral
(method, manner, time, and place) must be conducted in a commercially reasonable manner. A disposition is commercially reasonable when conducted in the usual manner in a recognized market at the recognized current price or consistent with reasonable commercial practices for that property

Question 32

Price

Answer 32

There is not a specific price that must be obtained by the secured party in disposing of the collateral. The mere fact that a higher price could have been obtained by disposing of the collateral in a different manner or at a different time does not establish that the disposition was not commercially reasonable. A low price may trigger scrutiny by the court of the disposition and its reasonableness.

Question 33

Time of disposition

Answer 33

There is not a specific time in which a disposition must occur.

Question 34

Type of disposition

Answer 34

A secured party may dispose of the collateral publicly or privately.

A secured party may purchase the collateral at a public sale, but she cannot do so at a private sale unless the collateral is of a kind that is customarily sold on a recognized market (e.g., the New York Stock Exchange) or the subject of widely distributed standard price quotations. A secured party cannot purchase the collateral at a private sale when the prices are individually negotiated or when items are not fungible in a recognized market.

Question 35

Notice of a disposition

Answer 35

A secured party is generally required to send an authenticated notification of disposition. Must be sent in a reasonable manner and with reasonable advance notice

Recipients must include the debtor; if non-commercial goods must also notify the other secured parties or lien holders

Timeliness of notice:
-Test is reasonableness. Should be sent far enough in advance of the
disposition to allow the notified party to act on the notification.
-In a transaction other than a consumer transaction, when a secured party sends a notification of disposition after default and at least 10 days before the earliest time for disposition set forth in the notification, the timeliness of the notice is reasonable, provided that the notice is sent in a commercially reasonable manner.

contents must include:
-description of the debtor, secured party and collateral
-statement as to the method of disposition
-whether public sale (and where/when) or private sale (when), and
-statement that debtor is entitled to an accounting
-if consumer goods, must describe deficiency liability and provide a number debtor can call to get the redemption amount or more info about the sale

Effect: the sale discharges the SI and all subordinate security interests

Debtor’s remedies for a violation include injunctive relief to stop the sale/disposition; if the sale was not commercially reasonable, there’s a rebuttable presumption the sales proceeds from a non-consumer transaction (and maybe consumer) are equal to the amount of debt

Question 36

Application of the Proceeds From a Disposition: cash proceeds

Answer 36

1. Cash proceeds: A secured party must apply, or pay over for application, cash proceeds of a disposition in the following order:
   - Reasonable expenses for collection and enforcement, including reasonable attorney’s fees and other legal expenses; then
   - Satisfaction of obligations secured by the security interest; then
   - Satisfaction of any subordinate security interests, provided that the junior secured party made an authenticated demand for proceeds before distribution of the proceeds is complete; then
   - The remainder of the proceeds to the debtor.

Question 37

Treatment of a surplus or deficiency

Answer 37

Surplus: If, after the required payments and applications of proceeds have been made, there is a surplus, the secured party generally must pay the surplus to the debtor.

Deficiency: If, after the required payments and applications of proceeds have been made, there is a deficiency, then the obligor generally is liable for the deficiency.

Non-Consumer goods: if proceeds from a sale don’t satisfy the debt, the secured party may recover the remaining debt from the debtor; any surplus must be paid to the debtor

Consumer goods: the secured party must send written notice to debtor explaining how the deficiency or surplus was calculated or she will be liable for any loss plus $500

Debtor’s remedies for violation of rules regarding default may bar a deficiency judgment (assumed proceeds cover the debt)

Question 38

Effect of disposition

Answer 38

A sale of the collateral gives the buyer at the sale all of the debtor’s rights in the collateral. If the transferee/buyer acts in good faith (i.e., honesty in fact and the observance of reasonable commercial standards of fair dealing), then the disposition discharges the security interest being foreclosed and any subordinate security interests and liens.

However, the transferee takes the collateral subject to any security interests that were senior to the security interest foreclosed.

Question 39

Keep the property (strict foreclosure)

Answer 39

Availability: not allowed for consumer goods 60% or more paid for without a written waiver

Full: if secured party opts to keep and not sell property in full satisfaction of the debt
-must notify the debtor and other secure parties
-allowed if no one objects within 20 days; if a party objects, the property must be sold

Partial: secured party opts to keep the property in partial satisfaction of the debt
-not allowed with a consumer transaction (only a full strict foreclosure is allowed)
-must notify the debtor, secondary obligor and other secured parties
-allowed if no one objects within 20 days; if a party objects the property must be sold

Question 40

Debtor’s right to redeem

Answer 40

A debtor has the right to redeem by paying the debt including reasonable expenses and attorney’s fees incurred as a result of repossession or preparing for a sale

Waiver of this right can occur only through an authenticated agreement after default, except in a consumer-goods transaction; any attempt to create a waiver in the security agreement is void

The right to redeem expires upon resale, contract for sale, or discharge by retention

Acceleration clauses are allowed; to redeem, debtor might be required to tender full payment

Question 41

rule for default & account

Answer 41

If the debtor assigns his right to receive payment on an account, then the secured party, after default or earlier if the debtor so agrees, may notify an account debtor to make payment to the secured party. The notification must be authenticated by the debtor or secured party and must reasonably identify the rights assigned. After receiving that notice, the account debtor can only discharge their obligation by paying the assignee. A payment made to the assignor does not discharge the account debtor’s obligation.