i Seal ~

Act applies to transactions bearing an appropriate relation to this state.” To define the
meaning of “appropriate relation”, commentary 3 to this Section states, “Where a
transaction has significant contacts with a state which has enacted the Act and also with
other jurisdictions, the question what relation is ‘appropriate’ is left to judicial decision.
In deciding that question, the court is not strictly bound by precedents established in other
contexts.” In Gordon v. Clifford Metal Sales Co. Inc., 602 A. 2d 535 (1992), the trial
court held that the law of the state of the sifus.of the steel at the time of insolvency of the
debtor is controlling. Here, the steel is located in Illinois, and so the transaction has the

most appropriate relation to Illinois.

Therefore, the Court finds that the UCC governs the determination of whether

LaSalle has title in the Steel Shipments, or, to phrase it in a different way, application of

the UCC determines the validity of the retention of title provision in the contract,
C. Applying the UCC
i. Usinor’s title in the Steel Shipments
Under UCC Section 2-401(a), Usinox.has a reservation of a security interest only.

Title retention contracts are construed as creating only security interests under the U.C.C.
(See UCC Section 2-401(a),“Any retention ‘Ot-reservation by the seller of the title in

goods shipped or delivered to the buyer is limited in effect to a reservation of a security

interest. Subject to these provisions and to the provisions of the Article on Secured
a .
Transactions, title to goods passes from the seller to the buyer in any manner and on any

conditions explicitly agreed on by the parties.”) Therefore, under domestic law, Usinor’s

13


Shipments, after demand by Usinor to do so._Currently, Leeco still owes Usinor at least
$988,817.36 of the total value of the Steel Shipments. Usinor asserts on information and
belief that the value of the remaining steel fiom the Steel Shipment in the possession of
Leeco is worth substantially less than the acini of money that Leeco owes Usinor,
Instead of making complete and total payment for the Steel Shipments, Usinor asserts that
Leeco has instead sought to use its control over the improved steel to force Usinor to
provide Leeco a refund on the steel it had purchased, but not used.

Leeco purchased the Steel Shipment, Lusing a line of credit (the “Loan”) from
LaSalle Bank. Usinor asserts that Leeco is in-default on the Loan and has been urged by
LaSalle Bank to sell the Steel Shipments to pay off any remaining debt owed by Leeco to
that lender under the Loan. Usinor asserts on information and belief that Leeco may be
facing insolvency through its default on the Loan and would not be able to pay any
damages that Usinor might recover from Leeco. for breach of the sales agreement.

B. Parties’ positions

Usinor argues that the CISG preempts state law, specifically, the UCC, and that
LaSalle’s rights to the Steel Shipments stemming from Article 2 are preempted by CISG.
Looking at Article 4(b) of the CISG, Usinor-argues that the State Department position is

that the CISG would not preempt law govetiting property interests in the Steel Shipments

arising prior to Usinor’s sale of the steel to Leeco. Usinor argues that LaSalle had no
interest in the Steel before it was sold, and that LaSalle’s interest entirely arises out of the

existence of the sales contract between Leeco.and Usinor, and that contract is governed

by CISG. Therefore, Usinor argues, LaSalie’s rights are also governed by the CISG.


in the goods.
i. Article 4 of the CISG

The key provision of the CISG whichis at issue here is Article 4, which states that

the CISG:

“governs only the formation of the contract of sale and the rights and obligations
of the seller and the buyer arising from_such a contract. In particular, except as
otherwise expressly provided in this Convention, it is not concerned with: (a) the
validity of the contract or of any of its provisions or of any usage; (b) the effect
which the contract may have on the property in the goods sold.”

Leeco’s argument is that section (b) of Article. 4 excludes the application of the CISG to
the case at hand. Usinor’s position is that Article 4(b) means that those property interests
placed outside CISG’s scope are property interests arising prior to sale, and that here,

LaSalle does not have property interests in the Steel Shipments prior to the sale.

