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Secured TransactionsAssignment 28

Lienors vs. Secureds: The Basics

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The Big PicturePart Two: The Creditor Third Party Relationship

Chapter 6-7: Perfection

Chapter 8: The Concept of Priority

Chapter 9: Competitions for Collateral

Assignment 28: Lien Creditors vs Secureds: The Basics

Assignment 29: Lien Creditors vs Secured: Future Advances

Assignment 30: Trustees vs Secureds: The Strong Arm

Assignment 31: Trustees vs Secureds: Preferences

Assignment 32: Secureds vs. Secureds: Basics

Assignment 33: Secureds vs. Secureds: Land and Fixtures

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The Big PicturePart Two: The Creditor Third Party Relationship

Chapter 6-7: Perfection

Chapter 8: The Concept of Priority

Chapter 9: Competitions for Collateral

Assignment 28: Lien Creditors vs. Secureds: The Basics

Assignment 29: Lien Creditors vs. Secured: Future Advances

Assignment 31: Preferences

Assignment 32: Secured Creditors vs. Secured Creditors

Assignment 36: Buyers vs. Secured Creditors

Land, Fixtures, Agriculture, and Minerals

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§9-102(a)(52). “Lien creditor” means . . . a creditor that has acquired a lien on the property involved by attachment, levy, or the like . . . .

§9-102(a)(72). “Secured party” means . . . a person in whose favor a security interest is created . . . under a security agreement. (Excludes mortgages)

Security interests are contractual; liens are judicial.

The categories are mutually exclusive.

Article 9 Terminology

Security interest Lien

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§9-102(a)(52). “Lien creditor” means . . . a creditor that has acquired a lien on the property involved by attachment, levy, or the like . . . .

§9-102(a)(72). “Secured party” means . . . a person in whose favor a security interest is created . . . under a security agreement. (Excludes mortgages)

Security interests are contractual; liens are judicial.

The categories are mutually exclusive.

Article 9 Terminology

Mortgage Security interest Lien Statutory

lien

Lien

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§101(51): Security interest means a lien created by agreement. (Includes mortgages)

§101 (36): Judicial lien means lien obtained by judgment, levy, sequestration, or other legal or equitable process . . .

§101(53): Statutory lien means a lien arising by statute, but does not include security interest or judicial lien

§101(37) Lien means charge against property to secure payment

Bankruptcy and Tax Code Terminology

Security interestJudicial

Lien

Mortgage Article 9 security interest

Statutory Lien

Lien

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The Priority RulesThe system of priority is basically “first in time, first in right.”

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The system of priority is basically “first in time, first in right.”

Question: Precisely what must a creditor do first to be first?

The Priority Rules

9

The system of priority is basically “first in time, first in right.”

Question: Precisely what must a creditor do first to be first?

Answer up until now: perfect

The Priority Rules

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The system of priority is basically “first in time, first in right.”

Question: Precisely what must a creditor do first to be first?

Answer up until now: perfect

Answer now: the act specified by the rule governing that priority contest

The Priority Rules

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The system of priority is basically “first in time, first in right.”

Question: Precisely what must a creditor do first to be first?

Competitors: Security interest §9-322(a) Security interest

Priority date and time:

The earlier of perfection or filing(perfection is the last of three attachment requirements and the perfection requirement)

The earlier of: perfection or filing(perfection is the last of three attachment requirements and the perfection requirement)

The Priority Rules

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The system of priority is basically “first in time, first in right.”

Question: Precisely what must a creditor do first to be first?

Competitors: Security interest §9-322(a) Security interest

Priority date and time:

The earlier of perfection or filing(perfection is the last of three attachment requirements and the perfection requirement)

The earlier of: perfection or filing(perfection is the last of three attachment requirements and the perfection requirement)

The Priority Rules

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The system of priority is basically “first in time, first in right.”

Question: Precisely what must a creditor do first to be first?

Competitors: Lien creditor §9-317(a) Security interest

Priority date and time:

“becomes a lien creditor”(majority rule: levy; minority rules: deliver writ to sheriff or file judgment in UCC)

The earlier of (A) perfection or (B) filing and “one of the §9-203(b)(3) conditions is met”

The Priority Rules

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The system of priority is basically “first in time, first in right.”

Question: Precisely what must a creditor do first to be first?

