Chapter 409

409.203 409.203 Attachment and enforceability of security interest; proceeds; supporting obligations; formal requisites.

409.203(1) (1) Attachment. A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral, unless an agreement expressly postpones the time of attachment.

409.203(2) (2) Enforceability. Except as otherwise provided in subs. (3) to (9), a security interest is enforceable against the debtor and 3rd parties with respect to the collateral only if:

409.203(2)(a) (a) Value has been given;

409.203(2)(b) (b) The debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and

409.203(2)(c) (c) One of the following conditions is met:

409.203(2)(c)1. 1. The debtor has authenticated a security agreement that provides a description of the collateral and, if the security interest covers timber to be cut, a description of the land concerned;

409.203(2)(c)2. 2. The collateral is not a certificated security and is in the possession of the secured party under s. 409.313 pursuant to the debtor’s security agreement;

409.203(2)(c)3. 3. The collateral is a certificated security in registered form and the security certificate has been delivered to the secured party under s. 408.301 pursuant to the debtor’s security agreement; or

409.203(2)(c)4. 4. The collateral is deposit accounts, electronic chattel paper, investment property, letter-of-credit rights, or electronic documents, and the secured party has control under s. 407.106, 409.104, 409.105, 409.106, or 409.107 pursuant to the debtor’s security agreement.

409.203(3) (3) Other uniform commercial code provisions. Subsection (2) is subject to s. 404.210 on the security interest of a collecting bank, s. 405.118 on the security interest of a letter-of-credit issuer or nominated person, s. 409.110 on a security interest arising under ch. 402 or 411, and s. 409.206 on security interests in investment property.

409.203(4) (4) When person becomes bound by another person’s security agreement.

409.203(4)(a) (a) A person becomes bound as debtor by a security agreement entered into by another person if, by operation of law other than this chapter or by contract:

409.203(4)(a)1. 1. The security agreement becomes effective to create a security interest in the person’s property; or

409.203(4)(a)2. 2. The person becomes generally obligated for the obligations of the other person, including the obligation secured under the security agreement, and acquires or succeeds to all or substantially all of the assets of the other person.

409.203(4)(b) (b) A security agreement authenticated by one spouse is authenticated by the debtor under this section if that spouse acting alone has the right under s. 766.51 to manage and control the collateral, unless a marital property agreement or court decree that is binding on the secured party under s. 766.55 (4m) or 766.56 (2) (c) provides otherwise.

409.203(5) (5) Effect of new debtor becoming bound. If a new debtor becomes bound as debtor by a security agreement entered into by another person:

409.203(5)(a) (a) The agreement satisfies sub. (2) (c) with respect to existing or after-acquired property of the new debtor to the extent that the property is described in the agreement; and

409.203(5)(b) (b) Another agreement is not necessary to make a security interest in the property enforceable.

409.203(6) (6) Proceeds and supporting obligations. The attachment of a security interest in collateral gives the secured party the rights to proceeds provided by s. 409.315 and is also attachment of a security interest in a supporting obligation for the collateral.

409.203(7) (7) Lien securing right to payment. The attachment of a security interest in a right to payment or performance secured by a security interest or other lien on personal or real property is also attachment of a security interest in the security interest, mortgage, or other lien.

409.203(8) (8) Security entitlement carried in securities account. The attachment of a security interest in a securities account is also attachment of a security interest in the security entitlements carried in the securities account.

409.203(9) (9) Commodity contracts carried in commodity account. The attachment of a security interest in a commodity account is also attachment of a security interest in the commodity contracts carried in the commodity account.

409.203 History History: 2001 a. 10; 2009 a. 322.

409.203 Annotation A provision in an instrument prohibiting transfer of the instrument did not render a security interest in the instrument unenforceable. Belke v. M & I First National Bank of Stevens Point, 189 Wis. 2d 385, 525 N.W.2d 737 (Ct. App. 1994).

409.203 Annotation If the terms of a security agreement establish that attachment is contingent on subsequent specification of the collateral, the secured party has no security interest before the satisfaction of the contingency. A security agreement requiring the designation of the accounts to serve as collateral gave no security interest when no designation was made. Sierra Finance Corp. v. Excel Laboratories, LLC, 223 Wis. 2d 694, 589 N.W.2d 432 (Ct. App. 1998), 97-2450.