The State Department states of Article 4(b) that “[w]hether the sale to the buyer
cuts off outstanding property interests of third persons is not dealt with by the
Convention. This specific provision illustrates the general rule of Article 4 that the
Convention is concerned only with the ‘rights and obligations of the seller and the buyer’
arising from the sales contract.” Usinor asserts that the State Department is referring only
to property interests that exist at the time of.sale. However, other commentators support
a different reading, simply that the CISG does not govern the rights of third persons who

are not parties to the contract. See Richard Speidel, The Revision of UCC Article 2.

Sales in Light of the United Nations Convention on Contracts for the International Sale of

Goods, 16 Nw. J. Int] L. & Bus. 165, 173 (1995), “{uJnless ‘otherwise expressly

9


ran a “TM

argues, Article 7 of the CISG states “[iJn the interpretation of this Convention, regard is
to be had to its international character and to the need to promote uniformity in its
application and the observance of good faith.in international trade.” Usinor argues that
applying Article 2 of the UCC would increase the burden on parties to examine local

sales law, which would not promote the purposes of the CISG. Application of the UCC,

on the other hand, requires parties to bear the.burden of inspecting the local law of
wherever the goods involved in the contract might be shipped.

However, the effectiveness of the UCC also depends on courts’ uniformity of
application, of the ability of parties to be able.to rely on the dependency of filed financing
statements on record with the Secretary of State’s Office.

II. Analysis

To recover under replevin, Usinor must have the right to possession, or title, in the
Steel Shipments. The issue of first impression facing the Court is whether the CISG
applies to a transaction between a buyer and seller when a third party has an interest in the
goods. The Court needs to determine whether or not when a third party is involved, if
local law, the UCC, preempts the interest given to the seller by the CISG.

A. The CISG governs the transaction between buyer and seller

The CISG was ratified by the United_States on December 11, 1986, and became
effective on January 1, 1988. See 15 U.S.C.A. App. at 332 (1998). The CISG was
adopted for the purpose of establishing “substantive provisions of law to govern the

formation of international sales contracts andthe rights and obligations of the buyer and

the seller.” U.S. Ratification of 1980 United, Nations Convention on Contracts for the


Leeco argues that the UCC, not the CISG, governs the transaction, and that
replevin is not a cause of action allowed to the.seller under the UCC, only reclamation

within 10 days, and that those 10 days have passed, Leeco asserts that Usinor has only a

reservation of a security interest, per Sectioy 401(a) of the UCC. Leeco states that
Usinor never perfected a purchase money security interest in the steel sold to Leeco, and
that therefore, its rights are subordinate to those of LaSalle, which has a perfected security
interest. Leeco argues that the CISG does not govern because “it has no application to
disputes concerning the goods themselves which are sold in international trade, but
governs instead only the obligations of buyers.and sellers.” Leeco argues that since this
case involves the rights of two secured patties, LaSalle as a perfected secured creditor and
Usinor as an unperfected secured creditor, Article 9 of the UCC governs the relative
rights of LaSalle and Usinor in the steel. Leeco states that Usinor has no right to replevin
because, since it lacks a perfected security interest in the steel, it has no title or right to
immediate possession of the steel, and moreover, the UCC does not list replevin as a
remedy available to a seller.

Similarly, LaSalle argues that given that there is no evidence that Usinor perfected
its security interest in the steel, LaSalle’s demonstrated prior security interest remains
superior. LaSalle argues that since Usinor has.not demonstrated a probability of
ultimately prevailing on the underlying claim of possession, it therefore is not entitled to
relief under the Illinois Replevin Act.

The conflict that the Court must facein its determination is one between

maintaining the purpose of the CISG and the purpose of the UCC. As Usinor correctly

se


treaty with the preemptive force of federal law.”). See also Michael A. Tessitore, The
UN. Convention on International Sales and the Seller’s Ineffective Right of Reclamation
Under the U.S. Bankruptcy Code, 35 Willamette L. Rev. 367 (1999). At the time of
contracting, the parties have the opportunity to opt-out, and decide that the UCC, or other

domestic law, applies. Here, the parties did not opt out of the CISG in the Agreement.