Competitors: Lien creditor §9-317(a) Security interest

Priority date and time:

“becomes a lien creditor”(majority rule: levy; minority rules: deliver writ to sheriff or file judgment in UCC)

The earlier of (A) perfection or (B) filing and “one of the §9-203(b)(3) conditions is met”

The Priority Rules

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The system of priority is basically “first in time, first in right.”

Question: Precisely what must a creditor do first to be first?

Competitors: Lien creditor §9-317(a) Security interest

Priority date and time:

“becomes a lien creditor”(majority rule: levy; minority rules: deliver writ to sheriff or file judgment in UCC)

The earlier of (A) perfection or (B) filing and “one of the §9-203(b)(3) conditions is met”

The Priority Rules

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The system of priority is basically “first in time, first in right.”

Question: Precisely what must a creditor do first to be first?

Competitors: Lien creditor §9-317(a) Security interest

Priority date and time:

Majority rule: levy; minority rules: deliver writ to sheriff or file judgment in UCC

The earlier of (A) perfection or (B) filing and “one of the §9-203(b)(3) conditions is met”

The Priority Rules

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The system of priority is basically “first in time, first in right.”

Question: Precisely what must a creditor do first to be first?

Competitors: Lien creditor State law Lien creditor

Priority date and time:

Majority rule: levy; minority rules: deliver writ to sheriff or file judgment in UCC

Majority rule: levy; minority rules: deliver writ to sheriff or file judgment in UCC

The Priority Rules

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The system of priority is basically “first in time, first in right.”

Question: Precisely what must a creditor do first to be first?

Competitors: Lien creditor §9-317(e) PMSI

Priority date and time:

Majority rule: levy; minority rules: deliver writ to sheriff or file judgment in UCC

Attach, provided a financing statement is filed “within 20 days after” delivery

The Priority Rules

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The system of priority is basically “first in time, first in right.”

Question: Precisely what must a creditor do first to be first?

Competitors: Lien creditor §9-317(e) PMSI

Priority date and time:

Majority rule: levy; minority rules: deliver writ to sheriff or file judgment in UCC

Attachment, provided a financing statement is filed “within 20 days after” delivery

The Priority Rules

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Purchase money priority

PMSI

§9-317(e). [I]f a person files a financing statement with respect to a purchase money security interest

File

Lien

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Purchase money priority

PMSI Delivery20 day grace

§9-317(e). [I]f a person files a financing statement with respect to a purchase money security interest before or within 20 days after . . . delivery of the collateral

File

Lien

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Purchase money priority

PMSI

Lien

Delivery

Levy

20 day grace

§9-317(e). [I]f a person files a financing statement with respect to a purchase money security interest before or within 20 days after . . . delivery of the collateral, the security interest takes priority over the rights of a . . . lien creditor

File

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Purchase money priority

PMSI

Lien

Delivery

Levy

File20 day grace

§9-317(e). [I]f a person files a financing statement with respect to a purchase money security interest before or within 20 days after . . . delivery of the collateral, the security interest takes priority over the rights of a . . . lien creditor which arise between [attachment and] filing.

Attachment

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Problem 28.1.a, page 477

Mortgage

Judgment

Mortgagegranted

Levy

Mortgagerecorded

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Problem 28.1.a, page 477

Mortgage

Judgment

Mortgagegranted

Who has priority?

Levy

Mortgagerecorded

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Problem 28.1.a, page 477

Mortgage

Judgment

Mortgagegranted

Who has priority? Mortgage in a majority of states. First created, subject to the recording statute. Judgments are not protected under most recording acts.

Levy

Mortgagerecorded

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Problem 28.1.a, page 477

Mortgage

Judgment

Mortgagegranted

Who has priority? Mortgage in a majority of states. First created, subject to the recording statute. Judgments are not protected under most recording acts.

Levy

Mortgagerecorded

Security Interest

Judgment

Attachment

Levy

Filing

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Problem 28.1.a, page 477

Mortgage

Judgment

Mortgagegranted

Who has priority? Mortgage in a majority of states. First created, subject to the recording statute. Judgments are not protected under most recording acts.

Levy

Mortgagerecorded

Security Interest

Judgment

Attachment

Levy

Filing

Who has priority? Judgment. §9-317(a).

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Problem 28.1.a, page 477

Mortgage

Judgment

Mortgagegranted

Who has priority? Mortgage in a majority of states. First created, subject to the recording statute. Judgments are not protected under most recording acts.

Levy

Mortgagerecorded

Security Interest

Judgment

Attachment

Levy

Filing

Who has priority? Judgment. §9-317(a).

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Problem 28.2, page 477

Phyllis

3/7

Financing statement filedSecurity agreement

Note Search

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Problem 28.2, page 477

Phyllis

StarLevy

3/73/10

Financing statement filedSecurity agreement

Note Search

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Problem 28.2, page 477

Phyllis

StarLevy

3/73/10

Searchreport

3/11

Financing statement filedSecurity agreement

Note Search

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Problem 28.2, page 477

Phyllis

StarLevy

3/73/10

Searchreport

3/11 Now

Financing statement filedSecurity agreement

Note Search

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Problem 28.2, page 477

Phyllis

Star

Financing statement filedSecurity agreement

Note Search

a. Is Phyllis perfected?

Levy3/7

3/10

Searchreport

3/11 Now

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Problem 28.2, page 477

Phyllis

Star

a. Is Phyllis perfected? Depends on whether value has been given

Levy3/7

3/10

Searchreport

3/11 Now

Financing statement filedSecurity agreement

Note Search

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Problem 28.2, page 477

Phyllis

Star

a. Is Phyllis perfected? Depends on whether value has been given

b. If Phyllis disburses, does she have priority over Star?

Levy3/7

3/10

Searchreport

Phyllislends

3/11

Financing statement filedSecurity agreement

Note Search

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Problem 28.2, page 477

Phyllis

Star

a. Is Phyllis perfected? Depends on whether value has been given

b. If Phyllis disburses, does she have priority over Star?

§9-317(a)(2). A security interest . . . is subordinate to . . . a person that becomes a lien creditor before the earlier of the time

(A) the security interest . . . is perfected; or(B) one of the conditions in §9-203(b)(3) is met and a financing statement . . . is filed.

Levy3/7

3/10

Searchreport

Phyllislends

3/11

Financing statement filedSecurity agreement

Note Search

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Financing statement filedSecurity agreement

Note Search

Problem 28.2, page 477

Phyllis

Star

a. Is Phyllis perfected? Depends on whether value has been given

b. If Phyllis disburses, does she have priority over Star? Yes.

§9-317(a)(2). A security interest . . . is subordinate to . . . a person that becomes a lien creditor before the earlier of the time

(A) the security interest . . . is perfected; or(B) one of the conditions in §9-203(b)(3) is met and a financing statement . . . is filed.

Levy3/7

3/10

Searchreport

Phyllislends

3/11

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Problem 28.3, page 478

Sheng

Judgmententered Levy?

RFT

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Problem 28.3, page 478

Sheng

RFT

Judgmententered Levy?

Now

How could RFT get priority over Sheng?

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Problem 28.3, page 478

Sheng

RFT

Judgmententered Levy?

RFT perfects

How could RFT get priority over Sheng?

How could RFT get a security interest?

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Problem 28.3, page 478

Sheng

RFT

Judgmententered Levy?

RFT perfects

How could RFT get priority over Sheng?

How could RFT get a security interest?

Why would Conda Copper grant it?

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Problem 28.3, page 478

Sheng

RFT

Judgmententered

How could RFT get priority over Sheng?

How could RFT get a security interest?

Why would Conda Copper grant it?

Spite? Gratitude? Money? Grocer’s Supply protection?

Levy?

RFT perfects

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Problem 28.3, page 478

Sheng

RFT

Judgmententered

How could RFT get priority over Sheng?

How could RFT get a security interest?

Why would Conda Copper grant it?

Spite? Gratitude? Money? Grocer’s Supply protection?

What if Conda Copper authorized a financing statement but not a security agreement?

Levy?

RFT files

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Problem 28.3, page 478

Sheng

RFT

Judgmententered

How could RFT get priority over Sheng?

How could RFT get a security interest?

Why would Conda Copper grant it?

Spite? Gratitude? Money? Grocer’s Supply protection?

What if Conda Copper authorized a financing statement but not a security agreement?

Not enough. §9-317(a)(2).

Levy?

RFT files

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Problem 28.3, page 478

Sheng

RFT

Judgmententered

How could RFT get priority over Sheng?

How could RFT get a security interest?

Why would Conda Copper grant it?