409.203 Note NOTE: The above annotated materials cite to the pre-2001 Wis. Act 10 version of s. 409.203.

409.203 Annotation Sub. (7) is identical to s. 9-203 (g) of the Uniform Commercial Code. The comment to s. 9-203 (g) states, “Subsection (g) codifies the common-law rule that a transfer of an obligation secured by a security interest or other lien on personal or real property also transfers the security interest or lien” and supports the assertion that sub. (7) was intended to codify the common law doctrine of equitable assignment. It also supports the argument that the doctrine applies to real estate mortgages. Dow Family, LLC v. PHH Mortgage Corporation, 2014 WI 56, 354 Wis. 2d 796, 848 N.W.2d 728, 13-0221.

409.204 409.204 After-acquired property; future advances.

409.204(1) (1) After-acquired collateral. Except as otherwise provided in sub. (2), a security agreement may create or provide for a security interest in after-acquired collateral.

409.204(2) (2) When after-acquired property clause not effective. A security interest does not attach under a term constituting an after-acquired property clause to:

409.204(2)(a) (a) Consumer goods, other than an accession when given as additional security, unless the debtor acquires rights in them within 10 days after the secured party gives value; or

409.204(2)(b) (b) A commercial tort claim.

409.204(3) (3) Future advances and other value. A security agreement may provide that collateral secures, or that accounts, chattel paper, payment intangibles, or promissory notes are sold in connection with, future advances or other value, whether or not the advances or value are given pursuant to commitment.

409.204 History History: 2001 a. 10.

409.204 Annotation A security agreement covering money lent “and all other obligations and liabilities” will not extend to obligations arising out of contract violations unless they were clearly within the intent of the parties. John Miller Supply Co. v. Western State Bank, 55 Wis. 2d 385, 199 N.W.2d 161 (1972).

409.204 Annotation Priorities of “future advances” under previously perfected security interests and article 9 of the U.C.C. 58 MLR 759.

409.204 Annotation Security interests in after-acquired property under the uniform commercial code. Skilton, 1974 WLR 925.

409.204 Note NOTE: The above annotated materials cite to the pre-2001 Wis. Act 10 version of s. 409.204.

409.205 409.205 Use or disposition of collateral permissible.

409.205(1) (1) When security interest not invalid or fraudulent. A security interest is not invalid or fraudulent against creditors solely because:

409.205(1)(a) (a) The debtor has the right or ability to:

409.205(1)(a)1. 1. Use, commingle, or dispose of all or part of the collateral, including returned or repossessed goods;

409.205(1)(a)2. 2. Collect, compromise, enforce, or otherwise deal with collateral;

409.205(1)(a)3. 3. Accept the return of collateral or make repossessions; or

409.205(1)(a)4. 4. Use, commingle, or dispose of proceeds; or

409.205(1)(b) (b) The secured party fails to require the debtor to account for proceeds or replace collateral.

409.205(2) (2) Requirements of possession not relaxed. This section does not relax the requirements of possession if attachment, perfection, or enforcement of a security interest depends upon possession of the collateral by the secured party.

409.205 History History: 2001 a. 10.

409.205 Annotation Under this section the debtor is freed from strict accountability to the secured creditor for the property secured, and the validity of a secured interest in after-acquired property is specifically recognized. When a creditor has a security interest in the debtor’s after-acquired property the debtor is able to commingle his property and use it to his or her best interest. The acquiescence of the secured creditor under an after-acquired clause by the debtor does not invalidate the security interest of the creditor. Burlington National Bank v. Strauss, 50 Wis. 2d 270, 184 N.W.2d 122 (1971).

409.205 Note NOTE: The above annotated materials cite to the pre-2001 Wis. Act 10 version of s. 409.205.

409.206 409.206 Security interest arising in purchase or delivery of financial asset.

409.206(1) (1) Security interest when person buys through securities intermediary. A security interest in favor of a securities intermediary attaches to a person’s security entitlement if:

409.206(1)(a) (a) The person buys a financial asset through the securities intermediary in a transaction in which the person is obligated to pay the purchase price to the securities intermediary at the time of the purchase; and

409.206(1)(b) (b) The securities intermediary credits the financial asset to the buyer’s securities account before the buyer pays the securities intermediary.

409.206(2) (2) Security interest secures obligation to pay for financial asset. The security interest described in sub. (1) secures the person’s obligation to pay for the financial asset.