While even the issue of whether the CISG preempts the UCC in determining

which law applies to a contract between seller.and buyer is one of first impression in this
district, the Northern District of California récently concluded that “the CISG preempts

state laws that address the formation of a contract of sale and the rights and obligations of

the seller and buyer arising from such a contract.” Asante Technologies, Inc. v, PMC:

Sierra, Inc., 164 F. Supp. 2d 1142 (N.D. Cal 2001). Moreover, the CISG is a treaty, and
thus federal law, and under the Supremacy Clause, it preempts any inconsistent
provisions of state law. Illinois is bound by the Supremacy Clause to the treaties of the
United States. U.S. Const. art. VI, cl. 2 (“This Constitution, and the laws of the United
States which shall be made in pursuance thereof; and all treaties made, or which shall be
made, under the authority of the United States, shall be the supreme law of the land.”)
Thus, under general Illinois law, the CISG is applicable to contracts where the contracting

parties are from different countries that have:adopted the CISG.

However, the text of the CISG and analysis by commentators suggest that the
CISG applies only to buyer and seller, not to.third parties. Therefore, application of the
CISG here requires a court to resolve an issue for first impression. To wit, the court must

determine whether the CISG governs a controversy if a third party has a security interest

8


Minute Order Forth (06/97) . 2
. ~~ 7 : o~

United Sta_ . District Court, Northern Distric. uf Minois

Ni f Assigned Judy H fi i
amscyaaanet ge | George W. Lindberg __} Sting Sader me
CASE NUMBER 02 C 540 DATE 3/28/2002
CASE Usinor Industeel vs. Leeco Steel Products
TITLE

{In the following box (a) indicate the party filing the motion, e.g, plaintiff, defendant, 3d party plaintiff, and (b) state bricfly the nature
of the motion being presented.]

MOTION:

DOCKET ENTRY: «

(1) oa Filed motion of { use listing in “Motion” box. above]

(2) 0 Brief in support of motion due

(3) a Answer brief to motion due____. Reply to answer brief due.

(4) a Ruling/Hearingon___set for___ at.

(8) im Status hearing[held/continued to] [set for/re-set foron_____setfor___at

(6) Oo Pretrial conference[held/continued to] [set for/re-set for]on__setfor__—s—sat__—.

(2) i) Trial[set for/re-set for] on___at tee

(8) Q [Bench/Jury trial] [Hearing] held/continued toa

(9) QO This case is dismissed [with/without] prejudice.and without costs[by/agreement/pursuant to]
COFRCP4(m) OGeneral Rule 21 CFRCP41(a(1) CO FRCP41(a)(2).

ao) «ff (Other docket entry] Usinor’s motion for replevin is denied. Usinor’s motion to avoid the sales

agreement between Usinor and Leeco under the.CISG is denied. Enter memorandum and order.

a) f [For further detail see order attached to the original minute order.]
| Nonotices required, advised in open court. . Docunient
No notices required. umber ot notices Number
Notices mailed by judge’s staff.
Notified counsel by telephone. . MAR 28.200
Docketing to mail notices. |

Mail AO 450 form.

‘docketing deputy initials
Copy to judge/magistrate judge.
date mailedpotice
courtroom:
SLB deputy’s ;
initials
Tate in" ’
central Clerk's Office railing deputy pithls



persons such as creditors and purchasers.” See id. at 444.1.

The “conceivable” but “unlikely” that Honnold notes is what occurred in the
transaction at hand. The remedy of avoidance.under the CISG is not available to Usinor
if LaSalle has a right to the Steel Shipments.under domestic law. The remedy of replevin
is not available if Usinor does not have title to the Steel Shipments under domestic law.
Therefore, the question the Court next needs to,determine is whether domestic law grants
LaSalle such a right, a right to the Steel Shipments that supersedes that of Usinor’s.
Looking to domestic law to determine the effect of Usinor’s retention of title clause in
light of a third party claim is also consistent with the Australian court case, Roder Zelt-un
Hollenkonstruktieonen GmbH v. Rosedown Park Party Ltd., (No. $6 3076 of 1993; FED
No. 1049/95; BC 9501975) (Federal Court, South Australian District, April 28, 1995) in
which the court held that it needed to look to.domestic law to determine the validity of
the retention of title provision. While this case is far in distance from the present
jurisdiction, commentators on the CISG haye.noted that courts should consider the

decisions issued by foreign courts on the CISG.
ii. Domestic Law

First, the Court needs to determine which domestic law applies, that of France or
Illinois. Under French law, the seller of goods has an absolute right to contract for title
until payment, and therefore the retention of title clause in the Agreement would be
determinative. However, under the UCC, Usinor would only have a reservation of a

security interest.

11


rN

mTM

provided,’ CISG is not concerned with the ‘effect which the contract may have on the
property in the goods sold’ or the rights of third persons who are not parties to the
contract. In essence, CISG is limited to two-party commercial contracts for sale and
assumes that all sellers and buyers have relatively equal bargaining capacity.” See also

Caroline Delisle Klepper, The Convention for the International Sale of Goods: A

Practical Guide for the State of Maryland and its Trade Community, 15 Md. J. Int’ L. &

property title to goods sold. As a result, a transaction between a United States seller and a
foreign buyer which falls within one of these,exceptions will, if the choice of law rules so

direct, be governed by the U.C.C.”)

Similarly, John Honnold writes in Uniform Law for International Sales § 444 (3d

ed. 1999) that “[t}he seller’s right under the Convention to recover the goods is subject to
practical limitations. This remedy is of special. importance when the buyer is insolvent; in
this setting the rights of creditors are likely to.intervene by levy of execution or by the
designation of a receiver or trustee in bankruptcy. The Convention will not override the
rights of creditors, purchasers and other third persons granted by domestic law; under

Article 4, the Convention “governs only , . .the rights. . .of the seller and the buyer. . .”

As Honnold goes on to state, “One question remains: Does applicable domestic
law invalidate (art. 44{a)) a contractual provision allowing reclamation of the goods on
non-payment? Such a rule of invalidity is conceivable but seems unlikely. (He cites to
UCC 9-503 and UCC 1-201(37)). Howevery'as we have seen, the Convention’s rules are

limited (art. 4) to the rights ‘of the seller and the buyer’ and yield to the rights of third

10


~ se ~

International Sale of Goods: Official English Text, 15 U.S.C.A. App. at 52 (1997). The
CISG applies “to contracts of sale of goods between parties whose places of business are
in different States. ..when the States are Contracting States.” 15 U.S.C.A. App. Art 1(a).
Here the buyer and seller are parties who place of business are France and the U.S., both
signatories to the CISG.

U.S. federal caselaw interpreting and_applying the CISG is scant. See Claudia v.
Olivieri Footwear Ltd.,1998 WL 164824 (S.D.N.Y.) *4, As one court put it, “[dJespite
the CISG’s broad scope, surprisingly few cases have applied the Convention in the United

States.” See MCC Marble Ceramic Center, Inc. v. Ceramica Nuova d’Agostino, S.p.A.

144 F. 3d 1384, 1389 (11th Cir. 1998). While there are few cases in the U.S. dealing with
the CISG, it is clear that the CISG governs the. transaction between Usinor and Leeco
such that if LaSalle were not a party to this ¢ontroversy, the resolution would be clear:
under the Supremacy Clause of the United States Constitution, the Convention, would
displace any contrary state sales law such as the UCC. See Sunil R. Harjani, The
Convention on Contracts for the International | Sale of Goods in United States Courts, 23
Hou. J. of Int’ L. 49, 53 (2000).
B. The CISG pre-empts the UCC. when there is only a seller and buyer
Many commentators have written that when the CISG applies, it pre-empts

domestic sales law that otherwise would govern the contract, such as Article 2 of the UCC.

See, e.g., Richard E. Speidel, The Revision of UCC Article 2, Sales in Light of the United

Nations Convention on Contracts for the International Sale of Goods, 16 N.W.. J. Inv L.

& Bus. 165, 166 (1995) (stating that “[iJn the United States, [the CISG] is a self-executing


re oTM

steel into ultra light truck beds for use at mining facilities throughout the world.

Under Paragraph 7 of the sales agreement between Usinor and Leeco for the Steel
Shipments (the “Agreement”) Usinor “remain[s] the owner of the goods up to the
complete and total payment of all sums due.” Also, pursuant to the terms of the
Agreement, Leeco was obligated to pay Usinor. within 60 days following receipt of the
steel. In addition, Leeco agreed that any dispute regarding the Steel Shipments would be
resolved in the French court system.

Usinor states that Leeco’s early enthusiasm for the Caterpillar project resulted in

extraordinary demands on Usinor to deliver substantial quantities of Creusabro 8000 steel

plate. Therefore, beginning in December 2000 and continuing until April 20 2001,

Usinor produced and exported multiple shipments of the steel, valued at $1,188,817.30,
from France to Leeco’s designated locatiotisin accordance with Leeco’s delivery
schedule.

At some time in the year 2000, Caterpillar notified its own suppliers, as well as
in the mining vehicle program. Leeco now has possession of Creusabro 8000 steel that
Leeco was unable to sell to Caterpillar, althsigh Usinor asserts it has many alternate uses.
Leeco took delivery of the Steel Shipments and Usinor asserts on information and belief,
has used portions of the Steel Shipments in.its operations and/or sold portions to others.
Leeco has made a partial payment on the total value of only one of the Steel Shipments

for the portions that it has used in its operations or sold to others. Leeco has not made a

complete and total payment for the Steel Shipments, and has not returned the Steel


cTM~

retention of title in the contract did not effectively retain title in Usinor. Rather, transfer
of title was effected upon delivery to Leeco, See UCC § 2-401(2) (“{U]nless otherwise
explicitly agreed title passes to the buyer at the.time and place at which the seller
completes his performance with reference to, the physical delivery of the goods, despite

any reservation of a security interest. . .”)'
ii. Perfection of Usinor’s interest

A seller who retains a security interest by reservation of title under section 2-
401(1) must file a financing statement if the interest is to continue to be perfected. See J.
White and R. Summers, Uniform Commercial Code, §30-11. Usinor never filed a

financing statement, so it never perfected its security interest.

iii. LaSalle’s security interest

Once title passed to Leeco, Leeco pos

Se ssed sufficient “rights in the collateral” to

give LaSalle a security interest under U.C.C. § 9-203. This security interest was not

'Usinor states that it would not be able to conduct an evaluation of determining the applicable law
to security interests in the hundreds of jurisdictions to,which it ships and sells steel because the cost would
be unreasonable. However, the Court notes that U: ‘nissed its chance to reclaim the Steel Shipments
under the law in several ways, and that their cost is not prohibitive. First, Usinor waited until LaSalle had a
chance to file the continuing financing statement and perfect its security interest in the Steel Shipments
before filing the Complaint. Second, Usinor also missed its chance to seek reclamation of the goods under
the UCC § 2-702, which allows the seller 10 days from the buyer’s receipt of the goods to reclaim the
goods if the seller discovers the buyer is insolvent, (The.Court notes that the parties have not provided the
Court with enough information to determine if UCC§ 2-702(2) applies, (and do not even brief this issue):
“if misrepresentation of solvency has been made to the particular seller in writing within 3 months before
delivery the 10 day limitation does not apply.” Leeco.in its Response states that it is a “good faith
purchaser,” per UCC§ 2-702(3), in which case UCC §2-702(2) does not apply; however, the issue is not
clear-cut: see the Seventh Circuit decision in In re Reliable Drug Stores, Inc, 70 F. 3d 948, 949 (7th Cir.
1995)(““Several courts have held, or assumed, that,a security interest beats a reclamation claim, on the
ground that the security interest equates to the rights of a good faith purchaser under UCC §§ 1-201(32) and
(33). . . Legal scholars are not so sure. . .””) ‘Third, Usinor never filed a financing statement, which would
have given it a perfected security interest with priority. in the Steel.

14


nN ii. lan

At the date of the sale of the Steel Shipments to Leeco, LaSalle did not have a
perfected security interest in the Steel Shipments; its perfected interest arose only on
November 15, 2001, after the sale of the Steel Shipments, once it was in the possession of
Leeco, and LaSalle filed the continuing financing statement. Usinor’s Complaint was

filed on January 23, 2002, after LaSalle’s security interest was perfected.
iv. Result under the UCC

Usinor does not have title in the Steel Shipments, only a reservation of a
security interest. Therefore, the remedy of replevin is unavailable to Usinor. See
Hannaman v. Davis, 20 Ill. App. 2d 111, 115 (2d Dist. 1959) (“Replevin' is a possessory
action and the plaintiff must recover, if at all, on the strength of his own title or his right

to immediate possession.)

Usinor has a security interest in the Steel Shipments, but it is not perfected. A

not perfect a security interest. Therefore, LaSalle’s perfected security interest prevails

over the retained interest of Usinor in the Steel.

ORDERED: Usinor’s motion for replevin is.denied. Usinor’s motion to avoid the sales

Senipr U.S. District Judge

DATED: MAR 27 2002

16


(“LaSalle”) unopposed right to intervene, an granted injunctive relief preserving the
Steel Shipments until the Court could rule o: .Usinor’s replevin motion.

Usinor is a corporation incorporated under the laws of France with its principal
place of business in France. Usinor and its parents and sister companies constitute a
global leader in steel production, and produce, process and distribute stainless and flat
carbon steels serving customers in the autometive, mining, construction, packaging and
household appliance industries. One of Usiner's specialty steels is a brand of steel plate,
Creusabro 8000, which is an advanced homogeneous, lightweight, anti-abrasive steel
plate for applications involving extreme wear.and tear.

Leeco is a corporation incorporated ade the laws of the State of Illinois with its
principal place of business in Illinois. Lesca hes operations in Chicago, St. Louis,
Pittsburgh, Wisconsin, South Carolina and Tennessee. Leeco is an independent steel

center, specializing, securing, processing and delivering sheet and plate grades of steel.

This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332, in that

this dispute is between a citizen of a foreign’ st ate and a citizen of the United States and
the amount in controversy exceeds $75,000...

In early February 2000, Leeco began placing orders with Usinor for the purchase
and shipment of certain tonnage of Creusabro_8000. Leeco ordered the steel in order to
participate in a proposed new project of Caterpillar relating to large mining vehicles.
Leeco intended to sell the steel it had orderéd_from Usinor to either Caterpillar or

Caterpillar suppliers. Caterpillar and its supplier facilities are located in, among other

places, Wyoming, Mexico and Peru. Caterpillar and its suppliers intended to fabricate the



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
js
USINOR INDUSTEEL, a foreign )
corporation )
)
Plaintiff, ).
y No. 02 C 0540
-VS.- )
)
LEECO STEEL PRODUCTS, INC., an ) Senior Judge George W. Lindberg
Illinois corporation )
) Yn,
) May ei
SY
Defendant. } *” 26 &p

MEMORANDUM OPINION AND ORDER

(Usinor”) Motion for Replevin. Usinor

Before the Court is Usinor Industeel’s
seeks to exercise its replevin right under 735 ILCS 5/19-101 et seq. to recover possession

of the eighteen unpaid shipments of Creusabro.8000 steel (the “Steel Shipments”), valued

in excess of one million dollars, that Usinor sold and delivered to Leeco Steel Products,
Inc. (“Leeco”). If Usinor is unable to replevin the steel, it seeks its right to avoid the
contract under the Convention on Contracts for the International Sale of Goods (the
“CISG”). For the reasons described below, the Court denies Usinor’s motion for replevin
and its motion to avoid the contract under the.CISG.

1 Background

A. Facts

On January 25, the Court entered a restraining order without prejudice as to any of

the parties’ legal positions. On February 20, the Court granted LaSalle National Bank’s


lan emma = o~

Under the “most significant contacts rule” of the Restatement (Second) which
Usinor asks the Court to apply, and the UCC choice of law provision which Leeco argues
should be the governing test, the Court finds the same result: [Illinois law applies. The
“most significant contacts rule” states there are.five relevant factors to consider: 1) place
of contracting; 2) place of negotiating; 3) place of performance; 4) location of subject
matter of the contract; 5) domicile, residence, place of incorporation and business of the

parties. See e.g. Central States, Southeast and Southwest Areas Pension Fund, et al. v.

Tank Transport. Inc., 1991 WL 191342 at *2. Comment e to Section 188 of the

Restatement (Second) on Conflicts states that the place of negotiation is of little
importance when the parties do not meet but.conduct negotiations via mail or telephone

(and in this case facsimile). Comment e also. states that when the contract deals with a

specific physical thing, the location of the thing is significant: “The state where the thing
or the risk is located will have a natural interest in transactions affecting it. . . Indeed,
when the thing or the risk is the principal subject of the contract, it can often be assumed
that the parties, to the extent that they thought about the matter at all, would expect that
the local law of the state where the thing or risk was located would be applied to
determine many of the issues arising under.thé.contract.” Here, the goods are located in

Illinois. Therefore, the most significant contacts are in Illinois.

Application of the UCC choice of law provision leads to the same result. Section
1-105 of the UCC states “when a transaction bears a reasonable relation to this state and
also to another state or nation the parties may agree that the law either of this state or of

such other state or nation shall govern their rights and duties. Failing an agreement this

12


perfected, however, until the filing of the second financing statement on November 15,

2001.

Through the Credit Agreement and Security Agreement (“Credit Agreement”)
entered into on February 4, 1997 by and between LaSalle and Leeco, LaSalle extended
secured loans to Leeco. The financing statement dated February 11, 1997 (the “First
Financing Statement”) shows that LaSalle holds a security interest in Leeco’s collateral

which it defines as:

“{alll inventory in all of its forms, including, but not limited to, (i) all goods held
for sale or lease or to be furnished under contracts of service or so leased or
furnished, (ii) all raw materials, work in process, finished goods, supplies and
materials used or consumed in the processing, packing, shipping, advertising,
selling, leasing, furnishing or production of such inventory or otherwise used or
consumed in the Company’s business, (iii) goods in which [Leeco] has an interest
in mass or a joint or other interest or right of any kind, whether in the possession
of the Company or of a bailee or other Person for sale, storage, transit, processing,
use or otherwise, and (iv) goods which are returned to or repossessed or shipped
in transit by the Company and all additions and accessions thereto and

replacements thereof.”

The Steel Shipments are “goods held for sale.or lease” under (i) but were not yet held by
Leeco at that time, (and they were not “to be furnished under contracts of service”). The
Credit Agreement and the First Financing Statement do not have a clause providing fora
security interest in after-acquired property. The financing statement dated November 15,
2001 continued the effectiveness of the First, Financing Statement, thereby including
within the definition of inventory the Steel Shipments that were at that time in the
possession of Leeco.

15