Spite? Gratitude? Money? Grocer’s Supply protection?

Points:

1. Secured creditor can establish rights faster than unsecured

2. Debtor can “auction” priority among the unsecureds.

Levy?

RFT perfects

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Problem 28.4, page 478

National

Search reportView collateral

Closeloan

Security agreement Financingstatement

Executioncreditor

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Problem 28.4, page 478

Rule: “becomes a lien creditor at levy.”

Search reportView collateralNational

Closeloan

Security agreement Financingstatement

Executioncreditor

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Problem 28.4, page 478

Rule: “becomes a lien creditor at levy.”

9-317(a)(2). A security interest . . . is subordinate to . . . a person that becomes a lien creditor before the earlier of the time

(A) the security interest . . . is perfected; or(B) one of the conditions in §9-203(b)(3) is met and a financing statement . . . is filed.

Search reportView collateralNational

Closeloan

Security agreement Financingstatement

Executioncreditor

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Problem 28.4, page 478

Rule: “becomes a lien creditor at levy.”

9-317(a)(2). A security interest . . . is subordinate to . . . a person that [levies] before the earlier of the time

(A) the security interest . . . is perfected; or(B) one of the conditions in §9-203(b)(3) is met and a financing statement . . . is filed.

Search reportView collateralNational

Closeloan

Security agreement Financingstatement

Executioncreditor

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Problem 28.4, page 478

Executioncreditor

Rule: “becomes a lien creditor at levy.”

9-317(a)(2). A security interest . . . is subordinate to . . . a person that [levies] before the earlier of the time

(A) the security interest . . . is perfected; or(B) one of the conditions in §9-203(b)(3) is met and a financing statement . . . is filed.

Levy 2Levy 1

Search reportView collateralNational

Closeloan

Security agreement Financingstatement

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Problem 28.4, page 478

Executioncreditor

Rule: “becomes a lien creditor at levy.”

9-317(a)(2). A security interest . . . is subordinate to . . . a person that [levies] before the earlier of the time

(A) the security interest . . . is perfected; or(B) one of the conditions in §9-203(b)(3) is met and a financing statement . . . is filed.

Levy 2Levy 1

Search reportView collateral

Does this system beat the levies?

National

Closeloan

Security agreement Financingstatement

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Problem 28.4, page 478

Executioncreditor

Rule: “becomes a lien creditor at levy.”

9-317(a)(2). A security interest . . . is subordinate to . . . a person that [levies] before the earlier of the time

(A) the security interest . . . is perfected; or(B) one of the conditions in §9-203(b)(3) is met and a financing statement . . . is filed.

Levy 2

Search reportView collateral

Levy 1Does this system beat the levies? Only if SA is signed before

viewing the collateral

National

Closeloan

Security agreement Financingstatement

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Problem 28.5, page 478

OrvilleJudgment

Financing statement, not filedSecurity agreementDelivery Note

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Problem 28.5, page 478

BBW

OrvilleJudgment

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Problem 28.5, page 478

BBW

OrvilleLevyJudgment

Financing statement, not filedSecurity agreementDelivery Note

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Problem 28.5, page 478

BBW

Orville

a. Can BBW get the boat back from the sheriff right now?

LevyJudgment

Financing statement, not filedSecurity agreementDelivery Note

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Problem 28.5, page 478

BBW

Orville

a. Can BBW get the boat back from the sheriff right now?

Yes, if boat is consumer goods. BBW is prior perfected secured creditor, entitled to possession under Grocers Supply

LevyJudgment

Financing statement, not filedSecurity agreementDelivery Note

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Problem 28.5, page 478

BBW

Orville

a. Can BBW get the boat back from the sheriff right now?

Yes, if boat is consumer goods. BBW is prior perfected secured creditor, entitled to possession under Grocers Supply

No, if boat is not consumer goods. BBW is unperfected.

LevyJudgment

Financing statement, not filedSecurity agreementDelivery Note

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Problem 28.5, page 478

BBW

Orville

a. Can BBW get the boat back from the sheriff right now?

Yes, if boat is consumer goods. BBW is prior perfected secured creditor, entitled to possession under Grocers Supply

No, if boat is not consumer goods. BBW is unperfected.

b. Is there anything BBW should do if it is unperfected?

LevyJudgment

Financing statement, not filedSecurity agreementDelivery Note

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Problem 28.5, page 478

BBW

Orville

DeliveryAttachment

a. Can BBW get the boat back from the sheriff right now?

Yes, if boat is consumer goods. BBW is prior perfected secured creditor, entitled to possession under Grocers Supply

No, if boat is not consumer goods. BBW is unperfected.

b. Is there anything BBW should do if it is unperfected?

File the financing statement to obtain §9-317(e) priority

LevyJudgment

File20 day grace

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Problem 28.5, page 478

BBW

Orville

DeliveryAttachment

a. Can BBW get the boat back from the sheriff right now?

Yes, if boat is consumer goods. BBW is prior perfected secured creditor, entitled to possession under Grocers Supply

No, if boat is not consumer goods. BBW is unperfected.

b. Is there anything BBW should do if it is unperfected?

File the financing statement to obtain §9-317(e) priority

LevyJudgment

File20 day grace

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Problem 28.5, page 478

BBW

Orville

a. Can BBW get the boat back from the sheriff right now?

Yes, if boat is consumer goods. BBW is prior perfected secured creditor, entitled to possession under Grocers Supply

No, if boat is not consumer goods. BBW is unperfected.

b. Is there anything BBW should do if it is unperfected?

File the financing statement to obtain §9-317(e) priority

Demand possession from sheriff

LevyJudgment

FileDemand

possession

Financing statement, not filedSecurity agreement Sale Note

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Financing statement, not filedSecurity agreement, not signed Sale Note

Problem 28.6, page 479

BBW

OrvilleLevyJudgment

Edith did not sign the security agreement.

74

Now

Problem 28.6, page 479

BBW

Orville

Financing statement, not filedSecurity agreement, not signed Sale Note

LevyJudgment

Edith did not sign the security agreement. Now where do we stand?

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Problem 28.6, page 479

BBW

Orville

Financing statement, not filedSecurity agreement, not signed Sale Note

LevyJudgment

Edith did not sign the security agreement. Now where do we stand? No attachment, so unsecured.

Now

76

Problem 28.6, page 479

BBW

Orville

Financing statement, not filedSecurity agreement, not signed Sale Note

LevyJudgment

Edith did not sign the security agreement. Now where do we stand? No attachment, so unsecured.

Should we get Edith’s signature now?

Now

77

Problem 28.6, page 479

BBW

Orville

Delivery

Edith did not sign the security agreement. Now where do we stand? No attachment, so unsecured.

Should we get Edith’s signature now? Yes, but too late for purchase money priority.

§9-317(e). [I]f a person files a financing statement with respect to a purchase money security interest before or within 20 days after . . . delivery of the collateral, the security interest takes priority over the rights of a . . . lien creditor which arise between [attachment and] filing.

LevyJudgment

File20 day grace

Attachment

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Problem 28.6, page 479

BBW

Orville

Delivery

Edith did not sign the security agreement. Now where do we stand? No attachment, so unsecured.

Should we get Edith’s signature now? Yes, but too late for purchase money priority.

§9-317(e). [I]f a person files a financing statement with respect to a purchase money security interest before or within 20 days after . . . delivery of the collateral, the security interest takes priority over the rights of a . . . lien creditor which arise between [attachment and] filing.

LevyJudgment

File20 day grace

Attachment

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Problem 28.6, page 479

BBW

Orville

Delivery

Edith did not sign the security agreement. Now where do we stand? No attachment, so unsecured.

Should we get Edith’s signature now? Yes, but too late for purchase money priority.

§9-317(e). [I]f a person files a financing statement with respect to a purchase money security interest before or within 20 days after . . . delivery of the collateral, the security interest takes priority over the rights of a . . . lien creditor which arise between [attachment and] filing.

LevyJudgment

File20 day grace

Attachment

How about waiving the paper without saying when signed?

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Problem 28.6, page 479

BBW

Orville

Delivery

Edith did not sign the security agreement. Now where do we stand? No attachment, so unsecured.

Should we get Edith’s signature now? Yes, but too late for purchase money priority. Would a well-advised Edith sign?

§9-317(e). [I]f a person files a financing statement with respect to a purchase money security interest before or within 20 days after . . . delivery of the collateral, the security interest takes priority over the rights of a . . . lien creditor which arise between [attachment and] filing.

LevyJudgment

File20 day grace

Attachment

How about waiving the paper without saying when signed?