409.206(3) (3) Security interest in payment against delivery transaction. A security interest in favor of a person that delivers a certificated security or other financial asset represented by a writing attaches to the security or other financial asset if:

409.206(3)(a) (a) The security or other financial asset:

409.206(3)(a)1. 1. In the ordinary course of business is transferred by delivery with any necessary endorsement or assignment; and

409.206(3)(a)2. 2. Is delivered under an agreement between persons in the business of dealing with such securities or financial assets; and

409.206(3)(b) (b) The agreement calls for delivery against payment.

409.206(4) (4) Security interest secures obligation to pay for delivery. The security interest described in sub. (3) secures the obligation to make payment for the delivery.

409.206 History History: 2001 a. 10.

409.207 409.207 Rights and duties of secured party having possession or control of collateral.

409.207(1) (1) Duty of care when secured party in possession. Except as otherwise provided in sub. (4), a secured party shall use reasonable care in the custody and preservation of collateral in the secured party’s possession. In the case of chattel paper or an instrument, reasonable care includes taking necessary steps to preserve rights against prior parties unless otherwise agreed.

409.207(2) (2) Expenses, risks, duties, and rights when secured party in possession. Except as otherwise provided in sub. (4), if a secured party has possession of collateral:

409.207(2)(a) (a) Reasonable expenses, including the cost of insurance and payment of taxes or other charges, incurred in the custody, preservation, use, or operation of the collateral are chargeable to the debtor and are secured by the collateral;

409.207(2)(b) (b) The risk of accidental loss or damage is on the debtor to the extent of a deficiency in any effective insurance coverage;

409.207(2)(c) (c) The secured party shall keep the collateral identifiable, but fungible collateral may be commingled; and

409.207(2)(d) (d) The secured party may use or operate the collateral:

409.207(2)(d)1. 1. For the purpose of preserving the collateral or its value;

409.207(2)(d)2. 2. As permitted by an order of a court having competent jurisdiction; or

409.207(2)(d)3. 3. Except in the case of consumer goods, in the manner and to the extent agreed by the debtor.

409.207(3) (3) Duties and rights when secured party in possession or control. Except as otherwise provided in sub. (4), a secured party having possession of collateral or control of collateral under s. 407.106, 409.104, 409.105, 409.106, or 409.107:

409.207(3)(a) (a) May hold as additional security any proceeds, except money or funds, received from the collateral;

409.207(3)(b) (b) Shall apply money or funds received from the collateral to reduce the secured obligation, unless remitted to the debtor; and

409.207(3)(c) (c) May create a security interest in the collateral.

409.207(4) (4) Buyer of certain rights to payment. If the secured party is a buyer of accounts, chattel paper, payment intangibles, or promissory notes or a consignor:

409.207(4)(a) (a) Subsection (1) does not apply unless the secured party is entitled under an agreement:

409.207(4)(a)1. 1. To charge back uncollected collateral; or

409.207(4)(a)2. 2. Otherwise to full or limited recourse against the debtor or a secondary obligor based on the nonpayment or other default of an account debtor or other obligor on the collateral; and

409.207(4)(b) (b) Subsections (1) and (2) do not apply.

409.207 History History: 2001 a. 10; 2009 a. 322.

409.207 Annotation [Former] sub. (2) (c) does not require putting money held as security in an interest bearing account. That a bank had the beneficial use of money does not mean that interest was earned that must be applied under [former] sub. (2) (c). Demotropoulous v. Bank One Milwaukee, N.A. 953 F. Supp. 974 (1997).

409.207 Annotation [Former] sub. (2) (c) requiring the application of increase or profits received by a secured property on property held as collateral did not apply to a security deposit paid on a car lease. Doe v. General Motors Acceptance Corporation, 2001 WI App 199, 247 Wis. 2d 564, 635 N.W.2d 7, 00-1564.

409.207 Note NOTE: The above annotated materials cite to the pre-2001 Wis. Act 10 version of s. 409.207.

409.208 409.208 Additional duties of secured party having control of collateral.

409.208(1) (1) Applicability of section. This section applies to cases in which there is no outstanding secured obligation and the secured party is not committed to make advances, incur obligations, or otherwise give value.

409.208(2) (2) Duties of secured party after receiving demand from debtor. Within 10 days after receiving an authenticated demand by the debtor: